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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be
sold nor may any offers to buy be accepted prior to the time the
registration statement becomes effective. This prospectus shall not
consititute an offer to sell or the solicitation of an offer to buy nor
shall there be any sale of these securities in any State in which such
offer, solicitation, or sale would be unlawful prior to registration or
qualification under the securities laws of any such State.
Subject to Completion, August 15, 1994
PORTAGE EQUITY FUND
(A Portfolio of the Portage Funds)
Prospectus
Portage Equity Fund (the "Fund") is a diversified portfolio in the Portage
Funds (the "Trust"), an open-end management investment company (a mutual
fund). The investment objective of the Fund is to achieve growth of capital
and income. The Fund pursues this investment objective by investing primarily
in equity securities of U.S. companies.
The shares offered by this prospectus are not deposits or obligations of First
National Bank of Ohio, are not endorsed or guaranteed by First National Bank
of Ohio, and are not insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other government agency. Investment in these
shares involves investment risks, including the possible loss of principal.
This prospectus contains the information you should read and know before you
invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated September
3, 1994, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information or make
inquiries about the Fund by writing to or calling the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated September 3, 1994
TABLE OF CONTENTS
SUMMARY OF FUND EXPENSES
GENERAL INFORMATION
INVESTMENT INFORMATION
Investment Objective
Investment Policies
Acceptable Investments
Domestic Equity Securities
Domestic Debt Securities
International Securities
Money Market Instruments
Convertible Securities
Zero Coupon Securities
U.S. Government Securities
Repurchase Agreements
When-Issued and Delayed Delivery Transactions
Investing in Securities of Other Investment Companies
Lending of Portfolio Securities
Restricted and Illiquid Securities
Foreign Securities Risks
Foreign Companies
Put and Call Options
Futures and Options on Futures
Risks
Investment Limitations
PORTAGE FUNDS INFORMATION
Management of the Portage Funds
Board of Trustees
Investment Adviser
Advisory Fees
Adviser's Background
Distribution of Fund Shares
Distribution Plan
Administration of the Fund
Administrative Services
Shareholder Services Plan
Other Payments to Financial Institutions
Custodian
Transfer Agent, Dividend Disbursing Agent, and
Portfolio Accounting Services
Legal Counsel
Independent Public Accountants
Brokerage Transactions
Expenses of the Fund
NET ASSET VALUE
INVESTING IN THE FUND
Share Purchases
Through First National Bank of Ohio or
FBOH Investor Services, Inc.
Minimum Investment Required
What Shares Cost
Purchases at Net Asset Value
Sales Charge Reallowance
Reducing the Sales Charge
Quantity Discounts and Accumulated Purchases
Letter of Intent
Reinvestment Privilege
Systematic Investment Program
Subaccounting Services
Certificates and Confirmations
Dividends and Capital Gains
EXCHANGE PRIVILEGE
Exchange-by-Telephone
REDEEMING SHARES
Through First National Bank of Ohio or
FBOH Investor Services, Inc.
By Telephone
By Mail
Signatures
Systematic Withdrawal Program
Accounts with Low Balances
SHAREHOLDER INFORMATION
Voting Rights
Massachusetts Partnership Law
EFFECT OF BANKING LAWS
TAX INFORMATION
Federal Income Tax
PERFORMANCE INFORMATION
ADDRESSES Inside Back Cover
SUMMARY OF FUND EXPENSES
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)
4.50%
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price) None
Deferred Sales Load (as a percentage of original purchase price
or redemption proceeds, as applicable) None
Redemption Fees (as a percentage of amount redeemed, if applicable). None
Exchange Fee None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fees (after waiver)(1) 0.53%
12b-1 Fees (2) 0.00%
Total Other Expenses 0.72%
Shareholder Services Fees (3) 0.00%
Total Fund Operating Expenses (4) 1.25%
(1) The estimated management fee of the Fund has been reduced
to reflect the anticipated voluntary waiver by the investment adviser.
The adviser can terminate their voluntary waiver of fees at any time at
their sole discretion. The maximum management fee is 0.75% for the Fund.
(2) The Fund has no present intention of paying or accruing
12b-1 fees during the fiscal year ending November 30, 1994. If the Fund
were paying or accruing 12b-1 fees, the Fund would be able to pay up to
0.25% of its average daily net assets for 12b-1 fees.
(3) The maximum shareholder services fee is 0.25%.
(4) The Total Fund Operating Expenses are estimated to be
1.47% absent the anticipated voluntary waivers of the advisory fee and
shareholder services fee.
*Expenses in this table are estimated based on average expenses expected
to be incurred during the fiscal year ending November 30, 1994. During the
course of this period, expenses may be more or less than the average amount
shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS
AND EXPENSES, SEE "PORTAGE FUNDS INFORMATION" AND "INVESTING IN THE FUND."
EXAMPLE 1 year 3 years
You would pay the following expenses on
a $1,000 investment assuming (1) 5% annual
return and (2) redemption at the end of each time
period $57 $83
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FISCAL YEAR ENDING NOVEMBER 30,
1994.
GENERAL INFORMATION
The Portage Funds were established as a Massachusetts business trust under a
Declaration of Trust dated November 12, 1990. The Declaration of Trust
permits the Trust to offer separate series of shares of beneficial interest
representing interests in separate portfolios of securities. The shares in
any one portfolio may be offered in separate classes. This prospectus relates
only to that portfolio of the Trust known as the Portage Equity Fund. The
Fund is designed for customers of First National Bank of Ohio and their
affiliates as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio consisting primarily of equity
securities of U.S. companies. A minimum initial investment of $1,000 is
required.
Except as otherwise noted in this prospectus, shares of the Fund are sold at
net asset value plus an applicable sales charge and redeemed at net asset
value.
INVESTMENT INFORMATION
INVESTMENT OBJECTIVE
The investment objective of the Fund is to achieve growth of capital and
income. The investment objective cannot be changed without approval of
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment
policies described in this prospectus.
INVESTMENT POLICIES
Under normal circumstances, the Fund pursues its investment objective by
investing at least 65% of the value of its total assets in equity securities
of U.S. companies. The Fund may also invest in domestic debt securities,
international securities, U.S. government securities, and money market
securities. The Fund's investment adviser attempts to maintain an acceptable
level of risk through careful investment analysis including, but not limited
to, the following: the employment of disciplined value measures (such as
price/earnings ratios) when selecting equity securities; use of ratings
assigned by nationally recognized statistical rating organizations (where
applicable); credit research; review of issuer's historical performance;
examination of issuer's dividend growth record; and consideration of market
trends.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Trustees ("Trustees") without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include the
following:
DOMESTIC EQUITY SECURITIES. The domestic equity securities of the Fund
will usually consist of common and preferred stocks of U.S. companies
with between $200 million and $2 billion in market capitalization and
which are listed on the New York or American Stock Exchanges or traded in
the over-the-counter market. The companies will be selected by the
Fund's investment adviser based on traditional research techniques and
technical factors, including assessment of earnings and dividend growth
prospects and of the risk and volatility of the company's industry.
Other factors, such as product position or market share, will also be
considered by the Fund's investment adviser.
DOMESTIC DEBT SECURITIES. The Fund may also invest in debt securities
including bonds, notes, warrants, zero coupon bonds, and convertible
securities of the U.S. companies described above, all of which are rated
investment grade, i.e., Baa or better by Moody's Investors Service, Inc.
("Moody's"), or BBB or better by Standard & Poor's Corporation ("S&P") or
Fitch Investors Service, Inc. ("Fitch") (or, if unrated, are deemed to be
of comparable quality by the Fund's investment adviser). The Fund may
also invest in securities issued and/or guaranteed as to the payment of
principal and interest by the U.S. government or its agencies or
instrumentalities. It should be noted that securities receiving the
lowest investment grade rating are considered to have some speculative
characteristics. Changes in economic conditions or other circumstances
are more likely to lead to weakened capacity to make principal and
interest payments than higher rated securities. In the event that a
security which had an eligible rating when purchased is downgraded below
Baa or BBB, the Fund's adviser will promptly reassess whether continued
holding of the security is consistent with the Fund's objective.
INTERNATIONAL SECURITIES. The Fund may invest in equity securities of
non-U.S. companies and corporate and government debt securities
denominated in currencies other than U.S. dollars. The international
equity securities in which the Fund may invest include international
stocks traded domestically or abroad through various stock exchanges,
American Depositary Receipts ("ADRs"), and International Depositary
Receipts ("IDRs"). The international fixed income securities will
include ADRs, IDRs, and government securities of other nations, and will
be rated investment grade (i.e., Baa or better by Moody's or BBB or
better by S&P) or deemed by the investment adviser to be of an equivalent
quality. In the event that an international debt security which had an
eligible rating when purchased is downgraded below the ratings of Baa or
BBB, the Fund's adviser will promptly reassess whether continued holding
of the security is consistent with the Fund's objective. The Fund may
also invest in shares of open-end and closed-end management investment
companies which invest primarily in international securities described
above.
MONEY MARKET INSTRUMENTS. For temporary defensive purposes (up to 100%
of total assets) and to maintain liquidity (up to 35% of total assets),
the Fund may invest in U.S. and foreign short-term money market
instruments, including:
o commercial paper rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch, and Europaper (dollar-denominated
commercial paper issued outside the United States) rated A-1, A-2,
Prime-1, or Prime-2;
o instruments of domestic and foreign banks and savings and loans (such
as certificates of deposit, demand and time deposits, savings shares,
and bankers' acceptances) if they have capital, surplus, and undivided
profits of over $100,000,000, or if the principal amount of the
instrument is insured by the Bank Insurance Fund, which is
administered by the Federal Deposit Insurance Corporation ("FDIC"), or
the Savings Association Insurance Fund, which is also administered by
the FDIC. These instruments may include Eurodollar Certificates of
Deposit ("ECDs"), Yankee Certificates of Deposit ("Yankee CDs"), and
Eurodollar Time Deposits ("ETDs");
o obligations of the U.S. government or its agencies or
instrumentalities;
o repurchase agreements;
o securities of other investment companies; and
o other short-term instruments which are not rated but are determined by
the investment adviser to be of comparable quality to the other
obligations in which the Fund may invest.
CONVERTIBLE SECURITIES. Convertible securities are fixed income securities
which may be exchanged or converted into a predetermined number of the
issuer's underlying common stock at the option of the holder during a
specified time period. Convertible securities may take the form of
convertible preferred stock, convertible bonds or debentures, units consisting
of "usable" bonds and warrants or a combination of the features of several of
these securities.
ZERO COUPON SECURITIES. The Fund may invest in zero coupon bonds and zero
coupon convertible securities, whose prices are more sensitive to fluctuations
in interest rates than are conventional bonds and convertible securities. The
Fund may invest in zero coupon bonds in order to receive the rate of return
through the appreciation of the bond. This application is extremely
attractive in a falling rate environment as the price of the bond rises
rapidly in value as opposed to regular coupon bonds. A zero coupon bond makes
no periodic interest payments and the entire obligation becomes due only upon
maturity.
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero
coupon convertible securities accretes at a stated yield until the security
reaches its face amount at maturity. Zero coupon convertible securities are
convertible into a specific number of shares of the issuer's common stock. In
addition, zero coupon convertible securities usually have put features that
provide the holder with the opportunity to sell the bonds back to the issuer
at a stated price before maturity.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Fund may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities. These securities are backed by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
o Federal Farm Credit Banks;
o Federal Home Loan Banks;
o Federal National Mortgage Association;
o Student Loan Marketing Association; and
o Federal Home Loan Mortgage Corporation.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker/dealers, and other recognized financial institutions sell securities to
the Fund and agree at the time of sale to repurchase them at a mutually agreed
upon time and price. To the extent that the original seller does not
repurchase the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities.
dela
delayed delivery transactions, the Fund relies on the seller to complete the
transaction. The seller's failure to complete the transaction may cause the
Fund to miss a price or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities of other investment companies, but it will not own more than 3% of
the total outstanding voting stock of any investment company, invest more than
5% of its total assets in any one investment company, or invest more than 10%
of its total assets in investment companies in general. The Fund will invest
in other investment companies primarily for the purpose of investing short-
term cash which has not yet been invested in other portfolio instruments. It
should be noted that investment companies incur certain expenses such as
management fees and, therefore, any investment by a fund in shares of another
investment company would be subject to such duplicate expenses. The
investment adviser will waive its investment advisory fee on assets invested
in securities of such investment companies.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities up to one-third of the value of its total
assets, on a short-term or long-term basis, to broker/dealers, banks, or other
institutional borrowers of securities. The Fund will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the
investment adviser has determined are creditworthy under guidelines
established by the Trustees and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the
securities loaned at all times.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which
are subject to restrictions on resale under federal securities law. However,
the Fund will limit investments in illiquid securities, including restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, over-the-counter options, and repurchase agreements providing for
settlement in more than seven days after notice, to 15% of its net assets.
FOREIGN SECURITIES RISKS. Investing in foreign securities carries substantial
risks in addition to those associated with domestic investments. Foreign
securities may be denominated in foreign currencies. Therefore, the value in
U.S. dollars of the Fund's assets and income may be affected by changes in
exchange rates and regulations. Although the Fund values its assets daily in
U.S. dollars, it will not convert its holding of foreign currencies to U.S.
dollars daily. When the Fund converts its holdings to another currency, it
may incur currency conversion costs. Foreign exchange dealers realize a
profit on the difference between the prices at which they buy and sell
currencies.
FOREIGN COMPANIES. Other differences between investing in foreign and U.S.
companies include:
o less publicly available information about foreign companies;
o the lack of uniform financial accounting standards applicable to foreign
companies;
o less readily available market quotations on foreign companies;
o differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
o generally lower foreign stock market volume;
o the likelihood that foreign securities may be less liquid or more volatile;
o generally higher foreign brokerage commissions;
o unreliable mail service between countries; and
o political or financial changes which adversely affect investments in some
countries.
PUT AND CALL OPTIONS. The Fund may purchase both put and call options on its
portfolio securities. These options will be used as a hedge to attempt to
protect securities which the Fund holds or will be purchasing against
decreases or increases in value. The Fund may purchase call and put options
for the purpose of offsetting previously written call options of the same
series. If the Fund is unable to effect a closing purchase transaction with
respect to covered options it has written, the Fund will not be able to sell
the underlying securities or dispose of assets held in a segregated account
until the options expire or are exercised.
The Fund may also write covered call and put options on all or any portion of
its portfolio to generate income for the Fund. By writing a call option, the
Fund becomes obligated during the term of the option to deliver the securities
underlying the option upon payment of the exercise price. By writing a put
option, the Fund becomes obligated during the term of the option to purchase
the securities underlying the option at the exercise price if the option is
expired. The Fund will write call options on securities either held in its
portfolio or which it has the right to obtain without payment of further
consideration or for which it has segregated cash or U.S. government
securities in the amount of any additional consideration.
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options when options on the portfolio securities held by the Fund are not
traded on an exchange. The Fund purchases and writes options only with
investment dealers and other financial institutions (such as commercial banks
or savings and loan associations) deemed creditworthy by the Fund's investment
adviser.
Over-the-counter options are two-party contracts with price and terms
negotiated between buyer and seller. In contrast, exchange-traded options
are third-party contracts with standardized strike prices and expiration dates
and are purchased from a clearing corporation. Exchange-traded options have a
continuous liquid market while over-the-counter options may not.
FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell futures
contracts to hedge against the effect of changes in the value of portfolio
securities due to anticipated changes in interest rates and market conditions.
Futures contracts call for the delivery of particular instruments at a certain
time in the future. The seller of the contract agrees to make delivery of the
type of instrument called for in the contract, and the buyer agrees to take
delivery of the instrument at the specified future time.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index futures
contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price
at which the index contract was originally written.
The Fund may also write call options and purchase put options on futures
contracts as a hedge to attempt to protect securities in its portfolio against
decreases in value. When the Fund writes a call option on a futures contract,
it is undertaking the obligation of selling a futures contract at a fixed
price at any time during a specified period if the option is exercised.
Conversely, as purchaser of a put option on a futures contract, the Fund is
entitled (but not obligated) to sell a futures contract at the fixed price
during the life of the option.
The Fund may also write put options and purchase call options on futures
contracts as a hedge against rising purchase prices of portfolio securities.
The Fund will use these transactions to attempt to protect its ability to
purchase portfolio securities in the future at price levels existing at the
time it enters into the transactions. When the Fund writes a put option on a
futures contract, it is undertaking to buy a particular futures contract at a
fixed price at any time during a specified period if the option is exercised.
As a purchaser of a call option on a futures contract, the Fund is entitled
(but not obligated) to purchase a futures contract at a fixed price at any
time during the life of the option.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed
5% of the market value of the Fund's total assets. When the Fund purchases
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the futures contracts (less any related margin
deposits), will be deposited in a segregated account with the Fund's custodian
(or the broker, if legally permitted) to collateralize the position and
thereby insure that the use of such futures contract is unleveraged. When the
Fund sells futures contracts, it will either own or have the right to receive
the underlying future or security, or will make deposits to collateralize the
position as discussed above.
RISKS. When the Fund uses futures and options on futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the
securities in the Fund's portfolio. This may cause the futures contract
and any related options to react differently than the portfolio
securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the direction or
extent of market factors such as stock price movements. In these events,
the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the
investment adviser will consider liquidity before entering into these
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary market.
INVESTMENT LIMITATIONS
The Fund will not:
o borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to one-third of the value of its total assets and pledge up
to 10% of the value of its total assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder
approval.
PORTAGE FUNDS INFORMATION
MANAGEMENT OF THE PORTAGE FUNDS
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising
all of the powers of the Trust except those reserved for the shareholders.
The Executive Committee of the Board of Trustees handles the Board's
responsibilities between meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the
Trust, investment decisions for the Fund are made by First National Bank of
Ohio, the Fund's investment adviser (the "Adviser"), subject to direction by
the Trustees. The Adviser continually conducts investment research and
supervision for the Fund and is responsible for the purchase or sale of
portfolio instruments, for which it receives an annual fee from the Fund.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.75 of 1% of the Fund's average daily net assets. The
investment advisory contract provides for the voluntary reimbursement of
expenses by the Adviser to the extent any Fund expenses exceed such lower
expense limitation as the Adviser may, by notice to the Fund, voluntarily
declare to be effective. The Adviser can terminate this voluntary
reimbursement of expenses at any time at its sole discretion. The
Adviser has undertaken to reimburse the Fund for operating expenses in
excess of limitations established by certain states.
ADVISER'S BACKGROUND. First National Bank of Ohio, a national banking
association formed in 1947, is a wholly-owned subsidiary of First
Bancorporation of Ohio ("FBOH"). Through its subsidiaries and
affiliates, FBOH offers a full range of financial services to the public
including commercial lending, depository services, cash management,
brokerage services, retail banking, credit card services, mortgage
banking, investment advisory services, and trust services.
As of June 30, 1994, the Trust Division of First National Bank of Ohio
had approximately $2.5 billion under administration of which it had
investment discretion over $1.2 billion.
As part of its regular banking operations, First National Bank of Ohio
may make loans to public companies. Thus, it may be possible, from time
to time, for the Fund to hold or acquire the securities of issuers which
are also lending clients of First National Bank of Ohio. The lending
relationship will not be a factor in the selection of securities.
The Manager of the Fund is Wesley C. Meinerding, a Vice President and
Trust Officer with First National Bank of Ohio. Mr. Meinerding manages
corporate and personal trust portfolios at First National Bank of Ohio.
Prior to joining FBOH in December 1982, Mr. Meinerding managed trust and
bank assets at First National Bank in Massillon, corporate and personal
trusts at Harter Bank and Trust, and pension assets at Firestone Tire and
Rubber Company. Mr. Meinerding has managed the Fund since its inception
in September 1994.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the
Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is
the distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Pursuant to the provisions of a distribution plan adopted
in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the
Fund may pay to Federated Securities Corp., the distributor, an amount
computed at an annual rate of up to 0.25 of 1% of the Fund's average daily net
assets to finance any activity which is principally intended to result in the
sale of shares subject to the Plan.
The distributor may from time to time, and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense limitation
as the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to
provide sales and support services as agents for their clients or customers
who beneficially own shares of the Fund. Financial institutions will receive
fees from the distributor based upon shares owned by their clients or
customers. The schedules of such fees and the basis upon which such fees will
be paid will be determined from time to time by the distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no
payments to the distributor except as described above. Therefore, the Fund
does not pay for unreimbursed expenses of the distributor, including amounts
expended by the distributor in excess of amounts received by it from the Fund,
interest, carrying or other financing charges in connection with excess
amounts expended, or the distributor's overhead expenses. However, the
distributor may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a
commercial bank or a savings and loan association) from being an underwriter
or distributor of most securities. In the event the Glass-Steagall Act is
deemed to prohibit depository institutions from acting in the capacities
described above or should Congress relax current restrictions on depository
institutions, the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act
as underwriters or distributors of securities may differ from interpretations
given to the Glass-Steagall Act and, therefore, banks and financial
institutions may be required to register as dealers pursuant to state law.
ADMINISTRATION OF THE FUND
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides the Fund with the
administrative personnel and services necessary to operate the Fund. Such
services include shareholder servicing and certain legal and accounting
services. Federated Administrative Services provides these at an annual rate
as specified below:
Maximum Average Aggregate Daily
Administrative Fee Net Assets of the Trust
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall aggregate at
least $100,000 per Fund. Federated Administrative Services may voluntarily
choose to reimburse a portion of its fee at any time.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to shares of the Fund. Under the Services
Plan, financial institutions will enter into shareholder service agreements to
provide administrative support services to their customers who from time to
time may be owners of record or beneficial owners of shares of the Fund. In
return for providing these support services, a financial institution may
receive payments at a rate not exceeding 0.25 of 1% of the average daily net
assets of shares of the Fund beneficially owned by the financial institution's
customers for whom it is holder of record or with whom it has a servicing
relationship. These administrative services may include, but are not limited
to, the following functions: providing office space, equipment, telephone
facilities, and various personnel including clerical, supervisory, and
computer, as necessary or beneficial to establish and maintain shareholder
accounts and records; processing purchase and redemption transactions and
automatic investments of client account cash balances; answering routine
client inquiries regarding the Fund; assisting clients in changing dividend
options, account designations and addresses; and providing such other services
as the Fund reasonably requests.
OTHER PAYMENTS TO FINANCIAL INSTITUTIONS. In addition to periodic payments to
financial institutions under the Distribution and Shareholder Services Plans,
certain financial institutions may be compensated by the adviser for the
continuing investment of customers' assets in this Fund. These payments will
be made directly by the adviser from its assets, and will not be made from the
assets of the Fund or by the assessment of a sales charge on Fund shares.
CUSTODIAN. State Street Bank and Trust Company, Boston, Massachusetts, is
custodian for the securities and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of
Federated Investors, is transfer agent and dividend disbursing agent for the
Fund. It also provides certain accounting and recordkeeping services with
respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, L.L.P.,
Washington, D.C.
INDEPENDENT PUBLIC ACCOUNTANTS. The independent public accountants for the
Fund are Arthur Andersen & Co., Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of
portfolio instruments, the Adviser looks for prompt execution of the order at
a favorable price. In working with dealers, the Adviser will generally
utilize those who are recognized dealers in specific portfolio instruments,
except when a better price and execution of the order can be obtained
elsewhere. In selecting among firms believed to meet these criteria, the
Adviser may give consideration to those firms which have sold or are selling
shares of the Fund. The Adviser makes decisions on portfolio transactions and
selects brokers and dealers subject to review by the Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust
expenses. The expenses of the Fund include, but are not limited to, the cost
of: organizing the Trust and continuing its existence; Trustees' fees;
investment advisory and administrative services; printing prospectuses and
other Fund documents for shareholders; registering the Trust, the Fund, and
shares of the Fund; taxes and commissions; issuing, purchasing, repurchasing,
and redeeming shares; fees for custodians, transfer agents, dividend
disbursing agents, shareholder servicing agents, and registrars; printing,
mailing, auditing, accounting, and legal expenses; reports to shareholders and
governmental agencies; meetings of Trustees and shareholders and proxy
solicitations therefor; distribution fees; insurance premiums; association
membership dues; and such nonrecurring and extraordinary items as may arise.
However, the Adviser may voluntarily reimburse the Fund the amount, up to the
amount of the advisory fee, by which operating expenses exceed limitations
imposed by certain states.
NET ASSET VALUE
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. In connection with
qualified account relationships in the Trust Department of First National Bank
of Ohio, Fund shares may be ordered by telephone through procedures
established with First National Bank of Ohio and its affiliates. Individual
investors may place orders to purchase shares either by telephone or by mail.
Texas residents should purchase shares of the Fund through Federated
Securities Corp. at 1-800-356-2805. In connection with the sale of Fund
shares, the distributor may from time to time offer certain items of nominal
value to any shareholder or investor. The Fund reserves the right to reject
any purchase request.
THROUGH FIRST NATIONAL BANK OF OHIO OR FBOH INVESTOR SERVICES, INC. Trust
customers placing an order to purchase shares of the Fund may open an account
by calling First National Bank of Ohio at 216-384-7300. Information needed to
establish the account will be taken over the telephone.
Individual investors placing an order to purchase shares of the Fund may
telephone FBOH Investor Services, Inc. at 216-384-7230. An account may be
opened by completing a new account application form available from FBOH
Investor Services, Inc., 4100 Embassy Parkway, Akron, Ohio 44333.
Payment may be made by check, transfer from an Automated Clearing House
("ACH") member institution, federal funds or by debiting a customer's account
at First National Bank of Ohio. Purchase orders must be received by 3:30 p.m.
(Eastern time) in order for shares to be purchased at that day's price.
Purchases by check are considered received after payment by check is converted
into federal funds and is received by the Fund. When payment is made with
federal funds, the order is considered received when federal funds are
received by the Fund. Shares cannot be purchased on days on which the New
York Stock Exchange is closed or on federal holidays restricting wire
transfers.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000. Subsequent investments
may be in amounts of $100 or more. The Fund may waive the initial minimum
investment from time to time.
WHAT SHARES COST
Shares are sold at their net asset value next determined after an order is
received, plus a sales charge, as follows:
Sales Charge as Sales Charge as
a Percentage of a Percentage of
Amount of Transaction Public Offering Price Net Amount Invested
Less than $100,000 4.50% 4.71%
$100,000 but less than $250,000 3.75% 3.90%
$250,000 but less than $500,000 2.50% 2.56%
$500,000 but less than $750,000 2.00% 2.04%
$750,000 but less than $1 million1.00% 1.01%
$1 million or more 0.00% 0.00%
Day
Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day.
PURCHASES AT NET ASSET VALUE. Shareholders who are trust customers of First
Bancorporation of Ohio and its subsidiaries are exempt from sales charges. In
addition, the following persons may purchase shares of the Fund at net asset
value, without a sales charge: employees and retired employees of First
National Bank of Ohio, Federated Securities Corp., or their affiliates, or any
bank or investment dealer who has a sales agreement with Federated Securities
Corp. with regard to the Fund, and members of the families (including parents,
grandparents, siblings, spouses, children, aunts, uncles, and in-laws) of such
employees or retired employees.
SALES CHARGE REALLOWANCE. For sales of shares of the Fund, a dealer will
normally receive up to 85% of the applicable sales charge. Any portion of the
sales charge which is not paid to a dealer will be retained by the
distributor. The distributor will, periodically, uniformly offer to pay cash
or promotional incentives in the form of trips to sales seminars at luxury
resorts, tickets or other items to all dealers selling shares of the Fund.
Such payments will be predicated upon the amount of shares of the Fund that
are sold by the dealer.
The sales charge for shares sold other than through registered broker/dealers
will be retained by the distributor. The distributor may pay fees to banks
out of the sales charge in exchange for sales and/or administrative services
performed on behalf of the bank's customers in connection with the initiation
of customer accounts and purchases of Fund shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Shares through:
o quantity discounts and accumulated purchases;
o signing a 13-month letter of intent; or
o using the reinvestment privilege.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the previous table,
larger purchases reduce the sales charge paid. The Fund will combine
purchases made on the same day by the investor, the investor's spouse, and the
investor's children under age 21 when it calculates the sales charge. In
addition, the sales charge, if applicable, is reduced for purchases made at
one time by a trustee or fiduciary for a single trust estate or a single
fiduciary account.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price,
the sales charge on the additional purchase according to the schedule now in
effect would be 3.75%, not 4.50%.
To receive the sales charge reduction, FBOH Investor Services, Inc. or the
distributor must be notified by the shareholder in writing at the time the
purchase is made that Fund shares are already owned or that purchases are
being combined. The Fund will reduce the sales charge after it confirms the
purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
Fund shares over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the Fund's custodian
to hold up to 4.50% of the total amount intended to be purchased in escrow (in
shares of the Fund) until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares,
but if the shareholder does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased. This
letter may be dated as of a prior date to include any purchases made within
the past 90 days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 60 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
First National Bank of Ohio or the distributor must be notified by the
shareholder in writing or by his financial institution of the reinvestment in
order to eliminate a sales charge. If the shareholder redeems his shares in
the Fund, there may be tax consequences. Shareholders contemplating such
transactions should consult their own tax advisers.
SYSTEMATIC INVESTMENT PROGRAM
Shareholders who are individual investors and have opened an account may add
to their investment on a regular basis in a minimum amount of $100. Under
this program, funds may be automatically withdrawn periodically from the
shareholder's checking account or by transfer from an ACH member institution
and invested in shares. A shareholder may apply for participation in this
program through FBOH Investor Services, Inc.
SUBACCOUNTING SERVICES
Institutions are encouraged to open single master accounts. However, certain
institutions may wish to use the transfer agent's subaccounting system to
minimize their internal recordkeeping requirements. The transfer agent
charges a fee based on the level of subaccounting services rendered.
Institutions holding shares of the Fund in a fiduciary, agency, custodial, or
similar capacity may charge or pass through subaccounting fees as part of or
in addition to normal trust or agency account fees. They may also charge fees
for other services provided which may be related to the ownership of Fund
shares. This prospectus should, therefore, be read together with any
agreement between the customer and the institution with regard to the services
provided, the fees charged for those services, and any restrictions and
limitations imposed.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless
requested by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder and dividend confirmations are sent to each shareholder to report
dividends paid.
DIVIDENDS AND CAPITAL GAINS
Dividends are declared and paid quarterly. Dividends are declared just prior
to determining net asset value. Capital gains realized by the Fund, if any,
will be distributed at least once every 12 months. Dividends and capital
gains will be
automatically reinvested in additional shares on payment dates at the ex-
dividend date net asset value without a sales charge, unless cash payments are
requested by writing to the Fund or First National Bank of Ohio or FBOH
Investor Services, Inc. as appropriate.
EXCHANGE PRIVILEGE
A shareholder may exchange shares of the Portage Equity Fund for shares of the
Portage U.S. Government Money Market Fund by calling or sending a written
request to FBOH Investor Services, Inc. In addition, shares of the Equity
Fund may also be exchanged for certain other funds distributed by Federated
Securities Corp. that are not advised by First National Bank of Ohio
("Federated Funds"). For further information on the availability of Federated
Funds for exchanges, call FBOH Investor Services, Inc. Exchanges are subject
to the minimum initial investment requirement of the Fund being acquired.
Prior to any exchange, the shareholder must receive a copy of the current
prospectus of the fund into which an exchange is to be effected.
Shares may be exchanged at net asset value, plus the difference between the
Fund's sales charge (if any) already paid and any sales charge of the fund
into which Fund shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no
sales charge, the shares exchanged and additional shares which have been
purchased by reinvesting dividends on such shares retain the character of the
exchanged shares for purposes of exercising further exchange privileges; thus,
an exchange of such shares for shares of a fund with a sales charge would be
at net asset value.
An excessive number of exchanges may be disadvantageous to the Trust.
Therefore, the Trust, in addition to its right to reject any exchange,
reserves the right to modify or terminate the exchange privilege of any
shareholder who makes more than six exchanges of shares of the Funds in a
year, or three in a calendar quarter. Shareholders would be notified prior to
any modification or termination.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of
proper instructions and all necessary supporting documents, Fund shares
submitted for exchange will be redeemed at the next-determined net asset
value.
Written exchange instructions may require a signature guarantee. Exercise of
this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may
be realized. The exchange privilege may be terminated at any time.
Shareholders will be notified of the termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by
calling FBOH Investor Services, Inc. at 216-384-7230.
EXCHANGE-BY-TELEPHONE
Instructions for exchanges between funds which are part of the Portage Funds
may be given by telephone to FBOH Investor Services, Inc. at 216-384-7230.
Shares may be exchanged by telephone only between fund accounts having
identical shareholder registrations. Telephone exchange instructions may be
recorded.
Orders for exchanges received prior to 3:30 p.m. (Eastern time) on any day
that the Fund is open for business will be executed as of the close of
business that day. Orders for exchanges received after 3:30 p.m. (Eastern
time) on any business day will be executed at the close of the next business
day. The telephone exchange privilege may be modified or terminated at any
time. Shareholders will be notified of such modification or termination.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
The Fund redeems shares at their net asset value next determined after First
National Bank of Ohio receives the redemption request. Redemptions will be
made on days on which the Fund computes its net asset value. Redemption
requests cannot be executed on days on which the New York Stock Exchange is
closed or on federal holidays when wire transfers are restricted. Requests
for redemption can be made in person or by telephone for Trust customers.
Individual investors can make requests for redemption in person, by telephone
or by mail through FBOH Investor Services, Inc.
THROUGH FIRST NATIONAL BANK OF OHIO OR FBOH INVESTOR SERVICES, INC.
BY TELEPHONE. A shareholder who is a Trust customer of First National Bank of
Ohio may redeem shares of the Fund by telephoning First National Bank of Ohio
at 216-384-7300. A shareholder who is an individual investor/customer of FBOH
Investor Services, Inc. may redeem shares by telephoning 216-384-7230. For
calls received before 3:30 p.m. (Eastern time), proceeds will normally be
wired the following day to the shareholder's account at First National Bank of
Ohio, transferred through ACH to a member institution, or a check will be sent
to the address of record. In no event will proceeds be sent more than seven
days after a proper request for redemption has been received. An
authorization form permitting the Fund to accept telephone requests must first
be completed. Authorization forms and information on this service are
available from FBOH Investor Services, Inc. Telephone redemption instructions
may be electronically recorded.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur,
another method of redemption should be utilized, such as a written request to
Federated Services Company or FBOH Investor Services, Inc.
If, at any time, the Fund shall determine it necessary to terminate or modify
this method of redemption, shareholders would be promptly notified.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
BY MAIL. Shares may also be redeemed by sending a written request to FBOH
Investor Services, Inc. Call FBOH Investor Services, Inc. for specific
instructions before redeeming by letter. The shareholder will be asked to
provide in the request his name, the Fund name, his account number, and the
share or dollar amount requested. If share certificates have been issued,
they must be properly endorsed and should be sent by registered or certified
mail with the written request.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than that on
record with the Fund, or a redemption payable other than to the
shareholder of record must have signatures on written redemption requests
guaranteed by:
o a trust company or
commercial bank whose deposits are insured by the Bank Insurance Fund
("BIF"), which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
o a member of the New York,
American, Boston, Midwest, or Pacific Stock Exchange;
o a savings bank or savings
and loan association whose deposits are insured by the Savings
Association Insurance Fund ("SAIF"), which is administered by the FDIC;
or
o any other "eligible
guarantor institution" as defined in the Securities Exchange Act of
1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its transfer agent have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in
the future to limit eligible signature guarantors to institutions that
are members of a signature guarantee program. The Fund and its transfer
agent reserve the right to amend these standards at any time without
notice.
Normally, a check for the proceeds is mailed within one business day, but
in no event more than seven days, after receipt of a proper written
redemption request.
SYSTEMATIC WITHDRAWAL PROGRAM
If a shareholder's account has a value of at least $10,000, a Systematic
Withdrawal Program may be established whereby automatic redemptions are made
from the account and transferred electronically to any commercial bank,
savings bank, or credit union that is an ACH member. A shareholder may apply
for participation in this program through FBOH Investor Services, Inc.
Depending upon the amount of the withdrawal payments, the amount of dividends
paid and capital gains distributions with respect to Fund shares, and the
fluctuation of the net asset value of Fund shares redeemed under this program,
redemptions may reduce, and eventually deplete, the shareholder's investment
in the Fund. For this reason, payments under
this program should not be considered as yield or income on the shareholder's
investment in the Fund. Due to the fact that shares are sold with a sales
charge, it is not advisable for shareholders to be purchasing shares of the
Fund while participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $1,000 due to
shareholder redemptions. Before shares are redeemed to close an account, the
shareholder is notified in writing and allowed 30 days to purchase additional
shares to meet the minimum requirement.
SHAREHOLDER INFORMATION
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders of the Fund for vote. All shares of
each portfolio in the Trust have equal voting rights, except that in matters
affecting only a particular portfolio, only shares of that portfolio are
entitled to vote.
As a Massachusetts business trust, the Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust or Fund's operation and for the election of Trustees
under certain circumstances.
Trustees may be removed by the shareholders at a special meeting. A special
meeting of the shareholders for this purpose shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the
outstanding shares of all series of the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders of the Fund, the Trust has filed legal documents with
Massachusetts that expressly disclaim the liability of shareholders for such
acts or obligations of the Trust. These
documents require notice of this disclaimer to be given in each agreement,
obligation, or instrument the Trust or its Trustees enter into or sign on
behalf of the Fund.
In the unlikely event a shareholder of the Fund is held personally liable for
the Trust's obligations, the Trust is required by the Declaration of Trust to
use its property to protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder
for any act or obligation of the Trust. Therefore, financial loss resulting
from liability as a shareholder will occur only if the Trust itself cannot
meet its obligations to indemnify shareholders and pay judgments against them
from its assets.
EFFECT OF BANKING LAWS
The Glass-Steagall Act and other banking laws and regulations presently
prohibit a bank holding company registered under the Bank Holding Company Act
of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing,
or controlling a registered, open-end investment company continuously engaged
in the issuance of its shares, and from issuing, underwriting, or distributing
securities in general. Such laws and regulations do not prohibit such a
holding company or bank or non-bank affiliate from acting as investment
adviser, transfer agent, or custodian to such an investment company or from
purchasing shares of such a company as agent for and upon the order of their
customer. The Fund's investment adviser, First National Bank of Ohio, is
subject to such banking laws and regulations.
abo
above services for its customers and/or the Fund. In such event, changes in
the operation of the Fund may occur, including the possible alteration or
termination of any automatic or other Fund share investment and redemption
services then being
provided by First National Bank of Ohio, and the Trustees would consider
alternative investment advisers and other means of continuing available
investment services. It is not expected that Fund shareholders would suffer
any adverse financial consequences (if another adviser with equivalent
abilities to First National Bank of Ohio is found) as a result of any of these
occurrences.
TAX INFORMATION
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax
on any dividends and other distributions, including capital gains
distributions, received. This applies whether dividends and distributions are
received in cash or as additional shares. The Fund will provide detailed tax
information for reporting purposes.
Shareholders are urged to consult their own tax advisers regarding the status
of their accounts under state and local tax laws.
PERFORMANCE INFORMATION
From time to time the Fund advertises its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the
Fund over a thirty-day period by the maximum offering price per share of the
Fund on the last day of the period. This number is then annualized using semi-
annual compounding. The yield does not necessarily reflect income actually
earned by the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information normally reflects the effect of the maximum sales
load which, if excluded, would increase the total return and yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
ADDRESSES
Portage Equity Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Investment Adviser
First National Bank of Ohio 121 South Main Street
Akron, Ohio 44308-1440
Custodian
State Street Bank and Trust Company P.O. Box 1713
Boston, Massachusetts 02105
Transfer Agent, Dividend Disbursing Agent, and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
Legal Counsel
Dickstein, Shapiro & Morin, L.L.P. 2101 L Street, N.W.
Washington, D.C. 20037
Independent Public Accountants
Arthur Andersen & Co. 2100 One PPG Place
Pittsburgh, Pennsylvania 15222
PORTAGE EQUITY FUND
(A Portfolio of the Portage Funds)
Prospectus
An Open-End, Diversified
Management Investment Company
September 3, 1994
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS PORTAGE FUNDS
FEDERATED INVESTORS TOWER First National Bank of
Ohio,
PITTSBURGH, PA 15222-3779 Investment Adviser
G00580-01(9/94)
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with
the Securities and Exchange Commission. These securities may not be
sold nor may any offers to buy be accepted prior to the time the
registration statement becomes effective. This Statement of Additional
Information shall not consititute an offer to sell or the solicitation
of an offer to buy nor shall there be any sale of these securities in
any State in which such offer, solicitation, or sale would be unlawful
prior to registration or qualification under the securities laws of any
such State.
Subject to Completion, August 15, 1994
PORTAGE EQUITY FUND
(A Portfolio of the Portage Funds)
Statement of Additional Information
This Statement of Additional Information should be read with the prospectus of
the Portage Equity Fund (the "Fund") dated September 3, 1994. This Statement
is not a prospectus itself. To receive a copy of the prospectus, write to
First National Bank of Ohio, 121 South Main Street, Akron, Ohio 44308-1440.
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated September 3, 1994
FEDERATED SECURITIES CORP.
Distributor First National Bank of Ohio,
A subsidiary of FEDERATED INVESTORS Investment Adviser
TABLE OF CONTENTS
GENERAL INFORMATION ABOUT THE FUND
INVESTMENT OBJECTIVE AND POLICIES
Convertible Securities
Zero Coupon Securities
Warrants
When-Issued and Delayed Delivery Transactions
Repurchase Agreements
Restricted and Illiquid Securities
Futures and Options Transactions
Futures Contracts
"Margin" in Futures Transactions
Put Options on Financial Futures Contracts
Stock Index Options
Call Options on Financial Futures Contracts
Purchasing Put and Call Options on Portfolio Securities
Writing Covered Put and Call Options on Portfolio Securities
Over-the-Counter Options
Reverse Repurchase Agreements
Portfolio Turnover
INVESTMENT LIMITATIONS
PORTAGE FUNDS MANAGEMENT
Officers and Trustees
The Funds
Fund Ownership
Trustee Liability
INVESTMENT ADVISORY SERVICES
Adviser to the Fund
Advisory Fees
ADMINISTRATIVE SERVICES
BROKERAGE TRANSACTIONS
PURCHASING SHARES
Distribution and Shareholder Services Plans
Conversion to Federal Funds
DETERMINING NET ASSET VALUE
Determining Market Value of Securities
Trading in Foreign Securities
REDEEMING SHARES
Redemption in Kind
TAX STATUS
The Fund's Tax Status
Foreign Taxes
Shareholders' Tax Status
TOTAL RETURN
YIELD
PERFORMANCE COMPARISONS
APPENDIX
GENERAL INFORMATION ABOUT THE FUND
The Fund is a portfolio in the Portage Funds (the "Trust"), which was
established as a Massachusetts business trust under a Declaration of Trust
dated November 12, 1990. The Declaration of Trust permits the Trust to offer
separate series of shares of beneficial interest representing interests in
separate portfolios of securities.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is to achieve growth of capital and income.
The investment objective cannot be changed without the approval of
shareholders. The policies described below may be changed by the Board of
Trustees (the "Trustees") without shareholder approval. Shareholders will be
notified before any material change in these policies becomes effective.
CONVERTIBLE SECURITIES
Convertible bonds and convertible preferred stocks are fixed income securities
that generally retain the investment characteristics of fixed income
securities until they have been converted but also react to movements in the
underlying equity securities. The holder is entitled to receive the fixed
income of a bond or the dividend preference of a preferred stock until the
holder elects to exercise the conversion privilege. Usable bonds are
corporate bonds that can be used, in whole or in part, customarily at full
face value, in lieu of cash to purchase the issuer's common stock. When owned
as part of a unit along with warrants, which are options to buy the common
stock, they function as convertible bonds, except that the warrants generally
will expire before the bond's maturity. Convertible securities are senior to
equity securities and, therefore, have a claim to assets of the corporation
prior to the holders of common stock in the case of liquidation. However,
convertible securities are generally subordinated to similar nonconvertible
securities of the same company. The interest income and dividends from
convertible bonds and preferred stocks provide a stable stream of income with
generally higher yields than common stocks, but lower than non-convertible
securities of similar quality.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in which, in
the adviser's opinion, the investment characteristics of the underlying common
shares will assist the Fund in achieving its investment objective. Otherwise,
the Fund will hold or trade the convertible securities. In selecting
convertible securities for the Fund, the adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument and
the investment potential of the underlying equity security for capital
appreciation. In evaluating these matters with respect to a particular
convertible security, the adviser considers numerous factors, including the
economic and political outlook, the value of the security relative to other
investment alternatives, trends in the determinants of the issuer's profits,
and the issuer's management capability and practices.
ZERO COUPON SECURITIES
Federal tax law requires the holder of a zero coupon security to recognize
income from the security prior to the receipt of cash payments. To maintain
its qualification as a regulated investment company and avoid liability of
federal income taxes, the Fund will be required to distribute income accrued
from zero coupon securities which it owns, and may have to sell portfolio
securities (perhaps at disadvantageous times) in order to generate cash to
satisfy these distribution requirements.
WARRANTS
The Fund may invest in warrants. Warrants provide an option to purchase
common stock at a specific price (usually at a premium above the market value
of the optioned common stock at issuance) valid for a specific period of time.
Warrants may have a life ranging from less than a year to twenty years or may
be perpetual. However, most warrants have expiration dates after which they
are worthless. In addition, if the market price of the common stock does not
exceed the warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting rights, pay no
dividends, and have no rights with respect to the assets of the corporation
issuing them. The percentage increase or decrease in the market price of the
warrant may tend to be greater than the percentage increase or decrease in the
market price of the underlying common stock. The Fund will not invest more
than 5% of the value of its total assets in warrants. No more than 2% of this
5% may be in warrants which are not listed on the New York or American Stock
Exchanges. Warrants acquired in units or attached to securities may be deemed
to be without value for purposes of this policy.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities
with payment and delivery scheduled for a future time, and are made to secure
what is considered to be an advantageous price and yield for the Fund.
Settlement dates may be a month or more after entering into these
transactions, and the market values of the securities purchased may vary from
the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the
securities to be purchased are segregated at the trade date. These securities
are marked to market daily and are maintained until the transaction is
settled. The Fund may engage in these transactions to an extent that would
cause the segregation of an amount up to 20% of the total value of its assets.
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements, and these securities will be marked to market daily.
To the extent that the original seller does not repurchase the securities from
the Fund, the Fund could receive less than the repurchase price on any sale of
such securities. In the event that such a defaulting seller filed for
bankruptcy or became insolvent, disposition of such securities by the Fund
might be delayed pending court action. The Fund believes that under the
regular procedures normally in effect for custody of the Fund's portfolio
securities subject to repurchase agreements, a court of competent jurisdiction
would rule in favor of the Fund and allow retention or disposition of such
securities. The Fund will only enter into repurchase agreements with banks
and other recognized financial institutions, such as broker/dealers, which are
deemed by the Fund's adviser to be creditworthy pursuant to guidelines
established by the Trustees.
RESTRICTED AND ILLIQUID SECURITIES
se
securities is permitted under a Securities and Exchange Commission ("SEC")
staff position set forth in the adopting release for Rule 144A under the
Securities Act of 1933 (the "Rule"). The Rule is a non-exclusive safe-harbor
for certain secondary market transactions involving registration for resales
of otherwise restricted securities to qualified institutional buyers. The
Rule was expected to further enhance the liquidity of the secondary market for
securities eligible for resale under the Rule. The Fund believes that the
staff of the SEC has left the question of determining the liquidity of all
restricted securities to the Trustees. The Trustees may consider the
following criteria in determining the liquidity of certain restricted
securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
The Fund may invest in commercial paper issued in reliance on the exemption
from registration afforded by Section 4(2) of the Securities Act of 1933 and
treats such commercial paper as liquid. Section 4(2) commercial paper is
restricted as to disposition under federal securities law and is generally
sold to institutional investors, such as the Fund, who agree that they are
purchasing the paper for investment purposes and not with a view to public
distribution. Any resale by the purchaser must be in an exempt transaction.
Section 4(2) commercial paper is normally resold to other institutional
investors like the Fund through or with the assistance of the issuer or
investment dealers who make a market in Section 4(2) commercial paper, thus
providing liquidity.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by
buying and selling financial futures contracts, buying put and call options on
portfolio securities and put options on financial futures contracts, and
writing call options on futures contracts. The Fund may also write covered
call options on its portfolio securities and covered put options to attempt to
increase its current income. The Fund will maintain its positions in
securities, option rights, and segregated cash subject to puts and calls until
the options are exercised, closed, or have expired. An option position on
financial futures contracts may be closed out over-the-counter or on a
nationally recognized exchange which provides a secondary market for options
of the same series.
FUTURES CONTRACTS
The Fund may purchase and sell financial futures contracts to hedge against
the effects of changes in the value of portfolio securities due to anticipated
changes in interest rates and market conditions without necessarily buying or
selling the securities. The Fund also may purchase and sell stock index
futures to hedge against changes in prices. The Fund will not engage in
futures transactions for speculative purposes.
A futures contract is a firm commitment by two parties: the seller who agrees
to make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future. For example, in the fixed
income securities market, prices move inversely to interest rates. A rise in
rates means a drop in price. Conversely, a drop in rates means a rise in
price. In order to hedge its holdings of fixed income securities against a
rise in market interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect itself
against the possibility that the prices of its fixed income securities may
decline during the Fund's anticipated holding period. The Fund would "go
long" (agree to purchase securities in the future at a predetermined price) to
hedge against a decline in market interest rates.
Stock index futures contracts are based on indices that reflect the market
value of common stock of the firms included in the indices. An index futures
contract is an agreement pursuant to which two parties agree to take or make
delivery of an amount of cash equal to the differences between the value of
the index at the close of the last trading day of the contract and the price
at which the index contract was originally written.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury
bills with its custodian (or the broker, if legally permitted). The nature of
initial margin in futures transactions is different from that of margin in
securities transactions in that initial margin in futures transactions does
not involve the borrowing of funds by the Fund to finance the transactions.
Initial margin is in the nature of a performance bond or good faith deposit on
the contract which is returned to the Fund upon termination of the futures
contract, assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or
receives cash, called "variation margin," equal to the daily change in value
of the futures contract. This process is known as "marking to market."
Variation margin does not represent a borrowing or loan by the Fund but is
instead settlement between the Fund and the broker of the amount one would owe
the other if the futures contract expired. In computing its daily net asset
value, the Fund will mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts to
protect portfolio securities against decreases in value resulting from market
factors, such as an anticipated increase in interest rates. Unlike entering
directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in value during the
term of an option, the related futures contracts will also decrease in value
and the option will increase in value. In such an event, the Fund will
normally close out its option by selling an identical option. If the hedge is
successful, the proceeds received by the Fund upon the sale of the second
option will be large enough to offset both the premium paid by the Fund for
the original option plus the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option)
and exercise the option. The Fund would then deliver the futures contract in
return for payment of the strike price. If the Fund neither closes out nor
exercises an option, the option will expire on the date provided in the option
contract, and only the premium paid for the contract will be lost.
STOCK INDEX OPTIONS
The Fund may purchase put options on stock indices listed on national
securities exchanges or traded in the over-the-counter market. A stock index
fluctuates with changes in the market values of the stocks included in the
index.
The effectiveness of purchasing stock index options will depend upon the
extent to which price movements in the Fund's portfolio correlate with price
movements of the stock index selected. Because the value of an index option
depends upon movements in the level of the index rather than the price of a
particular stock, whether the Fund will realize a gain or loss from the
purchase of options on an index depends upon movements in the level of stock
prices in the stock market generally or, in the case of certain indices, in an
industry or market segment, rather than movements in the price of a particular
stock. Accordingly, successful use by the Fund of options on stock indices
will be subject to the ability of the Fund's adviser to predict correctly
movements in the directions of the stock market generally or of a particular
industry. This requires different skills and techniques than predicting
changes in the price of individual stocks.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed
and over-the-counter call options on financial futures contracts to hedge its
portfolio against an increase in market interest rates. When the Fund writes
a call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the fixed
strike price at any time during the life of the option if the option is
exercised. As stock prices fall or market interest rates rise, causing the
prices of futures to go down, the Fund's obligation under a call option on a
future (to sell a futures contract) costs less to fulfill, causing the value
of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can
substantially offset the drop in value of the Fund's portfolio securities.
Prior to the expiration of a call written by the Fund, or exercise of it by
the buyer, the Fund may close out the option by buying an identical option.
If the hedge is successful, the cost of the second option will be less than
the premium received by the Fund for the initial option. The net premium
income of the Fund will then substantially offset the decrease in value of the
hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the
value of the open positions (marked to market) exceeds the current market
value of its securities portfolio plus or minus the unrealized gain or loss on
those open positions, adjusted for the correlation of volatility between the
hedged securities and the futures contracts. If this limitation is exceeded
at any time, the Fund will take prompt action to close out a sufficient number
of open contracts to bring its open futures and options positions within this
limitation.
PURCHASING PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put and call options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during the
term of the option. A call option gives the Fund, in return for a premium,
the right to buy the underlying securities from the seller.
WRITING COVERED PUT AND CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered put and call options to generate income and
thereby protect against price movements in particular securities in the Fund's
portfolio. As the writer of a call option, the Fund has the obligation upon
exercise of the option during the option period to deliver the underlying
security upon payment of the exercise price. As the writer of a put option,
the Fund has the obligation to purchase a security from the purchaser of the
option upon the exercise of the option.
The Fund may only write call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any additional
consideration). In the case of put options, the Fund will segregate cash or
U.S. Treasury obligations with a value equal to or greater than the exercise
price of the underlying securities.
OVER-THE-COUNTER OPTIONS
The Fund may purchase and write over-the-counter options on portfolio
securities in negotiated transactions with the buyers or writers of the
options when options on the portfolio securities held by the Fund are not
traded on an exchange.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These
transactions are similar to borrowing cash. In a reverse repurchase
agreement, the Fund transfers possession of a portfolio instrument to another
person, such as a financial institution, broker, or dealer, in return for a
percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund in a
dollar amount sufficient to make payment for the obligations to be purchased
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking short-
term profits, securities in its portfolio will be sold whenever the Fund's
adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. It is not anticipated that the portfolio trading engaged in by the
Fund will result in its annual rate of portfolio turnover exceeding 75%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
futures contracts or related options transactions is not considered the
purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities, except that the Fund may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of its total assets, including the amount
borrowed; and except to the extent that the Fund may enter into futures
contracts. The Fund will not borrow money or engage in reverse
repurchase agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure or to facilitate management of the
Fund by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while any
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 10% of the value
of total assets at the time of the pledge. For purposes of this
limitation, the following will not be deemed to be pledges of the Fund's
assets: (a) the deposit of assets in escrow in connection with the
writing of covered put or call options and the purchase of securities on
a when-issued basis; and (b) collateral arrangements with respect to
(i) the purchase and sale of stock options (and options on stock indices)
and (ii) initial or variation margin for futures contracts. Margin
deposits for the purchase and sale of futures contracts and related
options are not deemed to be a pledge.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities issued by any one issuer
(other than cash, cash items, or securities issued or guaranteed by the
U.S. government, its agencies or instrumentalities, and repurchase
agreements collateralized by such securities) if, as a result, more than
5% of the value of its total assets would be invested in the securities
of that issuer, and will not will not acquire more than 10% of the
outstanding voting securities of any one issuer.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or interests in real
estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except to the extent that the Fund may engage
in transactions involving financial futures contracts or options on
financial futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to one-third of the value of its total assets. This shall not prevent
the Fund from purchasing or holding U.S. government obligations, money
market instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objective, policies, and limitations or the
Trust's Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry (other than securities issued by the U.S. government,
its agencies or instrumentalities).
The above investment limitations cannot be changed without shareholder
approval. The following investment limitations may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any
material change in these limitations becomes effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers with records of less than three years of continuous
operations, including the operation of any predecessor.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES
OF THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser
owning individually more than 1/2 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of its total assets in any one investment
company, and invest no more than 10% of its total assets in investment
companies in general. The Fund will purchase securities of investment
companies only in open-market transactions involving only customary
broker's commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation, or acquisition of
assets.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 5% of the value of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for commercial paper issued under Section 4(2) of the
Securities Act of 1933 and certain other restricted securities which meet
the criteria for liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, over-the-counter options,
and certain restricted securities not determined by the Trustees to be
liquid.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of the value of its net assets in
warrants. No more than 2% of this 5% may be warrants which are not
listed on the New York Stock or American Stock Exchanges.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open
put option positions.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
Except with respect to borrowing money, if a percentage limitation is adhered
to at the time of investment, a later increase or decrease in percentage
resulting from any change in value or net assets will not result in a
violation of such restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5%
of the value of its total assets in the coming fiscal year.
For purposes of its policies and limitations, the Fund considers certificates
of deposit and demand and time deposits issued by a U.S. branch of a domestic
bank or savings and loan association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash
items."
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 5% of its net
assets, and (3) will limit the margin deposits on futures contracts entered
into by the Fund to 5% of its net assets. (If state requirements change,
these restrictions may be revised without shareholder notification.)
PORTAGE FUNDS MANAGEMENT
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal
occupations, and present positions, including any affiliation with First
National Bank of Ohio, Federated Investors, Federated Securities Corp.,
Federated Services Company, Federated Administrative Services, or the Funds
(as defined below).
Positions with Principal Occupations
Name and Address the Trust During Past Five Years
John F. Donahue@* Chairman and Chairman and Trustee, Federated
Federated Investors Trustee Investors; Chairman and Trustee,
Tower Federated Advisers, Federated
Pittsburgh, PA Management, and Federated
Research; Director, AEtna Life
and Casualty Company; Chief
Executive Officer and Director,
Trustee, or Managing General
Partner of the Funds; formerly,
Director, The Standard Fire
Insurance Company. Mr. Donahue
is the father of J. Christopher
Donahue, Vice President and
Trustee of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties
Wood/IPC Commercial Corporation; Senior Vice-
President,
Department John R. Wood and Associates,
Inc.,
John R. Wood and Realtors; President, Northgate
Associates, Inc., Realtors Village Development
Corporation;
3255 Tamiami Trail North General Partner or Trustee in
Naples, FL private real estate ventures in
Southwest Florida; Director,
Trustee, or Managing General
Partner of the Funds; formerly,
President, Naples Property
Management, Inc.
William J. Copeland Trustee Director and Member of the
One PNC Plaza - 23rd Floor Executive Committee, Michael
Pittsburgh, PA Baker, Inc.; Director, Trustee,
or Managing General Partner of
the Funds; formerly, Vice
Chairman and Director, PNC
Bank, N.A., and PNC Bank Corp.
and Director, Ryan Homes, Inc.
J. Christopher Donahue* Vice President President and Trustee, Federated
Federated Investors and Trustee Investors; Trustee, Federated
Tower Advisers, Federated Management,
Pittsburgh, PA and Federated Research;
Trustee, Federated
Administrative Services; Trustee,
Federated Services Company;
President or Vice President of
the
Funds; Director, Trustee or
Managing General Partner of some
of the Funds; Mr. Donahue is the
son of John F. Donahue, Chairman
and Trustee of the Trust.
James E. Dowd Trustee Attorney-at-law; Director, The
571 Hayward Mill Road Emerging Germany Fund, Inc.;
Concord, MA Director, Trustee, or Managing
General Partner of the Funds;
formerly, Director, Blue Cross
of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and
3471 Fifth Avenue Internist, Presbyterian and
Suite 1111 Montefiore Hospitals; Clinical
Pittsburgh, PA Professor of Medicine and
Trustee, University of
Pittsburgh; Director, Trustee,
or Managing General Partner of
the Funds.
Edward L. Flaherty, Jr.@ Trustee Attorney-at-law; Partner, Meyer
5916 Penn Mall and Flaherty; Director, Eat'N
Pittsburgh, PA Park Restaurants, Inc., and
Statewide Settlement Agency,
Inc.; Director, Trustee, or
Managing General Partner of
the Funds; formerly, Counsel,
Horizon Financial, F.A.,
Western Region.
Edward C. Gonzales* President, Vice President, Treasurer, and
Federated Investors Treasurer, and Trustee, Federated Investors;
Vice
Tower Trustee President and Treasurer,
Federated
Pittsburgh, PA Advisers, Federated Management,
and Federated Research; Executive
Vice President, Treasurer, and
Director, Federated Securities
Corp.;
Trustee, Federated Services
Company; Chairman, Treasurer,
and Trustee, Federated
Administrative Services;
Trustee or Director of some of
the
Funds; Vice President and
Treasurer of the Funds.
Peter E. Madden Trustee Consultant; State Representative,
225 Franklin Street Commonwealth of Massachusetts;
Boston, MA Director, Trustee, or Managing
General Partner of the Funds;
formerly, President, State Street
Bank and Trust Company and
State Street Boston Corporation
and Trustee, Lahey Clinic
Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer
5916 Penn Mall and Flaherty; Chairman,
Meritcare,
Pittsburgh, PA Inc.; Director, Eat'N Park
Restaurants, Inc.; Director,
Trustee,
or Managing General Partner of
the
Funds; formerly, Vice Chairman,
Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and
1202 Cathedral of Management Consultant; Trustee,
Learning Carnegie Endowment for
University of Pittsburgh International Peace, RAND
Pittsburgh, PA Corporation, Online Computer
Library Center, Inc., and U.S.
Space Foundation; Chairman,
Czecho Slovak Management
Center; Director, Trustee, or
Managing General Partner of the
Funds; President Emeritus,
University of Pittsburgh;
formerly,
Chairman, National Advisory
Council for Environmental Policy
and Technology.
Marjorie P. Smuts Trustee Public relations/marketing
4905 Bayard Street consultant; Director, Trustee,
Pittsburgh, PA or Managing General Partner of
the Funds.
Richard B. Fisher Vice President Executive Vice President and
Federated Investors Trustee, Federated Investors;
Tower Chairman and Director,
Pittsburgh, PA Federated Securities Corp.;
President or Vice President of
the Funds; Director or Trustee
of some of the Funds.
Margaret P. Demski Vice President Vice President, Federated
Federated Investors and Assistant Administrative Services;
Tower Treasurer Vice President and Assistant
Pittsburgh, PA Treasurer of some of the Funds.
John W. McGonigle Vice President Vice President, Secretary,
General
Federated Investors and Secretary Counsel, and Trustee, Federated
Tower Investors;Vice President,
Secretary,
Pittsburgh, PA and Trustee, Federated Advisers,
Federated Management, and
Federated Research; Trustee,
Federated Services Company;
Executive Vice President,
Secretary,
and Trustee, Federated
Administrative Services;
Director and Executive Vice
President, Federated Securities
Corp.; Vice President and
Secretary
of the Funds.
John A. Staley, IV Vice President Vice President and Trustee,
Federated Investors Federated Investors; Executive
Vice
Tower President, Federated Securities
Pittsburgh, PA Corp.; President and Trustee,
Federated Advisers, Federated
Management, and Federated
Research; Vice President of the
Funds; Director, Trustee, or
Managing General Partner of some
of the Funds; formerly, Vice
President, The Standard Fire
Insurance Company and President
of its Federated Research
Division.
* This Trustee is deemed to be an "interested person"
of the Trust as defined in the Investment Company Act of 1940.
@ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies:
American Leaders Fund, Inc.; Annuity Management Series; Automated Cash
Management Trust; Automated Government Money Trust; California Municipal
Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor
Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs
Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated
Government Trust; Federated Growth Trust; Federated High Yield Trust;
Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Intermediate
Government Trust; Federated Short-Term U.S. Government Trust; Federated
Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond
Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.; High Yield Cash
Trust; Insight Institutional Series, Inc.; Insurance Management Series;
Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund,
Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities
Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term
Trust, Inc. - 1999; Liberty Utility Fund, Inc.; Liquid Cash Trust;
Managed Series Trust; Mark Twain Funds; Money Market Management, Inc.;
Money Market Obligations Trust; Money Market Trust; Municipal Securities
Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds;
Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument
Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock
and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; Trademark Funds; Trust for Financial Institutions;
Trust For Government Cash Reserves; Trust for Short-Term U.S. Government
Securities; Trust for U.S. Treasury Obligations; and World Investment
Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will only be
liable for their own willful defaults. If reasonable care has been exercised
in the selection of officers, agents, employees, or investment advisers, a
Trustee shall not be liable for any neglect or wrongdoing of any such person.
However, they are not protected against any liability to which they would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of
their office.
INVESTMENT ADVISORY SERVICES
ADVISER TO THE FUND
The Fund's investment adviser is First National Bank of Ohio. It is a wholly-
owned subsidiary of First Bancorporation of Ohio. Because of the internal
controls maintained by First National Bank of Ohio to restrict the flow of non-
public information, Fund investments are typically made without any knowledge
of First National Bank of Ohio's or its affiliates' lending relationships with
an issuer.
The adviser shall not be liable to the Trust, the Fund, or any shareholder of
the Fund for any losses that may be sustained in the purchase, holding, or
sale of any security, or for anything done or omitted by it, except acts or
omissions involving willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties imposed upon it by its contract with the
Trust.
ADVISORY FEES
For its advisory services, the adviser receives an annual investment advisory
fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2-1/2% per year of the first $30 million of average net assets, 2%
per year of the next $70 million of average net assets, and 1-1/2% per
year of the remaining average net assets, the adviser will reimburse the
Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus.
John A. Staley, IV, an officer of the Trust, holds approximately 15% of the
outstanding common stock and serves as a director of Commercial Data Services,
Inc., a company which provides computer processing services to Federated
Administrative Services.
BROKERAGE TRANSACTIONS
The adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the
adviser and may include:
o advice as to the advisability of investing in securities;
o security analysis and reports;
o economic studies;
o industry studies;
o receipt of quotations for portfolio evaluations; and
o similar services.
The adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions
charged by such persons are reasonable in relationship to the value of the
brokerage and research services provided.
Research services provided by brokers and dealers may be used by the adviser
in advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses.
PURCHASING SHARES
Except under certain circumstances described in the prospectus, shares of the
Fund are sold at their net asset value plus a sales charge, if any, on days
the New York Stock Exchange and the Federal Reserve Wire System are open for
business. The procedure for purchasing shares of the Fund is explained in the
prospectus under "Investing in the Fund."
DISTRIBUTION PLAN
These arrangements permit the payment of fees to financial institutions and
the distributor to stimulate distribution activities and to cause services to
be provided to shareholders by a representative who has knowledge of the
shareholder's particular circumstances and goals. These activities and
services may include, but are not limited to, marketing efforts; providing
office space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing purchase
and redemption transactions and automatic investments of client account cash
balances; answering routine client inquiries; and assisting clients in
changing dividend options, account designations, and addresses.
By adopting the distribution plan, the Trustees expect that the Fund will be
able to achieve a more predictable flow of cash for investment purposes and to
meet redemptions. This will facilitate more efficient portfolio management
and assist the Fund in pursuing its investment objectives. By identifying
potential investors whose needs are served by the Fund's objectives, and
properly servicing these accounts, it may be possible to curb sharp
fluctuations in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include:
(1) providing personal services to shareholders; (2) investing shareholder
assets with a minimum of delay and administrative detail; (3) enhancing
shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be
in federal funds or be converted into federal funds. First National Bank of
Ohio and Federated Services Company acts as the shareholder's agent in
depositing checks and converting them to federal funds.
DETERMINING NET ASSET VALUE
The net asset value generally changes each day. The days on which the net
asset value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market or fair values of the Fund's portfolio securities are determined as
follows:
o for equity securities, according to the last sale price on a national
securities exchange, if applicable;
o in the absence of recorded sales for listed equity securities, according to
the mean between the last closing bid and asked prices;
o for unlisted equity securities, latest bid prices;
o for bonds and other fixed income securities, as determined by an
independent pricing service;
o for short-term obligations, according to the mean between bid and asked
prices as furnished by an independent pricing service, or for short-term
obligations with maturities of less than 60 days, at amortized cost; or
o for all other securities, at fair value as determined in good faith by the
Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may reflect: institutional trading
in similar groups of securities, yield, quality, coupon rate, maturity, type
of issue, trading characteristics, and other market data.
The Fund will value futures contracts, options and put options on financial
futures at their market values established by the exchanges at the close of
options trading on such exchanges unless the Trustees determine in good faith
that another method of valuing option positions is necessary.
Over-the-counter put options will be valued at the mean between the bid and
the asked prices. Covered call options will be valued at the last sale price
on the national exchange on which such option is traded. Unlisted call
options will be valued at the latest bid price as provided by brokers.
TRADING IN FOREIGN SECURITIES
Trading in foreign securities may be completed at times which vary from the
closing of the New York Stock Exchange. In computing the net asset value, the
Fund values foreign securities at the latest closing price on the exchange on
which they are traded immediately prior to the closing of the New York Stock
Exchange. Certain foreign currency exchange rates may also be determined at
the latest rate prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange
rates may occur between the times at which they are determined and the closing
of the New York Stock Exchange. If such events materially affect the value of
portfolio securities, these securities may be valued at their fair value as
determined in good faith by the Trustees, although the actual calculation may
be done by others.
REDEEMING SHARES
Shares are redeemed at the next computed net asset value after First National
Bank of Ohio receives the redemption request. Redemption procedures are
explained in the prospectus under "Redeeming Shares." Redemption requests
cannot be executed on days on which the New York Stock Exchange is closed or
on federal holidays when wire transfers are restricted.
REDEMPTION IN KIND
The Trust has elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which the Trust is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
Any redemption beyond this amount will also be in cash unless the Trustees
determine that payments should be in kind. In such a case, the Fund will pay
all or a portion of the remainder of the redemption in portfolio instruments,
valued in the same way as the Fund determines net asset value. The portfolio
instruments will be selected in a manner that the Trustees deem fair and
equitable.
Redemption in kind is not as liquid as a cash redemption. If redemption is
made in kind, shareholders receiving their securities and selling them before
their maturity could receive less than the redemption value of their
securities and could incur certain transaction costs.
TAX STATUS
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment
afforded to such companies. To qualify for this treatment, the Fund must,
among other requirements:
o derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
o derive less than 30% of its gross income from the sale of securities held
less than three months;
o invest in securities within certain statutory limits; and
o distribute to its shareholders at least 90% of its net income earned during
the year.
FOREIGN TAXES
Investment income on certain foreign securities in which the Fund may invest
may be subject to foreign withholding or other taxes that could reduce the
return on these securities. Tax treaties between the United States and
foreign countries, however, may reduce or eliminate the amount of foreign
taxes to which the Fund would be subject.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. The dividends received deduction for
corporations will apply to ordinary income distributions to the extent the
distribution represents amounts that would qualify for the dividends received
deduction to the Fund if the Fund were a regular corporation and to the extent
designated by the Fund as so qualifying. These dividends and any short-term
capital gains are taxable as ordinary income.
CAPITAL GAINS
Shareholders will pay federal tax at capital gains rates on long-term
capital gains distributed to them regardless of how long they have held
Fund shares.
TOTAL RETURN
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares
purchased at the beginning of the period with $1,000, less any applicable
sales load, adjusted over the period by any additional shares, assuming the
quarterly reinvestment of all dividends and distributions.
YIELD
The yield for the Fund is determined by dividing the net investment income per
share (as defined by the SEC) earned by the Fund over a thirty-day period by
the maximum offering price per share of the Fund on the last day of the
period. This value is then annualized using semi-annual compounding. This
means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a twelve-month period and is
reinvested every six months. The yield does not necessarily reflect income
actually earned by the Fund because of certain adjustments required by the SEC
and, therefore, may not correlate to the dividends or other distributions paid
to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those
fees.
PERFORMANCE COMPARISONS
The Fund's performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Fund's expenses; and
o various other factors.
The Fund's performance fluctuates on a daily basis largely because net
earnings and the maximum offering price per share fluctuate daily. Both net
earnings and offering price per share are factors in the computation of yield
and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance,
investors should consider all relevant factors such as the composition of any
index used, prevailing market conditions, portfolio compositions of other
funds, and methods used to value portfolio securities and compute offering
price. The financial publications and/or indices which the Fund uses in
advertising may include:
o Lipper Analytical Services, Inc., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes
the reinvestment of all income dividends and capital gains distributions,
if any. From time to time, the Fund will quote its Lipper ranking in the
"growth and income" category in advertising and sales literature.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks, a composite
index of common stocks in industry, transportation, and financial and
public utility companies, can be used to compare to the total returns of
funds whose portfolios are invested primarily in common stocks. In
addition, the Standard & Poor's index assumes reinvestments of all
dividends paid by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated
in Standard & Poor's figures.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
also represent the historic change in the value of an investment in the Fund
based on quarterly reinvestment of dividends over a specified period of time.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
STANDARD AND POOR'S CORPORATION CORPORATE BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely
strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--Indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that Standard & Poor's
Corporation does not rate a particular type of obligation as a matter of
policy.
PLUS (+) OR MINUS (-):--The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATING DEFINITIONS
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt 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 position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or fluctuation
of protective elements may be of greater amplitude or there may be other
elements present which make the long-term risks appear somewhat larger than in
Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium-grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and, in fact, have speculative characteristics as well.
NR--Not rated by Moody's Investors Service, Inc.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATING DEFINITIONS
AAA--Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
AA--Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated AAA. Because bonds rated in the
AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions
and circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore, impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than for bonds with
higher ratings.
NR--NR indicates that Fitch Investors Service, Inc. does not rate the specific
issue.
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following
characteristics:
-Leading market positions in well established industries.
-High rates of return on funds employed.
-Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
-Broad margins in earning coverage of fixed financial charges and high
internal cash generation.
-Well-established access to a range of financial markets and assured
sources of alternate liquidity.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATING DEFINITIONS
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality). Issues assigned this rating reflect an
assurance for timely payment only slightly less in degree than issues rated F-
1+.
F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned F-1+ and F-1 ratings.
G00580-02 (9/94)
