INDEPENDENCE ONE PRIME MONEY MARKET FUND
CLASS A SHARES
CLASS B SHARES
INDEPENDENCE ONE U.S. TREASURY MONEY MARKET FUND
INDEPENDENCE ONE MICHIGAN MUNICIPAL CASH FUND
(PORTFOLIOS OF INDEPENDENCE ONE MUTUAL FUNDS)
COMBINED PROSPECTUS
Independence One Mutual Funds (the "Trust") is an open-end management investment
company (a mutual fund) comprising a series of investment portfolios. This
combined prospectus offers investors interests in the following three separate
investment portfolios (collectively referred to as the "Funds" and individually
as the "Fund"), each having a distinct investment objective and policies:
Independence One Prime Money Market Fund
Independence One U.S. Treasury Money Market Fund
Independence One Michigan Municipal Cash Fund
MICHIGAN NATIONAL BANK PROFESSIONALLY MANAGES THE FUNDS' PORTFOLIOS. THE SHARES
OFFERED BY THIS COMBINED PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF MICHIGAN
NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY MICHIGAN NATIONAL BANK AND ARE
NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL. THE FUNDS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO DO SO.
This combined prospectus contains the information you should read and know
before you invest in the Funds. Keep this combined prospectus for future
reference.
The Funds have also filed a Combined Statement of Additional Information dated
August 31, 1995, with the Securities and Exchange Commission. The information
contained in the Combined Statement of Additional Information is incorporated by
reference into this combined prospectus. You may request a copy of the Combined
Statement of Additional Information free of charge by calling 1-800-334-2292. To
obtain other information, or make inquiries about the Trust, contact the Trust
at the address listed in the back of this combined prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated August 31, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 3
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS 5
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INVESTMENT INFORMATION 8
- --------------------------------------------------------------------------------
Investment Objective of Each Fund 8
Prime Money Market Fund 8
Investment Objective and Policies 8
Acceptable Investments 8
Investment Risks 9
U.S. Treasury Money Market Fund 9
Investment Objective and Policies 9
Acceptable Investments 10
Michigan Municipal Cash Fund 10
Investment Objective and Policies 10
Temporary Investments 11
Standby Commitments 11
Concentration of Investments 12
Investment Risks 12
Non-Diversification 13
PORTFOLIO INVESTMENTS AND STRATEGIES 13
- --------------------------------------------------------------------------------
Credit Enhancement 13
Ratings 13
Repurchase Agreements 14
Variable Rate Demand Notes 14
Demand Features 14
When-Issued and Delayed Delivery
Transactions 14
Investing in Securities of
Other Investment Companies 15
Investment Limitations 15
Borrowing Money 15
Diversification 15
Restricted and Illiquid Securities 15
Regulatory Compliance 16
INDEPENDENCE ONE MUTUAL FUNDS
INFORMATION 17
- --------------------------------------------------------------------------------
Management of the Trust 17
Board of Trustees 17
Investment Adviser 17
Advisory Fees 17
Adviser's Background 17
Distribution of Fund Shares 18
Distribution Plan 18
Shareholder Services Plan 19
Administration of the Fund 19
Administrative Services 19
Custodian 20
Transfer Agent and
Dividend Disbursing Agent 20
Independent Auditors 20
Expenses of the Funds 20
NET ASSET VALUE 21
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INVESTING IN THE FUND 21
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Share Purchases 21
To Place an Order 21
Minimum Investment Required 21
Cash Sweep Program 22
Participating Depository Institutions 22
What Shares Cost 22
Certificates and Confirmations 22
Dividends 22
Capital Gains 23
EXCHANGE PRIVILEGE 23
- --------------------------------------------------------------------------------
Exchange by Telephone 23
Written Exchange 24
REDEEMING SHARES 24
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Cash Sweep Customers 24
Redeeming by Check 25
By Telephone 25
By Mail 26
Accounts with Low Balances 26
Redemption in Kind 26
SHAREHOLDER INFORMATION 27
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Voting Rights 27
Massachusetts Partnership Law 27
EFFECT OF BANKING LAWS 28
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TAX INFORMATION 28
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Federal Income Tax 28
Michigan Municipal Cash Fund Tax
Considerations 29
Federal Income Tax 29
Michigan Taxes 29
Other State and Local Taxes 29
PERFORMANCE INFORMATION 30
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ADDRESSES Back Cover
- --------------------------------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------
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. The shares in any one portfolio may be
offered in separate classes. This combined prospectus relates only to the three
Funds described herein. The Funds are designed as a convenient means of
accumulating interests in professionally managed portfolios.
The following three Funds are offered in this prospectus:
Independence One Prime Money Market Fund ("Prime Money Market Fund")
seeks to provide current income consistent with stability of principal.
It pursues its investment objective by investing in a variety of
high-quality money market instruments maturing in 397 days or less. The
Fund currently offers two classes of shares: Class A Shares and Class B
Shares. The classes of shares represent interests in one common
investment portfolio but differ in that Class A Shares are subject to a
shareholder servicing fee paid by the Fund pursuant to a Shareholder
Services Plan, while Class B Shares, which are sold primarily to certain
institutional investors, will not be subject to such a Plan and will not
incur such shareholder servicing fees.
Independence One U.S. Treasury Money Market Fund ("U.S. Treasury Money
Market Fund") seeks to provide current income consistent with stability
of principal. The Fund pursues its objective by investing in a portfolio
of short-term U.S. Treasury obligations.
Independence One Michigan Municipal Cash Fund ("Michigan Municipal Cash
Fund") seeks to provide stability of income and current income exempt
from federal regular income tax and Michigan state income tax consistent
with stability of principal. In addition, the Fund provides income exempt
from the Michigan intangibles tax and income taxes of Michigan
municipalities. The Fund pursues its investment objective by investing
its assets in a non-diversified portfolio so that at least 80% of its
annual income is exempt from federal regular income tax and Michigan
state income tax. The Fund may not be a suitable investment for
retirement plans since it invests in municipal securities.
For information on how to purchase shares of the Funds, please refer to
"Investing in the Funds." The minimum initial investment in shares of the Prime
Money Market Class A Shares, the U.S. Treasury Money Market Fund, and the
Michigan Municipal Cash Fund is $1,000. The minimum initial investment in the
Prime Money Market Fund Class B Shares is $1,000,000. Subsequent investments in
all the Funds must be in amounts of at least $100. See "Minimum Investment
Required."
The Funds attempt to stabilize the value of a share at $1.00. Fund shares are
currently sold and redeemed at that price. Information on redeeming shares can
be found under "Redeeming Shares." Shareholders can invest, reinvest, or redeem
shares at any time without charge or penalty imposed by the Funds. Shareholders
have access to other portfolios of the Trust through an exchange
program. Information regarding the exchange privilege offered with respect to
the Trust can be found under "Exchange Privilege."
Michigan National Bank is the investment adviser (the "Adviser") to the Funds
and receives compensation for its services.
One or more of the Funds may make certain investments and employ certain
investment techniques that involve risks, including entering into repurchase
agreements, investing in when-issued securities, restricted and illiquid
securities, and securities of other investment companies. These risks and those
associated with investing in Michigan municipal securities, variable rate
securities, bank instruments, short-term credit facilities, asset-backed
securities, participation interests, and demand features are described under
"Investment Objective of Each Fund" and "Portfolio Investments and Strategies."
INDEPENDENCE ONE MONEY MARKET FUNDS
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRIME MONEY
MARKET FUND
U.S. TREASURY MONEY MICHIGAN MUNICIPAL
CLASS A CLASS B
MARKET FUND CASH FUND
<S> <C> <C>
<C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)............. None None
None None
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price)... None None
None None
Contingent Deferred Sales Charge (as a percentage
of original purchase price or redemption
proceeds, as applicable)........................ None None
None None
Redemption Fee (as a percentage of amount
redeemed, if applicable)........................ None None
None None
Exchange Fee...................................... None None
None None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of average net assets)
<S> <C> <C>
<C> <C>
Management Fees (after waiver)(1)................. 0.15% 0.15%
0.40% 0.19%
12b-1 Fees(2)..................................... None None
0.00% 0.00%
Total Other Expenses.............................. 0.47% 0.22%
0.23% 0.40%
Shareholder Servicing Fees(3)............0.25%
Total Operating Expenses (after
waiver)(4)................................ 0.62% 0.37%
0.63% 0.59%
</TABLE>
(1) The estimated management fee for the Prime Money Market Fund has been
reduced to reflect the anticipated voluntary waiver by the investment
adviser. The management fee for the Michigan Municipal Cash Fund was reduced
to reflect the voluntary waiver by the investment adviser. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee for both Funds is 0.40%.
(2) As of the date of this prospectus, the U.S. Treasury Money Market Fund and
the Michigan Municipal Cash Fund are not paying or accruing 12b-1 fees. The
Funds will not pay or accrue 12b-1 fees until a separate class of shares has
been created for certain institutional investors. The Funds' distributor can
pay up to 0.25% as a 12b-1 fee which is reimbursed to the distributor by the
Funds. See "Distribution of Fund Shares."
(3) The Prime Money Market Fund Class A Shares pays a shareholder services fee
of up to 0.25% of Class A Shares average daily net assets.
(4) The Total Fund Operating Expenses in the table above are based on expenses
expected during the fiscal year ending April 30, 1996. Total Fund Operating
Expenses for the fiscal year ending April 30, 1996 for the Prime Money
Market Fund Class A Shares and Class B Shares are expected to be 0.87% and
0.62%, respectively, absent the anticipated voluntary waiver detailed in
Note (1). The Total Fund Operating Expenses for the fiscal year ended April
30, 1995 were 0.61% for the Prime Money Market Fund, Class A Shares. The
Total Fund Operating Expenses for the fiscal year ended April 30, 1995 were
0.80% for the Michigan Municipal Cash Fund absent the voluntary waiver
detailed in Note (1).
* Annual Fund Operating Expenses in the table above for the Prime Money Market
Fund Class A and Class B Shares were calculated as a percentage of projected
average net assets and are based on average expenses expected to be incurred
during the fiscal year ending April 30, 1996. During the course of this
period, expenses may be more or less than the average amounts shown above.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUNDS WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR A MORE COMPLETE DESCRIPTION OF THE VARIOUS COSTS AND
EXPENSES, SEE "INVESTING IN THE FUNDS."
EXAMPLE
- -------
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.
<TABLE>
<CAPTION>
PRIME MONEY**
MARKET FUND U.S.
TREASURY MONEY MICHIGAN MUNICIPAL
CLASS A CLASS B
MARKET FUND CASH FUND
<S> <C> <C> <C>
<C>
1 Year............................................ $6 $4
$6 $6
3 Years........................................... $20 $12
$20 $19
5 Years........................................... $35 N/A
$35 $33
10 Years.......................................... $77 N/A
$79 $74
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
** The Prime Money Market Fund Class A and Class B Shares are based on estimated
data for the fiscal year ending April 30, 1996.
INDEPENDENCE ONE PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A CLASS A SHARE+ OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. Their report, dated June 16, 1995, on the Fund's Financial
Statements for the year ended April 30, 1995, and on the following table for
each of the periods presented, is included in the Fund's Annual Report, which is
incorporated herein by reference. This table should be read in conjunction with
the Fund's Financial Statements and notes thereto, contained in the Fund's
Annual Report, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
<S> <C> <C> <C>
<C> <C> <C> <C>
1995 1994 1993
1992 1991 1990(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00 $ 1.00
- -------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------------
Net investment income 0.05 0.03 0.03
0.05 0.07 0.08
- ------------------------------------------- --------- --------- --------- --
- ------- --------- -----------
LESS DISTRIBUTIONS
- -------------------------------------------
Distributions from net investment income (0.05) (0.03) (0.03)
(0.05) (0.07) (0.08)
- ------------------------------------------- --------- --------- --------- --
- ------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00 $ 1.00
- ------------------------------------------- --------- --------- --------- --
- ------- --------- -----------
TOTAL RETURN (B) 4.66% 2.73% 2.99%
4.89% 7.55% 7.99%
- -------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------------
Expenses 0.61% 0.59% 0.58%
0.54% 0.53% 0.40%(c)
- -------------------------------------------
Net investment income 4.51% 2.70% 2.91%
4.73% 7.26% 8.24%(c)
- -------------------------------------------
Expense waiver/reimbursement (d) 0.00% 0.02% 0.04%
0.08% 0.08% 0.23%(c)
- -------------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------------
Net assets, end of period
(000 omitted) $233,607 $310,588 $423,355
$309,009 $371,994 $328,434
- -------------------------------------------
</TABLE>
As of May 1, 1995, the single class of shares previously offered by the Fund
has been redesignated as Class A Shares.
(a) Reflects operations for the period from June 1, 1989 (date of initial
public investment) to April 30, 1990.
(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 dated April 30, 1995, which can be obtained free of charge.
INDEPENDENCE ONE U.S. TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. Their report, dated June 16, 1995, on the Fund's Financial
Statements for the year ended April 30, 1995, and on the following table for
each of the periods presented, is included in the Fund's Annual Report, which is
incorporated herein by reference. This table should be read in conjunction with
the Fund's Financial Statements and notes thereto, contained in the Fund's
Annual Report, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
<S> <C> <C> <C>
<C> <C> <C>
1995 1994 1993
1992 1991 1990(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00 $ 1.00
- --------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------
Net investment income 0.04 0.03 0.03
0.05 0.07 0.08
- --------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------
Distributions from net investment
income (0.04) (0.03) (0.03)
(0.05) (0.07) (0.08)
- -------------------------------------------- --------- --------- --------- -
- -------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $
1.00 $ 1.00 $ 1.00
- -------------------------------------------- --------- --------- --------- -
- -------- --------- -----------
TOTAL RETURN (B) 4.49% 2.63% 2.92%
4.81% 7.17% 7.83%
- --------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------
Expenses 0.63% 0.61% 0.54%
0.57% 0.60% 0.35%(c)
- --------------------------------------------
Net investment income 4.41% 2.60% 2.90%
4.55% 6.91% 8.17%(c)
- --------------------------------------------
Expense waiver/reimbursement (d) 0.00% 0.00% 0.09%
0.12% 0.07% 0.32%(c)
- --------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------
Net assets, end of period
(000 omitted) $244,887 $215,832 $214,069
$224,803 $131,263 $82,947
- --------------------------------------------
</TABLE>
(a) Reflects operations for the period from June 1, 1989 (date of initial
public investment) to April 30, 1990.
(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 dated April 30, 1995, which can be obtained free of charge.
INDEPENDENCE ONE MICHIGAN MUNICIPAL CASH FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
The following table has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. Their report, dated June 16, 1995, on the Fund's Financial
Statements for the year ended April 30, 1995, and on the following table for
each of the periods presented, is included in the Fund's Annual Report, which is
incorporated herein by reference. This table should be read in conjunction with
the Fund's Financial Statements and notes thereto, contained in the Fund's
Annual Report, which may be obtained from the Fund.
<TABLE>
<CAPTION>
YEAR ENDED
APRIL 30,
<S> <C> <C> <C>
<C> <C> <C>
1995 1994 1993
1992 1991 1990(A)
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00
- ---------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------
Net investment income 0.03 0.02 0.02
0.04 0.05 0.05
- --------------------------------------------- --------- --------- ---------
- --------- --------- -----------
LESS DISTRIBUTIONS
- ---------------------------------------------
Distributions from net investment income (0.03) (0.02) (0.02)
(0.04) (0.05) (0.05)
- --------------------------------------------- --------- --------- ---------
- --------- --------- -----------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
$ 1.00 $ 1.00 $ 1.00
- --------------------------------------------- --------- --------- ---------
- --------- --------- -----------
TOTAL RETURN (B) 2.81% 1.98% 2.27%
3.68% 5.18% 5.14%
- ---------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------
Expenses 0.59% 0.50% 0.53%
0.50% 0.67% 0.44%(c)
- ---------------------------------------------
Net investment income 2.80% 1.96% 2.23%
3.51% 5.02% 5.70%(c)
- ---------------------------------------------
Expense waiver/reimbursement (d) 0.21% 0.22% 0.20%
0.39% 0.19% 0.39%(c)
- ---------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------
Net assets, end of period (000 omitted) $66,856 $55,013 $84,763
$71,745 $31,705 $28,921
- ---------------------------------------------
</TABLE>
(a) Reflects operations for the period from June 14, 1989 (date of initial
public investment) to April 30, 1990.
(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 dated April 30, 1995, which can be obtained free of charge.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE OF EACH FUND
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies of a Fund may be changed by
the Board of Trustees ("Trustees") without approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
Each Fund's investment limitations are discussed below under "Investment
Limitations."
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below appear in the
"Portfolio Investments and Strategies" section of this combined prospectus and
in the Combined Statement of Additional Information.
PRIME MONEY MARKET FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is to
provide current income consistent with stability of principal. The Fund pursues
its investment objective by investing exclusively in a portfolio of money market
instruments maturing in 397 days or less. The average maturity of money market
instruments in the Fund's portfolio, computed on a dollar-weighted basis, will
be 90 days or less.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more nationally recognized statistical rating organizations ("NRSROs") or
of comparable quality to securities having such ratings. See "Ratings." Examples
of these instruments include, but are not limited to:
domestic issues of corporate debt obligations, including variable rate
demand notes;
commercial paper (including Canadian Commercial Paper and Europaper);
certificates of deposits, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
short-term credit facilities, such as demand notes;
asset-backed securities;
obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities
("Government Securities"); and
other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either issued
by an institution having capital, surplus and undivided profits over $100
million or insured by the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"). Bank Instruments may
include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). The Fund will
treat securities credit enhanced with a bank's letter of credit as Bank
Instruments.
SHORT-TERM CREDIT FACILITIES. Demand notes are short-term borrowing
arrangements between a corporation and an institutional lender (such as the
Fund) payable upon demand by either party. The notice period for demand
typically ranges from one to seven days, and the party may demand full or
partial payment. The Fund may also enter into, or acquire participations
in, short-term revolving credit facilities with corporate borrowers. Demand
notes and other short-term credit arrangements usually provide for floating
or variable rates of interest.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interest in a special purpose trust, limited partnership interests or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominately upon
collections of the loans and receivables held by the issuer.
In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in restricted and illiquid securities, securities of
other investment companies, variable rate demand notes, and repurchase
agreements. See "Portfolio Investment and Strategies."
INVESTMENT RISKS. ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and
Europaper are subject to somewhat different risks than domestic obligations of
domestic banks. Examples of these risks include international, economic, and
political developments, foreign governmental restrictions that may adversely
affect the payment of principal or interest, foreign withholding or other taxes
on interest income, difficulties in obtaining or enforcing a judgment against
the issuing bank, and the possible impact of interruptions in the flow of
international currency transactions. Different risks may also exist for ECDs,
ETDs, and Yankee CDs because the banks issuing these instruments, or their
domestic or foreign branches, are not necessarily subject to the same regulatory
requirements that apply to domestic banks, such as reserve requirements, loan
limitations, examinations, accounting, auditing, and recordkeeping, and the
public availability of information. These factors will be carefully considered
by the Fund's Adviser in selecting investments for the Fund.
The Fund's investment limitations are discussed below under "Investment
Limitations."
U.S. TREASURY MONEY MARKET FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is to
provide current income consistent with stability of principal. The Fund pursues
its investment objective by investing exclusively in a portfolio of short-term
U.S. Treasury obligations. The average maturity of the U.S. Treasury obligations
in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or
less.
ACCEPTABLE INVESTMENTS. The Fund invests only in short-term U.S. Treasury
obligations, which are normally held to maturity. These instruments are issued
by the U.S. government, its agencies or instrumentalities, and are fully
guaranteed as to principal and interest by the United States. They
mature in 397 days or less from the date of acquisition unless they are
purchased under a repurchase agreement that provides for repurchase by the
seller within one year from the date of acquisition.
In addition, the Fund may invest in repurchase agreements and engage in
when-issued and delayed delivery transactions. See "Portfolio Investments and
Strategies."
MICHIGAN MUNICIPAL CASH FUND
INVESTMENT OBJECTIVE AND POLICIES. The investment objective of the Fund is to
provide stability of income and current income exempt from federal regular
income tax and Michigan state income tax consistent with stability of principal.
In addition, the Fund provides income exempt from the Michigan intangibles tax
and income taxes of Michigan municipalities. (Federal regular income tax does
not include the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations.) The Fund pursues its investment
objective by investing at least 80% of its assets in a portfolio of Michigan
municipal securities with remaining maturities of 397 days or less at the time
of purchase by the Fund. The average maturity of the securities in the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less.
Michigan municipal securities include obligations issued by or on behalf of the
State of Michigan, its political subdivisions or agencies, or debt obligations
of any territory or possession of the United States, or any political
subdivision of any of the foregoing, or of the District of Columbia, the
interest from which is, in the opinion of bond counsel for the issuers, or in
the opinion of officers of the Fund and/or the Adviser, exempt from federal
regular income tax and personal income taxes imposed by the State of Michigan
and Michigan municipalities. Michigan municipal securities also include
participation interests in the above obligations. Interest income of the Fund
which is exempt from tax will retain its tax-free status when distributed to
Michigan shareholders. However, income distributed by the Fund may not
necessarily be exempt from state or municipal taxes in states other than
Michigan.
The municipal securities in which the Fund invests must either be rated in one
of the two highest short-term rating categories by one or more NRSROs or be of
comparable quality to securities having such ratings. See "Ratings."
MICHIGAN MUNICIPAL SECURITIES. Michigan municipal securities are generally
issued to finance public works such as airports, bridges, highways,
housing, hospitals, mass transportation projects, schools, streets, and
water and sewer works. They are also issued to repay outstanding
obligations, to raise funds for general operating expenses, and to make
loans to other public institutions and facilities.
Michigan municipal securities include industrial development bonds issued
by or on behalf of public authorities to provide financing aid to acquire
sites or construct and equip facilities for privately or publicly owned
corporations. The availability of this financing encourages these
corporations to locate within the sponsoring communities and thereby
increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by
the issuer's pledge of its full faith and credit and taxing power for the
payment of principal and interest. Interest on and principal of
revenue bonds, however, are payable only from the revenue generated by the
facility financed by the bond or other specified sources of revenue.
Revenue bonds do not represent a pledge of credit or create any debt of or
charge against the general revenues of a municipality or public authority.
Industrial development bonds are typically classified as revenue bonds.
PARTICIPATION INTERESTS. The Fund may purchase participation interests
from financial institutions such as commercial banks, savings and loan
associations, and insurance companies. These participation interests give
the Fund an undivided interest in Michigan municipal securities. The
municipal securities subject to the participation interests are not limited
to maturities of 397 days or less, so long as the participation interests
include the right to demand payment, typically within seven days, from the
issuers of those interests. The Fund will purchase only participation
interests which have such a demand feature or which mature in less than 397
days. The financial institutions from which the Fund purchases
participation interests frequently provide or secure irrevocable letters of
credit or guarantees to assure that the participation interests are of high
quality. The Trustees of the Trust will determine that participation
interests meet the prescribed quality standards for the Fund.
TEMPORARY INVESTMENTS. As a fundamental policy which may only be changed by
shareholders, the Fund invests its assets so that at least 80% of its annual
interest income will be exempt from federal regular income tax and Michigan
state income tax, except in unusual circumstances, such as when management feels
that market conditions dictate a defensive posture in temporary investments.
Interest income from temporary investments may be taxable to shareholders as
ordinary income. These temporary investments include: obligations issued by or
on behalf of municipal or corporate issuers having the same quality
characteristics as municipal securities purchased by the Fund (including
obligations whose interest is subject to the federal alternative minimum income
tax); marketable obligations issued or guaranteed by the U.S. government, its
agencies or instrumentalities; instruments issued by banks or savings and loans
which have capital, surplus, and undivided profits in excess of $100,000,000 at
the time of investment and if their deposits are insured by the BIF or the SAIF,
which are both administered by the Federal Deposit Insurance Corporation
("FDIC"); repurchase agreements and prime commercial paper rated A-1 by S&P,
Prime-1 by Moody's, or F-1 by Fitch, and variable amount demand master notes.
STANDBY COMMITMENTS. Some securities dealers are willing to sell Michigan
municipal securities to the Fund accompanied by their commitments to repurchase
the municipal securities prior to maturity, at the Fund's option, for the
amortized cost of the municipal securities at the time of repurchase. These
arrangements are not used to protect against changes in the market value of
municipal securities. They permit the Fund, however, to remain fully invested
and still provide liquidity to satisfy redemptions. The cost of Michigan
municipal securities accompanied by these "standby" commitments could be greater
than the cost of municipal securities without such commitments. Standby
commitments are not marketable or otherwise assignable and have value only to
the Fund. The default or bankruptcy of a securities dealer giving such a
commitment would not affect the quality of the Michigan municipal securities
purchased but may make such securities more difficult to sell without such a
commitment. The Fund enters into standby commitments only with those dealers
whose credit the adviser believes to be of high quality.
CONCENTRATION OF INVESTMENTS. The Fund may invest more than 25% of its assets
in industrial revenue bonds, including pollution control bonds. The Fund will
not purchase securities if, as a result of such purchase, 25% or more of the
value of its total assets would be invested in any one industry or in industrial
development bonds or other securities, the interest upon which is paid from
revenues of similar type projects. However, the Fund may invest more than 25% of
the value of its assets in cash or cash items, securities issued or guaranteed
by the U.S. government, its agencies or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
The Fund will invest more than 25% of its assets in Michigan municipal
securities. The Fund may invest more than 25% of the value of its assets in
tax-exempt project notes guaranteed by the U.S. government, regardless of the
location of the issuing municipality. The Fund may also have more than 25% of
its total assets invested in securities credit enhanced by banks.
In addition, the Fund will not invest more than 5% of its assets in industrial
revenue bonds where the payment of principal and interest is the responsibility
of companies (or guarantors, if applicable) with less than three years of
continuous operations, including the operation of any predecessor. This
limitation may be changed by the Trustees without shareholder approval.
Shareholders will be notified before any material change in this limitation
becomes effective.
If the value of Fund assets invested in the securities of a governmental
subdivision changes because of changing values, the Fund will not be required to
make any reduction in its holdings.
INVESTMENT RISKS. Yields on Michigan municipal securities depend on a variety
of factors, including: the general conditions of the municipal bond market; the
size of the particular offering; the maturity of the obligations; and the rating
of the issue. Further, any adverse economic conditions or developments affecting
the State of Michigan or its municipalities could impact the Fund's portfolio.
The ability of the Fund to achieve its investment objective also depends on the
continuing ability of the issuers of Michigan municipal securities and
participation interests, or the guarantors of either, to meet their obligations
for the payment of interest and principal when due. In addition, from time to
time, the supply of Michigan municipal securities acceptable for purchase by the
Fund could be limited. Investing in Michigan municipal securities which meet the
Fund's quality standards may not be possible if the State of Michigan or its
municipalities do not maintain their current credit ratings.
The Fund may invest in Michigan municipal securities which are repayable out of
revenue streams generated from economically related projects or facilities
and/or whose issuers are located in the same state. Sizable investments in these
Michigan municipal securities could involve an increased risk to the Fund should
any of these related projects or facilities experience financial difficulties.
Obligations of issuers of Michigan municipal securities are subject to the
provisions of bankruptcy, insolvency, and other laws affecting the rights and
remedies of creditors. In addition, the obligations of such issuers may become
subject to laws enacted in the future by Congress, state legislators, or
referenda extending the time for payment of principal and/or interest, or
imposing constraints upon enforcement of such obligations or upon the ability of
states or municipalities to levy taxes. There is also the possibility that, as a
result of litigation or other conditions, the power or ability of
any issuer to pay, when due, the principal of and interest on its municipal
securities may be materially affected.
A further discussion of the risks of a portfolio which invests primarily in
Michigan municipal securities is contained in the Statement of Additional
Information.
NON-DIVERSIFICATION. The Fund is a non-diversified investment portfolio. As
such, there is no limit on the percentage of assets which can be invested in any
single issuer. An investment in the Fund, therefore, will entail greater risk
than would exist in a diversified investment company because the higher
percentage of investments among fewer issuers may result in greater fluctuation
in the total market value of the Fund's portfolio. Any economic, political, or
regulatory developments affecting the value of the securities in the Fund's
portfolio will have a greater impact on the total value of the portfolio than
would be the case if the portfolio were diversified among more issuers.
However, the Fund intends to comply with Subchapter M of the Internal Revenue
Code. This undertaking requires that, at the end of each quarter of each taxable
year, with regard to at least 50% of the Fund's total assets, no more than 5% of
its total assets are invested in the securities of a single issuer and that with
respect to the remainder of the Fund's total assets, no more than 25% of its
total assets are invested in the securities of a single issuer.
In addition, the Fund may engage in when-issued and delayed delivery
transactions and invest in restricted and illiquid securities, securities of
other investment companies, and variable rate demand notes. The Fund may also
acquire securities that are subject to puts and standby commitments to purchase
securities at their principal amount within a fixed period following a demand by
the Fund. See "Portfolio Investments and Strategies."
PORTFOLIO INVESTMENTS AND STRATEGIES
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CREDIT ENHANCEMENT. Certain of the Prime Money Market Fund's and the Michigan
Municipal Cash Fund's acceptable investments may have been credit enhanced by a
guaranty, letter of credit or insurance. The Funds typically evaluate the credit
quality and ratings of credit-enhanced securities based upon the financial
condition and ratings of the party providing the credit enhancement (the "credit
enhancer"), rather than the issuer. Generally, the Funds will not treat
credit-enhanced securities as having been issued by the credit enhancer for
diversification purposes. However, under certain circumstances, applicable
regulations may require the Funds to treat the securities as having been issued
by both the issuer and the credit enhancer. The bankruptcy, receivership or
default of the credit enhancer will adversely affect the quality and
marketability of the underlying security.
RATINGS. A NRSRO's rating categories are determined without regard for
sub-categories and gradations. For example, with respect to the Prime Money
Market Fund, securities rated A-1 or A-1+ by Standard & Poor's Ratings Group
("S&P"), Prime-1 by Moody's Investors Service, Inc. ("Moody's"), or F-1 (+ or -)
by Fitch Investors Service, Inc. ("Fitch"), are all considered rated in the
highest short-term rating category, and with respect to the Michigan Municipal
Cash Fund, securities rated SP-1+, SP-1 or SP-2 by S&P, MIG-1 or MIG-2 by
Moody's, or FIN-1+, FIN-1 and FIN-2 by Fitch, are all considered rated in one of
the two highest short-term rating categories. The Funds will
follow applicable regulations in determining whether a security rated by more
than one NRSRO can be treated as being in the acceptable rating categories;
currently, such securities must be rated by two NRSROs in the acceptable
categories. See "Regulatory Compliance."
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell U.S. government
securities or other securities to the Funds and agree at the time of sale to
repurchase them at a mutually agreed upon time and price within one year from
the date of acquisition. To the extent that the original seller does not
repurchase the securities from the Funds, the Funds could receive less than the
repurchase price on any sale of such securities.
VARIABLE RATE DEMAND NOTES. The Prime Money Market Fund and the Michigan
Municipal Cash Fund may invest in variable rate demand notes which are long-term
corporate debt instruments or municipal securities that have variable or
floating interest rates and provide the Funds with the right to tender the
security for repurchase at its stated principal amount plus accrued interest.
Such securities typically bear interest at a rate that is intended to cause the
securities to trade at par. The interest rate may float or be adjusted at
regular intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand notes
allow the Funds to demand the repurchase of the security on not more than seven
days prior notice. Other notes only permit the Funds to tender the security at
the time of each interest rate adjustment or at other fixed intervals. See
"Demand Features." The Funds treat variable rate demand notes as maturing on the
later of the date of the next interest adjustment or the date on which the Funds
may next tender the security for repurchase.
DEMAND FEATURES. The Prime Money Market Fund and the Michigan Municipal Cash
Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) with a fixed period (usually seven days)
following a demand by a Fund. The demand feature may be issued by the issuer of
the underlying securities, a dealer in the securities or by another third party,
and may not be transferred separately from the underlying security. The Funds
use these arrangements to provide the Funds with liquidity and not to protect
against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security. Demand features that are exercisable even after a payment
default on the underlying security may be treated as a form of credit
enhancement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Funds may purchase
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Funds purchase securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Funds 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 Funds may pay more or less than the market value of the
securities on the settlement date. The Funds engage in when-issued and delayed
delivery transactions only for the purpose of acquiring
portfolio securities consistent with each Fund's investment objective and
policies, not for investment leverage.
The Funds may dispose of a commitment prior to settlement if the Adviser deems
it appropriate to do so. In addition, the Funds may enter into transactions to
sell purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize short-term profits or losses upon the sale of such
commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Prime Money Market
Fund and the Michigan Municipal Cash Fund can acquire up to 3% of the total
outstanding stock of other investment companies. The Funds will not be subject
to any other limitations with regard to the acquisition of securities of other
investment companies so long as the public offering price of the Fund's shares
does not include a sales load exceeding 1-1/2 percent. The Funds will purchase
securities of investment companies only in open-market transactions involving
only customary broker's commissions (although the Funds do not expect to incur
any broker's commissions in connection with purchases). However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. The Funds' Adviser will
waive its investment advisory fee on assets invested in securities of other
open-end investment companies.
INVESTMENT LIMITATIONS
BORROWING MONEY. The Funds will not borrow money directly or through reverse
repurchase agreements or pledge securities except, under certain circumstances,
a Fund may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of those assets to secure such borrowings.
DIVERSIFICATION. The Prime Money Market Fund will not, with respect to 75% of
the value of its total assets, invest more than 5% of the value of its total
assets in the securities of any one issuer (other than cash or securities issued
or guaranteed by the government of the United States or its agencies or
instrumentalities).
The Michigan Municipal Cash Fund will not invest more than 10% of its total in
the securities of any one issuer (except cash and cash items, repurchase
agreements collateralized by U.S. government securities and U.S. government
obligations) with respect to securities comprising 75% of its assets.
The above policies may not be changed without shareholder approval. 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.
RESTRICTED AND ILLIQUID SECURITIES. The Prime Money Market Fund and the
Michigan Municipal Cash Fund may invest up to 10% of their total assets in
restricted securities. This restriction is not applicable to commercial paper
issued under the Section 4(2) of the Securities Act of 1933. Restricted
securities are any securities in which the Fund may otherwise invest pursuant to
its investment objective and policies, but which are subject to restriction on
resale under federal securities law. All of the Funds may invest in illiquid
securities. The Funds will limit investments in illiquid securities, including
certain restricted securities not determined by the Trustees to be liquid,
non-negotiable time deposits, and repurchase agreements providing for settlement
in more than seven days after notice, to 10% of their respective net assets.
The Prime Money Market Fund may invest in commercial paper issued in reliance on
the exemption from registration afforded by Section 4(2) of the Securities Act
of 1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law and is generally sold to institutional investors, such as
the Fund, who agree that they are purchasing the paper for investment purposes
and not with a view to public distribution. Any resale by the purchaser must be
in an exempt transaction. Section 4(2) commercial paper is normally resold to
other institutional investors like the Fund through or with the assistance of
the issuer or investment dealers who make a market in Section 4(2) commercial
paper, thus providing liquidity. The Fund believes that Section 4(2) commercial
paper and possibly certain other restricted securities which meet the criteria
for liquidity established by the Trustees are quite liquid. The Fund intends,
therefore, to treat the restricted securities which meet the criteria for
liquidity established by the Trustees, including Section 4(2) commercial paper,
as determined by the Adviser, as liquid and not subject to the investment
limitation applicable to illiquid securities. In addition, because Section 4(2)
commercial paper is liquid, the Fund intends to not subject such paper to the
limitation applicable to restricted securities.
When the Fund invests in certain restricted securities determined by the
Trustees to be liquid, such investments could have the effect of increasing the
level of Fund illiquidity to the extent that the buyers in the secondary market
for such securities become, for a time, uninterested in purchasing these
securities.
REGULATORY COMPLIANCE
Each Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. In particular, each Fund
will comply with the various requirements of Rule 2a-7, which regulates money
market mutual funds. The Rule permits the Funds to utilize the amortized cost
method of valuation in order to offer their shares at a net asset value of $1.00
per share. (See also the section in the Statement of Additional Information
entitled "Determining Net Asset Value.") Each Fund will also determine the
effective maturity of its investments, as well as its ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Funds may change these operational policies to
reflect changes in the laws and regulations without the approval of
shareholders.
INDEPENDENCE ONE MUTUAL FUNDS INFORMATION
- --------------------------------------------------------------------------------
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 Funds are made by Michigan National Bank, as the
Funds' investment adviser, subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision for the Funds and is
responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the assets of the Funds.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.40 of 1% of each Fund's average daily net assets. The Adviser
has undertaken to reimburse each Fund, up to the amount of the advisory
fee, for operating expenses in excess of limitations established by certain
states. The Adviser may voluntarily choose to waive a portion of its fee or
reimburse certain expenses of the Funds.
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. Independence One Capital Management Corporation
("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 custodial assets totaling $9
billion. Of this amount, IOCM and the Trust Division have investment
discretion over $2.2 billion.
Michigan National Bank has managed mutual funds since May 1989. The Trust
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 Funds 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.
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. On June 2, 1995, shareholders of MNC approved the merger.
As a result, upon completion of the merger, MNC and its subsidiaries, including
the Adviser, would become direct or indirect subsidiaries of NAB. It is
anticipated that the
merger will be completed in the third or fourth quarter of 1995. It is also
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 Funds' current investment
advisory contract with the Adviser. In view of the pending merger, the Fund
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 Austrial 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 Funds, and there will be no charge in either the Funds'
investment objective or investment policies, or the fees payable by the Funds
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.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Funds.
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.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted in
accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the U.S.
Treasury Money Market Fund and the Michigan Municipal Cash Fund will pay to the
distributor an amount computed at an annual rate of 0.25 of 1% of the average
daily net asset value of the shares to finance any activity which is principally
intended to result in the sale of shares of the Funds subject to the Plan.
The U.S. Treasury Money Market Fund and the Michigan Municipal Cash Fund each
intend to offer two classes of shares for sale: Investment Shares and Trust
Shares. The classes of shares represent interests in one common investment
portfolio but differ in that Investment Shares, which will be sold primarily to
individual investors, are subject to distribution expenses paid by the Fund
pursuant to the Plan, while Trust Shares will be sold to institutional investors
and will not be subject to such a Plan and will not incur such distribution
expenses. Trust Shares are currently not available for sale. The Funds will not
offer Trust Shares and will not accrue or pay any distribution expenses pursuant
to the Plan until Trust Shares have been registered with the Securities and
Exchange Commission and certain states.
The distributor may from time to time and for such periods as its deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares of the Funds exceed such lower expense
limitation as the distributor may, by notice of the Trust, voluntarily declare
to be effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide sales and/or administrative services as agents for their clients or
customers who beneficially own shares of the Funds. Administrative services may
include, but are not limited to, the following functions; providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as necessary or beneficial to establish and
maintain shareholder accounts and records; processing purchase and redemption
transactions and automatic investments of client account cash balances;
answering routine client inquiries regarding the shares of the Funds; assisting
clients in changing dividend options, account designations, and addresses, and
providing such other services as the Funds reasonably request for their shares.
Financial institutions will receive fees from the distributor based upon shares
owned by their clients or customers. The schedules of such fees and the basis
upon which such fees will be paid will be determined from time to time by the
distributor.
The Funds' Plan is a compensation type plan. As such, the Funds make no payments
to the distributor except as described above. Therefore, the Funds do not pay
for reimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Funds, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Funds
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
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.
SHAREHOLDER SERVICES PLAN. The Prime Money Market Fund has adopted a
Shareholder Services Plan with respect to Class A Shares under which it may make
payments of up to 0.25 of 1% of the average daily net asset value of Class A
Shares to obtain certain personal services for shareholders and the maintenance
of shareholder accounts ("shareholder services"). The Fund has entered into a
Shareholder Services Agreement with Michigan National Bank, under which Michigan
National Bank will either perform shareholder services directly or will select
financial institutions to perform shareholder services. Financial institutions
will receive fees based upon Class A Shares owned by their clients or customers.
The schedules of such fees and the basis upon which such fees will be paid will
be determined from time to time by the Fund and Michigan National Bank.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Funds with certain administrative personnel
and services necessary to operate the Funds, 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
FEE DAILY 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 Funds, and receives a fee for that service.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Boston, Massachusetts, is transfer agent for the shares of the Funds and
dividend disbursing agent for the Funds.
INDEPENDENT AUDITORS. The independent auditors for the Funds are KPMG Peat
Marwick LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUNDS
Holders of shares pay their allocable share of Fund and Trust expenses. The
Trust expenses for which holders of shares pay their allocable share include,
but are not limited to: the cost of organizing the Trust and continuing its
existence; registering the Trust with federal and state securities authorities;
Trustees' fees; auditors' fees; the cost of meetings of Trustees; legal fees of
the Trust; association membership dues and such non-recurring and extraordinary
items as may arise from time to time.
The Fund expenses for which holders of shares pay their allocable portion
include, but are not limited to: registering the Fund and shares of the Fund
under state and federal law; investment advisory services, taxes and
commissions; custodian fees; insurance premiums; auditors' fees; and such
non-recurring and extraordinary items as may arise from time to time.
With respect to the Prime Money Market Fund, expenses of the Shareholder
Services Plan described above are allocated only to Class A Shares. At present,
no other expenses are allocated to Class A and Class B Shares as a class.
However, the Trustees reserve the right to allocate certain other expenses to
the holders of Class A and Class B Shares as they deem appropriate ("Class
Expenses"). In any case, Class Expenses would be limited to: transfer agent fees
as identified by the transfer agent as attributable to holders of Class A and
Class B Shares; printing and postage expenses related to preparing and
distributing materials such as shareholder reports, prospectuses and proxies to
current shareholders; registration fees paid to the Securities and Exchange
Commission and to state securities commissions; expenses related to
administrative personnel and services as required to support holders of Class A
and Class B Shares; legal fees relating solely to Class A and Class B Shares;
and Trustees' fees incurred as a result of issues relating solely to Class A and
Class B Shares.
NET ASSET VALUE
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The Funds attempt to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by adding the interest of shares in the value of all
securities and other assets of the Funds, subtracting the interest of shares in
the liabilities of the Funds and those attributable to shares, and dividing the
remainder by the number of shares outstanding. The Funds, of course, cannot
guarantee that the net asset value will always remain at $1.00 per share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Funds may be purchased through Michigan National Bank,
Independence One Brokerage Services, Inc. ("Independence One"), or through
brokers or dealers which have a sales agreement with the distributor. Texas
residents must purchase shares through Federated Securities Corp. at
1-800-618-8573. Investors may purchase shares of the Funds on all business days
except on days which the New York Stock Exchange is closed and federal holidays
restricting wire transfers. In connection with the sale of a Fund's shares, the
distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Funds reserve the right to reject any purchase
request.
TO PLACE AN ORDER. An investor may call toll-free 1-800-334-2292 to purchase
shares of the Funds through Michigan National Bank or Independence One. In
addition, investors may purchase shares of the Funds by calling their authorized
broker directly. Payment may be made either by check or wire transfer of federal
funds.
To purchase by check, the check must be included with the order and made payable
to "Independence One (include name of Fund and, if applicable, "Class A" or
"Class B" Shares)." Orders are considered received after payment by check is
converted by the transfer agent's bank, State Street Bank and Trust Company
("State Street Bank"), into federal funds.
When payment is made through wire transfer of federal funds, the order is
considered received immediately upon receipt by State Street Bank. Prior to
purchasing by wire, investors should call their Michigan National Bank or
Independence One representative or their authorized broker. It is the
responsibility of Michigan National Bank, Independence One and authorized
brokers to transmit orders promptly. 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 (include
name of Fund and, if applicable, "Class A" or "Class B" 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 in the shares of the Prime Money Market Fund
Class A Shares, the U.S. Treasury Money Market Fund, and the Michigan Municipal
Cash Fund by an investor is $1,000.
The minimum initial investment in Prime Money Market Fund Class B Shares by an
investor is $1,000,000. An institutional investor's minimum investment will be
calculated by combining all accounts it maintains with the Fund for Class B
Shares.
Subsequent investments in all the Funds must be in amounts of at least $100.
CASH SWEEP PROGRAM
Cash accumulations in demand deposit accounts with depository institutions such
as banks and savings and loan associations may be automatically invested in
shares of the Funds on a day selected by the depository institution and its
customer, or when the demand deposit account reaches a predetermined dollar
amount (e.g. $5,000).
PARTICIPATING DEPOSITORY INSTITUTIONS. Participating depository institutions
are responsible for prompt transmission of orders relating to the program. These
depository institutions are the record owners of the shares of the Funds.
Depository institutions participating in this program may charge their customers
for their services relating to the program. This prospectus should, therefore,
be read together with any agreement between the customer and the depository
institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Funds.
The net asset value is determined at 12:00 noon and 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; or (iii) the following
holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, 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 or
Independence One representative or authorized broker in writing.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Funds unless cash
payments are requested by shareholders in writing to the Funds through their
Michigan National Bank or Independence One representative or authorized broker.
Share purchase orders received by a Fund before 11:00 a.m. (Eastern time) earn
dividends that day.
In the case of the Prime Money Market Fund, under limited circumstances,
arrangements may be made with Michigan National Bank for same-day receipt of
purchase orders to earn dividends that day, if such orders are received before
3:00 p.m. (Eastern time). Investors interested in establishing such arrangements
should call Michigan National Bank at 1-800-334-2292, and are reminded that the
Fund reserves the right to refuse any purchase request.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses
could result in a decrease in dividends. If, for some extraordinary reason, the
Fund realizes net long-term capital gains, it will distribute them at least once
every 12 months.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Funds are shareholders of the Trust which consists of
the Funds, Independence One Equity Plus Fund, Independence One Fixed Income
Fund, Independence One Michigan Municipal Bond Fund, and Independence One U.S.
Government Securities Fund ("participating funds"). Shareholders of the Funds
have access to the participating funds through an exchange program.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. 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 Funds reserve 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 Independence One
representative or authorized broker.
EXCHANGE BY TELEPHONE. Shareholders may provide instructions for exchanges
between participating funds by telephone to their Michigan National Bank or
Independence One representative by calling 1-800-334-2292. In addition,
investors may exchange shares by calling their authorized broker directly.
An authorization form permitting the Funds 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 Independence One representative or authorized broker. 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,
Independence One, or an authorized broker 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 a Fund will not receive a dividend from
that Fund on the date of the exchange.
Shareholders of the Funds may have difficulty in making exchanges by telephone
through banks, brokers and other financial institutions during times of drastic
economic or market changes. If shareholders cannot contact their Michigan
National Bank or Independence One representative or authorized broker 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 a Michigan
National Bank or Independence One representative or authorized broker and
deposited to the shareholder's account before being exchanged.
If reasonable procedures are not followed by the Funds, they 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. In addition, investors
may exchange shares by sending a written request to their authorized broker
directly.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Fund shares are redeemed at their net asset value next determined after
Federated Services Company receives the redemption request. Redemptions will be
made on days on which the Funds compute 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 Funds through
a Michigan National Bank or Independence One representative or authorized
broker. 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.
CASH SWEEP PROGRAM. Clients of Michigan National Bank who have executed a Cash
Sweep Agreement should refer to that Agreement for information about redeeming
fund shares purchased through that program.
REDEEMING BY CHECK. At the shareholder's request, Federated Services Company
will establish a checking account for redeeming Prime Money Market Fund Class A
Shares, U.S. Treasury Money Market Fund, and Michigan Municipal Cash Fund
shares. For further information, contact a Michigan National Bank or
Independence One representative or authorized broker.
With a Fund checking account, shares may be redeemed simply by writing a check
for $250 or more. The redemption will be made at the net asset value on the date
that the transfer agent presents the check to the Fund. A check may not be
written to close an account. In addition, if a shareholder wishes to redeem
shares and have the proceeds available, a check may be written and negotiated
through the shareholder's local bank. Checks should never be sent to the
transfer agent to redeem shares. Cancelled checks are sent to the shareholder
each month.
BY TELEPHONE. Shares may be redeemed by telephoning a Michigan National Bank or
an Independence One representative at 1-800-334-2292. In addition, shareholders
may redeem Shares by calling their authorized broker directly. Redemption
requests must be received and transmitted to the transfer agent before 11:00
a.m. (Eastern time) in order for the proceeds to be wired that same day. The
Michigan National Bank or Independence One representative or authorized broker
is responsible for promptly submitting redemption requests and providing proper
written redemption instructions to the transfer agent. Registered broker/dealers
may charge customary fees and commissions for this service. If at any time, the
Funds shall determine it necessary to terminate or modify this method of
redemption, shareholders would be promptly notified.
For calls received before 11:00 a.m. (Eastern time) proceeds will normally be
wired the same 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. For calls received after 11:00 a.m. (Eastern time) proceeds
will normally be wired or a check sent the following business day. In no event
will proceeds be wired or a check sent more than seven days after a proper
request for redemption has been received.
A daily dividend will be paid on shares redeemed if the redemption request is
received after 11:00 a.m. (Eastern time). However, the proceeds are normally not
wired until the following business day. Redemption requests received before
11:00 a.m. (Eastern time) will normally be paid the same day and will not be
entitled to that day's dividend.
An authorization form permitting the Funds 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 Independence One representative
or authorized broker. 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 Funds, they 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 Independence One representative or
authorized broker. The written request should include the shareholder's name,
the Fund name, the class designation, if applicable, the account number, and the
share or dollar amount requested. Shareholders redeeming through Michigan
National Bank or Independence One should mail written requests to: Independence
One Mutual Funds, 27777 Inkster Road, Mail Code 10-52, Farmington Hills,
Michigan 48333-9065. Investors redeeming through an authorized broker should
mail written requests directly to their broker.
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 of $50,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or a
redemption payable other than to the shareholder of record must have signatures
on written redemption requests guaranteed by:
a trust company or a commercial bank whose deposits are insured by BIF,
which is administered by the 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 SAIF, which is administered by the FDIC; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and their transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Funds and their 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, but in no event 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 Funds 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, (or $1,000,000
in the case of the Prime Money Market Fund Class B Shares), due to shareholder
redemptions. 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 Funds are 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 Funds 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
affecting only a particular portfolio or class, only shares of that portfolio 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 August 4, 1995,
Michigan National Bank may for certain purposes be deemed to control the Prime
Money Market Fund Class A Shares and Class B Shares and the U.S. Treasury Money
Market Fund because it is owner of record of certain shares of the Funds.
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 which 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 bank or non-bank 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 their customer.
Michigan National Bank is subject to such banking laws and regulations.
Michigan National Bank believes, based on the advice of its counsel, that
Michigan National Bank may perform the services for the Funds 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.
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.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Funds intend to pay no federal income tax because each Fund expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies (including its diversification requirements) and to receive the
special tax treatment afforded to such companies. Each 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 any of the other
Funds.
Unless otherwise exempt, shareholders of Prime Money Market Fund and U.S.
Treasury Money Market Fund are required to pay federal income tax on any
dividends and other distributions received. These tax consequences apply whether
dividends and distributions are received in cash or as additional Shares. The
Funds will provide detailed tax information for reporting purposes. Shareholders
are urged to consult their own tax advisers regarding the status of their
accounts under state and local tax laws.
MICHIGAN MUNICIPAL CASH FUND TAX CONSIDERATIONS
FEDERAL INCOME TAX. In general, shareholders are not required to pay federal
regular income tax on any dividends received from the Fund that represent net
interest on tax-exempt municipal bonds. However, under the Tax Reform Act of
1986, dividends representing net interest income earned on certain "private
activity" bonds issued after August 7, 1986 may be included in calculating the
federal individual alternative minimum tax or the federal alternative minimum
tax for corporations. The Fund may purchase all types of municipal bonds,
including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax. Thus, should the Fund purchase
any private activity bonds, a portion of the Fund's dividends may be treated as
a tax preference item.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares.
MICHIGAN TAXES. Under existing Michigan laws, distribution made by the Fund
will not be subject to Michigan personal income taxes to the extent that such
distributions qualify as "exempt-interest dividends" under the Internal Revenue
Code of 1986, as amended, and represent (i) interest from obligations of
Michigan or any of its political subdivisions or (ii) income from obligations of
the United States government which are exempted from state income taxation by a
law of the United States.
That portion of a shareholder's shares in the Fund representing (i) bonds or
other similar obligations of Michigan or its political subdivisions or, (ii)
obligations of the United States which are exempt from taxation by a law of the
United States, and dividends paid by the Fund representing interest payments on
securities, will be exempt from Michigan intangibles tax.
Distributions by the Fund are not subject to the Michigan Single Business Tax to
the extent that such distributions are derived from interest on obligations of
Michigan or its political subdivisions, or obligations of the United States
government that are exempt from state taxation by a law of the United States.
Certain municipalities in Michigan also impose an income tax on individuals and
corporations. However, to the extent that the dividends from the Fund are exempt
from federal regular income taxes, such dividends also will be exempt from
Michigan municipal income taxes.
OTHER STATE AND LOCAL TAXES. Income from the Fund is not necessarily free from
state income taxes in states other than Michigan or from personal property
taxes. State laws differ on this issue, and shareholders are urged to consult
their own tax advisers regarding the status of their accounts under state and
local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Funds advertise their yield and effective yield, and, in
the case of the Michigan Municipal Cash Fund, tax-equivalent yield.
The yield of a Fund represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment. The
tax-equivalent yield of the Michigan Municipal Cash Fund is calculated similarly
to the yield, but is adjusted to reflect the taxable yield that the Michigan
Municipal Cash Fund would have had to earn to equal its actual yield, assuming a
specific tax rate.
Yield and effective yield will be calculated separately for the Prime Money
Market Fund Class A Shares and Class B Shares. Because Class A Shares are
subject to a Shareholder Services Plan fee, the yield and effective yield of
Class B Shares for the same period may exceed that of Class A Shares.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in a Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, advertisements for the Funds may refer to ratings, rankings,
and other information in certain financial publications and/or compare their
performance to certain indices.
INDEPENDENCE ONE
MUTUAL FUNDS
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Michigan National Bank
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 10-30
Farmington Hills, Michigan 48333-9065
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company
P.O. Box 8600
Boston, Massachusetts 02266-8600
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
[RECYCLED PAPER LOGO]
Cusip 453777203
Cusip 453777302
Cusip 453777708
Cusip 453777401
G01285-01 (8/95)
Independence One(R)
Prime Money Market Fund
Class A Shares
Class B Shares
U.S. Treasury
Money Market Fund
Michigan Municipal
Cash Fund
Distributed by Federated Securities Corp.
Prospectus dated
August 31, 1995
INDEPENDENCE ONE PRIME MONEY MARKET FUND
Class A Shares
Class B Shares
INDEPENDENCE ONE U.S. TREASURY MONEY MARKET FUND
INDEPENDENCE ONE MICHIGAN MUNICIPAL CASH FUND
(PORTFOLIOS OF INDEPENDENCE ONE MUTUAL FUNDS)
COMBINED STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
combined prospectus of Independence One Prime Money Market Fund,
Independence One U.S. Treasury Money Market Fund, and Independence One
Michigan Municipal Cash Fund (the "Funds"), portfolios of Independence
One Mutual Funds (the "Trust") dated August 31, 1995. This Combined
Statement is not a prospectus. To receive a copy of a prospectus,
write or call the Trust.
Statement dated August 31, 1995
[LOGO] FEDERATED SECURITIES CORP.
---------------------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Repurchase Agreements 2
When-Issued and Delayed Delivery Transactions 2
Reverse Repurchase Agreements 3
Restricted and Illiquid Securities 3
Variable Rate Demand Notes 3
Investment Limitations 3
MICHIGAN MUNICIPAL CASH FUND INVESTMENT RISKS 6
- ---------------------------------------------------------------
INDEPENDENCE ONE MUTUAL FUNDS MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Trustees 7
Fund Ownership 8
Trustees' Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 9
- ---------------------------------------------------------------
Adviser to the Fund 9
Advisory Fees 9
ADMINISTRATIVE SERVICES 9
- ---------------------------------------------------------------
CUSTODIAN 9
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 9
- ---------------------------------------------------------------
PURCHASING SHARES 10
- ---------------------------------------------------------------
Distribution Plan (U.S. Treasury Money
Market Fund and Michigan Municipal
Cash Fund only) 10
Shareholder Services Plan (Prime Money
Market Fund Class A Shares only) 10
Conversion to Federal Funds 11
DETERMINING NET ASSET VALUE 11
- ---------------------------------------------------------------
Use of the Amortized Cost Method 11
EXCHANGE PRIVILEGE 12
- ---------------------------------------------------------------
REDEEMING SHARES 12
- ---------------------------------------------------------------
Redemption in Kind 12
TAX STATUS 12
- ---------------------------------------------------------------
The Funds' Tax Status 12
Shareholders' Tax Status 12
YIELD 12
- ---------------------------------------------------------------
EFFECTIVE YIELD 13
- ---------------------------------------------------------------
TAX-EQUIVALENT YIELD 13
- ---------------------------------------------------------------
Tax-Equivalency Table 14
PERFORMANCE COMPARISONS 14
- ---------------------------------------------------------------
FINANCIAL STATEMENTS 15
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUNDS
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 9, 1989. This Combined Statement of Additional
Information relates only to three portfolios of securities (the "Funds") which
are as follows: Independence One Prime Money Market Fund ("Prime Money Market
Fund"), Independence One U.S. Treasury Fund ("U.S. Treasury Fund"), and
Independence One Michigan Municipal Cash Fund ("Michigan Municipal Cash Fund").
Shares of the Prime Money Market Fund are currently offered in two classes:
Class A Shares and Class B Shares. Prior to May 1, 1995, the Prime Money Market
Fund offered a single class of shares, which are currently designated as Class A
Shares.
INVESTMENT OBJECTIVE AND POLICIES OF THE FUNDS
- --------------------------------------------------------------------------------
The prospectus discusses the objective of each Fund and the policies it employs
to achieve those objectives. The following discussion supplements the
description of the Funds' investment policies in the prospectus.
The Funds' respective investment objectives cannot be changed without the
approval of shareholders. Except as otherwise noted, the investment policies
described below may be changed by the Board of Trustees (the
"Trustees") without shareholder approval. Shareholders will be notified before
any material change in these policies becomes effective.
TYPES OF INVESTMENTS
BANK INSTRUMENTS
The Prime Money Market Fund may invest in instruments of domestic and
foreign banks and other deposit institutions.
The instruments of banks and savings and loans that are insured by the
Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF") such as certificates of deposit, demand and time deposits,
savings shares, and bankers' acceptances, are not necessarily guaranteed
by those organizations.
In addition to domestic bank obligations such as certificates of deposit,
demand and time deposits, savings shares, and bankers' acceptances, the
Prime Money Market Fund may invest in:
Eurodollar Certificates of Deposit issued by foreign branches of U.S. or
foreign banks;
Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks;
Canadian Time Deposits, which are U.S. dollar-denominated deposits
issued by branches of major Canadian banks located in the United States;
and
Yankee Certificates of Deposit, which are U.S. dollar-denominated
certificates of deposit issued by U.S. branches of foreign banks and
held in the United States.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Prime Money Market
Fund may invest generally include direct obligations of the U.S. Treasury
(such as U.S. Treasury bills, notes, and bonds) and obligations issued or
guaranteed by U.S. government agencies or instrumentalities. These
securities are backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or
instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Farm Credit Banks;
National Bank for Cooperatives;
Banks for Cooperatives;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS
The U.S. Treasury Money Market Fund invests only in short-term U.S.
Treasury obligations. "Short-term U.S. Treasury obligations" as used
herein refers to evidences of indebtedness issued by the United States,
or issued by an agency or instrumentality thereof, and fully guaranteed
as to principal and interest by the United States, maturing in 397 days
or less from the date of acquisition or purchased pursuant to repurchase
agreements that provide for repurchase by the seller within one year from
the date of acquisition. The Fund may also retain assets in cash.
MICHIGAN MUNICIPAL SECURITIES
The Michigan municipal securities in which the Michigan Municipal Cash
Fund invests have the characteristics set forth in the prospectus.
A Michigan municipal security which is unrated will be determined by the
Trust's Trustees to be an appropriate investment if it is of comparable
quality to municipal securities within the Fund's rating requirements.
The Trustees consider the creditworthiness of the issuer of a Michigan
municipal security, the issuer of a participation interest if the Fund
has the right to demand payment from the issuer of the interest or the
guarantor of payment by either of those issuers.
If a security loses its rating or the security's rating is reduced below
the required minimum after the Fund purchases it, the Fund is not
required to sell the security. The investment adviser considers this
event, however, in its determination of whether the Fund should continue
to hold the security in its portfolio. If ratings made by a nationally
recognized statistical rating organization ("NRSRO") change because of
changes in those organizations or in their rating systems, the Fund will
try to use comparable ratings as standards in accordance with the
investment policies described in the Fund's prospectus.
Examples of Michigan municipal securities are:
tax-exempt project notes issued by the U.S. Department of Housing and
Urban Development to provide financing for housing, redevelopment, and
urban renewal;
municipal notes and tax-exempt commercial paper;
serial bonds sold with a series of maturity dates;
tax anticipation notes sold to finance working capital needs of
municipalities in anticipation of receiving taxes at a later date;
bond anticipation notes sold in anticipation of the issuance of
longer-term bonds in the future;
revenue anticipation notes sold in expectation of receipt of federal
income available under the Federal Revenue Sharing Program;
construction loan notes insured by the Federal Housing Administration
and financed by the Federal or
Government National Mortgage Association; and
pre-refunded municipal bonds refundable at a later date.
From time to time, such as when suitable Michigan municipal securities
are not available, the Fund may invest a portion of its assets in cash.
Any portion of the Fund's assets maintained in cash will reduce the
amount of assets in Michigan municipal securities and thereby reduce the
Fund's yield.
REPURCHASE AGREEMENTS
- --------------------------------------------------------------------------------
The Funds or their 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 a
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 Funds believe that under the regular procedures
normally in effect for custody of a 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 Funds will
only enter into repurchase agreements with banks and other recognized financial
institutions such as brokers/dealers which are deemed by the Funds' adviser to
be creditworthy pursuant to guidelines established by the Trustees.
The Michigan Municipal Cash Fund will use repurchase agreements only as
temporary investments during times of unusual market conditions for defensive
purposes and to maintain liquidity.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for a Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of a 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 Funds do 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 Fund assets.
REVERSE REPURCHASE AGREEMENTS
The Funds may enter into reverse repurchase agreements. This transaction is
similar to borrowing cash. In a reverse repurchase agreement the Fund transfers
possession of a portfolio instrument to another person, such as a financial
institution, broker, or dealer, in return for a percentage of the instrument's
market value in cash, and agrees that on a stipulated date in the future the
Fund will repurchase the portfolio instrument by remitting the original
consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
The use of reverse repurchase agreements may enable the Funds to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Funds will be able to avoid selling portfolio instruments at a
disadvantageous time.
RESTRICTED AND ILLIQUID SECURITIES
The Prime Money Market Fund and the Michigan Municipal Cash Fund may invest in
restricted securities. All of the Funds may invest in illiquid securities. The
ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under the Securities and Exchange Commission ("SEC")
Staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe harbor for
certain secondary market transactions involving securities subject to
restrictions on resale under federal securities laws. The Rule provides an
exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. The Rule was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities (eligible for resale
under Rule 144A) to the Trustees. The Trustees consider the following criteria
in determining the liquidity of certain restricted securities:
.the frequency of trades and quotes for the securities;
.the number of dealers willing to purchase or sell the security and the number
of other potential buyers;
.dealer undertakings to make a market in the security; and
.the nature of the security and the nature of the marketplace trades.
VARIABLE RATE DEMAND NOTES
The Prime Money Market Fund and the Michigan Municipal Cash Fund may invest in
variable rate demand notes. Variable interest rates generally reduce changes in
the market value of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate securities than for fixed
income obligations.
Many securities with variable interest rates purchased by the Fund are subject
to repayment of principal (usually within seven days) on the Fund's demand. For
purposes of determining the Fund's average maturity, the maturities of these
variable rate demand securities (including participation interests) are the
longer of the periods remaining until the next readjustment of their interest
rates or the periods remaining until their principal amounts can be recovered by
exercising the right to demand payment. The terms of these variable rate demand
instruments require payment of principal and accrued interest from the issuer of
the municipal obligations, the issuer of the participation interests, or a
guarantor of either issuer.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities
on margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
- --------------------------------------------------------------------------------
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that the Funds may
borrow money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its net assets, including the amounts borrowed.
The Funds will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Funds to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Funds will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, a Fund 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 pledge.
UNDERWRITING
The Prime Money Market Fund and the Michigan Municipal Cash Fund will not
underwrite any issue of securities, except as a Fund 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 CASH OR SECURITIES
The Prime Money Market Fund will not lend any of its assets, except that
it may purchase or hold money market instruments, including repurchase
agreements and variable amount demand master notes, in accordance with
its investment objective, policies, and limitations.
The U.S. Treasury Money Market Fund will not lend any of its assets,
except that it may purchase or hold U.S. Treasury obligations, including
repurchase agreements, in accordance with its investment objective,
policies, and limitations.
The Michigan Municipal Cash Fund will not lend of its assets, except that
it may acquire publicly or nonpublicly issued municipal securities or
temporary investments or enter into repurchase agreements in accordance
with its investment objective, policies, and limitations.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR COMMODITY FUTURES
CONTRACTS
The Prime Money Market Fund and the Michigan Municipal Cash Fund will not
purchase or sell commodities, commodity contracts, or commodity futures
contracts.
INVESTING IN REAL ESTATE
The Prime Money Market Fund and the Michigan Municipal Cash Fund will not
purchase or sell real estate, although it may invest in the securities of
issuers whose business involves the purchase or sale of real estate or in
securities which are secured by real estate or interests in real estate.
INVESTING IN RESTRICTED SECURITIES
The Prime Money Market Fund will not invest more than 10% of Fund net
assets in securities subject to restrictions on resale under the federal
securities laws, except for Section 4(2) commercial paper.
The Michigan Municipal Cash Fund will not invest more than 10% of the
value of its net assets in securities subject to restrictions on resale
under the Securities Act of 1933.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its assets, the Prime Money Market
Fund will not purchase securities of any one issuer (other than
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities) if as a result more than 5% of the
value of its total assets would be invested in the securities of that
issuer.
The Michigan Municipal Cash Fund will not invest more than 10% of its
total assets in the securities of any one issuer (except cash and cash
items, repurchase agreements collateralized by U.S. government securities
and U.S. government obligations) with respect to securities comprising
75% of its assets.
- --------------------------------------------------------------------------------
Under this limitation each governmental subdivision, including states and
the District of Columbia, territories, possessions of the United States,
or their political subdivisions, agencies, authorities,
instrumentalities, or similar entities, will be considered a separate
issuer if its assets and revenues are separate from those of the
governmental body creating it and the security is backed only by its own
assets and revenues.
Industrial development bonds, backed only by the assets and revenues of a
nongovernmental user, are considered to be issued solely by that user. If
in the case of an industrial development bond or governmental-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the guarantor
as well as the other issuer, subject to limited exclusions allowed by the
Investment Company Act of 1940.
CONCENTRATION OF INVESTMENTS
The Prime Money Market Fund will not invest 25% or more of the value of
its total assets in any one industry.
However, investing in bank instruments (such as time and demand deposits
and certificates of deposit), U.S. government obligations or instruments
secured by these money market instruments, such as repurchase agreements,
shall not be considered investments in any one industry.
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 SECURITIES OF OTHER INVESTMENT COMPANIES
The Prime Money Market Fund and the Michigan Municipal Cash Fund can
acquire up to 3 per centum of the total outstanding stock of other
investment companies. The Funds will not be subject to any other
limitations with regard to the acquisition of securities of other
investment companies so long as the public offering price of the Funds'
shares does not include a sales load exceeding 1-1/2 percent. The Funds
will purchase securities of investment companies only in open-market
transactions involving only customary broker's commissions. However,
these limitations are not applicable if the securities are acquired in a
merger, consolidation, reorganization, or acquisition of assets.
The U.S. Treasury Money Market Fund will not purchase securities of other
investment companies except as part of a merger, consolidation,
reorganization, or other acquisition.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, certain restricted
securities not determined by the Trustees to be liquid, and
non-negotiable fixed time deposits with maturities over seven days.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Prime Money Market Fund and the Michigan Municipal Cash Fund will not
purchase or retain the securities of any issuer if the officers and
Trustees of the Trust or its investment adviser owning individually more
than .5 of 1% of the issuer's securities together own more than 5% of the
issuer's securities.
INVESTING IN NEW ISSUERS
The Prime Money Market Fund will not invest more than 5% of the value of
its total assets in securities of issuers which have records of less than
three years of continuous operations, including the operation of any
predecessor.
The Michigan Municipal Cash Fund will not invest more than 5% of the
value of its total assets in industrial development bonds where payment
of principal and interest is the responsibility of companies (or in the
alternative, guarantors, where applicable) which have records of less
than three years of continuous operations, including the operation of any
predecessor.
INVESTING IN MINERALS
The Prime Money Market Fund will not purchase interests in oil, gas, or
other mineral exploration or development programs, except it may purchase
the securities of issuers which invest in or sponsor such programs.
- --------------------------------------------------------------------------------
DEALING IN PUTS AND CALLS
The Michigan Municipal Cash Fund will not purchase or sell puts, calls,
straddles, spreads, or any combination of them, except that the Fund may
purchase municipal securities accompanied by agreements of sellers to
repurchase them at the Fund's option.
In order to comply with the registration requirements of a particular state, the
Prime Money Market Fund and the Michigan Municipal Cash Fund will not invest in
real estate limited partnerships and oil, gas or other mineral leases. If this
state's policy changes, these restrictions may be revised without shareholder
notification.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of 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.
The Funds did not borrow money, pledge securities, invest in illiquid
securities, restricted securities, or engage in when-issued and delayed delivery
transactions or reverse repurchase agreements in excess of 5% of the value of
Fund net assets during the last fiscal period and have no present intent to do
so during the coming fiscal year.
MICHIGAN MUNICIPAL CASH FUND INVESTMENT RISKS
- --------------------------------------------------------------------------------
The Michigan economy has diversified away from durable goods manufacturing with
service sector employment currently at approximately 25% of total employment.
However, manufacturing, and the automobile sector in particular, still have
significant influence over the State's economy. Michigan's economy tends to
fluctuate with the cyclical trends of the manufacturing sector, which still
accounts for nearly 23% of total state employment. The State's unemployment rate
is below the national unemployment rate for the first time in almost 20 years
reflecting both the diversification of the regional economy and significant
improvement in the automobile sector and related industries.
Michigan's finances were hard hit during the 1990 and 1991 fiscal periods.
Spending cuts and an improving state economy resulted in surplus revenues of
$254 million in fiscal 1992. As a result of continuing surplus funds in fiscal
years 1993 and 1994, Michigan's budget stabilization fund reached an
historically high level of $779 million at the end of fiscal 1994, with an
additional increase now projected for the year ended September 30, 1995. The
State of Michigan maintains a conservative debt position with per capita debt
remaining below the national average.
On August 19, 1993, the Governor of Michigan signed into law Act 145, Public
Acts of Michigan, 1993 ("Act 145") a measure which would have significantly
impacted financing of primary and secondary school operations and which has
resulted in additional property tax and school finance reform legislation. Act
145 would have exempted all property in the State of Michigan from millage
levied for local and intermediate school districts operating purposes, other
than millage levied for community colleges, effective July 1, 1994. In order to
replace local property tax revenues lost as a result of Act 145, the Michigan
Legislature, in December 1993, enacted several statutes which address property
tax and school finance reform. Education reform legislation not dealing with
school finance was also enacted.
The property tax and school finance reform measures included a ballot proposal
("Proposal A") which was subject to voter approval and in fact approved on March
15, 1994, and a statutory proposal which would have automatically taken effect
if Proposal A had not been approved. Under Proposal A as approved, effective May
1, 1994, the state sales and use tax was increased from 4% to 6%, the state
income tax was decreased from 4.6% to 4.4%, the cigarette tax was increased from
$.25 to $.75 per pack and an additional tax of 16% of the wholesale price was
imposed on certain other tobacco products. A 0.75% real estate transfer tax was
effective January 1, 1995. Beginning in 1994, a state property tax of 6 mills
was imposed on all real and personal property currently subject to the general
property tax. The ability of school districts to levy property taxes for school
operating purposes was restored. A school board may, with voter approval, be
able to levy up to the lesser of 18 mills or the number of mills levied in 1993
for school operating purposes, on non-homestead property. Proposal A contains
additional provisions regarding the ability of local school districts to levy
taxes as well as a limit on assessment increases for each parcel of property,
beginning in 1995 to the lesser of 5% or the rate of inflation. When property is
subsequently sold, its assessed value will revert to the current assessment
level of 50% of true cash value. Under Proposal A, much of the additional
revenue generated by the new taxes will be dedicated to the State School Aid
Fund.
Proposal A contains a system of financing local school operating costs which
relies upon a foundation allowance amount which may vary by district based upon
historical spending levels. State funding will provide each school district an
amount equal to the difference between its foundation allowance and the revenues
generated by its local property tax levy. Under Proposal A, a local school
district will also be entitled to levy supplemental property taxes to generate
additional revenues if its foundation allowance is less than its historical per
pupil expenditures. Proposal A also contains provisions which allow for the levy
of a limited number of enhancement mills on regional and local district bases.
Proposal A shifts significant portions of the cost of local school operations
from local districts to the state and raises additional state revenues to fund
these additional State expenses. These additional revenues will be included
within the State's Constitutional revenue limitations and may impact the State's
ability to raise additional revenues in the future. The credit impact on local
school districts is that revenue growth is linked closely to state economy and
local enrollment.
INDEPENDENCE ONE MUTUAL FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, birthdates, principal
occupations, and present positions, including any affiliation with Michigan
National Bank, Michigan National Corporation, Federated Investors, Federated
Securities Corp., Federated Administrative Services, and Federated Services
Company.
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE
YEARS
<S> <C> <C>
Robert E. Baker Trustee Retired; formerly,
Vice Chairman, Chrysler Financial Corporation.
4327 Stoneleigh Road
Bloomfield Hills, MI
Birthdate: May 6, 1930
Harold Berry Trustee Managing Partner,
Berry Enterprises; Chairman, Independent
100 Galleria Officentre, Sprinkler Companies,
Inc.; formerly, Chairman, Executive
Suite 219 Committee, Federal
Enterprises, Inc.; Chairman, Berry, Ziegelman &
Southfield, MI Company.
Birthdate: September 17, 1925
Clarence G. Frame+ Trustee Director, Tosco
Corporation, Chicago Milwaukee Corporation, and
W-875 First Bank Building Voyageur Funds Group;
formerly, Vice Chairman, First Bank System,
332 Minnesota Street Inc., and President,
The First National Bank of St. Paul, a
St. Paul, MN subsidiary of First
Bank System, Inc.
Birthdate: July 26, 1918
Harry J. Nederlander+* Trustee Chairman, Nederlander
Enterprises.
231 S. Woodward,
Suite 219
Birmingham, MI
Birthdate: September 5, 1917
Thomas S. Wilson Trustee President and
Executive Administrator of the Detroit Pistons;
Two Championship Drive President, Arena
Associates, Inc.
Auburn Hills, MI
Birthdate: October 9, 1949
Edward C. Gonzales President and Executive Vice
President, Treasurer and Director, Federated
Federated Investors Tower Treasurer Securities Corp.;
Chairman, Treasurer and Trustee, Federated
Pittsburgh, PA Administrative
Services; Vice President, Treasurer and Trustee,
Birthdate: October 22, 1930 Federated Investors.
Jeffrey W. Sterling Vice President Vice President,
Federated Administrative Services.
Federated Investors Tower and Assistant
Pittsburgh, PA Treasurer
Birthdate: February 5, 1947
Jay S. Neuman Secretary Corporate Counsel,
Federated Investors; prior to
Federated Investors Tower January 1991,
Associate Counsel, The Boston Company Advisors, Inc.
Pittsburgh, PA
Birthdate: April 22, 1950
</TABLE>
+Members 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 list indicates the beneficial ownership of shareholders who are
the beneficial owners of more than 5% of the outstanding shares of the following
Funds as of August 4, 1995: Michigan National Bank, acting in various capacities
for numerous accounts, owned, of record, approximately 137,367,652 shares
(50.22%) of Prime Money Market Fund Class A Shares; approximately 18,825,686
shares (87.15%) of Prime Money Market Fund Class B Shares; approximately
105,026,182 shares (40.80%) of U.S. Treasury Money Market Fund; and
approximately 13,744,716 shares (19.63%) of Michigan Municipal Cash Fund. In
addition, Robert Phelps, Bingham Farms, Michigan, owned approximately 2,776,091
shares (12.85%) of Prime Money Market Fund Class B Shares; Value Rx, Inc.,
Bloomfield, Michigan, owned approximately 36,566,278 shares (14.20%) of U.S.
Treasury Money Market Fund; Christman Company, Lansing, Michigan, owned
approximately 6,317,182 shares (9.02%) of Michigan Municipal Cash Fund; Oak Mall
Shopping Center, Troy, Michigan, owned approximately 4,236,052 shares (6.05%) of
Michigan Municipal Cash Fund; and Clark Construction Company, Inc., Lansing,
Michigan, owned approximately 3,733,206 shares (5.33%) of Michigan Municipal
Cash Fund.
TRUSTEES' COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, POSITION COMPENSATION
WITH TRUST FROM TRUST*
<S> <C>
Robert E. Baker $8,500
Trustee
Harold Berry $8,500
Trustee
Clarence G. Frame $8,500
Trustee
Harry J. Nederlander $8,500
Trustee
Thomas S. Wilson $7,650
Trustee
</TABLE>
*The aggregate compensation is provided for the Trust. The Trust is the only
Investment Company in the Fund Complex. Information is furnished for the fiscal
year ended April 30, 1995, during which the Trust was 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 Adviser shall not be liable to the Trust, the Funds, or any shareholder of
the Funds 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.
ADVISORY FEES
For its advisory services, Michigan National Bank receives an annual investment
advisory fee as described in the prospectus.
<TABLE>
<CAPTION>
1995
1994 1993
ADVISORY ADVISORY
ADVISORY ADVISORY ADVISORY ADVISORY
PORTFOLIO FEE FEE WAIVER
FEE FEE WAIVER FEE FEE WAIVER
<S> <C> <C>
<C> <C> <C> <C>
Prime Money Market Fund........................... $ 1,066,096 $ 0 $
1,497,420 $ 64,765 $ 1,437,564 $ 158,210
U.S. Treasury Money Market Fund................... 983,049 0
832,041 586 935,189 196,055
Michigan Municipal Cash Fund...................... 248,836 128,411
299,965 163,601 351,532 174,669
</TABLE>
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 Funds for the fees set forth in the
prospectus.
<TABLE>
<CAPTION>
1995 1994 1993
ADMINISTRATIVE ADMINISTRATIVE ADMINISTRATIVE
PORTFOLIO
FEE FEE FEE
<S>
<C> <C> <C>
Prime Money Market
Fund........................................................... $ 344,553
$ 470,126 $ 457,734
U.S. Treasury Money Market
Fund................................................... 317,759
262,246 297,053
Michigan Municipal Cash
Fund...................................................... 80,489
94,272 111,949
</TABLE>
CUSTODIAN
- --------------------------------------------------------------------------------
For its services as custodian, Michigan National Bank receives an annual fee,
payable monthly, based on a percentage of each Fund's average aggregate daily
net assets and the number and type of transactions, 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:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
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 without a sales charge 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 Funds is
explained in the prospectus under "Investing in the Fund."
DISTRIBUTION PLAN (U.S. TREASURY MONEY MARKET FUND AND MICHIGAN MUNICIPAL CASH
FUND ONLY)
The Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the
Securities and Exchange Commission pursuant to the Investment Company Act of
1940 (the "Plan"). The Plan provides for payment of fees to Federated Securities
Corp. to finance any activity which is principally intended to result in the
sale of the Funds' shares subject to the Plan. Such activities may include the
advertising and marketing of shares; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or
administrators; and implementing and operating the Plan. Pursuant to the Plan,
Federated Securities Corp. may pay fees to brokers for distribution and
administrative services and to administrators for administrative services as to
shares. The administrative services are provided by a representative who has
knowledge of the shareholder's particular circumstances and goals, and include,
but are not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption transactions;
providing or arranging to provide accounting support for all transactions,
wiring funds and receiving funds for share purchases and redemptions, confirming
and reconciling all transactions, reviewing the activity in Fund accounts, and
providing training and supervision of broker personnel; posting and reinvesting
dividends to Fund accounts or arranging for this service to be performed by the
Funds' transfer agent; and maintaining and distributing current copies of
prospectuses and shareholder reports to the beneficial owners of shares and
prospective shareholders.
The Board of Trustees expects that the Plan will result in the sale of a
sufficient number of shares so as to allow the Funds to achieve economic
viability. It is also anticipated that an increase in the size of each Fund will
facilitate more efficient portfolio management and assist each Fund in seeking
to achieve its investment objective.
SHAREHOLDER SERVICES PLAN (PRIME MONEY MARKET FUND CLASS A SHARES ONLY)
This arrangement permits the payment of fees to Michigan National Bank and
financial institutions to cause services to be provided which are necessary for
the maintenance of shareholder accounts and to encourage personal services to
shareholders by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may include,
but are not limited to: providing office space, equipment, telephone facilities,
and various clerical, supervisory, computer and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of a
client's account cash balance; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses. By
adopting the Shareholder Services Plan on behalf of Class A Shares, the Board of
Trustees expects that the Class A Shares will benefit by: (1) providing personal
services to shareholders; (2) investing shareholder assets with a minimum of
delay and administrative detail; (3) enhancing shareholder recordkeeping
systems; and (4) responding promptly to shareholders' requests and inquiries
concerning their accounts.
- --------------------------------------------------------------------------------
CONVERSION TO FEDERAL FUNDS
It is the Funds' 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. Federated Services Company
acts as the shareholder's agent in depositing checks and converting them to
federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Funds attempt to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Funds are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Funds' use of the amortized cost method of valuing portfolio instruments
depends on its compliance with Rule 2a-7, as amended (the "Rule"), under the
Investment Company Act of 1940. Under the Rule, the Trustees must establish
procedures reasonably designed to stabilize the net asset value per share, as
computed for purposes of distribution and redemption, at $1.00 per share, taking
into account current market conditions and the Fund's investment objective.
Under the Rule, a Fund is permitted to purchase instruments which are subject to
demand features or standby commitments. As defined by the Rule, a demand feature
entitles the Fund to receive the principal amount of the instrument from the
issuer or a third party on (1) no more than 30 days' notice or (2) at specified
intervals not exceeding one year on no more than 30 days' notice. A standby
commitment entitles the Fund to achieve same day settlement and to receive an
exercise price equal to the amortized cost of the underlying instrument plus
accrued interest at the time of exercise.
Although demand features and standby commitments are defined as "puts" under the
Rule, the Prime Money Market Fund and the Michigan Municipal Cash Fund do not
consider them to be "puts" as that term is used in the Funds' investment
limitations. Demand features and standby commitments are features which enhance
an instrument's liquidity, and the investment limitation which proscribes puts
is designed to prohibit the purchase and sale of put and call options and is not
designed to prohibit a Fund from using techniques which enhance the liquidity of
portfolio instruments.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
.5 of 1% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
The Rule requires that each Fund limit its investments to instruments
that, in the opinion of the
Trustees, present minimal credit risks, and have received the requisite
rating from one or more nationally recognized statistical rating
organizations. If the instruments are not rated, the Trustees must
determine that they are of comparable quality. The Rule also requires
each Fund to maintain a dollar-weighted average portfolio maturity (not
more than 90 days) appropriate to the objective of maintaining a stable
net asset value of $1.00 per share. In addition, no instrument with a
remaining maturity of more than 397 days can be purchased by a Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Funds may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
- --------------------------------------------------------------------------------
In periods of declining interest rates, the indicated daily yield on shares,
computed by dividing the annualized daily income on the Fund's portfolio by the
net asset value computed as above, may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates.
In periods of rising interest rates, the indicated daily yield on shares,
computed the same way may tend to be lower than a similar computation made by
using a method of calculation based upon market prices and estimates.
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 Funds redeem 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 Funds intend to redeem shares in cash, they reserve 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
Funds reserve 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 a 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 FUNDS' TAX STATUS
The Funds intend to pay no federal income tax because they expect 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, a Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by a Fund is eligible for the dividends
received deduction available to corporations. Any short-term capital gains are
taxable as ordinary income.
YIELD
- --------------------------------------------------------------------------------
The Prime Money Market Fund's yield for the seven-day period ended April 30,
1995, was 5.55% for Class A Shares.
The U.S. Treasury Money Market Fund's yield for the seven-day period ended April
30, 1995, was 5.42%.
- --------------------------------------------------------------------------------
The Michigan Municipal Cash Fund's yield for the seven-day period ended April
30, 1995, was 3.66%.
The Funds calculate yield daily, based upon the seven days ending on the day of
the calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a
balance of one share at the beginning of the base period, with the net change
excluding capital changes but including the value of any additional shares
purchased with dividends earned from the original one share and all dividends
declared on the original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in a Fund,
the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Prime Money Market Fund's effective yield for the seven-day period ended
April 30, 1995, was 5.71% for Class A Shares.
The U.S. Treasury Money Market Fund's effective yield for the seven-day period
ended April 30, 1995, was 5.57%.
The Michigan Municipal Cash Fund's effective yield for the seven-day period
ended April 30, 1995, was 3.72%.
The Funds' effective yield is computed by compounding the unannualized base
period return by:
adding 1 to the base period return;
raising the sum to the 365/7th power; and
subtracting 1 from the result.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The Michigan Municipal Cash Fund's tax-equivalent yield for the seven-day period
ended April 30, 1995, was 5.42%, assuming an effective tax rate of 32.47%.
The tax-equivalent yield of the Fund is calculated similarly to the yield, but
is adjusted to reflect the taxable yield that the Fund would have had to earn to
equal its actual yield, assuming a specified tax rate and assuming that income
is 100% tax-exempt.
- --------------------------------------------------------------------------------
TAX-EQUIVALENCY TABLE
The Michigan Municipal Cash Fund may use a tax-equivalency table in advertising
and sales literature. The interest earned by the municipal bonds in the Fund's
portfolio generally remains free from federal regular income tax,* and is free
from the state income tax imposed by the state of Michigan. As the table
indicates, a "tax-exempt" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable yields.
<TABLE>
<CAPTION>
TAXABLE YIELD EQUIVALENT FOR 1995
STATE OF MICHIGAN
- --------------------------------------------------------------------------------
- ---------------------------
COMBINED FEDERAL AND STATE INCOME TAX
BRACKET:
19.47% 32.47% 35.47% 40.47%
44.07%
- --------------------------------------------------------------------------------
- ---------------------------
<S> <C> <C> <C> <C> <C>
<C> <C>
JOINT RETURN: $1-39,000 $39,001-94,250 $94,251-143,600 $143,601-
256,500 OVER $256,500
SINGLE RETURN:
$1-23,350 $22,351-56,550 $56,551-117,950 $117,951-
256,500 OVER $256,500
- --------------------------------------------------------------------------------
- ---------------------------
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
- --------------------------------------------------------------------------------
- ---------------------------
<S> <C> <C> <C> <C> <C>
<C> <C>
1.50% 1.86% 2.22% 2.32% 2.52%
2.68%
2.00% 2.48% 2.96% 3.10% 3.36%
3.58%
2.50% 3.10% 3.70% 3.87% 4.20%
4.47%
3.00% 3.73% 4.44% 4.65% 5.04%
5.36%
3.50% 4.35% 5.18% 5.42% 5.88%
6.26%
4.00% 4.97% 5.92% 6.20% 6.72%
7.15%
4.50% 5.59% 6.66% 6.97% 7.56%
8.05%
5.00% 6.21% 7.40% 7.75% 8.40%
8.94%
5.50% 6.83% 8.14% 8.52% 9.24%
9.83%
6.00% 7.45% 8.88% 9.30% 10.08%
10.73%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes
paid on comparable taxable investments were not used to increase federal
deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal alternative
minimum tax and state and local income taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Funds' performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in Fund expenses; and
the relative amount of Fund cash flow.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' 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 Funds use in advertising may include:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, a Fund will quote its ranking in its respective Lipper
category in advertising and sales literature.
MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, a Fund will quote its Money ranking in advertising and sales
literature.
- --------------------------------------------------------------------------------
Advertisements and other sales literature for either class of shares may refer
to total return. Total return is the historic change in the value of an
investment in either class of shares based on the monthly reinvestment of
dividends over a specified period of time.
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Financial Statements for the fiscal year ended April 30, 1995 are
incorporated herein by reference to the respective Annual Report of each Fund
dated April 30, 1995 (File Nos. 33-29808 and 811-5843). A copy of a Fund's
Annual Report may be obtained without charge by contacting the Trust.
Cusip 4537203
Cusip 4537302
Cusip 4537708
Cusip 4537104 009901 (8/95)
