1933 Act File No. 33-26516
1940 Act File No. 811-5752
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. .........................
Post-Effective Amendment No. 24 .......................... X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 23 ........................................ X
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INDEPENDENCE ONE MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower
1000 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
(Notices should be sent to the Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
__ on ____________________ pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a)(i) __ on _____________
pursuant to paragraph (a)(i) _ 75 days after filing pursuant to paragraph
(a)(ii)
on pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky, LLP
2101 L Street, N.W.
Washington, D.C. 20037
Prospectus
INDEPENDENCE ONE MUTUAL FUNDS
Independence One Equity Plus Fund
Independence One Small Cap Fund
Independence One International Equity Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Contents
Fund Goals, Strategies, Performance and Risk
What are the Funds' Fees and Expenses?
Principal Securities in Which the Funds Invest
Specific Risks of Investing in the Funds
What do Shares Cost?
How is the Fund Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Funds?
Financial Information
august 31, 1999
<PAGE>
FUND GOALS, STRATEGIES, PERFORMANCE AND RISK
Independence One Mutual Funds offers nine portfolios, including three
equity funds, three income funds and three money market funds. The following
describes the investment goals, strategies, and principal risks of the three
equity funds: Independence One Equity Plus Fund, Independence One Small Cap Fund
and Independence One International Equity Fund (the "Funds"). There can be no
assurance that a fund will achieve its goal.
The investment objective of each Fund described in this section may
only be changed upon the approval of a majority of the outstanding shares of the
Fund which would be affected by the change. The investment strategies are not
fundamental and may be changed without shareholder approval.
independence one equity plus fund
Goal: Seeks to provide total return.
Strategy: The Fund pursues its investment objective by investing
primarily in the common stocks that comprise the Standard & Poor's Composite
Stock Price Index ("S&P 100"), in an effort to provide investment results that
correspond to or exceed the aggregate price and dividend performance of the S&P
100.
The S&P 100 is a market capitalization-weighted index of 100 common
stocks from a broad range of industries. The S&P 100 provides a measure of
overall large company performance because the stocks selected for inclusion tend
to be the leading companies in leading industries in the U.S. economy. Selection
criteria include total market value of an issuer's outstanding shares (market
capitalization), trading activity and liquidity of the issuer's shares, and the
issuer's financial and operating soundness.
Normally at least 80% of the Fund's assets will be invested to
correspond as closely as possible to the relative weighting of the S&P 100 in
order to attempt to achieve a high degree of correlation between the performance
of the Fund's portfolio and that of the S&P 100. The remaining 20% of the Fund's
assets will normally also be invested in stocks that are included in the S&P
100, but the Fund's position in such stocks may be greater (overweighted)
compared to such stocks' weightings in the S&P 100. These weightings will be
determined by the Fund's investment adviser and subadviser in an effort to
exceed the total return performance of the S&P 100.
independence one small cap fund
Goal: Seeks to provide total return.
Strategy: The Fund pursues its investment objective by investing at
least 65% of its assets in a representative sample of common stocks comprising
the S&P SmallCap 600 Index ("S&P SmallCap 600"), in an effort to provide
investment results that correspond to or exceed the aggregate price and dividend
performance of the S&P SmallCap 600.
The S&P SmallCap 600 is a market capitalization-weighted index of 600
common stocks from a variety of economic sectors and industrial groups.
Selection criteria include total market capitalization of an issuer's
outstanding shares (market capitalization), market size, trading activity and
liquidity of the issuer's shares, the issuer's financial and operating
soundness, industry representation and public ownership.
The Fund's adviser and subadviser invest the Fund's holdings in
approximately 200 stocks which achieve a representative sampling of the various
industry groups contained in the S&P SmallCap 600. In addition, the stocks
selected generally meet the following criteria: (i) the stock must have a
history of beta (price volatility) similar to the average beta of all stocks in
the index; (ii) the stock's price must be equal to or greater than that of the
average index stock, and (iii) the stock must have a total capitalization equal
to or greater than the average index stock's capitalization. The Advisers
believe that application of these criteria will help focus the Fund's holding in
stocks that are relatively more liquid and that can be bought and sold with
relatively lower transactions costs.
<PAGE>
independence one international equity fund
Goal: Seeks to provide total return.
Strategy: The Fund pursues its investment 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 established companies located in
at least three developed countries outside the United States. The equity
securities in which the Fund invests include common and preferred stocks;
securities convertible into common stocks; common stock rights and warrants;
depositary receipts; and units and interests in mutual funds or other investment
vehicles.
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.
In allocating the Fund's investments among countries, the Fund's subadviser uses
a three step process involving an assessment of the relative value of each
market (that is, which markets are undervalued in relation to others): an
analysis of the fundamental factors (primarily interest rates, corporate
profits, inflation rates and growth rates) driving each market; and a judgment
about market sentiment (such as momentum indicators, put/call ratios and flow of
funds.)
In selecting particular stocks, the subadviser generally employs the
value style of investing, using fundamental research to determine why a stock
may be undervalued in relation to other stocks. The research includes
investigating company strategy, industry competition, management changes and
financial data. For Hong Kong, Malaysia and Singapore, the subadviser uses the
growth style of investing, focusing on assessment of a company's growth
prospects on a 2-to-3 year outlook.
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
In addition to the risks set forth below that are specific to an investment in a
particular Fund, there are risks common to all
mutual funds.
For example, a Fund's share price may decline and an investor could lose money.
Also, there is no assurance that a Fund will achieve
its investment objective. The Shares offered by this prospectus are not deposits
or obligations of any bank including Michigan
National Bank, are not endorsed or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency.
- ------------------------------- -------------- ------------- -------------
Risks Equity Plus Small Cap International
Fund Fund Equity Fund
- ------------------------------- -------------- ------------- -------------
Stock Market Risks (1) o o o
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- ------------------------------- -------------- ------------- -------------
Currency Risks (2) o
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- ------------------------------- -------------- ------------- -------------
Risks Related to Investing o
for Value (3)
- ------------------------------- -------------- ------------- -------------
- ------------------------------- -------------- ------------- -------------
Risks Related to Investing o
for Growth (4)
- ------------------------------- -------------- ------------- -------------
- ------------------------------- -------------- ------------- -------------
Risks Related to Company Size o
(5)
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- ------------------------------- -------------- ------------- -------------
Risks of Foreign Investing (6) o
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- ------------------------------- -------------- ------------- -------------
Credit Risks (7) o o o
- ------------------------------- -------------- ------------- -------------
(1) The value of equity securities rise and fall.
(2) Value stocks depend less on price changes for returns and may lag behind
growth stocks in an up market. (3) Exchange rates for currencies fluctuate
daily. (4) Growth stocks depend more on price changes for returns and may be
more adversely affected in a down market compared to value
stocks.
(5) The smaller the capitalization of a company, the less liquid its stock and
the more volatile its price. (6) Foreign economic, political or regulatory
conditions may be less favorable than those of the United States. (7) The
possibility that an issuer will default on a security by failing to pay interest
or principal when due.
Hedging
Hedging transactions are intended to reduce specific risks. For example, to
protect a Fund against circumstances that would normally cause a Fund's
portfolio securities to decline in value, a Fund may buy or sell a derivative
contract that would normally increase in value under the same circumstances. A
Fund may also attempt to hedge by using combinations of different derivatives
contracts, or derivatives contracts and securities. A Fund's ability to hedge
may be limited by the costs of the derivatives contracts. A Fund may attempt to
lower the cost of hedging by entering into transactions that provide only
limited protection, including transactions that (1) hedge only a portion of its
portfolio, (2) use derivatives contracts that cover a narrow range of
circumstances or (3) involve the sale of derivatives contracts with different
terms. Consequently, hedging transactions will not eliminate risk even if they
work as intended. In addition, hedging strategies are not always successful, and
could result in increased expenses and losses to a Fund.
Temporary Defensive Investments
A Fund may temporarily depart from its principal investment strategies by
investing its assets in cash, cash items, and shorter-term, higher-quality debt
securities and similar obligations. It may do this to minimize potential losses
and maintain liquidity to meet shareholder redemptions during adverse market
conditions. This may cause a Fund to give up greater investment returns to
maintain the safety of principal, that is, the original amount invested by
shareholders.
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Independence One Equity Plus Fund as of the calendar
year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "0" and increasing in
increments of 5% up to 35%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features three distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1996
through 1998. The percentages noted are: 24.48%, 28.69% and 31.64%.
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return from January 1, 1998 to March 31, 1999 was 7.02%.
Within the period shown in the Chart, the Fund's highest quarterly return was
22.05% (quarter ended December 31, 1998). Its lowest quarterly return was
- -10.63% (quarter ended September 30, 1998).
Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ending December 31, 1998.
Calendar Period Fund S&P 100
1 Year 31.64% 33.22%
Start of Performance1 28.05% 29.27%
1 The Fund's start of performance date was September 25, 1995.
The table shows the Fund's total returns averaged over a period of years
relative to the Standard & Poor's 100 Composite Stock Price Index, a broad-based
market index. Indexes are unmanaged, and it is not possible to invest directly
in an index.
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
What are the Funds' Fees and Expenses?
INDEPENDENCE ONE EQUITY FUNDS
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Independence One Equity Plus Fund, Independence One Small Cap
Fund, or the Independence One International Equity Fund.
Shareholder Fees Equity Small Cap International
Fees Paid Directly From Your Investment
Plus Fund Fund Equity Fund
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of
offering price)
None None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable)
None None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and
other Distributions)
(as a percentage of offering price).
None None None
Redemption Fee (as a percentage of amount redeemed, if applicable)
None None None
Exchange Fee None None None
Annual Fund Operating Expenses (Before Waivers)1
Expenses That are Deducted From Fund Assets(as percentage of average net assets)
Management Fee 2 0.40% 0.50% 1.00%
Distribution (12b-1) Fee None None None
Shareholder Services Fee None None None
Other Expenses 3 0.19% 1.20% 2.06%
Total Annual Fund Operating Expenses 0.59% 1.70% 3.06%
- -------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the adviser, administrator and
transfer agent waived certain amounts. These are shown below along with the net
expenses the Funds actually paid for the fiscal year ended April 30, 1999.
Total Waivers of Fund Expenses ................
0.11% 0.43% 1.33%
Total Annual Fund Operating Expenses (after waiver)..
...0.48% 1.27% 1.73%
2 The adviser voluntarily waived a portion of the management fee for the Equity
Plus Fund, the Small Cap Fund and the International Equity Fund. The adviser can
terminate this voluntary reduction at any time. The management fee paid by the
Equity Plus Fund, Small Cap Fund and International Equity Fund (after the
voluntary reduction) was 0.29%, 0.29%, and 0.00%, respectively, for the fiscal
year ended April 30, 1999.
3 The administrator and transfer agent for the Small Cap Fund and the
International Equity Fund voluntarily reduced certain operating expenses of the
Fund. These voluntary reductions can be terminated at any time. Total other
expenses paid by the Small Cap Fund and the International Equity Fund (after the
voluntary reductions) were 0.98% and 1.73%, respectively, for the fiscal year
ended April 30, 1999.
EXAMPLE
This Example is intended to help you compare the cost of investing in the Equity
Plus Fund, Small Cap Fund, or International Equity Fund with the cost of
investing in other mutual funds.
The Example assumes that you invest $10,000 in the Equity Plus Fund, Small
Cap Fund, or International Equity Fund for the time periods indicated and then
redeem all of your Shares at the end of those periods. The Example also assumes
that your investment has a 5% return each year and that each of the Fund's
Shares operating expenses are before waivers as shown in the table and remain
the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
Equity Small Cap International
Plus Fund Fund Equity Fund
1 Year $60 $173 $309
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3 Years $189 $536 $945
- --------------------------------------------------------------------------------
5 Years $329 $923 $1,606
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10 Years $738 $2,009 $3,374
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<PAGE>
PRINCIPAL SECURITIES IN WHICH THE FUNDS INVEST
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Funds cannot predict the income they will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value increases directly with the value of the issuer's business. The
following describes the principal types of equity securities in which a Fund may
invest.
Common Stocks
The Funds may invest in common stocks. Common stocks are the most prevalent
type of equity security. Common stocks receive the issuer's earnings after
the issuer pays its creditors and any preferred stockholders. As a result,
changes in an issuer's earnings may influence the value of its common
stock. Preferred Stocks The preferred stocks held by the International
Equity Fund have the right to receive specified dividends or distributions
before the issuer makes payments on its common stock. Some preferred stocks
also participate in dividends and distributions paid on common stock.
Preferred stocks may also permit the issuer to redeem the stock. A Fund may
also treat such redeemable preferred stock as a fixed income security.
Warrants
Warrants give the International Equity Fund the option to buy the issuer's
equity securities at a specified price (the exercise price) at a specified
future date (the expiration date). A Fund may buy the designated securities
by paying the exercise price before the expiration date. Warrants may
become worthless if the price of the stock does not rise above the exercise
price by the expiration date. This increases the market risks of warrants
as compared to the underlying security. Rights are the same as warrants,
except companies typically issue rights to existing stockholders.
Foreign Securities
The foreign securities held by the International Equity Fund are securities of
issuers based outside the United States. The Fund considers an issuer to be
based outside the United States if: o it is organized under the laws of, or has
a principal office located in, another country; o the principal trading market
for its securities is in another country; or o it (or its subsidiaries) derived
in its most current fiscal year at least 50% of its total assets,
capitalization, gross
revenue or profit from goods produced, services performed, or sales made in
another country.
Foreign securities are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to currency risks and risks of foreign investing. Trading
in certain foreign markets is also subject to liquidity risks.
<PAGE>
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts held by the International Equity
Fund are not traded in the same market as the underlying security. The
foreign securities underlying American Depositary Receipts (ADRs) are
traded in the United States. ADRs provide a way to buy shares of
foreign-based companies in the United States rather than in overseas
markets. ADRs are also traded in U.S. dollars, eliminating the need for
foreign exchange transactions. The foreign securities underlying European
Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and
International Depositary Receipts (IDRs), are traded globally or outside
the United States. Depositary receipts involve many of the same risks of
investing directly in foreign securities, including currency risks and
risks of foreign investing.
Foreign Exchange Contracts
In order to convert U.S. dollars into the currency needed to buy a foreign
security, or to convert foreign currency received from the sale of a
foreign security into U.S. dollars, the International Equity Fund may enter
into spot currency trades. In a spot trade, a Fund agrees to exchange one
currency for another at the current exchange rate. A Fund may also enter
into derivative contracts in which a foreign currency is an underlying
asset. The exchange rate for currency derivative contracts may be higher or
lower than the spot exchange rate. Use of these derivative contracts may
increase or decrease a Fund's exposure to currency risks.
SPECIFIC RISKS OF INVESTING IN THE FUNDS
Stock Market Risks
o The value of equity securities in each Fund's portfolio will rise and fall.
These fluctuations could be a sustained trend or a drastic movement. Each
Fund's portfolio will reflect changes in prices of individual portfolio
stocks or general changes in stock valuations. Consequently, a Fund's share
price may decline.
o The Adviser attempts to manage market risk by limiting the amount a Fund
may invest in each company's equity securities. However, diversification
will not protect a Fund against widespread or prolonged declines in the
stock market.
Currency Risks
o Exchange rates for currencies fluctuate daily. The combination of currency
risk and market risk tends to make securities traded in foreign markets
more volatile than securities traded exclusively in the U.S.
Risks Related to Investing for Value
o Due to their relatively low valuations, value stocks are typically less
volatile than growth stocks. For instance, the price of a value stock may
experience a smaller increase on a forecast of higher earnings, a positive
fundamental development, or positive market development. Further, value
stocks tend to have higher dividends than growth stocks. This means they
depend less on price changes for returns and may lag behind growth stocks
in an up market.
<PAGE>
Risks Related to Investing for Growth
o Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks.
This means they depend more on price changes for returns and may be more
adversely affected in a down market compared to value stocks that pay
higher dividends.
Risks Related to Company Size
o Generally, the smaller the market capitalization of a company, the fewer
the number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
o Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.
Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S.
investors.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than United
States companies by market analysts and the financial press. In addition,
foreign countries may lack uniform accounting, auditing and financial
reporting standards or regulatory requirements comparable to those
applicable to U.S. companies. These factors may prevent a Fund and its
Adviser/Subadviser from obtaining information concerning foreign companies
that is as frequent, extensive and reliable as the information available
concerning companies in the United States.
o Foreign countries may have restrictions on foreign ownership of securities
or may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of a Fund's
investments.
Credit Risks
o Credit risk includes the possibility that a party to a transaction
involving a Fund will fail to meet its obligations. This could cause a Fund
to lose the benefit of the transaction or prevent a Fund from selling or
buying other securities to implement its investment strategy.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. Shares of the Funds are sold at net asset value (NAV). When a
Fund receives your transaction request in proper form, it is processed at the
next calculated NAV. The Funds do not charge a front-end sales charge or a
contingent deferred sales charge. NAV is determined at the end of regular
trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
<PAGE>
HOW ARE THE FUNDS SOLD?
The Funds' Distributor markets the Shares described in this prospectus to
institutions, corporations, fiduciaries and individuals.
The Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
HOW TO PURCHASE SHARES
You may purchase Shares through Michigan National Bank and Independence One
Brokerage Services, Inc. ("Independence One"), or through brokers or dealers
which have a sales agreement with the Distributor. The Funds reserve the right
to reject any request to purchase or exchange Shares. The required minimum
initial investment for each Fund is $1,000. Subsequent investments must be in
the amount of at least $100.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund before 5:00 p.m. on the same day and the Fund receives
payment within three business days. You will become the owner of Shares and
receive dividends when the Fund receives your payment.
through michigan national bank or independence one
o Establish your account with the Fund by calling toll free 1-800-334-2292;
and
o Send your payment to the Fund by Federal Reserve wire or check.
Orders must be received by 4:00 (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 be received before 4:00 p.m. (Eastern
time) on that day.
By Wire Send your wire to:
Federated Shareholder Services Company c/o Michigan National Bank
Farmington Hills, MI
Dollar Amount of Wire
For Credit to: Independence One (include name of Fund)
Account Number: 6856238933
ABA Number: 072000805
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
<PAGE>
By Check
Make your check payable to "Independence One (include name of Fund)", note your
account number on the check, and mail it to:
Independence One Mutual Funds
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Funds will
not accept third-party checks (checks originally payable to someone other than
you or the Fund).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from another Independence One Mutual
Fund. You must meet the minimum initial investment requirement for purchasing
Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis in a minimum amount of $100. A shareholder may apply
for participation in this program through Michigan National Bank by calling
1-800-334-2292.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares as retirement investments (such as qualified plans and
IRAs or transfer or rollover of assets). Call your investment professional or
the Fund for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o through Michigan National Bank or Independence One.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
through michigan national bank or independence one
By Telephone
You may redeem or exchange Shares by calling 1-800-334-2292 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
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. Certificates should be sent to: Federated
Shareholder Services Company, P.O. Box 8609, Boston, Massachusetts 02266-8609.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund
through Michigan National Bank, Independence One or an authorized broker.
Shareholders redeeming or exchanging through an authorized broker should mail
requests directly to the broker. You will receive a redemption amount based on
the next calculated NAV after the Fund receives your written request in proper
form.
Redemption or exchange requests through Michigan National Bank or Independence
One should be sent to:
Independence One Mutual Funds
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
All requests must include:
o Fund Name, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o if exchanging, the Fund Name, account number and account registration into
which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days;
o a redemption is payable to someone other than the shareholder(s) of record;
or
o if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Funds intend to pay Share redemptions in cash, they reserve the
right to pay the redemption price in whole or in part by a distribution of a
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from a Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Fund may be withheld for taxes. This
withholding only applies to certain types of retirement accounts.
EXCHANGE PRIVILEGES
All shareholders of the Funds are shareholders of the Trust, which consists of
the following additional funds:, Independence One U.S. Government Securities
Fund, Independence One Fixed Income Fund, Independence One Michigan Municipal
Bond Fund, Independence One Prime Money Market Fund; Independence One U.S.
Treasury Money Market Fund; and Independence One Michigan Municipal Cash Fund.
Shareholders of the Funds have access to these funds ("participating funds")
through an exchange program.
To execute an order to exchange, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Funds may modify or terminate the exchange privilege at any time. The Funds'
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to a Fund and other shareholders. If this occurs, a Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other participating funds.
SYSTEMATIC WITHDRAWAl PROGRAM
Shareholders may automatically redeem Shares in an amount directed by the
shareholder on a regular basis. 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. To apply for
participation in this program, contact Michigan National Bank at 1-800-334-2292.
This program may reduce, and eventually deplete, your account. Payments should
not be considered yield or income.
ADDITIONAL CONDITIONS
Telephone Transactions
The Funds will record your telephone instructions. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Funds do not issue share certificates.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Equity Plus Fund declares and pays dividends quarterly, the Small Cap Fund
declares and pays dividends semi-annually and the International Equity Fund
declares and pays dividends annually. Dividends are paid to all shareholders
invested in a Fund on the record date. The record date is the date on which a
shareholder must officially own Shares in order to earn a dividend.
In addition, the Funds pay any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Funds send an annual statement of your account activity to assist you in
completing your federal, state and local tax returns. Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in a Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time a Fund holds
its assets.
Fund distributions are expected to be both dividends and capital gains.
Redemptions and exchanges are taxable sales. Please consult your tax adviser
regarding your federal, state, and local tax liability.
WHO MANAGES THE FUNDS?
The Board of Trustees governs the Funds. The Board selects and oversees the
Adviser, Michigan National Bank. The Adviser manages the Funds' assets,
including buying and selling portfolio securities. The Adviser's address is
27777 Inkster Road, Mail Code 10-52, Farmington Hills, Michigan, 48333-9065.
The Funds' portfolio manager for the Equity Plus Fund and Small Cap Fund is
Sharon Dischinger. Ms. Dischinger is Second Vice President and Portfolio Manager
for Michigan National Bank and Independence One Capital Management Corporation
in Farmington Hills, and has been responsible for management of the Equity Plus
Fund and Small Cap Fund since their inception. Ms. Dischinger joined Michigan
National Bank in 1990 and is currently the head equity trader. She is also a
General Securities Representative. Prior to Michigan National Bank, Ms.
Dischinger was the head equity trader at Morison Asset Management. Ms.
Dischinger is responsible for the supervision of Sosnoff Sheridan Weiser
Corporation's management of the Equity Plus Fund and Small Cap Fund portfolios.
Derick W. Grembi has been the portfolio manager of the International Equity Fund
since June 1999. Mr. Grembi began his career at Michigan National Bank in 1993
in the commercial lending department and in 1995 transferred to Independence One
Capital Management as an anaylst. In addition to portfolio management, Mr.
Grembi manages individual accounts for the Personal Trust and Employee Benefit
groups. Mr. Grembi earned a B.S. in Economics from Oakland University. He is
also a Chartered Financial Analyst and is a member of the Financial Analyst
Society of Detroit. Mr. Grembi is responsible for the supervision of the
National Australia Management Ltd.'s management of the International Equity
Fund's portfolio.
The Adviser has delegated daily management of some of the Equity Plus Fund and
Small Cap Fund's assets to a Sub-Adviser, Sosnoff Sheridan Weiser Corporation
(doing business as Sosnoff Sheridan Group), who is paid by the Adviser and not
by the Funds. Sosnoff Sheridan Weiser Corporation is controlled by Tom Sosnoff,
its Director and President, and Scott Sheridan, it Director, Executive
Vice-President and Secretary. The Corporation's address is 440 South LaSalle
Street, Suite 2301, Chicago, Illinois 60605.
The Adviser has delegated daily management of some of the International Equity
Fund's assets to a Sub-Adviser, National Australia Asset Management, Ltd., who
is paid by the Adviser and not by the Funds. National Australia Asset
Management, Ltd's ("NAM") address is 333 Collins Street, Melbourne, Victoria
3000, Australia.
Stephen Fallet, B.Ec., Grad Dip Ec. Australian National University. Manager,
Global Strategy. Mr. Fallet has been working in the funds management industry
for eight years. He joined NAM in September 1998 as investment strategist.
Previously he was Head of Fixed Interest and Economics at Colonial Investment
Management with direct portfolio responsibility for the management of $2.3
billion (Australian) in fixed interest, mortgage and money markets assets - a
role he undertook in April 1996. His responsibilities also included management
of Colonial Investment Management's international equity regional allocation.
From 1992 to 1996, Mr. Fallet worked as Senior Economist and Senior Investment
Strategist for Colonial Investment Management.
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 offers a full range of financial services to the public,
including commercial lending, depository services, cash management, brokerage
services, retail banking, mortgage banking, investment advisory services and
trust services. Independence One Capital Management Corporation ("IOCM"), a
nationally recognized investment advisory subsidiary of MNC, provides investment
advisory services for trust and other managed assets. IOCM and the Trust
Division of Michigan National Bank (the "Trust Division") have managed custodial
assets totaling $9 billion. Of this amount, IOCM and the Trust Division have
investment discretion over $1.7 billion.
Michigan National Bank has managed mutual funds since May 1989. The Trust
Division has managed pools of commingled funds since 1964.
Advisory Fees
The Adviser receives an annual investment advisory fee at annual rates equal to
percentages of the relevant Fund's average net assets as follows: Equity Plus
Fund - 0.40%, Small Cap Fund - 0.50% and International Equity Fund - 1.00%. The
Adviser may voluntarily waive a portion of its fee or reimburse a Fund for
certain operating expenses.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Funds, that rely on computers.
While it is impossible to determine in advance all of the risks to a Fund, a
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase.
However, this may be difficult with certain issuers. For example, funds dealing
with foreign service providers or investing in foreign securities will have
difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets. The financial impact
of these issues for the Funds is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Funds.
STANDARD & POOR'S
"Standard & Poor's (R)", "S&P(R)", "S&P 100(R)", and "S&P SmallCap 600(R)" are
trademarks of the McGraw-Hill Companies, Inc. and have been licensed for use by
Michigan National Bank. The Independence One Equity Plus Fund and Independence
One Small Cap Fund (the "Funds") are 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 Funds or any member of the public regarding the advisability of investing in
securities generally or in the Funds particularly or the ability of the Standard
& Poor's 100 Index ("S&P 100 Index") and the Standard & Poor's SmallCap 600
Index ("S&P SmallCap 600 Index") to track general stock market performance.
S&P's only relationship to Michigan National Bank (the "Licensee") is the
licensing of certain trademarks and trade names of S&P, S&P 100 Index and S&P
SmallCap 600 Index which are determined, composed and calculated by S&P without
regard to the Licensee or the Funds. S&P has no obligation to take the needs of
the Licensee or the owners of the Funds into consideration in the determination
of the timing of, prices at, or quantities of the Funds to be issued or in the
determination or calculation of the equation by which the Funds are to be
converted into cash. S&P has no obligation or liability in connection with the
administration, marketing or trading of the Funds.
S&P does not guarantee the accuracy and/or the completeness of the S&P 100
Index, the S&P smallcap 600 index or any data included therein. S&P makes no
warranty, express or implied, As to results to be obtained by the licensee,
owners of the funds, or any other person or entity from the use of the S&P 100
index, the s&P smallcap 600 index or any data included therein in connection
with the rights licensed hereunder or for any other use. S&P makes no express or
implied warranties, and expressly disclaims all warranties or merchantability or
fitness for a particular purpose or use with respect to the S&P 100 index, the
s&P smallcap 600 index or any data included therein.
Without limiting any of the foregoing, in no event shall s&p have any Liability
for any special, punitive, indirect or consequential damages (including lost
profits), even if notified of the possibility of such damages.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Funds' financial
performance for its past five fiscal years, or since inception, if the life of a
Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in a Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by KPMG Peat Marwick LLP, whose report, along
with the Funds' audited financial statements, is included in the Annual Report.
<PAGE>
38
INDEPENDENCE ONE MUTUAL FUNDS
Independence One Equity Plus Fund
Independence One Small Cap Fund
Independence One International Equity Fund
A Statement of Additional Information (SAI) dated August 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Funds' investments is contained in the Funds' Annual and Semi-Annual Reports to
shareholders as they become available. The Annual Report discusses market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year. To obtain the SAI, the Annual Report,
the Semi-Annual Report and other information without charge, and make inquiries,
call your investment professional or the Funds at 1-800-334-2292.
You can obtain information about the Funds (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Investment Company Act File No: 811-5752
Cusip 453777872
Cusip 453777831
Cusip 453777849
000000-00 (8/99)
Prospectus
INDEPENDENCE ONE MUTUAL FUNDS
Independence One U.S. Government Securities Fund
Independence One Fixed Income Fund
Independence One Michigan Municipal Bond Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Contents
Fund Goals, Strategies, Performance and Risk
What are the Funds' Fees and Expenses?
Principal Securities in Which the Funds Invest
Specific Risks of Investing in the Funds
What do Shares Cost?
How are the Funds Sold?
How to Purchase Shares
How to Redeem and Exchange Shares
Account and Share Information
Who Manages the Funds?
Financial Information
august 31, 1999
<PAGE>
FUND GOALS, STRATEGIES, PERFORMANCE AND RISK
Independence One Mutual Funds offers nine portfolios, including three
equity funds, three income funds and three money market funds. The following
describes the investment goals, strategies, and principal risks of the three
income funds: Independence One U.S. Government Securities Fund, Independence
Fixed Income Fund and Independence One Michigan Municipal Bond Fund (the
"Funds").
There can be no assurance that a fund will achieve its goal.
The investment objective of each Fund described in this section may
only be changed upon the approval of a majority of the outstanding shares of the
Fund which would be affected by the change. The investment strategies are not
fundamental and may be changed without shareholder approval.
independence one U.S. government Securities fund
Goal: Seeks to provide high current income.
Strategy: The Fund pursues its investment objective by investing only
in U.S. Treasury and government agency securities. U.S. government securities
are subject to varying levels of backing as to payment of principal and interest
by the United States. In addition to seeking high current income, the Fund's
portfolio will be managed in an effort to seek total return which includes both
changes in the principal value of the Fund's portfolio and interest income
earned. Accordingly, the investment Adviser does not select securities purely to
maximize the current yield of the Fund.
In an effort to manage the Fund's current income and total performance,
the Adviser attempts to anticipate the opportunities and risks of changes in
market interest rates. When the Adviser expects that market interest rates may
decline, it may extend the average maturity of the Fund's portfolio, and when,
in the Adviser's judgment, market interest rates may rise, it may shorten the
average maturity of the Fund. The Adviser may also attempt to improve the Fund's
total return by weighing the relative value of different types of U.S.
government securities having similar maturities in selecting portfolio
securities.
independence one Fixed income fund
Goal: Seeks to provide total return.
Strategy: The Fund pursues its investment objective by investing at
least 65% of its assets in a diversified portfolio of fixed income securities
consisting primarily of corporate obligations rated A or higher by a national
rating agency; U.S. government securities; and mortgage backed and asset backed
securities.
The Fund will attempt to deliver share price and/or income performance
in excess of the bond market in general as measured by such broad indices as the
Lehman Brothers Intermediate Government/Corporate Bond Index. The Fund currently
expects to maintain an average dollar-weighted maturity of between 3 and 8
years, although securities of longer or shorter maturities may be purchased.
In an effort to manage the Fund's total return, the Adviser attempts to
anticipate the opportunities and risks of changes in market interest rates. When
the Adviser expects that market interest rates may decline, it may extend the
average maturity of the Fund's portfolio, and when, in the Adviser's judgment,
market interest rates may rise, it may shorten the average maturity of the Fund.
The Adviser may also attempt to improve the Fund's total return by weighing the
relative value of the various types of fixed income securities having similar
maturities in selecting portfolio securities.
<PAGE>
independence one michigan municipal bond fund
Goal: Seeks to provide current income which is exempt from federal
regular income tax and the personal income taxes imposed by the State
of Michigan and Michigan municipalities.
Strategy: The Fund pursues its investment objective by investing its
assets so that, under normal curcimstances, at least 80% of its total assets are
invested in Michigan municipal securities rated A or higher by a national rating
agency.
In an effort to manage the Fund's current income, the Adviser attempts
to anticipate the opportunities and risks of changes in market interest rates.
When the Adviser expects that market interest rates may decline, it may extend
the average maturity of the Fund's portfolio, and when, in the Adviser's
judgment, market interest rates may rise, it may shorten the average maturity of
the Fund.
PRINCIPAL RISKS OF THE FUNDS
In addition to the risks set forth below that are specific to an investment in a
particular Fund, there are risks common to all
mutual funds.
For example, a Fund's share price may decline and an investor could lose money.
Also, there is no assurance that a Fund will achieve
its investment objective. The Shares offered by this prospectus are not deposits
or obligations of any bank including Michigan
National Bank, are not endorsed or guaranteed by the U.S. government, the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
government agency.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- --------------------- ------------------- --------------------
Risks U.S. Government Fixed Income Fund Michigan Municipal
Securities Fund Bond Fund (7)
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Credit Risks (1) o o o
- ------------------------------- --------------------- ------------------- --------------------
Interest Rate Risks (2) o o o
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Tax Risks (3) o
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Call Risks (4) o o o
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Prepayment Risks (5) o
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Sector Risks (6) o
- ------------------------------- --------------------- ------------------- --------------------
</TABLE>
(1) The possibility that an issuer will default on a security by failing to pay
interest or principal when due. (2) Prices of fixed income securities rise and
fall in response to interest rate changes.
(3) Federal tax laws may cause the prices of municipal securities to fall.
(4) An issuer may redeem a fixed income security before maturity at a price
below its current market price. (5) The relative volatility of mortgage-backed
securities is due to the likelihood of prepayments which increase in a declining
interest rate environment and decrease in a rising interest rate environment.
(6) Because the Michigan Municipal Bond Fund's portfolio may be comprised of
securities issued or credit enhanced by issuers located in the same state,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers
(7) The Michigan Municipal Bond Fund is non-diversified. Compared to diversified
mutual funds, it may invest a higher percentage of its assets among fewer
issuers of portfolio securities. This increases the Fund's risk by
magnifying the impact (positively or negatively) that any one issuer has on
the Fund's Share price and performance.
<PAGE>
Portfolio Turnover
The Funds may actively trade their portfolio securities in an attempt to achieve
their investment objective. Active trading will cause a Fund to have an
increased portfolio turnover rate, which is likely to generate shorter-term
gains (losses) for its shareholders, which are taxed at a higher rate than
longer-term gains (losses). Actively trading portfolio securities increases a
Fund's trading costs and may have an adverse impact on a Fund's performance.
Temporary Defensive Investments
The Michigan Municipal Bond Fund may temporarily depart from its principal
investment strategies by investing its assets in short-term non-Michigan
municipal tax-exempt obligations or taxable temporary investments. These
temporary investments include: notes issued by or on behalf of municipal or
corporate issuers; obligations issued or guaranteed by the U.S. government, its
agencies, or instrumentalities; other debt securities; commercial paper;
certificates of deposit of banks; and repurchase agreements (arrangements in
which the organization selling the Fund a bond or temporary investment agrees at
the time of sale to repurchase it at a mutually agreed upon time and price). It
may do this to minimize potential losses and maintain liquidity to meet
shareholder redemptions during adverse market conditions. This may cause the
Fund to give up greater investment returns to maintain the safety of principal,
that is, the original amount invested by shareholders.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax
or personal income taxes imposed by the State of Michigan or Michigan
municipalities.
The U.S. Government Securities Fund and Fixed Income Fund may temporarily depart
from their principal investment strategies by investing their assets in cash,
cash items, and shorter-term, higher-quality debt securities and similar
obligations. They may do this to minimize potential losses and maintain
liquidity to meet shareholder redemptions during adverse market conditions. This
may cause the Funds to give up greater investment returns to maintain the safety
of principal, that is, the original amount invested by shareholders.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Independence One U.S. Government Securities Fund as of
the calendar year-end for each of five years.
The `y' axis reflects the "% Total Return" beginning with "-5%" and increasing
in increments of 5% up to 20%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features five distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1994
through 1998. The percentages noted are: -3.04%, 18.14%, 2.32%, 9.06% and 8.96%.
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return from January 1, 1998 to March 31, 1999 was -1.72%.
Within the period shown in the Chart, the Fund's highest quarterly return was
6.17% (quarter ended June 30, 1995). Its lowest quarterly return was -2.38%
(quarter ended March 31, 1996).
Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ending December 31, 1998.
Calendar Period Fund LBGBI
1 Year 8.96% 9.85%
5 Years 6.85% 7.18%
Start of Performance1 7.15% 5.32%
1 The Fund's start of performance date was January 11, 1993.
The table shows the Fund's total returns averaged over a period of years
relative to the Lehman Brothers Government Bond Index (LBGBI), a broad based
market index. Indexes are unmanaged, and it is not possible to invest directly
in an index.
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Independence One Fixed Income Fund as of the calendar
year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 1% up to 8%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features three distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1996
through 1998. The percentages noted are: 3.45%, 7.47% and 7.77%.
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return from January 1, 1999 to March 31, 1999 was -0.56%.
Within the period shown in the Chart, the Fund's highest quarterly return was
4.27% (quarter ended September 30, 1998). Its lowest quarterly return was -0.97%
(quarter ended March 31, 1996).
Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ending December 31, 1998.
Calendar Period Fund LBIGCBI
1 Year 7.77% 8.43%
Start of Performance1 6.67% 7.19%
1 The Fund's start of performance date was October 23, 1995.
The table shows the Fund's total returns averaged over a period of years
relative to the Lehman Brothers Intermediate Government/Corporate Bond Index
(LBIGCBI), a broad based market index. Indexes are unmanaged, and it is not
possible to invest directly in an index.
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Independence One Michigan Municipal Bond Fund as of the
calendar year-end for each of three years.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 1% up to 8%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features three distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1996
through 1998. The percentages noted are: 4.39%, 7.73% and 5.14%.
The bar chart shows the variability of the Fund's total returns on a calendar
year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return from January 1, 1999 to March 31, 1999 was 0.30%.
Within the period shown in the Chart, the Fund's highest quarterly return was
2.99% (quarter ended September 30, 1998). Its lowest quarterly return was -0.27%
(quarter ended March 31, 1997).
Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns for the
calendar periods December 31, 1998.
Calendar Period Fund LB7YGOBI
1 Year 5.14% 6.36%
Start of Performance1 5.95% 6.19%
1 The Fund's start of performance date was November 20, 1995.
The table shows the Fund's total returns averaged over a period of years
relative to the Lehman Brothers 7-Year General Obligations Bond Index
(LB7YGOBI), a broad based market index. Indexes are unmanaged, and it is not
possible to invest directly in an index.
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
What are the Funds' Fees and Expenses?
INDEPENDENCE ONE MUTUAL FUNDS
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Independence One Government Securities Fund, Independence One
Fixed Income Fund, or the Independence One Michigan Municipal Bond Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Michigan
Shareholder Fees Government Fixed Income Municipal
Fees Paid Directly From Your Investment Securities Fund Fund Bond Fund
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).. None None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) ......................................... None None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
(as a percentage of offering price)................................................... None None None
Redemption Fee (as a percentage of amount redeemed, if applicable).................... None None None
Exchange Fee.......................................................................... None None None
Annual Fund Operating Expenses (Before Waivers)1
Expenses That are Deducted From Fund Assets (as percentage of average net assets)
Management Fee 2...................................................................... 0.70% 0.75% 0.75%
Distribution (12b-1) Fee ............................................................. None None None
Shareholder Services Fee ............................................................. None None None
Other Expenses 3...................................................................... 0.31% 0.28% 0.94%
Total Annual Fund Operating Expenses ................................................. 1.01% 1.03% 1.69%
- --------------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the adviser and administrator
waived certain amounts. These are shown below along with the net expenses the
Funds actually paid for the fiscal year ended April 30, 1999.
Total Waivers of Fund Expenses ............................................................ 0.41%
0.46% 0.72%
Total Annual Fund Operating Expenses (after waivers)................................... 0.60% 0.57% 0.96%
</TABLE>
2 The adviser voluntarily waived a portion of the management fee for the
Government Securities Fund, the Fixed Income Fund and the Michigan Municipal
Bond Fund. The adviser can terminate this voluntary reduction at any time. The
management fee paid by the Government Securities Fund, the Fixed Income Fund and
the Michigan Municipal Bond Fund (after the voluntary reduction) was 0.29%,
0.29%, and 0.26%, respectively, for the fiscal year ended April 30, 1999.
3 The administrator for the Michigan Municipal Bond Fund voluntarily reduced
certain operating expenses of the Fund. This voluntary reduction can be
terminated at any time. Total other expenses paid by the Michigan Municipal Bond
Fund (after the voluntary reduction) was 0.71% for the fiscal year ended April
30, 1999.
EXAMPLE
This Example is intended to help you compare the cost of investing in the
Government Securities Fund, the Fixed Income Fund and the Michigan Municipal
Bond Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Government Securities
Fund, the Fixed Income Fund and the Michigan Municipal Bond Fund for the time
periods indicated and then redeem all of your Shares at the end of those
periods. The Example also assumes that your investment has a 5% return each year
and that each of the Fund's Shares operating expenses are before waivers as
shown in the Table and remain the same. Although your actual costs may be higher
or lower, based on these assumptions your costs would be:
..................................................... Michigan
.................. Government.. Fixed Income Municipal
.................. Securities Fund.......Fund..... Bond Fund
- --------------------------------------------------------------------------------
1 Year.....................$103.............$105..... $172
- --------------------------------------------------------------------------------
3 Years....................$322.............$328..... $533
- --------------------------------------------------------------------------------
5 Years....................$558.............$569..... $918
- --------------------------------------------------------------------------------
10 Years..........$1,236............$1,259...........$1,998
<PAGE>
PRINCIPAL SECURITIES IN WHICH THE FUNDS INVEST
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the principal types of fixed income securities in which the
Funds may invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the
lowest credit risks. Agency Securities Agency securities are issued or
guaranteed by a federal agency or other government sponsored entity acting
under federal authority (a GSE). The United States supports some GSEs with
its full faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Agency securities are generally
regarded as having low credit risks, but not as low as treasury securities.
The Funds treat mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage backed securities.
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types
of corporate debt securities. A Fund may also purchase interests in bank
loans to companies. The credit risks of corporate debt securities vary
widely among issuers. In addition, the credit risk of an issuer's debt
security may vary based on its priority for repayment. For example, higher
ranking (senior) debt securities have a higher priority than lower ranking
(subordinated) securities. This means that the issuer might not make
payments on subordinated securities while continuing to make payments on
senior securities. In addition, in the event of bankruptcy, holders of
senior securities may receive amounts otherwise payable to the holders of
subordinated securities. Some subordinated securities, such as trust
preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies
issue securities known as surplus notes that permit the insurance company
to defer any payment that would reduce its capital below regulatory
requirements.
Commercial Paper
Fixed Income Fund may invest in commercial paper. Commercial paper is
an issuer's obligation with a maturity of less than nine months.
Companies typically issue commercial paper to pay for current
expenditures. Most issuers constantly reissue their commercial paper
and use the proceeds (or bank loans) to repay maturing paper. If the
issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. Demand Instruments Demand instruments are
corporate debt securities that the issuer must repay upon demand. Other
demand instruments require a third party, such as a dealer or bank, to
repurchase the security for its face value upon demand. The Funds treat
demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.
Mortgage Backed Securities
The mortgage backed securities which may be held by the Fixed Income Fund
represent interests in pools of mortgages. The mortgages that comprise a
pool normally have similar interest rates, maturities and other terms.
Mortgages may have fixed or adjustable interest rates. Interests in pools
of adjustable rate mortgages are known as ARMs. Mortgage backed securities
come in a variety of forms. Many have extremely complicated terms. The
simplest form of mortgage backed securities are pass-through certificates.
An issuer of pass-through certificates gathers monthly payments from an
underlying pool of mortgages. Then, the issuer deducts its fees and
expenses and passes the balance of the payments onto the certificate
holders once a month. Holders of pass-through certificates receive a pro
rata share of all payments and pre-payments from the underlying mortgages.
As a result, the holders assume all the prepayment risks of the underlying
mortgages.
Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. The Fixed Income Fund will only invest in CMOs
which, at the time of purchase, are rated AAA by a nationally
recognized statistical rating organization ("NRSRO") or are of
comparable quality as determined by the Adviser, and which may be: (a)
collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of
mortgages in which payment of principal and interest is guaranteed by
the issuer and such guarantee is collateralized by U.S. government
securities; or (c) collateralized by pools of mortgages without a
government guarantee as to payment of principal and interest, but which
have some form of credit enhancement. This creates different prepayment
and interest rate risks for each CMO class.
Sequential CMOs
In a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all
principal payments after the first class is paid off. This process
repeats for each sequential class of CMO. As a result, each class
of sequential pay CMOs reduces the prepayment risks of subsequent
classes. The degree of increased or decreased prepayment risks
depends upon the structure of the CMOs. However, the actual
returns on any type of mortgage backed security depend upon the
performance of the underlying pool of mortgages, which is
difficult to predict and will vary among pools.
Asset Backed Securities
The Fixed Income Fund may invest in asset backed securities. Asset backed
securities are payable from pools of obligations other than mortgages. Most
asset backed securities involve consumer or commercial debts with
maturities of less than ten years. However, almost any type of fixed income
assets (including other fixed income securities) may be used to create an
asset backed security. Asset backed securities may take the form of notes
or pass through certificates. Asset backed securities have prepayment
risks.
Credit Enhancement
Credit enhancement consists of an arrangement in which a company agrees to
pay amounts due on a fixed income security if the issuer defaults. In some
cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer.
Normally, the credit enhancer has greater financial resources and liquidity
than the issuer. For this reason, the Adviser usually evaluates the credit
risk of a fixed income security based in part upon its credit enhancement.
Certain of the Fixed Income Fund and Michigan Municipal Bond Fund's
investments may be credit enhanced Common types of credit enhancement
include guarantees, letters of credit, bond insurance and surety bonds.
Credit enhancement also includes arrangements where securities or other
liquid assets secure payment of a fixed income security. If a default
occurs, these assets may be sold and the proceeds paid to security's
holders. Either form of credit enhancement reduces credit risks by
providing another source of payment for a fixed income security.
Tax Exempt Securities
The Michigan Municipal Bond Fund invests in tax-exempt securities. Tax exempt
securities are fixed income securities that pay interest that is not subject to
regular federal income taxes. Typically, states, counties, cities and other
political subdivisions and authorities issue tax exempt securities. The market
categorizes tax exempt securities by their source of repayment.
General Obligation Bonds
General obligation bonds are supported by the issuer's power to exact
property or other taxes. The issuer must impose and collect taxes
sufficient to pay principal and interest on the bonds. However, the
issuer's authority to impose additional taxes may be limited by its charter
or state law. Special Revenue Bonds Special revenue bonds are payable
solely from specific revenues received by the issuer such as specific
taxes, assessments, tolls, or fees. Bondholders may not collect from the
municipality's general taxes or revenues. For example, a municipality may
issue bonds to build a toll road, and pledge the tolls to repay the bonds.
Therefore, a shortfall in the tolls could potentially result in a default
on the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance
private entities. For example, a municipality may issue bonds to
finance a new factory to improve its local economy. The municipality
would lend the proceeds from its bonds to the company using the
factory, and the company would agree to make loan payments sufficient
to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the
municipality. Therefore, any default on the loan normally would result
in a default on the bonds. The interest on many types of private
activity bonds is subject to the federal alternative minimum tax (AMT).
The Fund may invest in bonds subject to AMT.
Municipal Notes
Municipal notes are short-term tax exempt securities. Many municipalities
issue such notes to fund their current operations before collecting taxes
or other municipal revenues. Municipalities may also issue notes to fund
capital projects prior to issuing long-term bonds. The issuers typically
repay the notes at the end of their fiscal year, either with taxes, other
revenues or proceeds from newly issued notes or bonds. Variable Rate Demand
Instruments Variable rate demand instruments are tax exempt securities that
require the issuer or a third party, such as a dealer or bank, to
repurchase the security for its face value upon demand. The securities also
pay interest at a variable rate intended to cause the securities to trade
at their face value. The Fund treats demand instruments as short-term
securities, because their variable interest rate adjusts in response to
changes in market rates, even though their stated maturity may extend
beyond thirteen months. Municipal Leases Municipalities may enter into
leases for equipment or facilities. In order to comply with state public
financing laws, these leases are typically subject to annual appropriation.
In other words, a municipality may end a lease, without penalty, by not
providing for the lease payments in its annual budget. After the lease
ends, the lessor can resell the equipment or facility but may lose money on
the sale. The Fund may invest in securities supported by pools of municipal
leases. The most common type of lease backed securities are certificates of
participation (COPs). However, a Fund may also invest directly in
individual leases, installment purchase contracts and conditional sales
contracts.
SPECIFIC RISKS OF INVESTING IN THE FUNDS
Credit Risks
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, a
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, a Fund must rely entirely upon the Adviser's credit
assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving a Fund will fail to meet its obligations. This could cause a Fund
to lose the benefit of the transaction or prevent a Fund from selling or
buying other securities to implement its investment strategy.
Interest Rate Risks
o Prices of fixed income securities rise and fall in response to changes in
the interest rate paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market
factors, such as the demand for particular fixed income securities, may
cause the price of certain fixed income securities to fall while the prices
of other securities rise or remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.
Tax Risks
o In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest
received and distributed by the Fund to shareholders to be taxable.
o Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall. Call Risks o Call risk is the possibility
that an issuer may redeem a fixed income security before maturity (a call)
at a price below its current market price. An increase in the likelihood of
a call may reduce the security's price.
o If a fixed income security is called, a Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Prepayment Risks
o Unlike traditional fixed income securities, which may pay a fixed rate of
interest until maturity, when the entire principal amount is due, payments
on mortgage backed securities include both interest and a partial payment
of principal. This partial payment of principal may be comprised of a
scheduled principal payment as well as an unscheduled payment from the
voluntary prepayment, refinancing, or foreclosure of the underlying loans.
These unscheduled payments of principal can adversely affect the price and
yield of mortgage backed securities held by a Fund. For example, during
periods of declining interest rates, prepayments can be expected to
accelerate, and the Fund would be required to reinvest the proceeds at the
lower interest rates then available. In addition, like other
interest-bearing securities, the values of mortgage backed securities
generally fall when interest rates rise.
o Since rising interest rates generally result in decreased prepayments of
mortgage backed securities, this could cause mortgage securities to have
greater average lives than expected and their value may decline more than
other fixed income securities. Conversely, when interest rates fall, their
potential for capital appreciation is limited due to the existence of the
prepayment feature.
o Generally, mortgage backed securities compensate for greater prepayment
risk by paying a higher yield. The additional interest paid for risk is
measured by the difference between the yield of a mortgage backed security
and the yield of a U.S. Treasury security with a comparable maturity (the
spread). An increase in the spread will cause the price of the security to
decline. Spreads generally increase in response to adverse economic or
market conditions.
Sector Risks
o A substantial part of a Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, by issuers
located in the same state, or with other similar characteristics. As a
result, the Fund will be more susceptible to any economic, business,
political, or other developments which generally affect these issuers.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. Shares of the Funds are sold at net asset value (NAV). When a
Fund receives your transaction request in proper form, it is processed at the
next calculated NAV. The Funds do not charge a front-end sales charge or a
contingent deferred sales charge. NAV is determined at the end of regular
trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
HOW ARE THE FUNDS SOLD?
The Funds' Distributor markets the Shares described in this prospectus to
institutions, corporations, fiduciaries and individuals.
The Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
HOW TO PURCHASE SHARES
You may purchase Shares through Michigan National Bank and Independence One
Brokerage Services, Inc. ("Independence One"), or through brokers or dealers
which have a sales agreement with the Distributor. The Funds reserve the right
to reject any request to purchase or exchange Shares. The required minimum
initial investment for each Fund is $1,000. Subsequent investments must be in
the amount of at least $100.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional before the end of
regular trading on the NYSE (normally 4:00 p.m. Eastern time). You will
receive the next calculated NAV if the investment professional forwards the
order to the Fund before 5:00 p.m. on the same day and the Fund receives
payment within three business days. You will become the owner of Shares and
receive dividends when the Fund receives your payment.
through Michigan National Bank or Independence one
o Establish your account with the Fund by calling toll free 1-800-334-2292;
and
o Send your payment to the Fund by Federal Reserve wire or check.
Orders must be received by 4:00 (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 be received before 4:00 p.m. (Eastern
time) on that day.
By Wire Send your wire to:
Federated Shareholder Services Company c/o Michigan National Bank
Farmington Hills, MI
Dollar Amount of Wire
For Credit to: Independence One (include name of Fund)
Account Number: 6856238933
ABA Number: 072000805
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to "Independence One (include name of Fund)", note your
account number on the check, and mail it to:
Independence One Mutual Funds
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Funds will
not accept third-party checks (checks originally payable to someone other than
you or the Fund).
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from another Independence One Mutual
Fund. You must meet the minimum initial investment requirement for purchasing
Shares and both accounts must have identical registrations.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, you may automatically purchase additional
Shares on a regular basis in a minimum amount of $100. A shareholder may apply
for participation in this program through Michigan National Bank by calling
1-800-334-2292.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares of the U.S. Government Securities Fund and Fixed Income
Fund as retirement investments (such as qualified plans and IRAs or transfer or
rollover of assets). Call your investment professional or the Fund for
information on retirement investments. We suggest that you discuss retirement
investments with your tax adviser. You may be subject to an annual IRA account
fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o through Michigan National Bank or Independence One.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
through michigan national bank or independence one
By Telephone
You may redeem or exchange Shares by calling 1-800-334-2292 once you have
completed the appropriate authorization form for telephone transactions. If you
call before the end of regular trading on the NYSE (normally 4:00 p.m. Eastern
time) you will receive a redemption amount based on that day's NAV.
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. Certificates should be sent to: Federated
Shareholder Services Company, P.O. Box 8609, Boston, Massachusetts 02266-8609.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund
through Michigan National Bank, Independence One or an authorized broker.
Shareholders redeeming or exchanging through an authorized broker should mail
requests directly to the broker. You will receive a redemption amount based on
the next calculated NAV after the Fund receives your written request in proper
form.
Redemption and exchange requests through Michigan National Bank or Independence
One should be sent to:
Independence One Mutual Funds
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
All requests must include:
o Fund Name, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o if exchanging, the Fund Name, account number and account registration into
which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Signature Guarantees Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days;
o a redemption is payable to someone other than the shareholder(s) of record;
or
o if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Funds intend to pay Share redemptions in cash, they reserve the
right to pay the redemption price in whole or in part by a distribution of a
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from a Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the U.S. Government Securities Fund and
the Fixed Income Fund may be withheld for taxes. This withholding only applies
to certain types of retirement accounts.
EXCHANGE PRIVILEGES
All shareholders of the Funds are shareholders of the Trust, which consists of
the following additional funds: Independence One Equity Plus Fund; Independence
One Small Cap Fund; Independence One International Equity Fund; Independence One
Prime Money Market Fund; Independence One U.S. Treasury Money Market Fund and
Independence One Michigan Municipal Cash Fund. Shareholders of the Funds have
access to these funds ("participating funds") through an exchange program.
To execute an order to exchange, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Funds may modify or terminate the exchange privilege at any time. The Funds'
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to a Fund and other shareholders. If this occurs, a Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other participating funds.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders may automatically redeem Shares in an amount directed by the
shareholder on a regular basis. 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. To apply for
participation in this program, contact Michigan National Bank at 1-800-334-2292.
This program may reduce, and eventually deplete, your account. Payments should
not be considered yield or income.
ADDITIONAL CONDITIONS
Telephone Transactions
The Funds will record your telephone instructions. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Funds do not issue share certificates.
ACCOUNT AND SHARE INFORMATION
CONFIRMATIONS AND ACCOUNT STATEMENTS
You will receive confirmation of purchases, redemptions and exchanges (except
for systematic transactions). In addition, you will receive periodic statements
reporting all account activity, including systematic transactions, dividends and
capital gains paid.
DIVIDENDS AND CAPITAL GAINS
Each Fund declares and pays dividends monthly. Dividends are paid to all
shareholders invested in a Fund on the record date. The record date is the date
on which a shareholder must officially own Shares in order to earn a dividend.
In addition, the Funds pay any capital gains at least annually. Your dividends
and capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
If you purchase Shares just before a Fund declares a dividend or capital gain
distribution, you will pay the full price for the Shares and then receive a
portion of the price back in the form of a taxable distribution, whether or not
you reinvest the distribution in Shares. Therefore, you should consider the tax
implications of purchasing Shares shortly before the Fund declares a dividend or
capital gain. Contact your investment professional or the Fund for information
concerning when dividends and capital gains will be paid.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Funds send an annual statement of your account activity to assist you in
completing your federal, state and local tax returns.
U.S. Government Securities Fund and Fixed Income Fund distributions of dividends
and capital gains are taxable to you whether paid in cash or reinvested in the
Fund. Dividends are taxable as ordinary income; capital gains are taxable at
different rates depending upon the length of time the Fund holds its assets.
U.S. Government Securities Fund distributions are expected to be primarily
dividends. Fixed Income Fund distributions are expected to be both dividends and
capital gains. Redemptions and exchanges are taxable sales.
Michigan Municipal Bond Fund distributions will be primarily dividends that are
exempt from federal income tax, although a portion of the Fund's dividends may
not be exempt. Dividends may be subject to state and local taxes, although the
Michigan Municipal Bond Fund's dividends will be exempt from Michigan state
personal income tax to the extent they are derived from interest on obligations
exempt from Michigan personal income taxes. Capital gains and non-exempt
dividends are taxable whether paid in cash or reinvested in the Fund.
Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state and local tax
liability.
WHO MANAGES THE FUNDS?
The Board of Trustees governs the Funds. The Board selects and oversees the
Adviser, Michigan National Bank. The Adviser manages the Funds' assets,
including buying and selling portfolio securities. The Adviser's address is
27777 Inkster Road, Mail Code 10-52, Farmington Hills, Michigan, 48333-9065.
The Adviser has delegated daily management of some of the U.S. Government
Securities Fund's assets to the Sub-Adviser, Independence One Capital Management
Corporation, who will perform its duties at no cost to the Adviser or the Funds.
The Sub-Adviser's address is 27777 Inkster Road, Mail Code 10-52, Farmington
Hills, Michigan, 48333-9065.
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 offers a full range of financial services to the public,
including commercial lending, depository services, cash management, brokerage
services, retail banking, mortgage banking, investment advisory services and
trust services. Independence One Capital Management Corporation ("IOCM"), a
nationally recognized investment advisory subsidiary of MNC, provides investment
advisory services for trust and other managed assets. IOCM and the Trust
Division of Michigan National Bank (the "Trust Division") have managed custodial
assets totaling $9 billion. Of this amount, IOCM and the Trust Division have
investment discretion over $1.7 billion.
Michigan National Bank has managed mutual funds since May 1989. The Trust
Division has managed pools of commingled funds since 1964.
The Funds' portfolio manager is Bruce Beaumont. Mr. Beaumont is Vice President
and Portfolio Manager for Michigan National Bank and IOCM in Farmington Hills.
Mr. Beaumont has been responsible for management of Fixed Income Fund's
portfolio since February 1998 and Michigan Municipal Bond Fund's portfolio since
its inception in November 1995. Mr. Beaumont has been primarily responsible for
management of Government Securities Fund's portfolio since January 1995,
previously having assisted with those duties. He joined Michigan National Bank
in 1987. He earned his BA from Alma College and a MBA from Northwestern
University. Mr. Beaumont is a Chartered Financial Analyst and a Certified Public
Accountant.
Advisory Fees
The Adviser receives an annual investment advisory fee at annual rates equal to
percentages of the relevant Fund's average net assets as follows: U.S.
Government Securities Fund - 0.70%, Fixed Income Fund and Michigan Municipal
Bond Fund - 0.75% . The Adviser may voluntarily waive a portion of its fee or
reimburse a Fund for certain operating expenses.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Funds, that rely on computers.
While it is impossible to determine in advance all of the risks to a Fund, a
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase.
However, this may be difficult with certain issuers. For example, funds dealing
with foreign service providers or investing in foreign securities will have
difficulty determining the Year 2000 readiness of those entities. This is
especially true of entities or issuers in emerging markets. The financial impact
of these issues for the Funds is still being determined. There can be no
assurance that potential Year 2000 problems would not have a material adverse
effect on the Funds.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Funds' financial
performance for its past five fiscal years, or since inception, if the life of a
Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in a Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by KPMG Peat Marwick LLP, whose report, along
with the Funds' audited financial statements, is included in the Annual Report.
<PAGE>
58
INDEPENDENCE ONE MUTUAL FUNDS
Independence One U.S. Government Securities Fund
Independence One Fixed Income Fund
Independence One Michigan Municipal Bond Fund
A Statement of Additional Information (SAI) dated August 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Funds' investments is contained in the Funds' Annual and Semi-Annual Reports to
shareholders as they become available. The Annual Report discusses market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year. To obtain the SAI, the Annual Report,
the Semi-Annual Report and other information without charge, and make inquiries,
call your investment professional or the Funds at 1-800-334-2292.
You can obtain information about the Funds (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Investment Company Act File No: 811-5752
Cusip 453777864
Cusip 453777856
Cusip 453777807
000000-00 (8/99)
Prospectus
INDEPENDENCE ONE MUTUAL FUNDS
Independence One Prime Money Market Fund
Class A Shares
Class B Shares
Independence One U.S. Treasury Money Market Fund
Independence One Michigan Municipal Cash Fund
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy of this
prospectus, and any representation to the contrary is a criminal offense.
Contents
Fund Goals, Strategies, Performance and Risk
What are the Funds' Fees and Expenses?
Principal Securities in Which the Funds Invest
Specific Risks of Investing in the Funds
What do Shares Cost?
How are the Funds Sold?
How to Purchase Shares
How to Exchange Shares
How to Redeem Shares
Account and Share Information
Who Manages the Funds?
Financial Information
august 31, 1999
<PAGE>
FUND GOALS, STRATEGIES, PERFORMANCE AND RISK
Independence One Mutual Funds offers nine portfolios, including three
equity funds, three income funds and three money market funds. The following
describes the investment goals, strategies, and principal risks of the three
money market funds: Independence One Prime Money Market Fund, Independence One
U.S. Treasury Money Market Fund and Independence One Michigan Municipal Cash
Fund (the "Funds"). There can be no assurance that a Fund will achieve its goal.
The investment objective of each Fund described in this section may
only be changed upon the approval of a majority of the outstanding shares of the
Fund which would be affected by the change. The investment strategies are not
fundamental and may be changed without shareholder approval.
independence one Prime Money Market fund
Goal: Seeks to provide current income consistent with stability of principal.
Strategy: The Fund pursues its investment objective by investing
exclusively in a portfolio of corporate, municipal, U.S. government and other
money market instruments (high quality, short-term debt securities) maturing in
397 days or less. The securities in which the Fund invests must be either rated
in the highest short-term category by at least one nationally recognized
statistical rating organization ("NRSRO") or be of comparable quality thereto.
The investment adviser uses macroeconomic credit and market analysis to
select portfolio securities. In so doing, it assesses a variety of factors,
including the current and expected U.S. economic growth, interest rates and
inflation rates.
independence one U.S. Treasury Money Market fund
Goal: Seeks to provide current income consistent with stability of principal.
Strategy: The Fund pursues its investment objective by investing only in a
portfolio of short-term U.S. Treasury obligations. U.S. Treasury obligations are
issued by the U.S. government, and are fully guaranteed as to payment of
principal and interest by the United States. The investment adviser selects
securities after assessing macroeconomic factors, including current and expected
interest rates.
independence one michigan municipal cash fund
Goal: Seeks to provide stability of income and current income exempt
from federal regular income tax and Michigan state income tax consistent with
stability of principal.
Strategy: The Fund pursues its investment objective by investing at
least 80% of its assets in a portfolio of Michigan municipal securities maturing
in 397 days or less. The securities in which the Fund invests must be either
rated in one of the two highest short-term rating categories by at least one
NRSRO or be of comparable quality thereto. In addition to the Fund's investment
objective as stated above, the Fund provides income exempt from the Michigan
intangible tax and income taxes of Michigan municipalities.
The investment adviser uses macroeconomic credit and market analysis to
select portfolio securities. In so doing, it assesses a variety of factors,
including the current and expected U.S. economic growth, interest rates and
inflation rates.
<PAGE>
PRINCIPAL RISKS OF THE FUNDS
In addition to the risks set forth below that are specific to an investment in a
particular Fund, there are risks common to all
mutual funds.
For example, a Fund's share price may decline and an investor could lose money.
Thus, although the Funds seek to preserve the value of your investment at $1.00
per share, it is possible to lose money. Also, there is no assurance that a Fund
will achieve its investment objective. The Shares offered by this prospectus are
not deposits or obligations of any bank including Michigan National Bank, are
not endorsed or guaranteed by the U.S. government, the Federal Deposit Insurance
Corporation, the Federal Reserve Board, or any other government agency.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ------------------------------- --------------------- ------------------- --------------------
Risks Prime Money Market U.S. Treasury Michigan Municipal
Fund Money Market Fund Cash Fund
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Credit Risks (1) o o
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Interest Rate Risks (2) o o o
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Tax Risks (3) o
- ------------------------------- --------------------- ------------------- --------------------
- ------------------------------- --------------------- ------------------- --------------------
Sector Risks (4) (5) o
- ------------------------------- --------------------- ------------------- --------------------
</TABLE>
(1) The possibility that an issuer will default on a security by failing to pay
interest or principal when due. (2) Prices of fixed income securities rise and
fall in response to interest rate changes.
(3) Federal tax laws may cause the prices of municipal securities to fall.
(4) Because the Michigan Municipal Cash Fund's portfolio may be comprised of
securities issued or credit enhanced by issuers located in the same state,
the Fund will be more susceptible to any economic, business, political, or
other developments which generally affect these issuers.
(5) Because the Michigan Municipal Cash Fund may invest a significant portion
of its assets in securities of a single issuer, an investment in the Fund
may involve additional risks compared to a fully diversified money market
fund.
Temporary Defensive Investments
The Michigan Municipal Cash Fund may temporarily depart from its principal
investment strategies by investing its assets in temporary investments. Interest
income from temporary investments may be taxable to shareholders as ordinary
income. These temporary investments include: obligations issued by or on behalf
of municipal or corporate issuers having the same quality characteristics as
municipal securities purchased by the Fund (including obligations whose interest
is subject to the federal alternative minimum income tax); marketable
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; instruments issued by banks or savings associations which
have capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment and if their deposits are insured by the BIF or the SAIF,
which are both administered by the Federal Deposit Insurance Corporation
("FDIC"); repurchase agreements and prime commercial paper rated A-1 by Standard
& Poor's ("S&P"), Prime-1 by Moody's Investor Service, Inc. ("Moody's"), or F-1
by Fitch IBCA, Inc. ("Fitch"), and variable amount demand master notes.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Independence One Prime Money Market Fund as of the
calendar year-end for each of nine years.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 1% up to 9%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's Class A Shares start of business through the
calendar year ended December 31, 1998. The light gray shaded chart features nine
distinct vertical bars, each shaded in charcoal, and each visually representing
by height the total return percentages for the calendar year stated directly at
its base. The calculated total return percentage for the Fund's Class A Shares
for each calendar year is stated directly at the top of each respective bar, for
the calendar years 1990 through 1998. The percentages noted are: 8.06%, 5.80%,
3.38%, 2.69%, 3.74%, 5.51%, 4.95%, 5.13% and 5.05%.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's Class A Shares total
returns on a calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's Class A Shares total return from January 1, 1999 to March 31, 1999
was 1.14%.
Within the period shown in the Chart, the Fund's Class A Shares highest
quarterly return was 1.98% (quarter ended June 30, 1990). Its lowest quarterly
return was 0.63% (quarter ended June 30, 1993).
Average Annual Total Return Table
The following table represents the Fund's Class A Shares and Class B Shares
Average Annual Total Returns for the calendar periods ending December 31, 1998.
Calendar Period Class A Class B
1 Year 5.05% 5.31%
5 Years 4.88% N/A
Start of Performance1 5.6% 5.38%
1 The Fund's Class A Shares and Class B Shares start of performance dates were
June 1, 1989 and May 1, 1995, respectively.
The Fund's Class A Shares and Class B Shares 7-Day Net Yields as of December 31,
1998 were 4.68% and 4.93%, respectively. Investors may call the Fund at
1-800-__________ to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Independence One U.S. Treasury Money Market Fund as of
the calendar year-end for each of nine years.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 1% up to 9%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features nine distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1990
through 1998. The percentages noted are: 7.78%, 5.58%, 3.31%, 2.61%, 3.63%,
5.42%, 4.89%, 4.97% and 4.88%.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return from January 1, 1999 to March 31, 1999 was 1.04%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.93% (quarter ended March 31, 1990). Its lowest quarterly return was 0.64%
(quarter ended December 31, 1993).
Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns for the
calendar periods ending December 31, 1998.
Calendar Period Fund
1 Year 4.88%
5 Years 4.75%
Start of Performance1 5.02%
1 The Fund's start of performance date was June 1, 1989.
The Fund's 7-Day Net Yield as of December 31, 1998 was 4.26%. Investors may call
the Fund at 1-800-_________ to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
The graphic presentation displayed here consists of a bar chart representing the
annual total returns of Independence One Michigan Municipal Cash Fund as of the
calendar year-end for each of nine years.
The `y' axis reflects the "% Total Return" beginning with "0%" and increasing in
increments of 1% up to 6%.
The `x' axis represents calculation periods from the earliest first full
calendar year end of the Fund's start of business through the calendar year
ended December 31, 1998. The light gray shaded chart features nine distinct
vertical bars, each shaded in charcoal, and each visually representing by height
the total return percentages for the calendar year stated directly at its base.
The calculated total return percentage for the Fund for each calendar year is
stated directly at the top of each respective bar, for the calendar years 1990
through 1998 The percentages noted are: 5.57%, 4.14%, 2.61%, 1.99%, 2.39%,
3.35%, 3.00%, 3.20% and 3.03%.
Historically, the Fund has maintained a constant $1.00 net asset value per
share. The bar chart shows the variability of the Fund's total returns on a
calendar year-end basis.
The Fund's shares are not sold subject to a sales charge (load). The total
returns displayed above are based upon net asset value.
The Fund's total return from January 1, 1999 to March 31, 1999 was 0.62%.
Within the period shown in the Chart, the Fund's highest quarterly return was
1.39% (quarter ended December 31, 1990). Its lowest quarterly return was 0.48%
(quarter ended March 31, 1994).
Average Annual Total Return Table
The following table represents the Fund's Average Annual Total Returns for the
calendar periods December 31, 1998.
Calendar Period Fund
1 Year 3.03%
5 Years 2.99%
Start of Performance1 3.39%
1 The Fund's start of performance date was June 1, 1989.
The Fund's 7-Day Net Yield as of December 31, 1998 was 2.93%. Investors may call
the Fund at 1-800-_________ to acquire the current 7-Day Net Yield.
Past performance does not necessarily predict future performance. This
information provides you with historical performance so that you can analyze
whether the Fund's investment risks are balanced by its potential rewards.
<PAGE>
What are the Funds' Fees and Expenses?
INDEPENDENCE ONE MONEY MARKET FUNDS
FEES AND EXPENSES ...................................
This table describes the fees and expenses that you may pay if you buy and hold
Shares of the Independence One Prime Money Market Fund Class A Shares and Class
B Shares, Independence One U.S. Treasury Money Market Fund, or the Independence
One Michigan Municipal Cash Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
................................... Prime Money U.S. Treasury Michigan
Shareholder Fees ................................... Market Fund Money Municipal
Fees Paid Directly From Your Investment.............. Class A Class B Market Fund Cash Fund
------- ------- ----------- ---------
Maximum Sales Charge (Load) Imposed on Purchases (as a percentage of offering price).... None None None None
Maximum Deferred Sales Charge (Load) (as a percentage of original purchase
price or redemption proceeds, as applicable) ........................................ None None None None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends (and other Distributions)
(as a percentage of offering price).................................................. None None None None
Redemption Fee (as a percentage of amount redeemed, if applicable)....................None None None None
Exchange Fee......................................................................... None None None None
Annual Fund Operating Expenses (Before Waivers)1
Expenses That are Deducted From Fund Assets (as percentage of average net assets)
Management Fee 2..................................................................... 0.40% 0.40% 0.40% 0.40%
Distribution (12b-1) Fee 3........................................................... None None 0.00% 0.00%
Shareholder Services Fee ............................................................ 0.25% None None None
Other Expenses ...................................................................... 0.16% 0.16% 0.19% 0.23%
Total Annual Fund Operating Expenses ................................................ 0.81% 0.56% 0.59% 0.63%
- -------------------------------------------------------------------------------
1 Although not contractually obligated to do so, the adviser waived certain
amounts. These are shown below along with the net expenses the Funds
actually paid for the fiscal year ended April 30, 1999.
Total Waivers of Fund Expenses ................... 0.25% 0.25%
0.00%..................................................................0.15%
Total Annual Fund Operating Expenses (after waivers).......... 0.56% 0.31% 0.59% 0.48%
</TABLE>
2 The adviser voluntarily waived a portion of the management fee for the Prime
Money Market Fund and the Michigan Municipal Cash Fund. The adviser can
terminate this voluntary reduction at any time. The management fee paid by the
Prime Money Market Fund and the Michigan Municipal Cash Fund (after the
voluntary reduction) was 0.15% and 0.25%, respectively, for the fiscal year
ended April 30, 1999.
3 As of the date of this prospectus, the U.S. Treasury Money Market Fund and the
Michigan Municipal Cash Fund did not pay or accrue the distribution (12b-1) fee
during the fiscal year ended April 30, 1999. The Funds will not pay or accrue
the distribution (12b-1) fee until a separate class of shares has been created
for certain institutional investors. The Funds' distributor can pay up to 25% as
a 12b-1 fee which is reimbursed to the distributor by the Funds. See "How are
the Funds Sold".
EXAMPLE
This Example is intended to help you compare the cost of investing in the Prime
Money Market Fund, U.S. Treasury Money Market Fund, or the Michigan Municipal
Cash Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Prime Money Market Fund
Class A and B Shares, U.S. Treasury Money Market Fund, or the Michigan Municipal
Cash Fund for the time periods indicated and then redeem all of your Shares at
the end of those periods. The Example also assumes that your investment has a 5%
return each year and that each of the Fund's Shares operating expenses are
before waivers as shown in the Table and remain the same. Although your actual
costs may be higher or lower, based on these assumptions your costs would be:
.................. Prime Money.U.S. Treasury.... Michigan
.................. Market Fund. Money....... Municipal
Class A Class B Market Fund Cash Fund
1 Year $83 $57 $60 $64
- --------------------------------------------------------------------------------
3 Years $259 $179 $189 $202
- -----------------------------------------------------------------------
5 Years $450 $313 $329 $351
- -----------------------------------------------------------------------
10 Years $1,002 $701 $738 $786
- -----------------------------------------------------------------------
<PAGE>
PRINCIPAL SECURITIES IN WHICH THE FUNDS INVEST
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities. A security's yield measures the
annual income earned on a security as a percentage of its price. A security's
yield will increase or decrease depending upon whether it costs less (a
discount) or more (a premium) than the principal amount. If the issuer may
redeem the security before its scheduled maturity, the price and yield on a
discount or premium security may change based upon the probability of an early
redemption. Securities with higher risks generally have higher yields. The
following describes the principal types of fixed income securities in which the
Funds may invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the
lowest credit risks. Agency Securities Agency securities are issued or
guaranteed by a federal agency or other government sponsored entity acting
under federal authority (GSE). The United States supports some GSEs with
its full, faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Agency securities are generally
regarded as having low credit risks, but not as low as treasury securities.
Corporate Debt Securities
The corporate debt securities held by the Prime Money Market Fund are fixed
income securities issued by businesses. Notes, bonds, debentures and commercial
paper are the most prevalent types of corporate debt securities. The Fund may
also purchase interests in bank loans to companies. The credit risks of
corporate debt securities vary widely among issuers. In addition, the credit
risk of an issuer's debt security may vary based on its priority for repayment.
For example, higher ranking (senior) debt securities have a higher priority than
lower ranking (subordinated) securities. This means that the issuer might not
make payments on subordinated securities while continuing to make payments on
senior securities. In addition, in the event of bankruptcy, holders of senior
securities may receive amounts otherwise payable to the holders of subordinated
securities. Some subordinated securities, such as trust preferred and capital
securities notes, also permit the issuer to defer payments under certain
circumstances. For example, insurance companies issue securities known as
surplus notes that permit the insurance company to defer any payment that would
reduce its capital below regulatory requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If
the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. The short maturity of commercial paper
reduces both the market and credit risks as compared to other debt
securities of the same issuer.
<PAGE>
Demand Instruments
Demand instruments are corporate debt securities that the issuer must
repay upon demand. Other demand instruments require a third party, such
as a dealer or bank, to repurchase the security for its face value upon
demand. The Funds treat demand instruments as short-term securities,
even though their stated maturity may extend beyond one year.
Bank Instruments
The Prime Money Market Fund may invest in bank instruments. Bank instruments are
unsecured interest bearing deposits with banks. Bank instruments include bank
accounts, time deposits, certificates of deposit and banker's acceptances.
Credit Enhancement Credit enhancement consists of an arrangement in which a
company agrees to pay amounts due on a fixed income security if the issuer
defaults. In some cases the company providing credit enhancement makes all
payments directly to the security holders and receives reimbursement from the
issuer. Normally, the credit enhancer has greater financial resources and
liquidity than the issuer. For this reason, the Adviser usually evaluates the
credit risk of a fixed income security based in part upon its credit
enhancement. Certain of the Prime Money Market Fund and Michigan Municipal Cash
Fund's investments may be credit enhanced. Common types of credit enhancement
include guarantees, letters of credit, bond insurance and surety bonds. Credit
enhancement also includes arrangements where securities or other liquid assets
secure payment of a fixed income security. If a default occurs, these assets may
be sold and the proceeds paid to security's holders. Either form of credit
enhancement reduces credit risks by providing another source of payment for a
fixed income security. Tax Exempt Securities The Michigan Municipal Cash Fund
invests in tax-exempt securities. Tax exempt securities are fixed income
securities that pay interest that is not subject to regular federal income
taxes. Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
General Obligation Bonds
General obligation bonds are supported by the issuer's power to exact
property or other taxes. The issuer must impose and collect taxes
sufficient to pay principal and interest on the bonds. However, the
issuer's authority to impose additional taxes may be limited by its charter
or state law. Special Revenue Bonds Special revenue bonds are payable
solely from specific revenues received by the issuer such as specific
taxes, assessments, tolls, or fees. Bondholders may not collect from the
municipality's general taxes or revenues. For example, a municipality may
issue bonds to build a toll road, and pledge the tolls to repay the bonds.
Therefore, a shortfall in the tolls could potentially result in a default
on the bonds. Municipal Notes Municipal notes are short-term tax exempt
securities. Many municipalities issue such notes to fund their current
operations before collecting taxes or other municipal revenues.
Municipalities may also issue notes to fund capital projects prior to
issuing long-term bonds. The issuers typically repay the notes at the end
of their fiscal year, either with taxes, other revenues or proceeds from
newly issued notes or bonds. Variable Rate Demand Instruments Variable rate
demand instruments are tax exempt securities that require the issuer or a
third party, such as a dealer or bank, to repurchase the security for its
face value upon demand. The securities also pay interest at a variable rate
intended to cause the securities to trade at their face value. The Funds
treat demand instruments as short-term securities, because their variable
interest rate adjusts in response to changes in market rates, even though
their stated maturity may extend beyond thirteen months.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which a Fund buys a security from
a dealer or bank and agrees to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price,
reflecting a Fund's return on the transaction. This return is unrelated to
the interest rate on the underlying security. A Fund will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
Adviser. The Fund's custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The Adviser will monitor the
value of the underlying security each day to ensure that the value of the
security always equals or exceeds the repurchase price. Repurchase
agreements are subject to credit risks.
Investment Ratings
The securities in which the Prime Money Market Fund invests must be rated in the
highest short-term rating category by one or more nationally recognized rating
services or be of comparable quality to securities having such ratings. The
securities in which the Michigan Municipal Cash Fund invests must be rated in
one of the two highest short-term rating categories by one or more nationally
recognized rating services or be of comparable quality to securities having such
ratings.
SPECIFIC RISKS OF INVESTING IN THE FUNDS
Credit Risks
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, a
Fund will lose money.
o Credit risk includes the possibility that a party to a transaction
involving a Fund will fail to meet its obligations. This could cause a Fund
to lose the benefit of the transaction or prevent a Fund from selling or
buying other securities to implement its investment strategy.
Tax Risks
o In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest
received and distributed by the Fund to shareholders to be taxable.
o Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall.
Sector Risks
o A substantial part of a Fund's portfolio may be comprised of securities
issued or credit enhanced by companies in similar businesses, by issuers
located in the same state, or with other similar characteristics. As a
result, the Fund will be more susceptible to any economic, business,
political, or other developments which generally affect these issuers.
WHAT DO SHARES COST?
You can purchase, redeem, or exchange Shares any day the New York Stock Exchange
(NYSE) is open. Shares of the Funds are sold at net asset value (NAV). The Funds
attempt to stabilize the NAV of their Shares at $1.00 by valuing the portfolio
securities using the amortized cost method. The Funds cannot guarantee that
their NAV will always remain at $1.00 per Share. The Funds do not charge a
front-end sales charge or a contingent deferred sales charge.
NAV is determined at 12:00 noon and 4:00 p.m. (Eastern time) and as of the end
of regular trading (normally 4:00 p.m. Eastern time) each day the NYSE is open.
HOW ARE THE FUNDS SOLD?
The Funds' Distributor markets the Shares described in this prospectus to
institutional investors and individuals, directly or through investment
professionals.
The Distributor and its affiliates may pay out of their assets other amounts
(including items of material value) to investment professionals for marketing
and servicing Shares. The Distributor is a subsidiary of Federated Investors,
Inc. (Federated).
RULE 12B-1 PLAN
The U.S. Treasury Money Market Fund and Michigan Municipal Cash Fund have
adopted a Rule 12b-1 Plan, which allows them to pay marketing fees to the
Distributor and investment professionals for the sale, distribution and customer
servicing of the Funds' Shares. Because these Shares pay marketing fees on an
ongoing basis, your investment cost may be higher over time than other shares
with different sales charges and marketing fees. The Funds will not accrue to
pay any distribution expenses pursuant to the Plan until a separate class of
shares has been registered with the Securities and Exchange Commission.
HOW TO PURCHASE SHARES
You may purchase Shares through Michigan National Bank and Independence One
Brokerage Services, Inc. ("Independence One"), or through brokers or dealers
which have a sales agreement with the Distributor. The Funds reserve the right
to reject any request to purchase or exchange Shares. The minimum initial
investment in Prime Money Market Fund (Class A Shares), the U.S. Treasury Money
Market Fund, and Michigan Municipal Cash Fund by an investor is $1,000. The
minimum initial investment in Prime Money Market Fund (Class B Shares) by an
investor is $1,000,000. An institutional investor's minimum investment will be
calculated by combining all accounts it maintains with the Fund for Class B
Shares. Subsequent investments in all the Funds must be in amounts of at least
$100.
THROUGH AN INVESTMENT PROFESSIONAL
o Establish an account with the investment professional; and
o Submit your purchase order to the investment professional.
o You will receive that day's dividend if the investment professional forwards
the order to the Fund and the Fund receives payment by 11:00 a.m. (Eastern
time). You will become the owner of Shares and receive dividends when the
Fund receives your payment.
o In the case of Prime Money Market Fund (Class B Shares only), under limited
circumstances, you will receive that day's dividend if orders are received by
the Fund before 2:00 p.m. (Eastern time).
Investment professionals should send payments according to the instructions in
the sections "By Wire" or "By Check."
through michigan national bank or independence one
o Establish your account with the Fund by calling toll free 1-800-334-2292;
and
o Send your payment to the Fund by Federal Reserve wire or check.
You will become the owner of Shares after the Fund receives your wire or your
check. If your check does not clear, your purchase will be canceled and you
could be liable for any losses or fees the Fund or its transfer agent incurs.
By Wire Send your wire to:
Federated Shareholder Services Company c/o Michigan National Bank
Farmington Hills, MI
Dollar Amount of Wire
For Credit to: Independence One (include name of Fund and, if applicable,
"Class A Shares" or "Class B Shares")
Account Number: 6856238933
ABA Number: 072000805
Wire Order Number, Dealer Number, or Group Number
Nominee/Institution Name
You cannot purchase Shares by wire on holidays when wire transfers are
restricted.
By Check
Make your check payable to [Independence One (include name of Fund and, if
applicable, "Class A Shares" or "Class B Shares")], note your account number on
the check, and mail it to:
Independence One Mutual Funds
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
Payment should be made in U.S. dollars and drawn on a U.S. bank. The Funds will
not accept third-party checks (checks originally payable to someone other than
you or the Fund). Orders by mail are considered received when payment by check
is converted into federal funds (normally the business day after the check is
received) and Shares begin earning dividends the next day.
THROUGH AN EXCHANGE
You may purchase Shares through an exchange from another Independence One Mutual
Fund. You must meet the minimum initial investment requirement for purchasing
Shares and both accounts must have identical registrations.
Through a Cash Sweep Program
Cash accumulations in demand deposit accounts with depository institutions such
as banks and savings associations may be automatically invested in shares of the
Funds on a day selected by the depository institution and its customer, or when
the demand deposit account reaches a predetermined dollar amount (e.g. $5,000).
Participating Depository Institutions. Participating depository institutions are
responsible for prompt transmission of orders relating to the program. These
depository institutions are the record owners of the shares of the Funds.
Depository institutions participating in this program may charge their customers
for their services relating to the program. This prospectus should, therefore,
be read together with any agreement between the customer and the depository
institution with regard to the services provided, the fees charged for those
services, and any restrictions and limitations imposed.
BY SYSTEMATIC INVESTMENT PROGRAM
Once you have opened an account, shareholders of Prime Money Market Fund (Class
A Shares), U.S. Treasury Money Market Fund and Michigan Municipal Cash Fund may
automatically purchase additional Shares on a regular basis in a minimum amount
of $100. A shareholder may apply for participation in this program through
Michigan National Bank by calling 1-800-334-2292.
BY AUTOMATED CLEARING HOUSE (ACH)
Once you have opened an account, you may purchase additional Shares through a
depository institution that is an ACH member. This purchase option can be
established by completing the appropriate sections of the New Account Form.
RETIREMENT INVESTMENTS
You may purchase Shares of the Prime Money Market Fund and U.S. Treasury Money
Market Fund as retirement investments (such as qualified plans and IRAs or
transfer or rollover of assets). Call your investment professional or the Fund
for information on retirement investments. We suggest that you discuss
retirement investments with your tax adviser. You may be subject to an annual
IRA account fee.
HOW TO REDEEM AND EXCHANGE SHARES
You should redeem or exchange Shares:
o through an investment professional if you purchased Shares through an
investment professional; or
o through Michigan National Bank or Independence One.
THROUGH AN INVESTMENT PROFESSIONAL
Submit your redemption or exchange request to your investment professional by
the end of regular trading on the NYSE (normally 4:00 p.m. Eastern time). The
redemption amount you will receive is based upon the next calculated NAV after
the Fund receives the order from your investment professional.
through michigan national bank or independence one
By Telephone
You may redeem or exchange Shares by calling 1-800-334-2292 once you have
completed the appropriate authorization form for telephone transactions. If you
call before 11:00 a.m. (Eastern time) your redemption will be wired to you the
same day. You will not receive that day's dividend. If you call after 11:00 a.m.
(Eastern time) your redemption will be wired to you the following business day.
You will receive that day's dividend.
Exchange orders must be received by the Fund by 4:00 p.m. (Eastern time) for
Shares to be exchanged the same day.
Investment professionals are responsible for promptly submitting redemption and
exchange requests.
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. Certificates should be sent to: Federated
Shareholder Services Company, P.O. Box 8609, Boston, Massachusetts 02266-8609.
By Mail
You may redeem or exchange Shares by mailing a written request to the Fund
through Michigan National Bank, Independence One or an authorized broker.
Shareholders redeeming or exchanging through an authorized broker should mail
requests directly to the broker. You will receive a redemption amount based on
the next calculated NAV after the Fund receives your written request in proper
form.
Redemption and exchange requests through Michigan National Bank or Independence
One should be sent to:
Independence One Mutual Funds
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
All requests must include:
o Fund Name, account number and account registration;
o amount to be redeemed or exchanged;
o signatures of all shareholders exactly as registered; and
o if exchanging, the Fund Name, account number and account registration into
which you are exchanging.
Call your investment professional or the Fund if you need special instructions.
Cash Sweep Program
Clients of Michigan National Bank who have executed a Cash Sweep Agreement
should refer to that Agreement for information about redeeming Fund shares
purchased through that program.
By Check
At the shareholder's request, Federated Shareholder Services Company will
establish a checking account for redeeming Prime Money Market Fund (Class A
Shares), U.S. Treasury Money Market Fund, and Michigan Municipal Cash Fund
shares. For further information, contact a Michigan National Bank or
Independence One representative or authorized broker.
With a Fund checking account, shares may be redeemed simply by writing a check
for $250 or more. The redemption will be made at the net asset value on the date
that the transfer agent presents the check to the Fund. A check may not be
written to close an account. Checks should never be sent to the transfer agent
to redeem shares. Cancelled checks are sent to the shareholder each month.
Signature Guarantees Signatures must be guaranteed if:
o your redemption will be sent to an address other than the address of
record;
o your redemption will be sent to an address of record that was changed
within the last 30 days;
o a redemption is payable to someone other than the shareholder(s) of record;
or
o if exchanging (transferring) into another fund with a different shareholder
registration.
A signature guarantee is designed to protect your account from fraud. Obtain a
signature guarantee from a bank or trust company, savings association, credit
union or broker, dealer, or securities exchange member. A notary public cannot
provide a signature guarantee.
PAYMENT METHODS FOR REDEMPTIONS
Your redemption proceeds will be mailed by check to your address of record. The
following payment options are available if you complete the appropriate section
of the New Account Form or an Account Service Options Form. These payment
options require a signature guarantee if they were not established when the
account was opened:
o an electronic transfer to your account at a financial institution that is
an ACH member; or
o wire payment to your account at a domestic commercial bank that is a Federal
Reserve System member.
Redemption in Kind
Although the Funds intend to pay Share redemptions in cash, they reserve the
right to pay the redemption price in whole or in part by a distribution of a
Fund's portfolio securities.
LIMITATIONS ON REDEMPTION PROCEEDS
Redemption proceeds normally are wired or mailed within one business day after
receiving a request in proper form. Payment may be delayed up to seven days:
o to allow your purchase to clear;
o during periods of market volatility; or
o when a shareholder's trade activity or amount adversely impacts a Fund's
ability to manage its assets.
You will not accrue interest or dividends on uncashed checks from a Fund if
those checks are undeliverable and returned to the Fund.
REDEMPTIONS FROM RETIREMENT ACCOUNTS
In the absence of your specific instructions, 10% of the value of your
redemption from a retirement account in the Prime Money Market Fund and the U.S.
Treasury Money Market Fund may be withheld for taxes. This withholding only
applies to certain types of retirement accounts. The Michigan Municipal Cash
Fund may not be a suitable investment for retirement plans or for non-Michigan
taxpayers because it invests in Michigan municipal securities.
EXCHANGE PRIVILEGES
All shareholders of the Funds are shareholders of the Trust, which consists of
the following additional funds: Independence One Equity Plus Fund; Independence
One Small Cap Fund; Independence One International Equity Fund; Independence One
U.S. Government Securities Fund; Independence One Fixed Income Fund; and
Independence One Michigan Municipal Bond Fund. Shareholders of the Funds have
access to these funds ("participating funds") through an exchange program.
To execute an order to exchange, you must:
o ensure that the account registrations are identical;
o meet any minimum initial investment requirements; and
o receive a prospectus for the fund into which you wish to exchange.
An exchange is treated as a redemption and a subsequent purchase, and is a
taxable transaction.
The Funds may modify or terminate the exchange privilege at any time. The Funds'
management or investment adviser may determine from the amount, frequency and
pattern of exchanges that a shareholder is engaged in excessive trading that is
detrimental to a Fund and other shareholders. If this occurs, a Fund may
terminate the availability of exchanges to that shareholder and may bar that
shareholder from purchasing other participating funds.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders of Prime Money Market Fund (Class A Shares), U.S. Treasury Money
Market Fund and Michigan Municipal Cash Fund may automatically redeem Shares in
an amount directed by the shareholder on a regular basis. 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. To apply for participation in this program, contact Michigan
National Bank at 1-800-334-2292. This program may reduce, and eventually
deplete, your account. Payments should not be considered yield or income.
ADDITIONAL CONDITIONS
Telephone Transactions
The Funds will record your telephone instructions. If a Fund does not follow
reasonable procedures, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
Share Certificates
The Funds do not issue share certificates.
ACCOUNT AND SHARE INFORMATION
Account Activity
You will receive periodic statements reporting all account activity, including
systematic transactions, dividends and capital gains paid.
DIVIDENDS AND CAPITAL GAINS
The Funds declare any dividends daily and pay them monthly to shareholders. If
you purchase Shares by wire, you begin earning dividends on the day your wire is
received. If you purchase Shares by check, you begin earning dividends on the
business day after the Fund receives your check. In either case, you earn
dividends through the day your redemption request is received.
The Funds do not expect to realize any capital gains or losses. If capital gains
or losses were to occur, they could result in an increase or decrease in
dividends. The Funds pay any capital gains at least annually. Your dividends and
capital gains distributions will be automatically reinvested in additional
Shares without a sales charge, unless you elect cash payments.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, non-retirement
accounts may be closed if redemptions or exchanges cause the account balance to
fall below the minimum initial investment amount. Before an account is closed,
you will be notified and allowed 30 days to purchase additional Shares to meet
the minimum.
TAX INFORMATION
The Funds send an annual statement of your account activity to assist you in
completing your federal, state and local tax returns.
Prime Money Market Fund and U.S. Treasury Money Market Fund distributions of
dividends and capital gains are taxable to you whether paid in cash or
reinvested in the Fund. Dividends are taxable as ordinary income; capital gains
are taxable at different rates depending upon the length of time the Fund holds
its assets. Fund distributions are expected to be primarily dividends.
Redemptions and exchanges are taxable sales.
It is anticipated that Michigan Municipal Cash Fund distributions will be
primarily dividends that are exempt from federal income tax, although a portion
of the Fund's dividends may not be exempt. Dividends may be subject to state and
local taxes, although the Michigan Municipal Cash Fund's dividends will be
exempt from Michigan state personal income tax to the extent they are derived
from interest on obligations exempt from Michigan personal income taxes. Capital
gains and non-exempt dividends are taxable whether paid in cash or reinvested in
the Fund. Redemptions and exchanges are taxable sales.
Please consult your tax adviser regarding your federal, state and local tax
liability.
<PAGE>
WHO MANAGES THE FUNDS?
The Board of Trustees governs the Funds. The Board selects and oversees the
Adviser, Michigan National Bank. The Adviser manages the Funds' assets,
including buying and selling portfolio securities. The Adviser's address is
27777 Inkster Road, Mail Code 10-52, Farmington Hills, Michigan, 48333-9065.
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 offers a full range of financial services to the public,
including commercial lending, depository services, cash management, brokerage
services, retail banking, mortgage banking, investment advisory services and
trust services. Independence One Capital Management Corporation ("IOCM"), a
nationally recognized investment advisory subsidiary of MNC, provides investment
advisory services for trust and other managed assets. IOCM and the Trust
Division of Michigan National Bank (the "Trust Division") have managed custodial
assets totaling $9 billion. Of this amount, IOCM and the Trust Division have
investment discretion over $1.7 billion.
Michigan National Bank has managed mutual funds since May 1989. The Trust
Division has managed pools of commingled funds since 1964.
Advisory Fees
The Adviser receives an annual investment advisory fee of 0.40% of each Fund's
average daily net assets. The Adviser may voluntarily waive a portion of its fee
or reimburse a Fund for certain operating expenses.
Year 2000 Readiness
The "Year 2000" problem is the potential for computer errors or failures because
certain computer systems may be unable to interpret dates after December 31,
1999 or experience other date-related problems. The Year 2000 problem may cause
systems to process information incorrectly and could disrupt businesses, such as
the Funds, that rely on computers.
While it is impossible to determine in advance all of the risks to a Fund, a
Fund could experience interruptions in basic financial and operational
functions. Fund shareholders could experience errors or disruptions in Fund
share transactions or Fund communications.
The Funds' service providers are making changes to their computer systems to fix
any Year 2000 problems. In addition, they are working to gather information from
third-party providers to determine their Year 2000 readiness.
Year 2000 problems would also increase the risks of the Funds' investments. To
assess the potential effect of the Year 2000 problem, the Adviser is reviewing
information regarding the Year 2000 readiness of issuers of securities the Funds
may purchase.
The financial impact of these issues for the Funds is still being determined.
There can be no assurance that potential Year 2000 problems would not have a
material adverse effect on the Funds.
FINANCIAL INFORMATION
FINANCIAL HIGHLIGHTS
The Financial Highlights will help you understand the Funds' financial
performance for its past five fiscal years, or since inception, if the life of a
Fund is shorter. Some of the information is presented on a per share basis.
Total returns represent the rate an investor would have earned (or lost) on an
investment in a Fund, assuming reinvestment of any dividends and capital gains.
This information has been audited by KPMG Peat Marwick LLP, whose report, along
with the Funds' audited financial statements, is included in the Annual Report.
<PAGE>
103
INDEPENDENCE ONE MUTUAL FUNDS
Independence One Prime Money Market Fund
Class A Shares
Class B Shares
Independence One U.S. Treasury Money Market Fund
Independence One Michigan Municipal Cash Fund
A Statement of Additional Information (SAI) dated August 31, 1999, is
incorporated by reference into this prospectus. Additional information about the
Funds' investments is contained in the Funds' Annual and Semi-Annual Reports to
shareholders as they become available. The Annual Report discusses market
conditions and investment strategies that significantly affected the Funds'
performance during their last fiscal year. To obtain the SAI, the Annual Report,
the Semi-Annual Report and other information without charge, and make inquiries,
call your investment professional or the Funds at 1-800-334-2292.
You can obtain information about the Funds (including the SAI) by visiting or
writing the Public Reference Room of the Securities and Exchange Commission in
Washington, DC 20549-6009 or from the Commission's Internet site at
http://www.sec.gov. You can call 1-800-SEC-0330 for information on the Public
Reference Room's operations and copying charges.
Investment Company Act File No: 811-5752
Cusip 453777203
Cusip 453777302
Cusip 453777708
Cusip 453777401
000000-00 (8/99)
INDEPENDENCE ONE MUTUAL FUNDS
Independence One Prime Money Market Fund
Class A Shares
Class B Shares
Independence One U.S. Treasury Money Market Fund
Independence One Michigan Municipal Cash Fund
Independence One U.S. Government Securities Fund
Independence One Fixed Income Fund
Independence One Michigan Municipal Bond Fund
Independence One Equity Plus Fund
Independence One Small Cap Fund
Independence One International Equity Fund
Statement of Additional Information
August 31, 1999
This Statement of Additional Information (SAI) is not a prospectus. Read this
SAI in conjunction with the prospectuses of the Independence One Mutual Funds
dated August 31, 1999.
This SAI incorporates by reference the Funds' Annual Report. Obtain the
prospectuses or the Annual Report without charge by calling 1-800-334-2292.
CONTENTS
How Are the Funds Organized?...................................2
Securities in Which the Funds Invest...........................2
What do Shares Cost?...........................................19
How Are the Funds Sold?........................................19
Exchanging Securities for Fund Shares..........................20
Subaccounting Services.........................................20
Redemption in Kind.............................................20
Massachusetts Partnership Law..................................21
Account and Share Information..................................21
Tax Information................................................21
Who Manages and Provides Services to the Funds?................22
Fees Paid by the Funds for Services............................25
How do the Funds Measure Performance?..........................26
Financial Information..........................................30
Addresses......................................................35
Federated Securities Corp., Distributor,
subsidiary of Federated Investors, Inc.
_________________(8/99)
<PAGE>
HOW ARE THE FUNDS ORGANIZED?
Independence One Mutual Funds (Trust) is an open-end, management investment
company that was established under the laws of the Commonwealth of Massachusetts
on January 9, 1989. The Trust may offer separate series of shares representing
interests in separate portfolios of securities. The Trust currently offers nine
portfolios: Independence One Prime Money Market Fund (Class A Shares and Class B
Shares), Independence One U.S. Treasury Money Market Fund and Independence One
Michigan Municipal Cash Fund (the "Money Market Funds"); Independence One U.S.
Government Securities Fund, Independence One Fixed Income Fund and Independence
One Michigan Municipal Bond Fund (the "Income Funds"); and Independence One
Equity Plus Fund, Independence One Small Cap Fund and Independence One
International Equity Fund (the "Equity Funds").
SECURITIES IN WHICH THE FUNDS INVEST
In pursuing their investment strategy, the Funds may invest in the following
securities for any purpose that is consistent with their investment objective.
Following tables indicate which types of securities are a: o P = Principal
investment of a Fund; o A = Acceptable (but not principal) investment of a Fund;
or o N = Not an acceptable investment of a Fund.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
EQUITY AND INCOME FUNDS
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Securities Equity Plus Small Cap International U.S. Government Fixed Income Michigan
Fund Fund Equity Fund Securities Fund Fund Municipal Bond
Fund
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Common Stocks P P P N N N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Preferred Stocks N N A N N N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Warrants N N A N A N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
World Equity Bechmark Shares N N A N N N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Optimised Portfolios as Listed N N A N N N
Securities
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Treasury Securities A A A P P A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Agency Securities A A A P P A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Corporate Debt Securities(1) A A A N P A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Commercial Paper (2) A A A N A A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Demand Instruments A A A A A A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Municipal Securities N N N N N A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Mortgage Backed Securities N N N N A N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Collateralized Mortgage Obligations N N N N A N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Asset Backed Securities N N N N A N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Zero Coupon Securities N N N A A A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Bank Instruments A A A N A A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Credit Enhancement N N N N A A
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Convertible Securities N N A N A N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Tax Exempt Securities (3) N N N N N P
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
General Obligation Bonds N N N N N P
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Special Revenue Bonds N N N N N P
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Private Activity Bonds N N N N N P
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Municipal Notes N N N N N P
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Variable Rate Demand Instruments N N N N N P
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Municipal Leases N N N N N P
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Foreign Securities N N P N N N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Foreign Exchange Contracts (4) N N A N N N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Foreign Government Securities N N A N N N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
Depositary Receipts N N P N N N
- ------------------------------------ --------------- ------------- --------------- ------------------ -------------- ---------------
<PAGE>
EQUITY AND INCOME FUNDS (cont'd)
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
Securities Equity Plus Small Cap International U.S. Government Fixed Income Michigan
Fund Fund Equity Fund Securities Fund Fund Municipal Bond
Fund
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
Futures Contracts (5) A A A N A N
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
Options (6) (4) A A A N A N
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
Repurchase Agreements A A A A A A
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
Reverse Repurchase Agreements A A A N A A
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
Delayed Delivery Transactions (7) N N A A A A
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
Securities Lending A A A N A N
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
Investing in Securities of Other A A A N A A
Investment Companies
- ---------------------------------- --------------- -------------- --------------- ------------------ --------------- ---------------
</TABLE>
1. The Fixed Income Fund may invest in corporate debt obligations rated Aaa, Aa,
or A by Moody's or A by S&P and Fitch, or if unrated, of comparable quality as
determined by the investment adviser. 2. The commercial paper in which the
International Equity Fund and Fixed Income Fund invest will be rated A-1 by
Standard & Poor's (S&P), P-1 by Moody's Investor's Service, Inc. ("Moody's"), or
F-1 by Fitch IBCA, Inc ("Fitch). 3. The Michigan Municipal Bond Fund may invest
in Michigan municipal securities rated Aaa, Aa, or A by Moody's or A by S&P and
Fitch, or if unrated of comparable quality as determined by the investment
adviser. 4. No more than 30% of the International Equity Fund's assets will be
committed to forward contracts for hedging purposes at any time. 5. The value of
futures contracts will not exceed 20% of the Equity Plus Fund and Small Cap
Fund's total assets. The Equity Plus Fund, Small Cap Fund and International
Equity Fund will 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 for which aggregate initial
margin and premiums paid for unexpired options exceed 5% of the fair market
value of each Fund's total assets. 6. The Equity Plus Fund and Small Cap Fund
will not purchase options to the extent that more than 5% of the value of each
Fund's total assets would be invested in premiums on open option positions. 7.
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20% of
the value of their respective total assets.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
MONEY MARKET FUNDS
- --------------------------------------------- ------------------- -------------------- --------------------
Securities Prime Money U.S. Treasury Michigan Municipal
Market Fund Money Market Fund Cash Fund
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Treasury Securities A P A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Agency Securities A P A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Corporate Debt Securities A N A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Commercial Paper P N A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Demand Instruments A N A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Municipal Securities A N A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Asset Backed Securities A N N
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Bank Instruments P N A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Credit Enhancement A N A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Tax Exempt Securities (1) N N P
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
General Obligation Bonds N N P
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Special Revenue Bonds N N P
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Municipal Notes N N P
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Variable Rate Demand Instruments A N A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Foreign Securities P N N
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Foreign Government Securities P N N
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Repurchase Agreements A A A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Reverse Repurchase Agreements A A A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Delayed Delivery Transactions (2) A A A
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Securities Lending N N N
- --------------------------------------------- ------------------- -------------------- --------------------
- --------------------------------------------- ------------------- -------------------- --------------------
Investing in Securities of Other Investment A A A
Companies
- --------------------------------------------- ------------------- -------------------- --------------------
</TABLE>
1. The Michigan Municipal Cash Fund will not invest more than 5% of its assets
in industrial revenue bonds where the payment of principal and interest is the
responsibility of companies (or guarantors, if applicable) with less than three
years of continuous operations, including the operation of any predecessor. 2
The Funds do not intend to engage in when-issued and delayed delivery
transactions to an extent that would cause the segregation of more than 20% of
the value of their respective total assets.
<PAGE>
Securities Descriptions and Techniques
Equity Securities
Equity securities represent a share of an issuer's earnings and assets, after
the issuer pays its liabilities. The Funds cannot predict the income it will
receive from equity securities because issuers generally have discretion as to
the payment of any dividends or distributions. However, equity securities offer
greater potential for appreciation than many other types of securities, because
their value may increase with the value of the issuer's business. The following
describes the types of equity securities in which the Funds invest.
Common Stocks
Common stocks are the most prevalent type of equity security. Common stocks
receive the issuer's earnings after the issuer pays its creditors and any
preferred stockholders. As a result, changes in an issuer's earnings may
influence the value of its common stock. Preferred Stocks Preferred stocks
have the right to receive specified dividends or distributions before the
issuer makes payments on its common stock. Some preferred stocks also
participate in dividends and distributions paid on common stock. Preferred
stocks may also permit the issuer to redeem the stock. A Fund may treat
such redeemable preferred stock as a fixed income security. Warrants
Warrants give a Fund the option to buy the issuer's equity securities at a
specified price (the exercise price) at a specified future date (the
expiration date). A Fund may buy the designated securities by paying the
exercise price before the expiration date. Warrants may become worthless if
the price of the stock does not rise above the exercise price by the
expiration date. This increases the market risks of warrants as compared to
the underlying security. Rights are the same as warrants, except companies
typically issue rights to existing stockholders.
World Equity Bechmark Shares (WEBS)
WEBS are shares of structured index funds that trade continuously on the
American Stock Exchange and represent shares in an open-end investment
company. WEBS provide a Fund with a passive approach to investing in a
broad range of equity securities in various foreign markets. Each WEB index
is designed to follow the performance of a different Morgan Stanley Capital
International ("MSCI") country index. WEBS give a Fund the ability to
remain in a local trading environment while still obtaining exposure to
foreign markets.
Optimised Portfolios As Listed Securities (OPALS)
OPALS are listed on the Luxembourg Stock Exchange and are designed to
provide a Fund with a return which tracks a specific equity index. With
OPALS, a Fund lends money to the issuer of the OPALS, and, in return,
receives an income stream that tracks, within agreed limits , the movement
in a specified equity index-like the S&P 500. At the end of the loan term,
a Fund may redeem the OPALS for the physical shares of the underlying
equity index.
Fixed Income Securities
Fixed income securities pay interest, dividends or distributions at a specified
rate. The rate may be a fixed percentage of the principal or adjusted
periodically. In addition, the issuer of a fixed income security must repay the
principal amount of the security, normally within a specified time. Fixed income
securities provide more regular income than equity securities. However, the
returns on fixed income securities are limited and normally do not increase with
the issuer's earnings. This limits the potential appreciation of fixed income
securities as compared to equity securities.
<PAGE>
A security's yield measures the annual income earned on a security as a
percentage of its price. A security's yield will increase or decrease depending
upon whether it costs less (a discount) or more (a premium) than the principal
amount. If the issuer may redeem the security before its scheduled maturity, the
price and yield on a discount or premium security may change based upon the
probability of an early redemption. Securities with higher risks generally have
higher yields.
The following describes the types of fixed income securities in which a Fund may
invest.
Treasury Securities
Treasury securities are direct obligations of the federal government of the
United States. Treasury securities are generally regarded as having the
lowest credit risks. Agency Securities Agency securities are issued or
guaranteed by a federal agency or other government sponsored entity acting
under federal authority (a GSE). The United States supports some GSEs with
its full faith and credit. Other GSEs receive support through federal
subsidies, loans or other benefits. A few GSEs have no explicit financial
support, but are regarded as having implied support because the federal
government sponsors their activities. Agency securities are generally
regarded as having low credit risks, but not as low as treasury securities.
The Funds treat mortgage backed securities guaranteed by GSEs as agency
securities. Although a GSE guarantee protects against credit risks, it does not
reduce the market and prepayment risks of these mortgage
Corporate Debt Securities
Corporate debt securities are fixed income securities issued by businesses.
Notes, bonds, debentures and commercial paper are the most prevalent types
of corporate debt securities. A Fund may also purchase interests in bank
loans to companies. The credit risks of corporate debt securities vary
widely among issuers. In addition, the credit risk of an issuer's debt
security may vary based on its priority for repayment. For example, higher
ranking (senior) debt securities have a higher priority than lower ranking
(subordinated) securities. This means that the issuer might not make
payments on subordinated securities while continuing to make payments on
senior securities. In addition, in the event of bankruptcy, holders of
senior securities may receive amounts otherwise payable to the holders of
subordinated securities. Some subordinated securities, such as trust
preferred and capital securities notes, also permit the issuer to defer
payments under certain circumstances. For example, insurance companies
issue securities known as surplus notes that permit the insurance company
to defer any payment that would reduce its capital below regulatory
requirements.
Commercial Paper
Commercial paper is an issuer's obligation with a maturity of less than
nine months. Companies typically issue commercial paper to pay for
current expenditures. Most issuers constantly reissue their commercial
paper and use the proceeds (or bank loans) to repay maturing paper. If
the issuer cannot continue to obtain liquidity in this fashion, its
commercial paper may default. Demand Instruments Demand instruments are
corporate debt securities that the issuer must repay upon demand. Other
demand instruments require a third party, such as a dealer or bank, to
repurchase the security for its face value upon demand. The Funds treat
demand instruments as short-term securities, even though their stated
maturity may extend beyond one year.
Municipal Securities
Municipal securities are issued by states, counties, cities and other
political subdivisions and authorities. Although the majority of municipal
securities are exempt from federal income tax, a Fund may invest in taxable
municipal securities.
<PAGE>
Mortgage Backed Securities
Mortgage backed securities represent interests in pools of mortgages. The
mortgages that comprise a pool normally have similar interest rates,
maturities and other terms. Mortgages may have fixed or adjustable interest
rates. Interests in pools of adjustable rate mortgages are known as ARMs.
Mortgage backed securities come in a variety of forms. Many have extremely
complicated terms. The simplest form of mortgage backed securities are
pass-through certificates. An issuer of pass-through certificates gathers
monthly payments from an underlying pool of mortgages. Then, the issuer
deducts its fees and expenses and passes the balance of the payments onto
the certificate holders once a month. Holders of pass-through certificates
receive a pro rata share of all payments and pre-payments from the
underlying mortgages. As a result, the holders assume all the prepayment
risks of the underlying mortgages.
Collateralized Mortgage Obligations (CMOs)
CMOs, including interests in real estate mortgage investment conduits
(REMICs), allocate payments and prepayments from an underlying
pass-through certificate among holders of different classes of mortgage
backed securities. This creates different prepayment and interest rate
risks for each CMO class. The degree of increased or decreased
prepayment risks depends upon the structure of the CMOs. However, the
actual returns on any type of mortgage backed security depend upon the
performance of the underlying pool of mortgages, which no one can
predict and will vary among pools.
Sequential CMOs
In a sequential pay CMO, one class of CMOs receives all principal
payments and prepayments. The next class of CMOs receives all
principal payments after the first class is paid off. This process
repeats for each sequential class of CMO. As a result, each class
of sequential pay CMOs reduces the prepayment risks of subsequent
classes. PACs, TACs and Companion Classes More sophisticated CMOs
include planned amortization classes (PACs) and targeted
amortization classes (TACs). PACs and TACs are issued with
companion classes. PACs and TACs receive principal payments and
prepayments at a specified rate. The companion classes receive
principal payments and prepayments in excess of the specified
rate. In addition, PACs will receive the companion classes' share
of principal payments, if necessary, to cover a shortfall in the
prepayment rate. This helps PACs and TACs to control prepayment
risks by increasing the risks to their companion classes. IOs and
POs CMOs may allocate interest payments to one class (Interest
Only or IOs) and principal payments to another class (Principal
Only or POs). POs increase in value when prepayment rates
increase. In contrast, IOs decrease in value when prepayments
increase, because the underlying mortgages generate less interest
payments. However, IOs tend to increase in value when interest
rates rise (and prepayments decrease), making IOs a useful hedge
against interest rate risks. Floaters and Inverse Floaters Another
variant allocates interest payments between two classes of CMOs.
One class (Floaters) receives a share of interest payments based
upon a market index such as LIBOR. The other class (Inverse
Floaters) receives any remaining interest payments from the
underlying mortgages. Floater classes receive more interest (and
Inverse Floater classes receive correspondingly less interest) as
interest rates rise. This shifts prepayment and interest rate
risks from the Floater to the Inverse Floater class, reducing the
price volatility of the Floater class and increasing the price
volatility of the Inverse Floater class. Z Classes and Residual
Classes CMOs must allocate all payments received from the
underlying mortgages to some class. To capture any unallocated
payments, CMOs generally have an accrual (Z) class. Z classes do
not receive any payments from the underlying mortgages until all
other CMO classes have been paid off. Once this happens, holders
of Z class CMOs receive all payments and prepayments. Similarly,
REMICs have residual interests that receive any mortgage payments
not allocated to another REMIC class.
Asset Backed Securities
Asset backed securities are payable from pools of obligations other than
mortgages. Most asset backed securities involve consumer or commercial
debts with maturities of less than ten years. However, almost any type of
fixed income assets (including other fixed income securities) may be used
to create an asset backed security. Asset backed securities may take the
form of commercial paper, notes, or pass through certificates. Asset backed
securities have prepayment risks. Like CMOs, asset backed securities may be
structured like Floaters, Inverse Floaters, IOs and POs. Zero Coupon
Securities Zero coupon securities do not pay interest or principal until
final maturity unlike debt securities that provide periodic payments of
interest (referred to as a coupon payment). Investors buy zero coupon
securities at a price below the amount payable at maturity. The difference
between the purchase price and the amount paid at maturity represents
interest on the zero coupon security. Investors must wait until maturity to
receive interest and principal, which increases the interest rate risks and
credit risks of a zero coupon security. There are many forms of zero coupon
securities. Some are issued at a discount and are referred to as zero
coupon or capital appreciation bonds. Others are created from interest
bearing bonds by separating the right to receive the bond's coupon payments
from the right to receive the bond's principal due at maturity, a process
known as coupon stripping. Treasury STRIPs, IOs and POs are the most common
forms of stripped zero coupon securities. In addition, some securities give
the issuer the option to deliver additional securities in place of cash
interest payments, thereby increasing the amount payable at maturity. These
are referred to as pay-in-kind or PIK securities.
Bank Instruments
Bank instruments are unsecured interest bearing deposits with banks. Bank
instruments include bank accounts, time deposits, certificates of deposit and
banker's acceptances. Yankee instruments are denominated in U.S. dollars and
issued by U.S. branches of foreign banks. Eurodollar instruments are denominated
in U.S. dollars and issued by non-U.S. branches of U.S. or foreign banks. Credit
Enhancement Credit enhancement consists of an arrangement in which a company
agrees to pay amounts due on a fixed income security if the issuer defaults. In
some cases the company providing credit enhancement makes all payments directly
to the security holders and receives reimbursement from the issuer. Normally,
the credit enhancer has greater financial resources and liquidity than the
issuer. For this reason, the Adviser usually evaluates the credit risk of a
fixed income security based in part upon its credit enhancement. Common types of
credit enhancement include guarantees, letters of credit, bond insurance and
surety bonds. Credit enhancement also includes arrangements where securities or
other liquid assets secure payment of a fixed income security. If a default
occurs, these assets may be sold and the proceeds paid to security's holders.
Either form of credit enhancement reduces credit risks by providing another
source of payment for a fixed income security. Convertible Securities
Convertible securities are fixed income securities that a Fund has the option to
exchange for equity securities at a specified conversion price. The option
allows the Fund to realize additional returns if the market price of the equity
securities exceeds the conversion price. For example, a Fund may hold fixed
income securities that are convertible into shares of common stock at a
conversion price of $10 per share. If the market value of the shares of common
stock reached $12, the Fund could realize an additional $2 per share by
converting its fixed income securities. Convertible securities have lower yields
than comparable fixed income securities. In addition, at the time a convertible
security is issued the conversion price exceeds the market value of the
underlying equity securities. Thus, convertible securities may provide lower
returns than non-convertible fixed income securities or equity securities
depending upon changes in the price of the underlying equity securities.
However, convertible securities permit the Fund to realize some of the potential
appreciation of the underlying equity securities with less risk of losing its
initial investment. Tax Exempt Securities Tax exempt securities are fixed income
securities that pay interest that is not subject to regular federal income
taxes. Typically, states, counties, cities and other political subdivisions and
authorities issue tax exempt securities. The market categorizes tax exempt
securities by their source of repayment.
General Obligation Bonds
General obligation bonds are supported by the issuer's power to exact
property or other taxes. The issuer must impose and collect taxes
sufficient to pay principal and interest on the bonds. However, the
issuer's authority to impose additional taxes may be limited by its charter
or state law. Special Revenue Bonds Special revenue bonds are payable
solely from specific revenues received by the issuer such as specific
taxes, assessments, tolls, or fees. Bondholders may not collect from the
municipality's general taxes or revenues. For example, a municipality may
issue bonds to build a toll road, and pledge the tolls to repay the bonds.
Therefore, a shortfall in the tolls normally would result in a default on
the bonds.
Private Activity Bonds
Private activity bonds are special revenue bonds used to finance
private entities. For example, a municipality may issue bonds to
finance a new factory to improve its local economy. The municipality
would lend the proceeds from its bonds to the company using the
factory, and the company would agree to make loan payments sufficient
to repay the bonds. The bonds would be payable solely from the
company's loan payments, not from any other revenues of the
municipality. Therefore, any default on the loan normally would result
in a default on the bonds. The interest on many types of private
activity bonds is subject to the federal alternative minimum tax (AMT).
A Fund may invest in bonds subject to AMT.
Variable Rate Demand Instruments
Variable rate demand instruments are tax exempt securities that require the
issuer or a third party, such as a dealer or bank, to repurchase the
security for its face value upon demand. The securities also pay interest
at a variable rate intended to cause the securities to trade at their face
value. The Funds treat demand instruments as short-term securities, because
their variable interest rate adjusts in response to changes in market
rates, even though their stated maturity may extend beyond thirteen months.
Foreign Securities
Foreign securities are securities of issuers based outside the United States.
The Fund considers an issuer to be based outside the United States if: o it is
organized under the laws of, or has a principal office located in, another
country; o the principal trading market for its securities is in another
country; or o it (or its subsidiaries) derived in its most current fiscal year
at least 50% of its total assets, capitalization, gross
revenue or profit from goods produced, services performed, or sales made in
another country.
The foreign securities in which the Prime Money Market Fund invest are primarily
denominated in U.S. dollars. The foreign securities in which the International
Equity Fund invests are primarily denominated in foreign currencies. Along with
the risks normally associated with domestic securities of the same type, foreign
securities are subject to risks of foreign investing.
Depositary Receipts
Depositary receipts represent interests in underlying securities issued by
a foreign company. Depositary receipts are not traded in the same market as
the underlying security. The foreign securities underlying American
Depositary Receipts (ADRs) are traded in the United States. ADRs provide a
way to buy shares of foreign-based companies in the United States rather
than in overseas markets. ADRs are also traded in U.S. dollars, eliminating
the need for foreign exchange transactions. The foreign securities
underlying European Depositary Receipts (EDRs), Global Depositary Receipts
(GDRs), and International Depositary Receipts (IDRs), are traded globally
or outside the United States. Depositary receipts involve many of the same
risks of investing directly in foreign securities, including currency risks
and risks of foreign investing.
Derivative Contracts
Derivative contracts are financial instruments that require payments based upon
changes in the values of designated (or underlying) securities, currencies,
commodities, financial indices or other assets. Some derivative contracts (such
as futures, forwards and options) require payments relating to a future trade
involving the underlying asset. Other derivative contracts (such as swaps)
require payments relating to the income or returns from the underlying asset.
The other party to a derivative contract is referred to as a counterparty. Many
derivative contracts are traded on securities or commodities exchanges. In this
case, the exchange sets all the terms of the contract except for the price.
Investors make payments due under their contracts through the exchange. Most
exchanges require investors to maintain margin accounts through their brokers to
cover their potential obligations to the exchange. Parties to the contract make
(or collect) daily payments to the margin accounts to reflect losses (or gains)
in the value of their contracts. This protects investors against potential
defaults by the counterparty. Trading contracts on an exchange also allows
investors to close out their contracts by entering into offsetting contracts.
For example, a Fund could close out an open contract to buy an asset at a future
date by entering into an offsetting contract to sell the same asset on the same
date. If the offsetting sale price is more than the original purchase price, the
Fund realizes a gain; if it is less, the Fund realizes a loss. Exchanges may
limit the amount of open contracts permitted at any one time. Such limits may
prevent a Fund from closing out a position. If this happens, a Fund will be
required to keep the contract open (even if it is losing money on the contract),
and to make any payments required under the contract (even if it has to sell
portfolio securities at unfavorable prices to do so). Inability to close out a
contract could also harm a Fund by preventing it from disposing of or trading
any assets it has been using to secure its obligations under the contract. A
Fund may also trade derivative contracts over-the-counter (OTC) in transactions
negotiated directly between the Fund and the counterparty. OTC contracts do not
necessarily have standard terms, so they cannot be directly offset with other
OTC contracts. In addition, OTC contracts with more specialized terms may be
more difficult to price than exchange traded contracts. Depending upon how a
Fund uses derivative contracts and the relationships between the market value of
a derivative contract and the underlying asset, derivative contracts may
increase or decrease a Fund's exposure to market and currency risks, and may
also expose a Fund to liquidity and leverage risks. OTC contracts also expose a
Fund to credit risks in the event that a counterparty defaults on the contract.
A Fund may trade in the following types of derivative contracts.
Futures Contracts
Futures contracts provide for the future sale by one party and purchase by
another party of a specified amount of an underlying asset at a specified
price, date, and time. Entering into a contract to buy an underlying asset
is commonly referred to as buying a contract or holding a long position in
the asset. Entering into a contract to sell an underlying asset is commonly
referred to as selling a contract or holding a short position in the asset.
Futures contracts are considered to be commodity contracts. Futures
contracts traded OTC are frequently referred to as forward contracts. The
Equity Funds may buy and sell stock index futures contracts, financial
futures and futures on portfolio securities. The International Equity Fund
may also enter into forward foreign currency exchange contracts. The Fixed
Income Fund may buy and sell financial futures contracts. Options Options
are rights to buy or sell an underlying asset for a specified price (the
exercise price) during, or at the end of, a specified period. A call option
gives the holder (buyer) the right to buy the underlying asset from the
seller (writer) of the option. A put option gives the holder the right to
sell the underlying asset to the writer of the option. The writer of the
option receives a payment, or premium, from the buyer, which the writer
keeps regardless of whether the buyer uses (or exercises) the option. The
Fixed Income Fund may: Buy call options on portfolio securities and on
financial futures contracts in anticipation of an increase in the value of
the underlying asset.; Buy put options on portfolio securities and on
financial futures contracts in anticipation of a decrease in the value of
the underlying asset.; and Buy or write options to close out existing
options positions.
The Equity Funds may:
Buy call options on portfolio securities and on stock index and financial
futures contracts in anticipation of an increase in the value of the
underlying asset.; Buy put options on portfolio securities and on stock
index and financial futures contracts in anticipation of a decrease in the
value of the underlying asset.; and Buy or write options to close out
existing options positions. The Equity Fund and Fixed Income Fund may also
write call options on portfolio securities to generate income from
premiums, and in anticipation of a decrease or only limited increase in the
value of the underlying asset. If a call written by the Fund is exercised,
the Fund foregoes any possible profit from an increase in the market price
of the underlying asset over the exercise price plus the premium received.
When a Fund writes options on futures contracts, it will be subject to
margin requirements similar to those applied to futures contracts.
Special Transactions
Repurchase Agreements
Repurchase agreements are transactions in which a Fund buys a security from
a dealer or bank and agree to sell the security back at a mutually agreed
upon time and price. The repurchase price exceeds the sale price,
reflecting a Fund's return on the transaction. This return is unrelated to
the interest rate on the underlying security. The Funds will enter into
repurchase agreements only with banks and other recognized financial
institutions, such as securities dealers, deemed creditworthy by the
Adviser. The Funds' custodian or subcustodian will take possession of the
securities subject to repurchase agreements. The Adviser or subcustodian
will monitor the value of the underlying security each day to ensure that
the value of the security always equals or exceeds the repurchase price.
Repurchase agreements are subject to counterparty risks. Reverse Repurchase
Agreements Reverse repurchase agreements are repurchase agreements in which
a Fund is the seller (rather than the buyer) of the securities, and agrees
to repurchase them at an agreed upon time and price. A reverse repurchase
agreement may be viewed as a type of borrowing by a Fund. Reverse
repurchase agreements are subject to counterparty risks. Delayed Delivery
Transactions Delayed delivery transactions, including when issued
transactions, are arrangements in which a Fund buys securities for a set
price, with payment and delivery of the securities scheduled for a future
time. During the period between purchase and settlement, no payment is made
by the Fund to the issuer and no interest accrues to a Fund. A Fund records
the transaction when it agrees to buy the securities and reflects their
value in determining the price of its shares. Settlement dates may be a
month or more after entering into these transactions so that the market
values of the securities bought may vary from the purchase prices.
Therefore, delayed delivery transactions create market risks for the Fund.
Delayed delivery transactions also involve credit risks in the event of a
counterparty default. These transactions create leverage risks.
<PAGE>
Securities Lending
A Fund may lend portfolio securities to borrowers that the Adviser deems
creditworthy. In return, the Fund receives cash or liquid securities from
the borrower as collateral. The borrower must furnish additional collateral
if the market value of the loaned securities increases. Also, the borrower
must pay the Fund the equivalent of any dividends or interest received on
the loaned securities. The Fund will reinvest cash collateral in securities
that qualify as an acceptable investment for the Fund. However, the Fund
must pay interest to the borrower for the use of cash collateral. Loans are
subject to termination at the option of the Fund or the borrower. The Fund
will not have the right to vote on securities while they are on loan, but
they will terminate a loan in anticipation of any important vote. The Fund
may pay administrative and custodial fees in connection with a loan and may
pay a negotiated portion of the interest earned on the cash collateral to a
securities lending agent or broker. Securities lending activities are
subject to market risks and counterparty risks. These transactions create
leverage risks. Asset Coverage In order to secure their obligations in
connection with derivatives contracts or special transactions, a Fund will
either own the underlying assets, enter into an offsetting transaction or
set aside readily marketable securities with a value that equals or exceeds
the Fund's obligations. Unless the Fund has other readily marketable assets
to set aside, it cannot trade assets used to secure such obligations
without entering into an offsetting derivative contract or terminating a
special transaction. This may cause the Fund to miss favorable trading
opportunities or to realize losses on derivative contracts or special
transactions.
Investing in Securities of Other Investment Companies
A Fund may invest its assets in securities of other investment companies,
including the securities of affiliated money market funds, as an efficient means
of carrying out its investment policies and managing its uninvested cash.
Investment Ratings
A nationally recognized statistical rating organization's ("NRSRO") rating
categories are determined without regard for sub-categories and gradations. For
example, with respect to the Prime Money Market Fund, securities rated A-1 or
A-1+ by Standard & Poor's Ratings Group ("S&P"), Prime-1 by Moody's Investors
Service, Inc. ("Moody's"), or F-1 (+ or -) by Fitch Investors Service, Inc.
("Fitch"), are all considered rated in the highest short-term rating category,
and with respect to the Michigan Municipal Cash Fund, securities rated SP-1+,
SP-1 or SP-2 by S&P, MIG-1 or MIG-by Moody's, or F-1+, F-1 and F-2 by Fitch, are
all considered rated in one of the two highest short-term rating categories.
Investment Ratings for Investment Grade Securities The Adviser will determine
whether a security is investment grade based upon the credit ratings given by
one or more nationally recognized rating services. For example, Standard and
Poor's, a rating service, assigns ratings to investment grade securities (AAA,
AA, A, and BBB) based on their assessment of the likelihood of the issuer's
inability to pay interest or principal (default) when due on each security.
Lower credit ratings correspond to higher credit risk. If a security has not
received a rating, the Fund must rely entirely upon the Adviser's credit
assessment that the security is comparable to investment grade.
<PAGE>
INVESTMENT RISKS
There are many factors which may affect an investment in the Funds. The Funds'
risks are described below. Stock Market Risks o The value of equity securities
in a Fund's portfolio will rise and fall. These fluctuations could be a
sustained trend or a
drastic movement. A Fund's portfolio will reflect changes in prices of
individual portfolio stocks or general changes in stock valuations.
Consequently, the Fund's share price may decline.
o The Adviser attempts to manage market risk by limiting the amount a Fund
invests in each company's equity securities. However, diversification will
not protect a Fund against widespread or prolonged declines in the stock
market.
Liquidity Risks
o Trading opportunities are more limited for equity securities that are not
widely held and for fixed income securities that have not received any
credit ratings, have received ratings below investment grade or are not
widely held. This may make it more difficult to sell or buy a security at a
favorable price or time. Consequently, the Fund may have to accept a lower
price to sell a security, sell other securities to raise cash or give up an
investment opportunity, any of which could have a negative effect on the
Fund's performance. Infrequent trading of securities may also lead to an
increase in their price volatility.
o Liquidity risk also refers to the possibility that a Fund may not be able
to sell a security or close out a derivative contract when it wants to. If
this happens, a Fund will be required to continue to hold the security or
keep the position open, and the Fund could incur losses.
o OTC derivative contracts generally carry greater liquidity risk than
exchange-traded contracts. Currency Risks o Exchange rates for currencies
fluctuate daily. The combination of currency risk and market risks tends to make
securities
traded in foreign markets more volatile than securities traded exclusively
in the U.S.
o The Adviser attempts to manage currency risk by limiting the amount the
Fund invests in securities denominated in a particular currency. However,
diversification will not protect the Fund against a general increase in the
value of the U.S.
dollar relative to other currencies.
Risks Related to Investing for Value
o Due to their relatively low valuations, value stocks are typically less
volatile than growth stocks. For instance, the price of a value stock may
experience a smaller increase on a forecast of higher earnings, a positive
fundamental development, or positive market development. Further, value
stocks tend to have higher dividends than growth stocks. This means they
depend less on price changes for returns and may lag behind growth stocks
in an up market.
Risks Related to Investing for Growth
o Due to their relatively high valuations, growth stocks are typically more
volatile than value stocks. For instance, the price of a growth stock may
experience a larger decline on a forecast of lower earnings, a negative
fundamental development, or an adverse market development. Further, growth
stocks may not pay dividends or may pay lower dividends than value stocks.
This means they depend more on price changes for returns and may be more
adversely affected in a down market compared to value stocks that pay
higher dividends.
Risks Related to Company Size
o Generally, the smaller the market capitalization of a company, the fewer
the number of shares traded daily, the less liquid its stock and the more
volatile its price. Market capitalization is determined by multiplying the
number of its outstanding shares by the current market price per share.
o Companies with smaller market capitalizations also tend to have unproven
track records, a limited product or service base and limited access to
capital. These factors also increase risks and make these companies more
likely to fail than companies with larger market capitalizations.
o Risks of Foreign Investing
o Foreign securities pose additional risks because foreign economic or
political conditions may be less favorable than those of the United States.
Securities in foreign markets may also be subject to taxation policies that
reduce returns for U.S.
investors.
o Foreign companies may not provide information (including financial
statements) as frequently or to as great an extent as companies in the
United States. Foreign companies may also receive less coverage than United
States companies by market analysts and the financial press. In addition,
foreign countries may lack uniform accounting, auditing and financial
reporting standards or regulatory requirements comparable to those
applicable to U.S. companies. These factors may prevent a Fund and its
Adviser from obtaining information concerning foreign companies that is as
frequent, extensive and reliable as the information available concerning
companies in the United States.
o Foreign countries may have restrictions on foreign ownership of securities
or may impose exchange controls, capital flow restrictions or repatriation
restrictions which could adversely affect the liquidity of a Fund's
investments.
Credit Risks
o Credit risk is the possibility that an issuer will default on a security by
failing to pay interest or principal when due. If an issuer defaults, a
Fund will lose money.
o Many fixed income securities receive credit ratings from services such as
Standard & Poor's and Moody's Investor Services, Inc. These services assign
ratings to securities by assessing the likelihood of issuer default. Lower
credit ratings correspond to higher credit risk. If a security has not
received a rating, a Fund must rely entirely upon the Adviser's credit
assessment.
o Fixed income securities generally compensate for greater credit risk by
paying interest at a higher rate. The difference between the yield of a
security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security's rating
is lowered, or the security is perceived to have an increased credit risk.
An increase in the spread will cause the price of the security to decline.
o Credit risk includes the possibility that a party to a transaction
involving a Fund will fail to meet its obligations. This could cause a Fund
to lose the benefit of the transaction or prevent a Fund from selling or
buying other securities to implement its investment strategy.
Interest Rate Risks
o Prices of fixed income securities rise and fall in response to changes in
the interest rate paid by similar securities. Generally, when interest
rates rise, prices of fixed income securities fall. However, market
factors, such as the demand for particular fixed income securities, may
cause the price of certain fixed income securities to fall while the prices
of other securities rise or remain unchanged.
o Interest rate changes have a greater effect on the price of fixed income
securities with longer durations. Duration measures the price sensitivity
of a fixed income security to changes in interest rates.
Tax Risks
o In order to be tax-exempt, municipal securities must meet certain legal
requirements. Failure to meet such requirements may cause the interest
received and distributed by the Fund to shareholders to be taxable.
o Changes or proposed changes in federal tax laws may cause the prices of
municipal securities to fall. Call Risks o Call risk is the possibility that an
issuer may redeem a fixed income security before maturity (a call) at a price
below its current market price. An increase in the likelihood of a call may
reduce the security's price.
o If a fixed income security is called, the Fund may have to reinvest the
proceeds in other fixed income securities with lower interest rates, higher
credit risks, or other less favorable characteristics.
Prepayment Risks
o Generally, homeowners have the option to prepay their mortgages at any time
without penalty. Homeowners frequently refinance high interest rate
mortgages when mortgage rates fall. This results in the prepayment of
mortgage backed securities with higher interest rates. Conversely,
prepayments due to refinancings decrease when mortgage rates increase. This
extends the life of mortgage backed securities with lower interest rates.
Other economic factors can also lead to increases or decreases in
prepayments. Increases in prepayments of high interest rate mortgage backed
securities, or decreases in prepayments of lower interest rate mortgage
backed securities, may reduce their yield and price. These factors,
particularly the relationship between interest rates and mortgage
prepayments makes the price of mortgage backed securities more volatile
than many other types of fixed income securities with comparable credit
risks.
o Mortgage backed securities generally compensate for greater prepayment risk
by paying a higher yield. The difference between the yield of a mortgage
backed security and the yield of a U.S. Treasury security with a comparable
maturity (the spread) measures the additional interest paid for risk.
Spreads may increase generally in response to adverse economic or market
conditions. A security's spread may also increase if the security is
perceived to have an increased prepayment risk or perceived to have less
market demand. An increase in the spread will cause the price of the
security to decline.
o A Fund may have to reinvest the proceeds of mortgage prepayments in other
fixed income securities with lower interest rates,
higher prepayment risks, or other less favorable characteristics.
Leverage Risks
o Leverage risk is created when an investment exposes the Funds to a level of
risk that exceeds the amount invested. Changes in the value of such an
investment magnify the Funds' risk of loss and potential for gain.
o Investments can have these same results if their returns are based on a
multiple of a specified index, security, or other benchmark.
o Euro Risks
o A Fund may make significant investments in securities denominated in the
Euro, the new single currency of the European Monetary Union (EMU).
Therefore, the exchange rate between the Euro and the U.S. dollar will have
a significant impact on the value of the Fund's investments.
o With the advent of the Euro, the participating countries in the EMU can no
longer follow independent monetary policies. This may limit these
countries' ability to respond to economic downturns or political upheavals,
and consequently reduce the value of their foreign government securities.
Investment Limitations
Selling Short and Buying on Margin
The Funds will not sell any securities short or purchase any securities on
margin but may obtain such short- term credits as may be necessary for
clearance of transactions. With respect to the Fixed Income Fund and Equity
Funds, the deposit or payment by a Fund of initial or variation margin in
connection with financial futures contracts or related options transactions
is not considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Money Market Funds and Government Securities Fund will not issue senior
securities except that they may borrow money in amounts up to one-third of
the value of their respective total assets, including the amounts borrowed.
The Funds will not borrow money for investment leverage, but rather as a
temporary, extraordinary, or emergency measure to facilitate management of
the portfolio by enabling a Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Funds will not purchase any securities while
borrowings in excess of 5% of their respective total assets are
outstanding. The Equity Funds, Fixed Income Fund and Michigan Municipal
Bond Fund will not issue senior securities except that they may borrow
money and engage in reverse repurchase agreements in amounts up to
one-third of the value of their respective total assets, including the
amounts borrowed. The Funds will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
portfolio by enabling the Funds to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Funds will not purchase any securities while
borrowings in excess of 5% of their respective total assets are
outstanding.
Concentration of Investments
The Equity Plus Fund and the Fixed Income Fund will not invest 25% or more
of the value of their respective total assets in any one industry, except
that the Funds may invest 25% or more of the value of their respective
total assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities, and repurchase agreements collateralized by
such securities. The International Equity Fund and Small Cap Fund will not
invest 25% or more of the value of their respective total assets in any one
industry, except that the Funds may invest 25% or more of the value of
their respective total assets in U.S. Government Securities, and repurchase
agreements collateralized by such securities. Government Securities Fund
will not concentrate in any one industry. Michigan Municipal Bond Fund will
not purchase securities if, as a result of such purchase, 25% or more of
the value of its total assets would be invested in any one industry or in
industrial development bonds or other securities, the interest upon which
is paid from revenues of similar types of projects. However, the Fund may
invest as temporary investments 25% or more of the value of its assets in
cash or cash items, securities issued or guaranteed by the U.S. government,
its agencies, or instrumentalities, or instruments secured by these money
market instruments, i.e., repurchase agreements. Prime Money Market Fund
will not invest 25% or more of the value of its total assets in any one
industry. However, investing in bank instruments (such as time and demand
deposits and certificates of deposit), U.S. government obligations or
instruments secured by these money market instruments, such as repurchase
agreements, shall not be considered investments in any one industry.
Underwriting
The Equity Funds, Government Securities Fund, Michigan Municipal Bond Fund,
Prime Money Market Fund and Michigan Municipal Cash Fund will not
underwrite any issue of securities except as each Fund may be deemed to be
an underwriter under the Securities Act of 1933 in connection with the sale
of securities in accordance with its investment objective, policies, and
limitations. Fixed Income Fund will not underwrite any issue of securities
except as it may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of restricted securities in accordance
with its investment objective, policies, and limitations.
Lending Cash or Securities
The Equity Funds will not lend any of their assets except portfolio
securities up to one-third of the value of their respective total assets.
This shall not prevent the Funds from purchasing U.S. government
obligations, money market instruments, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, and with respect to
Fixed Income Fund purchasing variable rate demand notes, entering into
repurchase agreements, or engaging in other transactions where permitted by
the Funds' investment objective, policies and limitations. Government
Securities Fund will not lend any of its assets. (This shall not prevent
the purchase or holding of U.S. Treasury securities, repurchase agreements,
or other transactions which are permitted by the Fund's investment
objective and policies.) Michigan Municipal Bond Fund and Michigan
Municipal Cash Fund will not lend any of their assets except that they may
acquire publicly or non-publicly issued municipal bonds or temporary
investments or enter into repurchase agreements in accordance with their
respective investment objective, policies, and limitations. Prime Money
Market Fund will not lend any of its assets, except that it may purchase or
hold money market instruments, including repurchase agreements and variable
amount demand master notes, in accordance with its investment objective,
policies, and limitations. U.S. Treasury Money Market Fund will not lend
any of its assets, except that it may purchase or hold U.S. Treasury
obligations, including repurchase agreements, in accordance with its
investment objective, policies, and limitations.
Pledging Assets
The Equity Funds, Fixed Income Fund and Michigan Municipal Bond Fund will
not mortgage, pledge, or hypothecate any assets except to secure permitted
borrowings. With respect to the Equity Funds and Fixed Income Fund, for
purposes of this limitation, the following are not deemed to be pledges:
margin deposits for the purchase and sale of futures contract and related
options, and segregation or collateral arrangements made in connection with
options activities. With respect to Fixed Income Fund, the purchase of
securities on a when-issued basis is not deemed to be a pledge of assets.
The Money Market Funds will not mortgage, pledge, or hypothecate any assets
except to secure permitted borrowings. In these cases, a Fund may pledge
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the pledge.
Investing in Real Estate
The Equity Plus Fund and Fixed Income Fund will not purchase or sell real
estate, including limited partnership interests, although they 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. Small Cap Fund, International Equity Fund, Prime
Money Market Fund and Michigan Municipal Cash Fund will not purchase or
sell real estate, although they 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.
Michigan Municipal Bond Fund will not purchase or sell real estate,
including limited partnership interests, although it may invest in
municipal bonds secured by real estate or interests in real estate.
Investing in Commodities, Commodity Contracts, or Commodity Futures Contracts
The Equity Funds and Fixed Income Fund will not purchase or sell
commodities, commodity contracts, or commodity futures contracts except to
the extent that the Funds may engage in transactions involving futures
contracts and related options. Michigan Municipal Bond Fund, Prime Money
Market Fund and Michigan Municipal Cash Fund will not buy or sell
commodities, commodity contracts, or commodities futures contracts.
Diversification of Investments
With respect to 75% of the value of its assets, the Equity Funds, Fixed
Income Fund and Prime Money Market Fund will not purchase securities of any
one issuer (other than securities issued or guaranteed by the government of
the United States or its agencies or instrumentalities) if, as a result,
more than 5% of the value of its total assets would be invested in the
securities of that issuer. Also, the Fixed Income Fund and Equity Plus Fund
will not acquire more than 10% of the outstanding voting securities of any
one issuer. With respect to securities comprising 75% of the value of their
total assets, the Small Cap Fund and International Equity 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 their respective total assets would
be invested in the securities of that issuer, or they would own more than
10% of the voting securities of that issuer. Michigan Municipal Cash Fund
will not invest more than 10% of its total assets in the securities of any
one issuer (except cash and cash items, repurchase agreements
collateralized by U.S. government securities and U.S. government
obligations) with respect to securities comprising 75% of its assets. Under
this limitation each governmental subdivision, including states and the
District of Columbia, territories, possessions of the United States, or
their political subdivisions, agencies, authorities, instrumentalities, or
similar entities, will be considered a separate issuer if its assets and
revenues are separate from those of the governmental body creating it and
the security is backed only by its own assets and revenues. Industrial
development bonds, backed only by the assets and revenues of a
nongovernmental user, are considered to be issued solely by that user. If
in the case of an industrial development bond or governmental-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the guarantor
as well as the other issuer, subject to limited exclusions allowed by the
Investment Company Act of 1940.
Investing in Restricted Securities
Prime Money Market Fund will not invest more than 10% of its net assets in
securities subject to restrictions on resale under the federal securities
laws, except for Section 4(2) commercial paper. Michigan Municipal Cash
Fund will not invest more than 10% of the value of its net assets in
securities subject to restrictions on resale under the Securities Act of
1933.
The above Investment Limitations cannot be changed unless authorized by the
"vote of a majority of its outstanding voting securities," as defined by the
Investment Company Act. The following limitations, however, may be changed by
the Board without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
Pledging Assets
Government Securities Fund will not mortgage, pledge, or hypothecate any
assets except to secure permitted borrowings. In these cases, it may pledge
assets having a market value not exceeding the lesser of the dollar amounts
borrowed or 10% of the value of total assets at the time of the borrowing.
Investing in Restricted and Illiquid Securities
Government Securities Fund will not invest more than 15% of the value of
its net assets in securities which are not readily marketable or which are
otherwise considered illiquid, including repurchase agreements providing
for settlement more than seven days after notice. Small Cap Fund and
International Equity Fund will not invest more than 15% of the value of
their respective 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. Equity Plus Fund and Fixed
Income Fund will not invest more than 15% of the value of its net assets in
illiquid obligations, including repurchase agreements providing for
settlement in more than seven days after notice, over-the-counter options,
certain restricted securities not determined by the Trustees to be liquid,
and non-negotiable fixed time deposits with maturities over seven days.
Michigan Municipal Bond Fund will not invest more than 15% of the value of
its net assets in illiquid obligations, including repurchase agreements
providing for settlement in more than seven days after notice, and certain
restricted securities not determined by the Trustees to be liquid. The
Money Market Funds will not invest more than 10% of the value of their
respective net assets in illiquid securities, including repurchase
agreements providing for settlement in more than seven days after notice,
certain restricted securities not determined by the Trustees to be liquid,
and non-negotiable fixed time deposits with maturities over seven days.
Investing in Securities of Other Investment Companies
The Equity Funds, Fixed Income Fund, Michigan Municipal Bond Fund, Prime
Money Market Fund and Michigan Municipal Cash Fund can each acquire up to 3
per centum of the total outstanding stock of other investment companies,
and may invest in the securities of affiliated money market funds as an
efficient means of managing the Funds' uninvested cash. The Funds will not
be subject to any other limitations with regard to the acquisition of
securities of other investment companies so long as the public offering
price of each Fund's shares does not include a sales charge exceeding 1 1/2
percent. With respect to the Equity Funds, Fixed Income Fund, Michigan
Municipal Bond Fund, and Money Market Funds, these limitations are not
applicable if the securities are acquired in a merger, consolidation,
reorganization, or acquisition of assets. Nor are they applicable, with
respect to Fixed Income Fund, to securities of investment companies that
have been exempted from registration under the Investment Company Act of
1940. It should be noted with respect to the Equity Funds, Prime Money
Market Fund and Michigan Municipal Cash Fund, that investment companies
incur certain expenses, such as investment advisory, custodian and transfer
agent fees, and therefore, any investment by a Fund in shares of another
investment company would be subject to such duplicate expenses.
Investing in Put Options
The Equity Funds and Fixed Income Fund will not purchase put options on
securities unless the securities are held in the Funds' portfolio and not
more than 5% of the value of the respective Fund's total assets would be
invested in premiums on open put option positions.
Writing Covered Call Options
The Equity Funds and Fixed Income Fund will not write call options on
securities unless the securities are held in the Funds' portfolio or unless
a Fund is entitled to them in deliverable form without further payment or
after segregating cash in the amount of any further payment.
Dealing in Puts and Calls
Michigan Municipal Bond Fund and Michigan Municipal Cash Fund will not buy
or sell puts, calls, straddles, spreads, or any combination of these,
except that Michigan Municipal Cash Fund may purchase municipal securities
accompanied by agreements of sellers to repurchase them at the Fund's
option.
Purchasing Securities to Exercise Control
The Equity Funds and Fixed Income Fund will not purchase securities of a
company for purpose of exercising control or management. Except with
respect to borrowing money, if a percentage limitation is adhered to at the
time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of
such restriction. For purposes of the Funds' policies and limitations, each
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."
PORTFOLIO TURNOVER
(TO BE ADDED)
Determining Market Value of Securities
With respect to the Prime Money Market Fund, U.S. Treasury Money Market Fund,
and Michigan Municipal Cash Fund, the Trustees have decided that the best method
for determining the value of portfolio instruments is amortized cost. Under this
method, portfolio instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at current
market value. Accordingly, neither the amount of daily income nor the net asset
value is affected by any unrealized appreciation or depreciation of the
portfolio. In periods of declining interest rates, the indicated daily yield on
shares of a Fund computed by dividing the annualized daily income on a Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates. In periods of rising interest rates, the opposite may be true.
The Funds' use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and a Fund's investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5 of 1% between the two values. The Trustees will
take any steps they consider appropriate (such as redemption in kind or
shortening the average portfolio maturity) to minimize any material dilution or
other unfair results arising from differences between the two methods of
determining net asset value.
With respect to the Equity Plus Fund, Small Cap Fund, International Equity Fund,
U.S. Government Securities Fund, Fixed Income Fund and Michigan Municipal Bond
Fund, the market values of the Funds' portfolio securities are determined as
follows:
for equity securities, according to the last sale price in the market
in which they are primarily traded (either a national securities exchange or
the over-the-counter market), if available;
in the absence of recorded sales for equity securities, according to the mean
between the last closing bid and asked prices;
for bonds and other fixed income securities, at the last sale price on
a national securities exchange, if available, otherwise, as determined by an
independent pricing service;
o futures contracts and options are valued at market values established by the
exchanges on which they are traded at the close of trading on such exchanges.
Options traded in the over-the-counter market are valued according to the
mean between the last bid and the last asked price for the option as provided
by an investment dealer or other financial institution that deals in the
option. The Board may determine in good faith that another method of valuing
such investments is necessary to appraise their fair market value;
for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, except that short-term
obligations with remaining maturities of less than 60 days at the time of
purchase may be valued at amortized cost or at fair market value as
determined in good faith by the Board; and
for all other securities at fair value as determined in good faith by the
Board.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider institutional trading in
similar groups of securities, yield, quality, stability, risk, coupon rate,
maturity, type of issue, trading characteristics, and other market data or
factors. From time to time, when prices cannot be obtained from an independent
pricing service, securities may be valued based on quotes from broker-dealers or
other financial institutions that trade the securities.
Trading in Foreign Securities
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange (NYSE). In computing its NAV, the Funds
value foreign securities at the latest closing price on the exchange on which
they are traded immediately prior to the closing of the NYSE. Certain foreign
currency exchange rates may also be determined at the latest rate prior to the
closing of the NYSE. Foreign securities quoted in foreign currencies are
translated into U.S. dollars at current rates. Occasionally, events that affect
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 Funds' Board, although the actual
calculation may be done by others.
<PAGE>
WHAT DO SHARES COST?
You can purchase, redeem or exchange Fund shares any day the New York Stock
Exchange (NYSE) is open. The Equity Funds' and Income Funds' net asset value
(NAV) per Shares fluctuates and is based on the market value of all securities
and other assets of the Funds. The Money Market Funds attempt to stabilize the
net asset value (NAV) of their Shares at $1.00 by valuing the portfolio
securities using the amortized cost method. The Funds cannot guarantee that
their NAV will always remain at $1.00 per Share. The Prime Money Market Funds'
NAV for each class of Shares may differ due to the variance in daily net income
realized by each class. Such variance will reflect only accrued net income to
which the shareholders of a particular class are entitled.
HOW ARE THE FUNDS SOLD?
Under the Distributor's Contract with the Funds, the Distributor (Federated
Securities Corp.) offers Shares on a continuous, best-efforts basis.
RULE 12B-1 PLAN (U.S. Treasury Money Market Fund and Michigan Municipal Cash
Fund) As a compensation-type plan, the Rule 12b-1 Plan is designed to pay the
Distributor (who may then pay investment professionals such as banks,
broker/dealers, trust departments of banks, and registered investment advisers)
for marketing activities (such as advertising, printing and distributing
prospectuses, and providing incentives to investment professionals) to promote
sales of Shares so that overall Fund assets are maintained or increased. This
helps the Funds achieve economies of scale, reduce per share expenses, and
provide cash for orderly portfolio management and Share redemptions. In
addition, the Funds' service providers that receive asset-based fees also
benefit from stable or increasing Fund assets. The Funds may compensate the
Distributor more or less than its actual marketing expenses. In no event will
the Funds pay for any expenses of the Distributor that exceed the maximum Rule
12b-1 Plan fee.
The maximum Rule 12b-1 Plan fee that can be paid in any one year may not be
sufficient to cover the marketing-related expenses the Distributor has incurred.
Therefore, it may take the Distributor a number of years to recoup these
expenses.
SHAREHOLDER SERVICES (Prime Money Market Fund - Class A Shares)
With respect to the Prime Money Market Fund Class A Shares, the Fund may pay
Federated Shareholder Services Company, a subsidiary of Federated Investors,
Inc. (Federated), for providing shareholder services and maintaining shareholder
accounts. Federated Shareholder Services Company may select others to perform
these services for their customers and may pay them fees.
EXCHANGING SECURITIES FOR FUND SHARES
With respect to the Equity Funds and Income Funds, you may contact the
Distributor to request a purchase of Shares in exchange for securities you own.
The Funds reserve the right to determine whether to accept your securities and
the minimum market value to accept. The Funds will value your securities in the
same manner as they value their assets. This exchange is treated as a sale of
your securities for federal tax purposes.
SUBACCOUNTING SERVICES
Certain investment professionals may wish to use the transfer agent's
subaccounting system to minimize their internal recordkeeping requirements. The
transfer agent may charge a fee based on the level of subaccounting services
rendered. Investment professionals holding Shares in a fiduciary, agency,
custodial, or similar capacity may charge or pass through subaccounting fees as
part of or in addition to normal trust or agency account fees. They may also
charge fees for other services that may be related to the ownership of Shares.
This information should, therefore, be read together with any agreement between
the customer and the investment professional about the services provided, the
fees charged for those services, and any restrictions and limitations imposed.
<PAGE>
REDEMPTION IN KIND
Although the Funds intend to pay Share redemptions in cash, they reserve the
right, as described below, to pay the redemption price in whole or in part by a
distribution of the Funds' portfolio securities.
Because the Funds have elected to be governed by Rule 18f-1 under the Investment
Company Act of 1940, the Funds are obligated to pay Share redemptions to any one
shareholder in cash only up to the lesser of $250,000 or 1% of the net assets
represented by such Share class during any 90-day period.
Any Share redemption payment greater than this amount will also be in cash
unless the Funds' Board determines that payment should be in kind. In such a
case, the Funds will pay all or a portion of the remainder of the redemption in
portfolio securities, valued in the same way as the Funds determine their NAV.
The portfolio securities will be selected in a manner that the Funds' Board
deems fair and equitable and, to the extent available, such securities will be
readily marketable.
Redemption in kind is not as liquid as a cash redemption. If redemption is made
in kind, shareholders receiving the portfolio securities and selling them before
their maturity could receive less than the redemption value of the securities
and could incur certain transaction costs.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property 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 itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
ACCOUNT AND SHARE INFORMATION
VOTING RIGHTS
Each share of each Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders for vote. All Shares of the Trust have
equal voting rights, except that in matters affecting only a particular Fund
class are entitled to vote.
Trustees may be removed by the Board or by shareholders at a special meeting. A
special meeting of shareholders will be called by the Board upon the written
request of shareholders who own at least 10% of the Trust's outstanding shares
of all series entitled to vote.
As of ______________________, the following shareholders owned of record,
beneficially, or both, 5% or more of outstanding Shares: (TO BE ADDED.)
Shareholders owning 25% or more of outstanding Shares may be in control and be
able to affect the outcome of certain matters presented for a vote of
shareholders.
TAX INFORMATION
FEDERAL INCOME TAX
The Funds intend to meet requirements of Subchapter M of the Internal Revenue
Code applicable to regulated investment companies. If these requirements are not
met, they will not receive special tax treatment and will pay federal income
tax.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income earned and capital gains and losses realized by the
Trust's other portfolios will be separate from those realized by a Fund.
FOREIGN INVESTMENTS
If the Funds purchase foreign securities, their investment income 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 a Fund
would be subject. The effective rate of foreign tax cannot be predicted since
the amount of Fund assets to be invested within various countries is uncertain.
However, the Funds intend to operate so as to qualify for treaty-reduced tax
rates when applicable.
Distributions from a Fund may be based on estimates of book income for the year.
Book income generally consists solely of the coupon income generated by the
portfolio, whereas tax-basis income includes gains or losses attributable to
currency fluctuation. 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 a Fund invests in the stock of certain foreign corporations, they may
constitute Passive Foreign Investment Companies (PFIC), and the Fund may be
subject to Federal income taxes upon disposition of PFIC investments.
If more than 50% of the value of a 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. The Code may
limit a shareholder's ability to claim a foreign tax credit. Shareholders who
elect to deduct their portion of a Fund's foreign taxes rather than take the
foreign tax credit must itemize deductions on their income tax returns.
MICHIGAN TAXES (Michigan Municipal Bond Fund and Michigan Municipal Cash Fund)
Under existing Michigan laws, distributions made by the Funds will not be
subject to Michigan personal income taxes to the extent that such distributions
qualify as "exempt-interest dividends" under the Internal Revenue Code of 1986,
as amended, and represent (i) interest from obligations of Michigan or any of
its political subdivisions or (ii) income from obligations of the United States
government which are exempted from state income taxation by a law of the United
States.
Distributions by the Funds are not subject to the Michigan Single Business Tax
to the extent that such distributions are derived from interest on obligations
of Michigan or its political subdivisions, or obligations of the United States
government that are exempt from state taxation by a law of the United States.
Certain municipalities in Michigan also impose an income tax on individuals and
corporations. However, to the extent that the dividends from the Funds are
exempt from federal regular income taxes, such dividends also will be exempt
from Michigan municipal income taxes.
Other State and Local Taxes. Income from the Michigan Municipal Bond Fund and
Michigan Municipal Cash Fund is not necessarily free from state income taxes in
states other than Michigan or from personal property taxes. Shareholders are
urged to consult their own tax advisers regarding the status of their accounts
under state and local tax laws.
WHO MANAGES AND PROVIDES SERVICES TO THE FUNDS?
BOARD OF TRUSTEES
The Board is responsible for managing the Trust's business affairs and for
exercising all the Trust's powers except those reserved for the shareholders.
Information about each Board member is provided below and includes each
person's: name, address, birth date, present position(s) held with the Trust,
principal occupations for the past five years and positions held prior to the
past five years, total compensation received as a Trustee from the Trust for its
most recent fiscal year. The Trust is comprised of nine funds.
As of August ______, 1999, the Funds' Board and Officers as a group owned less
than 1% of the Funds' outstanding Shares.
An asterisk (*) denotes a Trustee who is deemed to be an interested person as
defined in the Investment Company Act of 1940. The following symbol (#) denotes
a Member of the Board's Executive Committee, which handles the Board's
responsibilities between its meetings.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name Aggregate
Birth Date Compensation
Address From Trust
Position With Trust Principal Occupations
for Past Five Years
Robert E. Baker Retired; formerly, Vice Chairman, Chrysler Financial $12,000
Birth Date: May 6, 1930 Corporation.
4327 Stoneleigh Road
Bloomfield Hills, MI
TRUSTEE
Harold Berry Managing Partner, Berry Enterprises; Chairman, $12,000
Birth Date: September 17, 1925 Independent Sprinkler Companies, Inc.; Chairman, Berry
290 Franklin Center Ziegelman & Company.
29100 Northwestern Highway
Southfield, MI
TRUSTEE
Nathan Forbes* President, Forbes/Cohen Properties, President and $12,000
Birth Date: December 5, 1962 Partner, The Forbes Company.
1945 Long Point Drive
Bloomfield Hills, MI
TRUSTEE
Harry J. Nederlander# Chairman, Nederlander Enterprises $10,800
Birth Date: September 5, 1917
231 S. Old Woodward, Suite 219
Birmingham, MI
TRUSTEE
Thomas S. Wilson# President and Executive Administrator of the Detroit $12,000
Birth Date: October 8, 1949 Pistons; President and CEO, Palace Sports Entertainment.
Two Championship Drive
Auburn Hills, MI
TRUSTEE
Edward C. Gonzales Trustee or Director of some of the Funds in the
Birth Date: October 22, 1930 Federated Fund Complex; President, Executive Vice $0
Federated Investors Tower President and Treasurer of some of the Funds in the
1001 Liberty Avenue Federated Fund Complex; Vice Chairman, Federated
Pittsburgh, PA Investors, Inc.; Vice President, Federated Investment
PRESIDENT AND TREASURER Management Company and Federated Investment
Counseling, Federated Global Investment Management
Corp. and Passport Research, Ltd.; Executive Vice
President and Director, Federated Securities Corp.;
Trustee, Federated Shareholder Services Company.
Jeffrey W. Sterling Treasurer of the Federated Fund Complex; Vice President $0
Birth Date: February 5, 1947 - Funds Financial Services Division, Federated
Federated Investors Tower Investors, Inc.; formerly: various management positions
1001 Liberty Avenue within Funds Financial Services Division of Federated
Pittsburgh, PA Investors, Inc.
VICE PRESIDENT AND ASSISTANT
TREASURER
C. Grant Anderson Corporate Counsel, Federated Investors, Inc. $0
Birth Date: _____________
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA
SECRETARY
- --------------------------------------------------------------------------------
</TABLE>
INVESTMENT ADVISER
The Adviser conducts investment research and makes investment decisions for the
Funds.
The Adviser shall not be liable to the Trust or any Fund shareholder for any
losses that may be sustained in the purchase, holding, or sale of any security
or for anything done or omitted by it, except acts or omissions involving
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties imposed upon it by its contract with the Trust.
Other Related Services
Affiliates of the Adviser may, from time to time, provide certain electronic
equipment and software to institutional customers in order to facilitate the
purchase of Fund Shares offered by the Distributor.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. The Adviser will generally use those who are recognized dealers in
specific portfolio instruments, except when a better price and execution of the
order can be obtained elsewhere. With respect to the Equity Funds and Income
Funds, the Adviser may select brokers and dealers based on whether they also
offer research services (as described below). 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 Funds and other funds distributed by the
Distributor and its affiliates. The Adviser makes decisions on portfolio
transactions and selects brokers and dealers subject to review by the Funds'
Board.
Research Services
Research services 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 may be used by the Adviser in advising other accounts. To the extent
that receipt of these services may replace 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 those brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
For the fiscal years ended April 30, 1999, 1998 and 1997, the Equity Plus Fund
paid total brokerage commissions of $__________,
$20,319 and $26,727, respectively.
Investment decisions for the Funds are made independently from those of other
accounts managed by the Adviser. When the Funds and one or more of those
accounts invests in, or disposes of, the same security, available investments or
opportunities for sales will be allocated among the Funds and the account(s) in
a manner believed by the Adviser to be equitable. While the coordination and
ability to participate in volume transactions may benefit the Funds, it is
possible that this procedure could adversely impact the price paid or received
and/or the position obtained or disposed of by the Funds.
ADMINISTRATOR
Federated Administrative Services, a subsidiary of Federated, provides
administrative personnel and services (including certain legal and financial
reporting services) necessary to operate the Funds. Federated Administrative
Services provides these at the following annual rate of the average aggregate
daily net assets of the Trust as specified below:
Maximum Administrative Fee Average Aggregate Daily Net Assets of the Trust 0.150
of 1% on the first $250 million 0.125 of 1% on the next $250 million 0.100 of 1%
on the next $250 million 0.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall be at least $50,000
per portfolio. Federated Administrative Services may voluntarily waive a portion
of its fee and may reimburse the Funds for expenses.
Federated Administrative Services also provides certain accounting and
recordkeeping services with respect to the Funds' portfolio investments for a
fee based on the Funds' assets plus out-of-pocket expenses.
CUSTODIAN
Michigan National Bank, Farmington Hills, Michigan, is custodian for the
securities and cash of the Funds. Under the Custodian Agreement, Michigan
National Bank holds the Funds' portfolio securities in safekeeping and keeps all
necessary records and documents relating to its duties.
TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Federated Services Company, through its registered transfer agent subsidiary,
Federated Shareholder Services Company, maintains all necessary shareholder
records. The Funds pay the transfer agent a fee based on the size, type, and
number of accounts and transactions made by shareholders.
INDEPENDENT auditors
KPMG Peat Marwick LLP is the independent auditors for the Funds.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
FEES PAID BY THE FUNDS FOR SERVICES
- ------------------------ -------------------------------------- ------------------------------- ------------------------------------
Fund Advisory Fee Paid/ Sub-Advisory Fee Paid/ Administrative Fee Paid/
Advisory Fee Waived Sub-Advisory Fee Waived Administrative Fee Waived
------------------------------- ------------------------------------
-------------------------------------- ------------------------------- ------------------------------------
For the fiscal year ended For the fiscal year ended For the fiscal year ended
April 30, April 30, April 30,
-------------------------------------- ------------------------------- ------------------------------------
------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Equity Plus Fund $758,348/ $588,469/ $65,680/ $50,260/ $202,102/$80,99$160,370/$88,264
$284,380 $262,493 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Small Cap Fund N/A N/A N/A
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity N/A N/A N/A
Fund
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Government $507,916/ $509,098/ $0 $0 $0 $77,385/ $79,408/
Securities Fund $326,518 $327,278 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund $574,565/ $500,293/ N/A N/A N/A $81,673/ $72,776/
$383,043 $333,528 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan Municipal $184,611/ $182,176/ N/A N/A N/A $50,000/ $50,000/
Bond Fund $129,534 $182,176 $46,548 $44,944
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Prime Money Market Fund $1,861,933/ $1,720,845/$1,N/A,528 N/A N/A $495,020/$0 $469,358/$0
$1,163,708
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Money $1,062,526/ $1,099,098/ N/A N/A N/A $283,031/ $299,881/
Market Fund $0 $0 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan Municipal $375,284/ $355,606/ N/A N/A N/A $99,977/ $91,469/
Cash Fund $146,672 $167,803 $0 $0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Fees are allocated among classes based on their pro rata share of Fund assets,
except for marketing (Rule 12b-1) fees and shareholder services fees, which are
borne only by the applicable class of Shares.
<PAGE>
12b-1Fees
The U.S. Treasury Money Market Fund and Michigan Municipal Cash Fund are not
currently paying 12b-1 fees under the Distribution Plan. Should the Funds begin
to pay these fees, shareholders will be notified.
Shareholder Services Fees
For the fiscal year ended April 30, 1999, Prime Money Market Fund (Class A
Shares) paid $____________ in shareholder services fees.
HOW DO THE FUNDS MEASURE PERFORMANCE?
The Funds may advertise Share performance by using the Securities and Exchange
Commission's (SEC) standard method for calculating performance applicable to all
mutual funds. The SEC also permits this standard performance information to be
accompanied by non-standard performance information.
hare performance reflects the effect of non-recurring charges, such as maximum
sales charges, which, if excluded, would increase the total return and yield.
The performance of Shares depends upon such variables as: portfolio quality;
average portfolio maturity; type and value of portfolio securities; changes in
interest rates; changes or differences in the Funds' or any class of Shares'
expenses; and various other factors.
Share performance fluctuates on a daily basis largely because net earnings
fluctuate daily. Both net earnings and offering price per Share are factors in
the computation of yield and total return.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
average Annual Total Returns,Yield, effective yield and tax equivalent yield
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- --------------------
FUNDS Equity Small International U.S. Fixed Michigan Prime Prime U.S. Michigan
Plus Cap Fund Equity Fund Government Income Municipal Money Money Treasury Municipal
Fund Securities Fund Bond Fund Market Market Money Cash Fund
Fund Fund Fund Market
(Class (Class Fund
A B
Shares) Shares)
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
Average Annual
Total Return
for the following ____% ____% ____% ____% ____% ____% ____% ____% ____% ____%
periods ended April
30, 1999 N/A N/A N/A ____% N/A ____% ____% N/A ____% ____%
One Year
Five Years ___%(a) ___%(b) ____%(c) ____%(d) ____%(e) ____%(f) ___%(g) ___%(h) ____%(i) ____%(j)
Since Inception
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
Yield
for the 7-day
period ended April
30, 1999
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
Yield
for the 30-day
period ended April
30, 1999
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
Effective Yield
for the 7-day
period ended April
30, 1999
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
Tax Equivalent Yield
for the 7-day
period ended April
30, 1999
--------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
Tax Equivalent
Yield
for the 30-day
period ended April
30, 1999
- --------------------- --------- --------- ------------- -------------- --------- ----------- --------- -------- ---------- ---------
</TABLE>
Since inception dates: (a) April 30, 1998; (b) ___________; (c)__________; (d)
January 11, 1993; (e) January 3, 1995; (f) November 20, 1995; (g) June 1, 1989;
(h) June 13, 1995; (i) June 1, 1989; and (j) June 14, 1989.
TOTAL RETURN
Total return represents the change (expressed as a percentage) in the value of
Shares over a specific period of time, and includes the investment of income and
capital gains distributions.
The average annual total return for Shares 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 NAV 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 annual reinvestment of all
dividends and distributions.
yield
With respect to the Equity Funds and Income Funds, the yield of Shares is
calculated by dividing: (i) the net investment income per Share earned by the
Shares over a 30-day period; by (ii) the maximum offering price per Share on the
last day of the period. This number is then annualized using semi-annual
compounding. This means that the amount of income generated during the 30-day
period is assumed to be generated each month over a 12-month period and is
reinvested every six months. The effective yield is calculated by compounding
the unannualized base-period return by: adding one to the base-period return,
raising the sum to the 365/7th power; and subtracting one from the result. The
yield and effective yield do not necessarily reflect income actually earned by
Shares 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 investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
With respect to the Money Market Funds, the yield of Shares is based upon the
seven days ending on the day of the calculation, called the "base period." This
yield is calculated by: determining the net change in the value of a
hypothetical account with a balance of one Share at the beginning of the base
period, with the net change excluding capital changes but including the value of
any additional Shares purchased with dividends earned from the original one
Share and all dividends declared on the original and any purchased Shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by 365/7. The effective yield is calculated
by compounding the unannualized base-period return by: adding one to the
base-period return, raising the sum to the 365/7th power; and subtracting one
from the result.
To the extent investment professionals and broker/dealers charge fees in
connection with services provided in conjunction with an investment in Shares,
the Share performance is lower for shareholders paying those fees.
TAX EQUIVALENCY TABLE (Michigan Municipal Bond Fund and Michigan Municipal Cash
Fund)
Set forth below is a sample of a tax-equivalency table that may be used in
advertising and sales literature. This table is for illustrative purposes only
and is not representative of past or future performance of the Funds. The
interest earned by the municipal securities owned by the Funds generally remains
free from federal regular income tax and is often free from state and local
taxes as well. However, some of the Funds' income may be subject to the federal
alternative minimum tax and state and/or local taxes.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
TAX EQUIVALENCY TABLE
Taxable Yield Equivalent for 1999 - STATE OF MICHIGAN
Tax Bracket:
Federal 15.00% 28.00% 31.00% 36.00% 39.60%
Combined Federal and State 19.400% 32.400% 35.400% 40.400% 44.000%
- --------------------------------------------------------------------------------------------------------------
Joint Return $1-43,050 $43,051-104,050 $104,051-158,550 $158,551-283,150 Over 283,150
Single Return $1-25,750 $25,751-62,450 $62,451-130,250 $130,251-283,150 Over 283,150
Tax Exempt Yield: Taxable Yield Equivalent:
1.50% 1.86% 2.22% 2.32% 2.52% 2.68%
2.00% 2.48% 2.96% 3.10% 3.36% 3.57%
2.50% 3.10% 3.70% 3.87% 4.19% 4.46%
3.00% 3.72% 4.44% 4.64% 5.03% 5.36%
3.50% 4.34% 5.18% 5.42% 5.87% 6.25%
4.00% 4.96% 5.92% 6.19% 6.71% 7.14%
4.50% 5.58% 6.66% 6.97% 7.55% 8.04%
5.00% 6.20% 7.40% 7.74% 8.39% 8.93%
5.50% 6.82% 8.14% 8.51% 9.23% 9.82%
6.00% 7.44% 8.88% 9.29% 10.07% 10.71%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in calculating the
taxable yield equivalent. Furthermore, additional state and local taxes paid on
comparable taxable investments were not used to increase federal deductions.
PERFORMANCE COMPARISONS
Advertising and sales literature may include:
o references to ratings, rankings, and financial publications and/or
performance comparisons of Shares to certain indices;
o charts, graphs and illustrations using the Funds' returns, or returns in
general, that demonstrate investment concepts such as tax-deferred
compounding, dollar-cost averaging and systematic investment;
o discussions of economic, financial and political developments and their
impact on the securities market, including the portfolio manager's views on
how such developments could impact the Funds; and
o information about the mutual fund industry from sources such as the Investment
Company Institute.
The Funds may compare their performance, or performance for the types of
securities in which they invest, to a variety of other investments, including
federally insured bank products such as bank savings accounts, certificates of
deposit, and Treasury bills.
The Funds may quote information from reliable sources regarding individual
countries and regions, world stock exchanges, and economic and demographic
statistics.
You may use financial publications and/or indices to obtain a more complete view
of Share performance. When comparing performance, you should consider all
relevant factors such as the composition of the index used, prevailing market
conditions, portfolio compositions of other funds, and methods used to value
portfolio securities and compute offering price. The financial publications
and/or indices which the Funds use in advertising may include:
<PAGE>
EQUITY FUNDS
Standard & Poor's Composite Index of 500 Stocks, Standard & Poor's 100
Index and Standard & Poor's SmallCap 600 Composite Stock Price Index, 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, a Fund will quote its Lipper ranking and
category in advertising and sales literature.
o Morningstar, Inc. is 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 is 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 is an unmanaged index of
common stocks that includes fourteen countries throughout Europe.
o Morgan Stanley Capital International Japan Index is an unmanaged index of
common stocks.
Morgan Stanley Capital International World Index is 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.
INCOME FUNDS
Lipper Analytical Services, Inc. ranks funds in various fund categories
by making comparative calculations using total return. Total return assumes
the reinvestment of all capital gains distributions and income dividends and
takes into account any change in net asset value over a specific period of
time. From time to time, a Fund will quote its ranking from its respective
Lipper category in advertising and sales literature.
Morningstar, Inc., an independent rating service, is the publisher of
the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Lehman Brothers Government Bond Index is an unmanaged index comprised
of all publicly issued, non-convertible domestic debt of the U.S. government,
or any agency thereof, or any quasi-federal corporation and of corporate debt
guaranteed by the U.S. government. Lehman Brothers Government/Corporate
(Total) Index is comprised of approximately 5,000 issues which include:
non-convertible bonds publicly issued by the U.S. government or its agencies;
corporate bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed rate, non-convertible domestic bonds
of companies in industry, public utilities, and finance. The average maturity
of these bonds approximates nine years. Tracked by Lehman Brothers, the index
calculates total returns for one-month, three-month, twelve-month, and
ten-year periods and year-to-date.
Lehman Brothers Intermediate Government/Corporate Bond Index is an
unmanaged index comprised of all the bonds issued by the U.S. Government its
agencies and instrumentalities and corporations with maturities between 1 and
9.99 years. Total return is based on price appreciation/depreciation and
income as a percentage of the original investment. Indices are rebalanced
monthly by market capitalization.
Lehman Brothers Seven Year State General Obligation Bond Index is an
index of general obligation bonds rated Baa or better with 6-8 years to
maturity.
<PAGE>
MONEY MARKET FUNDS
Lipper Analytical Services, Inc. ranks funds in various fund categories
using total return. Total return assumes the reinvestment of all capital
gains distributions and income dividends and takes into account any change in
net asset value over a specific period of time. From time to time, a Fund
will quote its Lipper ranking in advertising and sales literature.
Money, a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day compound
(effective) yield. From time to time, a Fund will quote its Money ranking in
advertising and sales literature.
FINANCIAL INFORMATION
The Financial Statements for the Funds for the fiscal year ended April 30, 1999,
are incorporated herein by reference to the Annual Report to Shareholders of the
Independence One Mutual Funds dated April 30, 1999.
<PAGE>
INVESTMENT RATINGS
Standard & Poor's Short-Term Municipal Obligation Ratings
A Standard & Poor's (S&P) note rating reflects the liquidity concerns and market
access risks unique to notes.
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
sign (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
S&P assigns dual ratings to all long-term debt issues that have as part of their
provisions a variable rate demand feature. The first rating (long-term rating)
addresses the likelihood of repayment of principal and interest when due, and
the second rating (short-term rating) describes the demand characteristics.
Several examples are AAA/A-1+, AA/A-1+, A/A-1. (The definitions for the
long-term and the short-term ratings are provided below.)
Commercial Paper (CP) Ratings
An S&P commercial paper rating is a current assessment of the likelihood of
timely payment of debt having an original maturity of no more than 365 days.
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Long-Term Debt Ratings
AAA--Debt rated AAA has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the highest-rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher-rated categories.
Moody's Investors Service, Inc., Short-Term Municipal Obligation Ratings
Moody's Investor Service, Inc. (Moody's) short-term ratings are designated
Moody's Investment Grade (MIG or VMIG). (See below.) The purpose of the MIG or
VMIG ratings is to provide investors with a simple system by which the relative
investment qualities of short-term obligations may be evaluated.
MIG1--This designation denotes best quality. There is present strong protection
by established cash flows, superior liquidity support or demonstrated broad
based access to the market for refinancing.
MIG2--This designation denotes high quality. Margins of protection are ample
although not so large as in the preceding group.
Variable Rate Demand Notes (VRDNs) And Tender Option Bonds (TOBs) Ratings
Short-term ratings on issues with demand features are differentiated by the use
of the VMIG symbol to reflect such characteristics as payment upon periodic
demand rather than fixed maturity dates and payment relying on external
liquidity. In this case, two ratings are usually assigned, (for example,
Aaa/VMIG-1); the first representing an evaluation of the degree of risk
associated with scheduled principal and interest payments, and the second
representing an evaluation of the degree of risk associated with the demand
feature. The VMIG rating can be assigned a 1 or 2 designation using the same
definitions described above for the MIG rating.
Commercial Paper (CP) Ratings
P-1--Issuers rated Prime-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: leading
market positions in well established industries, high rates of return on funds
employed, conservative capitalization structure with moderate reliance on debt
and ample asset protection, broad margins in earning coverage of fixed financial
charges and high internal cash generation, well-established access to a range of
financial markets and assured sources of alternate liquidity.
P-2--Issuers rated Prime-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above, but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
Long-Term Debt Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
NR--Indicates that both the bonds and the obligor or credit enhancer are not
currently rated by S&P or Moody's with respect to short-term indebtedness.
However, management considers them to be of comparable quality to securities
rated A-1 or P-1.
NR(1)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AAA by S&P or Aaa by Moody's.
NR(2)--The underlying issuer/obligor/guarantor has other outstanding debt rated
AA by S&P or Aa by Moody's.
NR(3)--The underlying issuer/obligor/guarantor has other outstanding debt rated
A by S&P or Moody's.
Fitch Investors Service, L.P. Short-Term Debt Rating Definitions
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance for timely payment, only slightly less in degree than issues rated
F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings.
Standard and Poor's Long-Term Debt Rating Definitions
BB--Debt rated BB has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or exposure to
adverse business, financial, or economic conditions which could lead to
inadequate capacity to meet timely interest and principal payments. The BB
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied BBB rating.
B--Debt rated B has a greater vulnerability to default but currently has the
capacity to meet interest payments and principal repayments. Adverse business,
financial, or economic conditions will likely impair capacity or willingness to
pay interest and repay principal. The B rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied BB or BB-
rating.
CCC--Debt rated CCC has a currently identifiable vulnerability to default, and
is dependent upon favorable business, financial, and economic conditions to meet
timely payment of interest and repayment of principal. In the event of adverse
business, financial, or economic conditions, it is not likely to have the
capacity to pay interest and repay principal. The CCC rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
B or B rating.
CC--The rating CC typically is applied to debt subordinated to senior debt that
is assigned an actual or implied CCC debt rating.
C--The rating C typically is applied to debt subordinated to senior debt which
is assigned an actual or implied CCC debt rating. The C rating may be used to
cover a situation where a bankruptcy petition has been filed, but debt service
payments are continued.
Moody's Investors Service, Inc. Long-Term Bond Rating Definitions
AAA--Bonds which are rated AAA are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as gilt
edged. Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated AA are judged to be of high quality by all standards.
Together with the AAA group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in AAA securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in AAA securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper-medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated BAA are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
BA--Bonds which are BA are judged to have speculative elements; their future
cannot be considered as well assured. Often the protection of interest and
principal payments may be very moderate and thereby not well safeguarded during
both good and bad times over the future. Uncertainty of position characterizes
bonds in this class.
B--Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
CAA--Bonds which are rated CAA are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
CA--Bonds which are rated CA represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C--Bonds which are rated C are the lowest-rated class of bonds, and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Fitch IBCA, Inc. Long-Term Debt Rating Definitions
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
BB--Bonds are considered speculative. The obligor's ability to pay interest and
repay principal may be affected over time by adverse economic changes. However,
business and financial alternatives can be identified which could assist the
obligor in satisfying its debt service requirements.
B--Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payment of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC--Bonds have certain identifiable characteristics which, if not remedied, may
lead to default. The ability to meet obligations requires an advantageous
business and economic environment.
CC--Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C--Bonds are imminent default in payment of interest or principal.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
o Leading market positions in well-established industries;
o High rates of return on funds employed;
o Conservative capitalization structure with moderate reliance on debt and
ample asset protection;
o Broad margins in earning coverage of fixed financial charges and high
internal cash generation; and
o Well-established access to a range of financial markets and assured sources of
alternate liquidity.
Prime-2--Issuers rated Prime-1 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity is maintained.
Standard and Poor's Commercial Paper Ratings
A-1--This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus sign (+) designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Fitch IBCA, Inc. Commercial Paper Rating Definitions
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
<PAGE>
ADDRESSES
independence one mutual funds
5800 Corporate Drive
Pittsburgh, PA 15237-7010
Distributor
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Investment Adviser
Michigan National Bank.
27777 Inkster Road
Mail Code 10-30
Farmington Hills, Michigan 48333-9065
Investment Sub-Advisers:
Equity Plus Fund and Small Cap Fund
Sosnoff Sheridan Weiser Corporation
440 South LaSalle Street
Suite 2301
Chicago, Illinois 60605
International Equity Fund
National Australia Asset Management Ltd.
333 Collins Street
Melbourne, Victoria 3000, Australia
U.S. Government Securities Fund
Independence One Capital Management Corporation
27777 Inkster Road
Mail Code 10-52
Farmington Hills, Michigan 48333-9065
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 8600
Boston, MA 02266-8600
Independent Public Accountants
KPMG Peat Marwick LLP
One Mellon Bank Center
Pittsburgh, PA 15219
Cusip
453777203
Cusip
453777302
Cusip
453777708
Cusip
453777401
Cusip
453777864
Cusip
453777856
Cusip
453777807
Cusip
453777872
Cusip
453777831
Cusip
453777849
PART C. OTHER INFORMATION.
Item 24. Exhibits:
(a) Conformed copy of Declaration of Trust of the Registrant; (1.)
(i) Conformed copy of Amendment No. 1 to the Declaration of
Trust; (2.)
(ii) Conformed copy of Amendment No. 2 to the Declaration of
Trust; (2.)
(iii) Conformed copy of Amendment No. 3 to the Declaration of
Trust; (4.)
(iv) Conformed copy of Amendment No. 4 to the Declaration of
Trust; (6.)
(v) Conformed copy of Amendment No. 5 to the Declaration of
Trust; (6.)
(vi) Conformed copy of Amendment No. 6 to the Declaration of
Trust; (10.)
(vii) Conformed copy of Amendment No. 8 to the Declaration of
Trust; (10.)
(viii) Conformed copy of Certification dated December 6, 1994; (10.)
(ix) Conformed copy of Amendment No. 9 to the Declaration of
Trust; (12.)
(x) Conformed copy of Amendment No. 10 to the Declaration of
Trust; (20)
(b) Copy of By-Laws of the Registrant; (1.)
- --------------------
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed on January 13, 1989. (File Nos. 33-26516 and
811-5752)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on May 5, 1989. (File Nos. 33-26516 and
811-5752)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed on June 27, 1990. (File Nos. 33-26516
and 811-5752)
6. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed June 24, 1992. (File Nos. 33-26516 and
811-5752)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed February 8, 1995. (File Nos. 33-26516
and 811-5752)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed on June 28, 1995. (File Nos. 33-26516
and 811-5752)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed on June 26, 1998. (File Nos. 33-26516
and 811-5752)
<PAGE>
(c) (i)Copy of Specimen Certificate for Shares of Beneficial Interest of
Independence One U.S. Government Securities Fund; (7.)
(ii) Copy of Specimen Certificate for
Shares of Beneficial Interest of
Independence One Equity Plus Fund,
Independence One Fixed Income Fund,
and Independence One Michigan
Municipal Bond Fund; (14.)
(iii) Copy of Specimen Certificate for Shares of Beneficial Interest
of Independence One U.S. Treasury
Money Market Fund; (2.)
(iv) Copy of Specimen Certificates for
Shares of Beneficial Interest of
Independence One Michigan Municipal
Cash Fund and Independence One
Prime Money Market Fund-Class A
Shares and Class B Shares; (16.)
(v) Copy of Specimen Certificates for
Shares of Beneficial Interest of
Independence One Small Cap Fund and
Independence One International
Equity Fund ; (19.)
(d) Conformed copy of Investment Advisory Contract of the Registrant as
amended; (8.)
(i) Conformed copy of Investment Sub-Advisory Contract for
Independence One U.S. Government
Securities Fund; (8.)
(ii) Conformed copy of Exhibit G to the
Present Investment Advisory
Contract of the Registrant to add
Independence One Fixed Income Fund
to the Present Investment Advisory
Contract of the Registrant; (14.)
(iii) Conformed copy of Exhibit H to the
Present Investment Advisory Contract of the Registrant to add
Independence One Michigan Municipal
Bond Fund to the Present Investment
Advisory Contract of the
Registrant; (14.)
- --------------------
1. Response is incorporated by reference to Registrant's Initial Registration
Statement on Form N-1A filed on January 13, 1989. (File Nos. 33-26516 and
811-5752)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on May 5, 1989. (File Nos. 33-26516 and
811-5752)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed September 2, 1992. (File Nos. 33-26516
and 811-5752)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed June 24, 1993. (File Nos. 33-26516 and
811-5752)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed on August 29, 1995. (File Nos. 33-26516
and 811-5752)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed on June 28, 1996. (File Nos. 33-26516
and 811-5752)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on April 2, 1998. (File Nos. 33-26516
and 811-5752)
<PAGE>
(iv) Conformed copy of Exhibit I to the
Present Investment Advisory
Contract of the Registrant to add
Independence One Equity Plus Fund
to the Present Investment Advisory
Contract of the Registrant; (14.)
(v) Conformed copy of Exhibit H to the
Present Investment Advisory
Contract of the Registrant to add
Independence One International
Equity Fund; (19.)
(vi) Conformed copy of Exhibit I to the
Present Investment Advisory
Contract of the Registrant to add
Independence One Small Cap Fund;
(19.)
(vii) Conformed copy of Investment Sub-Advisory Agreement for
Independence One Equity Plus Fund; (14.)
(viii) Conformed Copy of Investment Sub-Advisory Agreement for
Independence One Small Cap Fund; (+)
(ix) Conformed Copy of Sub-Advisory
Agreement for Independence One International Equity
Fund; (+) (e) Conformed Copy of Distributor's
Contract of Registrant through and including Exhibit
C; (16.)
(i) Conformed Copy of Exhibit D to the
Distributor's Contract; (10.) (ii)
Conformed Copy of Exhibit E to the
Distributor's Contract; (10.)
(iii) Conformed copy of Exhibit F to the
Distributor's Contract; (13.) (iv)
Conformed copy of Exhibit G to the
Distributor's Contract; (13.)
(v) Conformed copy of Exhibit H to the
Distributor's Contract; (13.) (vi)
Conformed copy of Exhibit I to the
Distributor's Contract; (13.)
(vii) Conformed copy of Exhibit J to the
Distributor's Contract; (13.) (viii) Conformed copy
of Exhibit K to the Distributor's Contract; (13.)
(f) Not applicable;
- --------------------
+ All exhibits have been filed electronically.
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed February 8, 1995. (File Nos. 33-26516
and 811-5752)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed on July 25, 1995. (File Nos. 33-26516
and 811-5752)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed on August 29, 1995. (File Nos. 33-26516
and 811-5752)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed on June 28, 1996. (File Nos. 33-26516
and 811-5752)
19. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on April 2, 1998. (File Nos. 33-26516
and 811-5752)
<PAGE>
(g) (i) Conformed Copy of Custodian
Agreement of the Registrant through
and including Exhibit A; (16.)
(a) Conformed Copy of Amendment No. 2 to Exhibit A of the
Custodian Agreement; (19.)
(ii) Conformed Copy of the Agency Agreement of the Registrant; (3.)
(iii) Conformed Copy of the Administrative Services Agreement of
the Registrant; (16.)
(iv) Conformed Copy of Amendment No. 1 to Exhibit A of Agency
Agreement of the Registrant; (7.)
(h) (i) Conformed Copy of Agreement for Fund Accounting, Shareholder
Recordkeeping, and Custody Services
Procurement;(10.)
(a) Amendment to Exhibit 1 of the
Agreement for Fund Accounting,
Shareholder Recordkeeping, and
Custody Services Procurement; (19.)
(ii) Conformed copy of Shareholder Services
Plan; (13.)
(iii) Conformed Copy of Exhibit 1 to the
Shareholder Services Plan of the
Registrant; (12.) (iv) Conformed copy of
Shareholder Services Agreement (Amended and
Restated 9/19/95); (15.)
- --------------------
+ All exhibits have been filed electronically.
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on December 12, 1989. (File Nos.
33-26516 and 811-5752)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed September 2, 1992. (File Nos. 33-26516
and 811-5752)
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed February 8, 1995. (File Nos. 33-26516
and 811-5752)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed on June 28, 1995. (File Nos. 33-26516
and 811-5752)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed on July 25, 1995. (File Nos. 33-26516
and 811-5752)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 17 on Form N-1A filed on December 5, 1995. (File Nos.
33-26516 and 811-5752)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed on June 28, 1996. (File Nos. 33-26516
and 811-5752)
18. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 22 on Form N-1A filed on April 2, 1998. (File Nos. 33-26516
and 811-5752)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed on June 26, 1998. (File Nos. 33-26516
and 811-5752)
<PAGE>
(v) Conformed Copy of Exhibit 1 to the Shareholder Services
Agreement of the Registrant; (12.)
(i) Conformed Copy of Opinion and Consent of Counsel as to legality of
shares being registered; (16.)
(j) Conformed Copy of Independent Auditors Consent;(20.)
(k) Not applicable;
(l) Conformed Copy of Initial Capital Understanding; (16.)
(m) (i) Conformed Copy of Distribution Plan through and including
Exhibit A; (16.)
(ii) Copy of Sales Agreement with Federated Securities Corp. and
Administrative Agreement - Appendix
B; (2.)
(iii) Conformed copy of Exhibit B of
Distribution Plan; (8.)
(iv) Copy of Schedule A of Sales Agreement with Federated
Securities Corp.; (7.)
(v) Copy of Fee Schedule for Rule 12b-1 Agreement with Federated
Securities Corp.; (7.)
(n) Copy of Financial Data Schedules; (20.)
(o) Conformed copy of 18f-3 Plan; (17.)
(p) (i) Conformed copy of Power of Attorney; (16.)
(ii) Conformed copy of Power of Attorney
(adding Nathan Forbes as Trustee); (20.)
Item 24. Persons Controlled by or Under Common Control with Registrant:
None
- --------------------
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed on May 5, 1989. (File Nos. 33-26516 and
811-5752)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed on December 12, 1989. (File Nos.
33-26516 and 811-5752)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed September 2, 1992. (File Nos. 33-26516
and 811-5752)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 7 on Form N-1A filed June 24, 1993. (File Nos. 33-26516 and
811-5752)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed on June 28, 1996. (File Nos. 33-26516
and 811-5752)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 19 on Form N-1A filed on August 26, 1996. (File Nos. 33-26516
and 811-5752)
20. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 23 on Form N-1A filed on June 26, 1998. (File Nos. 33-26516
and 811-5752)
<PAGE>
Item 25. Indemnification: (4.)
Item 26. Business and Other Connections of Investment Adviser:
Michigan National Bank, a national banking association (the
"Adviser"), is a wholly owned subsidiary of Michigan
National Corporation ("MNC"). Through its subsidiaries and
affiliates, MNC, Michigan's fourth largest bank holding
company in terms of total assets, as of December 31, 1997,
offers a full range of financial services to the public
including commercial lending, depository services, cash
management, brokerage services, retail banking, credit card
services, mortgage banking, investment advisory services and
trust services. Independence One Capital Management
Corporation ("IOCM"), a nationally recognized investment
advisory subsidiary of MNC, provides investment advisory
services for trust and other managed assets. IOCM and the
Trust Division have investment discretion over $2.2 billion.
Michigan National Bank has managed mutual funds since May
1989. The Trust Division has managed pools of commingled
funds since 1964. For more information on the business of
the Adviser, see the Prospectus under the heading
"Management of the Trust--Investment Adviser."
--------------------
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 2 on Form N-1A filed on June 27, 1990. (File Nos. 33-26516
and 811-5752)
<PAGE>
The officers and directors of the Adviser and any other
business, profession, vocation or employment of a substantial
nature in which each such officer and director is or has been
engaged during the past two years is set forth below. Unless
otherwise noted, the position listed under Other Business,
Profession, Vocation or Employment is with Michigan National
Bank. The business address of each such director and officer
is 27777 Inkster Road, Farmington Hills, Michigan, 48333-9065.
<TABLE>
<CAPTION>
<S> <C> <C>
Other Substantial Business
Position with Profession, Vocation or
Name the Adviser Employment
Glenn L. Barnes Director Executive General Manager,
Business and Personal Financial Services, National Australia
Bank Limited.
John S. Carton Director Director, Michigan National Corporation; Chairman, President,
and CEO, Pine View, Inc.
Sidney E. Forbes Director Director, Michigan National Corporation; Partner,
Forbes/Cohen Properties.
Other Substantial
William F. Pickard Director Director, Michigan National Corporation, Chairman and
Chief Executive
Officer, Regal Plastics Company.
Douglas E. Ebert Director, Chief Executive Officer,
and Chief Michigan National Corporation
Executive Officer
Stephen A. VanAndel Director Director, Michigan National Corporation; Vice President and
Chairman,
Amway Corporation.
James A. Williams Chairman Chairman, Michigan National Corporation; Chairman and
President Williams,
Schaefer, Ruby & Williams.
Lawrence L. Gladchun General General Counsel and
Counsel and Secretary, Michigan National
Secretary Corporation.
Richard C. Webb Head CFS Head, Commercial Financial
Services, Michigan National
Corporation.
<PAGE>
Other Substantial Business
Position with Profession, Vocation or
Name the Adviser Employment
Robert V. Panizzi Controller Michigan National
Corporation.
Brian Black Head of Consumer Head of Consumer Financial
Financial Services Services, Michigan National
Corporation
Susan Barbour Head of Business Head of Business Financial
Financial Services Services, Michigan National
Corporation
Robert Hutchinson Head of Channel Michigan National Corporation
Management
Charles Van Swearingen Chief Financial Chief Financial Officer,
Officer Michigan National Corporation.
Kevin J. Van Solkema Head/Risk Head of Risk Management,
Management Michigan National Bank.
Errol Talbott Chief Operations Director, Michigan
Officer National Corporation.
Joseph L. Fritzsche Head/Human Head of Human Resources,
Resources Michigan National Corporation.
Kay Thawley Head/Marketing Head of Marketing, Michigan
National Corporation
Mickey Brown Head/Operations Head of Operations and
and Information Information Technology,
Technology Michigan National Corporation.
James B. Meyer Director Director, Michigan National
Corporation, President and
Chief Operating Officer,
Spartan Stores, Inc.
Dr. Donald Argus Director Managing Director, and Chief Executive Officer,
National Australia Bank Limited.
</TABLE>
National Australia Bank Limited ("NAB") is a transnational banking
organization headquartered at 500 Bourke Street, Melbourne, Australia. NAB is a
publicly owned company, whose shares are widely held and traded on the
Australian Stock Exchange Limited. On February 4, 1995, the Board of Directors
of MNC approved a definitive agreement for the acquisition (the "Merger") of MNC
by NAB. Shareholders of MNC approved the Merger on June 2, 1995. As a result,
MNC and its subsidiaries, including the Adviser, would become direct or indirect
subsidiaries of NAB upon completion of the Merger. The Merger was completed on
November 2, 1995 and Operations will continue to be conducted under the Michigan
National Corporation and Michigan National Bank names.
On May 4, 1995, the Trust's Board of Trustees approved the present
investment advisory contract (the "Present Advisory Contract") between the
Trust, on behalf of Independence Once Equity Plus Fund, Independence One Fixed
Income Fund and Independence One Michigan Municipal Bond Fund (collectively, the
"Portfolios"), and Michigan National Bank, as a subsidiary of MNC. Under the
provisions of the Investment Company Act of 1940, completion of the Merger
resulted in an assignment, and termination of the Portfolios' Present Advisory
Contract with the Adviser. Also on May 4, 1995, the Portfolios' Board of
Trustees approved a new investment advisory contract (the "New Advisory
Contract") between the Trust, on behalf of the Portfolios, and Michigan National
Bank, as a subsidiary of NAB. The New Advisory Contract became effective upon
consummation of the Merger.
The following information appeared in NAB's Annual Report for its
fiscal year ended September 30, 1997.
NAB, together with its subsidiaries (collectively, the "Group"), is one
of the four major Australian commercial banks ("trading banks" in Australian
terminology) which together account for approximately 18.3% of commercial
banking assets in Australia as of August 1997, according to the Reserve Bank of
Australia Bulletin. The Group undertakes a range of banking, financial and
related activities in Australia and elsewhere in the world, including commercial
banking, savings banking, finance and life insurance and merchant and investment
banking. As of September 30, 1997, Group assets totalled A$202.0 billion, of
which approximately 53.3% was domiciled in Australia, and Group deposits and
borrowings totalled A$128.5 billion, of which approximately 46.7% was domiciled
in Australia.+
NAB was established as "The National Bank of Australasia" in 1858 in
Victoria, Australia. Through internal expansion and the acquisition of other
banks, NAB developed into a national commercial bank. In its present form, NAB
is the product of the merger in 1981 of The National Bank of Australasia Limited
and Commercial Banking Company of Sydney Limited, the latter Bank being
established in 1834 in New South Wales, Australia.
At September 30, 1997 the Group had 52,226 full-time and part-time
employees worldwide.
Banking, the Group's principal business activity, is conducted in
Australia by NAB and internationally by NAB and certain subsidiaries. As of
September 30, 1997, NAB was the largest financial institution in Australia
(according to the Reserve Bank of Australia Bulletin) based on domestic assets
of $107.3 billion. The Group is the largest Australian banking group based on
its global assets of A$202.0 billion.+
Consistent with its philosophy of providing customers with a
comprehensive range of financial products and services, in 1985 the Group
established a life insurance and funds management entity, National Australia
Financial Management Limited. This entity and its subsidiaries provide the
Australian market with a range of personal financial planning services, personal
life and disability insurance, personal superannuation and managed investments,
corporate superannuation, group life insurance and various investment management
services. At September 30, 1997, funds under management amounted to A$4.4
billion. Two of the Group's banking subsidiaries in the United Kingdom,
Yorkshire Bank and Northern Bank, offer certain insurance and investment
products through subsidiaries, mainly in the areas of funds management and other
investment related products.
At September 1997, the directors* and principal executive officer of
NAB were as follows:
- ----------------
+ These figures reflect Australian dollars.
* The Directors of NAB are classified as either Executive or Non-Executive,
with the former being those Directors engaged in the full-time employment
of NAB. Mr. Donald Argus is the only Executive Director.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Name and Position Position/Directorship Principal
with NAB Held Since Occupation(s)
William Robert 1992/1979 Barrister and Chairman and
Mitchel Irvine Director/Solicitor; Director,
Bank of New
Zealand; Chairman,
National Australia
Financial
Management Limited
and National
Australia Group
(UK) Limited;
former Partner,
Hedderwick Fookes
& Alston,
Solicitors.
Brian Thorley Loton 1992/1988 Chairman, The Vice-Chairman Broken Hill and Director Proprietary Company
Limited; Director, Amcor Limited and Australian Foundation Investment
Company Limited; Alternate Director, National Australia Group (UK)
Limited; former Managing Director, The Broken Hill Proprietary Company
Limited.
David Kennedy Macfarlane
1992/1985 Chairman
NAB's Principal
Board Audit
Committee;
Chairman of
National Australia
Asset Management
Limited and
Alternate
Director, National
Australia Group
(UK)) Limited; 33
years' experience
with James Hardie
Industries
Limited, 12 years
of which as
Managing Director.
Donald Robert Argus 1990/1989 National Bank of New Zealand, Managing Director and Clydesdale
Bank PLC National Chief Executive Officer Australia Financial Management Limited, National
Australia Group (UK) Limited, National Irish Bank
, Limited Northern Bank Limited and Yorkshire Bank PLC.
David Charles 1992 Director, Woodside Petroleum Keith Allen Limited and a
member of the
Principal Board Audit
Committee.
Peter John Waraker 1985 Chairman, Director Email
Cottrell Limited.
Dr. Christopher Michael 1992 Non-Executive Director
Deeley North Limited; former Managing Director and Chairman Director
and Chief Executive, ICI Australia Limited.
<PAGE>
Name and Position Position/Directorship Principal
with NAB Held Since Occupation(s)
David Alexander Tange 1981 Alternate Director, Bank of
Dickens New Zealand; former Partner,
Director Court & Co. Chartered
Accountants; former Director, The Commercial Banking
Company of Sydney Limited.
The Lord Nickson 1991 Chairman, Director, Clydesdale Bank PLC; Director, National Australia
Group (UK) Limited.
Mark Richard Rayner 1985 Director and
Director Group Executive,
CRA Limited;
Deputy Chairman
and former
Managing Director,
Comalco Limited,
Chairman, Pasminco
Limited; member of
NAB's Principal
Board Audit
Committee.
Joseph Charles Trethowan 1984 Vice Chairman
Director of Directors and Chairman, Audit Committee of National Australia
Financial Management Limited; member of NAB's Principal Board Audit
Committee; former Chairman and General Manager, State Electricity
Commission of Victoria.
Andrew Trunbull 1992 Non-Executive
Director Chairman and former Managing Director and Chief Executive Officer, Burns
Philip and Company Limited.
Sir Bruce Dunstan Watson 1992 Former
Director Chairman, Director, and Chief Executive Officer, MIM Holdings Limited.
CM Walter 1995 Solicitor, former Partner, Clayton Utz; Director of Ampolex Limited,
SGIO Insurance Limited and Melbourne Business School Limited;
Commissioner of City of Melbourne.
</TABLE>
The address of the Directors and principal executive officer of NAB is c/o 500
Bourke Street, Melbourne, Australia.
<PAGE>
Item 27. Principal Underwriters:
(a)......Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following .... open-end
investment companies, including the Registrant:
Automated Government Money Trust; Cash Trust Series II; Cash Trust Series, Inc.;
CCB Funds; Edward D. Jones & Co. Daily Passport Cash Trust; Federated Adjustable
Rate U.S. Government Fund, Inc.; Federated American Leaders Fund, Inc.;
Federated ARMs Fund; Federated Core Trust; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Master Trust; Federated Municipal Opportunities Fund, Inc.; Federated
Municipal Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term
Municipal Trust; Federated Short-Term U.S. Government Trust; Federated Stock and
Bond Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated
Total Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; Fixed Income Securities, Inc.; ; Hibernia Funds;
Independence One Mutual Funds; Intermediate Municipal Trust; International
Series, Inc.; Investment Series Funds, Inc.; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Marshall Funds, Inc.;
Money Market Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income Trust;
Newpoint Funds; Regions Funds; RIGGS Funds; SouthTrust Funds; Tax-Free
Instruments Trust; The Planters Funds; The Wachovia Funds; The Wachovia
Municipal Funds; Trust for Government Cash Reserves; Trust for Short-Term U.S.
Government Securities; Trust for U.S. Treasury Obligations; Vision Group of
Funds, Inc.; World Investment Series, Inc.; Blanchard Funds; Blanchard Precious
Metals Fund, Inc.; DG Investor Series; High Yield Cash Trust; Investment Series
Trust; Star Funds; Targeted Duration Trust; The Virtus Funds; Trust for
Financial Institutions;
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor With Registrant
Richard B. Fisher Director, Chairman, Chief
Federated Investors Tower Executive Officer, Chief
1001 Liberty Avenue Operating Officer, Asst.
Pittsburgh, PA 15222-3779 Secretary and Asst.
Treasurer, Federated
Securities Corp.
Arthur L. Cherry Director
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Fisher Director
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas R. Donahue Director, Assistant Secretary
Federated Investors Tower and Assistant Treasurer
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer and --
Federated Investors Tower Director
1001 Liberty Avenue Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward C. Gonzales Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Ernest G. Anderson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew W. Brown Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David J. Callahan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark Carroll Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Steven R. Cohen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Marc C. Danile Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert J. Deuberry Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark A. Gessner Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
G. Tad Gullickson Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Dayna C. Haferkamp Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Raymond Hanley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Charlene H. Jennings Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael W. Koenig Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Christopher A. Layton Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael H. Liss Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Michael R. Manning Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas P. Moretti Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Alec H. Neilly Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Segura Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Colin B. Starks Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Robert W. Bauman Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Beth C. Dell Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
David L. Immonen Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
John T. Glickson Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Renee L. Martin Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Robert M. Rossi Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Matthew S. Hardin Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Leslie K. Ross Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Item 28. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1
through 31a-3 promulgated thereunder are maintained at one of
the following locations:
Independence One Mutual Funds 5800 Corporate Drive
(Registrant) Pittsburgh, PA 15237-7010
Federated Services Company P.O. Box 8609
(Transfer Agent, Dividend Boston, Massachusetts 02266-
Disbursing Agent and Portfolio 8609
Recordkeeper)
Federated Administrative Services Federated Investors Tower
(Administrator) 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
Michigan National Bank 27777 Inkster Road
(Adviser) Mail Code 10-52
Farmington Hills, MI 48333
National Australia Asset 333 Collins Street
Management Ltd. Melbourne, Victoria 3000,
(Sub-Adviser to International Australia Equity Fund)
Independence One Capital 27777 Inkster Road
Management Corporation Mail Code 10-52
(Sub-Adviser to U.S. Farmington Hills, MI 48333
Government Securities
Fund)
Sosnoff Sheridan Corporation 440 South LaSalle Street
(Sub-Adviser to Equity Plus Fund Suite 2301
and Small Cap Fund) Chicago, IL 60605
Michigan National Bank 27777 Inkster Road
(Custodian) Mail Code 10-52
Farmington Hills, MI 48333
</TABLE>
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of
Trustees and the calling of special shareholder meetings by
shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, INDEPENDENCE ONE MUTUAL
FUNDS,has duly caused this Amendment to its Registration Statement to be signed
on its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 24th day of June, 1999.
INDEPENDENCE ONE MUTUAL FUNDS
BY: /s/ C. Grant Anderson
C. Grant Anderson, Secretary
Attorney in Fact for Edward C. Gonzales
June 24, 1999
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
<TABLE>
<CAPTION>
<S> <C> <C>
NAME TITLE DATE
By: /s/ C. Grant Anderson
C. Grant Anderson Attorney In Fact June 24, 1999
SECRETARY For the Persons
Listed Below
NAME TITLE
Edward C. Gonzales* President and Treasurer
(Chief Executive Officer
and Principal Financial and
Accounting Officer)
Robert E. Baker* Trustee
Harold Berry* Trustee
Nathan Forbes* Trustee
Harry J. Nederlander* Trustee
Thomas S. Wilson* Trustee
* By Power of Attorney
</TABLE>
Exhibit d(viii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
INDEPENDENCE ONE MUTUAL FUNDS
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between Michigan National Bank, a national
banking association (hereinafter referred to as "Adviser") and Sosnoff Sheridan
Corporation, an Illinois corporation located in Chicago, Illinois (hereinafter
referred to as the "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound, hereby agree as
follows:1. Notice of Advice: Sub-Adviser hereby agrees to furnish to Adviser in
its capacity as Investment adviser to the Independence One Small Cap Fund (the
"Fund"), a portfolio of the Independence One Mutual Funds ("Trust"), such
investment advice, statistical and other factual information, as may from time
to time be reasonably requested by Adviser for the Fund, which may be offered in
one or more classes of shares ( "Classes"). Sub-Adviser shall furnish such
advice and information to Adviser on a non-discretionary basis. Sub-Adviser
shall not have custody of any funds or securities of the Fund at any time. 2.
Representations of Sub-Adviser. Sub-Adviser hereby represents to Adviser that it
is duly registered as an investment adviser with (a) the United States
Securities and Exchange Commission pursuant to the Investment Advisers Act of
1940, and (b) any state authorities with which such registration necessary in
order to lawfully provide services pursuant to this Agreement. Sub-Adviser
hereby agrees to maintain such registrations in effect for so long as it
continues to provide services pursuant to this Agreement and to notify Adviser
immediately upon termination or revocation of any such registration during such
period. 3. Brokerage. Sub-Adviser may placed orders for the execution of
transactions with or through such brokers-dealers (including floor brokers) or
banks as Adviser may select. Sub-Adviser may suggest broker-dealers or banks to
Adviser; however, Adviser will choose the broker-dealer or banks through which
Sub-Adviser may place orders. Any accounts opened with such broker-dealers or
banks shall be in the name of the Fund.
<PAGE>
4. Records and Confirms. Sub-Adviser will send Adviser a record of the
investments and positions of Fund as soon as reasonably possible after the end
of each quarterly period. Copies of confirmations of transactions executed for
the Fund will be sent by the broker-dealers executing the transactions promptly
to the custodian for the Fund and the Sub-Adviser, if the custodian is other
than the broker-dealer. Otherwise, copies of confirmations of transactions
executed will be sent by the broker-dealers executing the transactions to
Sub-Adviser and the Fund. Sub-Adviser does not assume responsibility for the
accuracy of information furnished by Adviser or any other party. 5. Voting.
Unless otherwise specifically agreed, Sub-Adviser will not be required to take
any action, or render any advice, with respect to the voting of securities held
by the Fund. 6. Confidentiality. All information and advice furnished by either
party hereto to the other shall be treated as confidential and shall not be
disclosed to third parties, unless generally known or otherwise publicly
available, and except as required by regulatory agencies or otherwise by law. 7.
Other Clients. Sub-Adviser acts as adviser to other clients and may give advice,
and take action, with respect to any of those which may differ from the advice
given, or the timing or nature of action taken, with respect to the Fund.
Sub-Adviser shall have no obligation to purchase or sell for the Fund, or to
recommend for purchase or sale by the Fund, any security which Sub-Adviser, its
principals, affiliates or employees may purchase or sell for themselves or for
any other clients. Except as otherwise required by law, Sub-Adviser shall not
make any information about the accounts of its clients available to Adviser or
the Fund. Adviser recognizes that transactions in a specific security or
securities may not be accomplished for all client accounts at the same time or
at the same price. In the performance of Sub-Adviser's services hereunder,
Sub-Adviser shall not be liable for any failure to recommend or effect any
purchase or sale, or other investment or trading strategy on the basis of any
information known to Sub-Adviser where the utilization of such information
might, in Sub-Adviser's opinion, constitute a violation of any federal or state
law, rules or regulations, or the breach of any fiduciary duty or confidential
relationship between Sub-Adviser and any other person or persons.
<PAGE>
8. Adviser's Representations. Adviser represents that it has full authority to
grant Sub-Adviser the authority given to Sub-Adviser under this Agreement.9.
Fees. For its services under this Agreement, Sub-Adviser shall receive from
Adviser an annual fee ("the Sub-Advisory Fee"), as set forth on Exhibit A
attached hereto. Notwithstanding any other provision of this Agreement, the
Sub-Adviser may from time to time and for such periods as it deems appropriate,
reduce its compensation (and, if appropriate, assume expenses of the Fund or
Class of the Fund) to the extent that the Fund's expenses exceed such expense
limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund,
voluntarily declare to be effective.10. Term. This Agreement shall begin for the
Fund on the date that the parties execute this Agreement relating to such Fund
and shall continue in effect for the Fund for two years from the date of its
execution and from year to year thereafter, subject to the provisions for
termination and all of the other terms and conditions hereof if: (a) such
continuation shall be specifically approved at least annually by the vote of a
majority of the Trustees of the Trust, including a majority of the Trustees who
are not parties to this Agreement or interested persons of any such party (other
than as Trustees of the Trust) cast in person at a meeting called for that
purpose; and (b) Adviser shall not have notified the Trust in writing at least
sixty (60) days prior to the anniversary date of this Agreement in any year
thereafter that it does not desire such continuation with respect to the
Fund.11. Termination. Notwithstanding any provision in this Agreement, it may be
terminated at any time without the payment of any penalty: (a) by the Trustees
of the Trust or by a vote of majority of the outstanding voting securities (as
defined in Section 2(a)(42) of the Investment Company Act of 1940 (the "Act"))
of the Fund on sixty (60) days written notice to Adviser; and (b) by Sub-Adviser
or Adviser upon sixty (60) days written notice to the other party to the
Agreement.12. Automatic Termination. This Agreement shall automatically
terminate:
(a) in the event of its assignment (as defined in the Act); or
(b) in the event of termination of the Investment Advisory
Contract between the Trust and Adviser ("Investment Advisory
Contract") for any reason whatsoever.
<PAGE>
13. Limitation of Authority. Neither Adviser nor Sub-Adviser shall act as an
investment adviser (as such term is defined in the Act) to the Fund except as
provided herein and in the Investment Advisory contract between the Adviser and
the Fund or in such other manner as may be expressly agreed between Adviser and
Sub-Adviser. Provided, however, that if the Adviser or Sub-Adviser shall resign
prior to the end of any term of this Agreement or for any reason be unable or
unwilling to serve for a successive term which has been approved by the Trustees
of the Trust pursuant to the provisions of Paragraph 10 of this Agreement or
Paragraph 6 of the Investment Advisory Contract, the remaining party,
Sub-Adviser of Adviser as the case may be, shall not be prohibited from serving
as an investment advisor to such Fund by reason of the provisions of this
Paragraph 13.14. Notices. Notices regarding termination or other matters of this
Agreement or other matters shall be certified mail or overnight by a nationally
recognized courier and shall be deemed given when received at the addresses
specified below, or at such other address as a party to receive notice may
specify in a notice given in accordance with this provision. Sub-Adviser may
rely on any notice from any person reasonably believed to be genuine and
authorized. If to Sub-Adviser: If to Adviser: Sosnoff Sheridan Corporation
Michigan National Bank 440 South LaSalle Street 27777 Inkster Road Suite 2301
Farmington Hills, Michigan 48334 Chicago, Illinois 60605 Attention: Robert J.
Stapleton, Jr. Attention: Tom Sosnoff 15. Indemnification. (a) (i) In any
threatened, pending or completed action, suit or proceeding to which the
Sub-Adviser, was, is or is threatened to be made a party, in connection with or
relating to the services performed by the Sub-Adviser for the Adviser or the
Fund as contemplated herein, including, without limitation, any breach of any
representations, warranties or convenants made by the Adviser in this Agreement
or any failure by the Adviser to comply with the federal or any state securities
laws or the rules and regulations promulgated thereunder or any other federal or
state law, or any rule or regulation promulgated by a governmental agency or
self-regulatory organization, Adviser shall indemnify and hold harmless the
Sub-Adviser, against any loss, liability, damage, cost and expense (including
reasonable attorneys' and accountants' fees and disbursements) incurred or
suffered by the Sub-Adviser in connection with the investigation, defense or
settlement of any such action, suit or proceeding, only if the acts or omissions
of the Sub-Adviser, did not involve willful misfeasance, gross negligence, bad
faith or reckless disregard of its duties and obligations under this Agreement;
and (ii) In the event that the Sub-Adviser is made a party to any claim, dispute
or litigation or otherwise incurs any loss or expense as a result of or in
connection with the activities or claimed activities of Adviser or its partners,
officers, directors, employees, agents or affiliates unrelated to the
Sub-Adviser or the Sub-Adviser's business, Adviser shall indemnify, defend and
hold harmless the Sub-Adviser against any loss, liability, damage, cost and
expense (including, without limitation, reasonable attorneys' and accountants'
fees and disbursements to be paid as incurred) incurred in connection therewith.
As used is subparagraphs (i) through (ii) above, the term "Sub-Adviser" shall
include the Sub-Adviser' directors, officers, shareholders, employees, agents
and affiliates.(b) (i) In any threatened, pending or contemplated action, suit
or proceeding to which the Adviser, was is or is threatened to be made a party,
in connection with or relating to the services performed by the Sub-Adviser for
the Adviser or the Fund as contemplated herein, including, without limitation,
any breach of any representations, warranties or covenants made by Sub-Adviser
in this Agreement or any failure by Sub-Adviser to comply with the federal or
any state securities laws or the rules and regulations promulgated thereunder or
any other federal or state law, or any rule or regulation promulgated by any
governmental agency or self-regulatory organization, Sub-Adviser shall indemnify
and hold harmless the Adviser, against any loss, liability, damage, cost and
expense (including reasonable attorneys' and accountants' fees and
disbursements) incurred or suffered by the Adviser in connection with the
investigation, defense or settlement of any such action, suit or proceeding,
only if the acts or omissions of the Adviser did not involve willful
misfeasance, gross negligence, bad faith or reckless disregard of its duties and
obligations under this Agreement; and (ii) In the event that the Adviser is made
a party to any claim, dispute or litigation or otherwise incurs any loss or
expense as a result of or in connection with the activities or claimed
activities of Sub-Adviser or its officers, directors, employees, agents or
affiliates unrelated to the Adviser or the Adviser's business, Sub-Adviser shall
indemnify, defend and hold harmless the Adviser against any loss, liability,
damage, cost and expense (including, without limitation, reasonable attorneys'
and accountants' fees and disbursements to be paid as incurred) incurred in
connection therewith. As used in subparagraphs (i) through (ii) above, the term
"Adviser" shall include the Adviser and the Adviser's directors, officers,
shareholders, employees, agents, and affiliates.(In the event that a person
entitled to indemnification under Sections 15 (a) and (b) is made a party to an
action, suit or proceeding alleging both matters for which indemnification can
be made hereunder and matters for which indemnification may not be made
hereunder, such person shall be indemnified only for that portion of the loss,
liability, damage, cost or expense incurred in such action, suit or proceeding
which relates to the matters for which indemnification can be made.(d)None of
the indemnifications contained in this Section 15 shall be applicable with
respect to default judgments, confessions of judgment or settlements entered
into by the part(ies) claiming indemnification without the prior written consent
of the party obligated to indemnify such party.(e)The provisions of this Section
15 shall survive the termination or other expiration of this Agreement.16.
Independent Contractors. The Sub-Adviser shall for all purposes herein be deemed
to be an independent contractor of Adviser. It is expressly agreed to by the
parties hereto that the relationship created by this Agreement does not create a
partnership or joint venture between the Sub-Adviser and the Adviser. Except as
specifically set forth herein wit respect to the Sub-Adviser's authority to
place orders approved by the Adviser to broker-dealers or banks for trading the
accounts of the Fund, neither party shall have any authority to bind the other
nor shall either party represent to third parties that it has such authority.17.
Liability. Neither the Sub-Adviser nor any of its agents, employees, principals,
directors, or officers or any person who controls the Sub-Adviser shall be
liable to Adviser or its officers, directors, partners, employees, agents or any
person who controls Adviser or any of its successors, or assigns under this
Agreement, except by reason of acts or omissions in contravention of this
Agreement due to willful misfeasance, gross negligence, bad faith, reckless
disregard of its duties and obligations under this Agreement, or violation of
applicable law. Adviser acknowledges that all transactions made by the
Sub-Adviser on behalf of the Fund, shall be for the account and risk of the
Fund. The Sub-Adviser shall have no responsibility for the execution or
clearance of the Fund's trades once orders have been transmitted to the
executing broker-dealer or bank for those trades. Notwithstanding the foregoing
sentences, the federal securities laws impose liabilities under certain
circumstances on persons who act in good faith and therefore, nothing herein
shall in any way constitute a waiver or limitation of any rights which Adviser
may have under the federal securities laws or state securities laws.
<PAGE>
18. Disclosure. []Adviser acknowledges receipt of Sub-Adviser's Disclosure
Statement (Part II of Adviser's Form ADV), as required by Rule 204-3 under the
Investment Advisers Act of 1940, not less than 48 hours prior to the date of
execution of this agreement shown below.[] Adviser acknowledges receipt of
Sub-Adviser's Disclosure Statement (Part II of Adviser's Form ADV) less than 48
hours prior to, but not later than, the date of execution of this agreement.
Accordingly, Adviser shall have the option to terminate this agreement without
penalty within five business days after that date of execution; provided,
however, that any investment action taken by Adviser with respect to the Fund
prior to the effective date of such termination shall be at Fund's risk.19.
Entire Agreement: Governing Law. This agreement constitutes the entire agreement
of the parties with respect to the rendering of advice by Sub-Adviser for the
benefit of Adviser and the Fund and can be amended only by written document
signed by the parties. This agreement shall be governed by the internal laws of
the State of Illinois.20. Amendment. This Agreement may be amended from time to
time by agreement of the parties hereto provided that such amendment shall be
approved both by the vote of a majority of Trustees of the Trust, including a
majority of Trustees who are not parties to this Agreement or interested person,
as defined in Section 2(a)(19) of the Act, of any such party at a meeting called
for that purpose, and, where required by Section 15(a)(2) of the Act, by the
holders of a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the Act) of the Fund. IN WITNESS WHEREOF, the parties hereto
have caused this Agreement to be executed on their behalf by their duty
authorized officers, and their corporate seals affixed hereto this 16th day of
June, 1998.
<PAGE>
ATTEST: MICHIGAN NATIONAL BANK
/s/ Lawrence L. Gladchun /s/ Robert J. Stepleton, Jr.
Secretary Director, Investment Services
Lawrence L. Gladchun Robert J. Stapleton, Jr.
SOSNOFF SHERIDAN CORPORATION
/s/ Scott D. Sheridan /s/ Scott D. Sheridan
Secretary Vice President
Scott D. Sheridan Scott D. Sheridan
<PAGE>
Exhibit A
Independence One Mutual Funds
Independence One Small Cap Fund
Sub-Advisory Agreement
Advisor will pay Sub-Adviser as full compensation for services rendered
hereunder, an annual fee at the rate of 0.05% based on the average daily value
of the equity securities in the Fund. The fee shall be calculated as determined
by the Fund on the last day of each month on which the New York Stock Exchange
is open and shall be payable on a monthly basis, in arrears.This Exhibit duly
incorporates by reference the Sub-Advisory Agreement.Adviser:/s/
RJS(initials)Sub-adviser:/s/ SDS (initials)
Exhibit d (x) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
INDEPENDENCE ONE MUTUAL FUNDS
SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between Michigan National Bank, a national
banking association (hereinafter referred to as "Adviser") and National
Australia Asset Management Limited, located in Melbourne, Australia (hereinafter
referred to as the "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Notice of Advice. Pursuant to its Investment Advisory Contract with
the Independence One Mutual Funds ("Trust"), and subject to the direction of the
Trustees of the Trust ("Trustees"), the Adviser has been retained to provide
investment advisory services to the Independence One International Equity Fund,
a portfolio of the Trust ("Fund"). Interests in the Fund may be offered in one
or more classes of shares ("Classes"). Pursuant to Paragraph 8 of the Investment
Advisory Contract, Adviser wishes to retain Sub-Adviser to provide, and
Sub-Adviser agrees to furnish, a continuous investment program for the Fund,
including investment research and management with respect to all securities and
investments in the Fund, other than assets retained by the Advisor in its
discretion. The Sub-Adviser will determine from time to time what securities and
other investments will be purchased, retained, or sold by the Fund. The
Sub-Adviser will provide the services rendered by it hereunder subject to the
direction of the Trustees and the Adviser, and in conformity with: The Fund's
investment objective(s) and policies as stated in the Fund's then-current
Registration Statement on Form N-1A; all applicable Rules and Regulations of the
US Securities and Exchange Commission; and the Securities Act of 1933, the
Investment Company Act of 1940, and the Investment Advisers Act of 1940, all as
amended. In connection with its services to the Fund, Sub-Adviser will submit
for the Adviser's approval a written description of the Sub-Adviser's investment
philosophy and process, performance objective and benchmark, investment
guidelines, and listing of reports to be provided, all as may be adjusted from
time to time. Sub-Adviser acknowledges that Adviser will retain direct
responsibilities for: investment research and management with respect to the
U.S. dollar-denominated cash and cash equivalents in the Fund; the selection and
compensation of the Sub-Adviser; the review of all purchases and sales of
portfolio instruments made by the Fund to assess compliance with its stated
investment objective and policies; the monitoring of the selection of brokers
and dealers effecting transactions on behalf of the Fund; the maintenance and
furnishing of all required records or reports pertaining to the Fund to the
extent those records or reports are not maintained or furnished by the
Sub-Adviser or other agents employed by the Fund.
2. Representations of Sub-Adviser. Sub-Adviser hereby represents to
Adviser that it is duly registered as an investment adviser with (a) the United
States Securities and Exchange Commission pursuant to the Investment Advisers
Act of 1940, and (b) any state authorities with which such registration is
necessary in order to lawfully provide services pursuant to this Agreement.
Sub-Adviser hereby agrees to maintain such registrations in effect for so long
as it continues to provide services pursuant to this Agreement and to notify
Adviser immediately upon termination or revocation of any such registration
during such period.
3. Brokerage. Sub-Adviser may place orders for the execution of
transactions with or through such broker-dealers (including floor brokers) or
banks as Sub-Adviser may select, subject to the Adviser's review. Any accounts
opened with such broker-dealers or banks shall be in the name of the Fund.
4. Records and Confirms. Sub-Adviser will send Adviser a record of the
investments and positions of Fund as soon as reasonably possible after the end
of each quarterly period. Copies of confirmations of transactions executed for
the Fund will be sent by the broker-dealers executing the transactions promptly
to the custodian for the Fund and the Sub-Adviser, if the custodian is other
than the broker-dealer. Otherwise, copies of confirmations of transactions
executed will be sent by the broker-dealers executing the transactions to
Sub-Adviser and the Fund. Sub-Adviser does not assume responsibility for the
accuracy of information furnished by Adviser or any other party.
5. Confidentiality. All information and advice furnished by either
party hereto to the other shall be treated as confidential and shall not be
disclosed to third parties, unless generally known or otherwise publicly
available, and except as required by regulatory agencies or otherwise by law.
6. Other Clients. Sub-Adviser acts as adviser to other clients and may
give advice, and take action, with respect to any of those which may differ from
the advice given, or the timing or nature of action taken, with respect to the
Fund. Sub-Adviser shall have no obligation to purchase or sell for the Fund, or
to recommend for purchase or sale by the Fund, any security which Sub-Adviser,
its principals, affiliates or employees may purchase or sell for themselves or
for any other clients. Except as otherwise required by law, Sub-Adviser shall
not make any information about the accounts of its clients available to Adviser
or the Fund.
Adviser recognizes that transactions in a specific security or
securities may not be accomplished for all client accounts at the same time or
at the same price.
In the performance of Sub-Adviser's services hereunder, Sub-Adviser
shall not be liable for any failure to recommend or effect any purchase or sale,
or other investment or trading strategy on the basis of any information known to
Sub-Adviser where the utilization of such information might, in Sub-Adviser's
opinion, constitute a violation of any federal or state law, rules or
regulations, or the breach of any fiduciary duty or confidential relationship
between Sub-Adviser and any other person or persons
7. Adviser's Representations. Adviser represents that it has full
authority to grant Sub-Adviser the authority given to Sub-Adviser under this
Agreement.
8. Fees. For its services under this Agreement, Sub-Adviser shall
receive from Adviser an annual fee ("the Sub-Advisory Fee"), as set forth in
Exhibit A attached hereto.
Notwithstanding any other provision of this Agreement, the Sub-Adviser
may from time to time and for such periods as it deems appropriate, reduce its
compensation (and, if appropriate, assume expenses of the Fund or Class of the
Fund) to the extent that the Fund's expenses exceed such expense limitation as
the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily
declare to be effective.
9. Term. This Agreement shall begin for the Fund on the date that the
parties execute this Agreement relating to such Fund and shall continue in
effect for the Fund for two years from the date of its execution and from year
to year thereafter, subject to the provisions for termination and all of the
other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Agreement or interested persons of any such party (other than as
Trustees of the Trust) cast in person at a meeting called for that purpose; and
(b) Adviser shall not have notified the Trust in writing at least sixty (60)
days prior to the anniversary date of this Agreement in any year thereafter that
is does not desire such continuation with respect to the Fund.
10. Termination. Notwithstanding any provision in this Agreement, it
may be terminated at any time without the payment of any penalty: (a) by the
Trustees of the Trust or by a vote of a majority of the outstanding voting
securities (as defined in Section 2(a)(42) of the Investment Company Act of 1940
(the "Act")) of the Fund on sixy (60) days' written notice to Adviser; and (b)
by Sub-Adviser or Adviser upon sixty (60) days written notice to the other party
to the Agreement.
11. Automatic Termination. This Agreement shall automatically
terminate:
(a) in the event of its assignment (as defined in the Act); or
(b) in the event of termination of the Investment Advisory
Contract between the Trust and Adviser ("Investment Advisory
Contract" for any reason whatsoever.
12. Limitation of Authority. Neither Adviser nor Sub-Adviser shall act
as an investment adviser (as such term is defined in the Act) to the Fund except
as provided herein and in the Investment Advisory Contract between the Adviser
and the Fund or in such other manner as may be expressly agreed between Adviser
and Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall resign
prior to the end of any term of this Agreement or for any reason be unable or
unwilling to serve for a successive term which has been approved by the Trustees
of the Trust pursuant to the provisions of Paragraph 10 of this Agreement or
Paragraph 6 of the Investment Advisory Contract, the remaining party,
Sub-Adviser or Adviser as the case may be, shall not be prohibited from serving
as an investment adviser to such Fund by reason of the provisions of this
Paragraph 13.
13. Notices. Notices regarding termination or other matters of this
Agreement or other matters shall be sent by certified mail or overnight by a
nationally recognized courier and shall be deemed given when received at the
addresses specified below, or at such other address as a party to receive notice
may specify in a notice given in accordance with this provision. Sub-Adviser may
rely on any notice from any person reasonably believed to be genuine and
authorized.
<PAGE>
If to Sub-Adviser: If to Adviser:
National Australia Asset Management Limited Michigan National Bank
Level 6 27777 Inkster Road
333 Collins Street Farmington Hills, MI 48334
Melbourne Victoria 3000 Australia Attn: Robert J. Stapleton, Jr.
Attn: Alistair Drummond
14. Indemnification. (a) (i) In any threatened, pending or completed
action, suit or proceeding to which the Sub-Adviser, was, is or is threatened to
be made a party, in connection with or relating to the services performed by the
Sub-Adviser for the Adviser or the Fund as contemplated herein, including,
without limitation, any breach of any representations, warranties or covenants
made by the Adviser in this Agreement or any failure by the Adviser to comply
with the federal or any state securities laws or the rules and regulations
promulgated thereunder or any other federal or state law, or any rule or
regulation promulgated by a governmental agency or self-regulatory organization,
Adviser shall indemnify and hold harmless the Sub-Adviser, against any loss,
liability, damage, cost and expense (including reasonable attorneys' and
accountants' fees and disbursements) incurred or suffered by the Sub-Adviser in
connection with the investigation, defense or settlement of any such action,
suit or proceeding, only if the acts or omissions of the Sub-Adviser, did not
involve willful misfeasance, gross negligence, bad faith or reckless disregard
of its duties and obligations under this Agreement; and (ii) In the event that
the Sub-Adviser is made a party to any claim, dispute or litigation or otherwise
incurs any loss or expense as a result of or in connection with the activities
or claimed activities of Adviser or its partners, officers, directors,
employees, agents or affiliates unrelated to the Sub-Adviser or the
Sub-Adviser's business, Adviser shall indemnify, defend and hold harmless the
Sub-Adviser against any loss, liability, damage, cost and expense (including,
without limitation, reasonable attorneys' and accountants' fees and
disbursements to be paid as incurred) incurred in connection therewith. As used
in subparagraphs (i) through (ii) above, the term "Sub-Adviser" shall include
the Sub-Adviser's directors, officers, shareholders, employees, agents and
affiliates.
(b) (i) In any threatened, pending or contemplated action, suit or
proceeding to which the Adviser, was, is or is threatened to be made a party, in
connection with or relating to the services performed by the Sub-Adviser for the
Adviser or the Fund as contemplated herein, including, without limitation, any
breach of any representations, warranties or covenants made by Sub-Adviser in
this Agreement or any failure by Sub-Adviser to comply with the federal or any
state securities laws or the rules and regulations promulgated thereunder or any
other federal or state law, or any rule or regulation promulgated by any
governmental agency or self-regulatory organization, Sub-Adviser shall indemnify
and hold harmless the Adviser, against any loss, liability, damage, cost and
expense (including reasonable attorneys' and accountants' fees and
disbursements) incurred or suffered by the Adviser in connection with the
investigation, defense or settlement of any such action, suit or proceeding,
only if the acts or omissions of the Adviser did not involve willful
misfeasance, gross negligence, bad faith or reckless disregard of its duties and
obligations under this Agreement; and (ii) In the event that the Adviser is made
a party to any claim, dispute or litigation or otherwise incurs any loss or
expense as a result of or in connection with the activities or claimed
activities of Sub-Adviser or its officers, directors, employees, agents or
affiliates unrelated to the Adviser or the Adviser's business, Sub-Adviser shall
indemnify, defend and hold harmless the Adviser against any loss, liability,
damage, cost and expense (including, without limitation, reasonable attorneys'
and accountants' fees and disbursements to be paid as incurred) incurred in
connection therewith. As used in subparagraphs (i) through (ii) above, the term
"Adviser" shall include the Adviser and the Adviser's directors, officers,
shareholders, employees, agents and affiliates.
(c) In the event that a person entitled to indemnification under
Sections 15 (a) or (b) is made a party to an action, suit or proceeding alleging
both matters for which indemnification can be made hereunder and matters for
which indemnification may not be made hereunder, such person shall be
indemnified only for that portion of the loss, liability, damage, cost or
expense incurred in such action, suit or proceeding which relates to the matters
for which indemnification can be made.
(d) None of the indemnifications contained in this Section 15 shall be
applicable with respect to default judgments, confessions of judgment or
settlements entered into by the part(ies) claiming indemnification without the
prior written consent of the party obligated to indemnify such party.
(e) The provisions of this Section 15 shall survive the termination or other
expiration of this Agreement.
15. Independent Contractors. The Sub-Adviser shall for all purposes
herein be deemed to be an independent contractor of Adviser. It is expressly
agreed to by the parties hereto that the relationship created by this Agreement
does not create a partnership or joint venture between the Sub-Adviser and the
Adviser. Except as specifically set forth herein with respect to the
Sub-Adviser's authority to place orders approved by the Adviser to
broker-dealers or banks for trading the accounts of the Fund, neither party
shall have any authority to bind the other nor shall either party represent to
third parties that it has such authority.
16. Liability. Neither the Sub-Adviser nor any of its agents,
employees, principals, directors, or officers or any person who controls the
Sub-Adviser shall be liable to Adviser or its officers, directors, partners,
employees, agents or any person who controls Adviser or any of its successors,
or assigns under this Agreement, except by reason of acts or omissions in
contravention of this Agreement due to willful misfeasance, gross negligence,
bad faith, reckless disregard of its duties and obligations under this
Agreement, or violation of applicable law. Adviser acknowledges that all
transactions made by the Sub-Adviser on behalf of the Fund, shall be for the
account and risk of the Fund. The Sub-Adviser shall have no responsibility for
the execution or clearance of the Fund's trades once orders have been
transmitted to the executing broker-dealer or bank for those trades.
Notwithstanding the foregoing sentences, the federal securities laws impose
liabilities under certain circumstances on persons who act in good faith and
therefore, nothing herein shall in any way constitute a waiver or limitation of
any rights which Adviser may have under the federal securities laws or state
securities laws.
17. Disclosure.
[] Adviser acknowledges receipt of Sub-Adviser's Disclosure Statement
(Part II of Adviser's Form ADV), as required by Rule 204-3 under the Investment
Advisers Act of 1940, not less than 48 hours prior to the date of execution of
this agreement shown below.
[] Adviser acknowledges receipt of Sub-Adviser's Disclosure Statement
(Part II of Adviser's Form ADV) less than 48 hours prior to, but not later than,
the date of execution of this agreement. Accordingly, Adviser shall have the
option to terminate this agreement without penalty within five business days
after that date of execution; provided, however, that any investment action
taken by Adviser with respect to the Fund prior to the effective date of such
termination shall be at Fund's risk.
18. Entire Agreement: Governing Law. This agreement constitutes the
entire agreement of the parties with respect to the rendering of advice by
Sub-adviser for the benefit of Adviser and the Fund and can be amended only by
written document signed by the parties. This agreement shall be governed by the
internal laws of the State of Michigan.
19. Amendment. This Agreement may be amended from time to time by
agreement of the parties hereto provided that such amendment shall be approved
both by the vote of a majority of Trustees of the Trust, including a majority of
Trustees who are not parties to this Agreement or interested person, as defined
in Section 2(a)(19) of the Act, of any such party at a meeting called for that
purpose, and, where required by Section 15(a)(2) of the Act, by the holders of a
majority of the outstanding voting securities (as defined in Section 2(a)(42) of
the Act) of the Fund.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed on their behalf by their duty authorized officers, and their corporate
seals affixed hereto this 16th day of June, 1998.
ATTEST: MICHIGAN NATIONAL BANK
/s/ Lawrence L. Gladchun /s/ Robert J. Stapleton, Jr.
Secretary Director, Investment Services
Lawrence L. Gladchun Robert J. Stapleton, Jr.
NATIONAL AUSTRALIA ASSET
MANAGEMENT LIMITED
/s/ Paul Laband
Secretary Managing Director
Paul Laband
<PAGE>
Exhibit A
Independence One Mutual Funds
Independence One International Equity Fund
Sub-Advisory Agreement
Adviser will pay Sub-Adviser as full compensation for services rendered
hereunder an annual fee at the rate of 0.3% based on the average daily value of
the net assets of the Fund managed by the Sub-Adviser. The fee shall be
calculated as determined by the Fund on the last day of each month on which the
New York Stock Exchange is open and shall be payable on a monthly basis, in
arrears.
This Exhibit duly incorporates by reference the Sub-Advisory Agreement.
Advisor:
/s/ RJS
(initials)
Sub-Advisor:
/s/ PL
(initials)
<PAGE>
Schedule 1
Independence One Mutual Funds
Independence One International Equity Fund
Part A - Investment Objectives
1. Investment Philosophy and Process
A) Asset Allocation (Country Selection)
NAM international equity portfolio are managed by its asset allocation
and international equity teams. The asset allocation team is
responsible for managing regional exposures in Europe, 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.
We manage country allocation using NAM's Value Active approach. This is
a three step process involving the assessment of value, an analysis of
economic and market fundamentals and judgements about market sentiment.
Proprietary value models are used to determine fair value. The
assessment of value is a strictly quantitative process and ranks each
market with a through the range value score. A dividend discount
analysis calculates an implied rate of return and then a series of key
variables are used to derive an implied return based on historical
relationships. These two outputs are then compared to establish a value
reading for each market.
Thus the output from our value models is the primary input into our
decision about the attractiveness of each of the major markets. Our
model identifies markets that are undervalued; it is generally these
markets which deliver the best returns over time.
The second stage of our 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, and of course we go behind these numbers to look at
growth, inflation, etc. We estimate the size and pattern of changes in
our forecasts of these factors, and compare 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 and RSI indicators, flow of funds, put/call ratios
and the like.
Therefore the active elements of our process, (fundamental analysis and
sentiment) are used to fine turn the implementation of asset allocation
decisions which have been driven by our value analysis.
We emphasize that an important differentiating feature of NAM's
approach is that the country selection process is undertaken by a
dedicated team who are focused full time on this task. Stock selection
is a separate discipline undertaken by specialists in the international
equity team.
As noted earlier, growth is the key variable for investors in Asian
markets. Investors primarily seek returns from capital gains rather
than income, which matches the nature of the economies themselves and
the more volatile nature of their stock markets.
Information in Asian markets is still only selectively distributed.
Both coverage and quality of equity research is highly variable and
companies are often dominated by individual families or government
members. In such markets, relationships are crucial and effective
access to contacts and markets is a precondition for success.
Such market conditions mean that a top down approach is likely to be
more successful. We undertake a three level analysis which includes at
the first level the economy, the market and political factors; at the
second level, industry sectors; and at the third level, individual
stocks.
Once an overall allocation to Asia has been made, country selection
within the region is handled by the Asian specialists in the
international team.
<PAGE>
B) Decision-Making/Implementation
The primary generator of our international exposures is the output from
our value model. This is updated at least weekly. The setting of
country exposures is a dynamic process which occurs on an ongoing
basis.
A monthly meeting is held to formally exchange information and provide
input to the asset allocation team. The meeting reviews the NAM value
model outputs, focuses on any specific changes made by the sector teams
to the fundamentals, and then pursues a list of current key issues for
discussion.
It must be stressed that the responsibility for setting portfolio
weightings rests with the asset allocation team, and this is a
continuous process. Generally we try to ensure that shifts in portfolio
weightings are implemented by futures so as not to disturb the
underlying physical stock portfolios. This approach enables
implementation of changes to geographical weightings swiftly and
cheaply, and has the added advantage of not altering the longer term
focus of the stock selectors in each country portfolio.
This is not practical for the majority of share markets in Asia,
however, and, as mentioned earlier, country selection is undertaken by
the international team.
Dealing in international stocks is undertaken by the country
specialist, and orders are approved by head of the international team
over and above designated levels. The management of country weightings
is largely undertaken via the use of futures and these are dealt
through the asset allocation team with final sign-off from the head of
asset allocation.
<PAGE>
C) Country Ranges
The following table shows the ranges around the benchmark established
for the fund. Our value model provides recommended weightings within
these ranges.
Region/Country Benchmark
Japan +/- 15%
Europe +/- 10%
UK +/- 10%
Asia and Oceania +/- 5%
D) Stock Selection
i) Developed Countries
In terms of stock selection a value approach is used Value screens give
simplicity, consistency and discipline to our work. Each stock is
ranked relative to the others within its own market on each of six
variables:
PE ratio ]
Price to cash flow ratio ] Value Screens
Price to book value ]
Dividend yield ]
Cash flow to total liabilities ratio and ] Fundamental Screens
EPS growth
Each variable except book value and total liabilities is based on
prospective numbers. We use consensus forecasts. The six factors are
then combined into one composite relative value ranking (RVR). The
current RVR is compared to its historic range and an extreme RVR
triggers the active part of the process.
Having used the value screens to determined our interest in a given
stock, fundamental research focuses on the reasons why the stock may
now be trading cheaply or expensively. Our fundamental work thus
focuses on key issues rather than a mass of detail. We investigate
company strategy, industry competition, management changes and
financial data. If we can find no justification for the RVR we have
ascribed, the stock becomes a candidate for purchase or sale.
The third stage of the value active process uses sentiment indicators
to assist with the timing of buy/sell decisions. One of the side
effects of value screening is that it gives no indication of the timing
involved before the market recognizes the value signaled by the screen.
Sentiment indicators have been tailored for each market; they are a
mixture of moving average and momentum indicators. Importantly, the
value screening creates equally strong sell signals and our sell
disciplines are rigorous. Any stock which has an RVR which indicates it
should be sold can only then be held after a process of per review in
which the portfolio manager justifies the fundamentals. The head of
international makes the ultimate decision.
Sector weightings in each country portfolio vary from index as a result
of the stock ranking process, but are reviewed as part of overall
portfolio tracking error.
ii) Asia and Oceania
Asia
In Asian markets, because the 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.
(Excludes Australia and New Zealand which are treated the same as the
developed market approach.)
The first level leads to decisions about intra-regional market
weightings. We look at economic growth, inflation, interest rates,
corporate earnings, money supply and balance of payments. For each
market, we look at prospective PER, momentum, volumes and sentiment and
we also consider regional and country specific political developments.
That same process also helps identify favorable sectors within
countries. We look not just for sectors offering superior growth
prospects, but where the market has not yet discounted this growth.
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. We
look at earnings growth on a 2-3 year outlook and at the ability of the
company to exploit market positioning. In determining relative value,
we look at prospective PE relative to sector and market, price to net
asset value, price to cash flow and relative value ranges. We look
carefully at the financial position of the company, its balance sheet
and gearing and its return on equity. Finally, and most importantly, we
look at management quality, track record, connections and directors'
dealing activity.
Our investment universe includes Australia, New Zealand, Hong Kong, Malaysia,
Singapore.
Oceania - Value Active (3 Stage Process)
1. Identify value for every stock in our investment universe. Use a
combination of:
Price/Earnings Ratio
Price/Cashflow Ratio
Price/NTA
Dividend Yield
Net Present Value
Stocks are sorted in a model and ranked from cheapest to more
expensive.
2. The next step is to identify which of the 'good value' stocks are
bought. We will invest in companies where we anticipate the
'undervaluation' will be realized by the market within the next 12
months. To determine the timing we look at the fundamental outlook of
each of the cheap companies; and the market sentiment towards each of
the companies.
a) Fundamental: on a stock by stock basis we assess all factors which will
impact on the economy over the next 12 months.
These include:
o quality of management
o level of free cashflow
o economic influences
o strategic influences (competition, etc.)
We then come to an assessment as to whether the stock looks
fundamentally good.
b) Sentiment: we make an assessment on a stock by stock basis how the market
it treating the stock. Is it an uptrend, oversold, etc.? This helps with
the timing decision.
3. In terms of determining stock weighting we will establish significant
positions in stocks which:
i) are good value;
ii) have an improving fundamental outlook; and
iii) where market sentiment is likely to improve.
and, we will have no weightings in stocks which:
i) are poor value;
ii) have a deteriorating fundamental outlook; and
iii) the market sentiment is likely to deteriorate.
E) Currency
Currency management is also undertaken by the asset allocation team.
Our primary concern is to protect the portfolio from the negative
impact of major currency realignments. We use a series of models to
monitor value, fundamental influences and prevailing sentiment. Our
neutral position is an unhedged one and decisions to hedge either US
dollar or local currency exposure are made on a tactical basis, and
only after market allocation and stock selection have been made - i.e.
it is an independent decision.
F) Compliance and Corporate Governance
Although the responsible portfolio manager is accountable for complying
with the investment mandate, a dedicated compliance officer (we have
two full time staff in the compliance function within NAM, reporting to
the Head of Operations), has overall responsibility for ensuring
adherence to the mandate. All investment policies and procedures are
documented in the NAM Policies and Procedures Manual which sets out
clearly the standards that all investment staff are required to follow
when investing clients' monies. We have also prepared a Risk Management
Statement detailing our general approach to the management of
derivatives and other risk matters. Portfolios are audited for
compliance at least monthly, and also on a random basis.
Where NAM sees a need to take a particular corporate governance stance,
it is our policy to first advise our clients of the course of action we
propose. Such action is generally confined to major issues or
disagreements with board direction. It is not our policy or intention
to foster a confrontational approach with companies, and normally, if
concerned about behavior or direction of management, we would exit a
stock rather than engage in prolonged action. We support the corporate
governance guidelines promulgated by the Australian Investment
Managers' Association.
2) Performance Objective and Benchmark
The performance objective and benchmark for the Fund is to outperform
the Morgan Stanley European Asia Far East Accumulation Index (net) in
US$ over a rolling three year period while maintaining tracking error
for the portfolio of below 5.00%.
Part B - Investment Guidelines
1. Investment Guidelines
The Manager shall manage the Portfolio in accordance with the following
specific guidelines and any further instructions given to the Manager
in writing from time to time.
a) Authorized Investments
The Independence One International Equity Fund will invest in the
following investments:
1. Ordinary shares, partly paid shares, rights or entitlements,
preference shares, cumulative convertible or redeemable
preference shares, convertible notes, warrants, and options
issued by companies quoted or to be quoted on any recognized
Stock Exchange in any country listed below (inclusive of the
US where the security relates to non US investments) or to be
listed within three months of the date of purchase.
Region and Country Listing:
Region Country Japan Japan 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 and any other country
agreed in writing between the Advisor and Sub-advisor
2. Webs (World Equity Benchmark Shares) and OPALS (Optimised
Portfolios As Listed Securities) listed on any recognized
Stock Exchange in any country listed in (1) above including
the US.
3. Options, futures and indexed futures listed on any recognized Stock
Exchange in any country listed in (1) above. 4. Units, options on units
and partly paid units listed on any recognized Stock Exchange in any
country listed in (1)
above.
5. Interest in a mutual fund or any investment vehicle that
comprises substantially of listed securities in those
countries on in any individual country listed in (1) above.
6. Cash, Treasury Bills, Bank Deposits, Promissory Notes and
other Commercial Paper with a maturity of less than three
years.
7. Currencies both spot and forward for those countries listed in (1)
above including $US.
b) Operating Procedures
1. Cash Flow
The client will be responsible for the management of the bank account
of the fund with the custodian and will need to advise the manager on a
daily basis of the total inflow and outflow as well as a projection of
cash flow requirements based on notified or expected redemptions from
the fund. The cash flow projection will need to be updated on a daily
basis out to the maximum redemption period.
The custodian will be required to advise the manager on a daily basis
of the balance in the bank account and a detailed transaction listing
for the fund as well as the total creditor and debtor position.
Initially this communication will be by facsimile, however electronic
transfer of information should be further explored.
After receipt of the above information, the manager will determine the
investment approach for surplus funds.
2. Investment
The manager in conjunction with the client will establish accounts with
brokers for the purchase and disposal of securities. The manager will
provide the custodian with an approved brokers confirmation of a trade
for settlement. Copies of the brokers confirmation will also be sent to
the client. The manager will establish with the custodian a secure
procedure for the settlement of all trades.
The manager will treat the brokers confirmation as a pending trade
until the custodian confirms the settlement amount in $US when the
trade will be posted to the client's account. The portfolio records
maintained by the manager for the client will be in $US.
3. Portfolio Balancing
The portfolio records maintained by the manager shall not be closed at
the end of a month until the final transaction listing from the
custodian has been checked against the mangers records.
When completed the end of month portfolio reports including performance
statistics will be completed.
<PAGE>
Schedule 2
Independence One Mutual Funds
Independence One International Equity Fund
Reporting
1. Investment Report
NAM will provide the following reports:
Monthly
o A detailed portfolio listing and valuation report in $US.
Quarterly
o A detailed report on the management of the portfolio covering all
activity, performance and background against which investment
decisions have been made.
o A forward looking market commentary highlighting any major portfolio changes
that may be considered next quarter.
Annually
o An annual report covering all major activities and performance for the fund
over the preceding year.