1933 Act File No. 33-26516
1940 Act File No. 811-5752
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 12 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 13 X
INDEPENDENCE ONE MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
on __________ pursuant to paragraph (b)(1)(v)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i)
X 75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
filed the Notice required by that Rule on _____________; or
X intends to file the Notice required by that Rule on or about
June 15, 1995; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
CROSS REFERENCE SHEET
This Amendment to the Registration Statement of INDEPENDENCE ONE
MUTUAL FUNDS which consists of 4 portfolios: (1) Independence One
Michigan Municipal Cash Fund; (2a) Independence One Prime Money Market
Fund - Class A Shares; (2b) Independence One Prime Money Market Fund -
Class B Shares; (3) Independence One U.S. Treasury Money Market Fund;
(4) Independence One U.S. Government Securities Fund, (5) Independence
One Equity Plus Fund; (6) Independence One Fixed Income Fund; and (7)
Independence One Michigan Municipal Bond Fund, relates only to
Independence One Equity Plus Fund, Independence One Fixed Income Fund,
and Independence One Michigan Municipal Bond Fund, and is comprised of
the following (all Funds have been referenced below to maintain
consistency among the Registrant's filings and to facilitate the cross-
referencing process):
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-7) Cover Page.
Item 2. Synopsis (1-7) Summary of Fund Expenses.
Item 3. Condensed Financial
Information (1, 2a,3,4) Financial Highlights;
(1-7) Performance Information.
Item 4. General Description of
Registrant (1-7) General Information; (1-7)
Investment Objective; (1-7)
Investment Policies; (1-7)
Investment Limitations; (1,2,7)
Investment Risks; (7) Michigan
Municipal Securities; Non-
Diversification; (5) Equity
Investment Considerations, Standard
& Poor's Ratings Group.
Item 5. Management of the Fund (1-7) Independence One Mutual Funds
Information; (1-7) Management of
Independence One Mutual Funds; (7)
Sub-Adviser; (1,3-7) Distribution
of Fund Shares; (2a) Distribution
of Class A Shares; (2b)
Distribution of Class B Shares; (1-
7) Administration of the Fund;
(1,3) Distribution Plan; (2a)
Shareholder Services Plan; (2a, 2b)
Other Classes of Shares.
Item 6. Capital Stock and Other
Securities (1-7) Dividends; (1-7) Capital
Gains; (1-7) Shareholder
Information; (1-7) Voting Rights;
(1-7) Massachusetts Partnership
Law; (1-7) Effect of Banking Laws;
(1-7) Tax Information; (1-7)
Federal Income Tax; (1) State and
Local Taxes; (7) Michigan Taxes;
Other State and Local Taxes.
Item 7. Purchase of Securities Being
Offered (1-7) Net Asset Value; (1,3-7)
Investing in the Fund; (2a)
Investing in Class A Shares; (2b)
Investing in Class B Shares;
Item 8 Redemption or Repurchase (1,3-7) Redeeming Shares; (2a)
Redemming Class A Shares; (2b)
Redeeming Class B Shares;
(1-7) Exchange Privilege.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page (1-7) Cover Page.
Item 11. Table of Contents (1-7) Table of Contents.
Item 12. General Information and
History (1-7) General Information About the
Fund; (5) Standard & Poor's Ratings
Group.
Item 13. Investment Objectives and
Policies (1-7) Investment Objective and
Policies; (7) Michigan Investment
Risks.
Item 14. Management of the Fund (1-7) Independence One Mutual Funds
Management.
Item 15. Control Persons and Principal
Holders of Securities Not applicable.
Item 16. Investment Advisory and Other
Services (1-7) Investment Advisory Services;
(1-7) Administrative Services.
Item 17. Brokerage Allocation (1-7) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered (1-7) Purchasing Shares; (1-7)
Determining Net Asset Value; (1-7)
Redeeming Shares; (1-7) Exchange
Privilege.
Item 20. Tax Status (1-4) Tax Status.
Item 21. Underwriters (1,3,4) Distribution Plan; (2a)
Shareholder Services Plan.
Item 22. Calculation of Yield
Quotations of Money Market
Funds (1-7) Performance Comparisons;
Yield; (1,7) Tax Equivalent Yield;
(1-3) Effective Yield; (4-7) Yield;
(5-7) Total Return.
Item 23. Financial Statements (1,3,4) filed in
Part A; (2a) financial statements
dated April 30, 1994 are incorporated
into the Fund's prospectus by
reference to Part A of Registrant's
Post- Effective Amendment No. 10
as filed on February 28, 1995 (File
Nos. 33- 26516 and 811-5752),
specifically the section entitled
"Financial Statements;" and the Fund's
unaudited financial statements dated
October 31, 1994 are incorporated
into the Fund's Statement of
Additional Information by reference
to the Fund's Semi-Annual Report
dated October 31, 1994 as filed on
January 3, 1995 (File No. 811-5752)
as per Rule 3-18 of Regulation S-X;
(5-7) to be filed by amendment.
INDEPENDENCE ONE EQUITY PLUS FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
PROSPECTUS
The shares of Independence One Equity Plus Fund (the "Fund") offered by this
prospectus represent interests in the Fund which is a diversified portfolio and
one of a series of investment portfolios in Independence One Mutual Funds (the
"Trust"), an open-end management investment company (a mutual fund). Michigan
National Bank professionally manages the Fund's portfolio.
The investment objective of the Fund is total return. The Fund will pursue this
objective by attempting to provide investment results that correspond to or
exceed the aggregate price and dividend performance of the Standard & Poor's 100
Index (the "S&P 100") by investing primarily in the common stocks comprising the
S&P 100. The Fund is neither affiliated with nor sponsored by the Standard &
Poor's Ratings Group ("S&P").
Shares of the Fund are intended to be sold as an investment vehicle for
institutions, corporations, fiduciaries and individuals. Shareholders can
invest, reinvest, or redeem shares at any time without charge or penalty imposed
by the Fund. Shareholders have access to other portfolios of the Trust through
an exchange program.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MICHIGAN NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY MICHIGAN NATIONAL
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES
INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
, 1995 with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is incorporated
by reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by writing to the Fund or calling toll-free
1-800-334-2292.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated , 1995
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 3
Stock Index Futures and Options 4
Temporary Investments 5
Equity Investment Considerations 6
Investment Limitations 6
INDEPENDENCE ONE MUTUAL FUND
INFORMATION 6
- ------------------------------------------------------
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 6
Adviser's Background 6
Sub-Adviser 8
Distribution of Fund Shares 8
Administration of the Fund 8
Administrative Services 8
Custodian 8
Transfer Agent and
Dividend Disbursing Agent 9
Independent Auditors 9
Expenses of the Fund 9
NET ASSET VALUE 9
- ------------------------------------------------------
INVESTING IN THE FUND 9
- ------------------------------------------------------
Share Purchases 9
To Place an Order 9
Minimum Investment Required 10
What Shares Cost 10
Certificates and Confirmations 10
Dividends and Capital Gains 10
EXCHANGING SECURITIES FOR FUND SHARES 11
- ------------------------------------------------------
EXCHANGE PRIVILEGE 11
- ------------------------------------------------------
Exchange by Telephone 12
Written Exchange 13
REDEEMING SHARES 13
- ------------------------------------------------------
By Telephone 13
By Mail 13
Accounts with Low Balances 14
SHAREHOLDER INFORMATION 14
- ------------------------------------------------------
Voting Rights 14
Massachusetts Partnership Law 15
EFFECT OF BANKING LAWS 15
- ------------------------------------------------------
TAX INFORMATION 16
- ------------------------------------------------------
Federal Income Tax 16
PERFORMANCE INFORMATION 16
- ------------------------------------------------------
STANDARD & POOR'S RATINGS GROUP 17
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).................................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver)(1)......................................................................... %
12b-1 Fees............................................................................................... None
Total Other Expenses (after waiver)(2)................................................................... %
Total Fund Operating Expenses(3).................................................................... %
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.40%.
(2) Total Other Expenses are estimated to be % absent the anticipated
voluntary waiver by the administrator.
(3) The Total Fund Operating Expenses are estimated to be % absent the
anticipated voluntary waivers detailed in notes (1) and (2).
*Annual Fund Operating Expenses in the table above are estimated based on
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 amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR A MORE COMPLETE DESCRIPTION OF THE VARIOUS COSTS AND
EXPENSES, SEE "INDEPENDENCE ONE MUTUAL FUNDS INFORMATION" AND "INVESTING IN THE
FUND." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<S> <C> <C>
EXAMPLE 1 YEAR 3 YEAR
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period.
The Fund charges no redemption fees............................................................. $ $
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING APRIL 30, 1996.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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 representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes. This
prospectus relates only to the Trust's portfolio known as Independence One
Equity Plus Fund. As of the date of this prospectus, the Fund does not offer
separate classes of shares.
Shares of the Fund are designed primarily for individuals and institutions as a
convenient means of accumulating an interest in a professionally-managed,
diversified portfolio investing substantially in the common stocks of companies
with very large market capitalization. A minimum initial investment of $1,000 is
required. Subsequent investments must be in the amount of at least $100.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is total return. The investment objective
cannot be changed without the approval of shareholders. While there is no
assurance that the Fund will achieve its investment objective, it endeavors to
do so by following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund will pursue its investment objective by attempting to provide
investment results that correspond to or exceed the aggregate price and dividend
performance of the S&P 100 by investing primarily in the common stocks
comprising
the S&P 100. Unless indicated otherwise, the investment policies of the Fund may
be changed by the Board of Trustees ("Trustees") without the approval of
shareholders. Shareholders will be notified before any material change in these
policies becomes effective.
The S&P 100 is a capitalization-weighted index of 100 stocks from a broad range
of industries. It provides a measure of overall large company performance
because it comprises 100 blue chip stocks from diverse industry groups. The
component stocks are weighted according to the total market value of their
outstanding shares. The impact of a component's price change is proportional
to the issue's total market value, which is the share price time the number
of shares outstanding. These are summed for all 100 stocks and divided by a
predetermined base value. The base value for the S&P 100 is adjusted to
reflect changes in capitalization resulting from mergers, acquisitions, stock
rights and substitutions. Inclusion of a particular stock in the S&P 100 in no
way implies an opinion by S&P as to its investment attractiveness, nor is S&P
a sponsor or in any way affiliated with the Fund.
Under normal circumstances, at least 80% of the Fund's assets will be invested
to correspond as closely as possible to the relative weighting of the S&P 100.
With respect to this 80% investment level, the Fund will attempt to
achieve a high degree of correlation between the performance of its portfolio
and that of the S&P 100. In managing this portion of the Fund's assets,
Michigan National Bank (the "Adviser") and Sosnoff Sheridan Group (the
"Sub-Adviser") (collectively, the "Advisers") will utilize a technique called
index fund management which entails the use of a computer program to track
the S&P 100 on a daily basis. The Advisers will purchase and sell securities
from the Fund's portfolio as necessary to continually and accurately duplicate
the composition of the S&P 100, as appropriate, as it changes over time. The
Advisers will continually assess the validity of the adjustments made to the
Fund's portfolio.
With respect to the remaining 20% of the Fund's assets, the Advisers will
normally select common stocks that are included in the S&P 100, the weightings
of which may or may not be identical to that of the S&P 100. These weightings
will be determined by the Advisers in an effort to exceed the total return
performance of the S&P 100. Several criteria are considered in selecting
those stocks that, in the Advisers' opinion, are likely to have above-average
performance. These criteria include: (1) projections by securities analysts of
the stock's earnings and dividend growth; (2) growth potential, as measured by
reinvestment of a high portion of a company's current earnings; (3) improving
earnings outlook, as determined based upon surveys of Wall Street securities
analysts; (4) technical measures, such as rising trading volume indicating an
increasing investor interest in a stock; and (5) dividend yield, with preference
being given to high-yield stocks and stocks of companies which pay no dividends
and retain their earnings to finance growth.
The Fund's ability to provide investment results that correspond to or exceed
the aggregate price and dividend performance of the S&P 100 will depend
partly on the size and timing of cash flows into and out of the Fund. Investment
changes to accommodate these cash flows will be made to maintain the similarity
of the Fund's portfolio to the S&P 100, with respect to the 80%
investment level described above, to the maximum practicable extent. With
respect to the reciprocal 20% investment level described above, changes will be
made to accommodate cash flows, as appropriate. From time to time, adjustments
may be made in the Fund because of changes in the composition of the S&P 100 as
announced by S&P. It is anticipated that these adjustments will occur
infrequently, and therefore, the accompanying costs, including brokerage fees,
custodial expenses, and transfer taxes, are expected to be relatively low.
Portfolio turnover is also expected to be lower than for most other investment
companies. The adverse financial situation of an issuer may not directly result
in the elimination of its securities from the portfolio, unless the securities
are removed from the S&P 100. The Fund reserves the right to remove an
investment
from the Fund if, in the Advisers' opinion, the merit of the investment has been
substantially impaired by extraordinary events or financial conditions.
ACCEPTABLE INVESTMENTS
In addition to the investment policies described above, the Fund may utilize
stock index futures contracts and options on stocks, stock indices and stock
index futures contracts for the purposes of managing cash flows into and out of
the Fund's portfolio and potentially reducing transactional costs. The Fund will
only enter into stock index futures contracts for the purpose of offsetting
risks from other positions.
The Fund may hold cash reserves which may be invested in temporary investments
which include, but are not limited to, short-term money market instruments, U.S.
government securities (including variable rate U.S. government securities), and
repurchase agreements. The Fund may also lend portfolio securities to generate
additional income.
STOCK INDEX FUTURES AND OPTIONS. The Fund may utilize stock index futures
contracts, options, and options on futures contracts, subject to the limitation
that the value of these futures contracts and options will not exceed 20% of the
Fund's total assets. Also the Fund will not purchase options to the extent that
more than 5% of the value of the Fund's total assets would be invested in
premiums on open option positions.
These contracts and options will serve three purposes. First, the contracts,
some of which require a small margin, will allow the Fund to maintain sufficient
liquidity to meet redemption requests, thereby handling cash flows into and out
of the Fund. In addition, the contracts will increase the level of Fund assets
that may be devoted to attempting to approximate the investment return of the
S&P 100. Third, participation in futures contracts could potentially
reduce transaction costs, since transaction costs associated with futures and
options contracts can be lower than costs stemming from direct investments in
stocks.
There are several risks accompanying the utilization of futures contracts to
effectively anticipate market movements. First, positions in futures contracts
may be closed only on an exchange or board of trade that furnishes a secondary
market for such contracts. While the Fund plans to utilize futures contracts
only if an active market for such contracts exists, there is no guarantee that a
liquid market will exist for the contracts at a specified time. Furthermore,
because, by definition, futures contracts look to projected price levels in the
future, and not to current levels of valuation, market circumstances may result
in there being a discrepancy between the price of the stock index future and the
movement in the corresponding stock index. The absence of a perfect price
correlation between the futures contract and its underlying stock index could
stem from investors choosing to close futures contracts by offsetting
transactions, rather than satisfying additional margin requirements. This could
result in a distortion of the relationship between the index and futures market.
In addition, because the futures market imposes less burdensome margin
requirements than the securities market, an increased amount of participation by
speculators in the futures market could result in price fluctuations.
The effective use of futures and options as hedging techniques depends on the
correlation between their prices and the behavior of the Fund's portfolio
securities as well as the Adviser's ability to accurately predict the direction
of stock prices, interest rates and other relevant economic factors. In
addition, daily limits on the fluctuation of futures and options prices could
cause the Fund to be unable to timely liquidate its futures or options position
and cause it to suffer greater losses than would otherwise be the case. In this
regard, the Fund may be unable to anticipate the extent of its losses from
futures transactions. The Statement of Additional Information includes a further
discussion of futures and options transactions.
In view of these considerations, the Fund will comply with the following
restrictions when purchasing and selling futures contracts. First, the Fund will
not participate in futures transactions if the sum of its initial margin
deposits on open contracts will exceed 5% of the market value of the Fund's
total assets, after taking into account the unrealized profits and losses on
those contracts it has entered into. Second, the Fund will not enter into these
contracts for speculative purposes. Third, since the Fund does not constitute a
commodity pool, it will not market itself as such, nor serve as a vehicle for
trading in the commodities futures or commodity options markets. In this regard,
the Fund will disclose to all prospective investors the limitations on its
futures and options transactions,
and make clear that these transactions are entered into only for bona fide
hedging purposes, or other permissible purposes pursuant to regulations
promulgated by the Commodity Futures Trading Commission ("CFTC"). Finally, the
Fund intends to claim an exclusion from registration as a commodity pool
operator under the regulations promulgated by the CFTC.
TEMPORARY INVESTMENTS. For temporary defensive purposes and to maintain
liquidity, the Fund may invest in cash and cash items, including:
short-term money market instruments;
securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies or instrumentalities; and
repurchase agreements.
U.S. GOVERNMENT SECURITIES. The Fund is permitted to invest in U.S.
government securities which are either issued or guaranteed by the U.S.
government, its agencies, or instrumentalities. These securities include,
but are not limited to, the following:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the: Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
Some of the short-term U.S. government securities the Fund may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as a published interest
rate or interest rate index.
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 Fund 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 Fund, the Fund
could receive less than the repurchase price on any sale of such
securities.
EQUITY INVESTMENT CONSIDERATIONS
As described above, the Fund invests primarily in the largest 100 stocks
comprising the S&P 100. As with other mutual funds that invest primarily in
common
stocks, the Fund is subject to market risks. That is, the possibility exists
that common stocks will decline over short or even extended periods of time, and
the United States equity market tends to be cyclical, experiencing both periods
when stock prices generally increase and periods when stocks prices generally
decrease.
INVESTMENT LIMITATION
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for at least a
percentage of its cash value with an agreement to buy it back on a set date)
except, under certain circumstances, the Fund may borrow up to one-third of the
value of its total assets and pledge securities to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
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 Fund are made by Michigan National Bank, as the
Fund's investment adviser (the "Adviser"), subject to direction by the Trustees.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.40 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the 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 Fund.
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 of Michigan National
Bank (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 or provide credit support for obligations issued by public
companies or municipalities. Thus, it may be possible, from time to time,
for the Fund to hold or acquire the securities of issuers which are also
lending clients of Michigan National Bank. The lending relationship will
not be a factor in the selection of securities.
Sharon Dischinger is Second Vice President and Portfolio Manager for
Michigan National Bank and Independence One Capital Management Corporation
in Farmington Hills, and has been responsible for management of the Fund's
portfolio since its inception. Ms. Dischinger joined Michigan National Bank
in 1990 and is currently the head equity trader. She is also a General
Securities Representative. Prior to Michigan National Bank, Ms. Dischinger
was the head equity trader at Morison Asset Management.
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 Fund's
current investment advisory contract with the Adviser. In view of the
pending merger, the Fund's Board of Trustees has approved a new investment
advisory contract ("New Advisory Contract") between the Trust and Michigan
National Bank, as a subsidiary of National Australia Bank Limited (the "New
Adviser"). The terms of the New Advisory Contract are identical in all
material respects to the present advisory contract, i.e., Michigan National
Bank will continue to provide investment advisory services to the Fund, and
there will be no change in either the Fund's investment objective or
investment policies, or the fees payable by the Fund for advisory services.
The New Advisory Contract would become effective upon consummation of the
merger, which is subject to the satisfaction of certain conditions
including, among others, the receipt of all necessary regulatory
approvals.
SUB-ADVISER. Pursuant to the terms of an investment sub-advisory agreement
between the Adviser and Sosnoff Sheridan Corporation (doing business as Sosnoff
Sheridan Group), the Sub-Adviser furnishes certain investment advisory services
to the Adviser, including investment research, statistical and other factual
information, and recommendations, based on its analysis, and assists the Adviser
in identifying securities for potential purchase and/or sale on behalf of the
Fund's portfolio. For the services provided and the expenses incurred by the
Sub-Adviser pursuant to the sub-advisory agreement, the Sub-Adviser is entitled
to receive an annual fee of 0.035% of the Fund's average daily value of the
Fund's equity securities, payable by the Adviser. The Sub-Adviser may elect to
waive some or all of its fee. In no event shall the Fund be responsible for any
fees due to the Sub-Adviser for its services to the Adviser. The Sub-Adviser,
located at 440 South LaSalle Street, Suite 2301, Chicago, Illinois, 60605, is
a corporation controlled by Thomas Sosnoff, its Director and President, and
Scott Sheridan, its Director, Executive Vice-President and Secretary. Although
Messrs.Sosnoff and Sheridan have experience in providing index management
services, they have not previously served as a sub-adviser to an investment
company. In the event that the Sub-Adviser, for any reason, ceases to
furnish sub-advisory services to the Fund, the Adviser will assume direct
responsibility for all advisory functions.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund, such as certain legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
for each portfolio in Independence One Mutual Funds. Federated Administrative
Services may choose voluntarily to waive a portion of its fee.
CUSTODIAN. Michigan National Bank, Farmington Hills, Michigan, is custodian for
the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. These expenses include, but are not limited to, the cost of:
organizing the Trust and continuing its existence; Trustees' fees; investment
advisory and administrative services; printing prospectuses and other Fund
documents for shareholders; registering the Trust, the Fund and shares of the
Fund; taxes and commissions; issuing, purchasing, repurchasing and redeeming
shares; fees for custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents, and registrars; printing, mailing, auditing,
accounting, and legal expenses; reports to shareholders and government agencies;
meetings of Trustees and shareholders and proxy solicitations therefor;
insurance premiums; association membership dues; and such nonrecurring and
extraordinary items as may arise. However, the Adviser may voluntarily waive
and/or reimburse some expenses.
NET ASSET VALUE
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The Fund's net asset value per share fluctuates. It is determined by adding the
market value of all securities and other assets of the Fund, subtracting the
liabilities of the Fund, and dividing the remainder by the total number of
shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund 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 Fund on days on which both the New York Stock Exchange
and the Federal Reserve Wire System are open for business. In connection with
the sale of Fund shares, the distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Fund reserves the
right to reject any purchase request.
TO PLACE AN ORDER. Investors may call toll-free 1-800-344-2292 to purchase
shares of the Fund through Michigan National Bank or Independence One. In
addition, investors may purchase shares of the Fund by calling their authorized
broker directly. Payments may be made either by check or wire transfer of
federal funds.
Payment by wire must be received before 4:00 p.m. (Eastern time). It is the
responsibility of Michigan National Bank, Independence One or broker/dealers to
transmit orders to the Fund by 5:00 p.m. (Eastern time) in order for shares to
be purchased at that day's price. For settlement of an
order, payment must be received within three business days of receipt of the
order by check or wire transfer. To purchase by check, the check must be
included with the order and made payable to "Independence One Equity Plus Fund."
Checks must be converted into federal funds to be considered received.
Federal funds should be wired as follows: Federated Services Company c/o
Michigan National Bank, Farmington Hills, Michigan; Account Number: 6856238933;
For Credit to: Independence One Equity Plus Fund; 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 072000805.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000. Subsequent investments
must be in amounts of at least $100.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
The net asset value is determined at the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) Monday through Friday, except on: (i) days on
which there are not sufficient changes in the value of the Fund's portfolio
securities that its net asset value might be materially affected; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; and (iii) on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
shareholders so request by contacting their Michigan National Bank or
Independence One representative or authorized broker in writing.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid quarterly. Capital gains realized by the Fund,
if any, will be distributed at least once every 12 months. Dividends and capital
gains are automatically reinvested on payment dates in additional shares without
a sales charge unless cash payments are requested by shareholders in writing to
the Fund through their Michigan National Bank or Independence One representative
or authorized broker. Shares purchased with reinvested dividends are credited to
shareholder accounts on the following day.
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
The Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, and must be liquid. The
market value of any securities exchanged in an initial investment, plus any
cash, must be at least equal to the minimum investment in the Fund. The Fund
acquires the exchanged securities for investment and not for resale.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend on the net asset value
of Fund shares on the day the securities are valued. One share of the Fund will
be issued for the equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
If an exchange is permitted, it will be treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Fund
shares, a gain or loss may be realized by the investor.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Fund are shareholders of the Trust, which consists of
the Fund, Independence One Fixed Income Fund, Independence One Michigan
Municipal Bond Fund, Independence One U.S. Government Securities Fund and the
following money market funds: Independence One Michigan Municipal Cash Fund;
Independence One Prime Money Market Fund; and Independence One U.S. Treasury
Money Market Fund. Shareholders of the Fund have access to these funds
("participating funds") through an exchange program.
With the exception of Independence One Prime Money Market Fund, the
participating funds currently offer only one class of shares. If such funds
should add a second class of shares, exchanges may be limited to shares of the
same class of each fund. Shareholders of the Fund have access to both Class A
and Class B Shares of Independence One Prime Money Market Fund through the
exchange program.
Shares of the Fund may be exchanged for shares of participating funds at net
asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value at least equal to the minimum investment of the participating
fund into which they are exchanging. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which
the exchange is being 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 Fund Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Michigan National Bank or 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 brokers directly.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors requests 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.
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 a fund will not receive a dividend from the Fund
on the date of the exchange.
Shareholders 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 Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Independence One Mutual Funds, 27777 Inkster Road,
Mail Code 10-52, Farmington Hills, Michigan 48333-9065. In addition, an investor
may exchange shares by sending a written request to their authorized broker
directly.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
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 Fund computes its net asset value. Redemption requests cannot
be executed on days on which the New York Stock Exchange is closed or on federal
holidays restricting wire transfers. Telephone or written requests for
redemption must be received in proper form and can be made to the Fund 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.
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 brokers directly. Redemption
requests must be received and transmitted to the transfer agent before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value.
The Michigan National Bank or 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 Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
For calls received before 4:00 p.m. (Eastern time) proceeds will normally be
wired the next day to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System or a check will be sent to the
address of record. In no event will proceeds be wired or a check sent more than
seven days after a proper request for redemption has been received.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Michigan National Bank or 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 Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Fund through their Michigan National Bank or Independence One representative or
authorized broker. The written request should include the shareholder's name,
the Fund name, the class designation, 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 commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; or
any other "eligible guarantor institution", as defined in the Securities
& Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed 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 Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of 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 that 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 Fund contemplated by its
advisory agreement with the Trust without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Michigan National Bank from continuing to perform all or a part of the
above services for its customers and/or the Fund. If it were prohibited from
engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Fund may occur, including possible
termination of any automatic or other Fund share investment and redemption
services then being provided by Michigan National Bank. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to Michigan National
Bank is found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held their shares.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specific period of time, in the value
of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-annual compounding.
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 specific tax rate. The yield and the
tax-equivalent yield do not necessarily reflect income actually earned by the
Fund and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
STANDARD & POOR'S RATINGS GROUP
- --------------------------------------------------------------------------------
"Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500" and "500" are
trademarks of Standard & Poor's Ratings Group and have been licensed for use by
Federated Securities Corp.
The Fund is not sponsored, endorsed, sold or promoted by or affiliated with,
Standard & Poor's Ratings Group.
INDEPENDENCE ONE
MUTUAL FUNDS
INDEPENDENCE ONE
EQUITY PLUS FUND
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
SUB-ADVISER
Sosnoff Sheridan Corporation
440 South LaSalle Street
Suite 2301
Chicago, Illinois 60605
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
Independence One(register mark)
Equity Plus Fund
Distributed by Federated Securities Corp.
Prospectus dated
, 1995
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[LOGO]
MICHIGAN
NATIONAL
BANK
Investment Adviser
G00979-08 (5/95)
INDEPENDENCE ONE EQUITY PLUS FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Independence One Equity Plus Fund (the "Fund"), a
portfolio in Independence One Mutual Funds (the "Trust"), dated
, 1995. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write the Fund or call toll-free at
1-800-334-2292.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated , 1995
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
Portfolio Turnover 3
Investment Limitations 3
INDEPENDENCE ONE MUTUAL FUNDS MANAGEMENT 5
- ---------------------------------------------------------------
Officers and Trustees 5
Fund Ownership 7
Trustees' Compensation 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
- ---------------------------------------------------------------
Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 8
- ---------------------------------------------------------------
CUSTODIAN 8
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 8
- ---------------------------------------------------------------
PURCHASING SHARES 8
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Conversion to Federal Funds 8
DETERMINING NET ASSET VALUE 9
- ---------------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 9
- ---------------------------------------------------------------
REDEEMING SHARES 9
- ---------------------------------------------------------------
Redemption in Kind 9
TAX STATUS 9
- ---------------------------------------------------------------
The Fund's Tax Status 9
Shareholders' Tax Status 10
Capital Gains 10
TOTAL RETURN 10
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YIELD 10
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PERFORMANCE COMPARISONS 10
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STANDARD & POOR'S RATINGS GROUP 11
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GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Independence One Mutual Funds (the "Trust"), which
was established as a Massachusetts business trust under a Declaration of Trust
dated January 9, 1989.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is total return. This investment objective
cannot be changed without the approval of shareholders.
TYPES OF INVESTMENTS
In addition to the common stocks described in the prospectus, the Fund may also
invest in temporary investments which include, but are not limited to,
short-term money market instruments and U.S. government obligations, and
securities in such proportions as, in the judgment of the Adviser, prevailing
market conditions warrant. The following discussion supplements the description
of the Fund's investment policies in the prospectus. Unless otherwise indicated,
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 the policies becomes effective.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the 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 System, including the National Bank for Cooperatives, Farm
Credit Banks, and Banks for Cooperatives;
Farmers Home Administration;
Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation;
Federal National Mortgage Association;
Government National Mortgage Association; and
Student Loan Marketing Association.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
In the case of certain U.S. government securities purchased by the Fund
that carry variable interest rates, these rates will reduce the changes
in the market value of such securities from their original purchase
prices.
Accordingly, the potential for capital appreciation or capital
depreciation should not be greater than the potential for capital
appreciation or capital depreciation of fixed interest rate U.S.
government securities having maturities equal to the interest rate
adjustment dates of the variable rate U.S. government securities.
The Fund may purchase variable rate U.S. government securities upon the
determination by the Trustees that the interest rate as adjusted will
cause the instrument to have a current market value that approximates its
par value on the adjustment date.
MONEY MARKET INSTRUMENTS
The Fund may invest in the following money market instruments:
instruments of domestic and foreign banks and savings and loans having
capital, surplus, and undivided profits of over $100,000,000, or if the
principal amount of the instrument is insured is insured in full by the
Federal Deposit Insurance Corporation ("FDIC");
commercial paper issued by domestic or foreign corporations rated A-1 by
Standard & Poor's Ratings Group ("S&P") Prime-1 by Moody's Investors
Service, Inc., or F-1 by Fitch Investors Service, Inc. or, if unrated,
of comparable quality as determined by the Fund's investment adviser;
time and savings deposits whose accounts are insured by the Bank
Insurance Fund ("BIF") or in institutions whose accounts are insured by
the Savings Association Insurance Fund, which is also administered by
the FDIC, including certificates of deposit issued by, and other time
deposits in, foreign branches of BIF-insured banks; or
bankers' acceptances.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities
subject to repurchase agreements and these securities will be marked to
market daily. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that a
defaulting seller of the securities filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject
to repurchase agreements, a court of competent jurisdiction would rule in
favor of the Fund and allow retention or disposition of such securities.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
STOCK INDEX FUTURES AND OPTIONS
The Fund may utilize stock index futures contracts, options, and options
on futures contracts as discussed in the prospectus.
A stock index futures contract is a bilateral agreement which obligates
the seller to deliver (and the purchaser to take delivery of) an amount
of cash equal to a specific dollar amount times the difference between
the value of a specific stock index at the close of trading of the
contract and the price at which the agreement is originally made. There
is no physical delivery of the stocks constituting the index, and no
price is paid upon entering into a futures contract. In general,
contracts are closed out prior to their expiration. The Fund, when
purchasing or selling a futures contract, will initially be required to
deposit in a segregated account in the broker's name with the Fund's
custodian an amount of cash or U.S. government securities approximately
equal to 5-10% of the contract value. This amount is known as "initial
margin," and it is subject to change by the exchange or board of trade on
which the contract is traded. Subsequent payments to and from the broker
are made on a daily basis as the price of the index or the securities
underlying the futures contract fluctuates. These payments are known as
"variation margins," and the fluctuation in value of the long and short
positions in the futures contract is a process referred to as "marking to
market." The Fund may decide to close its position on a contract at any
time prior to the contract's expiration. This is accomplished by the Fund
taking an opposite position at the then prevailing price, thereby
terminating its existing position in the contract. Because both the
initial and variation margin resemble a performance bond or good faith
deposit on the contract, they are returned to the Fund upon the
termination of the contract, assuming that all contractual obligations
have been satisfied. Therefore, the margin utilized in futures contracts
is readily distinguishable from the margin employed in security
transactions, since futures contracts margin does not involve the
borrowing of funds to finance the transaction.
A put option gives the Fund, in return for a premium, the right to sell
the underlying security to the writer (seller) at a specified price
during the term of the option. Put options on stock indices are similar
to put options on stocks except for the delivery requirements. Instead of
giving the Fund the right to make delivery of stock at a specified price,
a put option on a stock index gives the Fund, as holder, the right to
receive an amount of cash upon exercise of the option.
The Fund may also write covered call options. As the writer of a call
option, the Fund has the obligation upon exercise of the option during
the option period to deliver the underlying security upon payment of the
exercise price.
The Fund may only: (1) buy listed put options on stock indices; (2) buy
listed put options on securities held in its portfolio; and (3) sell
listed call options either on securities held in its portfolio or on
securities which it has the right to obtain without payment of further
consideration (or has segregated cash in the amount of any such
additional consideration). The Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and calls
until the options are exercised, closed, or expired.
REVERSE REPURCHASE AGREEMENTS
The Fund also may enter into reverse repurchase agreements under certain
circumstances. 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. The use of reverse
repurchase agreements may enable the Fund 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 Fund will be able to avoid selling portfolio instruments
at a disadvantageous time.
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.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be
valued daily and, should the market value of the loaned securities
increase, the borrower must furnish additional collateral to the Fund.
During the time portfolio securities are on loan, the borrower pays the
Fund any dividends or interest paid on such securities. Loans are subject
to termination at the option of the Fund or the borrower. The Fund may
pay reasonable administrative and custodial fees in connection with a
loan and may pay a negotiated portion of the interest earned on the cash
or equivalent collateral to the borrower or placing broker. The Fund does
not have the right to vote securities on loan. In circumstances where the
Fund does not, the Fund would terminate the loan and regain the right to
vote if that were considered important with respect to the investment.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of portfolio turnover
exceeding 100%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for
clearance of transactions. The deposit or payment by the Fund of initial
or variation margin in connection with futures contracts or related
options transactions is not considered the purchase of a security on
margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amount
borrowed. The Fund will not purchase any securities while borrowings in
excess of 5% of the value of the Fund's total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. For the purpose of this limitation, the
following are not deemed to be pledges: margin deposits for the purchase
and sale of futures contracts and related options, and segregation or
collateral arrangements made in connection with options activities.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, 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 COMMODITIES, COMMODITY CONTRACTS, OR COMMODITY FUTURES
CONTRACTS
The Fund will not purchase or sell commodities, commodity contracts or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving futures contracts and related options.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its assets, the
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. Also, the Fund will not acquire more than 10% of the voting
securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the
value of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
secured by such instruments.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing U.S. government obligations, money market
instruments, bonds, debentures, notes, certificates of indebtedness, or
other debt securities, entering into repurchase agreements, or engaging
in other transactions where permitted by the Fund's investment objective,
policies and limitations.
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in these policies becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund can acquire up to 3% of the total outstanding stock of other
investment companies. The Fund 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 Fund
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.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 5% of its total assets in securities
subject to restrictions on resale under the federal securities laws,
except for certain restricted securities which meet the criteria for
liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid obligations including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, certain securities not determined by the Trustees to be liquid,
and non-negotiable fixed income time deposits with maturities over seven
days.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have less than three years of operations
including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The 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 PUT OPTIONS
The Fund will not purchase put options on securities, other than put
options on stock indices, unless the securities are held in the Fund's
portfolio and not more than 5% of the value of the Fund's total assets
would be invested in premiums on open put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on nationally recognized stock
exchanges to 2% of its total assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants acquired by the Fund in
units or attached to securities may be deemed to be without value.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purposes of
exercising control or management.
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.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan, having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
The Fund does not intend to borrow money in excess of 5% of the value of its
total assets during the current year.
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, and (3) will limit the margin deposits on futures contracts entered into
by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
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.
- --------------------------------------------------------------------------------
Robert E. Baker
4327 Stoneleigh Road
Bloomfield Hills, MI
Birthdate: May 6, 1930
Trustee
Retired; formerly, Vice Chairman, Chrysler Financial Corporation.
- --------------------------------------------------------------------------------
Harold Berry
100 Galleria Officentre,
Suite 219
Southfield, MI
Birthdate: September 17, 1925
Trustee
Managing Partner, Berry Enterprises; Chairman, Independent Sprinkler Companies,
Inc.; formerly, Chairman, Executive Committee, Federal Enterprises, Inc.;
Chairman, Berry, Ziegelman & Company.
- --------------------------------------------------------------------------------
Clarence G. Frame+
W-875 First Bank Building
332 Minnesota Street
St. Paul, MN
Birthdate: July 26, 1918
Trustee
Director, Tosco Corporation, Chicago Milwaukee Corporation, and Voyageur Funds
Group; formerly, Vice Chairman, First Bank System, Inc. and President, The First
National Bank of St. Paul, a subsidiary of First Bank System, Inc.
- --------------------------------------------------------------------------------
Harry J. Nederlander+*
231 S. Woodward,
Suite 219
Birmingham, MI
Birthdate: September 5, 1917
Trustee
Chairman, Nederlander Enterprises.
- --------------------------------------------------------------------------------
Thomas S. Wilson
Two Championship Drive
Auburn Hills, MI
Birthdate: October 9, 1949
Trustee
President and Executive Administrator, Detroit Pistons; President, Arena
Associates, Inc.
- --------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Executive Vice President, Treasurer and Director, Federated Securities Corp.;
Chairman, Treasurer and Trustee, Federated Administrative Services; Vice
President, Treasurer and Trustee, Federated Investors.
- --------------------------------------------------------------------------------
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services.
- --------------------------------------------------------------------------------
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors; Prior to January 1991, Associate
Counsel, The Boston Company
Advisors, Inc.
- --------------------------------------------------------------------------------
+Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board
*This Trustee is deemed to be an "interested person" of the Fund or Trust as
defined in the Investment Company Act of 1940.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of the Fund.
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>
* Information is furnished for the fiscal year ended April 30, 1995. The
aggregate compensation is provided for the Trust which was comprised of four
portfolios at April 30, 1995. The Trust is the only investment company in the
Fund Complex.
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 Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Michigan National Bank to
restrict the flow of non-public
information, Fund investments are typically made without any knowledge of
Michigan National Bank's or
its affiliates' lending relationships with an issuer.
ADVISORY FEES
For its advisory services, Michigan National Bank receives an annual investment
advisory fee as described in the prospectus.
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
Trust for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus.
CUSTODIAN
- --------------------------------------------------------------------------------
Michigan National Bank, Farmington Hills, Michigan, is custodian for the
securities and cash of the Fund. For the services to be provided to the Trust
pursuant to the Custodian Agreement, the Trust pays the custodian an annual fee
based upon the average daily net assets of the Fund and which is payable
monthly. The custodian will also charge transaction fees and out-of-pocket
expenses.
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 when
both the New York Stock Exchange and the Federal Reserve Wire System are open
for business. The procedure for purchasing shares of the Fund is explained in
the prospectus under "Investing in the Fund."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders
begin to earn dividends. Michigan National Bank acts as the shareholder's
agent in depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
The market values of the Fund's portfolio securities are determined as follows:
.for equity securities, according to the last sale price on a national
securities exchange, if applicable;
.in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
.for unlisted equity securities, latest bid prices;
.for bonds and other fixed income securities, as determined by an independent
pricing service;
.for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, or for short-term obligations
with remaining maturities of 60 days or less at the time of purchase, at
amortized cost; or
.for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges at the close of options trading on such exchanges
unless the Trustees determine in good faith that another method of valuing
option positions is necessary.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Fund Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To satisfy registration
requirements in a particular state, redemption in kind will be made (for any
shareholder requesting redemption) in readily marketable securities to the
extent that such securities are available. If this state's policy changes, the
Fund reserves the right to redeem in kind by delivering those securities it
deems appropriate.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
.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
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. The dividends received deduction for corporations will apply
to ordinary income distributions to the extent the distribution represents
amounts that would qualify for the dividends received deduction to the Fund if
the Fund were a regular corporation, and to the extent designated by the Fund as
so qualifying. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales charge, adjusted
over the period by any additional shares, assuming the reinvestment of all
dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is determined each day by dividing the net investment
income per share (as defined by the SEC) earned by the Fund over a thirty-day
period by the maximum offering price per share of the Fund on the last day of
the period. This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the SEC and, therefore,
may not correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
.portfolio quality;
.average portfolio maturity;
.type of instruments in which the portfolio is invested;
.changes in interest rates and market value of portfolio securities;
.changes in the Fund's expenses; and
.various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
.STANDARD & POOR'S COMPOSITE INDEX OF 500 STOCKS, a composite index of common
stocks in industry, transportation, and financial and public utility companies,
can be used to compare to the total returns of funds whose portfolios are
invested primarily in common stocks. In addition, the Standard & Poor's index
assumes reinvestments of all dividends paid by stocks listed on its index.
Taxes due on any of these distributions are not included, nor are brokerage or
other fees calculated in Standard & Poor's figures.
.STANDARD & POOR'S 100 [to come]
.LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in the maximum offering price over a specific period of
time. From time to time, the Fund will quote is Lipper ranking in the "index
funds" category in advertising and sales literature.
.MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on nonstandardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
STANDARD & POOR'S RATINGS GROUP
- --------------------------------------------------------------------------------
Standard & Poor's Ratings Group ("S&P") makes no representation or warranty,
express or implied, to the owners of the Fund or any member of the public
regarding the advisability of investing in securities generally or in the Fund
particularly or the ability of the Standard & Poor's 100 Index ("S&P 100 Index")
to track general stock market performance. S&P's only relationship to Federated
Securities Corp., the Fund's distributor (the "Licensee") is the licensing of
certain trademarks and trade names of S&P and of the S&P 100 Index which is
determined, composed and calculated by S&P without regard to the Licensee or
the Fund. S&P has no obligation to take the needs of the Licensee or the owners
of the Fund into consideration in determining,composing or calculating the S&P
100 Index. S&P is not responsible for and has not participated in the
determination of, the timing of, prices at, or quantities of the Fund to be
issued or in the determination or calculation of the equation by which the Fund
is to be converted into cash. S&P has no obligation or liability in connection
with the administration, marketing or trading of the Fund.
S&P DOES NOT GUARANTEE THE ACCURACY AND/OR THE COMPLETENESS OF THE S&P 100 INDEX
OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO
RESULTS TO BE OBTAINED BY THE LICENSEE, OWNERS OF THE FUND, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE S&P 100 INDEX OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE RIGHTS LICENSED HEREUNDER OR FOR ANY OTHER USE. S&P MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES OR
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
S&P 100 INDEX OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT SHALL S&P HAVE ANY LIABILITY FOR ANY SPECIAL, PUNITIVE,
INDIRECT OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS), EVEN IF NOTIFIED OF
THE POSSIBILITY OF SUCH DAMAGES.
G001198-01 (5/95) 1
INDEPENDENCE ONE FIXED INCOME FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
PROSPECTUS
The shares of Independence One Fixed Income Fund (the "Fund") offered by this
prospectus represent interests in a diversified portfolio of securities which is
one of a series of investment portfolios in Independence One Mutual Funds (the
"Trust"), an open-end management investment company (a mutual fund). Michigan
National Bank professionally manages the Fund's Portfolio.
The investment objective of the Fund is to seek total return. The Fund seeks to
achieve its investment objective by investing in a diversified portfolio of
high-grade fixed income securities.
Shares of the Fund are intended to be sold as an investment vehicle for
institutions, corporations, fiduciaries and individuals. Shareholders can
invest, reinvest or redeem shares at any time without charge or penalty imposed
by the Fund. Shareholders have access to other portfolios of the Trust through
an exchange program.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MICHIGAN NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY MICHIGAN NATIONAL
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in shares of the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated ,
1995 with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling toll-free 1-800-334-2292.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated , 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 3
U.S. Government Obligations 3
Corporate Debt Obligations 4
Fixed Rate Corporate Debt
Obligations 4
Floating Rate Corporate Debt
Obligations 4
Demand Master Notes 5
Convertible Securities 5
Zero Coupon Convertible Securities 5
Mortgage-Backed Securities 6
Adjustable Rate Mortgage Securities 6
Collateralized Mortgage Securities 6
Real Estate Mortgage Investment
Conduits 7
Asset-Backed Securities 7
Considerations for Mortgage-Backed
and Asset-Backed Securities 7
Demand Features 8
Restricted and Illiquid Securities 8
Repurchase Agreements 8
When-Issued and Delayed Delivery
Transactions 8
Investing in Securities of Other
Investment Companies 9
Lending of Portfolio Securities 9
Other Investment Techniques 9
Investment Limitations 10
INDEPENDENCE ONE MUTUAL FUNDS
INFORMATION 10
- ------------------------------------------------------
Management of the Trust 10
Board of Trustees 10
Investment Adviser 10
Advisory Fees 10
Adviser's Background 10
Distribution of Fund Shares 12
Administration of the Fund 12
Administrative Services 12
Custodian 12
Transfer Agent and
Dividend Disbursing Agent 12
Independent Auditors 12
Expenses of the Fund 12
NET ASSET VALUE 13
- ------------------------------------------------------
INVESTING IN THE FUND 13
- ------------------------------------------------------
Share Purchases 13
To Place an Order
Minimum Investment Required 13
What Shares Cost 13
Certificates and Confirmations 14
Dividends and Capital Gains 14
EXCHANGING SECURITIES FOR FUND SHARES 14
- ------------------------------------------------------
EXCHANGE PRIVILEGE 15
- ------------------------------------------------------
Exchange by Telephone 15
Written Exchange 16
REDEEMING SHARES 16
- ------------------------------------------------------
By Telephone 16
By Mail 17
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
Massachusetts Partnership Law 18
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
ADDRESSES Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............................. None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)...................................................................... None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable).................................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................................... None
Exchange Fee............................................................................................. None
</TABLE>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<TABLE>
<S> <C>
Management Fee (after waiver)(1)......................................................................... %
12b-1 Fees............................................................................................... None
Total Other Expenses (after waiver)(2)................................................................... %
Total Fund Operating Expenses(3).................................................................... %
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.
(2) The Total Other Expenses are estimated to be % absent the anticipated
voluntary waiver by the administrator.
(3) Total Fund Operating Expenses are estimated to be % absent the
anticipated voluntary waivers detailed in notes (1) and (2).
*Annual Fund Operating Expenses in the table above are estimated based on
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 amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR A MORE COMPLETE DESCRIPTION OF THE VARIOUS COSTS AND
EXPENSES, SEE "INDEPENDENCE ONE MUTUAL FUNDS INFORMATION" AND "INVESTING IN THE
FUND." Wire-transferred redemptions of less than $5,000 may be subject to
additional fees.
<TABLE>
<S> <C> <C>
EXAMPLE 1 YEAR 3 YEAR
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period.
The Fund charges no redemption fees............................................................. $ $
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING APRIL 30, 1996.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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 representing interests in separate portfolios of securities.
The shares in any one portfolio may be offered in separate classes. This
prospectus relates only to the Trust's portfolio known as Independence One Fixed
Income Fund. As of the date of this prospectus, the Fund does not offer separate
classes of shares.
Shares of the Fund are designed primarily for individuals and institutions as a
convenient means of accumulating an interest in a professionally-managed,
diversified portfolio investing primarily in high grade fixed-income securities.
A minimum initial investment of $1,000 is required. Subsequent investments must
be in the amount of at least $100.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek total return. The investment
objective cannot be changed without the approval of shareholders. Total return
consists of income and capital gains. While there is no assurance that the Fund
will achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus. Unless indicated otherwise,
the investment policies described below may be changed by the Board of Trustees
("Trustees") without the approval of shareholders. Shareholders will be notified
before any material change in these policies becomes effective.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a
diversified portfolio of high-grade fixed income securities that, at the time of
purchase, are rated A or higher by Moody's Investors Service, Inc. ("Moody's"),
Standard & Poor's Ratings Group ("S&P"), or Fitch Investors Service, Inc.
("Fitch") or which, if unrated, are deemed to be of comparable quality to
securities with such ratings, as determined by Michigan National Bank (the
"Adviser.")
In pursuing its investment objective, the Fund will attempt to deliver share
price and/or income performance in excess of the bond market in general as
measured by such broad indices as the Lehman Brothers Government/Corporate
Index. The Fund presently expects to maintain an average dollar-weighted
maturity of between 5 and 10 years, although securities of longer or shorter
maturities may be purchased. The Fund will invest, under normal circumstances,
at least 65% of the value of its total assets in fixed income securities.
The Adviser will use a multi-disciplined management approach which combines
judgments about the interest rate environment with other value-added management
techniques, such as sector rotation, in selecting the Fund's investments. Fixed
income securities will be purchased for the Fund based on the Adviser's
expectations regarding general market interest rate trends and the impact
such trends would have on the total return of the fixed income securities. As a
secondary consideration, the Adviser will attempt to reduce loss of principal
relative to the fixed income markets. However, the primary consideration will be
total return, which includes capital gain and income.
The Adviser attempts to manage the Fund's total performance, which includes both
changes in principal value of the Fund's portfolio and interest income earned,
to anticipate the opportunities and risks of changes in market interest rates.
The Adviser does not select securities purely to maximize the current yield of
the Fund. When the Adviser expects that market interest rates may decline, which
would cause prices of outstanding debt obligations to rise, it generally extends
the average maturity of the Fund's portfolio. When, in the Adviser's judgment,
market interest rates may rise, which would cause market prices of outstanding
debt obligations to decline, it generally shortens the average maturity of the
Fund's portfolio. The amount of change in market prices of debt obligations in
response to changes in market interest rates generally depends on the maturity
of the debt obligations; the debt obligations with the longest maturities will
generally experience the greatest market price changes. The Adviser also
attempts to improve the Fund's total return by weighing the relative value of
fixed income securities issues having similar maturities in selecting portfolio
securities. By actively managing the Fund's portfolio in this manner, the
Adviser seeks to provide capital appreciation during periods of falling interest
rates and protection against capital depreciation during periods of rising
rates.
ACCEPTABLE INVESTMENTS. The Fund invests primarily in a professionally-managed,
diversified portfolio of fixed income securities which include:
domestic issues of corporate debt obligations, including demand master
notes, rated at the time of purchase Aaa, Aa, or A by Moody's, AAA, AA,
or A by S&P or by Fitch or, if unrated, of comparable quality as
determined by the Adviser;
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
asset-backed securities, including mortgage-backed securities;
repurchase agreements collateralized by high quality, liquid investments;
and
money market instruments.
If a security loses its rating or has its rating reduced after the Fund has
purchased it, the Fund is not required to sell or otherwise dispose of the
security, but may consider doing so. A description of the ratings categories is
contained in the Appendix to the Statement of Additional Information.
The Fund may also borrow money, lend portfolio securities, and invest in
restricted and illiquid securities, convertible securities and securities of
other investment companies. The Fund may engage in reverse repurchase
agreements, when-issued and delayed delivery transactions, put and call options,
futures, and options on futures.
U.S. GOVERNMENT OBLIGATIONS. The U.S. government obligations in which the Fund
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as: the Farm Credit System, including the
National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Farmers Home Administration; Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation; Federal National Mortgage
Association; Government National Mortgage Association; and Student Loan
Marketing Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurance can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to so do.
These agencies and instrumentalities are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
CORPORATE DEBT OBLIGATIONS. The Fund invests in corporate debt obligations,
including corporate bonds, notes, and debentures, which may have floating or
fixed rates of interest.
FIXED RATE CORPORATE DEBT OBLIGATIONS. The Fund will invest in fixed rate
securities, including fixed rate securities with short-term
characteristics. Fixed rate securities with short-term characteristics are
long-term debt obligations but are treated in the market as having short
maturities because call features of the securities may make them callable
within a short period of time. A fixed rate security with short-term
characteristics would include a fixed income security priced close to the
call or redemption price or a fixed income security approaching maturity,
where the expectation of call or redemption is high.
Fixed rate securities tend to exhibit more price volatility during times of
rising or falling interest rates than securities with floating rates of
interest. This is because floating rate securities, as described below, may
behave more like short-term instruments in that the rate of interest they
pay is subject to periodic adjustments based on a designated interest rate
index. Fixed rate securities pay a fixed rate of interest and are more
sensitive to fluctuating interest rates. In periods of rising interest
rates the value of a fixed rate security is likely to fall. Fixed rate
securities with short-term characteristics are not subject to the same
price volatility as fixed rate securities without such characteristics.
Therefore, they behave more like floating rate securities with respect to
price volatility.
FLOATING RATE CORPORATE DEBT OBLIGATIONS. The Fund expects to invest in
floating rate corporate debt obligations. Floating rate securities are
generally offered at an initial interest rate which is at or above
prevailing market rates. The interest rate paid on these securities is then
reset periodically (commonly every 90 days) to an increment over some
predetermined interest rate index. Commonly utilized indices include the
three-month Treasury bill rate, the six-month Treasury bill rate, the
one-month or three-month London Interbank Offered Rate (LIBOR), the prime
rate of a bank, the commercial paper rates, or the longer-term rates on
U.S. Treasury securities.
DEMAND MASTER NOTES. The Fund may invest in variable amount demand master notes.
Demand notes are short-term borrowing arrangements between a corporation or
government agency 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. Many master
notes give the Fund the option of increasing or decreasing the principal amount
of the master note on a daily or weekly basis within certain limits. Demand
master notes usually provide for floating or variable rates of interest.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities that
may be exchanged or converted into a predetermined number of the issuer's
underlying common stock at the option of the holder during a specified time
period. Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and
warrants, or a combination of the features of several of these securities. The
investment characteristics of each convertible security vary widely, which
allows convertible securities to be employed for different investment
objectives.
Convertible securities generally retain the investment characteristics of fixed
income securities until they have been converted, but also react to movements in
the underlying equity securities. The holder is entitled to receive the fixed
income of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Usable bonds are corporate
bonds that can be used in whole or in part, customarily at full face value, in
lieu of cash to purchase the issuer's common stock. When owned as part of a unit
along with warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar nonconvertible securities of the same company.
The interest income and dividends from convertible bonds and preferred stocks
provide a stable stream of income with generally higher yields than common
stocks, but lower than non-convertible securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the Adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting convertible
securities for the Fund, the Adviser evaluates the investment characteristics of
the convertible security as a fixed income instrument, and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
Adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determination of the issuer's profits, and the issuer's management
capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES. Zero coupon convertible securities are debt
securities which are issued at a discount to their face amount and do not
entitle the holder to any periodic payments of interest prior to maturity.
Rather, interest earned on zero coupon convertible securities accretes at a
stated yield until the security reaches its face amount at maturity. Zero
coupon convertible securities are convertible into a specific number of shares
of the issuer's common stock. In addition, zero coupon convertible securities
usually have features that provide the holder with the opportunity to put the
bonds back to the issuer at a stated price before maturity. Generally, the
prices of zero coupon convertible securities may be more sensitive to market
interest rate fluctuations than conventional convertible securities.
Additionally, federal tax law requires that interest on zero coupon bonds be
reported as income to the Fund even though the Fund received no cash interest
until the maturity or payment date of such securities.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three basic
types of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac"); (ii) those issued by private issuers that represent an interest
in or are collateralized by mortgage-backed securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities; and (iii) those
issued by private issuers that represent an interest in or are collateralized by
whole loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.
ADJUSTABLE RATE MORTGAGE SECURITIES. Adjustable rate mortgage securities
("ARMS") are pass-through mortgage securities representing interests in
adjustable rather than fixed interest rate mortgages. The ARMS in which the
Fund invests are issued by Ginnie Mae, Fannie Mae or Freddie Mac, and are
actively traded. The underlying mortgages which collateralize ARMS issued
by Ginnie Mae are fully guaranteed by the Federal Housing Administration or
Veterans Administration, while those collateralizing ARMS issued by Fannie
Mae or Freddie Mac are typically conventional residential mortgages
conforming to strict underwriting size and maturity constraints.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole
loans or private pass-through securities.
The Fund will only invest in CMOs which, at the time of purchase, are rated
AAA by an NRSRO or are of comparable quality as determined by the Fund's
investment adviser, and which may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or (c) collateralized by pools of mortgages
without a government guarantee as to payment of principal and interest, but
which have some form of credit enhancement.
REAL ESTATE MORTGAGE INVESTMENT CONDUITS. Real estate mortgage investment
conduits ("REMICs") are offerings of multiple class real estate
mortgage-backed securities which qualify and elect treatment as such under
provisions of the Internal Revenue Code. Issuers of REMICs may take several
forms, such as trusts, partnerships, corporations, associations, or
segregated pools of mortgages. Once REMIC status is elected and obtained,
the entity is not subject to federal income taxation. Instead, income is
passed through the entity and is taxed to the person or persons who hold
interests in the REMIC. A REMIC interest must consist of one or more
classes of "regular interests." To qualify as a REMIC, substantially all
the assets of the entity must be in assets directly or indirectly secured
principally by real property.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-backed securities but have underlying assets that are not
mortgage loans or interests in mortgage loans. The Fund may invest in
asset-backed securities which, at the time of purchase, are rated A or higher by
a nationally recognized statistical rating organization ("NRSRO") including, but
not limited to, interests in pools of receivables, such as motor vehicle
installment purchase obligations and credit card receivables. These securities
may be in the form of pass-through instruments or asset-backed bonds. The
securities are issued by non-governmental entities and carry no direct or
indirect government guarantee.
CONSIDERATIONS FOR MORTGAGE-BACKED AND ASSET-BACKED SECURITIES. Mortgage-backed
and asset-backed securities generally pay back principal and interest over the
life of the security. At the time the Fund reinvests the payments and any
unscheduled prepayments of principal received, the Fund may receive a rate of
interest which is actually lower than the rate of interest paid on these
securities ("prepayment risks"). Mortgage-backed and asset-backed securities are
subject to higher prepayment risks than most other types of debt instruments
with prepayment risks because the underlying mortgage loans or the collateral
supporting asset-backed securities may be prepaid without penalty or premium.
Prepayment risks on mortgage-backed securities tend to increase during periods
of declining mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Prepayments may result in a capital loss to the
Fund to the extent that the prepaid securities were purchased at a market
premium over their stated principal amount. Conversely, the prepayment of a
security purchased at a market discount from its stated principal amount will
accelerate the recognition of interest income by the Fund, which would be taxed
as ordinary income when distributed to the shareholders. Although asset-backed
securities generally are less likely to experience substantial prepayments than
are mortgage-backed securities, certain of the factors that affect the rate of
prepayments on mortgage-backed securities also affect the rate of prepayments on
asset-backed securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations
permit the servicer of such receivables to retain possession of the underlying
obligations. If the servicer sells these obligations to another party, there is
a risk that the purchaser would acquire an interest superior to that of the
holders of the related asset-backed securities. Further, if a vehicle is
registered in one state and is then reregistered because the owner and obligor
moves to another state, such reregistration could defeat the original security
interest in the vehicle in certain cases. In addition, because of the large
number of vehicles involved in a typical issuance and technical requirements
under state laws, the trustee for the holders of asset-backed securities backed
by automobile receivables may not have a proper security interest in all of the
obligations backing such receivables. Therefore, there is the possibility that
recoveries on repossessed collateral may not, in some cases, be available to
support payments on these securities.
DEMAND FEATURES. The 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) within a fixed period (usually
seven days) following a demand by the 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 Fund uses these arrangements to provide the Fund 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.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities laws. To the extent
these securities are not determined to be liquid, the Fund will limit its
purchase of these securities, together with other securities considered to be
illiquid, including over-the-counter options, to 15% of its net assets.
REPURCHASE AGREEMENTS. Certain of the securities in which the Fund invests may
be purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities or other high-quality, liquid
securities to the Fund and agree at the time of sale to repurchase them at a
mutually agreed upon time and price. To the extent that the original seller does
not repurchase the securities from the Fund, the Fund could receive less than
the repurchase price on any sale of such securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the Fund's
investment adviser deems it appropriate to do so. In addition, the Fund 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 Fund may realize short-term profits or losses
upon the sale of such commitments.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund can acquire up
to 3 per centum of the total outstanding stock of other investment companies.
The Fund 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 Fund will purchase securities of investment companies only in
open-market transactions involving only customary broker's commissions (although
the Fund does not expect to incur any broker's commissions in connection with
its purchases). The Adviser will waive its investment advisory fee on assets
invested in securities of other open-end investment companies. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis, or both,
to broker/dealers, banks, or other institutional borrowers of securities. The
Fund will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the Adviser has determined are creditworthy and will receive
collateral in the form of cash or U.S. government securities equal to at least
102% of the value of the securities loaned.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
OTHER INVESTMENT TECHNIQUES. The Fund may purchase and sell financial futures
contracts and related options. In addition, the Fund may purchase put options on
its portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Fund holds against decreases in value. The Fund may
also write covered call options on all or any portion of its portfolio to
generate income for the Fund. The Fund will write call options on securities
either held in its portfolio or which it has the right to obtain without payment
of further consideration or for which it has segregated cash or U.S. government
securities in the amount of any additional consideration.
The market value of debt obligations, and therefore the Fund's net asset value,
will fluctuate due to changes in economic conditions and other market factors,
such as interest rates, which are beyond the control of the Adviser. The Adviser
could be incorrect in its expectations about the direction or extent of these
market factors. Although debt obligations with longer maturities offer
potentially greater returns, they have greater exposure to market price
fluctuation. Consequently, to the extent the Fund is significantly invested in
debt obligations with longer maturities, there is a greater possibility of
fluctuation in the Fund's net asset value. However, the Adviser will attempt to
reduce declines in the Fund's net asset value by predicting the direction of
interest rates.
INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge
securities to secure such borrowings; nor
with respect to 75% of the value of its total assets, invest more than 5%
of the value of its total assets in securities of one issuer (other than
cash, cash items, or securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities, and repurchase
agreements collaterized by such securities), or acquire more than 10% of
the outstanding voting securities of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
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 Fund are made by Michigan National Bank, as the
Fund's investment adviser (the "Adviser"), subject to direction by the Trustees.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.75 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the 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 Fund.
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 of Michigan National Bank (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 or provide credit support for obligations issued by public
companies or municipalities. Thus, it may be possible, from time to time,
for the Fund to hold or acquire the securities of issuers which are also
lending clients of Michigan National Bank. The lending relationship will
not be a factor in the selection of securities.
Bruce Beaumont is Vice President and Portfolio Manager for Michigan
National Bank and Independence One Capital Management Corporation in
Farmington Hills, and has been responsible for management of the Fund's
portfolio since its inception. He joined Michigan National Bank in 1987. He
earned his BA from Alma College and a MBA from Northwestern University.
Bruce is a Chartered Financial Analyst and a Certified Public Accountant.
On February 4, 1995, the Board of Directors of MNC approved a definitive
agreement for the acquisition of that company by National Australia Bank
Limited ("NAB"), which is a transnational banking organization,
headquartered in Melbourne, Australia. One 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 Fund's
current investment advisory contract with the Adviser. In view of the
pending merger, the Fund's Board of Trustees has approved a new investment
advisory contract ("New Advisory Contract") between the Trust and Michigan
National Bank, as a subsidiary of National Australia Bank Limited (the "New
Adviser"). The terms of the New Advisory Contract are identical in all
material respects to the present advisory contract, i.e., Michigan National
Bank will continue to provide investment advisory services to the Fund, and
there will be no change in either the Fund's investment objective or
investment policies, or the fees payable by the Fund for advisory services.
The New Advisory Contract would become effective upon consummation of the
merger, which is subject to the satisfaction of certain conditions
including, among others, the receipt of all necessary regulatory approvals.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund, such as certain legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least $50,000
for each portfolio in Independence One Mutual Funds. Federated Administrative
Services may choose voluntarily to waive a portion of its fee.
CUSTODIAN. Michigan National Bank, Farmington Hills, Michigan, is custodian for
the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. These expenses include, but are not limited to, the cost of:
organizing the Trust and continuing its existence; Trustees' fees; investment
advisory and administrative services; printing prospectuses and other Fund
documents for shareholders; registering the Trust, the Fund and shares of the
Fund; taxes and commissions; issuing, purchasing, repurchasing and redeeming
shares; fees for custodians, transfer agents, dividend disbursing agents,
shareholder servicing agents, and registrars; printing, mailing, auditing,
accounting, and legal expenses; reports to shareholders and government agencies;
meetings of Trustees and shareholders and proxy solicitations therefor;
insurance premiums; association membership dues; and such nonrecurring and
extraordinary items as may arise. However, the Adviser may voluntarily waive
and/or reimburse some expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by adding the
market value of all securities and other assets of the Fund, subtracting the
liabilities of the Fund, and dividing the remainder by the total number of
shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund 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 Fund on days on which both the New York Stock Exchange
and the Federal Reserve Wire System are open for business. In connection with
the sale of Fund shares, the distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Fund reserves the
right to reject any purchase request.
TO PLACE AN ORDER. Investors may call toll-free 1-800-344-2292 to purchase
shares of the Fund through Michigan National Bank or Independence One. In
addition, investors may purchase shares of the Fund by calling their authorized
broker directly. Payments may be made either by check or wire transfer of
federal funds.
Payment by wire must be received before 4:00 p.m. (Eastern time). It is the
responsibility of Michigan National Bank, Independence One or broker/dealers to
transmit orders to the Fund by 5:00 p.m. (Eastern time) in order for shares to
be purchased at that day's price. For settlement of an order, payment must be
received within three business days of receipt of the order by check or wire
transfer. To purchase by check, the check must be included with the order and
made payable to "Independence One Fixed Income Fund." Checks must be converted
into federal funds to be considered received.
Federal funds should be wired as follows: Federated Services Company c/o
Michigan National Bank, Farmington Hills, Michigan; Account Number: 6856238933;
For Credit to: Independence One Fixed Income Fund; Account Number: 6586238933;
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 072000805.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000. Subsequent investments
must be in amounts of at least $100.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
The net asset value is determined at the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) Monday through Friday, except on: (i) days on
which there are not sufficient changes in the value of the Fund's portfolio
securities that its net asset value might be materially affected; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; and (iii) on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
shareholders so request by contacting their Michigan National Bank or
Independence One representative or authorized broker in writing.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared daily and paid monthly. Capital gains realized by the
Fund, if any, will be distributed at least once every 12 months. Dividends and
capital gains are automatically reinvested on payment dates in additional shares
without a sales charge unless cash payments are requested by shareholders in
writing to the Fund through their Michigan National Bank or Independence One
representative or authorized broker. Shares purchased with reinvested dividends
are credited to shareholder accounts on the following day.
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
The Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, and must be liquid. The
market value of any securities exchanged in an initial investment, plus any
cash, must be at least equal to the minimum investment in the Fund. The Fund
acquires the exchanged securities for investment and not for resale.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend on the net asset value
of Fund shares on the day the securities are valued. One share of the Fund will
be issued for the equivalent amount of securities accepted.
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
If an exchange is permitted, it will be treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Fund
shares, a gain or loss may be realized by the investor.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Fund are shareholders of the Trust, which consists of
the Fund, Independence One Equity Plus Fund, Independence One Michigan
Municipal Bond Fund, Independence One U.S. Government Securities Fund and the
following money market funds: Independence One Michigan Municipal Cash Fund;
Independence One Prime Money Market Fund; and Independence One U.S. Treasury
Money Market Fund. Shareholders of the Fund have access to these funds
("participating funds") through an exchange program.
With the exception of Independence One Prime Money Market Fund, the
participating funds currently offer only one class of shares. If such funds
should add a second class of shares, exchanges may be limited to shares of the
same class of each fund. Shareholders of the Fund have access to both Class A
and Class B Shares of Independence One Prime Money Market Fund through the
exchange program.
Shares of the Fund may be exchanged for shares of participating funds at net
asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value at least equal to the minimum investment of the participating
fund into which they are exchanging. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which
the exchange is being 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 Fund Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Michigan National Bank or 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 brokers directly.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors requests 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.
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 a fund will not receive a dividend from the Fund
on the date of the exchange.
Shareholders 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 Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Independence One Mutual Funds, 27777 Inkster Road,
Mail Code 10-52, Farmington Hills, Michigan 48333-9065. In addition, an investor
may exchange shares by sending a written request to their authorized broker
directly.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
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 Fund computes its net asset value. Redemption requests cannot
be executed on days on which the New York Stock Exchange is closed or on federal
holidays restricting wire transfers. Telephone or written requests for
redemption must be received in proper form and can be made to the Fund 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.
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 brokers directly. Redemption
requests must be received and transmitted to the transfer agent before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value.
The Michigan National Bank or 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 Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
For calls received before 4:00 p.m. (Eastern time) proceeds will normally be
wired the next day to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System or a check will be sent to the
address of record. In no event will proceeds be wired or a check sent more than
seven days after a proper request for redemption has been received.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Michigan National Bank or 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 Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Fund through their Michigan National Bank or Independence One representative or
authorized broker. The written request should include the shareholder's name,
the Fund name, the class designation, 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 commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; or
any other "eligible guarantor institution", as defined in the Securities
& Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed 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 Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of 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 that 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 Fund contemplated by its
advisory agreement with the Trust without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Michigan National Bank from continuing to perform all or a part of the
above services for its customers and/or the Fund. If it were prohibited from
engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Fund may occur, including possible
termination of any automatic or other Fund share investment and redemption
services then being provided by Michigan National Bank. It is not expected that
existing shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities to Michigan National Bank is found) as
a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions, including capital gains distributions,
received. This applies whether dividends and distributions are received in cash
or as additional shares. Distributions representing long-term capital gains, if
any, will be taxable to shareholders as long-term capital gains no matter how
long the shareholders have held their shares.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specific period of time, in the value
of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-annual compounding.
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 specific tax rate. The yield and the
tax-equivalent yield do not necessarily reflect income actually earned by the
Fund and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
INDEPENDENCE ONE
MUTUAL FUNDS
INDEPENDENCE ONE
FIXED INCOME FUND
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
Independence One(register mark)
Fixed Income Fund
Distributed by Federated Securities Corp.
Prospectus dated
, 1995
[LOGO]
MICHIGAN
NATIONAL
BANK
Investment Adviser
G00979-04 (5/95)
INDEPENDENCE ONE FIXED INCOME FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Independence One Fixed Income Fund (the "Fund"), a
portfolio in Independence One Mutual Funds (the "Trust"), dated
, 1995. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write the Fund or call toll-free at
1-800-334-2292.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated , 1995
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
Portfolio Turnover 6
Investment Limitations 6
INDEPENDENCE ONE MUTUAL FUNDS MANAGEMENT 8
- ---------------------------------------------------------------
Officers and Trustees 8
Fund Ownership 10
Trustees' Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
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Adviser to the Fund 10
Advisory Fees 11
ADMINISTRATIVE SERVICES 11
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CUSTODIAN 11
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BROKERAGE TRANSACTIONS 11
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PURCHASING SHARES 12
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Conversion to Federal Funds 12
DETERMINING NET ASSET VALUE 12
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DETERMINING MARKET VALUE OF SECURITIES 12
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REDEEMING SHARES 12
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Redemption in Kind 12
TAX STATUS 13
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The Fund's Tax Status 13
Shareholders' Tax Status 13
Capital Gains 13
TOTAL RETURN 13
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YIELD 13
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PERFORMANCE COMPARISONS 14
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APPENDIX 16
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GENERAL INFORMATION ABOUT THE FUND
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The Fund is a portfolio in Independence One Mutual Funds (the "Trust"), which
was established as a Massachusetts business trust under a Declaration of Trust
dated January 9, 1989.
INVESTMENT OBJECTIVE AND POLICIES
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The investment objective of the Fund is to seek total return. The investment
objective cannot be changed without the approval of shareholders.
TYPES OF INVESTMENTS
The Fund pursues its investment objective by investing primarily in fixed income
securities that, at the time of purchase, are rated A or higher by Moody's
Investors Service ("Moody's"), Standard & Poor's Ratings Group ("S&P"), or Fitch
Investors Service ("Fitch") or, if unrated, are of comparable quality to
securities with such ratings as determined by the Fund's investment adviser. The
following discussion supplements the description of the Fund's investment
policies in the prospectus. Listed below are securities in which the Fund may
invest from time to time.
MONEY MARKET INSTRUMENTS
The Fund may invest in money market instruments such as:
.instruments of domestic and foreign banks and savings and loans if they have
capital, surplus, and undivided profits of over $100,000,000, or if the
principal amount of the instrument is federally insured;
.commercial paper rated, at the time of purchase, A-1 or better by S&P, Prime-1
or better by Moody's, or F-1 or better by Fitch or, if unrated, are of
comparable quality as determined by the Fund's investment Adviser;
.time and savings deposits whose accounts are insured by the Bank Insurance Fund
("BIF"), which is administered by the Federal Deposit Insurance Corporation
("FDIC"), or in institutions whose accounts are insured by the Savings
Association Insurance Fund, which is also administered by the FDIC, including
certificates of deposit issued by, and other time deposits in, foreign branches
of BIF-insured banks; or
.bankers' acceptances.
PRIVATELY ISSUED MORTGAGE-RELATED SECURITIES
Privately issued mortgage-related securities generally represent an ownership
interest in federal agency mortgage pass-through securities such as those issued
by Government National Mortgage Association. The terms and characteristics of
the mortgage instruments may vary among pass-through mortgage loan pools. The
market for such mortgage-related securities has expanded considerably since its
inception. The size of the primary issuance market and the active participation
in the secondary market by securities dealers and other investors makes
government-related pools highly liquid.
RESETS OF INTEREST RATES
The interest rates paid on certain mortgage-backed securities in which the Fund
invests generally are readjusted at intervals of one year or less to an
increment over some predetermined interest rate index. There are two main
categories of indices: those based on U.S. Treasury securities and those derived
from a calculated measure, such as a cost of funds index or a moving average of
mortgage rates. Commonly utilized indices include the one-year and five-year
constant maturity Treasury Note rates, the three-month Treasury Bill rate, the
six-month Treasury Bill rate, rates on longer-term Treasury securities, the
National Median Cost of Funds, the one-month or three-month LIBOR, the prime
rate of a specific bank, or commercial paper rates. Some indices, such as the
one-year constant maturity Treasury Note rate, closely mirror changes in market
interest rate levels. Others tend to lag changes in market rate levels and tend
to be somewhat less volatile.
To the extent that the adjusted interest rate on the mortgage security reflects
current market rates, the market value of an adjustable rate mortgage security
will tend to be less sensitive to interest rate changes than a fixed rate debt
security of the same stated maturity. However, adjustable rate mortgage
securities which use indices that lag changes in market rates should experience
greater price volatility than adjustable rate mortgage securities that closely
mirror the market. Certain residual interest tranches of CMOs may have
adjustable interest rates that deviate significantly from prevailing market
rates, even after the interest rate is reset, and are subject to correspondingly
increased price volatility. In the event the Fund purchases such residual
interest mortgage securities, it will factor in the increased interest and price
volatility of such securities when determining its dollar-weighted average
duration.
CAPS AND FLOORS
The underlying mortgages which collateralize the ARMS, CMOs, and REMICs in which
the Fund invests will frequently have caps and floors which limit the maximum
amount by which the loan rate to the residential borrower may change up or down:
(1) per reset or adjustment interval, and (2) over the life of the loan. Some
residential mortgage loans restrict periodic adjustments by limiting changes in
the borrower's monthly principal and interest payments rather than limiting
interest rate changes. These payment caps may result in negative amortization.
The value of mortgage securities in which the Fund invests may be affected if
market interest rates rise or fall faster and farther than the allowable caps or
floors on the underlying residential mortgage loans. Additionally, even though
the interest rates on the underlying residential mortgages are adjustable,
amortization and prepayments may occur, thereby causing the effective maturities
of the mortgage securities in which the Fund invests to be shorter than the
maturities stated in the underlying mortgages.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of its assets.
RESTRICTED AND ILLIQUID SECURITIES
The 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 Fund's investment 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.
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission staff
position set forth in the adopting release for Rule 144A (the "Rule") under the
Securities Act of 1933. 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 the Rule. The Fund
believes that the staff of the Securities and Exchange Commission has left the
question of determining the liquidity of all restricted securities (eligible for
resale under the Rule) to the Trust's Board. The Board considers the following
criteria in determining the liquidity of certain restricted securities:
.the frequency of trades and quotes for the security;
.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
Variable rate demand notes are long-term corporate debt instruments that have
variable or floating interest rates and provide the Fund 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
an interest rate index or a published interest rate. Many variable rate demand
notes allow the Fund to demand the repurchase of the security on not more than
seven days' prior notice. Other notes only permit the Fund to tender the
security at the time of each interest rate adjustment or at other fixed
intervals.
REPURCHASE AGREEMENTS
The Fund requires its custodian to take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that, under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are deemed by the Fund's adviser to
be creditworthy pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund also may enter into reverse repurchase agreements under certain
circumstances. 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.
The use of reverse repurchase agreements may enable the Fund 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 Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
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.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker. The Fund does not have the right to vote securities on loan. In
circumstances where the Fund does not, the Fund would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge its portfolio by buying and selling
financial futures contracts, buying put options on portfolio securities and put
options on financial futures contracts for portfolio securities, and writing
call options on futures contracts. The Fund also may write covered call options
on portfolio securities to attempt to increase its current income.
The effective use of futures and options as hedging techniques depends on the
correlation between their prices and the behavior of the Fund's portfolio
securities as well as the Fund's investment adviser's ability to accurately
predict the direction of stock prices, interest rates and other relevant
economic factors. Daily limits on the fluctuation of futures and options prices
could cause the Fund to be unable to timely liquidate its futures or options
position and cause it to suffer greater losses than would otherwise be the case.
In this regard, the Fund may be unable to anticipate the extent of its losses
from futures transactions.
The Fund will maintain its position in securities, options and segregated cash
subject to puts and calls until the options are exercised, closed, or have
expired. An option position may be closed out over-the-counter or on a
nationally-recognized exchange which provides a secondary market for options of
the same series. The Fund currently does not intend to invest more than 5% of
its total assets in options transactions.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge
against the effects of changes in the value of portfolio securities due
to anticipated changes in interest rates and market conditions without
necessarily buying or selling the securities. The Fund will not engage in
futures transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller, who
agrees to make delivery of the specific type of security called for in
the contract ("going short"), and the buyer, who agrees to take delivery
of the security ("going long") at a certain time in the future.
For example, in the fixed income securities market, prices generally move
inversely to interest rates. A rise in rates means a drop in price.
Conversely, a drop in rates typically means a rise in price. In order to
hedge its holdings of fixed income securities against a rise in market
interest rates, the Fund could enter into contracts to deliver securities
at a predetermined price (i.e., "go short") to protect itself against the
possibility that the prices of its fixed income securities may decline
during the Fund's anticipated holding period. The Fund would "go long"
(agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that initial
margin in futures transactions does not involve the borrowing of funds by
the Fund to finance the transactions. Initial margin is in the nature of
a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund, but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark to
market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
The Fund will comply with the following restrictions when purchasing and
selling futures contracts. First, the Fund will not participate in
futures transactions if the sum of its initial margin deposits on open
contracts will exceed 5% of the market value of the Fund's total assets,
after taking into account the unrealized profits and losses on those
contracts it has entered into. Second, the Fund will not enter into these
contracts for speculative purposes. Third, since the Fund does not
constitute a commodity pool, it will not market itself as such, nor serve
as a vehicle for trading in the commodities futures or commodity options
markets. Connected with this, the Fund will disclose to all prospective
investors the limitations on its futures and options transactions, and
make clear that these transactions are entered into only for bona fide
hedging purposes, or other permissible purposes pursuant to regulations
promulgated by the Commodity Futures Trading Commission ("CFTC").
Finally, because the Fund will submit to the CFTC special calls for
information, the Fund will not register as a commodities pool operator.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts.
The Fund would use these options solely to protect portfolio securities
against decreases in value resulting from market factors such as an
anticipated increase in rates.
Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified
price, the purchase of a put option on a futures contract entitles (but
does not obligate) its purchaser to decide on or before a future date
whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option will be large enough to offset both the
premium paid by the Fund for the original option plus the decrease in
value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
listed call options on financial futures contracts or over-the-counter
call options on future contracts to hedge its portfolio against an
increase in market interest rates. When the Fund writes a call option on
a futures contract, it is undertaking the obligation of assuming a short
futures position (selling a futures contract) at the fixed strike price
at any time during the life of the option if the option is exercised. As
market interest rates rise, causing the prices of futures to decrease,
the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill causing the value of the Fund's call
option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can substantially offset the drop in value of the Fund's portfolio
securities.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then substantially offset the
realized decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its portfolio, plus or minus the unrealized gain
or loss on those open positions, adjusted for the correlation of
volatility between the hedged securities and the futures contracts. If
this limitation is exceeded at any time, the Fund will take prompt action
to close out a sufficient number of open contracts to bring its open
futures and options positions within this limitation.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option. The Fund may purchase these put options as long
as they are listed on a recognized options exchange and the underlying
stocks are held in its portfolio.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write call options on securities either held in its
portfolio or which it has the right to obtain without payment of further
consideration or for which it has segregated cash in the amount of any
additional consideration. As the writer of a call option, the Fund has
the obligation, upon exercise of the option during the option period, to
deliver the underlying security upon payment of the exercise price. The
call options which the Fund writes must be listed on a recognized options
exchange. Writing of call options by the Fund is intended to generate
income for the Fund and thereby protect against price movements in
particular securities in the Fund's portfolio.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options for those options on portfolio securities held by the Fund and
not traded on an exchange.
RISKS
When the Fund uses futures and options on futures as hedging devices,
there is a risk that the prices of the securities subject to the futures
contracts may not correlate perfectly with the prices of the securities
in the Fund's portfolio. This may cause the futures contact and any
related options to react differently than the portfolio securities to
market changes. In addition, the Fund's adviser could be incorrect in its
expectations about the direction or extent of market factors such as
stock price movements. In these events, the Fund may lose money on the
futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the Fund's
adviser will consider liquidity before entering into these transactions,
there is no assurance that a liquid secondary market on an exchange or
otherwise will exist for any particular futures contract or option at any
particular time. The Fund's ability to establish and close out futures
and options positions depends on this secondary market.
To minimize risks, the Fund may not purchase or sell futures contracts or
related options if immediately thereafter the sum of the amount of margin
deposits on the Fund's existing futures positions and premiums paid for
related options would exceed 5% of the market value of the Fund's total
assets. When the Fund purchases futures contracts, an amount of cash and
cash equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure that the use
of such futures contract is unleveraged. When the Fund sells futures
contacts, it will either own or have the right to receive the underlying
future or security, or will make deposits to collateralize the position
as discussed above.
WARRANTS
The Fund may invest in warrants. Warrants are basically options to purchase
common stock at a specific price (usually at a premium above the market value of
the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may be
perpetual. However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not exceed
the warrant's exercise price during the life of the warrant, the warrant will
expire as worthless. Warrants have no voting rights, pay no dividends, and have
no rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may tend to
be greater than the percentage increase or decrease in the market price of the
optioned common stock.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of portfolio turnover
exceeding 100%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund 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. The deposit or payment by the Fund of initial
or variation margin in connection with financial futures contracts or
related options transactions is not considered the purchase of a security
on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of the value
of the Fund's total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. For purposes of this limitation, the
following are not deemed to be pledges: margin deposits for the purchase
and sale of futures contract and related options, and segregation or
collateral arrangements made in connection with options activities or the
purchase of securities on a when-issued basis.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, 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 COMMODITIES, COMMODITY CONTRACTS, OR COMMODITY FUTURES
CONTRACTS
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving futures contracts and related options.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted securities in accordance with its
investment objectives, policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its assets, the 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. Also,
the Fund will not acquire more than 10% of the outstanding voting
securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry, except that the Fund may invest 25% or more of the
value of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities, and repurchase agreements
collateralized by such securities.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to one-third of the value of its total assets. This shall not prevent the
Fund from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions; where permitted
by the Fund's investment objectives, policies, and limitations.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Board of Trustees
("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 Fund can acquire up to 3 per centum of the total outstanding stock of
other investment companies. The Fund 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 Fund
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, nor are
they applicable with respect to securities of investment companies that
have been exempted from registration under the Investment Company Act of
1940.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of its total assets in securities
subject to restrictions on resale under the federal securities laws,
except for certain restricted securities which meet the criteria for
liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid obligations, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter
options, certain securities not determined by the Trustees to be liquid,
and non-negotiable fixed time deposits with maturities over seven days.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have less than three years of continuous
operations, including the operation of any predecessor. The Fund will
apply this limitation by reference to the issuer of a CMO (or other
asset-backed security) rather than requiring the CMO (or other
asset-backed security) itself to have at least three years of continuous
operations.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The 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 PUT OPTIONS
The Fund will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open
put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on nationally recognized stock
exchanges to 2% of its total assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants acquired by the Fund in
units or attached to securities may be deemed to be without value.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for purpose of
exercising control or management.
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.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan, having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of deposit, to be "cash items."
The Fund does not intend to borrow money in excess of 5% of the value of its
total assets during the current fiscal year.
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.
- --------------------------------------------------------------------------------
Robert E. Baker
4327 Stoneleigh Road
Bloomfield Hills, MI
Birthdate: May 6, 1930
Trustee
Retired; formerly, Vice Chairman, Chrysler Financial Corporation.
- --------------------------------------------------------------------------------
Harold Berry
100 Galleria Officentre,
Suite 219
Southfield, MI
Birthdate: September 17, 1925
Trustee
Managing Partner, Berry Enterprises; Chairman, Independent Sprinkler Companies,
Inc.; formerly, Chairman, Executive Committee, Federal Enterprises, Inc.;
Chairman, Berry, Ziegelman & Company.
- --------------------------------------------------------------------------------
Clarence G. Frame+
W-875 First Bank Building
332 Minnesota Street
St. Paul, MN
Birthdate: July 26, 1918
Trustee
Director, Tosco Corporation, Chicago Milwaukee Corporation, and Voyageur Funds
Group; formerly, Vice Chairman, First Bank System, Inc. and President, The First
National Bank of St. Paul, a subsidiary of First Bank System, Inc.
- --------------------------------------------------------------------------------
Harry J. Nederlander+*
231 S. Woodward,
Suite 219
Birmingham, MI
Birthdate: September 5, 1917
Trustee
Chairman, Nederlander Enterprises.
- --------------------------------------------------------------------------------
Thomas S. Wilson
Two Championship Drive
Auburn Hills, MI
Birthdate: October 9, 1949
Trustee
President and Executive Administrator, Detroit Pistons; President,
Arena Associates, Inc.
- --------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Executive Vice President, Treasurer and Director, Federated Securities Corp.;
Chairman, Treasurer and Trustee, Federated Administrative Services; Vice
President, Treasurer and Trustee, Federated Investors.
- --------------------------------------------------------------------------------
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services.
- --------------------------------------------------------------------------------
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors; Prior to January 1991, Associate
Counsel, The Boston Company
Advisors, Inc.
- --------------------------------------------------------------------------------
+Member of the Trust's Executive Committee. The Executive Committee of the Board
of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board
*This Trustee is deemed to be an "interested person" of the Fund or Trust as
defined in the Investment Company Act of 1940.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of the Fund.
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>
* Information is furnished for the fiscal year ended April 30, 1995. The
aggregate compensation is provided for the Trust which was comprised of four
portfolios at April 30, 1995. The Trust is the only investment company in the
Fund Complex.
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 Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts
or omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Michigan National Bank to
restrict the flow of non-public information, Fund investments are typically
made without any knowledge of Michigan National Bank's or its affiliates'
lending relationships with an issuer.
ADVISORY FEES
For its advisory services, Michigan National Bank receives an annual investment
advisory fee as described in the prospectus.
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
Trust for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus.
CUSTODIAN
- --------------------------------------------------------------------------------
Michigan National Bank, Farmington Hills, Michigan, is custodian for the
securities and cash of the Fund. For the services to be provided to the Trust
pursuant to the Custodian Agreement, the Trust pays the custodian an annual fee
based upon the average daily net assets of the Fund and which is payable
monthly. The custodian will also charge transaction fees and out-of-pocket
expenses.
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 when
both the New York Stock Exchange and the Federal Reserve Wire System are open
for business. The procedure for purchasing shares of the Fund is explained in
the prospectus under "Investing in the Fund."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Michigan NAtional Bank acts as the shareholder's agent in
depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
The market values of the Fund's portfolio securities are determined as follows:
.for bonds and other fixed income securities, as determined by an independent
pricing service;
.for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service, or for short-term obligations
with remaining maturities of 60 days or less at the time of purchase, at
amortized cost;
.for equity securities, according to the last sale price on a national
securities exchange, if applicable;
.in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
.for unlisted equity securities, latest bid prices; or
.for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data.
The Fund will value futures contracts and options at their market values
established by the exchanges at the close of options trading on such exchanges
unless the Trustees determine in good faith that another method of valuing
option positions is necessary.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Fund Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To satisfy registration
requirements in a particular state, redemption in kind will be made (for any
shareholder requesting redemption) in readily marketable securities to the
extent that such securities are available. If this state's policy changes, the
Fund reserves the right to redeem in kind by delivering those securities it
deems appropriate.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund expects to pay no federal income tax because it intends to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
.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.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income with respect to the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company and
avoid liability of federal income taxes, the Fund will be required to distribute
income accrued with respect to zero coupon convertible securities which it owns,
and may have to sell portfolio securities (perhaps at disadvantageous times) in
order to generate cash to satisfy these distribution requirements.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends, and any short-term capital gains, are taxable as ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as long-term
capital gains regardless of how long shareholders have held shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the net asset value per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000, less any applicable sales charge, adjusted
over the period by any additional shares, assuming the reinvestment of all
dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is determined each day by dividing the net investment
income per share (as defined by the SEC) earned by the Fund over a thirty-day
period by the maximum offering price per share of the Fund on the last day of
the period. This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the SEC and, therefore,
may not correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
the performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
.portfolio quality;
.average portfolio maturity;
.type of instruments in which the portfolio is invested;
.changes in interest rates and market value of portfolio securities;
.changes in the Fund's expenses; and
.various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and the maximum offering price per share fluctuate daily. Both net earnings and
offering price per share are factors in the computation of yield and total
return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors, such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
.LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) INDEX is comprised of
approximately 5,000 issues which include: non-convertible bonds publicly issued
by the U.S. government or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly issued, fixed rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. The average maturity of these bonds approximates nine years. Tracked
by Lehman Brothers, the index calculates total returns for one-month, three-
month, twelve-month, and ten-year periods and year-to-date.
.LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "fixed income
funds" category in advertising and sales literature.
.LEHMAN BROTHERS AGGREGATE BOND INDEX is a total return index measuring both the
capital price changes and income provided by the underlying universe of
securities, weighted by market value outstanding. The Aggregate Bond Index is
comprised of the Lehman Brothers Government Bond Index, Corporate Bond Index,
Mortgage-Backed Securities Index and the Yankee Bond Index. These indices
include: U.S. Treasury obligations, including bonds and notes; U.S. agency
obligations, including those of the Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Farmers
Home Administration; Federal Home Loan Banks; Federal Home Loan Mortgage
Corporation; Federal National Mortgage Association; Government National
Mortgage Association; Student Loan Marketing Association; foreign obligations;
and U.S. investment grade corporate debt and mortgage-backed obligations. All
corporate debt included in the Aggregate Bond Index has a minimum rating of BBB
by S&P or Fitch Investor's Service, Inc. ("Fitch"), or a minimum rating of Baa
by Moody's.
.MERRILL LYNCH CORPORATE AND GOVERNMENT INDEX includes issues which must be in
the form of publicly placed, non convertible, coupon-bearing domestic debt and
must carry a term of maturity of at least one year. Par amounts outstanding
must be no less than $10 million at the start and at the close of the
performance measurement period. Corporate instruments must be rated by S&P or
by Moody's as investment-grade issues (i.e., BBB/Baa or better).
.MERRILL LYNCH DOMESTIC MASTER INDEX includes issues which must be in the form
of publicly placed, non convertible, coupon-bearing domestic debt and must
carry a term to maturity of at least one year. Par amounts outstanding must be
no less than $10 million at the start and at the close of the performance
measurement period. The Domestic Master Index is a broader index than the
Merrill Lynch Corporate and Government Index and includes, for example,
mortgage-related securities. The mortgage market is divided by agency, type of
mortgage and coupon and the amount outstanding in each agency/type/coupon
subdivision must be no less than $200 million at the start and at the close of
the performance measurement period. Corporate instruments must be rated by S&P
or by Moody's as investment-grade issues (i.e., BBB/Baa or better).
.SALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term, high grade domestic corporate
taxable bonds, rated AAA-AA with maturities of twelve years or more and
companies in industry, public utilities, and finance.
.LEHMAN BROTHERS INTERMEDIATE GOVERNMENT/CORPORATE BOND INDEX is an unmanaged
index comprised of all the bonds issued by the Lehman Brothers
Government/Corporate Bond Index with maturities between 1 and 9.99 years.
Total return is based on price appreciation/depreciation and income as a
percentage of the original investment. Indices are rebalanced monthly by market
capitalization.
.MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S RATINGS GROUP CORPORATE BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
S&P may apply a plus (+) or minus (-) to the above rating classifications to
show relative standing within the classifications.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATING DEFINITIONS
Aaa--Bonds which are rated "AAA" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa--Bonds which are rated "AA" are judged to be of high quality by all
standards. Together with the "AAA" group they comprise what are generally known
as high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in "AAA" securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in "AAA"
securities.
A--Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment some time in the future.
NR--Not rated by Moody's. Moody's applies numerical modifiers, 1, 2 and 3 in
each generic rating classification from "AA" through "B" in its corporate bond
rating system. The modifier 1 indicates that the security ranks in the higher
end of its generic rating category; the modifier 2 indicates a mid-range
ranking; and the modifier 3 indicates that the issue ranks in the lower end of
its generic rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
STANDARD & POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
PRIME-1--Issuers rated "PRIME-1" (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. "PRIME-1"
repayment capacity will normally be evidenced by many of the following
characteristics:
.Leading market positions in well-established industries;
.High rates of return on funds employed;
.Conservative capitalization structure with moderate reliance on debt and ample
asset protection;
.Broad margins in earnings coverage of fixed financial charges and high internal
cash generation; or
.Well-established access to a range of financial markets and assured sources of
alternate liquidity.
PRIME-2--Issuers rated "PRIME-2" (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING DEFINITIONS
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
G00980-03 (5/95)
INDEPENDENCE ONE MICHIGAN MUNICIPAL BOND FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
PROSPECTUS
The shares of Independence One Michigan Municipal Bond Fund (the "Fund") offered
by this prospectus represent interests in a non-diversified portfolio of
securities which is one of a series of investment portfolios in Independence One
Mutual Funds (the "Trust"), an open-end management investment company (a mutual
fund). Michigan National Bank professionally manages the Fund's portfolio.
The investment objective of the Fund is to provide current income exempt from
federal regular income tax and the personal income taxes imposed by the State of
Michigan and Michigan municipalities. The Fund invests primarily in a portfolio
of municipal securities which are exempt from federal regular income tax and the
personal income taxes imposed by the State of Michigan and Michigan
municipalities ("Michigan Municipal Securities"). These securities include those
issued by or on behalf of the State of Michigan and Michigan municipalities, as
well as those issued by states, territories and possessions of the United States
which are exempt from federal regular income tax and the personal income taxes
of the State of Michigan and Michigan municipalities. In addition the Fund
intends to qualify as an investment substantially exempt from the Michigan
intangibles tax. Shares of the Fund are intended to be sold as an investment
vehicle for institutions, corporations, fiduciaries and individuals.
Shareholders can invest, reinvest, or redeem shares at any time without charge
or penalty imposed by the Fund. Shareholders have access to other portfolios of
the Trust through an exchange program.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
MICHIGAN NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY MICHIGAN NATIONAL
BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
, 1995, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by writing or calling the Fund toll-free
1-800-334-2292.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated , 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUMMARY OF FUND EXPENSES 1
- ---------------------------------------------------
GENERAL INFORMATION 2
- ---------------------------------------------------
INVESTMENT INFORMATION 2
- ---------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 3
Characteristics 3
Participation Interests 3
Variable Rate Municipal Securities 3
Municipal Leases 3
Investing in Securities of Other
Investment Companies 4
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 4
Temporary Investments 4
Michigan Municipal Securities 5
Investment Risks 5
Non-Diversification 6
Investment Limitation 6
INDEPENDENCE ONE MUTUAL FUNDS
INFORMATION 6
- ---------------------------------------------------
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 7
Adviser's Background 7
Distribution of Fund Shares 8
Administration of the Fund 8
Administrative Services 8
Custodian 8
Transfer Agent and Dividend
Disbursing Agent 8
Independent Auditors 8
Expenses of the Fund 8
NET ASSET VALUE 9
- ---------------------------------------------------
INVESTING IN THE FUND 9
- ---------------------------------------------------
Share Purchases 9
To Place an Order 9
Minimum Investment Required 10
What Shares Cost 10
Certificates and Confirmations 10
Dividends and Capital Gains 10
EXCHANGING SECURITIES FOR FUND SHARES 10
- ---------------------------------------------------
EXCHANGE PRIVILEGE 11
- ---------------------------------------------------
Exchange by Telephone 12
Written Exchange 12
REDEEMING FUND SHARES 12
- ---------------------------------------------------
By Telephone 13
By Mail 13
Accounts with Low Balances 14
SHAREHOLDER INFORMATION 14
- ---------------------------------------------------
Voting Rights 14
Massachusetts Partnership Law 14
EFFECT OF BANKING LAWS 15
- ---------------------------------------------------
TAX INFORMATION 15
- ---------------------------------------------------
Federal Income Tax 15
Michigan Taxes 16
Other State and Local Taxes 16
PERFORMANCE INFORMATION 17
- ---------------------------------------------------
ADDRESSES Back Cover
- ---------------------------------------------------
</TABLE>
I
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHAREHOLDER TRANSACTION EXPENSES
<S> <C> <C>
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)............. None
Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering
price)................................................................................ None
Contingent Deferred Sales Charge (as a percentage of original
purchase price or redemption proceeds, as applicable)................................. None
Redemption Fee (as a percentage of amount redeemed, if applicable)...................... None
Exchange Fee............................................................................ None
<CAPTION>
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
<S> <C> <C>
Management Fee (after waiver) (1)....................................................... %
12b-1 Fees.............................................................................. None
Total Other Expenses (after waiver) (2)................................................. %
Total Fund Operating Expenses (3)................................................... %
<FN>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the investment adviser. The adviser can terminate this
voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.75%.
(2) The Total Other Expenses are estimated to be % absent the anticipated
voluntary waiver by the administrator.
(3) The Total Fund Operating Expenses are estimated to be % absent the
anticipated voluntary waivers detailed in notes (1) and (2).
* Annual Fund Operating Expenses are estimated based on 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 amount shown.
</TABLE>
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "INDEPENDENCE ONE MUTUAL FUNDS INFORMATION" AND "INVESTING IN THE
FUND." WIRE-TRANSFERRED REDEMPTIONS OF LESS THAN $5,000 MAY BE SUBJECT TO
ADDITIONAL FEES.
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS
- ----------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual
return and (2) redemption at the end of each time period. The Fund charges no
redemption fees.................................................................... $-- $--
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING APRIL 30, 1996.
1
'
GENERAL INFORMATION
- --------------------------------------------------------------------------------
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 prospectus relates only to the Trust's
portfolio known as Independence One Michigan Municipal Bond Fund. As of the date
of this prospectus, the Fund does not offer separate classes of shares.
Shares of the Fund are designed as a convenient means of accumulating an
interest in a professionally managed portfolio investing primarily in Michigan
Municipal Securities. The Fund is not likely to be a suitable investment for
non-Michigan taxpayers or retirement plans since Michigan Municipal Securities
are not likely to produce competitive after-tax yields for such persons and
entities when compared to other investments.
A minimum initial investment of $1,000 is required. Subsequent investments must
be in amounts of $100 or more.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide current income which is
exempt from federal regular income tax and the personal income taxes imposed by
the State of Michigan and Michigan municipalities. The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its exempt status when distributed to the Fund's shareholders. However,
income distributed by the Fund may not necessarily be exempt from state or
municipal taxes in states other than Michigan. In addition, the Fund intends to
qualify as an investment substantially exempt from the Michigan Intangibles
Personal Property tax ("Intangibles tax").
INVESTMENT POLICIES
As a matter of fundamental investment policy which may not be changed without
shareholder approval, the Fund will invest its assets so that, under normal
circumstances, at least 80% of its total assets are invested in Michigan
Municipal Securities, as previously defined. (Federal regular income tax does
not include the individual alternative minimum tax or the federal alternative
minimum tax for corporations.) Unless indicated otherwise, the investment
policies of the Fund may be changed by the Trustees without approval of
shareholders. Shareholders will be notified before any material changes in these
policies becomes effective.
2
ACCEPTABLE INVESTMENTS. The Michigan Municipal Securities in which the Fund
invests include:
- obligations issued by or on behalf of the state of Michigan, its political
subdivisions, or agencies;
- debt obligations of any state, territory, or possession of the United
States, or any political subdivision of any of these; and
- participation interests, as described below, in any of the above
obligations,
the interest from which is, in the opinion of bond counsel for the issuers or in
the opinion of officers of the Trust, on behalf of the Fund and/or the
investment adviser to the Fund, exempt from both federal regular income tax and
the personal income taxes imposed by the State of Michigan and Michigan
municipalities.
The prices of fixed income securities fluctuate inversely to the direction of
interest rates.
CHARACTERISTICS. The Michigan Municipal Securities which the Fund buys are
investment grade bonds rated, at the time of purchase, Aaa, Aa or A by Moody's
Investors Service, Inc., AAA, AA or A by Standard & Poor's Ratings Group, or
AAA, AA or A by Fitch Investors Service, Inc. In certain cases the Fund's
adviser may choose bonds which are unrated if it judges the bonds to have the
same characteristics as the investment grade bonds described above. If a
security loses its rating or has its rating reduced after the Fund has purchased
it, the Fund is not required to sell or otherwise dispose of the security, but
may consider doing so. A description of the ratings categories is contained in
the Appendix to the Statement of Additional Information.
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 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 Fund's adviser will determine
whether participation interests meet the prescribed quality standards for the
Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Michigan Municipal Securities
which the Fund purchases may have variable interest rates. Variable interest
rates are ordinarily based on a published interest rate, interest rate index, or
a similar standard, such as the 91-day U.S. Treasury bill rate. Many variable
rate municipal securities are subject to payment of principal on demand by the
Fund in not more than seven days. All variable rate municipal securities will
meet the quality standards for the Fund. The Fund's investment adviser has been
instructed by the Trustees to monitor the pricing, quality, and liquidity of the
variable rate municipal securities, including participation interests held by
the Fund on the basis of published financial information and reports of the
rating agencies and other analytical services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, a conditional sales contract or a
participation certificate on any of the above. Lease obligations may be subject
to periodic appropria-
3
tion. If the entity does not appropriate funds for future lease payments, the
entity cannot be compelled to make such payments. In the event of failure of
appropriation, unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an acceptable substitute
source of payment.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund can acquire up
to 3 per centum of the total outstanding stock of other investment companies.
The Fund 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 Fund will purchase securities of investment companies only in
open-market transactions involving only customary broker's commissions (although
the Fund does not expect to incur any broker's commissions in connection with
its purchases). The Fund's adviser will waive its investment advisory fee on
assets invested in securities of other open-end investment companies. However,
these limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. 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 upon resale under federal securities laws. To the extent
these securities are not determined to be liquid, the Fund will limit its
purchase of these securities, together with other securities considered to be
illiquid, to 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering into these transactions, and the market
values of the securities purchased may vary from the purchase prices.
Accordingly, the Fund may pay more/less than the market value of the securities
on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
TEMPORARY INVESTMENTS. From time to time on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term non-Michigan municipal
tax-exempt obligations or taxable temporary investments. These temporary
investments include: notes issued by or on behalf of municipal or corporate
issuers; obligations issued or guaranteed by the U.S. government, its agencies,
or instrumentalities; other debt securities; commercial paper; certificates of
deposit of banks; and repurchase agreements (arrangements in which the
organization selling the Fund a bond or temporary investment agrees at the time
of sale to repurchase it at a mutually agreed upon time and price).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those rated within
the investment grade categories described
4
under "Acceptable Investments--Characteristics" (if rated) or (if unrated) those
which the investment adviser judges to have the same characteristics as such
investment grade securities.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income taxes imposed by the State of Michigan or Michigan
municipalities.
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 Michigan 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. However, interest on and principal of revenue bonds 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.
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
5
referenda extending the time for payment of principal and/or interest, or
imposing other 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 portfolio of securities 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.
The Fund intends to comply with Subchapter M of the Internal Revenue Code of
1986, as amended. This undertaking requires that at the end of each quarter of
the taxable year: (a) 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 (b) beyond that, no more than 25% of its total assets are invested
in the securities of a single issuer.
INVESTMENT LIMITATION
The Fund will not borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a percentage of
its cash value with an agreement to buy it back on a set date) or pledge
securities except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets and pledge securities to secure such
borrowings.
The above investment limitation cannot be changed without shareholder approval.
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 Fund are made by Michigan National Bank, as the
Fund's investment adviser (the "Adviser"), subject to direction by the Trustees.
The Adviser continually conducts investment research and supervision for the
Fund and is responsible for the purchase or sale of portfolio instruments, for
which it receives an annual fee based on the assets of the Fund.
6
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal
to 0.75 of 1% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the 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 Fund.
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 of Michigan National Bank (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 or provide credit support for obligations issued by public
companies or municipalities. Thus, it may be possible, from time to time,
for the Fund to hold or acquire the securities of issuers which are also
lending clients of Michigan National Bank. The lending relationship will not
be a factor in the selection of securities.
Stacey A. Gray is Vice President and Portfolio Manager for Michigan National
Bank in Farmington Hills, and has been responsible for the management of the
Fund's portfolio since its inception. Ms. Gray joined Michigan National Bank
in 1986. She earned her BS from Mercy College and her JD from the University
of Detroit Mercy School of Law.
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 Fund's current
investment advisory contract with the Adviser. In view of the pending
merger, the Fund's Board of Trustees has approved a new investment advisory
contract ("New Advisory Contract") between the Trust and Michigan
7
National Bank, as a subsidiary of National Australia Bank Limited (the "New
Adviser"). The terms of the New Advisory Contract are identical in all
material respects to the present advisory contract, i.e., Michigan National
Bank will continue to provide investment advisory services to the Fund, and
there will be no change in either the Fund's investment objective or
investment policies, or the fees payable by the Fund for advisory services.
The New Advisory Contract would become effective upon consummation of the
merger, which is subject to the satisfaction of certain conditions
including, among others, the receipt of all necessary regulatory approvals.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides the Fund with certain administrative personnel and
services necessary to operate the Fund, such as certain legal and accounting
services. Federated Administrative Services provides these at an annual rate as
specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
ADMINISTRATIVE DAILY NET ASSETS
FEE 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 waive a portion of its fee.
CUSTODIAN. Michigan National Bank, Farmington Hills, Michigan, is custodian for
the securities and cash of the Fund.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT. Federated Services Company,
Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund and
dividend disbursing agent for the Fund.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. These expenses include, but are not limited to, the cost of:
organizing the Trust and continuing its existence; Trustees'
8
fees; investment advisory and administrative services; printing prospectuses and
other Fund documents for shareholders; registering the Trust, the Fund and
shares of the Fund; taxes and commissions; issuing, purchasing, repurchasing and
redeeming shares; fees for custodians, transfer agents, dividend disbursing
agents, shareholder servicing agents, and registrars; printing, mailing,
auditing, accounting, and legal expenses; reports to shareholders and government
agencies; meetings of Trustees and shareholders and proxy solicitations
therefor; insurance premiums; association membership dues; and such nonrecurring
and extraordinary items as may arise. However, the Adviser may voluntarily waive
and/or reimburse some expenses.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by adding the
market value of all securities and other assets of the Fund, subtracting the
liabilities of the Fund, and dividing the remainder by the total number of
shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Shares of the Fund 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 Fund on days on which both the New York Stock Exchange
and the Federal Reserve Wire System are open for business. In connection with
the sale of Fund shares, the distributor may from time to time offer certain
items of nominal value to any shareholder or investor. The Fund reserves the
right to reject any purchase request.
TO PLACE AN ORDER. Investors may call toll-free 1-800-344-2292 to purchase
shares of the Fund through Michigan National Bank or Independence One. In
addition, investors may purchase shares of the Fund by calling their authorized
broker directly. Payments may be made either by check or wire transfer of
federal funds.
Payment by wire must be received before 4:00 p.m. (Eastern time). It is the
responsibility of Michigan National Bank, Independence One or broker/dealers to
transmit orders to the Fund by 5:00 p.m. (Eastern time) in order for shares to
be purchased at that day's price. For settlement of an order, payment must be
received within three business days of receipt of the order by check or wire
transfer. To purchase by check, the check must be included with the order and
made payable to "Independence One Michigan Municipal Bond Fund." Checks must be
converted into federal funds to be considered received.
Federal funds should be wired as follows: Federated Services Company c/o
Michigan National Bank, Farmington Hills, Michigan; Account Number 6856238933;
For Credit to: Independence One Michigan Municipal Bond Fund; 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 072000805.
9
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000. Subsequent investments
must be in amounts of at least $100.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received. There is no sales charge imposed by the Fund.
The net asset value is determined at the close of the New York Stock Exchange
(normally 4:00 p.m. Eastern time) Monday through Friday, except on: (i) days on
which there are not sufficient changes in the value of the Fund's portfolio
securities that its net asset value might be materially affected; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; and (iii) on the following holidays: New Year's Day,
Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder of record. Share certificates are not issued unless
shareholders so request by contacting their Michigan National Bank or
Independence One representative or authorized broker in writing.
Detailed confirmations of each purchase and redemption are sent to each
shareholder. Monthly confirmations are sent to report dividends paid during that
month.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared daily and paid monthly. Capital gains realized by the
Fund, if any, will be distributed at least once every 12 months. Dividends and
capital gains are automatically reinvested on payment dates in additional shares
without a sales charge unless cash payments are requested by shareholders in
writing to the Fund through their Michigan National Bank or Independence One
representative or authorized broker. Shares purchased with reinvested dividends
are credited to shareholder accounts on the following day.
EXCHANGING SECURITIES FOR FUND SHARES
- --------------------------------------------------------------------------------
The Fund may accept securities in exchange for Fund shares. The Fund will allow
such exchanges only upon the prior approval of the Fund and a determination by
the Fund and the Adviser that the securities to be exchanged are acceptable.
Any securities exchanged must meet the investment objective and policies of the
Fund, must have a readily ascertainable market value, and must be liquid. The
market value of any securities exchanged in an initial investment, plus any
cash, must be at least equal to the minimum investment in the Fund. The Fund
acquires the exchanged securities for investment and not for resale.
Securities accepted by the Fund will be valued in the same manner as the Fund
values its assets. The basis of the exchange will depend on the net asset value
of Fund shares on the day the securities are valued. One share of the Fund will
be issued for the equivalent amount of securities accepted.
10
Any interest earned on the securities prior to the exchange will be considered
in valuing the securities. All interest, dividends, subscription or other rights
attached to the securities become the property of the Fund, along with the
securities.
If an exchange is permitted, it will be treated as a sale for federal income tax
purposes. Depending upon the cost basis of the securities exchanged for Fund
shares, a gain or loss may be realized by the investor.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Fund are shareholders of the Trust, which consists of
the Fund, Independence One Equity Plus Fund, Independence One Fixed Income Fund,
Independence One U.S. Government Securities Fund and the following money market
funds: Independence One Michigan Municipal Cash Fund; Independence One Prime
Money Market Fund; and Independence One U.S. Treasury Money Market Fund.
Shareholders of the Fund have access to these funds ("participating funds")
through an exchange program.
With the exception of Independence One Prime Money Market Fund, the
participating funds currently offer only one class of shares. If such funds
should add a second class of shares, exchanges may be limited to shares of the
same class of each fund. Shareholders of the Fund have access to both Class A
and Class B Shares of Independence One Prime Money Market Fund through the
exchange program.
Shares of the Fund may be exchanged for shares of participating funds at net
asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value at least equal to the minimum investment of the participating
fund into which they are exchanging. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the participating fund into which
the exchange is being 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 Fund Shares--By Mail.") Exercise of this privilege is
treated as a redemption and new purchase for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The Fund reserves the right to modify or terminate the exchange
privilege at any time. Shareholders would be notified prior to any modification
or termination. Shareholders may obtain further information on the exchange
privilege by calling their Michigan National Bank or Independence One
representative or authorized broker.
11
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 brokers directly.
Shares may be exchanged by telephone only between fund accounts having identical
shareholder registrations.
An authorization form permitting the Fund to accept telephone exchange requests
must first be completed. It is recommended that investors request this privilege
at the time of their initial application. If not completed at the time of
initial application, authorization forms and information on this service can be
obtained through a Michigan National Bank or Independence One representative or
authorized broker. Telephone exchange instructions may be 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 a fund will not receive a dividend from the Fund
on the date of the exchange.
Shareholders 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 Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
WRITTEN EXCHANGE. A shareholder wishing to make an exchange by written request
may do so by sending it to: Independence One Mutual Funds, 27777 Inkster Road,
Mail Code 10-52, Farmington Hills, Michigan 48333-9065. In addition, an investor
may exchange shares by sending a written request to their authorized broker
directly.
REDEEMING FUND SHARES
- --------------------------------------------------------------------------------
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 Fund computes its net asset value. Redemption requests cannot
be executed on days on which the New York Stock Exchange is closed or on federal
holidays restricting wire transfers. Telephone or written requests for
redemption must be received in proper form and can be made to the Fund through a
Michigan National Bank or Independence One representative or authorized broker.
Although the transfer agent
12
does not charge for telephone redemptions, it reserves the right to charge a fee
for the cost of wire-transferred redemptions of less than $5,000.
BY TELEPHONE. 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 brokers directly. Redemption
requests must be received and transmitted to the transfer agent before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value.
The Michigan National Bank or 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 Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
For calls received before 4:00 p.m. (Eastern time) proceeds will normally be
wired the next day to the shareholder's account at a domestic commercial bank
that is a member of the Federal Reserve System or a check will be sent to the
address of record. In no event will proceeds be wired or a check sent more than
seven days after a proper request for redemption has been received.
An authorization form permitting the Fund to accept telephone redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service can
be obtained through a Michigan National Bank or 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 Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Fund through their Michigan National Bank or Independence One representative or
authorized broker. The written request should include the shareholder's name,
the Fund name, the class designation, 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 commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
13
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; or
- any other "eligible guarantor institution", as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its transfer agent reserve the right
to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed 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 Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below the required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All shares of all classes of
each portfolio in the Trust have equal voting rights, except that in matters
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.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of 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 that the Trust or its
Trustees enter into or sign.
14
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 Fund contemplated by its
advisory agreement with the Trust without violation of the Glass-Steagall Act or
other applicable banking laws or regulations. Changes in either federal or state
statutes and regulations relating to the permissible activities of banks and
their subsidiaries or affiliates, as well as further judicial or administrative
decisions or interpretations of such or future statutes and regulations, could
prevent Michigan National Bank from continuing to perform all or a part of the
above services for its customers and/or the Fund. If it were prohibited from
engaging in these customer-related activities, the Trustees would consider
alternative advisers and means of continuing available investment services. In
such event, changes in the operation of the Fund may occur, including possible
termination of any automatic or other Fund share investment and redemption
services then being provided by Michigan National Bank. It is not expected that
existing shareholders would suffer any adverse financial consequences (if
another adviser with equivalent abilities to Michigan National Bank is found) as
a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to receive the special tax treatment afforded to such
companies. The Fund will be treated as a single, separate entity for federal
income tax purposes so that income (including capital gains) and losses realized
by the Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
15
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 Funds 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.
16
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return, yield, and
tax-equivalent yield.
Total return represents the change, over a specific period of time, in the value
of an investment in the Fund after reinvesting all income and capital gain
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per share of the Fund on the last
day of the period. This number is then annualized using semi-annual compounding.
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 specific tax rate. The yield and the
tax-equivalent yield do not necessarily reflect income actually earned by the
Fund and, therefore, may not correlate to the dividends or other distributions
paid to shareholders.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
17
INDEPENDENCE ONE
MUTUAL FUNDS
INDEPENDENCE ONE
MICHIGAN MUNICIPAL BOND FUND
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INVESTMENT ADVISER
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Services Company
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
[RECYCLED PAPER]
G00979-03 (5/95)
INDEPENDENCE ONE-REGISTERED TRADEMARK-
MICHIGAN MUNICIPAL
BOND FUND
Distributed by Federated Securities Corp.
A Non-Diversified Portfolio of
An Open-End, Management
Investment Company
Prospectus dated
_________, 1995
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
--------------------------------
[Logo]
MICHIGAN
NATIONAL
BANK
Investment Adviser
G0097-03(5/95)
INDEPENDENCE ONE MICHIGAN MUNICIPAL BOND FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of Michigan Municipal Bond Fund (the "Fund") dated
, 1995. This Statement is not a prospectus itself. To
receive a copy of the prospectus write the Fund or call
1-800-334-2292.
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
Statement dated , 1995
[LOGO]
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
GENERAL INFORMATION ABOUT THE FUND 1
- ----------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ----------------------------------------------------------
Acceptable Investments 1
When-Issued and Delayed Delivery
Transactions 2
Temporary Investments 2
Portfolio Turnover 3
INVESTMENT LIMITATIONS 3
- ----------------------------------------------------------
Michigan Investment Risks 4
INDEPENDENCE ONE MUTUAL FUNDS MANAGEMENT 6
- ----------------------------------------------------------
Officers and Trustees 6
Fund Ownership 7
Trustees' Compensation 8
Trustee Liability 8
INVESTMENT ADVISORY SERVICES 8
- ----------------------------------------------------------
Adviser to the Fund 8
Advisory Fees 8
ADMINISTRATIVE SERVICES 9
- ----------------------------------------------------------
CUSTODIAN 9
- ----------------------------------------------------------
BROKERAGE TRANSACTIONS 9
- ----------------------------------------------------------
PURCHASING SHARES 9
- ----------------------------------------------------------
Conversion to Federal Funds 9
DETERMINING NET ASSET VALUE 9
- ----------------------------------------------------------
DETERMINING MARKET VALUE OF SECURITIES 10
- ----------------------------------------------------------
Valuing Municipal Bonds 10
Use of Amortized Cost 10
REDEEMING SHARES 10
- ----------------------------------------------------------
Redemption in Kind 10
TAX STATUS 10
- ----------------------------------------------------------
The Fund's Tax Status 10
Shareholder's Tax Status 10
TOTAL RETURN 11
- ----------------------------------------------------------
YIELD 11
- ----------------------------------------------------------
TAX-EQUIVALENT YIELD 12
- ----------------------------------------------------------
Tax-Equivalency Table 12
PERFORMANCE COMPARISONS 13
- ----------------------------------------------------------
APPENDIX 14
- ----------------------------------------------------------
</TABLE>
I
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in Independence One Mutual Funds (the "Trust"), which
was established as a Massachusetts business trust under a Declaration of Trust
dated January 9, 1989.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide current income which is exempt
from federal regular income tax and the personal income taxes imposed by the
State of Michigan and Michigan municipalities. The investment objective cannot
be changed without approval of shareholders. In addition, the Fund intends to
qualify as an investment exempt from the Michigan Intangibles Personal Property
tax.
ACCEPTABLE INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities, which are
exempt from federal regular income tax and the personal income taxes imposed by
the State of Michigan and Michigan municipalities ("Michigan Municipal
Securities"). These securities include those issued by or on behalf of the State
of Michigan and Michigan municipalities, and those issued by states,
territories, and possessions of the United States which are exempt from federal
regular income tax and the personal income taxes imposed by the State of
Michigan and Michigan municipalities.
CHARACTERISTICS
The Michigan Municipal Securities in which the Fund invests have the
characteristics set forth in the prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Michigan Municipal Securities are:
- municipal notes and municipal commercial paper;
- serial bonds sold with differing maturity dates;
- tax anticipation notes sold to finance working capital needs of
municipalities;
- bond anticipation notes sold prior to the issuance of longer-term
bonds;
- pre-refunded municipal bonds; and
- general obligation bonds secured by a municipality pledge of
taxation.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial institution
irrevocable letters of credit or guarantees and give the Fund the right to
demand payment of the principal amounts of the participation interests
plus accrued interest on short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
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 municipal
securities than for fixed income obligations.
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.
MUNICIPAL LEASES
The Fund may purchase municipal securities in the form of participation
interests which represent undivided proportional interests in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure the payments on the
certificates. Lease obligations may be limited by municipal charter or the
nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity does
not appropriate funds for future lease payments, the entity cannot be
compelled to make such payments. Furthermore, a lease may provide that the
certificate trustee cannot accelerate lease obligations upon default. The
trustee
1
- --------------------------------------------------------------------------------
would only be able to enforce lease payments as they became due. In the
event of default or failure of appropriation, it is unlikely that the
trustee would be able to obtain an acceptable substitute source of
payment.
In determining the liquidity of municipal lease securities, the investment
adviser, under the authority delegated by the Trustees, will base its
determination on the following factors:
- whether the lease can be terminated by the lessee;
- the potential recovery, if any, from a sale of the leased property
upon termination of the lease;
- the lessee's general credit strength (e.g., its debt, administrative,
economic and financial characteristics and prospects);
- the likelihood that the lessee will discontinue appropriating funding
for the leased property because the property is no longer deemed
essential to its operations (e.g., the potential for an "event of
non-appropriation"); and
- any credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These assets are marked to market daily
and are maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an extent
that would cause the segregation of more than 20% of the total value of its
assets.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual market
conditions or for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, broker/dealers, and
other recognized financial institutions sell U.S. government securities or
certificates of deposit to the Fund 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. The Fund or its custodian will take
possession of the securities subject to repurchase agreements. To the
extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any
sale of such securities. In the event that such a defaulting seller filed
for bankruptcy or became insolvent, disposition of such securities by the
Fund might be delayed pending court action. The Fund believes that under
the regular procedures normally in effect for custody of the Fund's
portfolio securities subject to repurchase agreements, a court of
competent jurisdiction would rule in favor of the Fund and allow retention
or disposition of such securities. The Fund may only enter into repurchase
agreements with banks and other recognized financial institutions, such as
broker/dealers, which are found by the Fund's investment adviser to be
creditworthy pursuant to guidelines established by the Trustees.
From time to time, such as when suitable Michigan municipal bonds 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 bonds and thereby reduce the Fund's yield.
REVERSE REPURCHASE AGREEMENTS
The Fund may also 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. The use
2
- --------------------------------------------------------------------------------
of reverse repurchase agreements may enable the Fund 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 Fund will be able to avoid selling
portfolio instruments at a disadvantageous time.
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.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective. It is not anticipated that the portfolio trading
engaged in by the Fund will result in its annual rate of portfolio turnover
exceeding 100%.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
SELLING SHORT AND BUYING ON MARGIN
The Fund 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 Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed.
The Fund 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 Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings.
UNDERWRITING
The Fund will not underwrite any issue of securities except as it may be
deemed to be an underwriter under the Securities Act of 1933 in connection
with the sale of securities in accordance with its investment objective,
policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in municipal bonds secured
by real estate or interests in real estate.
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR COMMODITY FUTURES
CONTRACTS
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except that it may acquire
publicly or non-publicly issued municipal bonds or temporary investments
or enter into repurchase agreements in accordance with its investment
objective, policies, and limitations.
CONCENTRATION OF INVESTMENTS
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 types of projects.
However, the Fund may invest as temporary investments 25% or more of the
value of its assets in cash or cash items, securities issued or
3
- --------------------------------------------------------------------------------
guaranteed by the U.S. government, its agencies, or instrumentalities, or
instruments secured by these money market instruments, i.e., repurchase
agreements.
The above investment limitations cannot 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund can acquire up to 3 per centum of the total outstanding stock of
other investment companies. The Fund 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 Fund
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.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Fund or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its total assets in
securities subject to restrictions on resale under the federal securities
laws.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid obligations, including repurchase agreements providing for
settlement in more than seven days after notice, and certain restricted
securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers where the principal and interest are the
responsibility of companies (or guarantors, where applicable) with less
than three years of continuous operations, including the operation of any
predecessor.
DEALING IN PUTS AND CALLS
The Fund will not buy or sell puts, calls, straddles, spreads, or any
combination of these.
INVESTING IN MINERALS
The Fund will not purchase or sell interests in oil, gas, or other mineral
exploration or development programs, or leases, although it may invest in
the securities of issuers which invest in or sponsor such programs.
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 Fund does not expect to borrow money or pledge securities or invest in
repurchase agreements in excess of 5% of the value of its net assets during the
coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates of
deposit and demand and time deposits issued by a U.S. branch of a domestic bank
or savings and loan having capital, surplus, and undivided profits in excess of
$100,000,000 at the time of investment to be "cash items."
MICHIGAN 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
4
- --------------------------------------------------------------------------------
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, effectively 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
will be 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 will be partially restored. A school board will, 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.
5
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.
- --------------------------------------------------------------------------------
Robert E. Baker
4327 Stoneleigh Road
Bloomfield Hills, MI
Birthdate: May 6, 1930
Trustee
Retired; formerly, Vice Chairman, Chrysler Financial Corporation.
- --------------------------------------------------------------------------------
Harold Berry
100 Galleria Officentre,
Suite 219
Southfield, MI
Birthdate: September 17, 1925
Trustee
Managing Partner, Berry Enterprises; Chairman, Independent Sprinkler Companies,
Inc.; formerly, Chairman, Executive Committee, Federal Enterprises, Inc;
Chairman, Berry, Ziegelman & Company.
- --------------------------------------------------------------------------------
Clarence G. Frame+
W-875 First Bank Building
332 Minnesota Street
St. Paul, MN
Birthdate: July 26, 1918
Trustee
Director, Tosco Corporation, Chicago Milwaukee Corporation, and Voyageur Funds
Group; formerly, Vice Chairman, First Bank System, Inc. and President, The First
National Bank of St. Paul, a subsidiary of First Bank System, Inc.
- --------------------------------------------------------------------------------
Harry J. Nederlander+*
231 S. Woodward,
Suite 219
Birmingham, MI
Birthdate: September 5, 1917
Trustee
Chairman, Nederlander Enterprises.
- --------------------------------------------------------------------------------
6
- --------------------------------------------------------------------------------
Thomas S. Wilson
Two Championship Drive
Auburn Hills, MI
Birthdate: October 9, 1949
Trustee
President and Executive Administrator, Detroit Pistons; President, Arena
Associates, Inc.
- --------------------------------------------------------------------------------
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Executive Vice President, Treasurer and Director, Federated Securities Corp.;
Chairman, Treasurer and Trustee, Federated Administrative Services; Vice
President, Treasurer and Trustee, Federated Investors.
- --------------------------------------------------------------------------------
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services.
- --------------------------------------------------------------------------------
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors; Prior to January 1991, Associate
Counsel, The Boston Company Advisors, Inc.
- --------------------------------------------------------------------------------
+ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
* This Trustee is deemed to be an "interested person" of the Fund or Trust as
defined in the Investment Company Act of 1940.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the outstanding shares of the Fund.
7
- --------------------------------------------------------------------------------
TRUSTEES' COMPENSATION
<TABLE>
<CAPTION>
AGGREGATE
NAME, POSITION COMPENSATION
WITH TRUST FROM TRUST*
- -------------------- ---------------
<S> <C>
Robert E. Baker
Trustee $ 8,500
Harold Berry
Trustee $ 8,500
Clarence G. Frame
Trustee $ 8,500
Harry J. Nederlander
Trustee $ 8,500
Thomas S. Wilson
Trustee $ 7,650
<FN>
* Information is furnished for the fiscal year ended April 30, 1995. The
aggregate compensation is provided for the Trust which was comprised of four
portfolios at April 30, 1995. The Trust is the only investment company in the
Fund Complex.
</TABLE>
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 Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or sale
of any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
Because of the internal controls maintained by Michigan National Bank to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of Michigan National Bank's or its affiliates' lending
relationships with an issuer.
ADVISORY FEES
For its advisory services, Michigan National Bank receives an annual investment
advisory fee as described in the prospectus.
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 Trust 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.
8
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus.
CUSTODIAN
- --------------------------------------------------------------------------------
Michigan National Bank, Farmington Hills, Michigan, is custodian for the
securities and cash of the Fund. For the services to be provided to the Trust
pursuant to the Custodian Agreement, the Trust pays the custodian an annual fee
based upon the average daily net assets of the Fund and which is payable
monthly. The custodian will also charge transaction fees and out-of-pocket
expenses.
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 when
both the New York Stock Exchange and the Federal Reserve Wire System are open
for business. The procedure for purchasing shares of the Fund is explained in
the prospectus under "Investing in the Fund."
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds before shareholders begin to
earn dividends. Michigan National Bank acts as the shareholder's agent in
depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus.
9
DETERMINING MARKET VALUE OF SECURITIES
- --------------------------------------------------------------------------------
VALUING MUNICIPAL BONDS
The Trustees use an independent pricing service to value municipal bonds. The
independent pricing service takes into consideration yield, stability, risk,
quality, coupon rate, maturity, type of issue, trading characteristics, special
circumstances of a security or trading market, and any other factors or market
data it considers relevant in determining valuations for normal institutional
size trading units of debt securities, and does not rely exclusively on quoted
prices.
USE OF AMORTIZED COST
The Trustees have decided that the fair value of debt securities authorized to
be purchased by the Fund with remaining maturities of 60 days or less, at the
time of purchase, shall be their amortized cost value, unless the particular
circumstances of the security indicate otherwise. Under this method, portfolio
instruments and assets are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. The Executive Committee of the Board of Trustees continually
assesses this method of valuation and recommends changes where necessary to
assure that the Fund's portfolio instruments are valued at their fair value as
determined in good faith by the Trustees.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after Federated
Services Company receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Fund Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. To satisfy registration
requirements in a particular state, redemption in kind will be made (for any
shareholder requesting redemption) in readily marketable securities to the
extent that such securities are available. If this state's policy changes, the
Fund reserves the right to redeem in kind by delivering those securities it
deems appropriate.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund intends to pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- 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.
SHAREHOLDER'S TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the dividends
received deductions available to corporations.
10
- --------------------------------------------------------------------------------
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
- the availability of higher relative yields;
- differentials in market values;
- new investment opportunities;
- changes in creditworthiness of an issuer; or
- an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares. Any loss by a shareholder on Fund shares
held for less than six months and sold after a capital gains distribution
will be treated as a long-term capital loss to the extent of the capital
gains distribution.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return of the Fund is the average compounded rate of
return for a given period of time that would equate a $1,000 initial investment
to the ending redeemable value of that investment. The ending redeemable value
is computed by multiplying the number of shares owned at the end of the period
by the offering price per share at the end of the period. The number of shares
owned at the end of the period is based on the number of shares purchased at the
beginning of the period with $1,000 less any applicable sales charge, adjusted
over the period by any additional shares, assuming a monthly reinvestment of all
dividends and distributions. Any applicable contingent deferred sales charge is
deducted from the ending value of the investment based on the lesser of the
original purchase price or the offering price of shares redeemed.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the SEC) earned by the Fund over a thirty-day period by the
maximum offering price per share of the Fund on the last day of the period. This
value is then annualized using semi-annual compounding. This means that the
amount of income generated during the thirty-day period is assumed to be
generated each month over a twelve-month period and is reinvested every six
months. The yield does not necessarily reflect income actually earned by the
Fund because of certain adjustments required by the SEC and, therefore, may not
correlate to the dividends or other distributions paid to shareholders. To the
extent that financial institutions and broker/dealers charge fees in connection
with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
11
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield for 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 stated tax rate and assuming that income is
100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal obligations in the Fund's
portfolio generally remains free from federal regular income tax* and the income
taxes imposed by the State of Michigan. As the table below indicates, a
"tax-free" 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>
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 $23,351-56,550 $56,551-117,950 $117,951-256,500 OVER $256,500
- ---------------------------------------------------------------------------------------------------
TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT
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%
- ---------------------------------------------------------------------------------------------------
<FN>
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 indication
of past or future performance of Fund shares.
* Some portions of the Fund's income may be subject to the federal
alternative minimum tax and state and local taxes.
</TABLE>
12
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
- portfolio quality;
- average portfolio maturity;
- type of instruments in which the portfolio is invested;
- changes in interest rates and market value of portfolio securities;
- changes in the Fund's expenses; and
- various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
LEHMAN BROTHERS SEVEN YEAR STATE GENERAL OBLIGATION BOND INDEX is an index of
general obligation bonds rated A or better with 6-8 years to maturity.
LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "general municipal
bond funds" category in advertising and sales literature.
MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly MUTUAL FUND VALUES. MUTUAL FUND VALUES rates more than 1,000 NASDAQ
listed mutual funds of all types, according to their risk-adjusted returns. The
maximum rating is five stars, and ratings are effective for two weeks.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on monthly reinvestment of dividends over a specific period of time.
13
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL BOND RATINGS
AAA--Debt rated "AAA" has the highest rating assigned by Standard & Poor's
Ratings Group ("S&P"). Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS DEFINITIONS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR--Not rated by Moody's.
Moody's applies numerical modifiers, 1, 2 and 3 in each generic rating
classification from Aa through B in its corporate or municipal bond rating
system. The modifier 1 indicates that the security ranks in the higher end of
its generic rating category; the modifier 2 indicates a mid-range ranking; and
the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of very high quality. The
obligor has an exceptionally strong ability to pay interest and repay principal,
which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
STANDARD AND POOR'S RATINGS GROUP MUNICIPAL NOTE RATINGS
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
14
- --------------------------------------------------------------------------------
SP-2--Satisfactory capacity to pay principal and interest.
MOODY'S INVESTORS SERVICE SHORT-TERM LOAN RATINGS
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
FITCH INVESTORS SERVICE, INC. SHORT-TERM DEBT RATINGS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
STANDARD AND POOR'S RATINGS GROUP COMMERCIAL PAPER RATINGS DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE COMMERCIAL PAPER RATINGS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics: Leading
market positions in well established industries; high rates of return on funds
employed; conservative capitalization structures with moderate reliance on debt
and ample asset protection; broad margins in earning coverage of fixed financial
charges and high internal cash generation; and well established access to a
range of financial markets and assured sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
G00979-02 (5/95) 15
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements:
Independence One Michigan Municipal Cash Fund,
Independence One U.S. Treasury Money Market
Fund Money Market Fund, and Independence One
U.S. Government Securities Fund - filed in
Part A; Independence One Prime Money Market
Fund - financial statements dated April 30,
1994 are incorporated into the Fund's
prospectus by reference to Part A of
Registrant's Post-Effective Amendment No. 10
as filed on February 28, 1995 (File Nos. 33-
26516 and 811-5752), specifically the section
entitled "Financial Statements;" and the
Fund's unaudited financial statements dated
October 31, 1994 are incorporated into the
Fund's Statement of Additional Information by
reference to the Fund's Semi-Annual Report
dated October 31, 1994 as filed on January 3,
1995 (File No. 811-5752) as per Rule 3-18 of
Regulation S-X; Independence One Equity Plus
Fund, Independence One Fixed Income Fund, and
Independence One Michigan Municipal Bond Fund
- to be filed by amendment.
(b) Exhibits:
(1) Conformed Copy of Declaration of Trust of the
Registrant (1.);
(i) Amendment No. 1 to the Declaration of Trust
dated January 9, 1989 (2.);
(ii) Amendment No. 2 to the Declaration of Trust
dated January 9, 1989 (2.);
(iii) Amendment No. 3 to the Declaration of Trust
dated January 9, 1989 (4.);
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed on January 13, 1989. (File
Nos. 33-26516 and 811-5752)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on May 5, 1989. (File Nos. 33-26516
and 811-5752)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed on June 27, 1990. (File Nos. 33-
26516 and 811-5752)
(iv) Amendment No. 4 to the Declaration of Trust.
dated April 8, 1991 (6.);
(v) Amendment No. 5 to the Declaration of Trust.
dated September 26, 1991 (6.);
(vi) Amendment No. 6 to the Declaration of Trust.
dated December 9, 1991; (10)
(vii) Amendment No. 8 to the Declaration of Trust,
dated December 6, 1994; (10)
(viii) Certification dated December 6, 1994; (10)
(ix) Amendment No. 9 to the Declaration of Trust
dated May 4, 1995;+
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of
Beneficial Interest of the Registrant (7.);
(ii) Copy of Specimen Certificate for Shares of
Beneficial Interest of Independence One Equity Plus
Fund, Independence One Fixed Income fund, and
Independnece One Michigan Municipal Bond Fund (to be
filed by Amendment);
(5) Conformed copy of Investment Advisory Contract of the
Registrant as amended (8.);
(i) Conformed copy of Investment Sub-Advisory
Contract for Independence One U.S. Government
Securities Fund (8);
(ii) Form of Exhibit G to the Present Investment
Advisory Contract of the Registrant to add
Independence One Fixed Income Fund to the
Present Investment Advisory Contract of the
Registrant; +
(iii) Form of Exhibit H to the Present Investment
Advisory Contract of the Registrant to add
Independence One Michigan Municipal Bond Fund
to the Present Investment Advisory Contract
of the Registrant; +
+All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed on January 13, 1989. (File
Nos. 33-26516 and 811-5752)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed June 24, 1992. (File Nos. 33-26516
and 811-5752)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed September 2, 1992. (File Nos. 33-
26516 and 811-5752)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed June 24, 1993. (File Nos. 33-26516
and 811-5752)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed February 8, 1995. (File Nos. 33-
26516 and 811-5752)
(iv) Form of Exhibit I to the Present Investment
Advisory Contract of the Registrant to add
Independence One Equity Plus Fund to
the Present Investment Advisory Contract of
the Registrant; +
(v) Form of Investment Sub-Advisory Agreement for
Independence One Equity Plus Fund; +
(6) Copy of Distributor's Contract of the Registrant
(1.);
(i) Conformed Copy of Exhibit D to the
Distributor's Contract; (10)
(ii) Conformed Copy of Exhibit E to the
Distributor's Contract; (10)
(iii) Form of Exhibit F to the Distributor's
Contract;+
(iv) Form of Exhibit G to the Distributor's
Contract;+
(v) Form of Exhibit H to the Distributor's
Contract;+
(vi) Form of Exhibit I to the Distributor's
Contract; +
(7) Not applicable;
(8) (i) Copy of Custodian Agreement of the
Registrant (1.);
(ii) Copy of the new Agency Agreement of the
Registrant (3.);
(iii) Copy of the new Administrative Services
Agreement of the Registrant (3.);
(iv) Copy of Amendment No. 1 to Exhibit A of
Custodian Agreement of the Registrant (7.);
(v) Copy of Amendment No. 1 to Exhibit A of Agency
Agreement of the Registrant (7.);
(9) (i) Conformed Copy of Agreement for Fund Accounting,
Shareholder Recordingkeeping, and Custody Services
Procurement; (10)
(ii) Form of Shareholder Services Plan; (10)
(iii) Copy of Exhibit 1 to the Shareholder Services
Plan of the Registrant; +
(iv) Form of Shareholder Services Agreement; (10)
(v) Copy of Exhibit 1 ot the Shareholder Services
Agreement of the Registrant; +
____________________
+All exhibits have been filed electronically.
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on December 12, 1989. (File Nos. 33-
26516 and 811-5752)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed September 2, 1992. (File Nos. 33-
26516 and 811-5752)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed February 8, 1995. (File Nos. 33-
26516 and 811-5752)
(10) Copy of Opinion and Consent of Counsel as to
legality of shares being registered (2.);
(11) Not applicable;
(12) Not applicable;
(13) Conformed Copy of Initial Capital Understanding
(2.);
(14) Not applicable;
(15) (i) Copy of Distribution Plan (5.);
(ii) Copy of Sales Agreement with Federated
Securities Corp. and Administrative Agreement
- Appendix B (2.);
(iii) Conformed copy of Exhibit B of Distribution
Plan (8);
(iv) Copy of Schedule A of Sales Agreement with
Federated Securities Corp. (7.);
(v) Copy of Fee Schedule for Rule 12b-1 Agreement
with Federated Securities Corp. (7.);
(16) Copy of Schedule for Computation of Performance
Data for Independence One U.S. Government
Securities Fund - Trust Shares (8);
(17) Not applicable (Financial Data Schedules);
(18) (i) Copy of Power of Attorney dated June, 1992
with respect to Harold Berry (6.);
(ii) Conformed copy of Power of Attorney filed
on behalf of Gonzales, Baker, Frame,
Nederlander, VanAndel, and Wilson;(9.)
_____________
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on May 5, 1989. (File Nos. 33-26516
and 811-5752)
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 3 on Form N-1A filed May 3, 1991. (File Nos. 33-26516
and 811-5752)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5. on Form N-1A filed June 24, 1992. (File Nos. 33-26516
and 811-5752)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed September 2, 1992. (File Nos. 33-
26516 and 811-5752)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed June 24, 1993. (File Nos. 33-26516
and 811-5752)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed June 29, 1994. (File Nos. 33-26516
and 811-5752)
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed April 6, 1995. (File Nos. 33-26516
and 811-5752)
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class Portfolio name as of May 18, 1995
Shares of Independence One Prime
beneficial Money Market Fund (Class A) 2,854
interest
Independence One Prime
Money Market Fund (Class B) 5
Independence One U.S. 818
Treasury Money Market Fund
Independence One Michigan 1,151
Municipal Cash Fund
Independence One U.S. 7
Government Securities Fund
Item 27. Indemnification: (4.)
_____________
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed on June 27, 1990. (File Nos. 33-
26516 and 811-5752)
Item 28. Business and Other Connections of Investment Adviser:
Michigan National Bank, a national banking association (the
"Adviser"), 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, credit card services, 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 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. For more information on the
business of the Adviser, see the Prospectus under the heading
"Management of the Trust--Investment Adviser."
The officers and directors of the Adviser and any other business,
profession, vocation or employment of a substantial nature in
which each such officer and director is or has been engaged
during the past two years is set forth below. Unless otherwise
noted, the position listed under Other Business, Profession,
Vocation or Employment is with Michigan National Bank. The
business address of each such director and officer is 27777
Inkster Road, Farmington Hills, Michigan, 48333-9065.
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or
Employment
Daniel T. Carroll Director Director, Michigan
National Corporation;
Chairman and
President, The
Carroll Group.
John S. Carton Director Director, Michigan
National Corporation;
Chairman, President,
and CEO, Development
Company.
Sidney E. Forbes Director Director, Michigan
National Corporation;
Partner, Forbes/Cohen
Properties.
Other Substantial
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or
Employment
Sue Ling Gin Director Director, Michigan
National Corporation;
Chairman and Chief
Executive Officer,
Flying Food Fare,
Inc.
Morton E. Harris Director Director, Michigan
National Corporation;
Managing Partner,
Spectrum Associates.
Gerald B. Mitchell Director Director, Michigan
National Corporation;
Retired Chairman and
Chief Executive
Officer, Dana
Corporation.
Robert J. Mylod Director, Chairman, Director, Chairman,
and Chief Executive and Chief Exective
Officer Officer, Michigan
National Corporation.
William F. Pickard Director Director, Michigan
National Corporation,
Chairman and Chief
Executive Officer,
Regal Plastics
Company.
Douglas E. Ebert Director, President President and Chief
and Chief Operating Operating Officer,
Officer Michigan National
Corporation
Stanton Kinnie Smith, Jr. Director Director, Michigan
National Corporation;
Vice Chairman, CMS
Energy Corporation.
Walter H. Teninga Director Director, Michigan
National Corporation;
Retired President and
CEO, American Club
Stores, Inc.
Stephen A. VanAndel Director Director, Michigan
National Corporation; Vice President and
Chairman, Amway Corporation.
Other Substantial
Position with Business, Profession,
Name the Adviser Vocation or
Employment
Richard T. Walsh Director Director, Michigan
National Corporation;
Consultant.
James A. Williams Director Director, Michigan
National Corporation;
Chairman and
President Williams,
Schaefer, Ruby &
Williams.
Lawrence L. Gladchun Senior Vice Senior Vice
President, General President,
Counsel and Secretary General Counsel and
Secretary, Michigan
National Corporation.
Richard C. Webb Senior Vice Senior Vice
President President,
Commercial Banking Michigan National
Corporation.
Joseph J. Whiteside Executive Vice President
and Chief Financial
Officer
William D. Ritsema Senior Vice Senior Vice
President, Credit President,
Administration Michigan National
Corporation.
Robert V. Panizzi First Vice First Vice President,
President and Michigan National
Controller Corporation.
Marc L. Belsky First Vice President First Vice President
Planning and Analysis Michigan National
Corporation.
Edward H. Sondker First Vice President President and CEO
Independence One Bank
of California
National Australia Bank Limited ("NAB") is a transnational banking
organization headquartered at 500 Bourke Street, Melbourne, Australia.
NAB is a publicly owned company, whose shares are widely held and traded
on the Australian Stock Exchange Limited. On February 4, 1995, the
Board of Directors of MNC approved a definitive agreement for the
acquisition (the "Merger") of MNC by NAB. Shareholders of MNC approved
the Merger on June 2, 1995. As a result, MNC and its subsidiaries,
including the Adviser, would become direct or indirect subsidiaries of
NAB upon completion of the Merger. It is anticipated that the Merger
will be completed during the third or fourth quarter of 1995, and that
operations will continue to be conducted under the Michigan National
Corporation and Michigan National Bank names.
On May 4, 1995, the Trust's Board of Trustees approved the present
investment advisory contract (the "Present Advisory Contract") between the
Trust, on behalf of Independence Once Equity Plus Fund, Independence One
Fixed Income Fund and Independence One Michigan Municipal Bond Fund
(collectively, the "Portfolios"), and Michigan National Bank, as a subsidiary
of MNC. Under the provisions of the Investment Company Act of 1940,
completion of the Merger would result in an assignment, and termination of
the Portfolios' Present Advisory Contract with the Adviser. Also on May 4,
1995, in view of the pending Merger, the Portfolios' Board of Trustees
approved a new investment advisory contract (the "New Advisory Contract")
between the Trust, on behalf of the Portfolios, and Michigan National Bank,
as a subsidiary of NAB. The Merger is subject to the satisfaction of certain
conditions including, among others, the receipt of all necessary regulatory
approvals. The New Advisory Contract would become effective upon
consummation of the Merger.
The following information appeared in NAB's Annual Report for its
fiscal year ended September 30, 1994.
NAB, together with its subsidiaries (collectively, the "Group"),
is one of the four major Australian commercial banks ("trading banks" in
Australian terminology) which together account for approximately 70.2%
of commercial banking assets in Australia as of September 1994,
according to the Reserve Bank of Australia Bulletin. The Group
undertakes a range of banking, financial and related activities in
Australia and elsewhere in the world, including commercial banking,
savings banking, finance and life insurance and merchant and investment
banking. As of September 30, 1994, Group assets totalled $125.9
billion, of which approximately 56.5% was domiciled in Australia, and
Group deposits totalled $78.8 billion, of which approximately 50.8% was
domiciled in Australia.
NAB was established as "The National Bank of Australasia" in 1858
in Victoria, Australia. Through internal expansion and the acquisition
of other banks, NAB developed into a national commerical bank. In its
present form, NAB is the product of the merger in 1981 of The National
Bank of Australasia Limited and Commerical Banking Company of Sydney
Limited, the latter Bank being established in 1834 in New South Wales,
Australia.
At September 30, 1994 the Group had 49,163 full-time and part-time
employees worldwide (43,871 full-time equivalents).
Banking, the Group's principal business activity, is conducted in
Australia by NAB and internationally by NAB and certain subsidiaries.
As of September 30, 1994, NAB was the second largest commercial bank in
Australia (according to the Reserve Bank of Australia Bulletin) based on
domestic assets of $75 billion. The Group is the largest Australian
banking group based on its global assets of $125.9 billion.
Consistent with its philosophy of providing customers with a
comprehensive range of financial products and services, in 1985 the
Group established a life insurance and funds management entity, National
Australia Financial Management Limited. This entity and its
subsidiaries provide the Australian market with a range of personal
financial planning services, personal life and disability insurance,
personal superannuation and managed investments, corporate
superannuation, group life insurance and various investment management
services. At September 30, 1994, funds under managment amounted to $4.0
billion. Two of the Group's banking subsidiaries in the United Kindom,
Yorkshire Bank and Northern Bank, offer certain insurance and investment
products through subsidiaries, mainly in the areas of funds managment
and other investment related products.
At November 11, 1994, the directors* and principal executive
officer of NAB were as follows:
________________
*The Directors of NAB are classified as either Executive or Non-
Executive, with the former being those Directors engaged in the full-
time employment of NAB. Mr. Donald Argus is the only Executive
Director.
Name and Position Position/Directorship Principal
with NAB Held Since
Occupation(s)
William Robert Mitchel Irvine 1992/1979
Barrister and
Chairman and Director Solicitor;
Director, National
Australia Bank
Superannuation Fund Pty
Ltd. and Bank of
New Zealand; Chairman,
National Australia
Financial Managment
Limited and National
Australia Group (UK)
Limited; former Partner,
Hedderwick
Fookes & Alston,
Solicitors.
Brian Thorley Loton 1992/1988 Chairman,
The
Vice-Chariman Broken Hill
and Director Proprietary
Company
Limited;
Director,
Amcor
Limited and
Australian Foundation
Investment Company
Limited; Alternate
Director, National
Australia Group (UK)
Limited; former Managing
Director, The Broken
Hill Proprietary
Company Limited.
Name and Position Position/Directorship Principal
with NAB Held Since
Occupation(s)
David Kennedy Macfarlane 1992/1985 Chairman
Vice-Chairman NAB's
and Director Principal
Board
Audit
Committee;
Director,
Bank of New
Zealand; Alternate
Director, National
Australia Group (UK))
Limited; 33 years'
experience with James Hardie
Industries Limited,
12 years of which
as Managing Director.
Donald Robert Argus 1990/1989 Director,
Managing Director and National
Chief Executive Officer Australia
Bank
Superannuation
Fund Pty
Ltd, Bank
of New
Zealand, Clydesdale
Bank PLC National
Australia Financial
Management Limited,
National Australia
Group (UK)
Limited, National
Irish Bank ,
Limited Northern
Bank Limited and
Yorkshire Bank PLC.
Name and Position Position/Directorship Principal
with NAB Held Since
Occupation(s)
David Charles Keith Allen 1992 Managing
Director Director,
Woodside
Petroleum
Limited.
Peter John Waraker Cottrell 1985 Chairman,
Director Email
Limited;
member
of NAB's
Principal Board Audit
Committee.
Dr. Christopher Michael Deeley 1992 Non-
Executive
Director Director and
Chairman,
North
Limited;
Director, Goodman
Fielder Limited;
former Managing
Director and Chief
Executive, ICI Australia
Limited.
David Alexander Tange Dickins 1981
Chartered
Director Accountant;
Alternate
Director,
Bank of New
Zealand; former
Partner, Court & Co.
Chartered Accountants;
former Director, The
Commercial Banking
Company of Sydney
Limited.
Name and Position Position/Directorship Principal
with NAB Held Since
Occupation(s)
The Lord Nickson 1991 Chairman,
Director Clydesdale
Bank
PLC;
Director, National
Australia
Group
(UK)
Limited.
Mark Richard Rayner 1985 Director and
Director Group
Executive,
CRA
Limited;
Deputy
Chairman and
former Managing
Director, Comalco
Limited,
Chairman, Pasminco
Limited; member of
NAB's Principal
Board Audit
Committee.
Joseph Charles Trethowan 1984 Vice
Chairman
Director of Directors
and
Chairman,
Audit
Committee of
National Australia
Financial Managment
Limited; member of
NAB's Principal Board Audit
Committee; former
Chairman and General
Manager, State
Electricity Commission
of Victoria.
Name and Position Position/Directorship Principal
with NAB Held Since
Occupation(s)
Andrew Trunbull 1992 Non-
Executive
Director Chairman and
former Managing
Director and Chief
Executive Officer,
Burns Philip and
Company
Limited.
Sir Bruce Dunstan Watson 1992 Former
Director Chairman,
Director,
and Chief
Executive
Officer, MIM
Holdings
Limited.
The address of the Directors and principal executive officer of NAB is
c/o 500 Bourke Street, Melbourne, Australia.
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of the
Registrant, also acts as principal underwriter for the
following open-end investment companies: Alexander Hamilton
Funds; American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; Automated Cash Management Trust;
Automated Government Money Trust; BayFunds; The Biltmore
Funds; The Biltmore Municipal Funds; California Municipal
Cash Trust; Cash Trust Series, Inc.; Cash Trust Series II;
DG Investor Series; Edward D. Jones & Co. Daily Passport
Cash Trust; Federated ARMs Fund; Federated Exchange Fund,
Ltd.; Federated GNMA Trust; Federated Government Trust;
Federated Growth Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Institutional Trust;
Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-
Intermediate Government Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free
Trust; Federated U.S. Government Bond Fund; First Priority
Funds; First Union Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.;
Fortress Municipal Income Fund, Inc.; Fortress Utility Fund,
Inc.; Fountain Square Funds; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High
Yield Cash Trust; Independence One Mutual Funds; Insight
Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series Inc.;
Investment Series Funds, Inc.; Investment Series Trust;
Liberty Equity Income Fund, Inc.; Liberty High Income Bond
Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty
U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; The Monitor Funds;
Municipal Securities Income Trust; Newpoint Funds; New York
Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds;
The Planters Funds; RIMCO Monument Funds; The Shawmut Funds;
Short-Term Municipal Trust; SouthTrust Vulcan Funds; Star
Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Tower Mutual Funds;
Trademark Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations;
The Virtus Funds; Vision Fiduciary Funds, Inc.; Vision Group
of Funds, Inc.; and World Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter
for the following closed-end investment company: Liberty
Term Trust, Inc.- 1999.
(b)
(1) (2)
(3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief __
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director,
Executive Vice President and
Federated Investors Tower President, and
Treasurer, Treasurer
Pittsburgh, PA 15222-3779 Federated
Securities
Corp.
John W. McGonigle Director,
Executive Vice __
Federated Investors Tower President, and
Assistant
Pittsburgh, PA 15222-3779 Secretary,
Federated
Securities Corp.
John B. Fisher President-
Institutional Sales, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2)
(3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2)
(3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard W. Boyd Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph L. Epstein Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2)
(3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Craig S. Gonzales Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Stephen A. LaVersa Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Francis J. Matten, Jr. Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2)
(3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Robert D. Oehlschlager Vice President, __
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President,
--
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President,
__
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2)
(3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Philip C. Hetzel Assistant Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice
President, __
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice
President, --
Federated Investors Tower Federated
Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary,
Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of the
following locations:
Independence One Mutual Funds Federated Investors Tower
(Registrant) Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
("Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and Portfolio
Recordkeeper")
Federated Administrative Services Federated Investors Tower
(Administrator) Pittsburgh, PA 15222-3779
Michigan National Bank 27777 Inkster Road
(Adviser) Mail Code 10-52
Farmington Hills, MI 48333
Michigan National Bank 27777 Inkster Road
Company Mail Code 10-52
(Custodian) Farmington Hills, MI 48333
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus for Independence One U.S. Government Securities Fund
is delivered with a copy of the Registrant's latest annual report
to shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective amendment
on behalf of Independence One Equity Plus Fund, Independence One
Fixed Income Fund and Independence One Michigan Municipal Bond
Fund using financial statements for each respective fund, which
need not be certified , within four to six months from the date
of this Post-Effective Amendment No. 12.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, INDEPENDENCE ONE MUTUAL
FUNDS, has duly caused this Amendment to its Registration Statement to
be signed on its behalf by the undersigned, thereto duly authorized, in
the City of Pittsburgh and Commonwealth of Pennsylvania, on the 9th day
of June, 1995.
INDEPENDENCE ONE MUTUAL FUNDS
BY: /s/ Jay S. Neuman
Jay S. Neuman, Secretary
Attorney in Fact for Edward C. Gonzales
June 9, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/ Jay S. Neuman
Jay S. Neuman Attorney In Fact June 9, 1995
SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* President and Treasurer
(Principal Financial and
Accounting Officer)
Robert E. Baker.* Trustee
Harrold Berry* Trustee
Clarence G. Frame* Trustee
Harry J. Nederlander* Trustee
Thomas S. Wilson* Trustee
* By Power of Attorney
Exhibit 1(ix) on Form N-1A
Regulation S-K Ehibit No. 3(a)
INDEPENDENCE ONE MUTUAL FUNDS
Amendment No. 9
to
DECLARATION OF TRUST
dated January 9, 1989
This Declaration of Trust is amended as follows:
Strike the first paragraph of Section 5 of Article III from
the Declaration of Trust and substitute in its place the
following:
"Section 5. Establishment and Designation of Series or
Class.
Without limiting the authority of the Trustees set forth
in Article XII, Section 8, inter alia, to establish and
designate any additional Series or Class or to modify
the rights and preferences of any existing Series or
Class, the Series and Classes of the Trust shall be and
are established and designated as Independence One
Michigan Municipal Cash Fund-Investment Shares,
Independence One Michigan Municipal Cash Fund-Trust
Shares, Independence One Prime Money Market Fund-Class
A Shares, Independence One Prime Money Market Fund-
Class B Shares, Independence One U.S. Treasury Money
Market Fund, Independence One U.S. Government
Securities Fund-Investment Shares, Independence One
U.S. Government Securities Fund-Trust Shares,
Independence One Equity Plus Fund, Independence One
Fixed Income Fund and Independence One Michigan
Municipal Bond Fund."
The undersigned Assistant Secretary of Independence One Mutual Funds
hereby certifies that the above-stated amendment is a true and correct
Amendment to the Declaration of Trust, as adopted by the Board of
Trustees on May 4, 1995.
WITNESS the due execution hereof this 4th day of May, 1995.
/s/ Gail Cagney
Gail Cagney,
Assistant Secretary
Exhibit 5(ii) on Form N-1A
Regulation S-K Ehibit No. 10(i)
EXHIBIT G
to the
Investment Advisory Contract
Independence One Fixed Income Fund
For all services rendered by Adviser hereunder, the above-named
Fund of the Trust shall pay to Adviser and Adviser agrees to accept as
full compensation for all services rendered hereunder, an annual
investment advisory fee equal to 0.75% of the average daily net assets
of the Fund.
The portion of the fee based upon the average daily net assets of
the Fund shall be accrued daily at the rate of 1/365th of 0.75 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 4th day of May, 1995.
Attest: Michigan National Bank
By:
Secretary Executive Vice President
Attest: INDEPENDENCE ONE
MUTUAL FUNDS
By:
Assistant Secretary Vice President
Exhibit 5(iii) on Form N-1A
Regulation S-K Ehibit No. 10(ii)
EXHIBIT H
to the
Investment Advisory Contract
Independence One Michigan Municipal Bond Fund
For all services rendered by Adviser hereunder, the above-named
Fund of the Trust shall pay to Adviser and Adviser agrees to accept as
full compensation for all services rendered hereunder, an annual
investment advisory fee equal to 0.75% of the average daily net assets
of the Fund.
The portion of the fee based upon the average daily net assets of
the Fund shall be accrued daily at the rate of 1/365th of 0.75 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 4th day of May, 1995.
Attest: Michigan National Bank
By:
Secretary Executive Vice President
Attest: INDEPENDENCE ONE
MUTUAL FUNDS
By:
Assistant Secretary Vice President
Exhibit 5(iv) on Form N-1A
Regulation S-K Ehibit No. 10(iii)
EXHIBIT I
to the
Investment Advisory Contract
Independence One Equity Plus Fund
For all services rendered by Adviser hereunder, the above-named
Fund of the Trust shall pay to Adviser and Adviser agrees to accept as
full compensation for all services rendered hereunder, an annual
investment advisory fee equal to 0.40% of the average daily net assets
of the Fund.
The portion of the fee based upon the average daily net assets of
the Fund shall be accrued daily at the rate of 1/365th of 0.40 of 1%
applied to the daily net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this 6th day of June, 1995.
Attest: Michigan National Bank
By:
Secretary Executive Vice President
Attest: INDEPENDENCE ONE
MUTUAL FUNDS
By:
Assistant Secretary Vice President
Exhibit 6(iii) on Form N-1A
Regulation S-K Ehibit No. 1(i)
Exhibit F
to the
Distributor's Contract
Independence One Mutual Funds
Independence One Prime Money Market Fund
Class A Shares
In consideration of the mutual covenants set forth in the
Distributor's Contract dated September 26, 1991 between
Independence One Mutual Funds and Federated Securities Corp.,
Independence One Mutual Funds executes and delivers this Exhibit
on behalf of Independence One Prime Money Market Fund, and with
respect to the Class A Shares thereof, first set forth in this
Exhibit.
Witness the due execution hereof this 7th day of March, 1995.
ATTEST: Independence One Mutual Funds
By:
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Secretary Executive Vice President
(SEAL)
Exhibit 6(iv) on Form N-1A
Regulation S-K Ehibit No. 1(ii)
Exhibit G
to the
Distributor's Contract
Independence One Mutual Funds
Independence One Fixed Income Fund
In consideration of the mutual covenants set forth in the
Distributor's Contract dated September 26, 1991 between
Independence One Mutual Funds and Federated Securities Corp.,
Independence One Mutual Funds executes and delivers this Exhibit
on behalf of Independence One Fixed Income Fund, first set forth
in this Exhibit.
Witness the due execution hereof this 4th day of May, 1995.
ATTEST: Independence One Mutual Funds
By:
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Secretary Executive Vice President
(SEAL)
Exhibit 6(v) on Form N-1A
Regulation S-K Ehibit No. 1(iii)
Exhibit H
to the
Distributor's Contract
Independence One Mutual Funds
Independence One Michigan Municipal Bond Fund
In consideration of the mutual covenants set forth in the
Distributor's Contract dated September 26, 1991 between
Independence One Mutual Funds and Federated Securities Corp.,
Independence One Mutual Funds executes and delivers this Exhibit
on behalf of Independence One Michigan Municipal Bond Fund,
first set forth in this Exhibit.
Witness the due execution hereof this 4th day of May, 1995.
ATTEST: Independence One Mutual Funds
By:
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Secretary Executive Vice President
(SEAL)
Exhibit 6(vi) on Form N-1A
Regulation S-K Ehibit No. 1(iv)
Exhibit I
to the
Distributor's Contract
Independence One Mutual Funds
Independence One Equity Plus Fund
In consideration of the mutual covenants set forth in the
Distributor's Contract dated September 26, 1991 between
Independence One Mutual Funds and Federated Securities Corp.,
Independence One Mutual Funds executes and delivers this Exhibit
on behalf of Independence One Equity Plus Fund, first set forth
in this Exhibit.
Witness the due execution hereof this 6th day of June, 1995.
ATTEST: Independence One Mutual Funds
By:
Secretary President
(SEAL)
ATTEST: FEDERATED SECURITIES CORP.
By:
Secretary Executive Vice President
(SEAL)
Exhibit 9(i) on Form N-1A
Regulation S-K Ehibit No. 10(v)
Exhibit 1
Shareholder Services Plan
Independence One Prime Money Market Fund Class A Shares May 1,
1995
Exhibit 9(ii) on Form N-1A
Regulation S-K Ehibit No. 10(vi)
Exhibit 1
Shareholder Services Agreement
Independence One Prime Money Market Fund Class A Shares May 1,
1995
Exhibit 5(v) on Form N-1A
Regulation S-K Ehibit No. 10(iv)
INDEPENDENCE ONE MUTUAL FUNDS
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between Michigan National Bank, a national
banking association (hereinafter referred to as "Adviser") and Sosnoff
Sheridan Corporation, an Illinois corporation located in Chicago,
Illinois (hereinafter referred to as the "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Notice of Advice. Sub-Adviser hereby agrees to furnish to
Adviser in its capacity as investment adviser to the Independence One
Equity Plus Fund (the "Fund"), a portfolio of the Independence One
Mutual Funds ("Trust"), such investment advice, statistical and other
factual information, as may from time to time be reasonably requested
by Adviser for the Fund, which may be offered in one or more classes of
shares ("Classes"). Sub-Adviser shall furnish such advice and
information to Adviser on a non-discretionary basis. Sub-Adviser shall
not have custody of any funds or securities of the Fund at any time.
2. Representations of Sub-Adviser. Sub-Adviser hereby represents
to Adviser that it is duly registered as an investment adviser with (a)
the United States Securities and Exchange Commission pursuant to the
Investment Advisers Act of 1940, and (b) any state authorities with
which such registration is necessary in order to lawfully provide
services pursuant to this Agreement. Sub-Adviser hereby agrees to
maintain such registrations in effect for so long as it continues to
provide services pursuant to this Agreement and to notify Adviser
immediately upon termination or revocation of any such registration
during such period.
3. Brokerage. Sub-Adviser may place orders for the execution of
transactions with or through such brokers-dealers (including floor
brokers) or banks as Adviser may select. Sub-Adviser may suggest broker-
dealers or banks to Adviser; however, Adviser will choose the broker-
dealer or banks through which Sub-Adviser may place orders. Any
accounts opened with such broker-dealers or banks shall be in the name
of the Fund.
4. Records and Confirms. Sub-Adviser will send Adviser a record
of the investments and positions of the Fund (or relevant Classes of the
Fund) as soon as reasonably possible after the end of each quarterly
period. Copies of confirmations of transactions executed for the Fund
will be sent by the broker-dealers executing the transactions promptly
to the custodian for the Fund and the Sub-Adviser, if the custodian is
other than the broker-dealer. Otherwise, copies of confirmations of
transactions executed will be sent by the broker-dealers executing the
transactions to
Sub-Adviser and the Fund. Sub-Adviser does not assume responsibility
for the accuracy of information furnished by Adviser or any other party.
5. Voting. Unless otherwise specifically agreed, Sub-Adviser
will not be required to take any action, or render any advice, with
respect to the voting of securities held by the Fund.
6. Confidentiality. All information and advice furnished by
either party hereto to the other shall be treated as confidential and
shall not be disclosed to third parties, unless generally known or
otherwise publicly available, and except as required by regulatory
agencies or otherwise by law.
7. Other Clients. Sub-Adviser acts as adviser to other clients
and may give advice, and take action, with respect to any of those which
may differ from the advice given, or the timing or nature of action
taken, with respect to the Fund. Sub-Adviser shall have no obligation
to purchase or sell for the Fund, or to recommend for purchase or sale
by the Fund, any security which Sub-Adviser, its principals, affiliates
or employees may purchase or sell for themselves or for any other
clients. Except as otherwise required by law, Sub-Adviser shall not
make any information about the accounts of its clients available to
Adviser or the Fund.
Adviser recognizes that transactions in a specific security or
securities may not be accomplished for all client accounts at the same
time or at the same price.
In the performance of Sub-Adviser's services hereunder, Sub-
Adviser shall not be liable for any failure to recommend or effect any
purchase or sale, or other investment or trading strategy on the basis
of any information known to Sub-Adviser where the utilization of such
information might, in Sub-Adviser's opinion, constitute a violation of
any federal or state law, rules or regulations, or the breach of any
fiduciary duty or confidential relationship between Sub-Adviser and any
other person or persons.
8. Adviser's Representations. Adviser represents that it has
full authority to grant Sub-Adviser the authority given to Sub-Adviser
under this Agreement.
9. Fees. For its services under this Agreement, Sub-Adviser
shall receive from Adviser an annual fee ("the Sub-Advisory Fee"), as
set forth on Exhibit A attached hereto.
Notwithstanding any other provision of this Agreement, the Sub-
Adviser may from time to time and for such periods as it deems
appropriate, reduce its compensation (and, if appropriate, assume
expenses of the Fund or Class of the Fund) to the extent that the Fund's
expenses exceed such expense limitation as the sub-Adviser may, by
notice to the Trust on behalf of the Fund, voluntarily declare to be
effective.
10. Term. This Agreement shall begin for the Fund on the date
that the parties execute this Agreement relating to such Fund and shall
continue in effect for the Fund for two years from the date of its
execution and from year to year thereafter, subject to the provisions
for termination and all of the other terms and conditions hereof if: (a)
such continuation shall be specifically approved at least annually by
the vote of a majority of the Trustees of the Trust, including a
majority of the Trustees who are not parties to this Agreement or
interested persons of any such party (other than as Trustees of the
Trust) cast in person at a meeting called for that purpose; and (b)
Adviser shall not have notified the Trust in writing at least sixty (60)
days prior to the anniversary date of this Agreement in any year
thereafter that it does not desire such continuation with respect to the
Fund.
11. Termination. Notwithstanding any provision in this
Agreement, it may be terminated at any time without the payment of any
penalty: (a) by the Trustees of the Trust or by a vote of a majority of
the outstanding voting securities (as defined in Section 2(a)(42) of
the Investment Company Act of 1940 (the "Act")) of the Fund on sixty
(60) days' written notice to Adviser; and (b) by Sub-Adviser or Adviser
upon sixty (60) days' written notice to the other party to the
Agreement.
12. Automatic Termination. This Agreement shall automatically
terminate:
(a) in the event of its assignment (as defined in the
Act); or
(b) in the event of termination of the Investment Contract
between
the Trust and Adviser ("Investment Advisory Contract")
for any reason whatsoever.
13. Limitation Authority. Neither Adviser nor Sub-Adviser shall
act as an investment adviser (as such term is defined in the Act) to the
Fund except as provided herein and in the Investment Advisory Contract
between the Adviser and the Fund or in such other manner as may be
expressly agreed between Adviser and Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall resign
prior to the end of any term of this Agreement or for any reason be
unable or unwilling to serve for a successive term which has been
approved by the Trustees of the Trust pursuant to the provisions of
Paragraph 10 of this Agreement or Paragraph 6 of the Investment Advisory
Contract, the remaining party, Sub-Adviser or Adviser as the case may
be, shall not be prohibited from serving as an investment adviser to
such Fund by reason of the provisions of this Paragraph 13.
14. Notices. Notices regarding termination or other matters of
this Agreement or other matters shall be sent by certified mail or
overnight by a nationally recognized courier and shall be deemed given
when received at the addresses specified below, or at
such other address as a party to receive notice may specify in a notice
given in accordance with this provision. Sub-Adviser and Adviser may
rely on any notice from any person reasonably believed to be genuine and
authorized.
If to Sub-Adviser: If to Adviser:
440 South LaSalle Street Michigan National Bank
Suite 2301 27777 Inkster Road
Chicago, Illinois 60605 Farmington Hills,
Michigan 48334
Attention: Tom Sosnoff Attention: Robert Stapleton
15. Indemnification. (a) (i) In any threatened, pending or
completed action, suit or proceeding to which the Sub-Adviser, was, is
or is threatened to be made a party, in connection with or relating to
the services performed by the Sub-Adviser for the Adviser or the Fund as
contemplated herein, including, without limitation, any breach of any
representations, warranties or covenants made by the Adviser in this
Agreement or any failure by the Adviser to comply with the federal or
any state securities laws or the rules and regulations promulgated
thereunder or any other federal or state law, or any rule or regulation
promulgated by and governmental agency or self-regulatory organization,
Adviser shall indemnify and hold harmless the Sub-Adviser, against any
loss, liability, damage, cost and expense (including reasonable
attorneys' and accountants' fees and disbursements) incurred or suffered
by the Sub-Adviser in connection with the investigation, defense or
settlement of any such action, suit or proceeding, only if the acts or
omissions of the Sub-Adviser, did not involve willful misfeasance, gross
negligence, bad faith or reckless disregard of its duties and
obligations under this Agreement; and (ii) In the event that the Sub-
Adviser is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of or in connection with the
activities or claimed activities of Adviser or its partners, officers,
directors, employees, agents or affiliates unrelated to the Sub-Adviser
or the Sub-Adviser's business, Adviser shall indemnify, defend and hold
harmless the Sub-Adviser against any loss, liability, damage, cost and
expense (including, without limitation, reasonable attorneys' and
accountants' fees and disbursements to be paid as incurred) incurred in
connection therewith. As used in subparagraphs (i) through (ii) above,
the term "Sub-Adviser" shall include the Sub-Adviser and the Sub-
Adviser's directors, officers, shareholders, employees, agents and
affiliates.
(b) (i) In any threatened, pending or completed action,
suit or proceeding to which the Adviser, was, is or is threatened to be
made a party, in connection with or relating to the services performed
by the Sub-Adviser for the Adviser or the Fund as contemplate herein,
including, without limitation, any breach of any representations,
warranties or covenants made by Sub-Adviser in this Agreement or any
failure by Sub-Adviser to comply with the federal or any state
securities laws or
the rules and regulations promulgated thereunder or any other federal or
state law, or any rule or regulation promulgated by any governmental
agency or self-regulatory organization, Sub-Adviser shall indemnify and
hold harmless the Adviser, against any loss, liability, damage, cost and
expense (including reasonable attorneys' and accountants' fees and
disbursements) incurred or suffered by the Adviser in connection with
the investigation, defense or settlement of any such action, suit or
proceeding, only of the acts or omissions of the Adviser, did not
involve willful misfeasance, gross negligence, bad faith or reckless
disregard of its duties and obligations under this Agreement; and (ii)
In the event that the Adviser is made a party to any claim, dispute or
litigation or otherwise incurs any loss or expense as a result of or in
connection with the activities or claimed activities of Sub-Adviser or
its officers, directors, employees, agents or affiliates unrelated to
the Adviser or the Adviser's business, Sub-Adviser shall indemnify,
defend and hold harmless the Adviser against any loss, liability,
damage, cost and expense (including, without limitation, reasonable
attorneys' and accountants' fees and disbursements to be paid as
incurred) incurred in connection therewith. As used in subparagraphs
(i) through (ii) above, the term "Adviser" shall include the Adviser and
the Adviser's directors, officers, shareholders, employees, agents and
affiliates.
(c) In the event that a person entitled to indemnification
under Sections 15 (a) or (b) is made a party to an action, suit or
proceeding alleging both matters for which indemnification can be made
hereunder and matters for which indemnification may not be made
hereunder, such person shall be indemnified only for that portion of the
loss, liability, damage, cost or expense incurred in such action, suit
or proceeding which relates to the matters for which indemnification can
be made.
(d) None of the indemnifications contained in this Section
15 shall be applicable with respect to default judgments, confessions
of judgment or settlements entered into by the part(ies) claiming
indemnification without the prior written consent of the party obligated
to indemnify such party.
(e) The provisions of this Section 15 shall survive the
termination or other expiration of this Agreement.
16. Independent Contractors. The Sub-Adviser shall for all
purposes herein be deemed to be an independent contractor of Adviser.
It is expressly agreed to by the parties hereto that the relationship
created by this Agreement does not create a partnership or joint venture
between the Sub-Adviser and the Adviser. Except as specifically set
forth herein with respect to the Sub-Adviser's authority to place orders
approved by the Adviser to broker-dealers or banks for trading the
accounts of the Fund, neither party shall have any authority to bind the
other nor shall either party represent to third parties that it has such
authority.
17. Liability. Neither the Sub-Adviser nor any of its agents,
employees, principals, directors or officers or any person who controls
the Sub-Adviser shall be liable to Adviser or its officers, directors,
partners, employees, agents or any person who controls Adviser or any of
its successors. or assigns under this Agreement, except by reason of
acts or omissions in contravention of this Agreement due to willful
misfeasance, gross negligence, bad faith, reckless disregard of its
duties and obligations under this Agreement, or violation of applicable
law. Adviser acknowledges that all transactions made by the Sub-Adviser
on behalf of the Fund, shall be for the account and risk of the Fund.
The Sub-Adviser shall have no responsibility for the execution or
clearance of the Fund's trades once orders have been transmitted to the
executing broker-dealer or bank for those trades. Notwithstanding the
foregoing sentences, the federal securities laws impose liabilities
under certain circumstances on persons who act in good faith and
therefore, nothing herein shall in any way constitute a waiver or
limitation of any rights which Adviser may have under the federal
securities laws or state securities laws.
18. Disclosure.
[ ] Adviser acknowledges receipt of Sub-Adviser's Disclosure
Statement (Part II of Adviser's Form ADV), as required by Rule 204-3
under the Investment Advisers Act of 1940, not less than 48 hours prior
to the date of execution of this agreement shown below.
[ ] Adviser acknowledges receipt of Sub-Adviser's Disclosure
Statement (Part II of Adviser's Form ADV) less than 48 hours prior to,
but not later than, the date of execution of this agreement.
Accordingly, Adviser shall have the option to terminate this agreement
without penalty within five business days after that date of execution;
provided, however, that any investment action taken by Adviser with
respect to the Fund prior to the effective date of such termination
shall be at Fund's risk.
19. Entire Agreement: Governing Law. This agreement constitutes
the entire agreement of the parties with respect to the rendering of
advice by Sub-Adviser for the benefit of Adviser and the Fund and can be
amended only by written document signed by the parties. This agreement
shall be governed by the internal laws of the State of Illinois.
20. Amendment. This Agreement may be amended from time to time
by agreement of the parties hereto provided that such amendment shall be
approved both by the vote of a majority of Trustees of the Trust,
including a majority of Trustees who
are not parties to this Agreement or interested persons, as defined in
Section 2(a)(19) of the Act, of any such party at a meeting called for
that purpose, and, where required by Section 15(a)(2) of the Act, by the
holders of a majority of the outstanding voting securities (as defined
in Section 2(a)(42) of the Act) of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed on their behalf by their duly authorized officers, and
their corporate seals affixed hereto this _____ day of
_____________________, 1995.
ATTEST: MICHIGAN NATIONAL BANK
_____________________________ By:
____________________________
Secretary Vice President
SOSNOFF SHERIDAN CORPORATION
______________________________ By:
_____________________________
Secretary Vice President
Exhibit A
Independence One Mutual Funds
Independence One Equity Plus Fund
Sub-Advisory Agreement
Adviser will pay Sub-Adviser as full compensation for services rendered
hereunder, an annual fee at the rate of 0.035%, based on the average
daily value of the equity securities in the Fund. The fee shall be
calculated as determined by the Fund on the last day of each month on
which the New York Stock Exchange is open and shall be payable on a
monthly basis, in arrears.
This Exhibit duly incorporates by reference the Sub-Advisory Agreement.
Adviser:
______________
(initials)
Sub-Adviser:
______________
(initials)
