PORTAGE GOVERNMENT
MONEY MARKET FUND
SEMI-ANNUAL REPORT
MAY 31, 1994
A Diversified Portfolio of Portage Funds,
an Open-End, Management Investment Company
[LOGO] PORTAGE
FUNDS
FEDERATED SECURITIES CORP. First National Bank of Ohio,
- ------------------------------
Distributor Investment Adviser
2062509 (7/94)
PRESIDENT'S MESSAGE
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Dear Shareholder:
I am pleased to present the Semi-Annual Report to Shareholders of Portage
Government Money Market Fund (the "Fund"), which covers the six-month period
from December 1, 1993, through May 31, 1994. The Report begins with the
Investment Review and includes the Financial Statements, which contain the
Portfolio of Investments.
The Fund remains a smart way to put your cash to work earning daily income--and
brings you the added benefits of daily access to your money and stability of
principal*--through the relative safety of short-term U.S. government
securities.
At the end of the period, the Fund's net assets stood at $62.9 million.
Dividends paid to shareholders during the period totaled $0.01 per share.
Thank you for putting your cash to work through Portage Government Money Market
Fund. We will continue to keep you up to date on your investment's progress.
Sincerely,
Edward C. Gonzales
President
July 15, 1994
* As a money market fund, the Fund is managed to pursue a stable share price of
$1.00, although there is no guarantee it will do so.
INVESTMENT REVIEW
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The Portage Government Money Market Fund (the "Fund") has an investment
objective of providing stability of principal and current income consistent
with stability of principal. The Fund pursues its investment objective by
investing in a portfolio of short-term U.S. government securities either
issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. The government securities in which the Fund invests may be
purchased pursuant to repurchase agreements with banks and other recognized
financial institutions, such as broker/dealers, which are found to be
creditworthy.
The table below summarizes the movement of relevant money market rates over
the past twelve months.
<TABLE>
<CAPTION>
06/30/94 03/31/94 12/31/93 09/30/93
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Federal Funds 4.25% 3.21% 3.00% 3.13%
3-Mo. T-Bills (CPN* Equiv.) 4.26% 3.32% 3.06% 2.93%
3-Mo. Agency (CPN* Equiv.) 4.38% 3.45% 3.16% 3.10%
<CAPTION>
Portfolio Profile 06/30/94 03/31/94 12/31/93 09/30/93
- ----------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Treasury 5% 13% 13% 20%
Federal Agency 59% 51% 44% 46%
Repurchase Agreement 36% 36% 43% 34%
Total Assets (000,000) $62.10 60.40 $60.30 $54.50
7-Day Net Yield** 3.4% 2.7% 2.4% 2.5%
Average Maturity 65 Days 75 Days 70 Days 84 Days
</TABLE>
U.S money market rates, after reaching decade lows last year, have rebounded
sharply as the Federal Reserve Board (the "Fed") raised short-term rates via
the Federal Funds rate in an attempt to stave off inflationary pressures
before they gained a solid foothold in the economy. Money market rates
responded in kind, giving a much needed boost to investors. The Fed has stated
that it is committed to achieving "zero" inflation, which could result in
further tightening and higher short-term rates.
Short-term yields, although rising, are very positively sloped. Therefore, any
extension along the interest rate curve earns additional yield. The Fund has
taken advantage of this structure by purchasing for the portfolio U.S.
government agency securities when the yield is attractive versus Treasury
bills. At the end of the report period, roughly 35 percent of the Fund's
assets are invested in overnight repurchase agreements for liquidity purposes.
We have adjusted the average maturity of the portfolio to between 65 and 70
days. We believe this strategy serves to capture additional yield for the
Fund, while the laddering of the securities, which provides regular
opportunities for reinvestment, allows us to react quickly to changing market
conditions.
We project that the future movement of money market rates will continue to
move upward as the economic recovery causes demand for credit to grow. If
inflation becomes an issue, short-term rates may rise faster than the overall
economy. We will continue to monitor the interest rate environment closely and
stand prepared to invest the Portage Government Money Market Fund portfolio to
maximize yield within the guidelines of the Fund.
Kathleen E. Wells
Portfolio Manager
Vice President & Trust Officer
of First National Bank of Ohio
* Commercial Paper Note.
** Performance quoted represents past performance and is not indicative of
future results.
PORTAGE GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
MAY 31, 1994
(UNAUDITED)
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<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
----------- --------------------------------------------------- ------------
<C> <S> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS--60.1%
---------------------------------------------------------------
FEDERAL FARM CREDIT BANK--18.9%
---------------------------------------------------
$12,000,000 3.32%-4.52%, 6/14/94-3/1/95 $11,891,169
--------------------------------------------------- ------------
FEDERAL HOME LOAN BANK DISCOUNT NOTE--20.5%
---------------------------------------------------
13,000,000 3.42%-4.62%, 6/8/94-9/19/94 12,915,883
--------------------------------------------------- ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION--8.0%
---------------------------------------------------
5,000,000 8.90%, 8/10/94 5,051,607
--------------------------------------------------- ------------
FEDERAL NATIONAL MORTGAGE ASSOCIATION DISCOUNT
NOTE--12.7%
---------------------------------------------------
8,000,000 3.08%-3.94%, 6/15/94-9/20/94 7,957,566
--------------------------------------------------- ------------
TOTAL U.S. GOVERNMENT AGENCY OBLIGATIONS 37,816,225
--------------------------------------------------- ------------
U.S. TREASURY NOTES--4.7%
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3,000,000 3.36%, 10/20/94 2,960,520
--------------------------------------------------- ------------
*REPURCHASE AGREEMENTS--35.1%
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12,119,000 Merrill Lynch, Pierce, Fenner & Smith, Inc., 4.20%,
dated 5/31/94, due 6/1/94 12,119,000
---------------------------------------------------
10,000,000 Smith Barney, Harris Upham & Co., Inc., 4.20%,
dated 5/31/94, due 6/1/94 10,000,000
--------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 22,119,000
--------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $62,895,745+
--------------------------------------------------- ------------
</TABLE>
+ Also represents cost for federal tax purposes.
*Repurchase agreements are fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
Note: The categories of investments are shown as a percentage of net assets
($62,948,669) at May 31, 1994.
(See Notes which are an integral part of the Financial Statements)
PORTAGE GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
MAY 31, 1994
(UNAUDITED)
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<TABLE>
<CAPTION>
ASSETS:
- -----------------------------------------------------------------------
<S> <C> <C>
Investments in repurchase agreements (Note 2B) $22,119,000
- ----------------------------------------------
Investments in other securities (Note 2A) 40,776,745
- ---------------------------------------------- -----------
Total investments, at amortized cost and value $62,895,745
- -------------------------------------------------------------
Interest receivable 174,552
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Deferred expenses (Note 2F) 17,642
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Total assets 63,087,939
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LIABILITIES:
- -------------------------------------------------------------
Dividends payable 138,475
- ----------------------------------------------
Payable for Fund shares redeemed 795
- ----------------------------------------------
Total liabilities 139,270
- -------------------------------------------------------------
NET ASSETS for 62,948,669 shares of beneficial interest
outstanding $62,948,669
- -------------------------------------------------------------
NET ASSET VALUE, Offering Price, and Redemption Price Per
Share:
($62,948,669 / 62,948,669 shares of beneficial
interest outstanding) $1.00
- ------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
PORTAGE GOVERNMENT MONEY MARKET FUND
STATEMENT OF OPERATIONS
SIX MONTHS ENDED MAY 31, 1994
(UNAUDITED)
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<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------
Interest income (Note 2C) $1,018,377
- -------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------
Investment advisory fee* $150,181
- ---------------------------------------------------
Trustees' fees 2,321
- ---------------------------------------------------
Administrative personnel and services fees* 45,051
- ---------------------------------------------------
Custodian fees 13,186
- ---------------------------------------------------
Transfer and dividend disbursing agent fees and ex-
penses* 19,230
- ---------------------------------------------------
Fund share registration costs 14,770
- ---------------------------------------------------
Auditing fees 8,931
- ---------------------------------------------------
Legal fees 4,096
- ---------------------------------------------------
Printing and postage 5,675
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Insurance premium 2,461
- ---------------------------------------------------
Portfolio accounting fees* 20,799
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Distribution service fee* 4,070
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Miscellaneous 4,713
- --------------------------------------------------- ---------
Total expenses 295,484
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DEDUCT--
- ---------------------------------------------------
Waiver of investment advisory fee* $60,072
- -----------------------------------------
Waiver of distribution service fee* 4,070 64,142
- ----------------------------------------- --------
Net expenses 231,342
- -------------------------------------------------------------- ---------
Net investment income $ 787,035
- -------------------------------------------------------------- ---------
</TABLE>
*See Note 4.
(See Notes which are an integral part of the Financial Statements)
PORTAGE GOVERNMENT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
---------------------------
1994* 1993
------------ -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ------------------------------------------------
OPERATIONS--
- ------------------------------------------------
Net investment income $ 787,035 $ 1,474,158
- ------------------------------------------------ ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 2C)--
- ------------------------------------------------
Dividends to shareholders from net investment
income (787,035) 1,474,158
- ------------------------------------------------ ------------ -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 3)--
- ------------------------------------------------
Proceeds from sale of shares 90,251,975 168,898,811
- ------------------------------------------------
Net asset value of shares issued to shareholders
in payment of dividends declared 104,559 277,391
- ------------------------------------------------
Cost of shares redeemed (86,619,521) (178,189,402)
- ------------------------------------------------ ------------ -------------
Change in net assets resulting from Fund share
transactions 3,737,013 (9,013,200)
- ------------------------------------------------ ------------ -------------
Change in net assets 3,737,013 (9,013,200)
- ------------------------------------------------
NET ASSETS:
- ------------------------------------------------
Beginning of period 59,211,656 68,224,856
- ------------------------------------------------ ------------ -------------
End of period $ 62,948,669 $ 59,211,656
- ------------------------------------------------ ------------ -------------
</TABLE>
*Six months ended May 31, 1994 (unaudited).
(See Notes which are an integral part of the Financial Statements)
PORTAGE GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
------------------------------------
1994* 1993 1992 1991**
- ------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -------------------------------------
Net investment income 0.01 0.02 0.03 0.04
- ------------------------------------- ------- ------- ------- -------
LESS DISTRIBUTIONS
- -------------------------------------
Dividends to shareholders from net
investment income (0.01) (0.02) (0.03) (0.04)
- ------------------------------------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------------------------------------- ------- ------- ------- -------
TOTAL RETURN*** 1.31% 2.47% 3.23% 3.87%
- -------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -------------------------------------
Expenses 0.77%(a) 0.74% 0.73% 0.57%(a)
- -------------------------------------
Net investment income 2.62%(a) 2.44% 3.21% 5.26%(a)
- -------------------------------------
Expense waiver/reimbursement (b) 0.21%(a) 0.20% 0.20% 0.26%(a)
- -------------------------------------
SUPPLEMENTAL DATA
- -------------------------------------
Net assets, end of period (000 omit-
ted) $62,949 $48,897 $54,111 $64,140
- -------------------------------------
</TABLE>
* Six months ended May 31, 1994 (unaudited). As of February 1, 1994, separate
classes of shares were no longer offered. Previously, the Fund offered two
classes of shares known as Trust Shares and Investment Shares.
** Reflects operations for the period from March 11, 1991 (date of initial
public investment) to November 30, 1991.
*** Based on net asset value which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(a)Computed on an annualized basis.
(b) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above (Note 4).
(See Notes which are an integral part of the Financial Statements)
PORTAGE GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
MAY 31, 1994
(UNAUDITED)
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(1) ORGANIZATION
The Portage Funds (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as a diversified, open-end, management
investment company. The financial statements included herein present only
those of Portage Government Money Market Fund (the "Fund").
As of February 1, 1994, separate classes of shares were no longer offered.
Previously, the Fund provided two classes of shares ("Trust Shares" and
"Investment Shares"). Investment Shares were identical in all respects to
Trust Shares except that Investment Shares were sold pursuant to a
Distribution Plan adopted in accordance with the Acts Rule 12b-1.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
A. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the
custodian bank to take possession, to have legally segregated in the
Federal Reserve Book Entry System or to have segregated within the
custodian bank's vault, all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Fund to monitor on a daily basis, the market value of
each repurchase agreement's underlying collateral to ensure the value at
least equals the principal amount of the repurchase agreement, including
accrued interest.
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 Board of Trustees (the "Trustees"). Risks may arise from the
potential inability of counterparties to honor the terms of the repurchase
agreement. Accordingly, the Fund could receive less than the repurchase
price on the sale of collateral securities.
C. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized
as required by the Internal Revenue Code, as amended (the "Code").
Distributions to shareholders are recorded on the ex-dividend date.
D. FEDERAL TAXES--It is Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its taxable income.
Accordingly, no provisions for federal tax are necessary.
E. When-Issued and Delayed Delivery Transactions--The Fund may engage in when-
issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method over a period of five years from
the Fund's commencement date.
G. OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value) for each
class of shares. At May 31, 1994, capital paid-in aggregated $62,948,669.
Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
TRUST SHARES: 1994* 1993
- -------------------------------------------------- ----------- ------------
<S> <C> <C>
Shares sold 86,914,836 146,033,254
- --------------------------------------------------
Shares issued to shareholders in payment of divi-
dends declared 104,559 29,061
- --------------------------------------------------
Shares redeemed (80,680,614) (151,276,060)
- -------------------------------------------------- ----------- ------------
Net change resulting from Trust share transactions 6,338,781 (5,213,745)
- -------------------------------------------------- ----------- ------------
<CAPTION>
YEAR ENDED NOVEMBER 30,
-------------------------
INVESTMENT SHARES: 1994** 1993
- --------------------------------------------------- ------------ ------------
<S> <C> <C>
Shares sold 3,337,139 22,865,557
- ---------------------------------------------------
Shares issued to shareholders in payment of divi-
dends declared -- 248,330
- ---------------------------------------------------
Shares redeemed (5,938,907) (26,913,342)
- --------------------------------------------------- ----------- ------------
Net change resulting from Investment share transac- (2,601,768) (3,799,455)
tions ----------- ------------
- ---------------------------------------------------
Total net change resulting from Fund transactions 3,737,013 (9,013,200)
- --------------------------------------------------- ----------- ------------
</TABLE>
*Six months ended May 31, 1994.
**For the period from December 1, 1993 to January 31, 1994.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--First National Bank of Ohio, the Fund's investment
adviser ("Adviser"), receives for its services an annual investment advisory
fee equal to 0.50 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee. The Adviser can modify or
terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Trust with certain administrative personnel and services. The FAS fee is based
on the level of average aggregate net assets of the Trust for the period. FAS
may voluntarily choose to waive a portion of its fee.
DISTRIBUTION PLAN--As of February 1, 1994, separate classes of shares were no
longer offered and the Distribution Plan (the "Plan") was discontinued.
Previously, the Fund had adopted a Distribution Plan pursuant to Rule 12b-1
under the Act. Under the terms of the Plan, the Fund compensated Federated
Securities Corp. ("FSC"), the principal distributor, from the net assets of the
Fund to finance activities intended to result in the sale of the Fund's
Investment Shares. The Plan provided that the Fund could incur distribution
expenses up to 0.25 of 1% of the average daily net assets of the Investment
Shares, annually, to compensate the distributor.
TRANSFER AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. The
FServ fee is based on the size, type and number of accounts and transactions
made by shareholders.
FServ also maintains the Fund's accounting records. The fee is based on the
level of the Fund's average net assets for the period plus out-of-pocket
expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($114,169) were borne
initially by FAS. The Fund has agreed to reimburse FAS at an annual rate of
.005 of 1% of average daily net assets for organizational expenses, until
expenses initially borne by FAS are fully reimbursed or expiration of five
years after January 8, 1991 (the date the Trust's registration statement first
became effective), whichever occurs earlier. For the six-months ended May 31,
1994, the Fund paid $1,253 pursuant to this agreement.
Certain of the Officers and Trustees of the Trust are Officers and Directors or
Trustees of the above companies.
TRUSTEES OFFICERS
John F. Donahue John F. Donahue
John T. Conroy, Jr. Chairman
William J. Copeland Edward C. Gonzales
J. Christopher Donahue President and Treasurer
James E. Dowd J. Christopher Donahue
Lawrence D. Ellis, M.D. Vice President
Edward L. Flaherty, Jr. Richard B. Fisher
Edward C. Gonzales Vice President
Peter E. Madden Margaret P. Tessaro
Gregor F. Meyer Vice President and Assistant Treasurer
Wesley W. Posvar John W. McGonigle
Marjorie P. Smuts Vice President and Secretary
David M. Taylor
Assistant Treasurer
Joseph M. Huber
Assistant Secretary
The shares offered by Portage Government Money Market Fund are not deposits or
obligations of First National Bank of Ohio, or any bank, are not endorsed or
guaranteed by First National Bank of Ohio, or any bank, and are not obligations
of, guaranteed by, or insured by the U.S. government, the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other government
agency. Investment in these shares involves risk, including, the possible loss
of principal.
This report is authorized for distribution to prospective investors only when
precededor accompanied by the Fund's prospectus, which contains facts
concerning itsobjective and policies, management fees, expenses and other
information.
