INDEPENDENCE ONE INTERNATIONAL EQUITY FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
PROSPECTUS
The shares of Independence One International Equity 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 has overall responsibility for professionally
managing the Fund's portfolio. The Fund has an investment sub- adviser, National
Australia Asset Management Limited, that provides active investment management
services for the Fund, subject to oversight by Michigan National Bank. The
investment objective of the Fund is total return. The Fund will pursue this
objective by investing primarily in foreign equity securities. Under normal
market conditions, the Fund will invest substantially all, and at least 65%, of
its total assets in equity securities denominated in foreign currencies of
issuers located in at least three countries outside the U.S. With respect to the
Fund, equity securities include common and preferred stocks, securities
convertible into common stock, and rights and warrants to purchase common stock.
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 (the "Statement")
dated June 16, 1998, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement is incorporated by reference into this
prospectus. You may request a copy of the Statement free of charge by calling
toll-free 1-800-334-2292. To obtain other information, or make inquiries about
the Trust, contact the Trust at the address listed in the back of this
prospectus. This prospectus, the Statement, material incorporated by reference
into these documents, and other information regarding the Fund are maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated June 16, 1998
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Investment Strategy 3
Acceptable Investments 5
Risk Considerations 9
Portfolio Turnover 12
Investment Limitations 12
INDEPENDENCE ONE MUTUAL FUNDS
INFORMATION 13
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Management of the Trust 13
Distribution of Fund Shares 14
Fund Administration 14
Brokerage Transactions 15
Expenses of the Fund 15
NET ASSET VALUE 16
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INVESTING IN THE FUND 16
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Share Purchases 16
Minimum Investment Required 17
What Shares Cost 17
Certificates and Confirmations 17
Dividends and Capital Gains 17
Systematic Investment Program 17
EXCHANGING SECURITIES FOR FUND
SHARES 18
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EXCHANGE PRIVILEGE 18
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REDEEMING FUND SHARES 20
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Systematic Withdrawal Program 21
Accounts with Low Balances 21
SHAREHOLDER INFORMATION 22
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Voting Rights 22
EFFECT OF BANKING LAWS 22
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TAX INFORMATION 23
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Federal Income Tax 23
PERFORMANCE INFORMATION 24
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INDEPENDENCE ONE INTERNATIONAL EQUITY FUND
SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)................................................................... None
Maximum Sales Charge 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
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)......................................... 0.00%
12b-1 Fees............................................................... None
Total Other Expenses (after waivers and reimbursement)(2)................ 1.55%
Total Fund Operating Expenses (after waivers and reimbursement)(3)..... 1.55%
</TABLE>
(1) The estimated management fee for International Equity Fund has been reduced
to reflect the anticipated voluntary waiver by the adviser. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee for International Equity Fund is 1.00%.
(2) Total Other Expenses for International Equity Fund have been reduced to
reflect the anticipated voluntary waivers of the administrative fee and a
portion of the transfer agency fees, and the anticipated assumption of other
operating expenses by the adviser. The administrator, transfer agent, and
adviser can terminate these voluntary waivers and assumption of other
expenses at any time at their sole discretion. Total Other Expenses are
based on estimated amounts for the current fiscal year.
(3) The Total Fund Operating Expenses are estimated to be 3.23% absent the
anticipated voluntary waivers and assumption of other expenses described
above in Notes 1 and 2.
*Annual Fund Operating Expenses are estimated based on average expenses expected
to be incurred during the fiscal year ending April 30, 1999. During the course
of the period, expenses may be more or less than the average 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 MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "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............................................ $16 $49
</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 FUND'S FISCAL YEAR ENDING APRIL 30,
1999.
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated January 9, 1989. The Declaration of Trust permits the Trust to
offer separate series of shares 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
International Equity 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 foreign equity securities. A
minimum initial investment of $1,000 is required. Subsequent investments must be
in the amount of at least $100.
INVESTMENT INFORMATION
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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 investing primarily in equity
securities of established companies in the countries shown in the chart below.
Under normal market conditions, the Fund will invest substantially all, and at
least 65%, of its total assets in equity securities denominated in foreign
currencies of issuers located in at least three countries outside the U.S. The
Fund will invest in such equity securities (and options on such equity
securities) only to the extent that they are quoted, or to be quoted within
three months of the date of purchase, on any recognized stock exchange in the
relevant country. Initially, the Fund intends to invest in such securities in
the following regions and countries:
<TABLE>
<CAPTION>
REGION COUNTRY
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<S> <C>
Europe Federal Republic of Germany, Austria, Belgium,
Denmark, France, Ireland, Italy, Netherlands, Norway,
Spain, Switzerland, Sweden, Luxembourg, Portugal, Finland
UK United Kingdom
S.E. Asia and
Oceania Australia, Hong Kong, New Zealand, Malaysia, Singapore
Japan Japan
</TABLE>
The Fund may in the future invest in countries in addition to the foregoing list
at the discretion of Michigan National Bank (the "Adviser") and National
Australia Asset Management Limited ("NAM," or the "Sub-Adviser") (collectively,
the "Advisers"). Subject to certain limitations described below, the
following securities and instruments are included in the investments of the Fund
that comprise at least 65% of the Fund's total assets: equity securities
(including common and preferred stocks, securities convertible into common
stock, and rights and warrants to purchase common stock); World Equity Benchmark
Shares ("WEBS") and Optimised Portfolios As Listed Securities ("OPALS") listed
on any recognized stock exchange in any country listed above or in the U.S.;
units, and partly paid units listed on any recognized stock exchange in any
country listed above; interests in a mutual fund or any investment vehicle that
is comprised substantially of listed securities in the countries, or in any
individual country, listed above; and sponsored or unsponsored American
Depositary Receipts ("ADRs"), Global Depositary Receipts ("GDRs"), and European
Depositary Receipts ("EDRs"), collectively, "Depositary Receipts." The Fund may
also enter into transactions involving: financial futures contracts and options
on financial futures contracts listed on any recognized exchange in any country
listed above; and listed options on units.
INVESTMENT STRATEGY
The Fund will seek to approximate or exceed the performance of the Morgan
Stanley Capital International Europe, Australia, and Far East Accumulation Index
(the "EAFE Index") (net) in U.S. Dollars over a rolling three-year period. The
Fund's investment policies are based on the premise that investing in non-U.S.
securities may provide potential benefits over investing solely in
U.S. securities, including:
. the opportunity to invest in non-U.S. companies believed to have
superior growth potential;
. the opportunity to invest in foreign countries with economic policies or
business cycles different from those of the U.S.; and
. the opportunity to reduce portfolio volatility to the extent that
securities markets inside and outside the U.S. do not move in harmony.
ASSET ALLOCATION AMONG COUNTRIES. With respect to asset allocation among
countries, the Sub-Adviser's international equity portfolios are managed by its
asset allocation and international equity teams. The asset allocation team is
responsible for managing regional exposures in Europe, the UK, Japan and Asia.
The international team manages stock portfolios within countries and undertakes
country selection within Asia. Asian equities are managed with a top-down,
growth-based style because of the nature of Asian markets. For country
allocation, the Sub-Adviser uses a three-step value active process involving the
assessment of value, an analysis of economic and market fundamentals and
judgments about market sentiment.
Proprietary value models are used to determine fair value by following a
strictly quantitative process and ranking each market with a value score. An
implied rate of return based on dividend discount analysis and an implied return
based on historical relationships are compared to establish a value reading for
each market. Results from the value models affect the Sub- Adviser's decision
about the attractiveness of each of the major markets. The models are intended
to identify markets that are undervalued, and therefore may deliver the best
returns over time.
The second stage of the Sub-Adviser's process, the active component, involves
analysis of fundamentals. Specialists monitor the key fundamental factors in
each market and provide this input to the asset allocation team. Interest rates
and corporate profits and their drivers are the primary focus, as well as
growth, inflation and other underlying variables. The team estimates the size
and pattern of changes in the forecasts of these factors, and compares them to
market consensus. Political factors are also monitored for their impact on
markets.
Finally, a number of technical and sentiment factors are monitored, including
momentum indicators, flow of funds, put/call ratios and similar variables.
Therefore, the active elements of the Sub-Adviser's process (fundamental
analysis and sentiment) are used to fine tune the implementation of asset
allocation decisions which have been driven by the value analysis.
An important differentiating feature of the Sub-Adviser's approach is that the
country selection process for regions other than Asia is undertaken by a
dedicated team that is focused full time on this task. Stock selection is a
separate discipline undertaken by specialists in the Sub-Adviser's international
equity team.
STOCK SELECTION. For developed countries, other than Hong Kong, Malaysia and
Singapore, a value approach is used for stock selection. Each stock is ranked
relative to the others within its own market on each of six variables: (1) price
to earnings ratio ("PER"); (2) price to cash flow ratio; (3) price to book value
ratio; (4) dividend yield; (5) cash flow to total liabilities ratio; and (6)
earnings per share growth.
The six factors are then combined into one composite relative value ranking
("RVR"). The current RVR is compared to its historic range and an unusually high
or low RVR triggers the active part of the process, which is fundamental
research that focuses on the reasons why the stock may be trading cheaply or
expensively, to determine whether the stock becomes a candidate for purchase or
sale. The research includes investigating company strategy, industry
competition, management changes and financial data.
The third stage of the value active process uses sentiment indicators to assist
with the timing of buy or sell decisions. Sentiment indicators have been
tailored for each market; they are a mixture of moving average and momentum
indicators.
For Hong Kong, Malaysia and Singapore, because the Sub-Adviser's key investment
criterion is the growth potential of markets and companies, a top- down approach
is employed seeking relative value at each level--market, sector and stock.
The first level leads to decisions about intra-regional market weightings,
including consideration of economic growth, inflation, interest rates, corporate
earnings, money supply, balance of payments, prospective PER, momentum, volumes,
sentiment, and regional and country specific political developments. That same
process also helps identify favorable sectors within countries. Important
factors in sector selection include government policy, the stage of the economic
cycle (or, even more broadly, the stage of economic development), sensitivity to
interest rates and other micro factors. The third level of assessment is of
individual stocks themselves, including consideration of growth on a 2-3 year
outlook, the ability of a company to exploit market positioning, prospective PER
relative to sector and market, price to net asset value, price to cash flow,
relative value ranges, the financial position of the company, its balance sheet
and gearing and its return on equity. Finally, and most importantly, is
consideration of management quality, track record, connections and directors'
dealing activity.
ACCEPTABLE INVESTMENTS
In addition to the investment policies described above, the Fund may invest in
the following investments.
DEPOSITARY RECEIPTS. The Fund may invest in Depositary Receipts. ADRs are
depositary receipts typically issued by a U.S. bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by U.S. banks or trust companies, and evidence ownership
of underlying securities issued by either a foreign or a U.S. corporation.
Generally, Depositary Receipts in registered form are designed for use in the
U.S. securities markets and Depositary Receipts in bearer form are designed for
use in securities markets outside the U.S. Depositary Receipts may not
necessarily be denominated in the same currency as the underlying securities
into which they may be converted. Ownership of unsponsored Depositary Receipts
may not entitle the Fund to financial or other reports from the issuer of the
underlying security, to which it would be entitled as the owner of sponsored
Depositary Receipts.
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 the transaction 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. This may result in
the Fund purchasing securities at a price either exceeding or below its market
value on 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.
FOREIGN CURRENCY TRANSACTIONS. The Fund will enter into foreign currency
transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
The Fund may also enter into foreign currency transactions to protect Fund
assets against adverse changes in foreign currency exchange rates or exchange
control regulations. Such changes could unfavorably affect the value of Fund
assets which are denominated in foreign currencies, such as foreign securities
or funds deposited in foreign banks, as measured in U.S. dollars. Although
foreign currency transactions may be used by the Fund to protect against a
decline in the value of one or more currencies, such efforts may also limit any
potential gain that might result from a relative increase in the value of such
currencies and might, in certain cases, result in losses to the Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract ("forward contract") is an obligation to purchase or sell an amount of
a particular currency at a specific price and on a future date agreed upon by
the parties.
Generally, no commission charges or deposits are involved. At the time the Fund
enters into a forward contract, Fund assets with a value equal to the Fund's
obligation under the forward contract are segregated on the Fund's records and
are maintained until the forward contract has been settled. The Fund will not
enter into a forward contract with a term of more than one year. The Fund will
generally enter into a forward contract to provide the proper currency to settle
a securities transaction at the time the transaction occurs ("trade date"). The
period between the trade date and settlement date will vary between 24 hours and
30 days, depending upon local custom.
The Fund may also protect against the decline of a particular foreign currency
by entering into a forward contract to sell an amount of that currency
approximating the value of all or a portion of the Fund's assets denominated in
that currency ("hedging"). The success of this type of short-term hedging
strategy is highly uncertain due to the difficulties of predicting short-term
currency market movements and of precisely matching forward contract amounts and
the constantly changing value of the securities involved. Although the Advisers
will consider the likelihood of changes in currency values when making
investment decisions, the Advisers believe that it is important to be able to
enter into forward contracts when the Advisers believe the interests of the Fund
will be served. The Fund will not enter into forward contracts for hedging
purposes in a particular currency in an amount in excess of the Fund's assets
denominated in that currency. No more than 30% of the Fund's assets will be
committed to forward contracts for hedging purposes at any time. (This
restriction does not include forward contracts entered into to settle securities
transactions.)
PUT AND CALL OPTIONS WITH RESPECT TO EQUITY SECURITIES. The Fund may purchase
put and call options on its portfolio of securities. Put and call options will
be used as a hedge to attempt to protect securities that the Fund holds, or
intends to purchase, against decreases or increases in value. The Fund is also
authorized to write (sell) put and call options on all or any portion of its
portfolio of securities to generate income. The Fund may 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
other liquid assets in the amount of any additional consideration needed to
obtain the securities. In the case of put options written by the Fund, the
Trust's custodian will segregate cash, U.S. Treasury obligations, or other
liquid assets with a value equal to or greater than the exercise price of the
underlying securities.
The Fund is authorized to invest in put and call options that are traded on
securities exchanges. The Fund may also purchase and write over-the-counter
options ("OTC options") on portfolio securities in negotiated transactions with
the buyers or writers of the options since options on some of the portfolio
securities held by the Fund are not traded on an exchange. The Fund will
purchase and write OTC options only with investment dealers and other financial
institutions (such as commercial banks or savings associations) deemed
creditworthy by the Adviser.
OTC options are two-party contracts with price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while OTC options may not. Prior to exercise or expiration, an option position
can only be terminated by entering into a closing purchase or sale transaction.
This requires a secondary market on an exchange which may or may not exist for
any particular call or put option at any specific time. The absence of a liquid
secondary market also may limit the Fund's ability to dispose of the securities
underlying an option. The inability to close options could have an adverse
impact on the Fund's ability to effectively hedge its portfolio.
FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FINANCIAL FUTURES CONTRACTS. The Fund
may purchase and sell financial futures contracts to hedge all or a portion of
its portfolio securities against changes in interest rates or securities prices.
Financial futures contracts on securities call for the delivery of particular
securities at a certain time in the future. The seller of the contract agrees to
make delivery of the type of instrument called for in the contract, and the
buyer agrees to take delivery of the instrument at the specified future time. A
financial futures contract on a securities index does not involve the actual
delivery of securities, but merely requires the payment of a cash settlement
based on changes in the securities index.
The Fund may write call options and purchase put options on financial futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value resulting from anticipated increases in market interest rates
or broad declines in securities prices. When the Fund writes a call option on a
financial futures contract, it is undertaking the obligation of selling the
financial futures contract at a fixed price at any time during a specified
period if the option is exercised. Conversely, as a purchaser of a put option on
a financial futures contract, the Fund is entitled (but not obligated) to sell a
financial futures contract at the fixed price during the life of the option.
The Fund may write put options and purchase call options on financial futures
contracts as a hedge against rising purchase prices of securities eligible for
purchase by the Fund. The Fund will use these transactions to attempt to protect
its ability to purchase securities in the future at price levels existing at the
time it enters into the transactions. When the Fund writes a put option on a
futures contract, it is undertaking to buy a particular futures contract at a
fixed price at any time during a specified period if the option is exercised. As
a purchaser of a call option on a futures contract, the Fund is entitled (but
not obligated) to purchase a futures contract at a fixed price at any time
during the life of the option.
The Fund may not enter into futures contracts and options on futures contracts,
for purposes other than "bona fide hedging" as defined in regulations adopted by
the Commodity Futures Trading Commission ("CFTC Regulations"), for which
aggregate initial margin and premiums paid for unexpired options exceed 5% of
the fair market value of the Fund's total assets, such market value to be
determined after taking into account unrealized profits and losses on futures
contracts and options on futures contracts into which the Fund has entered. For
options on futures contracts that are in-the-money at the time of purchase, the
in-the-money amount as defined in CFTC Regulations may be excluded in computing
such 5% limitation. Second, the Fund will not enter into futures contracts for
speculative purposes. Third, the Fund does not constitute a commodity pool,
market itself as such, or serve as a vehicle for trading in the commodities
futures or commodity options markets. In this regard, the Fund discloses to all
prospective investors the limitations on its futures contracts and options on
futures contracts transactions, and makes clear that these transactions are
entered into only for bona fide hedging purposes, or other permissible purposes
pursuant to CFTC Regulations. Finally, the Fund has claimed an exclusion from
registration as a commodity pool operator under CFTC Regulations. When the Fund
purchases financial futures contracts, an amount of cash and cash equivalents,
equal to the underlying commodity value of the financial futures contracts (less
any related margin deposits), will be segregated to collateralize the position
with the aim to insure that the use of such financial futures contracts or
options thereon is unleveraged.
These futures contracts and options will serve three purposes. First, the
futures contracts, some of which require a margin, and options will allow the
Fund to maintain sufficient liquidity to meet redemption requests, thereby
managing cash flows into and out of the Fund. In addition, the futures contracts
and options will increase the level of Fund assets that may be devoted to
attempting to approximate or exceed the investment return of the EAFE Index.
Third, participation in futures contracts and options could potentially reduce
transaction costs, since transaction costs associated with futures contracts and
options can be lower than costs stemming from direct investments in stocks.
FORWARD COMMITMENTS. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. The Fund may enter
into these contracts if liquid securities in amounts sufficient to meet the
purchase price are segregated on the Fund's records at the trade date and
maintained until the transaction has been settled. Risk is involved that the
value of the security will decline before settlement. Although the Fund enters
into forward commitments with the intention of acquiring the security, it may
dispose of the commitment prior to settlement and realize short-term profit or
loss.
MONEY MARKET INSTRUMENTS. The Fund may invest in U.S. and foreign short-term
money market instruments, including interest-bearing call deposits with banks,
government obligations, certificates of deposit, bankers' acceptances,
commercial paper, short-term corporate debt securities, and repurchase
agreements. The commercial paper in which the Fund invests will be rated A-1 by
Standard & Poor's ("S&P") or P-1 by Moody's Investors Service, Inc. ("Moody's").
These investments may be used to temporarily invest cash received from the sale
of Fund shares, to establish and maintain reserves for temporary defensive
purposes, or to take advantage of market opportunities.
CASH RESERVES. The Fund may hold cash reserves. Cash reserves may be invested
in temporary investments as described below.
OTHER INVESTMENTS. The Fund may invest in restricted securities, illiquid
securities and securities of other investment companies, and may lend its
portfolio securities, subject to investment limitations described below or in
the Statement. It should be noted that investment companies, which include WEBS,
may incur certain expenses which may be duplicative of certain fees incurred by
the Fund.
TEMPORARY INVESTMENTS. For temporary defensive purposes, the Fund may invest up
to 100% of its total assets in cash and cash items, including money market
instruments as described above; securities issued and/or guaranteed as to
payment of principal and interest by the U.S. government, its agencies or
instrumentalities ("U.S. Government Securities"); and repurchase agreements.
The Fund may also hold the instruments described above in such amounts as
necessary to provide funds for the settlement of portfolio transactions, to
invest cash receipts in the ordinary course of business and to meet requests for
redemption of Fund shares.
U.S. GOVERNMENT SECURITIES. The U.S. Government Securities in which the Fund
may invest include, but are not limited to, the following:
. direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds;
. notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States;
. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
. notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
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 purchase by the Fund. 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 by the Fund.
DERIVATIVE CONTRACTS AND SECURITIES. The term "derivative" has traditionally
been applied to certain contracts (including futures, forward, option and swap
contracts) that "derive" their value from changes in the value of an underlying
security, currency, commodity or index. Certain types of securities that
incorporate the performance characteristics of these contracts are also referred
to as "derivatives." The term has also been applied to securities "derived" from
the cash flows from underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stocks and bonds, derivatives do not
necessarily present greater market risks than traditional investments. The Fund
will use derivative contracts and securities only for the purposes disclosed in
the applicable prospectus sections above. To the extent that the Fund invests in
contracts or securities that could be characterized as derivatives, it will do
so only in a manner consistent with its investment objective, policies and
limitations.
RISK CONSIDERATIONS
EQUITY INVESTMENTS. As described above, the Fund invests primarily in equity
securities and securities convertible into common stock. As with other mutual
funds that invest primarily in such securities, the Fund is subject to market
risks. That is, the possibility exists that such securities will decline in
value over short or even extended periods of time, and the world's equity
markets tend to be cyclical, experiencing both periods when securities prices
generally increase and periods when securities prices generally decrease.
FOREIGN INVESTMENTS. Investing in non-U.S. securities carries substantial
risks in addition to those associated with domestic investments. In an attempt
to reduce some of these risks, the Fund diversifies its investments broadly
among foreign countries. At least three different countries will always be
represented.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Furthermore, the economies of foreign countries may be
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain companies may be subject to limitation. Foreign ownership limitations
also may be imposed by the charters of individual companies to prevent, among
other concerns, violation of foreign investment limitations. Repatriation of
investment income, capital, and the proceeds of sales by foreign investors may
require governmental registration and/or approval in some countries. The Fund
could be adversely affected by delays in, or a refusal to grant, any required
governmental registration or approval for such repatriation. Any investment
subject to such repatriation controls will be considered illiquid if it appears
reasonably likely that this process will take more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war), which could affect adversely the economies of such countries or
the value of the Fund's investments in those countries.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the U.S. Foreign markets may have
different clearance and settlement procedures. In certain markets there have
been times when settlements have been unable to keep pace with the volume of
securities transactions, or when certificates for portfolio securities have been
lost, making it difficult to conduct such transactions. The inability of the
Fund to make intended security purchases due to settlement problems could cause
the Fund to miss attractive investment opportunities. Inability to dispose of a
portfolio security due to settlement problems could result either in losses to
the Fund due to subsequent declines in value of the portfolio security or, if
the Fund has entered into a contract to sell the security, could result in
possible liability to the purchaser.
CURRENCY RISKS. Because the majority of the securities purchased by the Fund are
denominated in currencies other than the U.S. dollar, changes in foreign
currency exchange rates will affect the Fund's net asset value; the value of
interest earned; gains and losses realized on the sales of securities; and net
investment income and capital gain, if any, to be distributed to shareholders by
the Fund. If the value of a foreign currency rises against the U.S. dollar, the
value of the Fund assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the U.S.
dollar, the value of Fund assets denominated in that currency will decrease.
The exchange rates between the U.S. dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental intervention, speculation and
other economic and political conditions. Although the Fund values its assets
daily in U.S. dollars, the Fund will not convert its holdings of foreign
currencies to U.S. dollars daily. When the Fund converts its holdings to another
currency, it may incur conversion costs. Foreign exchange dealers may realize a
profit on the difference between the price at which they buy and sell
currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
. less publicly available information about foreign companies;
. the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
. less readily available market quotations on foreign companies;
. differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
. differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
. the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities
could cause prices to be erratic for reasons apart from factors that
affect the quality of securities;
. the likelihood that foreign securities may be less liquid or more
volatile;
. unreliable mail service between countries;
. certain markets may require payment for securities before delivery; and
. religious and ethnic instability.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as the
Fund. Investors are advised that when such policies are instituted, the Fund
will abide by them, but such policies may result in lost investment
opportunities or costs of transactions necessary to comply with the policies.
RISKS ASSOCIATED WITH FINANCIAL FUTURES CONTRACTS AND OPTIONS ON FINANCIAL
FUTURES CONTRACTS. Financial futures contracts and options on financial futures
contracts can be highly volatile and could result in a reduction of the Fund's
total return. The Fund's attempt to use such investment devices for hedging
purposes may not be successful. Successful futures strategies require the
ability to predict future movements in securities prices, interest rates and
other economic factors. When the Fund uses financial futures contracts and
options on financial futures contracts as hedging devices, there is a risk that
the prices of the securities or stock indices subject to the financial futures
contracts or options on financial futures contracts may not correlate perfectly
with the prices of the securities in the Fund. This may cause the financial
futures contracts or the options on financial futures contracts to react to
market changes differently than the Fund's portfolio securities. In addition,
the Advisers could be incorrect in their expectations about the direction or
extent of market factors, such as interest rates, securities price movements,
and other economic factors. In these events, the Fund may lose money on the
financial futures contract or the options on financial futures contracts. It is
not certain that a secondary market for positions in financial futures contracts
or for options on financial futures contracts will exist at all times. Although
the Advisers will consider liquidity before entering into financial futures
contracts or options on financial futures contracts transactions, there is no
assurance that a liquid secondary market on an exchange or over-the-counter will
exist for any particular financial futures contract or option on a financial
futures contract at any particular time. The Fund's ability to establish and
close out financial futures contracts and options on financial futures contract
positions depends on this secondary market. If the Fund is unable to close out
its position due to disruptions in the market or lack of liquidity, the losses
to the Fund could be significant.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities will be sold whenever the Advisers believe it is
appropriate to do so in light of the Fund's investment objective, without regard
to the length of time a particular security may have been held. A higher rate of
portfolio turnover involves correspondingly greater transaction expenses which
must be borne directly by the Fund and, thus, indirectly by its shareholders. In
addition, a high rate of portfolio turnover may result in the realization of
larger amounts of capital gains which, when distributed to the Fund's
shareholders, are taxable to them. Nevertheless, transactions for the Fund's
portfolio will be based upon investment considerations and will not be limited
by any other considerations when the Advisers deem it appropriate to make
changes to the Fund's portfolio.
INVESTMENT LIMITATIONS
The Fund will not:
. with respect to 75% of the value of its total assets, invest more than
5% of the value of its total assets in the securities of any one issuer
(other than cash; cash items; U. S. Government Securities and repurchase
agreements collateralized by such U.S. government securities; and
securities of other investment companies).
. acquire more than 10% of the outstanding voting securities of any one
issuer; or
. 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 at a set
price) except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets, including the amount borrowed,
and pledge securities to secure such borrowings.
The above investment limitations and certain other investment limitations
described in the Statement cannot be changed without shareholder approval. The
following limitation, however, may be changed by the Board of Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including securities not determined by the Board of
Trustees to be liquid, including repurchase agreements with maturities longer
than seven days after notice and certain OTC options.
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 subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio securities and instruments,
for which the Adviser receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser is entitled to receive an annual investment
advisory fee equal to 1.00% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee or reimburse
certain expenses of the Fund.
ADVISER'S BACKGROUND. Michigan National Bank, a national banking association,
is a wholly-owned subsidiary of Michigan National Corporation ("MNC"). MNC is
a wholly-owned subsidiary of National Australia Bank Limited, which is a
transnational banking organization, headquartered in Melbourne, Australia.
Through its subsidiaries and affiliates, MNC, Michigan's fourth largest bank
holding company in terms of total assets, as of December 31, 1997, $9.583
billion, 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 $11.4 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.
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 such securities.
Sharon Dischinger, Second Vice President and Portfolio Manager for
Michigan National Bank in Farmington Hills since May 1993, has been
responsible for management of the Fund's portfolio since its inception.
Ms. Dischinger joined Michigan National Bank in 1990 and has been the head
equity trader since September 1991. She is also a General Securities
Representative. Prior to Michigan National Bank, Ms. Dischinger was the head
equity trader at Morison Asset Management
SUB-ADVISER. Pursuant to the terms of an investment sub-advisory agreement
between the Adviser and National Australia Asset Management Limited, the Sub-
Adviser furnishes, subject to the direction of the Trustees and the Adviser,
certain investment advisory services to the Fund, including active investment
management services, investment research, and identification of securities and
other investments for purchase and/or sale by the Fund's portfolio. Pursuant to
the sub-advisory agreement with the Adviser, the Sub-Adviser is entitled to
receive an annual fee, to be paid by the Adviser, of 0.30% of the average daily
value of the Fund's assets managed by the Sub-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 333 Collins Street, Melbourne, Victoria 3000, Australia,
is a corporation wholly owned by National Australia Bank Limited ("NAB"), which
is the ultimate parent corporation of the Adviser. 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.
Alistair Drummond, B.Ec., CPA, Bachelor of Law, Senior Portfolio Manager,
International Equities. Mr. Drummond joined the financial industry in 1984 after
having spent four years in taxation and law. He joined NAB Corporate Advisory in
1989 where he advised on corporate reconstructions, mergers and acquisitions and
valuations. In 1992, he transferred to NAM and was responsible for Australian
equity research and for the management of balanced funds. His current
responsibilities include research and management of Japanese equities, and with
respect to the Sub-Adviser, he has been responsible for management of the Fund's
portfolio since its inception.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund
(the "Distributor"). 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,
Inc.
FUND ADMINISTRATION
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, Inc., 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
services at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
------------------ -----------------------------------
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% 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, cash and other assets of the Fund.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
securities and instruments, the Advisers look for prompt execution of the order
at a favorable price. In working with dealers, the Advisers will generally use
those who are recognized dealers in specific portfolio securities or
instruments, except when a better price and execution of the order can be
obtained elsewhere. In selecting among firms believed to meet these criteria,
the Advisers may give consideration to those firms which have sold or are
selling shares of the Fund and other funds distributed by Federated Securities
Corp. The Advisers make decisions on portfolio transactions and select brokers
and dealers subject to review by the Board of Trustees.
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 Advisers and Federated Administrative Services may
voluntarily waive and/or reimburse some expenses. YEAR 2000 STATEMENT. Like
other mutual funds and business organizations worldwide, the Fund's service
providers (among them, the adviser, distributor, administrator and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, the computer hardware in use today
cannot distinguish the year 2000 from the year 1900. Such a design flaw could
have a negative impact in the handling of securities trades, pricing and
accounting services. The Fund and its service providers are actively working on
necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on the Fund's operations.
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 of the Fund outstanding. Trading in foreign securities may be completed
at times which vary from the closing of the New York Stock Exchange ("NYSE"). As
a result, in computing its net asset value, the Fund values foreign equity
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the foreign exchange rate
in effect at noon, Eastern time, on the day the value of the foreign security is
determined. Occasionally, events that effect these values and exchange rates may
occur between the times at which they are determined and the closing of the
NYSE. If such events materially affect the value of portfolio securities, these
securities may be valued at their fair value as determined in good faith by the
Trustees, although the actual calculation may be done by others.
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 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 1-800-334-2292 to purchase
shares of the Fund through Michigan National Bank or Independence One. In
addition, investors may purchase shares of the Fund by contacting directly their
authorized brokers. Payments may be made by either check or wire transfer of
federal funds.
Orders must be received by 4:00 p.m. (Eastern time) in order for shares to be
purchased at that day's price. For shares purchased directly from the
Distributor, payment by wire or check must also be received before 4:00 p.m.
(Eastern time) on that day. It is the responsibility of Michigan National Bank,
Independence One or authorized brokers to transmit orders that were received
before 4:00 p.m. (Eastern time) 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 such a
transmitted order, payment must be received by check or wire transfer within
three business days of receipt of the order. To purchase by check, the check
must be included with the order and made payable to "Independence One
International Equity Fund." Checks must be converted into federal funds to be
considered received.
Federal funds should be wired as follows: Federated Shareholder Services Company
c/o Michigan National Bank, Farmington Hills, Michigan; Account Number:
6856238933; For Credit to: Independence One International Equity 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. Authorized
brokers may charge customary fees and commissions for handling shareholders'
purchase orders.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the NYSE, 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) the following holidays: New Year's Day, Martin
Luther King, Jr. 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 Shareholder Services Company (the
"Transfer Agent") 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
brokers 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 annually. 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 an authorized broker. Shares purchased with reinvested dividends are credited
to shareholder accounts on the following day.
SYSTEMATIC INVESTMENT PROGRAM
Once the Fund account has been opened, shareholders may add to their investment
on a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received. A shareholder may apply for participation in this program through
Michigan National Bank by calling 1-800- 334-2292.
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, policies and
limitations 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 Small Cap 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
Shares 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.
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 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 be completed before the Fund will accept such requests. 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 an 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 from the Fund into a participating 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 the Transfer Agent by a Michigan National Bank or Independence One
representative or an 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 its authorized broker directly.
REDEEMING FUND SHARES
- -------------------------------------------------------------------------------
Shares are redeemed at their next determined net asset value after Federated
Shareholder 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 an
authorized broker. Although the Transfer Agent generally 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. Authorized brokers
may charge customary fees and commissions for this service. If at any time, the
Fund were to 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 be completed before the Fund will accept such requests. 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 an 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, if any, 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 authorized brokers should mail written
requests directly to their brokers.
If share certificates have been issued, they must be properly endorsed and must
be sent (registered or certified mail is recommended) with the written request.
Shareholders requesting 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 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, as amended.
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 redemption proceeds is mailed within one business day,
but in no event more than seven days after receipt of a proper written
redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares of
the Fund are redeemed to provide for periodic withdrawal payments in an amount
directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions made with
respect to Fund shares, and the fluctuation of the net asset value of Fund
shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund. For this reason, payments
under this program should not be considered as yield or income on the
shareholder's investment in the Fund. To be eligible to participate in this
program, a shareholder must have an account value of at least $10,000, other
than retirement accounts subject to required minimum distributions. A
shareholder may apply for participation in this program through Michigan
National Bank by calling 1-800-334-2292.
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 or exchanges. 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
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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.
EFFECT OF BANKING LAWS
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The Glass-Steagall Act and other banking laws and regulations currently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956, as
amended, or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such banking laws and regulations do not prohibit such a holding
company or affiliate 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 customers.
Some entities providing services to the Trust are subject to such banking laws
and regulations. They believe, based on the advice of the Trust's counsel, that
they may perform these services for the Trust as contemplated by the agreements
entered into with the Trust without violating those 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 present or future
statutes and regulations, could prevent these entities from continuing to
perform all or a part of the above services. If this happens, the Trustees would
consider alternative means of continuing available investment services. It is
not expected that existing shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
TAX INFORMATION
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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, 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,
paid by the Fund. This applies whether dividends or 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.
Investment income received by the Fund from sources within foreign countries may
be subject to foreign taxes withheld at the source. The United States has
entered into tax treaties with many foreign countries that entitle the Fund to
reduced tax rates or exemptions on this income. The effective rate of foreign
tax cannot be predicted, since the amount of Fund assets to be invested within
various countries is unknown. However, the Fund intends to operate so as to
qualify for treaty-reduced tax rates where applicable.
Due to differences in the book and tax treatment of fixed-income securities
denominated in foreign currencies, it is difficult to project currency effects
on an interim basis. Therefore, to the extent that currency fluctuations cannot
be anticipated, a portion of distributions to shareholders could later be
designated as a return of capital, rather than income, for income tax purposes,
which may be of particular concern to simple trusts.
If more than 50% of the value of the Fund's assets at the end of the tax year is
represented by stock or securities of foreign corporations, the Fund intends to
qualify for certain Code stipulations that would allow shareholders to claim a
foreign tax credit or deduction on their U.S. income tax returns. Shareholders
must hold Fund shares for a specified period to claim a foreign tax credit.
The Code may limit a shareholder's ability to claim a foreign tax credit.
Furthermore, shareholders who elect to deduct their portion of the Fund's
foreign taxes rather than take the foreign tax credit must itemize deductions on
their income tax returns.
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws, including treatment of
distributions as income or return of capital.
PERFORMANCE INFORMATION
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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 SEC) 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 semiannual compounding. The yield does not necessarily
reflect income actually earned by the Fund and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices, as described in the Statement.
INDEPENDENCE ONE
MUTUAL FUNDS
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
INVESTMENT ADVISER
Michigan National Bank
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
SUB-ADVISER
National Australia Asset Management Ltd.
333 Collins Street
Melbourne, Victoria 3000, Australia
DISTRIBUTOR
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
Michigan National Bank
27777 Inkster Road
Mail Code 10-30
Farmington Hills, Michigan 48333-9065
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8609
Boston, Massachusetts 02266-8609
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
Cusip 453777849
RECYCLED LOGO
G00979-10 (6/98)
Independence One(R)
International Equity Fund
(Distributed by Federated Securities Corp.)
Prospectus dated
June 16, 1998
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LOGO OF MICHIGAN NATIONAL BANK
Investment Adviser
Independence One International Equity Fund
(A Portfolio of Independence One Mutual Funds)
Statement of Additional Information
This Statement of Additional Information (the "Statement") should be
read with the prospectus of Independence One International Equity Fund (the
"Fund"), a portfolio of Independence One Mutual Funds (the "Trust") dated
June 16, 1998. This Statement is not a prospectus. You may request a copy
of the prospectus free of charge by calling 1-800-334-2292.
Independence One International Equity Fund
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
Statement dated June 16, 1998
[GRAPHIC OMITTED]
Cusip 453777849
G00979-11 (6/98)
<PAGE>
Table of Contents
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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
Massachusetts Partnership Law 10
Investment Advisory Services 10
Adviser to the Fund 10
Advisory Fees 11
Sub-Adviser to the Fund 11
Sub-Advisory Fees 11
Brokerage Transactions 11
Other Services 11
Trust Administration 11
Custodian 11
Transfer Agent and Dividend Disbursing Agent 11
Independent Auditors 11
Purchasing Shares 12
Conversion to Federal Funds 12
Determining Net Asset Value 12
Determining Market Value of Securities12
Trading in Foreign Securities 12
Redeeming Shares 13
Redemption in Kind 13
Tax Status 13
The Fund's Tax Status 13
Foreign Taxes 13
Shareholders' Tax Status 13
Capital Gains 13
Total Return 13
Yield 14
Performance Comparisons 14
Economic and Market Information 15
<PAGE>
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 Fund's investment
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 Securities
The types of U.S. government securities 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 ("U.S. Government
Securities"). These securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o 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; Fannie Mae (formerly, the 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:
o instruments of domestic and foreign banks and savings associations
having capital, surplus, and undivided profits of over $100,000,000, or if
the principal amount of the instrument is insured in full by the Federal
Deposit Insurance Corporation ("FDIC");
o commercial paper issued by domestic or foreign corporations rated A-1 by
Standard & Poor's ("S&P") P-1 by Moody's Investors Service, Inc., or F-1
by Fitch, Inc. or, if unrated, of comparable quality as determined by the
Fund's investment adviser;
o 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
o 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 investment adviser to be creditworthy pursuant to
guidelines established by the Trustees.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or yield for the Fund. 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 value of its total assets.
Restricted and Illiquid Securities
The ability of the Trustees to determine the liquidity of certain
restricted securities is permitted under a Securities and Exchange
Commission ("SEC") staff position set forth in the adopting release for
Rule 144A under the Securities Act of 1933. The Trustees consider the
following criteria in determining the liquidity of certain restricted
securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
Futures and Options Transactions
The Fund may engage in futures and options hedging transactions. In an
effort to reduce fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put options on
portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write covered
call options on portfolio securities to attempt to increase its current
income. 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 have expired. An option position on financial
futures contracts may be closed only on the exchange on which the position
was established.
Futures Contracts
The Fund may engage in transactions in financial futures contracts. A
securities 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 set price at a certain time
in the future. In contrast, a stock index futures contract is an agreement
pursuant to which two parties agree to take or make delivery of an amount
of cash equal to the difference between the value of the index at the
close of the last trading day of the contract and the price at which the
index contract was originally written. No physical delivery of the
underlying securities in the index is made.
The purpose of the purchase or sale of a futures contract by the Fund is
to protect the Fund from fluctuations in the value of its securities
caused by anticipated changes in interest rates or market conditions
without necessarily buying or selling the securities. For example, in the
equity securities market, in order to hedge its holdings of equity
securities against a decline in market prices, 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
equity securities may decline during the anticipated holding period. The
Fund would "go long" (i.e., agree to purchase securities in the future at
a predetermined price) to hedge against an increase in market prices.
Put Options on Futures Contracts
The Fund may engage in transactions in put options on futures contracts.
The Fund may purchase listed put options on futures contracts. 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. The Fund would purchase
put options on futures contracts to protect portfolio securities against
decreases in value resulting from market factors, such as an anticipated
decrease in stock prices.
Generally, if the hedged portfolio securities decrease in value during the
term of a put 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 put option by selling an identical put option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second put option may be large enough to offset both the
premium paid by the Fund for the original put 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 put option) and exercise the put
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.
When the Fund sells a put option on a futures contract, it receives a cash
premium which can be used in whatever way is deemed most advantageous to
the Fund. In exchange for such premium, the Fund grants to the purchaser
of the put option the right to receive from the Fund, at the strike price,
a short position in such futures contract, even though the strike price
upon exercise of the put option is greater than the value of the futures
position received by such holder. If the value of the underlying futures
position is not such that exercise of the put option would be profitable
to the option holder, the put option will generally expire without being
exercised. The Fund has no obligation to return premiums paid to it
whether or not the put option is exercised. It will generally be the
policy of the Fund, in order to avoid the exercise of a put option sold by
it, to cancel its obligation under the put option by entering into a
closing purchase transaction, if available, unless it is determined to be
in the Fund's interest to deliver the underlying futures position. A
closing purchase transaction consists of the purchase by the Fund of a put
option having the same term as the put option sold by the Fund, and has
the effect of canceling the Fund's position as a seller. The premium which
the Fund will pay in executing a closing purchase transaction may be
higher than the premium received when the put option was sold, depending
in large part upon the relative price of the underlying futures position
at the time of each transaction.
Call Options on Futures Contracts
The Fund may engage in transactions in call options on futures contracts.
In addition to purchasing put options on futures, the Fund may write
listed call options on futures contracts to hedge its portfolio against,
for example, a decrease in stock prices. 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 call option if the call option is
exercised. As stock prices fall, causing the prices of futures to go down,
the Fund's obligation as seller of 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
future's price goes down below the strike price, the buyer of the call
option has no reason to exercise the call option, so that the Fund keeps
the premium received for the call option. This premium can help
substantially to offset the drop in value of the Fund's portfolio
securities. Prior to the expiration of a call option written by the Fund,
or exercise of it by the buyer, the Fund may close out the call option by
buying an identical call option. If the hedge is successful, the cost of
the second call option will be less than the premium received by the Fund
for the initial call option. The net premium income of the Fund will then
help offset the decrease in value of the hedged securities.
When the Fund purchases a call option on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but not
the obligation, to enter into the underlying futures contract at a strike
price determined at the time the call option was purchased, regardless of
the comparative market value of such futures position at the time the
option is exercised. The holder of a call option has the right to receive
a long (or buyer's) position in the underlying futures contract.
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 securities portfolio (including cash or cash
equivalents) 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.
"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 the 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 futures contracts
initial margin does not involve a borrowing 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.
Restrictions On Futures Contracts and Options Thereon
The Fund will not engage in transactions in futures contracts or options
thereon for speculation, but only to attempt to hedge against changes in
market conditions affecting the value of assets which the Fund holds or
intends to purchase. When futures contracts or options thereon are
purchased in order to protect against a price increase on securities or
other assets intended to be purchased later, it is anticipated that at
least 75% of such intended purchases will be completed. When other futures
contracts or options thereon are purchased, the underlying value of such
contracts will at all times not exceed the sum of (1) accrued profit on
such contracts held by the broker; (2) cash or high-quality money market
instruments set aside in an identifiable manner; and (3) cash proceeds
from investments due in 30 days or less.
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.
Writing Covered Call Options on Portfolio Securities
The Fund may write covered call options to generate income. As a 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 sell 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 additional consideration).
Over-the-Counter Options
The Fund may purchase and write over-the-counter options ("OTC 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.
OTC options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are
third-party contracts with standardized strike prices and expiration dates
and are purchased from a clearing corporation. Exchange-traded options
have a continuous liquid market while over-the-counter options may not.
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.
Reverse Repurchase Agreements
The Fund also may enter into reverse repurchase agreements under certain
circumstances. These transactions are 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
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 enter
into loan arrangements only with broker/dealers, banks, or other
institutions which the Fund's investment adviser has determined are
creditworthy. The Fund 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 were to
file for bankruptcy or become insolvent, disposition of the securities may
be delayed pending court action.
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 have the right to vote, the Fund would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
<PAGE>
Additional Risk Considerations
The Trustees consider at least annually the likelihood of the imposition
by any foreign government of exchange control restrictions which would
affect the liquidity of the Fund's assets maintained with custodians in
foreign countries, as well as the degree of risk from political acts of
foreign governments to which such assets may be exposed. The Trustees also
consider the degree of risk involved through the holding of portfolio
securities in domestic and foreign securities depositories. However, in
the absence of willful misfeasance, bad faith, gross negligence or
reckless disregard of duties on the part of the Adviser, any losses
resulting from the holding of the Fund's portfolio securities in foreign
countries and/or with securities depositories will be at the risk of
shareholders. No assurance can be given that the Trustees's appraisal of
the risks will always be correct or that such exchange control
restrictions or political acts of foreign governments might not occur.
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 150%.
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.
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.
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 investment activities.
Investing in Real Estate
The Fund will not purchase or sell real estate, although it may invest in
the securities of issuers whose business involves the purchase or sale of
real estate or in securities which are secured by real estate or interests
in real estate.
Investing in 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, as amended,
in connection with the sale of securities in accordance with its
investment objective, policies, and limitations.
<PAGE>
Diversification of Investments
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer (other
than cash; cash items; U.S. Government Securities and repurchase
agreements collateralized by such U.S. Government Securities; and
securities of other investment companies) if, as a result, more than 5% of
the value of its total assets would be invested in the securities of that
issuer, or it would own more than 10% of the voting securities of that
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 U.S. Government Securities, 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 securities 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 charge exceeding 1.5%. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. It should be
noted that investment companies incur certain expenses, such as investment
advisory, custodian and transfer agent fees, and therefore, any investment
by the Fund in shares of another investment company would be subject to
such duplicate expenses.
Investing in Illiquid and Restricted Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities including certain restricted securities not determined
to be liquid under criteria established by the Trustees, including
non-negotiable time deposits, repurchase agreements providing for
settlement in more than seven days after notice, and over-the-counter
options.
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.
Purchasing Securities to Exercise Control
The Fund will not purchase securities of a company for purposes of
exercising control or management.
<PAGE>
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 the
investment limitations stated above.
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 association, 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.
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, Inc.,
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++
Berry Enterprises
290 Franklin Center
29100 Northwestern Highway
Southfield, MI
Birthdate: September 17, 1925
Trustee
Managing Partner, Berry Enterprises; Chairman, Independent Sprinkler Companies,
Inc.; Chairman, Berry, Ziegelman & Company.
Nathan Forbes*
P.O. Box 667
Southfield, Michigan
Birthdate: December 5, 1962
Trustee
President, The Forbes Company.
Harry J. Nederlander+
231 S. Old Woodward, Suite 219
Birmingham, MI
Birthdate: September 5, 1917
Trustee
Chairman, Nederlander Enterprises.
<PAGE>
Thomas S. Wilson+
Two Championship Drive
Auburn Hills, MI
Birthdate: October 8, 1949
Trustee
President and Executive Administrator of the Detroit Pistons; President and CEO,
Palace Sports and Entertainment.
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds
distributed by Federated Securities Corp.; President, Executive Vice President
and Treasurer of some of the Funds distributed by Federated Securities Corp.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President and Assistant Treasurer of various Funds distributed by Federated
Securities Corp.
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
++Members of the Trust's Audit Committee.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
<PAGE>
Fund Ownership
Officers and Trustees own less than 1% of the outstanding shares of the Fund.
Trustees' Compensation
- -------------------------------------------------------------------------------
NAME, AGGREGATE COMPENSATION
POSITION WITH FROM
THE TRUST THE TRUST*
- -------------------------------------------------------------------------------
Robert E. Baker $12,000
Trustee
Harold Berry $12,000
Trustee
Nathan Forbes $-0-
Trustee
Harry J. Nederlander $12,000
Trustee
Thomas S. Wilson $12,000
Trustee
- -------------------------------------------------------------------------------
* Information is furnished for the fiscal year ended April 30, 1998. The Trust
is the only Investment Company in the Fund Complex. The aggregate compensation
is provided for the Trust which is comprised of nine portfolios. The Fund had
not commenced operations as of April 30, 1998 and did not pay any compensation
to the Trustees prior to commencing operations. Each of the portfolios of the
Trust, including the Fund, pays a portion of the aggregate compensation of the
Trustees in direct proportion to its respective average net assets.
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.
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 of the Fund 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.
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 the Adviser, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon the Adviser 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.
Sub-Adviser to the Fund
The Fund's sub-adviser is National Australia Asset Management Limited (the
"Sub-Adviser").
Sub-Advisory Fees
For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory
fee as described in the prospectus.
Brokerage Transactions
The Advisers may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
Advisers 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. Research
services provided by brokers and dealers may be used by the Advisers or their
affiliates in advising the Fund and other accounts. To the extent that receipt
of these services may supplant services for which the Advisers or their
affiliates might otherwise have paid, it would tend to reduce their expenses.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers to execute securities transactions for the Fund, including
brokers that offer brokerage and research services in connection with executing
transactions. The Advisers and their affiliates determine in good faith that
commissions charged by such brokers are reasonable in relation to the value of
the brokerage and research services provided.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the Advisers, investments of the type the Funds
may make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Advisers are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for
investments or sales will be allocated in a manner believed by the Advisers to
be equitable to each. In some cases, this procedure may adversely affect the
price paid or received by the Fund or the size of the position obtained or
disposed of by the Fund. In other cases, however, it is believed that
coordination and the ability to participate in volume transactions will be to
the benefit of the Fund.
Other Services
Trust Administration
Federated Administrative Services, a subsidiary of Federated Investors, Inc.,
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, cash and other assets of the Fund. For the services to be provided
to the Fund pursuant to the Custodian Agreement between the Trust and the
custodian, the Fund pays the custodian an annual fee that is based upon the
average daily net assets of the Fund and is payable monthly. The Fund will also
pay the custodian transaction fees and out-of-pocket expenses.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company, Boston, Massachusetts, through its subsidiary
Federated Shareholder Services Company, is the transfer agent for the shares of
the Fund and dividend disbursing agent for the Fund.
Independent Auditors
The firm of independent auditors for the Fund is KPMG Peat Marwick LLP,
Pittsburgh, Pennsylvania.
<PAGE>
Purchasing Shares
Shares of the Fund 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
income 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 business day. The business 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:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, according to the latest bid prices;
o for bonds and other fixed income securities, other than short-term
obligations, as determined by an independent pricing service;
o 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
o 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 traded on an exchange at their
market values established by the exchanges on which they trade 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. The market value
for futures contracts and options which are not traded on an exchange will be
determined by an independent pricing service.
Trading in Foreign Securities
Trading in foreign cities may be completed at times which vary from the closing
of the NYSE. In computing the net asset values, the Fund values foreign
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the NYSE. Foreign securities quoted in
foreign currencies are translated into U.S. dollars at the foreign exchange rate
in effect at noon, Eastern time, on the day the value of the foreign security is
determined.
Occasionally, events that affect values and exchange rates may occur between the
times at which they are determined and the closing of the NYSE. If such events
materially affect the value of portfolio securities, these securities may be
valued at their fair value as determined in good faith by the Trustees, although
the actual calculation may be done by others.
<PAGE>
Redeeming Shares
The Fund redeems its shares at the next computed net asset value after Federated
Shareholder 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 its 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 it deems appropriate from the Fund's portfolio.
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 for
the Fund 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 under the Investment Company
Act of 1940, as amended, under which the Fund is obligated to redeem shares
during any 90-day period for any one shareholder in cash only up to the lesser
of $250,000 or 1% of the Fund's net asset value at the beginning of such 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 of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o invest in securities within certain statutory limits for
diversification purposes; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Foreign Taxes
Investment income on certain foreign securities in which the Fund may invest may
be subject to foreign withholding or other taxes that could reduce the return on
these securities. Tax treaties between the United States and foreign countries,
however, may reduce or eliminate the amount of foreign taxes to which the Fund
would be subject.
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
Once the Fund has a longer operating history, the average annual total returns
for the Fund for the 1-year, 5-year and 10-year periods or the period from the
date of initial public investment in the Fund, if less than such periods, will
be disclosed here.
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.
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.
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:
o portfolio quality;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; or
o 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:
o Standard & Poor's Composite Index of 500 Stocks, which is a composite
index of common stocks in industry, transportation, and financial and
public utility companies, can be compared to the total returns of funds
whose portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's index assume reinvestment of all dividends paid by
stocks listed on the index. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated in Standard &
Poor's figures.
o Lipper Analytical Services, Inc. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in the maximum offering price
over a specific period of time. From time to time, the Fund will quote its
Lipper ranking and category in advertising and sales literature.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk- adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
o Morgan Stanley Capital International EAFE Index, an arithmetic, market
value-weighted average of the performance of over 1,000 securities on the
stock exchanges of countries in Europe, Australia and the Far East.
o Morgan Stanley Capital International Europe Index, an unmanaged index of
common stocks that includes 14 countries throughout Europe.
o Morgan Stanley Capital International Japan Index, an unmanaged index of
common stocks.
o Morgan Stanley Capital International World Index, an arithmetic, market
value-weighted average of the performance of over 1,470 securities listed
on the stock exchanges of countries in Europe, Australia, the Far East,
Canada and the United States.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effects on the
securities markets. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analyses on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.
INDEPENDENCE ONE SMALL CAP FUND
(A PORTFOLIO OF INDEPENDENCE ONE MUTUAL FUNDS)
PROSPECTUS
The shares of Independence One Small Cap 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 has overall responsibility for professionally managing 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
SmallCap 600 Index (the "S&P SmallCap 600") by investing primarily in a
representative sample of the common stocks comprising the S&P SmallCap 600. The
Fund is neither affiliated with nor sponsored by Standard & Poor's ("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 (the "Statement")
dated June 16, 1998, with the Securities and Exchange Commission ("SEC"). The
information contained in the Statement is incorporated by reference into this
prospectus. You may request a copy of the Statement free of charge by calling
toll-free 1-800-334-2292. To obtain other information, or make inquiries about
the Trust, contact the Trust at the address listed in the back of this
prospectus. This prospectus, the Statement, material incorporated by reference
into these documents, and other information regarding the Fund are maintained
electronically with the SEC at Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. Prospectus dated June 16, 1998
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- -------------------------------------
GENERAL INFORMATION 2
- -------------------------------------
INVESTMENT INFORMATION 2
- -------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 4
Equity Investment Considerations 6
Derivative Contracts and
Securities 6
Investment Limitations 7
INDEPENDENCE ONE MUTUAL FUNDS
INFORMATION 7
- -------------------------------------
Management of the Trust 7
Distribution of Fund Shares 9
Fund Administration 9
Brokerage Transactions 9
Expenses of the Fund 9
NET ASSET VALUE 10
- -------------------------------------
INVESTING IN THE FUND 10
- -------------------------------------
Share Purchases 10
Minimum Investment Required 11
What Shares Cost 11
Certificates and Confirmations 11
Dividends and Capital Gains 11
Systematic Investment Program 12
EXCHANGING SECURITIES FOR FUND
SHARES 12
- -------------------------------------
EXCHANGE PRIVILEGE 12
- -------------------------------------
REDEEMING FUND SHARES 14
- -------------------------------------
Systematic Withdrawal Program 15
Accounts with Low Balances 16
SHAREHOLDER INFORMATION 16
- -------------------------------------
Voting Rights 16
EFFECT OF BANKING LAWS 16
- -------------------------------------
TAX INFORMATION 17
- -------------------------------------
Federal Income Tax 17
PERFORMANCE INFORMATION 17
- -------------------------------------
STANDARD & POOR'S 18
- -------------------------------------
INDEPENDENCE ONE SMALL CAP FUND
SUMMARY OF FUND EXPENSES
- -------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)................................................................... None
Maximum Sales Charge 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
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)......................................... 0.00%
12b-1 Fee................................................................ None
Total Other Expenses (after waivers)(2).................................. 1.27%
Total Fund Operating Expenses (after waivers)(3)....................... 1.27%
</TABLE>
(1) The estimated management fee for Small Cap Equity Fund has been reduced to
reflect the anticipated voluntary waiver by the adviser. The adviser can
terminate this voluntary waiver at any time at its sole discretion. The
maximum management fee for Small Cap Equity Fund is 0.50%.
(2) Total Other Expenses for Small Cap Equity Fund have been reduced to reflect
the anticipated voluntary waivers of the administrative and custody fees and
a portion of the transfer agency fee. The administrator, custodian, and
transfer agent can terminate these voluntary waivers at any time at their
sole discretion. Total Other Expenses are based on estimated amounts for the
current fiscal year.
(3) The Total Fund Operating Expenses for Small Cap Equity Fund are estimated to
be 2.48% absent the anticipated voluntary waivers described above in Notes 1
and 2.
*Annual Fund Operating Expenses are estimated based on average expenses expected
to be incurred during the fiscal year ending April 30, 1999. During the course
of this period, expenses may be more or less than the average 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 MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "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................................................ $13 $40
</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 FUND'S FISCAL YEAR ENDING APRIL 30,
1999.
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
Small Cap 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 selected
companies with small market capitalizations. 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 SmallCap 600 by investing at least 65% of its total
assets in a representative sample of the common stocks comprising the S&P
SmallCap 600. 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 SmallCap 600 is a capitalization-weighted index of 600 common stocks. It
is designed to provide a measure of overall small capitalization company
performance, and includes common stocks of companies from a variety of economic
sectors and industry groups. S&P's selection criteria go beyond merely including
companies based solely on market capitalization, and include market size,
capitalization, trading activity and liquidity, soundness of financial and
operating conditions, industry representation and public ownership. The S&P
SmallCap 600 reflects a diversified market portfolio, although it has fewer
securities than other comparable indices. For example, it does not include
initial public offering issues, which experience high volatility in market value
and are often illiquid. It also does not include real estate investment trusts,
which are generally viewed as real estate investments. According to S&P, the
spreads between bids and asking prices are generally lower for stocks in the S&P
SmallCap 600, and average daily trading volume is usually higher than with other
comparable small-cap indices.
The S&P SmallCap 600 also exhibits a lower issuer turnover rate than other
comparable small-cap indices. Higher turnover can prove particularly costly to
funds that, like the Fund, are based to some extent on an index. Managers must
sell stocks deleted from the index and purchase stocks that are added, thus
increasing a fund's expenses. The higher turnover may also cause higher tax
consequences for a fund's shareholders. S&P adds and deletes companies
throughout the year, as necessary, with a view toward minimizing disruption.
Unlike other small-cap indices, S&P does not automatically remove a company from
the S&P SmallCap 600 when the company's market capitalization rises above or
falls below the market capitalization selection criteria. Also, S&P does not
determine the market capitalization parameters based on a range of the dollar
amounts of such capitalizations. Instead, S&P defines the small-cap range as
percentiles of the entire market's value. S&P selected a small-cap range of from
approximately the 50th percentile down to approximately the 83rd percentile of
the entire market from the largest capitalized to the smallest capitalized
companies. The percentiles represent divisions by capitalization, not by number
of companies. While the percentile range for the index remains constant, the
capitalization range in dollar amounts will rise or fall with the market.
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 times the number of
shares outstanding. These are summed for all 600 stocks and divided by a
predetermined base value. The base value for the S&P SmallCap 600 is adjusted to
reflect changes in capitalization resulting from mergers, acquisitions, stock
rights and substitutions.
Inclusion of a particular stock in the S&P SmallCap 600 in no way implies an
opinion by S&P as to its investment attractiveness. S&P is not a sponsor of or
in any way affiliated with the Fund. As noted above, the Fund will limit its
stock selections to those stocks included in the S&P Small Cap 600. Michigan
National Bank (the "Adviser") and Sosnoff Sheridan Corporation (the
"Sub-Adviser") (collectively, the "Advisers") intend to invest the Fund's
holdings in approximately 200 of these stocks. In selecting which of the S&P
Small Cap 600 stocks to purchase for the Fund, the Advisers will seek to achieve
a representative sampling of the various industry groups contained in that
index. In an effort to meet its investment goals, any stock selected for the
Fund must also meet the following criteria: the stock must have a history of
price volatility ("beta") similar to the average beta of all stocks in the
index; the stock's price must be equal to or greater than the average index
stock price; the number of outstanding shares of the stock must be equal to or
greater than that of the average index stock; and the stock must have a total
capitalization equal to or greater than the average index stock capitalization.
The Advisers believe that application of these criteria will help focus the
Fund's holdings on stocks that are relatively more liquid and that can be bought
and sold with relatively lower transaction costs.
The Fund's ability to provide investment results that correspond to or exceed
the aggregate price and dividend performance of the S&P SmallCap 600 will depend
partly on the size and timing of cash flows into and out of the Fund, as well as
on the particular stocks selected by the Advisers. From time to time,
adjustments may be made in the Fund because of changes in the composition of the
S&P SmallCap 600 as announced by S&P, which will result in accompanying costs,
including brokerage fees, custodial expenses, and transfer taxes. Portfolio
turnover is also expected to be lower than for many 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
SmallCap 600. 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 transaction costs. The Fund will
enter into stock index futures contracts only for the purpose of offsetting
risks from other positions.
The Fund may hold cash reserves. Cash reserves 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 invest in restricted
securities, illiquid securities and securities of other investment companies,
and may lend its portfolio securities, subject to investment limitations
described in the Statement.
STOCK INDEX FUTURES AND OPTIONS. The Fund may utilize stock index futures
contracts, options, and options on stock index 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 and the Fund's investment in
futures contracts and options thereon will be limited as described below.
These futures contracts and options will serve three purposes. First, the
futures contracts, some of which require a margin, and options will allow the
Fund to maintain sufficient liquidity to meet redemption requests, thereby
managing cash flows into and out of the Fund. Secondly, the futures contracts
and options will increase the level of Fund assets that may be devoted to
attempting to approximate or exceed the investment return of the S&P SmallCap
600. Third, participation in futures contracts and options could potentially
reduce transaction costs, since transaction costs associated with futures
contracts and options can be lower than costs stemming from direct investments
in stocks.
RISKS. 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 an active market will exist for the contracts at a
specified time. The Fund's ability to establish and close out futures
contracts and options positions depends on this secondary market. Furthermore,
because, by definition, futures contracts look to projected price levels in
the future, and not to current price levels, market circumstances may result
in there being a discrepancy between the price of a futures contract and the
price movement in the underlying 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 contracts 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 Advisers' 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 contracts and
options prices could cause the Fund to be unable to timely liquidate its
futures contracts or options positions and cause the Fund 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 contracts
transactions. The Statement includes a further discussion of futures contracts
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
may not enter into futures contracts and options on futures contracts, for
purposes other than "bona fide hedging" as defined in regulations adopted by
the Commodity Futures Trading Commission ("CFTC Regulations"), for which
aggregate initial margin and premiums paid for unexpired options exceed 5% of
the fair market value of the Fund's total assets, such market value to be
determined after taking into account unrealized profits and losses on futures
contracts and options on futures contracts into which the Fund has entered.
For options on futures contracts that are in-the-money at the time of
purchase, the in-the-money amount as defined in CFTC Regulations may be
excluded in computing such 5% limitation. Second, the Fund will not enter into
futures contracts for speculative purposes. Third, the Fund does not
constitute a commodity pool, market itself as such, or serve as a vehicle for
trading in the commodities futures or commodity options markets. In this
regard, the Fund discloses to all prospective investors the limitations on its
futures contracts and options on futures contracts transactions, and makes
clear that these transactions are entered into only for bona fide hedging
purposes, or other permissible purposes pursuant to CFTC Regulations. Finally,
the Fund has claimed an exclusion from registration as a commodity pool
operator under CFTC Regulations. When the Fund purchases financial futures
contracts, an amount of cash and cash equivalents, equal to the underlying
commodity value of the financial futures contracts (less any related margin
deposits), will be segregated to collateralize the position and, thereby,
insure that the use of such financial futures contracts or options thereon is
unleveraged.
TEMPORARY INVESTMENTS. For temporary defensive purposes, the Fund may invest up
to 100% of its total assets 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
("U.S. Government Securities"); and repurchase agreements.
The Fund may also hold the instruments described above in such amounts as
necessary to provide funds for the settlement of portfolio transactions, to
invest cash receipts in the ordinary course of business and to meet requests for
redemption of Fund shares.
U.S. GOVERNMENT SECURITIES. The U.S. Government Securities in which the
Fund may invest include, but are not limited to, the following:
. direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes and bonds;
. notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States;
. notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
. notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Some of the short-term U.S. Government Securities the Fund may purchase may
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 purchase by the Fund. 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 by the
Fund.
EQUITY INVESTMENT CONSIDERATIONS
As described above, the Fund invests primarily in the common stocks comprising
the S&P SmallCap 600. 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 in value over short or even extended periods of
time, and the U.S. equity market tends to be cyclical, experiencing both periods
when stock prices generally increase and periods when stock prices generally
decrease.
Furthermore, because the Fund invests primarily in small capitalization stocks,
there are some additional risk factors associated with investments in this Fund.
Small capitalization stocks have historically been more volatile in price than
larger capitalization stocks, such as those included in the Standard & Poor's
Daily Stock Price Index of 500 Common Stocks (the "S&P 500 Index"). This is
because, among other things, smaller companies have a lower degree of liquidity
in the equity market and tend to have a greater sensitivity to changing economic
conditions. In addition to exhibiting greater volatility, these stocks may, to
some degree, fluctuate independently of the stocks of large companies. That is,
the stocks of small capitalization companies may decline in price as the price
of large company stocks rise, or vice versa. Therefore, investors should expect
that there will be periods of time when the Fund will exhibit greater volatility
than broad stock market indices such as the S&P 500 Index.
DERIVATIVE CONTRACTS AND SECURITIES
The term "derivative" has traditionally been applied to certain contracts
(including futures, forward, option and swap contracts) that "derive" their
value from changes in the value of an underlying security, currency, commodity
or index. Certain types of securities that incorporate the performance
characteristics of these contracts are also referred to as "derivatives." The
term has also been applied to securities "derived" from the cash flows from
underlying securities, mortgages or other obligations.
Derivative contracts and securities can be used to reduce or increase the
volatility of an investment portfolio's total performance. While the response of
certain derivative contracts and securities to market changes may differ from
traditional investments, such as stocks and bonds, derivatives do not
necessarily present greater market risks than traditional investments. The Fund
will use derivative contracts and securities only for the purposes disclosed in
the applicable prospectus sections above. To the extent that the Fund invests in
contracts or securities that could be characterized as derivatives, it will do
so only in a manner consistent with its investment objective, policies and
limitations. INVESTMENT LIMITATIONS
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 at a
set price) except, under certain circumstances, the Fund may borrow up to
one-third of the value of its total assets, including the amount borrowed, and
pledge securities to secure such borrowings.
With respect to 75% of the value of its total assets, the Fund will not invest
more than 5% of the value of its total assets in the securities of any one
issuer (other than cash; cash items; U. S. Government Securities and repurchase
agreements collateralized by such U.S. government securities; and securities of
other investment companies).
The above investment limitations and certain other investment limitations
described in the Statement 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 subject to direction by the Trustees. The Adviser
continually conducts investment research and supervision for the Fund and is
responsible for the purchase and sale of portfolio securities and instruments,
for which the Adviser receives an annual fee from the assets of the Fund.
ADVISORY FEES. The Adviser is entitled to receive an annual investment
advisory fee equal to 0.50% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee or reimburse
certain expenses of the Fund.
ADVISER'S BACKGROUND. Michigan National Bank, a national banking association,
is a wholly-owned subsidiary of Michigan National Corporation ("MNC"). MNC is
a wholly-owned subsidiary of National Australia Bank Limited, which is a
transnational banking organization, headquartered in Melbourne, Australia.
Through its subsidiaries and affiliates, MNC, Michigan's fourth largest bank
holding company in terms of total assets, as of December 31, 1997, $9.583
billion, 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 $11.4 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.
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 such securities.
Sharon Dischinger, Second Vice President and Portfolio Manager for
Michigan National Bank and IOCM in Farmington Hills since May 1993, has
been responsible for management of the Fund's portfolio since its
inception. Ms. Dischinger joined Michigan National Bank in 1990 and has
been the head equity trader since September 1991. She is also a General
Securities Representative. Prior to Michigan National Bank, Ms. Dischinger
was the head equity trader at Morison Asset Management.
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 analyses, and assists the Adviser
in identifying securities for potential purchase and/or sale by the Fund's
portfolio. For the services provided and the expenses incurred by the
Sub-Adviser pursuant to the sub-advisory agreement with the Adviser, the
Sub-Adviser is entitled to receive an annual fee, to be paid by the Adviser, of
0.05% of the average daily value of the Fund's equity securities. 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 Tom Sosnoff, its Director and
President, and Scott Sheridan, its Director, Executive Vice- President and
Secretary. Messrs. Sosnoff and Sheridan are experienced in providing index
management services to numerous clients, including investment companies. 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
(the "Distributor"). 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,
Inc.
FUND ADMINISTRATION
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, Inc., 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
services at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
------------------ -----------------------------------
<S> <C>
.150% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% 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, cash and other assets of the Fund.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
securities and 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 securities or
instruments, except when a better price and execution of the order can be
obtained elsewhere. In selecting among firms believed to meet these criteria,
the Adviser may give consideration to those firms which have sold or are selling
shares of the Fund and other funds distributed by Federated Securities Corp. The
Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to review by the Board of Trustees.
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 Advisers and Federated Administrative Services may voluntarily
waive and/or reimburse some expenses.
YEAR 2000 STATEMENT. Like other mutual funds and business organizations
worldwide, the Fund's service providers (among them, the adviser, distributor,
administrator and transfer agent) must ensure that their computer systems are
adjusted to properly process and calculate date-related information from and
after January 1, 2000. Many software programs and, to a lesser extent, the
computer hardware in use today cannot distinguish the year 2000 from the year
1900. Such a design flaw could have a negative impact in the handling of
securities trades, pricing and accounting services. The Fund and its service
providers are actively working on necessary changes to computer systems to deal
with the year 2000 issue and believe that systems will be year 2000 compliant
when required. Analysis continues regarding the financial impact of instituting
a year 2000 compliant program on the Fund's operations.
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 of the Fund 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 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 1-800-334-2292 to purchase
shares of the Fund through Michigan National Bank or Independence One. In
addition, investors may purchase shares of the Fund by contacting directly their
authorized broker. Payments may be made by either check or wire transfer of
federal funds.
Orders must be received by 4:00 p.m. (Eastern time) in order for shares to be
purchased at that day's price. For shares purchased directly from the
Distributor, payment by wire or check must also be received before 4:00 p.m.
(Eastern time) on that day. It is the responsibility of Michigan National Bank,
Independence One or authorized brokers to transmit orders that were received
before 4:00 p.m. (Eastern time) 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 such a
transmitted order, payment must be received by check or wire transfer within
three business days of receipt of the order. To purchase by check, the check
must be included
with the order and made payable to "Independence One Small Cap Fund." Checks
must be converted into federal funds to be considered received.
Federal funds should be wired as follows: Federated Shareholder Services Company
c/o Michigan National Bank, Farmington Hills, Michigan; Account Number:
6856238933; For Credit to: Independence One Small Cap 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. Authorized
brokers may charge customary fees and commissions for handling shareholders'
purchase orders.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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) the following holidays: New
Year's Day, Martin Luther King, Jr. 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 Shareholder Services Company (the
"Transfer Agent") 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
brokers 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 semi-annually. 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 an authorized broker. Shares purchased with reinvested
dividends are credited to shareholder accounts on the following day.
SYSTEMATIC INVESTMENT PROGRAM
Once the Fund account has been opened, shareholders may add to their investment
on a regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares at the net asset value next determined after an order is
received. A shareholder may apply for participation in this program through
Michigan National Bank by calling 1-800- 334-2292.
EXCHANGING SECURITIES FOR FUND SHARES
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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, policies and
limitations 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
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All shareholders of the Fund are shareholders of the Trust, which consists of
the Fund, Independence One Equity Plus Fund, Independence One International
Equity 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
Shares 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.
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 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 be completed before the Fund will accept such requests. 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 an 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 from the Fund into a participating 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 the Transfer Agent by a Michigan National Bank or Independence One
representative or an 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 its authorized broker
directly.
REDEEMING FUND SHARES
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Shares are redeemed at their next determined net asset value after Federated
Shareholder 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 an
authorized broker. Although the Transfer Agent generally 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. Authorized brokers
may charge customary fees and commissions for this service. If at any time, the
Fund were to 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 be completed before the Fund will accept such requests. 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 an 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, if any, 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 authorized brokers should mail written
requests directly to their brokers.
If share certificates have been issued, they must be properly endorsed and must
be sent (registered or certified mail is recommended) with the written request.
Shareholders requesting 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 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, as amended.
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 redemption proceeds is mailed within one business day,
but in no event more than seven days after receipt of a proper written
redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, shares of
the Fund are redeemed to provide for periodic withdrawal payments in an amount
directed by the shareholder. Depending upon the amount of the withdrawal
payments, the amount of dividends paid and capital gains distributions made with
respect to Fund shares, and the fluctuation of the net asset value of Fund
shares redeemed under this program, redemptions may reduce, and eventually
deplete, the shareholder's investment in the Fund.
For this reason, payments under this program should not be considered as yield
or income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000, other than retirement accounts subject to required minimum
distributions. A shareholder may apply for participation in this program through
Michigan National Bank by calling 1-800-334-2292.
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 or exchanges. 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
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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.
EFFECT OF BANKING LAWS
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The Glass-Steagall Act and other banking laws and regulations currently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956, as
amended, or any affiliate thereof from sponsoring, organizing or controlling a
registered, open-end investment company continuously engaged in the issuance of
its shares, and from issuing, underwriting, selling or distributing securities
in general. Such banking laws and regulations do not prohibit such a holding
company or affiliate 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 customers.
Some entities providing services to the Trust are subject to such banking laws
and regulations. They believe, based on the advice of the Trust's counsel, that
they may perform these services for the Trust as contemplated by the agreements
entered into with the Trust without violating those 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 present or future
statutes and regulations, could prevent these entities from continuing to
perform all or a part of the above services. If this happens, the Trustees would
consider alternative means of continuing available investment services. It is
not expected that existing shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
TAX INFORMATION
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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, 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,
paid by the Fund. This applies whether dividends or 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
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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 SEC) 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 semiannual compounding. The yield does not necessarily
reflect income actually earned by the Fund and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices, as described in the Statement.
STANDARD & POOR'S
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"Standard & Poor's(R)", "S&P(R)", and "S&P SmallCap 600(R)" are trademarks of
the McGraw-Hill Companies, Inc. and have been authorized for use by Michigan
National Bank ("MNB"). The Fund is not sponsored, endorsed, sold or promoted by,
or affiliated with, Standard & Poor's ("S&P").
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 SmallCap 600 Index ("S&P SmallCap 600") to track general stock market
performance. S&P's only relationship to MNB is permitting the use of certain
trademarks and trade names of S&P and of the S&P SmallCap 600 which is
determined, composed and calculated by S&P without regard to MNB or the Fund.
S&P has no obligation to take the needs of MNB or the owners of the Fund into
consideration in the determination of the timing of, prices at, or quantities
of, shares of the Fund to be issued or in the determination or calculation of
the equation by which the Fund may 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 SMALLCAP
600 OR ANY DATA INCLUDED THEREIN. S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS
TO RESULTS TO BE OBTAINED BY MNB, OWNERS OF THE FUND, OR ANY OTHER PERSON OR
ENTITY FROM THE USE OF THE S&P SMALLCAP 600 OR ANY DATA INCLUDED THEREIN IN
CONNECTION WITH THE USES PERMITTED 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 SMALLCAP 600 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.
INDEPENDENCE ONE
MUTUAL FUNDS
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
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
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
CUSTODIAN
Michigan National Bank
27777 Inkster Road
Mail Code 10-30
Farmington Hills, Michigan 48333-9065
TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Federated Shareholder
Services Company
P.O. Box 8609
Boston, Massachusetts 02266-8609
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
Cusip 453777831
LOGO recycled paper
G00979-12 (6/98)
Independence One(R)
Small Cap Fund
(Distributed by Federated Securities Corp.)
Prospectus dated
June 16, 1998
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LOGO Michigan
National
Bank
Investment Adviser
Independence One Small Cap Fund
(A Portfolio of Independence One Mutual Funds)
Statement of Additional Information
This Statement of Additional Information (the "Statement") should be
read with the prospectus of Independence One Small Cap Fund (the "Fund"), a
portfolio of Independence One Mutual Funds (the "Trust") dated June 16,
1998. This Statement is not a prospectus. You may request a copy of the
prospectus free of charge by calling 1-800-334-2292.
Independence One Small Cap Fund
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
Statement dated June 16, 1998
[GRAPHIC OMITTED]
Cusip 453777831
G00979-13 (6/98)
<PAGE>
Table of Contents
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General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
Portfolio Turnover 4
Investment Limitations 4
Independence One Mutual Funds Management 6
Officers and Trustees 6
Fund Ownership 7
Trustees' Compensation 8
Trustee Liability 8
Massachusetts Partnership Law 8
Investment Advisory Services 8
Adviser to the Fund 8
Advisory Fees 9
Sub-Adviser to the Fund 9
Sub-Advisory Fees 9
Brokerage Transactions 9
Other Services 9
Trust Administration 9
Custodian 9
Transfer Agent and Dividend Disbursing Agent 9
Independent Auditors 9
Purchasing Shares 10
Conversion to Federal Funds 10
Determining Net Asset Value 10
Determining Market Value of Securities10
Redeeming Shares 10
Redemption in Kind 10
Tax Status 11
The Fund's Tax Status 11
Shareholder's Tax Status 11
Capital Gains 11
Total Return 11
Yield 11
Performance Comparisons 12
Economic and Market Information 12
<PAGE>
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 Fund's investment
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 Securities
The types of U.S. government securities 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 ("U.S. Government
Securities"). These securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o 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; Fannie Mae (formerly, the 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.
<PAGE>
Money Market Instruments
The Fund may invest in the following money market instruments:
o instruments of domestic and foreign banks and savings associations
having capital, surplus, and undivided profits of over $100,000,000,
or if the principal amount of the instrument is insured in full by the
Federal Deposit Insurance Corporation ("FDIC");
o commercial paper issued by domestic or foreign corporations rated A-1
by Standard & Poor's ("S&P") Prime-1 by Moody's Investors Service,
Inc., or F-1 by Fitch, Inc. or, if unrated, of comparable quality as
determined by the Fund's investment adviser;
o 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
o 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 investment 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 margin," 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. Writing of call options is intended to generate income for
the Fund and thereby protect against price movements in particular
securities in the Fund's portfolio.
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. These transactions are 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
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 enter
into loan arrangements only with broker/dealers, banks, or other
institutions which the Fund's investment adviser has determined are
creditworthy. The Fund 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 were to
file for bankruptcy or become insolvent, disposition of the securities may
be delayed pending court action.
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 have the right to vote, the Fund would terminate the loan and
regain the right to vote if that were considered important with respect to
the investment.
<PAGE>
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.
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.
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 investment activities.
Investing in Real Estate
The Fund will not purchase or sell real estate, although it may invest in
the securities of issuers whose business involves the purchase or sale of
real estate or in securities which are secured by real estate or interests
in real estate.
Investing in 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, as amended,
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 total
assets, the Fund will not purchase securities of any one issuer (other
than cash; cash items; U.S. Government Securities and repurchase
agreements collateralized by such U.S. Government Securities; and
securities of other investment companies) if, as a result, more than 5% of
the value of its total assets would be invested in the securities of that
issuer, or it would own more than 10% of the voting securities of that
issuer.
<PAGE>
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 U.S. Government Securities, 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 charge exceeding 1.5%. However, these
limitations are not applicable if the securities are acquired in a merger,
consolidation, reorganization, or acquisition of assets. It should be
noted that investment companies incur certain expenses, such as investment
advisory, custodian and transfer agent fees, and therefore, any investment
by the Fund in shares of another investment company would be subject to
such duplicate expenses.
Investing in Illiquid and Restricted Securities
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities including certain restricted securities not determined
to be liquid under criteria established by the Trustees including
non-negotiable time deposits, repurchase agreements providing for
settlement in more than seven days after notice, and over-the-counter
options.
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.
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 the
investment limitations stated above.
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 association, 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.
<PAGE>
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, Inc.,
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++
Berry Enterprises
290 Franklin Center
29100 Northwestern Highway
Southfield, MI
Birthdate: September 17, 1925
Trustee
Managing Partner, Berry Enterprises; Chairman, Independent Sprinkler Companies,
Inc.; Chairman, Berry, Ziegelman & Company.
Nathan Forbes*
P.O. Box 667
Southfield, Michigan
Birthdate: December 5, 1962
Trustee
President, The Forbes Company.
Harry J. Nederlander+
231 S. Old Woodward, Suite 219
Birmingham, MI
Birthdate: September 5, 1917
Trustee
Chairman, Nederlander Enterprises.
Thomas S. Wilson+
Two Championship Drive
Auburn Hills, MI
Birthdate: October 8, 1949
Trustee
President and Executive Administrator of the Detroit Pistons; President and CEO,
Palace Sports and Entertainment.
<PAGE>
Edward C. Gonzales
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President and Treasurer
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds
distributed by Federated Securities Corp.; President, Executive Vice President
and Treasurer of some of the Funds distributed by Federated Securities Corp.
Jeffrey W. Sterling
Federated Investors Tower
Pittsburgh, PA
Birthdate: February 5, 1947
Vice President and Assistant Treasurer
Vice President and Assistant Treasurer of various Funds distributed by Federated
Securities Corp.
Jay S. Neuman
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 22, 1950
Secretary
Corporate Counsel, Federated Investors.
+ Members of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees between
meetings of the Board.
++Members of the Trust's Audit Committee.
* This Trustee is deemed to be an "interested person" 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.
<PAGE>
Trustees' Compensation
- --------------------------------------------------------------------------------
NAME, AGGREGATE COMPENSATION
POSITION WITH FROM
THE TRUST THE TRUST*
- --------------------------------------------------------------------------------
Robert E. Baker $12,000
Trustee
Harold Berry $12,000
Trustee
Nathan Forbes $-0-
Trustee
Harry J. Nederlander $12,000
Trustee
Thomas S. Wilson $12,000
Trustee
- --------------------------------------------------------------------------------
* Information is furnished for the fiscal year ended April 30, 1998. The Trust
is the only Investment Company in the Fund Complex. The aggregate compensation
is provided for the Trust which is comprised of nine portfolios. The Fund had
not commenced operations as of April 30, 1998 and did not pay any compensation
to the Trustees prior to commencing operations. Each of the portfolios of the
Trust, including the Fund, pays a portion of the aggregate compensation of the
Trustees in direct proportion to its respective average net assets.
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.
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 of the Fund 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.
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 the Adviser, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon the Adviser 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.
Sub-Adviser to the Fund
The Fund's sub-adviser is Sosnoff Sheridan Corporation (doing business as
Sosnoff Sheridan Group) (the "Sub-Adviser").
Sub-Advisory Fees
For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory
fee as described in the prospectus.
Brokerage Transactions
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. Research services
provided by brokers and dealers may be used by the Adviser or its affiliates in
advising the Fund and 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. The Adviser and its
affiliates exercise reasonable business judgment in selecting brokers to execute
securities transactions for the Fund, including brokers that offer brokerage and
research services in connection with executing transactions. The Adviser and its
affiliates determine in good faith that commissions charged by such brokers are
reasonable in relation to the value of the brokerage and research services
provided.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the Adviser, investments of the type the Funds may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for
investments or sales will be allocated in a manner believed by the Adviser to be
equitable to each. In some cases, this procedure may adversely affect the price
paid or received by the Fund or the size of the position obtained or disposed of
by the Fund. In other cases, however, it is believed that coordination and the
ability to participate in volume transactions will be to the benefit of the
Fund.
Other Services
Trust Administration
Federated Administrative Services, a subsidiary of Federated Investors, Inc.,
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, cash and other assets of the Fund. For the services to be provided
to the Fund pursuant to the Custodian Agreement between the Trust and the
custodian, the Fund pays the custodian an annual fee that is based upon the
average daily net assets of the Fund and is payable monthly. The Fund will also
pay the custodian transaction fees and out-of-pocket expenses.
Transfer Agent and Dividend Disbursing Agent
Federated Services Company, Boston, Massachusetts, through its subsidiary
Federated Shareholder Services Company, is the transfer agent for the shares of
the Fund and dividend disbursing agent for the Fund.
Independent Auditors
The firm of independent auditors for the Fund is KPMG Peat Marwick LLP,
Pittsburgh, Pennsylvania.
Purchasing Shares
Shares of the Fund 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
income 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 business day. The business 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:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities,
according to the mean between the last closing bid and asked prices;
o for unlisted equity securities, according to the latest bid prices;
o for bonds and other fixed income securities, other than short-term
obligations, as determined by an independent pricing service;
o 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
o 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 on which they trade 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 its shares at the next computed net asset value after Federated
Shareholder 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 its 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 it deems appropriate from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission ("SEC") rules, taking such securities at the same value
employed in determining net asset value for the Fund 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 under the Investment Company
Act of 1940, as amended, under which the Fund is obligated to redeem shares
during any 90-day period for any one shareholder in cash only up to the lesser
of $250,000 or 1% of the Fund's net asset value at the beginning of such period.
<PAGE>
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 of 1986, as amended,
applicable to regulated investment companies and to receive the special tax
treatment afforded to such companies. To qualify for this treatment, the Fund
must, among other requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities;
o invest in securities within certain statutory limits for
diversification purposes; and
o distribute to its shareholders at least 90% of its net income earned
during the year.
Shareholders' Tax Status
Shareholders are subject to federal income tax on dividends 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.
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.
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.
<PAGE>
Performance Comparisons
The Fund's performance depends upon such variables as:
o portfolio quality;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; or
o 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:
o Standard & Poor's SmallCap 600 Composite Stock Price Index, and Standard
& Poor's Composite Index of 500 Stocks, which are composite indices of
common stocks in industry, transportation, and financial and public
utility companies, can be compared to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's indices assume reinvestment of all dividends paid by
stocks listed on the index. Taxes due on any of these distributions are
not included, nor are brokerage or other fees calculated in Standard &
Poor's figures.
o Lipper Analytical Services, Inc. ranks funds in various fund categories
by making comparative calculations using total return. Total return
assumes the reinvestment of all capital gains distributions and income
dividends and takes into account any change in the maximum offering price
over a specific period of time. From time to time, the Fund will quote its
Lipper ranking and category in advertising and sales literature.
o Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for
two weeks.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Fund's returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Fund can
compare its performance, or performance for the types of securities in which it
invests, to a variety of other investments, such as bank savings accounts,
certificates of deposit, and Treasury bills.
Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effects on the
securities markets. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analyses on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.
