Rule 497(c)
Reg. No. 33-87488
CRANBROOK FUNDS
consisting of the
CRANBROOK MONEY MARKET FUND
and
CRANBROOK TREASURY FUND
100 Renaissance Center, 25th Floor
Detroit, Michigan 48243
(313) 259-4321
Cranbrook Money Market Fund (the "Money Market Portfolio") and Cranbrook
Treasury Fund (the "Treasury Portfolio") are separate series of Cranbrook
Funds. Both funds seek to achieve a high level of current income consistent
with the preservation of capital and liquidity by investing in a portfolio
of high-quality, short-term "money market" instruments. The Money Market
Portfolio invests in short-term securities of United States and Canadian
Governments, in money market instruments and in such securities subject to
repurchase agreements. The Treasury Portfolio invests in a portfolio of
U.S. Treasury securities and in such securities subject to repurchase
agreements. Shares of the Money Market Portfolio and the Treasury Portfolio
are not insured or guaranteed by the U.S. Government or any governmental
agency and are not subject to the protection of the Securities Investor
Protection Corporation. Each Portfolio seeks to maintain a constant $1.00
net asset value per share, although this cannot be assured. Cranbrook Funds
may offer additional series in order to meet a wide range of investment
needs. Any additional series will represent a separate investment portfolio
with its own investment policies and objectives.
The date of this Prospectus is January 1, 1996
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and the
Statement of Additional Information dated January 1, 1996 and, if given or
made, such information or representations may not be relied upon as having
been authorized by Cranbrook Funds, the Adviser, the Distributor or any
other person. This Prospectus does not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there by any sale of, these
securities in any state or jurisdiction in which such offer, solicitation or
sale would be unlawful. Cranbrook Funds reserves the right in its sole
discretion to withdraw all or any part of the offering made by this
Prospectus or to reject purchase orders. All orders to purchase shares are
subject to acceptance and are not binding until confirmed or accepted in
writing.
TABLE OF CONTENTS
Page
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Annual Fund Operating Expenses . . . . . . . . . . . . . . . . 1
Cranbrook Funds . . . . . . . . . . . . . . . . . . . . . . . . 2
Investment Objectives and Restrictions . . . . . . . . . . . . . 7
Purchase of Shares . . . . . . . . . . . . . . . . . . . . . . . 9
Redemption of Shares . . . . . . . . . . . . . . . . . . . . . . 10
Certain Services Provided to Shareholders . . . . . . . . . . . 13
Dividends and Distribution . . . . . . . . . . . . . . . . . . . 13
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Management of the Fund . . . . . . . . . . . . . . . . . . . . . 15
Performance and Yield Information . . . . . . . . . . . . . . . 17
Certain Other Matters . . . . . . . . . . . . . . . . . . . . . 18
THIS PROSPECTUS SETS FORTH CONCISELY INFORMATION ABOUT CRANBROOK FUNDS AND
TWO OF ITS PORTFOLIOS, CRANBROOK MONEY MARKET FUND AND CRANBROOK TREASURY
FUND, WHICH A PROSPECTIVE INVESTOR SHOULD KNOW BEFORE INVESTING. IT IS
IMPORTANT THAT YOU READ IT CAREFULLY BEFORE YOU DECIDE TO INVEST. THIS
PROSPECTUS SHOULD BE RETAINED FOR FUTURE REFERENCE. A STATEMENT OF
ADDITIONAL INFORMATION ABOUT CRANBROOK FUNDS AND SUCH SERIES HAS BEEN FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION AND IS INCORPORATED INTO THIS
PROSPECTUS BY REFERENCE. A COPY OF THE STATEMENT OF ADDITIONAL INFORMATION
IS AVAILABLE WITHOUT CHARGE, UPON REQUEST TO THE ADDRESS OR TELEPHONE NUMBER
LISTED ON THE COVER.
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ANNUAL FUND OPERATING EXPENSES
Money Market Treasury
Portfolio Portfolio
(as a percentage of average net
assets)
Management fee (1) . . . . . . . . . . . 0.225% 0.225%
12b-1 distribution fee (2) . . . . . . . 0.25 0.25
Other expenses (3) . . . . . . . . . . . 0.23 0.23
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Total . . . . . . . . . . . . . . . 0.705% 0.705%
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(1) Represents advisory fee. See "Management of the Fund -
Investment Adviser".
(2) Represents fees payable to FoM under the Administration and
Distribution Agreement for distribution expenses. See
"Management of the Fund--Administrator, Distributor,
Transfer and Dividend Disbursing Agent". Under this
agreement, FoM performs both distribution and
administrative functions. Long-term shareholders may pay
more in 12b-1 fees than the economic equivalent of the
maximum front-end sales charges permitted by the rules of
the National Association of Securities Dealers, Inc.
(3) Represents all other expenses of the Fund, including fees
paid to NBD Bank ("NBD") as the Custodian, to FoM as
transfer and dividend disbursing agent and to FoM for
administrative services under the Administration and
Distribution Agreement.
As an example, assuming an investor maintains an average of $1,000
invested in the Money Market Portfolio or the Treasury Portfolio, based on
the estimates shown above the investor's indirect share of expenses paid by
the Fund would be 7.05 or 7.05, respectively, for as long as the investment
is maintained. If all dividends on an initial $1,000 investment are
reinvested, and assuming a 5% annual return, the investor's total indirect
share of expenses paid by the Fund would be as follows:
Money Market Treasury
Portfolio Portfolio
One year . . . . . . . . . $ 7.05 $ 7.05
Three years. . . . . . . $22.07 $22.07
Five years . . . . . . . . $38.41 $38.41
Ten years. . . . . . . . . $85.80 $85.80
The above table is provided to assist investors in understanding
the various costs and expenses that an investor in the Fund will bear,
directly or indirectly. The percentages shown above expressing Other
Expenses are estimates based on amounts incurred by other similar funds for
which FoM has served as administrator, transfer agent and dividend
disbursing agent and for which NBD has served at custodian. The example
should not be considered a representation of the past or future performance
or expenses of the Fund. Actual expenses may be greater or lesser than
those shown.
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CRANBROOK FUNDS
The Fund and the Portfolios
Cranbrook Money Market Fund (the "Money Market Portfolio") and
Cranbrook Treasury Fund (the "Treasury Portfolio") (collectively, the
"Portfolios") are separate series of Cranbrook Funds (the "Fund"), which is
an unincorporated business trust organized under Massachusetts law on
November 30, 1994 and which commenced operations on March 1, 1995 Each
Portfolio of the Fund is an open-end, diversified management investment
company and the Fund is registered with the Securities and Exchange
Commission under the Investment Company Act of 1940, as amended (the "1940
Act").
Investment Objectives
The investment objective of each Portfolio is to provide a high
level of current income consistent with the preservation of capital and
liquidity. This investment objective will not be changed without
shareholder approval. The Money Market Portfolio seeks to achieve its
investment objective by investing in short-term securities of the United
States and Canadian Governments, in money market instruments, and in such
securities subject to repurchase agreements. The Treasury Portfolio seeks
to achieve its investment objective by investing only in short-term
securities that are direct obligations of the U.S. Treasury and in such
securities subject to repurchase agreements. The Treasury Portfolio is
designed for investors seeking a higher degree of safety and capital
preservation and for investment by certain municipal governmental
authorities and financial institutions which are required to limit their
investments to such types of securities. Securities in which the Portfolios
invest may have lower yields than securities with longer maturities or lower
investment quality, or which generally have less liquidity. There can be no
assurance that either the Money Market Portfolio or the Treasury Portfolio
will achieve its investment objective.
Investment Adviser, Administrator and Distributor
The Investment Adviser for both Portfolios is Cranbrook Capital
Management, Inc. (the "Adviser"), which is a Michigan corporation
wholly-owned by First of Michigan Capital Corporation ("FMCC"). The
Adviser's principal office is located at 100 Renaissance Center, 25th Floor,
Detroit, Michigan 48243. The Administrator and Distributor of the
Portfolios is First of Michigan Corporation ("FoM"), which is a Delaware
corporation also wholly-owned by FMCC. FoM's principal office is located at
l00 Renaissance Center, 26th Floor, Detroit, Michigan 48243. Further
information about the duties and compensation of the Adviser and FoM is set
forth under the caption "Management of the Fund" in this Prospectus and in
the Statement of Additional Information.
Certain Risk Factors Which Investors Should Consider
Although shares of the Treasury Portfolio represent, and shares of
the Money Market Portfolio may partially represent, an interest in a
portfolio of securities issued or guaranteed by the United States Treasury
and investments secured by such securities, shares of the Portfolios are not
themselves guaranteed or sponsored by any government authority and are not
subject to the protection of the Securities Investor Protection Corporation.
Furthermore, neither the U.S. Government, nor any of its agencies and
instrumentalities, guarantees the market value of their securities.
Although the Fund seeks to maintain a net asset value of $l.00 per
share for each Portfolio for purposes of purchases and redemptions, there
can be no assurance that it will be able to do so on a
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continuous basis, and under unusual circumstances the number of shares in
shareholder accounts may be reduced to maintain the net asset value at
$1.00. Information about the method by which net asset value per share is
determined is contained in the Statement of Additional Information. The
investment securities of each Portfolio will be affected by general changes
in interest rates resulting in increases or decreases in the value of the
obligations held by the Portfolio. The market value of the securities in a
Portfolio can be expected to vary inversely to the changes in prevailing
interest rates. Thus, if interest rates have increased from the time a
security was purchased, such security, if sold, might be sold at a price
less than its purchase cost. Similarly, if interest rates have declined from
the time a security was purchased, such security, if sold, might be sold at
a price greater than its purchase cost. In either instance, if the security
were held to maturity, no loss or gain would normally be realized as a
result of these fluctuations. Redemptions by shareholders could require the
sale of Portfolio investments by the Fund at a time when such a sale might
not otherwise be desirable.
Either Portfolio may purchase securities which permit the obligor
to prepay the principal balance in whole or in part prior to stated
maturity. Prepayments, if they occur, could adversely affect the yield
realized on the investment and could occur at a time when reinvestment of
proceeds by the Fund may not yield as much as the investment which was
prepaid.
Either Portfolio may acquire securities subject to repurchase
agreements, subject to certain limitations. Borrowings by either Portfolio
are subject to certain limitations. The Money Market Portfolio may invest
in U.S. dollar denominated securities issued by Canadian governmental or
corporate entities or foreign branches of U.S. banks, in time deposits, and
in variable rate master demand notes. The Money Market Portfolio may also
lend its securities to brokers, dealers, and financial institutions,
provided certain conditions are met. Such transactions may involve certain
risks. See "Investment Objective and Policies".
Shareholder Inquiries
The principal office of the Fund is 100 Renaissance Center, 25th
Floor, Detroit, Michigan 48243.
Phone number of the Fund: (313) 259-4321
24 hour yield information:
Within Michigan: (800) 482-2417
Outside of Michigan: (800) 521-1098
Purchase and Redemption Orders:
Within Michigan: (800) 482-2560
Outside of Michigan: (800) 521-1264
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INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each Portfolio is to provide a high
level of current income consistent with the preservation of capital and
liquidity. The investment objective of a Portfolio will not be changed
without shareholder approval. Each Portfolio seeks to achieve its objective
by investing exclusively in United States dollar denominated obligations.
The dollar-weighted average maturity of each Portfolio will not exceed 90
days, and all securities purchased will have a maturity of 397 days or less
at the time of acquisition (except for securities underlying certain
repurchase agreements and certain variable rate and floating rate
instruments). Normally, each Portfolio will hold portfolio securities to
maturity but may dispose of any instrument if the Adviser deems the action
appropriate because of redemption requirements, reduction in
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credit quality, a reduction in the instrument's rating, or other reasons.
Even though most securities are expected to be held to maturity, the fact
that they will have maturities of 397 days or less will result in high
portfolio turnover.
Money Market Portfolio
The Money Market Portfolio may invest in the following "money
market" instruments:
1. Obligations issued or guaranteed by the United States
Government, its agencies or instrumentalities.
2. U.S. Dollar denominated obligations issued or guaranteed by
the government of Canada, a Province of Canada, or an
instrumentality or political subdivision thereof.
3. Certificates of deposit, bankers' acceptances, and time
deposits of U.S. banks or other U.S. financial institutions
(including foreign branches of such banks and institutions) having
total assets in excess of $1 billion and which are members of the
Federal Reserve System or whose deposits are insured by the Federal
Deposit Insurance Corporation.
4. Certificates of deposit, bankers' acceptances, and time
deposits of American branches of foreign banks having assets in
excess of the equivalent of $1 billion.
5. Commercial paper, other short term obligations including
variable rate master demand notes, participation interests in loans
extended by banks, and bonds and other obligations having a
remaining maturity of less than one year.
6. Repurchase agreements involving any of the above types of
securities (see "Certain Investment Practices" below for a
discussion of repurchase agreements).
Obligations issued or guaranteed by foreign branches of United
States banks (commonly known as "Eurodollar" obligations) or United States
branches of foreign banks (commonly known as "Yankeedollar" obligations) may
be general obligations of the parent bank or obligations only of the issuing
branch. Where the obligation is only that of the issuing branch, the parent
bank has no legal duty to pay such obligation. Such obligations would thus
be subject to risks comparable to those which would be present if the
issuing branch were a separate bank. The Money Market Portfolio will not
invest in a Eurodollar obligation if upon making such investment the total
of Eurodollar obligations which are not general obligations of domestic
parent banks would thereby exceed 25% of the total assets of the Money
Market Portfolio. Investments in securities of foreign governments,
corporations, or foreign branches of United States banks involve
considerations which are not ordinarily associated with investing in
domestic securities. These considerations include currency exchange control
regulations, the possibility of expropriation, seizure, or nationalization
of foreign deposits, less liquidity and more volatility in foreign
securities markets, and the impact of political, social, or diplomatic
developments or the adoption of other foreign government restrictions that
might adversely affect the payment of principal and interest on securities
in the Money Market Portfolio.
United States and foreign bank obligations include time deposits,
which are non-negotiable, interest-bearing deposits maintained in a banking
institution. Substantial forfeiture of accrued interest of a time deposit
can result if the Money Market Portfolio should make a withdrawal of amounts
deposited before
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the stated maturity. Time deposits maturing in more than seven days,
together with other "illiquid" investments, may not exceed 10% of the total
assets of the Money Market Portfolio.
Variable rate master demand notes are direct lending arrangements
between the lender (the Money Market Portfolio) and a borrower.
Participation interests in loans extended by banks represent the Money
Market Portfolio's interest in a lending arrangement between a bank and its
borrower. It is not generally contemplated that such instruments will be
traded. There is no secondary market for variable rate master demand notes
although they are redeemable (and thus immediately repayable by the
borrower) at face value, plus accrued interest, at any time and are
therefore under normal circumstances not considered by the Money Market
Portfolio to be illiquid investments. In connection with master demand note
arrangements, the Adviser will consider, on an ongoing basis, the earning
power, cash flow, and other liquidity ratios of the borrower and the
borrower's ability to pay principal and interest on demand. The quality of
the Money Market Portfolio investments in variable rate master demand notes
is also reviewed by the Trustees at least quarterly.
Commercial paper, including variable rate notes and other short
term corporate obligations, must be rated not less than A2 by Standard &
Poor's Corporation ("S&P") or Prime-2 by Moody's Investors Service, Inc.
("Moody's") or, if not rated, must have been independently determined by the
Trustees to be investments of high quality and minimal credit risk and be
issued by a corporation having an outstanding bond issue rated A or better
by S&P or Moody's. Bonds and other short term obligations (if not rated as
commercial paper) must be rated AA or Aa or better by S&P or Moody's,
respectively, or be, in the judgment of the Adviser and Portfolio Manager,
of equivalent investment quality. A description of the ratings of
commercial paper and bonds is contained in the Statement of Additional
Information.
Treasury Portfolio
The Treasury Portfolio may invest in the following types of
securities:
1. Treasury bills, notes and bonds which are direct
obligations of the U.S. Treasury, including purchases and sales of
such U.S. Government securities on a when-issued basis.
2. Repurchase agreements involving such U.S. Government
securities with any member bank of the Federal Reserve System or
primary dealers in Treasury securities, but the Treasury Portfolio
may not invest more than 10% of its total assets with any one such
bank or dealer. This limitation on the Treasury Portfolio's
investment in obligations subject to repurchase agreements may
adversely affect the Treasury Portfolio's yield under certain
market conditions (see "Certain Investment Practices" below for a
discussion of repurchase agreements).
Certain Investment Practices
In addition to its other investment policies, each Portfolio
complies with the quality and diversification requirements of Rule 2a-7
under the 1940 Act. Under Rule 2a-7, each Portfolio may only purchase
United States dollar-denominated instruments that are determined to present
minimal credit risk and that are at the time of acquisition "eligible
securities" as defined in Rule 2a-7. An eligible security is a security
that is rated in the top two rating categories by the required number of
nationally recognized statistical rating organizations (at least two or, if
only one such organization has rated the security, that one organization)
or, if unrated, are deemed comparable in quality. Securities, other than
U.S. government securities and repurchase agreements of such securities, may
not be purchased if the purchase would cause a Portfolio to
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have more than 5% of its assets in securities of any one issuer or in
eligible securities that have not been rated in the. highest category by the
required number of rating organizations or, if unrated, have not been deemed
of comparable quality.
In pursuit of its investment objective, either Portfolio may engage
in repurchase agreement transactions, and the Money Market Portfolio may
from time to time entirely comprise securities subject to repurchase
agreements. Under the terms of a typical repurchase agreement, the
Portfolio acquires an underlying debt obligation for a relatively short
period (usually not more than one week) subject to an obligation of the
seller to repurchase, and the Portfolio to resell, the obligation at an
agreed-upon price and time, thereby determining the yield during the
Portfolio's holding period. This arrangement results in a fixed rate of
return that is not subject to market fluctuations during the Portfolio's
holding period. Repurchase agreements are considered loans collateralized
by the underlying securities. Either Portfolio may enter into repurchase
agreements with respect to its portfolio securities with brokers, dealers,
and commercial banks. The Portfolios will engage in such transactions only
with institutions included on the Federal Reserve System's list of
institutions, commonly referred to as "primary dealers", with whom the
Federal Reserve open market desk will do business. Under each repurchase
agreement the selling institution will be required to maintain the value of
the securities subject to the repurchase agreement at not less than 102% of
their repurchase price. Repurchase agreements could involve certain risks
in the event of default or insolvency of the other party, including possible
delays or restrictions upon a Portfolio's ability to dispose of the
underlying securities. The Adviser, acting under the supervision of the
Trustees, reviews the creditworthiness of institutions with whom a Portfolio
enters into repurchase agreements to evaluate these risks, and also monitors
the status of repurchase agreements to insure that the value of the
collateral equals or exceeds 102% of the amount of the repurchase obligation
and in the event of a shortfall takes such action as it deems appropriate
(which may include a demand for additional collateral from the selling
institution and will include such a demand if the value of the collateral
has fallen below 100% of the amount of the repurchase obligation).
The Money Market Portfolio (but not the Treasury Portfolio) may
also lend its portfolio securities to brokers, dealers, and financial
institutions provided that cash or cash equivalent collateral, or letters of
credit to the extent permitted by law, equal to at least 100% of the market
value of the securities loaned, is maintained by the borrower with the
Portfolio. Any loans of portfolio securities will be made according to
guidelines established by the Securities and Exchange Commission and the
Fund's Board of Trustees.
Change in Policies
The Trustees have no present plan to change the policies with
regard to the types or maturities of securities in which either Portfolio
can invest. However, if they determine that a Portfolio's investment
objectives can best be achieved by a change in investment policy or
strategy, they may do so without shareholder approval provided that such a
change is not prohibited by such Portfolio's investment restrictions or
applicable law. For example, the Trustees could, as a matter of policy or
strategy, decide not to enter into certain types of transactions described
above. Any material change will first be disclosed in a current prospectus
or proxy statement.
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Certain Investment Restrictions
The following investment restrictions have been declared by the
Fund to be "fundamental investment policies", which means that they may not
be changed without approval by holders of a "majority" of the outstanding
shares (as defined in the 1940 Act) of the affected Portfolio:
-- The Money Market Portfolio may not purchase the securities
of issuers conducting their principal business activity in the same
industry if the value of the Money Market Portfolio's investments
in such industry would exceed 25% of the value of such Portfolio's
total assets, provided that gas, electric, water, and telephone
utilities are considered to be separate industries, the personal
credit and business credit businesses are considered separate
industries and there is no limitation with respect to or arising
out of investments in obligations issued or guaranteed by the
United States government, its agencies and instrumentalities, or
negotiable certificates of deposit, bankers' acceptances or time
deposits issued by domestic banks. For purposes of this
restriction, securities issued by the government of Canada, a
Province of Canada or an instrumentality or political subdivision
therof are considered to be an "industry" subject to this 25%
limit.
-- The Money Market Portfolio may not borrow money, except
from banks for temporary or emergency purposes, and then only in
amounts not exceeding at any one time 20% of the value of the
Portfolio's total assets at the time of the borrowings.
-- The Money Market Portfolio may not invest more than 5% of
its total assets in the securities of any one issuer, except
securities issued or guaranteed as to principal and interest by the
U.S. government, its agencies or instrumentalities.
-- Neither Portfolio may invest more than 10% of its net
assets in securities restricted as to disposition under the federal
securities laws or which are otherwise considered to be "illiquid"
investments, such as restricted securities, securities having no
readily available market quotations, non-negotiable time deposits
maturing in more than seven days, and repurchase agreements with
maturities of more than seven days.
-- The Treasury Portfolio will invest 100% of its assets in
securities that are direct obligations of the U.S. Treasury or
which are repurchase obligations with respect to such Treasury
securities. The Treasury Portfolio may not (1) enter into
repurchase agreements if immediately thereafter more than 10% of
the value of its total assets would be invested in repurchase
agreements with any one qualifying bank or primary dealer in such
securities or (2) borrow money except from banks for temporary or
emergency purposes and then only in an amount not exceeding 10% of
the value of its total assets at the time of the borrowings, or
mortgage, pledge or hypothecate that Portfolio's assets except in
connection with any such borrowing and in amounts not in excess of
the dollar amounts borrowed.
Further Information
The Statement of Additional Information contains more information
with respect to the Fund's investment policies, information about Rule 2a-7,
and a complete list of those fundamental investment policies which cannot be
changed without approval of a majority of the shareholders of the affected
Portfolio.
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PURCHASE OF SHARES
The Fund has established a minimum initial investment of $1,000 and
$100 for subsequent investments in each Portfolio. Customers of FoM in
states where Fund shares are qualified to be sold are afforded a "sweep"
privilege, whereby uninvested cash is automatically invested in Fund shares.
Minimum investment amounts do not apply to the FoM "sweep" privilege, but
uninvested amounts of $500 or more are "swept" on a daily basis and
uninvested amounts of $1.00 or more, but less than $500, are "swept" weekly,
on every Monday. There is no front-end or deferred sales charge by the
Fund.
The Fund's shares are sold to the general public through FoM, the
Administrator and Distributor, on a continuing basis at their net asset
value next determined after receipt of an order to purchase shares by FoM.
An order to purchase shares will be deemed to have been received by FoM only
when Federal Funds with respect thereto are available to the Custodian for
investment. Federal Funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase shares that is
transmitted by Federal Funds wire will be available the same day for
investment, if received prior to the last valuation time on that day.
Payments transmitted by other means (such as by check drawn on a bank that
is a member of the Federal Reserve System) will normally be converted into
Federal Funds within two banking days after receipt. Orders by wire
transfer of Federal Funds received by FoM for purchase of shares will be
effected, and the investor will begin to earn dividends, on the day of
receipt if FoM has received confirmation of receipt of such funds prior to
11:00 a.m., Detroit time. Otherwise, such purchase will be effected, and
the investor will begin to earn dividends, on the following business day.
Orders by wire transfer of funds that are not immediately available Federal
Funds will be effected, and the investor will begin to earn dividends, on
the day following receipt of the wire transfer. Shareholders will receive
confirmation of each purchase other than purchase by automatic reinvestment
of dividends.
As used in this Prospectus, the term "business day" refers to those
days on which both FoM and NBD, the Fund's Custodian, are open for business.
If payment is wired in Federal Funds, the payment should be
directed to "Comerica Bank (ABA #072000096), for the account of First of
Michigan Corporation re: Cranbrook Funds, Account Number 2000014379"; and
should identify the customer name and account number. If payment is to be
wired, call FoM prior to wiring the funds at (800) 521-1264 (outside of
Michigan) and (800) 482-2560 (within Michigan).
Valuation of Shares
The net asset value of each Portfolio is determined as of 2:00 p.m.
and as of 5:00 p.m., Detroit time, on each business day, on any other day on
which the New York Stock Exchange is open for business, and on any other day
on which there is a sufficient degree of trading in the Portfolio's
investment securities that the current net asset value of the Portfolio's
shares might be materially affected, and is computed by dividing the value
of the net assets of each Portfolio by the total number of shares of such
Portfolio which are outstanding. Each Portfolio's assets are valued on the
basis of amortized cost, which involves valuing a portfolio investment at
its cost initially and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. The Fund attempts to
maintain a constant net asset value of $1.00 per share for each Portfolio.
Further information regarding the Fund's valuation policies, including a
list of holidays on which the New York Stock Exchange and either NBD or FoM,
or both, are not open for business, is contained in the Statement of
Additional Information.
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REDEMPTION OF SHARES
A shareholder may redeem shares of either Portfolio at the net
asset value next determined after receipt of a proper notice of redemption
in accordance with one of the procedures set forth below. The Fund or FoM
may change the following procedures at their discretion.
The shareholder will not be credited with dividends on those shares
being redeemed for the day on which the shares are redeemed by the Fund. A
check for the proceeds of redemption will normally be mailed on the same
business day following receipt of any redemption request received by FoM
prior to 11:00 a.m., and on the next business day following receipt of any
redemption request received after 11:00 a.m., but in any event, except as
discussed in the Statement of Additional Information, within seven calendar
days of the redemption by the Fund.
If a shareholder wishes to redeem his entire shareholding in a
Portfolio, he will receive, in addition to the net asset value of the
shares, all declared but unpaid dividends thereon. The manner of
determining net asset value per share is discussed in the Statement of
Additional Information.
Regu1ar Redemption
Upon receipt by FoM prior to 11:00 a.m., Detroit time, of a written
or oral request by a shareholder to redeem all or a portion of the shares
then owned by the shareholder, the Fund will disburse redemption proceeds on
the same business day. Upon receipt of a request after 11:00 a.m., the Fund
will disburse redemption proceeds on the next business day, and in any event
within seven calendar days. If shares are requested to be redeemed which
were purchased by check, the Fund will disburse redemption proceeds upon
clearance of the check used for the purchase of such shares, which may take
up to 15 or more days. Such delays can be avoided by wiring Federal Funds
in effecting share purchases.
Shareholders wishing to place redemption orders by telephone cannot
be assured that open lines will be available during periods of heavy
telephone calls. In addition to the telephone numbers listed under the
caption "Cranbrook Funds - Shareholder Inquiries", a shareholder may also
phone the general telephone number of FoM, (313) 259-2600, and ask for the
"Cranbrook Funds Department". The Fund will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine. Such
procedures may include, among others, requiring some form of personal
identification prior to acting upon telephonic instructions, providing
written confirmations of all such transactions, and/or tape recording all
telephonic instructions. IF PROCEDURES SUCH AS THE ABOVE ARE NOT FOLLOWED,
FoM AND THE FUND MAY BE LIABLE FOR LOSSES, COSTS, OR EXPENSES FOR ACTING
UPON A SHAREHOLDER'S TELEPHONE INSTRUCTIONS OR FOR ANY UNAUTHORIZED
TELEPHONE REDEMPTION. As a result of this policy, the shareholder will bear
the risk of any loss unless the Fund has failed to follow procedures such as
the above.
8
<PAGE>
Redemption by Mail
A shareholder may redeem shares by mail by submitting a written
redemption request to:
First of Michigan Corporation
Attn: Cranbrook Funds
100 Renaissance Center, 26th Floor
Detroit, Michigan 48243
The request for redemption should include the name of the Portfolio and the
account number and should be signed by all registered owners of the shares
in the exact names in which they are registered. Each request should
specify the number or dollar amount of shares to be redeemed or that all
shares in the account are to be redeemed.
Option to Make Systematic Withdrawals
An owner of $5,000 or more of shares of either Portfolio may
provide for the payment from his account of any requested dollar amount to
him or his designated payee monthly, quarterly, or annually. Shares will be
redeemed so that the payee will receive payment approximately the first of
the month. A sufficient number of shares will be redeemed to make the
designated payment.
Redemption Draft Privileges
The Fund will provide each shareholder, upon request, with drafts
("Redemption Drafts") drawn on a Portfolio of the Fund that will clear
through NBD. Redemption Drafts may be made payable to the order of any
person in any amount. This privilege does not constitute a banking
function, and owning Fund shares is not equivalent to a bank checking
account. When such a Redemption Draft is presented for payment, a
sufficient number of whole and fractional shares in the shareholder's
account in the Portfolio to which the Redemption Draft relates will be
redeemed to cover the amount of the Redemption Draft. A shareholder wishing
to use this method of redemption must complete and file an authorization
form which is available from FoM, and an initial supply of Redemption Drafts
should be received within three weeks thereafter. If the shares to be
redeemed were purchased by check, the Fund may delay transmittal of
redemption proceeds only until such time as it is reasonably assured that
good payment has been collected for the purchase of such shares, which may
be up to 15 or more days.
The Fund may refuse to honor Redemption Drafts whenever the right
of redemption has been suspended or postponed or whenever the account is
otherwise impaired. A $10 service fee will be charged when a Redemption
Draft is presented to redeem shares of a Portfolio in excess of the value of
the shareholder's account in the Portfolio. At the date of this Prospectus,
there is no other service fee associated with the Redemption Draft
privilege.
Further Redemption Information
The Fund reserves the right to modify any of the methods of
redemption or to charge fees for providing these services which are not
otherwise disclosed in this Prospectus upon 30 days' written notice to
shareholders.
Due to the high cost of maintaining accounts of less than $500, the
Fund reserves the right to redeem shares involuntarily in any such account
at their then current net asset value. Shareholders will first be
9
<PAGE>
notified and allowed 30 days to make additional share purchases to bring
their accounts to more than $500. Involuntary redemptions will not be made
if the decline in an account balance is due to market fluctuations.
Under certain circumstances, the right of redemption may be
suspended, or the redemption may be satisfied by distribution of portfolio
securities rather than cash. Information as to these matters is set forth
in the Statement of Additional Information.
CERTAIN SERVICES PROVIDED TO SHAREHOLDERS
Statements of Account
Statements of account will be sent to each shareholder at least
quarterly; statements reflecting transactions other than automatic
reinvestment of dividends or systematic withdrawals will be sent monthly.
Fiduciaries and other shareholders who need monthly statements may make a
written request to the Fund for such statements.
Dividend Election
A shareholder may elect to receive dividends in shares or in cash.
If no election is made, dividends will automatically be credited to the
shareholder's account in additional shares of the Portfolio to which such
dividend relates.
Exchange Privilege
Shares of the Money Market Portfolio and the Treasury Portfolio may
be exchanged for each other at their relative net asset values if the shares
to be exchanged have been owned at least 30 days. The total value of shares
being exchanged must at least equal the minimum investment requirement of
the Portfolio into which they are being exchanged Exchanges are made based
on the relative dollar values of the shares involved in the exchange. Only
one exchange in any 30-day period is permitted. Exchanges will be effected
by redemption of shares of the Portfolio he1d and purchase of shares of the
other Portfolio. For Federal income tax purposes, any such exchange
constitutes a sale upon which a gain or loss, if any, will be realized,
depending upon whether the value of the shares being exchanged is more or
less than the shareholder's adjusted cost basis. Shareholders wishing to
make an exchange should contact FoM at (800) 521-1260 (outside of Michigan)
or (800) 482-2560 (within Michigan). Exchange requests in the form required
by FoM and received by FoM prior to 3:00 p.m., Detroit time, will be
effected on the next business day after receipt, and will be made at the net
asset values next determined after receipt.
10
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
On each business day that the New York Stock Exchange is open, each
Portfolio's net investment income will be declared at the close of the
Exchange as a daily dividend to shareholders of record prior to such close.
Shareholders will receive dividends in additional shares of the applicable
Portfolio unless they elect to receive cash. Reinvestment or payment of
dividends will be effected monthly at the net asset value of the applicable
Portfolio on the date effected and will include fractional shares if
necessary. If cash payment is requested, checks will be mailed within five
business days after the last day of each month. If a shareholder wishes to
redeem his entire shareholding in a Portfolio, all dividends accrued to the
time of redemption will be paid to him at that time.
TAXES
Federal
The Fund will elect to be taxed as a "regulated investment company"
under Subchapter M of the Internal Revenue Code (the "Code").
Dividends (other than distributions of long-term capital gains) are
taxable to shareholders as ordinary income, whether received in shares or
cash. The Fund does not expect to incur any long-term gains on investments.
Because none of the Fund's net investment income is expected to be derived
from dividends, no part of any distribution will be eligible for the
dividends received deduction for corporations.
Federal income tax may be required to be withheld at a rate of 31%
of distributions ("backup withholding") if a shareholder fails to furnish
the Fund with such shareholder's taxpayer identification number under oath.
Dividends to shareholders who are non-resident aliens may be subject to a
30% United States withholding tax unless a reduced rate of withholding
exemption is provided by treaty. Non-resident investors are urged to
consult their own tax advisers concerning the applicability of the United
States withholding tax.
Each regulated investment company is required to pay a
nondeductible 4% excise tax to the extent it is not deemed to have
distributed 98% of its ordinary income and 98% of its net capital gain
income, determined on an annual basis. The Fund intends to distribute
substantially all of its net investment income prior to each year end, does
not expect to have capital gain income, and therefore does not expect to be
subject to this excise tax.
State and Local Tax
The Fund may be subject to state or local taxes in jurisdictions in
which the Fund may be deemed to be doing business. In addition, in those
states or localities which have income tax laws, the treatment of the Fund
and its shareholders under such laws may differ from treatment under Federal
income tax laws. Shareholders should consult their own tax advisers
concerning these matters. In certain states, review with a shareholder's
tax adviser of the effect of investments in portfolio repurchase agreements
upon state income taxation may be appropriate.
The foregoing discussion of tax consequences is based on tax laws
and regulations in effect on the date of this Prospectus, which are subject
to change by legislative or administrative action.
11
<PAGE>
MANAGEMENT OF THE FUND
Trustees and Officers
The Trustees and executive officers of the Fund and their principal
occupations for the last five years are set forth below. The address of each
Trustee and executive officer is c/o Cranbrook Funds, 100 Renaissance
Center, 25th Floor, Detroit, Michigan 48243.
*CONRAD W. KOSKI, President and Trustee
Executive Vice President and Treasurer of FMCC and FoM;
Secretary-Treasurer of FoM Advisers, Inc., a wholly-owned
subsidiary of FMCC; Director of the Adviser.
CHARLES M. GRIMLEY, Treasurer and Secretary
Financial Vice President of FoM.
DAVID BROPHY, Trustee
Professor of Finance at the University of Michigan School
of Business Administration; Director of River Place
Financial Corporation (1984 to present).
ERNEST L. GROVE, JR., Trustee
Retired; formerly Vice Chairman of the Board and Chief
Financial Officer of The Detroit Edison Company (until
October 1989); Director of Standard Federal Bank (1986 to
present); Chairman of the Board (since December 1993) and
Director (since 1987) of Fretter, Inc., retailer; Director,
McLouth Steel Products Corporation (since 1988).
ROBERT L. HANNON, JR., Trustee
Retired; formerly President and Chief Executive Officer and
Chairman of the Board of Johnson & Higgins (Michigan),
insurance agents/brokers, and Director of Johnson &
Higgins.
*JOHN G. MARTIN, Trustee
Retired; formerly President and Chief Executive Officer of
FMCC and FoM, and Director of FMCC and FoM.
------------
*"Interested person" as defined in the 1940 Act.
Investment Adviser
The investment adviser for the Fund is Cranbrook Capital
Management, Inc. (the "Adviser"), a Michigan corporation which is a
wholly-owned subsidiary of First of Michigan Capital Corporation. The
Adviser is engaged in providing investment advisory services to a wide range
of personal, corporate, municipal and institutional clients, in addition to
the Fund. The Adviser currently employs nine full time professionals who
are actively engaged in this type of work, two of whom are dedicated to
fixed income money management.
Under its Advisory Agreement with the Fund, the Adviser is subject
to the general supervision of the Fund's Board of Trustees and manages each
Portfolio in conformance with the stated policies of the Fund.
12
<PAGE>
In this regard, it is the responsibility of the Adviser to make investment
decisions for the Fund and to place the purchase and sale orders for the
portfolio transactions of the Fund.
The Fund pays a fee to the Adviser that is computed daily and
payable monthly, at an annual rate of 0.225% of the Fund's first $500
million of average net assets and 0.20% of average net assets in excess of
$500 million. Fees paid to the Adviser under the Advisory Agreement are
allocated between the Portfolios based on their relative net asset values.
Custodian
NBD serves as the Fund's custodian, for which it is compensated
under a separate agreement. Its fees are computed on the basis of the
number of transactions occuring monthly. NBD is also compensated for
postage and other out-of-pocket expenses in connection with the above duties
and also receives compensation from the Fund for costs associated with
clearing redemption drafts through NBD, and for its standard bank charges
for processing lock box deposits, processing redemption drafts, and
performing other banking services for the Fund.
Administrator, Distributor, Transfer and Dividend Disbursing Agent
First of Michigan Corporation (FoM) is the administrator of the
Fund and distributor of the shares of each Portfolio. It is engaged in the
securities underwriting and securities and commodities brokerage business
and is a member of the New York Stock Exchange, Inc., other major securities
and commodities exchanges, and the National Association of Securities
Dealers, Inc. FoM participates as a member of various selling groups or as
agent of other investment companies, executes orders on behalf of investment
companies for the purchase and sale of their securities, and sells
securities to such companies as a broker or dealer in securities. On
September 29, 1995, FoM had a net worth of approximately $36,624,000.
As Administrator, FoM administers the Fund's corporate affairs,
subject to the supervision of the Fund's Trustees and, in connection
therewith, furnishes the Fund with office facilities, together with ordinary
clerical and shareholder services. FoM has authorized any of its directors,
officers, and employees who have been elected as officers or Trustees of the
Fund to serve in the capacities to which they have been elected. All
services furnished to the Fund by FoM may be furnished through the medium of
any directors, officers, or employees of FoM. FoM bears the salaries and
expenses of all FoM personnel providing services to the Fund and all
expenses incurred by FoM in connection with administering the ordinary
course of the Fund's business, other than those assumed by the Fund as
described under "Fund Expenses" below.
FoM also acts as Distributor of the Fund's shares pursuant to the
Administration and Distribution Agreement with the Fund dated as of December
15, 1994. FoM does not receive any front-end or deferred sales charge in
connection with the sale of shares of either Portfolio and bears the cost of
advertising incurred by it in connection with its distribution of such
shares.
The Trustees have approved a plan which authorizes the Fund to
incur distribution expenses, i.e., expenses primarily intended to result in
the sale of shares of the Fund. There has been no specific determination as
to whether expenses incurred by investment dealers such as FoM in providing
administration services, which as a practical matter result in additional
Fund shares being sold, are distribution expenses, and the Trustees and FoM
are unable to determine precisely what portion of the payments to be made
under the Administration and Distribution Agreement are for "distribution"
as opposed to other services. Consequently all payments to FoM are treated
as being made under the plan for purposes of
13
<PAGE>
required Trustee monitoring and approval. The staff of the Securities and
Exchange Commission is presently reviewing the distribution practices of the
investment company industry with a view to defining more precisely which
types of distribution plans are permissible.
The Administration and Distribution Agreement provides for
compensation to FoM for its services as Administrator and Distributor of an
amount equal on an annual basis to 0.25% of the Fund's first $500 million of
average net assets, 0.225% of the next $500 million of average net assets,
and 0.20% of average net assets in excess of $l billion. Amounts payable to
FoM under this agreement are allocated between the Money Market Portfolio
and the Treasury Portfolio based on their relative net asset values. FoM
also serves the Fund as its transfer and dividend disbursing agent, for
which it is compensated under a separate agreement. Its fees for this
service are equal to $0.7178 per shareholder account per month, and will be
paid monthly.
Mr. Conrad W. Koski, President and a Trustee of the Fund, is an
Executive Vice President and Treasurer of FoM.
Fund Expenses
The Fund is responsible for the payment of its expenses. These
include, for example, fees payable to the Adviser or expenses otherwise
incurred by the Fund in connection with the management of the investment of
the Fund's assets, the fees and expenses of NBD as the Fund's Custodian and
of FoM as its Transfer and Dividend Disbursing Agent, the fees payable to
FoM under the Administration and Distribution Agreement, the fees and
expenses of Trustees who are not affiliated with FoM, and various other
business expenses of the Fund. Expenses attributable to a particular
Portfolio are allocated to that Portfolio, and other expenses are allocated
in such manner as the Trustees deem fair and equitable. The Statement of
Additional Information describes in more detail the fees and expenses borne
by the Fund.
PERFORMANCE AND YIELD INFORMATION
From time to time, in advertisements or in reports to shareholders,
the performance and yields of a Portfolio may be quoted and compared to
those of other mutual funds with similar investment objectives and to stock
or other relevant indices or to rankings prepared by independent services or
other financial or industry publications that monitor the performance of
mutual funds. For example, the yields of the Money Market Portfolio and
Treasury Portfolio may be compared to the Donoghue's Money Fund Average and
the Donoghue's Treasury Money Fund Average, respectively, which are averages
compiled by IBC/Donoghue's Money Fund Report, a widely recognized
independent publication that monitors the performance of money market funds,
or to the average yields reported by the Bank Rate Monitor for money market
deposit accounts offered by the 50 leading banks and thrift institutions in
the top five standard metropolitan statistical areas. Performance and yield
data as reported in national financial publications including, but not
limited to, Money Magazine, Forbes, Barron's, The Wall Street Journal and
The New York Times, or in publications of a local or regional nature, may
also be used in comparing the performance and yields of the Portfolios.
The "yield" of a Portfolio will refer to the income generated in
the Portfolio over a seven-day period identified in the advertisement. This
income is annualized, i.e., the income during a particular week is assumed
to be generated each week over a 52-week period and is shown as a percentage
of the investment. Each Portfolio may also advertise its "effective yield"
which is calculated similarly but, when annualized,
14
<PAGE>
income is assumed to be reinvested, thereby making the "effective yield"
slightly higher because of the compounding effect of the assumed
reinvestment.
The Portfolios' yields are based on historical earnings and will
fluctuate and should not be considered as representative of future
performance. Since yields fluctuate, yield data cannot necessarily be used
to compare an investment in a Portfolio's shares with bank deposits, savings
accounts and similar investment alternatives which often provide an agreed
or guaranteed fixed yield for a stated period of time. Performance and
yield are generally functions of kind and quality of the instruments held in
a portfolio, portfolio maturity, operating expenses, and market conditions.
The fees which may be imposed by Institutions or other financial
intermediaries on their customers for cash management and other services are
not reflected in the Portfolios' calculations of yields.
CERTAIN OTHER MATTERS
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional to issue shares and to create an unlimited
number of series of shares ("Series"). The Money Market Portfolio and the
Treasury Portfolio are the only present Series. Each share is entitled to
one vote on all matters submitted for a vote, and shares have equal voting
rights, except that only shares of a particular Series are entitled to vote
on matters affecting only that Series. Shares do not have cumulative voting
rights.
The Trustees are responsible for the management of the business and
affairs of the Fund. The Trustees meet quarterly to review the performance
of the Fund with the Administrator and Distributor and with the Adviser.
Extensions of the Advisory Agreement, the Administration and Distribution
Agreement, and the Plan of Distribution are subject to Trustee approval
annually. The Trustees also select the Fund's independent auditors
annually.
The Fund does not as a rule hold annual meetings. The term of
office of each Trustee is of unlimited duration, subject to certain removal
procedures, including certain procedures which may be initiated by
shareholders. Further information about such procedures is contained in the
Statement of Additional Information. Trustees may appoint their own
successors, provided that the appointment of Trustees who are not
"interested persons" as defined in the Investment Company Act of 1940 is
committed to the discretion of those Trustees who are also not interested
persons. No appointment of a Trustee by other Trustees may be made if such
appointment would create a body of Trustees more than one-third of which has
not been elected by the shareholders of the Fund, and a special meeting of
shareholders must be called to elect Trustees if at any time less than a
majority of the current Trustees has been elected by shareholders of the
Fund.
Under the laws of certain jurisdictions, the shareholders of a
business trust may, under certain circumstances, be held personally liable
for its obligations. Therefore, the Declaration of Trust for the Fund
contains an express disclaimer of shareholder liability for acts or
obligations of the Fund and requires that notice of such disclaimer be given
in each agreement, obligation, or instrument entered into or executed by the
Fund or the Trustees. In addition, upon payment of any such liability, a
shareholder will be entitled to reimbursement from the general assets of the
Portfolio in which that shareholder has an interest. In the event a
Portfolio was unable to meet its obligations, the remaining Portfolios would
assume the unsatisfied obligation of that Portfolio. The Trustees intend to
conduct the operations of the Fund, with the advice of counsel, in such a
way so as to avoid, as far as possible, ultimate liability of the
shareholders for liabilities of the Fund or any of its Portfolios.
15
<PAGE>
(BACK COVER)
FIRST OF MICHIGAN CORPORATION
Members:
New York Stock Exchange, Inc. and other principal stock and options
exchanges
EXECUTIVE OFFICES
Detroit, MI 48243-1182 New York, NY 10005-3794
100 Renaissance Center/26th Floor 100 Wall Street/21st Floor
(313) 259-2600 (212) 344-1144
MICHIGAN OFFICES
Adrian 49221-2703 Holland 49243-3546
123 East Maumee Street 100 East Eighth Street/Suite 280
(517) 263-8570 (616) 392-7986
Ann Arbor 48104-2200 Jackson 49201-1227
301 East Liberty Street/Suite 200 333 Louis Glick Hwy., West
(313) 747-8040 (517) 782-0405
Auburn Hills 48326 Kalamazoo 49007-3923
2701 University Drive/Suite 425 259 East Michigan Avenue
(810) 475-1700 (616) 382-2600
Battle Creek 49017-3611 Lapeer 48446-3810
29 West Michigan Mall 25 West Nepessing
(616) 962-4034 (810) 664-0050
Bay City 48708-5731 Midland 48640-5189
723 Washington Avenue 200 East Main Street
(517) 894-5757 (517) 631-0620
Birmingham 48009-5301 Mt. Clemens 48043-8600
280 North Woodward 7 North Main/Suite 108
(810) 647-1400 (810) 469-4930
Bloomfield Hills 48304 Port Huron 48059-4101
1533 North Woodward/Suite 150 3899 24th Avenue
(810) 540-2787 (810) 987-1500
Coldwater 49036-1966 Saginaw 48602-3498
150 North Willowbrook Road 3210 Davenport Avenue
(517) 278-7189 (517) 792-2346
Dearborn 48124-1979 St. Joseph 49085
23400 Michigan Avenue/Suite 103 2900 South State Street
(313) 277-0300 (616) 983-2587
East Lansing 48823-2433 Southfield 48076-4241
1427 West Saginaw 26555 Evergreen Road/Suite 1020
(517) 332-8000 (810) 358-3290
Frankenmuth 48734-1532 Southgate 48195-1300
108 West School Street 13219 Eureka Road
(517) 652-3251 (313) 285-2000
Grand Blanc 48439-7002 Sterling Heights 48313-1149
2240 East Hill Road/Suite A 12900 Hall Road/Suite 100
(810) 694-2980 (810) 726-5000
Grand Rapids 49503-2373 Traverse City 49684-5552
300 Ottawa, N.W./Suite 200 10850 Traverse Highway/Suite 1103
(616) 774-0141 (616) 947-2200
Grosse Pointe 48230-1559 Troy 48099-1057
16980 Kercheval 1719 West Big Beaver Road
(313) 886-1200 (810) 643-9100
Grosse Pointe Woods 48236-1821 West Bloomfield 48322-2394
20155 Mack Avenue 6230 Orchard Lake Road
(313) 884-9600 (810) 855-2100
Harbor Springs 49740-1532
115 East Third Street
(616) 526-2193
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
CRANBROOK MONEY MARKET FUND
and
CRANBROOK TREASURY FUND
each a series of
CRANBROOK FUNDS
100 Renaissance Center, 25th Floor
Detroit, MI 48243
This Statement of Additional Information expands and supplements
the information contained in the Prospectus dated January 1, 1996 (the
"Prospectus") of Cranbrook Funds (the "Fund") and should be read in
conjunction with the Prospectus. The Prospectus may be obtained from any
office of First of Michigan Corporation ("FoM") or by writing or calling FoM
or the Fund. This Statement of Additional Information is not a prospectus
but is incorporated by reference in the Prospectus in its entirety.
TABLE OF CONTENTS
Introduction.......................................................... 2
Investment Objectives and Policies.................................... 2
Ratings of Commercial Paper and Bonds................................. 8
Management of the Fund................................................ 9
Computation of Yield; Determination of
Net Asset Value Per Share and of Net
Investment Income; Expenses......................................... 11
Redemption of Shares.................................................. 14
Legal Matters......................................................... 15
Certain Other Matters................................................. 15
Financial Statements.................................................. 17
Dated: January 1, 1996
<PAGE>
INTRODUCTION
This Statement of Additional Information supplements the
description of the Fund contained in the Prospectus and provides additional
information about the Fund and its activities which may be of interest to
investors. The following brief summary of the Fund's organization and
management is provided for convenience. The Statement of Additional
Information is not a prospectus and should be read in conjunction with the
Prospectus which has been filed with the Securities and Exchange Commission
and is available upon oral or written request, without charge, to the Fund,
100 Renaissance Center, 25th Floor, Detroit, Michigan, 48243, (800) 482-2560
(within Michigan) or (800) 521-1264 (outside of Michigan).
The Fund and the Portfolios
Cranbrook Money Market Fund (the "Money Market Portfolio") and
Cranbrook Treasury Fund (the "Treasury Portfolio") (collectively, the
"Portfolios") are separate series of the Fund. The Fund is an open-end,
diversified management investment company. It is not a bank, nor does it
offer fiduciary or trust services. The Fund may in the future be comprised
of additional series of shares, each of which will constitute a separate
series and have its own separate portfolio of investment securities and its
own investment objectives and policies, which may be different than those of
the existing Portfolios. At the date of this Statement of Additional
Information, the Portfolios are the only existing series of the Fund.
Management of the Fund
First of Michigan Corporation ("FoM"), a wholly-owned subsidiary of
First of Michigan Capital Corporation ("FMCC"), is the Administrator and
Distributor for the Fund. FoM also serves as the Fund's Transfer and
Dividend Disbursing Agent, and receives compensation from the Fund for these
services in addition to fees as Administrator and Distributor. Cranbrook
Capital Management, Inc., also a wholly-owned subsidiary of FMCC, is the
Investment Adviser (the "Adviser") for the Fund and provides the day-to-day
advice and portfolio management of each Portfolio pursuant to an Advisory
Agreement with the Fund. NBD Bank, a Michigan banking corporation, serves
as the Fund's Custodian.
NBD, the Adviser and FoM are subject to the overall management and
supervisory responsibility of the Fund's officers and its Board of Trustees.
INVESTMENT OBJECTIVES AND POLICIES
As stated in the Prospectus, the investment objective of each
Portfolio is to provide a high level of current income consistent with the
preservation of capital and liquidity. A description of the types of
securities purchased by each Portfolio is contained in the Prospectus under
the caption "Investment Objectives and Policies".
2
<PAGE>
Portfolio Transactions
The Fund has no obligation to deal with any dealer or group of
dealers in the execution of investment security transactions. Subject to
policy established by the Trustees and the guidance and direction of the
Fund, the Adviser is primarily responsible for the Fund's portfolio
decisions and the placing of portfolio transactions. In placing orders, it
is the policy of the Fund to obtain the best net results taking into account
such factors as price (including the applicable dealer spread), the size,
type, and difficulty of the transaction involved, a firm's general execution
and operational facilities, and a firm's risk in positioning the securities
involved. The Adviser may make bulk purchases of securities for the Fund
and for other customer accounts, in which case the Fund will be charged a
pro rata share of the transaction costs incurred in making the bulk
purchase. Once purchased, however, the securities will be owned by the Fund
individually, and not jointly with the Adviser or any other person or
entity. The Adviser will not make bulk purchases for the Fund and for its
own investment portfolio.
The Fund generally does not expect to incur costs for brokerage
commissions or transfer taxes since money market securities are generally
traded on a net basis and do not normally involve either brokerage
commissions or transfer taxes. However, typically at any moment the price
at which such securities may be bought is higher than the price at which
they may be sold, and trading in money market securities thus indirectly
imposes costs on the Fund.
Dealers who provide supplemental investment research to the Adviser
may receive orders for transactions by the Fund, although orders will not be
allocated to dealers based upon such research. The Adviser will seek to
obtain the best price and execution for each transaction and is not
authorized to approve the payment of excess commissions in recognition of
brokerage or research services provided by a broker. Any investment
research information which the Adviser receives in this way will be in
addition to and not in lieu of the services which it is required to perform
for the Fund. The expenses of the Adviser will not necessarily be reduced
as a result of the receipt of such supplemental information.
The money market securities in which each Portfolio invests are
traded primarily in the over-the-counter market. Where possible, the Fund
will deal directly with dealers who make a market in the securities involved
except in those circumstances where better prices and execution are
available elsewhere. Such dealers usually are acting as principal for their
own account. On occasion, securities may be purchased directly from the
issuer.
Under the Investment Company Act of 1940, persons affiliated with
the Fund are prohibited from dealing with the Fund as principals in the
purchase and sale of securities unless a permissive order allowing such
transactions is obtained from the Securities and Exchange Commission. Since
over-the-counter transactions are usually principal transactions, affiliated
persons of the Fund, including FoM, may not serve as dealers for the Fund in
connection with such transactions. FoM, in addition, will not serve as the
Fund's broker in over-the-counter transactions conducted on an agency basis.
The Fund will not purchase securities from any underwriting syndicate of
which FoM
3
<PAGE>
is the manager.
The Fund may from time to time purchase commercial paper or other
investment securities issued by dealers with whom the Fund regularly does
business.
Neither Portfolio will write, purchase, or sell puts (except as
permitted by Rule 2a-7 under the Investment Company Act of 1940), calls,
straddles, spreads, or combinations thereof. Shareholders will be notified
in writing prior to any change of this policy.
Loans of Securities
As described in the Prospectus, the Money Market Portfolio (but not
the Treasury Portfolio) may loan portfolio securities to brokers, dealers,
and other financial institutions. During the time when securities are on
loan, the borrower will pay any income accrued thereon and the Money Market
Portfolio may invest the cash collateral and earn additional income, or may
receive an agreed upon fee from the borrower. Loans will be subject to
termination at the Money Market Portfolio's or the borrower's option. The
Money Market Portfolio may pay reasonable fees to persons unaffiliated with
it in connection with such loans. In determining whether to lend securities
to a particular broker, dealer, or financial institution, the Adviser will
consider all relevant facts and circumstances, including the
creditworthiness of the broker, dealer, or institution. The Money Market
Portfolio will not enter into any securities lending agreement having a
duration greater than one year; and any securities with maturities in excess
of one year that the Money Market Portfolio may receive as collateral for a
particular loan will not become part of the Portfolio either at the time of
the loan or in the event the borrower defaults on its obligation to return
the loaned securities.
Determination of Maturity
As described in the Prospectus, a security will not be purchased by
a Portfolio unless its maturity is 397 days or less from the date of
purchase, and the dollar-weighted average maturity of each Portfolio is not
to exceed 90 days. The maturity of a Portfolio investment security is
determined pursuant to Rule 2a-7 under the Investment Company Act of 1940.
Rule 2a-7 provides that the maturity of an instrument will be deemed to be
the period remaining until the date noted on the face of the instrument as
the date on which the principal amount must be paid or, in the case of an
instrument called for redemption, the date on which the redemption payment
must be made, except as follows:
(i) Certain U.S. Government Instruments. An instrument that is
issued or guaranteed by the United States Government or an agency thereof
which has a variable rate of interest readjusted no less frequently than
every 762 days will be deemed to have a maturity equal to the period
remaining until the next readjustment of the interest rate.
(ii) Variable Rate Instruments. A "variable rate instrument"
(defined as an instrument the terms of which provide for establishment of a
new interest rate on set dates and which, upon such
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adjustment, can reasonably be expected to have a market value that
approximates its par value), the principal amount of which is scheduled on
the face of the instrument to be paid in 397 calendar days or less, will be
deemed to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(iii) Variable Rate Instruments Subject to Demand Feature. A
variable rate instrument that is subject to a demand feature will be deemed
to have a maturity equal to the longer of the period remaining until the
next readjustment of the interest rate or the period remaining until the
principal amount can be recovered through demand.
(iv) Floating Rate Instruments Subject to Demand Feature. A
"floating rate instrument" (defined as an instrument the terms of which
provide for adjustment of the interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a
market value that approximates its par value) that is subject to a demand
feature will be deemed to have a maturity equal to the period remaining
until the principal amount can be recovered through demand.
(v) Repurchase Agreements. A repurchase agreement will be
treated as having a maturity equal to the period remaining until the date on
which the repurchase of the underlying securities is scheduled to occur, or
where no date is specified but the agreement is subject to demand, the
notice period applicable to a demand for the repurchase of the securities.
(vi) Portfolio Lending Agreements. A portfolio lending
agreement will be treated as having a maturity equal to the period remaining
until the date on which the loaned securities are scheduled to be returned,
or where no date is specified but the agreement is subject to demand, the
notice period applicable to a demand for the return of the loaned
securities.
A "demand feature" is defined in Rule 2a-7 as a put that entitles
the holder to receive the principal amount of the underlying security or
securities and which may be exercised either (a) at any time on no more than
30 days' notice or (b) at specified intervals not exceeding 397 days and
upon no more than 30 days' notice.
Because the Fund intends to utilize the procedures specified in
Rule 2a-7 to determine the maturity of its portfolio instruments, further
revision of Rule 2a-7 or pronouncements clarifying or interpreting the scope
of its application may affect the Fund's method for determining maturity of
its portfolio instruments.
Fundamental Policies
The investment restrictions on the Fund's investment activities
with respect to the Money Market Portfolio and the Treasury Portfolio were
approved by a majority of the Trustees and by shareholders of the Fund at a
shareholder meeting held on December 15, 1994. These are fundamental
policies and may not be changed without approval by the holders of the
majority of the outstanding shares of the affected Portfolio. As used
herein when referring to approvals to be
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obtained from shareholders, the term "majority" means the vote of the lesser
of (1) 67% of the shares of the Fund or the applicable Portfolio present at
a meeting if the holders of more than 50% of the outstanding shares are
present in person or by proxy, or (2) more than 50% of the outstanding
shares of the Fund or the applicable Portfolio. Certain of these
restrictions are also described in the Prospectus but are repeated here in
full for convenience. Under the existing investment restrictions, a
Portfolio may not:
(1) Change its investment objective.
(2) With respect to the Money Market Portfolio,
purchase the securities of issuers conducting their principal
business activity in the same industry if the value of such
Portfolio's investments in such industry would exceed 25% of the
value of such Portfolio's total assets, provided that (a) gas,
electric, water, and telephone utilities are be considered separate
industries, (b) the personal credit and business credit businesses
are considered separate industries and (c) there is no limitation
with respect to or arising out of investments in obligations issued
or guaranteed by the U.S. Government, its agencies and
instrumentalities or negotiable certificates of deposit, bankers'
acceptances or time deposits issued by domestic banks. For
purposes of this restriction, securities issued by the government
of Canada, a Province of Canada or an instrumentality or political
subdivision therof are considered to be an "industry" subject to
this 25% limit.
(3) In the case of the Money Market Portfolio, invest
more than 5% of its total assets in the securities of any one
issuer, except securities issued or guaranteed as to principal and
interest by the U.S. Government, its agencies or instrumentalities.
(4) In the case of the Treasury Portfolio, purchase
securities which are not U.S Treasury bills, notes and other
obligations issued or guaranteed as to principal and interest by
the U.S. Government.
(5) In the case of the Treasury Portfolio, (a) enter
into repurchase agreements if immediately thereafter more than 10%
of that Portfolio's total assets would be invested in repurchase
agreements with any qualifying bank or primary dealer in such
securities and (b) borrow money except from banks for temporary
purposes and then only in amounts not exceeding at any one time 10%
of the value of the Portfolio's net assets at the time of the
borrowings, or mortgage, pledge or hypothecate that Portfolio's
assets in connection with such borrowing and in amounts not in
excess of the dollar amounts borrowed. See also the provisions of
policy (7) below.
(6) Make loans, except through the purchase of debt
obligations in accordance with each Portfolio's investment
objective and policies, through repurchase agreements with banks,
brokers, dealers, and other financial institutions, and through the
lending of portfolio securities to brokers, dealers, and financial
institutions.
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(7) Borrow money, except from banks for temporary or
emergency purposes and then only in amounts not exceeding at any
one time 20% of the value of the Money Market Portfolio's total
assets, or 10% of the Treasury Portfolio's total assets, at the
time of the borrowings. This provision, and policy (5) above, are
solely to facilitate the orderly sale of securities should
abnormally heavy redemption requests occur or for other
extraordinary or emergency purposes and are not for investment
purposes, and borrowings by a Portfolio are not expected to occur
in the ordinary course of operations. If for any reason the
current value of a Portfolio's total assets falls below an amount
equal to the applicable multiple of the amount of its indebtedness
for money borrowed (5 times in the case of the Money Market
Portfolio or 10 times in the case of the Treasury Portfolio), that
Portfolio will, within three business days, reduce its indebtedness
to the extent necessary to restore the ratio of assets to
indebtedness to at least five to one. To do this, a Portfolio may
have to sell a portion of its investments at a time when it may be
disadvantageous to do so. If, at any time, the outstanding
borrowings with respect to either Portfolio exceed 5% of its total
assets, that Portfolio will purchase no additional investment
securities until such time as the borrowings are reduced to less
than 5% of the total assets of the Portfolio. Under no
circumstances will one Portfolio engage in lending or borrowing
transactions with the other Portfolio.
(8) Purchase or sell real estate, although it may
invest in securities which are secured by real estate and
securities of issuers which invest or deal in real estate; purchase
or sell securities issued by real estate investment trusts;
purchase or sell commodities, commodity contracts, or oil and gas
interests; acquire securities of other investment companies; or
purchase any voting securities or invest in companies for the
purpose of exercising control or management.
(9) Act as an underwriter of securities, purchase
securities on margin, make short sales of securities, or maintain a
short position in any security.
(10) Purchase securities of any issuer employing, as an
officer, any person serving as an officer or Trustee of the Fund;
or purchase or retain the securities of any issuer if those
officers, directors, or Trustees of the Fund or its Adviser who
individually own beneficially more than 0.5% of the outstanding
securities of such issuer, together own beneficially more than 5%
of such outstanding securities.
(11) Invest more than 10% of a Portfolio's net assets in
securities restricted as to disposition under the federal
securities laws or which are otherwise considered to be "illiquid"
investments, such as restricted securities described in the
preceding clause, securities having no readily available market
quotations, non-negotiable time deposits maturing in more than
seven days, and repurchase agreements with maturities of more than
seven days.
(12) Issue senior securities as defined in the
Investment Company Act of 1940 except to the extent such issuance
might be involved with respect to borrowings pursuant to reverse
repurchase transactions or as otherwise set forth under (5) above.
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In order to permit the sale of shares of either Portfolio in
certain states, the Trustees may, in their sole discretion, adopt more
restrictive limitations than those described above. Should the Trustees
determine after doing so that any such more restrictive policy is no longer
in the best interest of such Portfolio and its shareholders, the Fund may
cease offering shares in the state involved, and the Trustees may revoke the
more restrictive limitations. Moreover, if the states involved shall no
longer require any such more restrictive limitations, the Trustees may, in
their sole discretion, revoke them.
RATINGS OF COMMERCIAL PAPER AND BONDS
Commercial Paper Ratings
A Moody's Investors Service, Inc. ("Moody's") commercial paper
rating is an opinion of the ability of the issuer to repay punctually
promissory obligations. Moody's employs the following three designations,
all judged to be investment grade, to indicate the relative repayment
capacity of rated issuers: Prime 1 -- Highest Quality; Prime 2 -- Higher
Quality; Prime 3 -- High Quality.
A Standard & Poor's Corporation ("S&P") commercial paper rating is
a current assessment of the likelihood of timely payment. Ratings are
graded into four categories, ranging from "A" for the highest quality
obligations to "D" for the lowest. Issues assigned the highest rating, A,
are regarded as having the greatest capacity for timely payment. Issues in
this category are further refined with the designations 1, 2, and 3 to
indicate the relative degree of safety. The designation A-1 indicates that
the degree of safety regarding timely payment is very strong. Capacity for
timely payment on issues with the designation A-2 is strong. However, the
relative degree of safety is not as overwhelming as for issues designated
A-1. Issues carrying the designation A-3 have a satisfactory capacity for
timely payment. They are, however, somewhat more vulnerable to the adverse
effects of changes in circumstances than obligations carrying the higher
designations.
Bond Ratings
Moody's -- Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge". 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 positions of
such issues. 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. 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.
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S&P -- Bonds rated AAA are highest grade obligations. They possess
the ultimate degree of protection as to principal and interest. Bonds rated
AA also qualify as high grade obligations, and in the majority of instances
differ from AAA issues only in small degree. Bonds rated A are regarded as
upper medium grade. They have considerable investment strength but are not
entirely free from adverse effects of changes in economic and trade
conditions. Interest and principal are regarded as safe.
MANAGEMENT OF THE FUND
Trustees and Officers
The Trustees and executive officers of the Fund and their principal
occupations for the last five years are set forth below. The address of each
Trustee and executive officer is c/o Cranbrook Funds, 100 Renaissance
Center, 25th Floor, Detroit, Michigan 48243.
*CONRAD W. KOSKI, Trustee and President of the Fund.
Executive Vice President and Treasurer of FMCC and FoM;
Secretary-Treasurer of FoM Advisers, Inc., a wholly-owned
subsidiary of FMCC; Director of the Adviser.
*CHARLES M. GRIMLEY, Trustee, Treasurer and Secretary of the Fund
Financial Vice President of FoM.
DAVID BROPHY, Trustee
Professor of Finance at the University of Michigan School
of Business Administration; Director of River Place
Financial Corporation (1984 to present).
ERNEST L. GROVE, JR., Trustee
Retired; formerly Vice Chairman of the Board and Chief
Financial Officer of The Detroit Edison Company (until
October 1989); Director of Standard Federal Bank (1986 to
present); Chairman of the Board (since December 1993) and
Director (since 1987) of Fretter, Inc., retailer; Director,
McLouth Steel Products Corporation (since 1988).
ROBERT L. HANNON, JR., Trustee
Retired; formerly President and Chief Executive Officer and
Chairman of the Board of Johnson & Higgins (Michigan),
insurance agents/brokers, and Director of Johnson &
Higgins.
*JOHN G. MARTIN, Trustee
Retired, formerly President and Chief Executive Officer of
FMCC and FoM.
------------
*"Interested person" as defined in the 1940 Act
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The Fund pays each Trustee, other than Trustees who are employees
of FoM, an annual fee of $6,000 and a fee of $1,000 for each meeting of the
Board of Trustees attended. All Trustees are reimbursed for out-of-pocket
expenses incurred in connection with attendance at meetings. Trustees and
officers of the Fund receive no other compensation from the Fund. Meetings
of the Trustees are held at least quarterly.
Investment Adviser and Portfolio Manager
Information about the Adviser and its duties and compensation as
Investment Adviser is contained in the Prospectus.
The Fund will not purchase securities from or sell portfolio
securities to the Adviser and will not invest in commercial paper, debt
obligations, certificates of deposit, or bankers' acceptances of the Adviser
or any affiliate of the Adviser.
The Adviser's own investment portfolio may include bank
certificates of deposit, bankers' acceptances, and corporate debt
obligations, any of which may also be purchased by the Fund. Joint purchase
of investments for the Fund and for the Adviser's own investment portfolio
will not be made. Investment decisions for the Fund and other fiduciary
accounts are made by the Adviser solely from the standpoint of the
independent interests of the Fund and such other fiduciary accounts. The
Adviser performs independent analyses of publicly available information, the
results of which are not made publicly available. In making investment
decisions for the Fund, personnel of the Adviser do not obtain information
from any other division or department of FoM or otherwise which is not
publicly available. The Adviser executes transactions for the Fund only
with unaffiliated dealers, but such dealers may be customers of other
divisions of the FoM. The Adviser may make bulk purchases of securities for
the Fund and for other customer accounts (but not for its own investment
portfolio), in which case the Fund will be charged a pro rata share of the
transaction costs incurred in making the bulk purchase. See "Investment
Objective and Policies - Portfolio Transactions" above.
The Adviser and FoM have agreed that they will each reimburse the
Fund in equal amounts such portions of their fees as may be required to
satisfy any expense limitations imposed by state securities laws or other
applicable laws. At present the most restrictive expense limitation imposed
on the Fund requires that annual expenses not exceed 2-1/2% of the first $30
million of average net assets, 2% of the next $70 million of average net
assets, and 1-1/2% of the remaining average net assets. More restrictive
limitations could be imposed on the Fund as a result of changes in current
state laws and regulations in those states where the Fund has qualified its
shares, or by a decision of the Trustees to qualify the shares in other
states having more restrictive expense limitations. Prospectuses and sales
material for the Fund can be obtained only from FoM as the Underwriter and
Distributor of the Fund's shares.
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Custodian
As Custodian for the Fund, NBD (i) maintains a separate account or
accounts in the name of each Portfolio of the Fund, (ii) collects and makes
disbursements of money on behalf of each Portfolio of the Fund, (iii)
collects and receives all income and other payments and distributions on
account of the portfolio securities of each Portfolio, and (iv) makes
periodic reports to the Trustees concerning the Fund's operations.
For its custodial services NBD is paid by the Fund an annual fee of
$2,400, a market value fee of $.0001 per $1,000,000 of assets under custody,
as calculated as of the end of the month and a fee of $20.00 for each
clearing and settlement transaction.
Transfer and Dividend Disbursement Agent
As Transfer and Dividend Disbursement Agent for the Fund, FoM (i)
issues and redeems shares of each Portfolio of the Fund, (ii) addresses and
mails all communications by the Fund to its shareholders, including reports
to shareholders, dividend and distribution notices, and proxy materials for
any meeting of shareholders, (iii) maintains shareholder accounts, and (iv)
maintains on-line computer capability for determining the status of
shareholder accounts. For its services as Transfer and Dividend Disbursing
Agent, FoM is paid at the rate of $0.7178 per monthly customer statement.
FoM is also be reimbursed for direct out-of-pocket expenses incurred in
connection with its duties, except for postage and other costs associated
with the normal monthly mailing of shareholder statements.
Administrator and Distributor
The Fund's shares are offered on a continuous basis through FoM,
which, as described out in the Prospectus, acts under the Administration and
Distribution Agreement as Administrator and Distributor for the Fund. The
fees for its services, the review of such fees under the Fund's plan for the
payment of distribution expenses approved by the Fund's shareholders at a
meeting held December 14, 1994, and the services provided by FoM are
described in the Prospectus.
COMPUTATION OF YIELD; DETERMINATION OF NET ASSET
VALUE PER SHARE AND OF NET INVESTMENT INCOME; EXPENSES
Computation of Yield
Each Portfolio's standard yield quotations as they appear in
advertising and sales materials, and as disclosed in the Prospectus, are
calculated by a standard method prescribed by rules of the Securities and
Exchange Commission. Under that method, the yield quotation is based on a
recent seven-day period and computed as follows: a Portfolio's average daily
net investment income per share during the seven-day period is divided by
the average daily price per share (expected to remain constant at $1.00)
during the period. The result is then multiplied by 365 with the resulting
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annualized yield figure carried to the nearest one-hundredth of one percent.
"Effective Yield" is computed in the same manner except that when annualized
the income earned by the Portfolio is assumed to be reinvested, thus
resulting in a higher return because of the compounding effect. A
Portfolio's average daily net investment income for this purpose consists of
accrued income on such Portfolio's investment securities, plus or minus
amortized purchase discount or premium, less accrued expenses. Realized
capital gains or losses and unrealized appreciation or depreciation of a
Portfolio's investment securities are not included in the calculation. Any
fee charged to all shareholder accounts, such as a fixed monthly shareholder
service fee, will be included in the accrued expenses of the Portfolio (the
Fund does not currently expect to charge such fees), and the average price
per share of a Portfolio will include any changes in net asset value during
the seven-day period.
Because the Fund values its portfolio on an amortized cost basis,
it does not believe that there is likely to be any material difference
between net income for dividend and standardized yield quotation purposes.
The yield on each Portfolio will fluctuate daily as the income
earned on the investments of the Portfolio changes at certain times.
Accordingly, there is no assurance that the yield quoted on any given
occasion will remain in effect for any period of time. The yield should not
be compared to other open-end investment companies, or to bank time deposits
and other debt securities which provide for a fixed yield for a given period
of time and which may have a different method of computation.
Determination of Net Asset Value Per Share
As stated in the Prospectus, the net asset value of each Portfolio
is determined as of 2:00 p.m. and as of 5:00 p.m., Detroit time, on each
business day (defined as days on which both FoM and NBD are open for
business) and on any other day on which the New York Stock Exchange is open
for business. The New York Stock Exchange and either FoM or NBD, or both,
are closed on each of the following holidays: New Year's Day, Dr. Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Thanksgiving Day, and Christmas
Day. For the purpose of determining the price at which shares of a
Portfolio are issued and redeemed, the net asset value per share is
calculated by: (a) valuing all securities and instruments of such Portfolio
as set forth below; (b) deducting the Fund's liabilities, all of which are
allocated to the separate Portfolios either directly, if applicable, or in
such manner as the Trustees shall deem fair and equitable; and (c) dividing
the resulting amount by the number of shares outstanding. As discussed
below, it is the intention of the Fund to maintain a net asset value per
share of $1.00 for each Portfolio.
Each Portfolio values its investment securities based upon their
amortized cost in accordance with Rule 2a-7 of the Securities and Exchange
Commission under the Investment Company Act of 1940. This involves valuing
a security at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the security. While this method
provides certainty in valuation, it may result in periods during which
value, as determined by amortized cost, is higher or lower than the price
the
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Portfolio would receive if it sold the securities.
Pursuant to Rule 2a-7, the Fund is required to maintain a
dollar-weighted average portfolio maturity of 90 days or less, to purchase
securities having remaining maturities of 397 days or less only, to invest
only in securities determined by the Trustees to present minimal credit
risks and to invest only in securities which are "eligible securities" as
defined in Rule 2a-7. A discussion of the manner in which the maturity of
investment securities is determined is set forth under the caption
"Investment Objective and Policies - Determination of Maturity" in this
Statement of Additional Information.
The Trustees have established procedures designated to stabilize,
to the extent reasonably possible, each Portfolio's price per share as
computed for the purpose of sales and redemptions at $1.00.
These procedures include review of the investment holdings by the
Trustees, at such intervals as they may deem appropriate, to determine
whether a Portfolio's net asset value calculated by using available market
quotations deviates from $1.00 per share based on amortized cost. The
extent of any deviation will be examined by the Trustees. If the deviation
exceeds 1/2 of 1%, the Trustees will promptly consider what action, if any,
will be initiated.
In the event the Trustees determine that a deviation exists which
may result in material dilution or other unfair results to investors or
existing shareholders, they have agreed to take such corrective actions as
they deem necessary and appropriate. These actions may include selling
investment securities prior to maturity to realize capital gains or losses
or to shorten a Portfolio's average maturity, withholding dividends,
splitting, combining, or otherwise recapitalizing outstanding shares or
establishing a net asset value per share by using available market
quotations.
Determination of Net Investment Income
Each Portfolio calculates its dividends based on its daily net
investment income. For this purpose, the net investment income of a
Portfolio consists of (1) accrued interest income plus or minus amortized
purchase discount or premium, (2) plus or minus all realized gains and
losses on portfolio assets, and (3) minus accrued expenses allocated to that
Portfolio. Expenses of each Portfolio are accrued each day. As each
Portfolio's investment securities are normally valued at amortized cost,
unrealized gains or losses on such securities based on their market values
will not normally be recognized. However, should the net asset value
deviate significantly from market value, the Trustees could decide to value
the securities at market value and then unrealized gains and losses would be
included in net investment income.
Expenses
Expenses for which the Fund is responsible and for which an accrual
is made to the extent necessary include, for example: (a) the fees payable
to Cranbrook Capital Management, Inc., as the
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Fund's Adviser, or expenses otherwise incurred by the Fund in connection
with the management of the investment of the Fund's assets, and the fees and
expenses of NBD as the Fund's Custodian and of FoM as its Transfer and
Dividend Disbursing Agent, (b) the administration and distribution fees
payable to FoM, (c) the fees and expenses of Trustees who are not affiliated
with FoM, (d) the charges and expenses of the Fund's legal counsel and
auditors, (e) brokers' commissions and any issue or transfer taxes
chargeable to the Fund in connection with its securities transactions, (f)
all taxes and corporate fees payable by the Fund to governmental agencies,
(g) the fees of any trade association of which the Fund is a member, (h) the
fees and expenses involved in registering and maintaining registrations of
the Fund and of its shares with the Securities and Exchange Commission and
registering the Fund as a broker or dealer and qualifying its shares under
state securities laws, including the preparation and printing of the Fund's
registration statements and prospectuses, (i) allocable communications
expenses with respect to investor services and all expenses of shareholders'
and Trustees' meetings and of preparing and printing reports to
shareholders, (j) all expenses or losses arising out of any liability or
claim for damages or other relief asserted against the Fund for violation of
any law, and (k) expenses of an extraordinary nature which are not incurred
in the ordinary course of the Fund's business.
The organizational expenses of the Fund (amounting to approximately
$175,000) will be assumed and paid by the Adviser, at no cost to the Fund.
If additional Series are added to the Fund, the organizational expenses will
be allocated among the Series in a manner deemed equitable by the Trustees.
REDEMPTION OF SHARES
The Prospectus describes the requirements for effecting redemption
by oral or written request, by systematic withdrawal, and by use of
redemption drafts.
The Fund may suspend the right of redemption or delay payment more
than seven days (a) during any period when the New York Stock Exchange is
closed (other than a customary weekend and holiday closing), (b) when
trading on the New York Stock Exchange is restricted, or an emergency exists
as determined by the Securities and Exchange Commission or the Fund so that
disposal of the Fund's investments or determination of the net asset values
of either Portfolio is not reasonably practicable, or (c) for such other
periods as the Securities and Exchange Commission by order may permit for
protection of either Portfolio's shareholders.
The Fund normally redeems shares for cash. However, the Trustees
can determine that conditions exist making cash payments undesirable. If
they should so determine, redemption payments could be made in securities
valued at the value used in determining net asset value. There may be
brokerage and other costs incurred by the redeeming shareholder in selling
such securities. The Fund has elected to be governed by Rule 18f-1 under
the Investment Company Act, pursuant to which the Fund is obligated to
redeem shares solely in cash up to the lesser of $250,000 or 1% of net asset
value during any 90-day period for any one shareholder.
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LEGAL MATTERS
From time to time, certain state administrative agencies have
raised questions as to whether the activities of money market funds
constitute banking under the laws of their states. The Fund believes that
none of its activities constitutes banking under the laws of any state, and
it expects to litigate any finding to the contrary and to fully contest and
resist any regulatory challenges to the Fund. Final adverse rulings that
the activities of the Fund constitute unauthorized banking in any state
could force the Fund to liquidate shares of residents in that state, to
cease offering new shares in that state, or to discontinue or change certain
services currently available to shareholders in that state.
The operations of the Fund could be affected by Federal regulatory
developments. For example, from March to July 1980, money market funds were
subject to non-interest bearing special deposit requirements imposed by the
Board of Governors of the Federal Reserve System. There can be no assurance
that similar deposit requirements will not be imposed on money market funds
in the future.
CERTAIN OTHER MATTERS
Liability of Trustees and Others
The Declaration of Trust provides that the Trustees, officers,
employees, and agents of the Fund will not be liable to the Fund or to a
shareholder, nor will any such person be liable to any third party in
connection with the affairs of the Fund, except as such liability may arise
from his or its own bad faith, willful misfeasance, gross negligence, or
reckless disregard of duties. It also provides that all third parties shall
look solely to the Fund property for satisfaction of claims arising in
connection with the affairs of the Fund. With the exceptions stated, the
Declaration of Trust provides that a Trustee, officer, employee, or agent is
entitled to be indemnified against all liability in connection with the
affairs of the Fund.
Description of Series and Shares
The Declaration of Trust provides that the Fund shall be comprised
of separate series of shares ("Series"). The proceeds of sale of each
Series will be invested in separate portfolios of securities. The Trustees
are authorized to create an unlimited number of Series and, with respect to
each Series, to issue an unlimited number of full and fractional shares of a
single class and to divide or combine the shares into a greater or lesser
number of shares without changing the proportion of beneficial interests in
the Series.
All shares have equal voting rights, except that only shares of a
particular Series are entitled to vote on matters concerning only that
Series. Each issued and outstanding share is entitled to one
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vote, to participate equally in dividends and distributions declared by the
respective Series, and, upon liquidation or dissolution, to share in the net
assets of such Series remaining after satisfaction of outstanding
liabilities. In the event a Series should be unable to meet its
obligations, the remaining Series would assume the unsatisfied obligations
of that Series. All shares issued and outstanding are fully paid and
nonassessable by the Fund. The Fund is not required to issue share
certificates.
The shares of each Series have no preference, preemptive,
conversion or similar rights. In the event the Trustees create one or more
additional Series, shareholders may be given the right to exchange shares of
a Portfolio for shares of such other Series.
Rule 18f-2 under the Investment Company Act of 1940 provides that
any matter required to be submitted by the provisions of that Act or
applicable state law, or otherwise, to the holders of the outstanding voting
securities of an investment company such as the Fund shall not be deemed to
have been effectively acted upon unless approved by the holders of a
majority of the outstanding shares of each class affected by the matter.
Rule 18f-2 further provides that a class shall be deemed to be affected by a
matter unless it is clear that the interests of each class in the matter are
identical or that the matter does not affect any interest of the class.
Under the Rule, the approval of an investment advisory agreement or any
change in investment policy would be effectively acted upon with respect to
a class of shares only if approved by a majority of the outstanding voting
securities of such class. However, the Rule also provides that the
ratification of independent public accountants, the approval of principal
underwriting contracts, and the election of Trustees are not subject to the
separate voting requirements and may be effectively acted upon by
shareholders of the investment company voting without regard to class.
As permitted by Massachusetts law, the Trustees may determine not
to hold shareholders meetings for the election of Trustees, subject,
however, to the requirement that a special meeting of shareholders be called
for the purpose of electing Trustees within 60 days if at any time less than
a majority of the current Trustees have been elected by shareholders of the
Fund. Because shares do not have cumulative voting rights, 50% of the
voting shares can, if they choose, elect all Trustees being selected while
the holders of the remaining shares would be unable to elect any Trustees.
The Trustees will call a special meeting of shareholders for the purpose of
voting on the question of removal of a Trustee or Trustees if shareholders
of record of 10% or more of the Fund's outstanding shares make a written
request so to do. Any 10 or more shareholders who have been shareholders
for more than 6 months and who hold in the aggregate the lesser of 1% of the
outstanding shares or shares with a net asset value of $25,000 may advise
the Trustees that they wish to communicate with other shareholders for the
purpose of obtaining signatures requesting Trustees to call such a meeting.
The Trustees must thereupon afford access to the list of Fund shareholders
or offer to mail such solicitations at the shareholder's cost. If a
majority of the Trustees object to the contents of the solicitation, the
Trustees may request a determination of the Securities and Exchange
Commission as to the obligation to mail such material.
Any change in the Declaration of Trust, the Advisory Agreement, the
Administration and Distribution Agreement if it has the effect of increasing
distribution costs, or in the fundamental
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investment restrictions of the Fund must be approved by a majority of the
shareholders before it can become effective. A "majority" means the vote of
the lesser of (1) 67% of the shares of the Fund or the applicable Portfolio
present at a meeting if the holders of more than 50% of the outstanding
shares are present in person or by proxy, or (2) more than 50% of the
outstanding shares of the Fund or the applicable Portfolio.
At a meeting of shareholders on December 14, 1994, a majority of
shareholders ratified and approved the Administration and Distribution
Agreement, the Advisory Agreement, and the Fund's plan of distribution of
its shares.
Counsel and Independent Public Accountants
The legality of the shares offered by the Fund has been passed upon
by Dykema Gossett PLLC, Detroit, Michigan, counsel to the Fund. Ernst &
Young LLP, independent auditors, are auditors of the Fund.
Registration Statement
The Prospectus and this Statement of Additional Information omit
certain information contained in the Registration Statement filed with the
Securities and Exchange Commission. Copies of the Registration Statement,
including items omitted therefrom and from the Prospectus, may be obtained
from the Commission by paying the charges prescribed under its rules and
regulations.
Statements contained in the Prospectus and herein as to the
contents of any contact or other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement
of which the Prospectus and this Statement of Additional Information form a
part, each such statement being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The report of Ernst & Young LLP, independent auditors, and the
financial statements of the Fund contained in the Fund's Annual Report to
Shareholders sent to shareholders of the Fund pursuant to Section 30(d) of
the Investment Company Act of 1940 and previously filed with the Securities
and Exchange Commission, are hereby incorporated by reference into this
Statement of Additional Information. The Fund will furnish a copy of any of
such Annual Report to Shareholders, without charge, upon request made to the
Fund, l00 Renaissance Center, 26th Floor, Detroit, Michigan 48243 (telephone
(313 259-2600).
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