DG INVESTOR SERIES
5800 Corporate Drive
Pittsburgh, PA 15237-7010
Dear Shareholder:
As a shareholder of one or more of the DG Investor Series listed below
(collectively, the "DG Funds"), you are entitled to vote on the proposals
described below and in the enclosed materials.
As you may know, Deposit Guaranty Corp. completed a merger with and
into First American Corporation on May 1, 1998. As a result, the new
organization has since taken steps to consolidate the mutual fund investment
advisory activities of both bank holding companies. Currently, ParkSouth
Corporation provides investment advisory services to the DG Funds. First
American National Bank, a wholly-owned subsidiary of First American Corporation,
currently provides investment advisory services to the AmeriStar Portfolios of
The Infinity Mutual Funds, Inc., which are to be renamed the ISG Funds (the "ISG
Funds").
As the next step in the consolidation process, we are asking you to
consider and approve a proposed Agreement and Plan of Reorganization for your DG
Fund. The Plan of Reorganization provides that each DG Fund listed below will
transfer all of its assets and liabilities to the corresponding ISG Fund
identified opposite its name in exchange for shares of such ISG Fund:
DG FUNDS ISG FUNDS
DG Equity Fund ISG Large Cap Equity Portfolio
DG Government Income Fund ISG Government Income Portfolio
DG International Equity Fund ISG International Equity
Portfolio
DG Limited Term Government ISG Limited Duration U.S.
Income Fund Government Portfolio
DG Municipal Income Fund ISG Municipal Income Portfolio
DG Opportunity Fund ISG Small Cap Opportunity Portfolio
DG Prime Money Market Fund ISG Prime Money Market Portfolio
DG Treasury Money Market Fund ISG U.S. Treasury Money Market
Portfolio
Each DG Fund then will distribute all the ISG Fund shares received in
the exchange to its shareholders. Each shareholder will receive for his or her
DG Fund shares a number of corresponding ISG Fund shares equal to the value of
such DG Fund shares as of the date of the exchange.
DG Fund shareholders may benefit from the reorganization because the
expense ratio of each ISG Fund will be lower than or equal to that of its
corresponding DG Fund, while the investment objective, management policies,
investment advisory personnel and shareholder services of each ISG Fund will
remain substantially similar to those of its corresponding DG Fund. The
reorganization will be tax free and will not involve any sales loads,
commissions or transaction charges.
We are also asking you to approve your DG Fund's current investment
advisory agreement with ParkSouth Corporation and, if you are a shareholder of
DG International Equity Fund or DG Opportunity Fund, the current sub-investment
advisory agreement between ParkSouth Corporation and the respective sub-adviser
to those DG Funds. These agreements became effective as of the date Deposit
Guaranty Corp. merged with First American Corporation--May 1, 1998--and will
remain in effect, if approved by shareholders, until the relevant DG Fund's
reorganization.
Further information about the proposals is contained in the enclosed
materials. Please take the time to review carefully the enclosed materials and
then vote by completing, dating, signing and returning EACH enclosed proxy card.
A self-addressed, postage-paid envelope has been enclosed for your convenience.
THE BOARD MEMBERS OF THE DG INVESTOR SERIES HAVE APPROVED THE PROPOSED
REORGANIZATION AND ADVISORY AGREEMENTS AND RECOMMEND THAT SHAREHOLDERS VOTE IN
FAVOR OF THE PROPOSALS AS WELL. IT IS VERY IMPORTANT THAT YOUR VOTING
INSTRUCTIONS BE RECEIVED BEFORE DECEMBER 11, 1998.
If you have any questions after considering the enclosed materials,
please call toll-free 1-800-733-8481, extension 447.
Sincerely,
Edward C. Gonzales
President, DG Investor Series
October 20, 1998
<PAGE>
DG INVESTOR SERIES
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 11, 1998
To the Shareholders:
A Special Meeting of Shareholders of each series (collectively, the
"DG Funds") of DG Investor Series (the "Trust") will be held at the Trust's
principal place of business located at 5800 Corporate Drive, Pittsburgh,
Pennsylvania, on Friday, December 11, 1998 at 10:00 a.m. (Eastern time), for the
following purposes:
EACH DG FUND WILL VOTE SEPARATELY ON PROPOSAL ONE
1. To approve or disapprove an Agreement and Plan of Reorganization
pursuant to which each DG Fund listed below will transfer all of its assets and
liabilities solely in exchange (the "Exchange") for Class A Shares and Trust
Shares of the corresponding ISG Fund identified opposite its name:
DG FUNDS ISG FUNDS
DG Equity Fund ISG Large Cap Equity Portfolio
DG Government Income Fund ISG Government Income Portfolio
DG International Equity Fund ISG International Equity
Portfolio
DG Limited Term Government ISG Limited Duration U.S.
Income Fund Government Portfolio
DG Municipal Income Fund ISG Municipal Income Portfolio
DG Opportunity Fund ISG Small Cap Opportunity Portfolio
DG Prime Money Market Fund ISG Prime Money Market Portfolio
DG Treasury Money Market Fund ISG U.S. Treasury Money Market
Portfolio
Each DG Fund will distribute the Class A Shares or Trust Shares, as applicable,
of the corresponding ISG Fund received in the Exchange to its shareholders in an
amount equal in net asset value to the shares of the DG Fund held by such
shareholders as of the date of the Exchange, after which the DG Fund will be
terminated as a series of the Trust.
EACH DG FUND WILL VOTE SEPARATELY ON PROPOSAL TWO
2. To approve or disapprove a new Investment Advisory Contract between
the Trust, on behalf of each DG Fund, and ParkSouth Corporation ("ParkSouth"),
the terms of which are identical in all material respects to the prior
investment advisory agreement for the DG Funds. The new Investment Advisory
Contract was approved by the Board of Trustees, effective as of the date of the
merger (the "Merger") of Deposit Guaranty Corp., the former ultimate corporate
parent of the DG Funds' investment adviser, ParkSouth, with and into First
American Corporation.
DG OPPORTUNITY FUND AND DG INTERNATIONAL EQUITY
FUND ONLY WILL EACH VOTE SEPARATELY ON PROPOSAL THREE
3. (A). To approve or disapprove a new Sub-Investment Advisory
Agreement between Womack Asset Management, Inc., the present sub-adviser to the
DG Opportunity Fund, and ParkSouth, on behalf of the DG Opportunity Fund, the
terms of which are identical in all material respects to the prior sub-advisory
agreement for DG Opportunity Fund; and
(B). To approve or disapprove a new Sub-Investment Advisory
Agreement between Lazard Asset Management, the present sub-adviser to the
DG International Equity Fund, and ParkSouth, on behalf of the DG
International Equity Fund, the terms of which are identical in all material
respects to the prior sub-advisory agreement for DG International Equity Fund.
The new Sub-Investment Advisory Agreements were approved by the Board
of Trustees, effective as of the date of the Merger.
4. To transact such other business as may properly come before the
meeting, or any adjournment or adjournments thereof.
Shareholders of record at the close of business on October 15, 1998
will be entitled to receive notice of and to vote at the meeting.
By Order of the Board of Trustees
John W. McGonigle,
Executive Vice President and
Secretary
October 20, 1998
<PAGE>
==============================================================================
WE NEED YOUR PROXY VOTE IMMEDIATELY
A SHAREHOLDER MAY THINK HIS OR HER VOTE IS NOT IMPORTANT, BUT IT IS VITAL. BY
LAW, THE MEETING OF SHAREHOLDERS OF A DG FUND WILL HAVE TO BE ADJOURNED WITHOUT
CONDUCTING ANY BUSINESS IF LESS THAN A QUORUM OF THE SHARES ELIGIBLE TO VOTE ARE
REPRESENTED. CLEARLY, YOUR VOTE COULD BE CRITICAL TO ENABLE YOUR DG FUND TO HOLD
THE MEETING AS SCHEDULED, SO PLEASE RETURN EACH ENCLOSED PROXY CARD IMMEDIATELY.
YOU AND ALL OTHER SHAREHOLDERS WILL BENEFIT FROM YOUR COOPERATION.
==============================================================================
<PAGE>
October 20, 1998
PROSPECTUS/PROXY STATEMENT
TRANSFER OF THE ASSETS OF EACH
DG FUND
TO AND IN EXCHANGE FOR SHARES OF A CORRESPONDING
ISG FUND
AND APPROVAL OF CERTAIN ADVISORY AGREEMENTS
This Prospectus/Proxy Statement is furnished in connection with a
solicitation of proxies by the Board of DG Investor Series (the "Trust") on
behalf of each of its series (each, a "DG Fund" and, collectively, the "DG
Funds") to be used at the Special Meeting of Shareholders (the "Meeting") of
each DG Fund to be held on Friday, December 11, 1998 at 10:00 a.m., (Eastern
time), at the Trust's principal place of business located at 5800 Corporate
Drive, Pittsburgh, Pennsylvania, for the purposes set forth in the accompanying
Notice of Special Meeting of Shareholders. Shareholders of record at the close
of business on October 15, 1998 (each, a "Shareholder" and, collectively, the
"Shareholders") are entitled to receive notice of and to vote at the Meeting.
It is proposed that each DG Fund transfer all of its assets, subject
to liabilities, to a corresponding ISG Fund (each, an "ISG Fund" and,
collectively, the "ISG Funds"), as follows:
DG FUNDS ISG FUNDS
DG Equity Fund ISG Large Cap Equity Portfolio
DG Government Income Fund ISG Government Income Portfolio
DG International Equity Fund ISG International Equity
Portfolio
DG Limited Term Government ISG Limited Duration U.S.
Income Fund Government Portfolio
DG Municipal Income Fund ISG Municipal Income Portfolio
DG Opportunity Fund ISG Small Cap Opportunity Portfolio
DG Prime Money Market Fund ISG Prime Money Market Portfolio
DG Treasury Money Market Fund ISG U.S. Treasury Money Market
Portfolio
Such transfer will be in exchange (the "Exchange") for Class A Shares and Trust
Shares (collectively, the "ISG Shares") of the corresponding ISG Fund, all as
more fully described herein. Upon completion of the Exchange, the ISG Shares
received by a DG Fund will be distributed to its Shareholders, with each
Shareholder receiving a pro rata distribution of ISG Shares (or fractions
thereof) for DG Fund shares held prior to the Exchange. Thus, it is contemplated
that each holder of DG Fund shares will receive a number of ISG Shares of the
corresponding ISG Fund (or fractions thereof) equal in value to the aggregate
net asset value of such DG Fund shares as of the date of the Exchange.
- -------------------------------------------------------------------------------
MUTUAL FUND SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED
BY, ANY BANK, AND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. MUTUAL FUND SHARES
INVOLVE CERTAIN INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
SHARE PRICE AND INVESTMENT RETURN FLUCTUATE AND ARE NOT GUARANTEED.
AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT THE MONEY MARKET FUNDS WILL BE
ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE.
- -------------------------------------------------------------------------------
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/PROXY STATEMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
- -------------------------------------------------------------------------------
The Meeting also is being called to permit Shareholders of each DG
Fund to approve or disapprove a new Investment Advisory Contract (the "New
Advisory Contract") between the Trust, on behalf of each DG Fund, and ParkSouth
Corporation ("ParkSouth"). In addition, shareholders of the DG Opportunity Fund
will be asked to approve or disapprove a new Sub-Investment Advisory Agreement
between ParkSouth and Womack Asset Management, Inc. ("Womack Management"); and
shareholders of the DG International Equity Fund will be asked to approve or
disapprove a new Sub-Investment Advisory Agreement between ParkSouth and Lazard
Asset Management ("Lazard"). The new Sub-Investment Advisory Agreements are
collectively referred to as the "New Sub-Advisory Agreements," and each may
individually be referred to as a "New Sub-Advisory Agreement." Consideration of
the New Advisory Contract and the New Sub-Advisory Agreements has been made
necessary by the merger (the "Merger") of Deposit Guaranty Corp., the ultimate
corporate parent of ParkSouth prior to the Merger, with and into First American
Corporation. The New Advisory Contract and the New Sub-Advisory Agreements took
effect on the date that the Merger was consummated---May 1, 1998--and will
continue, if approved by Shareholders, until the relevant DG Fund's
reorganization, referred to above.
If a Proposal is approved by one or more DG Funds, and disapproved by
the other DG Funds, the Proposal will be implemented only for each DG Fund that
approved the Proposal.
The DG Funds are separate series of the Trust, an open-end management
investment company. The ISG Funds are separate series of The Infinity Mutual
Funds, Inc. (the "Company"), an open-end management investment company. Each ISG
Fund, except ISG Limited Duration U.S. Government Portfolio, ISG Prime Money
Market Portfolio and ISG U.S. Treasury Money Market Portfolio (collectively, the
"Pre-Existing ISG Funds"), is a newly organized series of the Company
(collectively, the "New ISG Funds"). The investment objective, management
policies and investment restrictions of each ISG Fund are substantially similar
to those of its corresponding DG Fund. A description of each DG Fund and its
corresponding ISG Fund and certain other information about the Exchange is set
forth in Appendix A to this Prospectus/Proxy Statement.
Accompanying this Prospectus/Proxy Statement are:
o The Prospectus of the ISG Funds, dated October 16, 1998, as
revised October 20, 1998.
o The Annual Report and Semi-Annual Report of the Pre-Existing ISG
Funds for the year ended December 31, 1997 and the six month
period ended June 30, 1998, respectively.
Each New ISG Fund recently has been organized for the purpose of continuing the
investment operations of the corresponding DG Fund, and has no assets or prior
history of investment operations. FOR FREE COPIES OF THE CURRENT PROSPECTUS OF
THE RELEVANT DG FUND AND THE CURRENT ANNUAL REPORT OF THE RELEVANT DG FUND,
WRITE TO THE TRUST AT ITS PRINCIPAL EXECUTIVE OFFICES, LOCATED AT 5800 CORPORATE
DRIVE, PITTSBURGH, PENNSYLVANIA 15237-7010, OR CALL 1-800-530-7377.
Shareholders are entitled to one vote for each DG Fund share held and
fractional votes for each fractional DG Fund share held. DG Fund shares
represented by executed and unrevoked proxies will be voted in accordance with
the specifications made thereon. If the enclosed form of proxy is executed and
returned, it nevertheless may be revoked by giving another proxy or by letter or
telegram directed to the Trust, which must indicate the Shareholder's name and
account number. To be effective, such revocation must be received before the
Meeting. Also, any Shareholder who attends the Meeting in person may vote by
ballot at the Meeting, thereby canceling any proxy previously given.
Proxy materials will be mailed to Shareholders of record on or about
October 21, 1998.
----------------------------------
This Prospectus/Proxy Statement, which should be retained for future
reference, sets forth concisely information about the ISG Funds that
Shareholders should know before voting on the proposal to reorganize their DG
Fund or receiving ISG Shares.
A Statement of Additional Information dated October 20, 1998, relating
to this Prospectus/Proxy Statement, has been filed with the Securities and
Exchange Commission (the "Commission") and is incorporated herein by reference
in its entirety. The Commission maintains a Web site (http://www.sec.gov) that
contains the Statement of Additional Information, material incorporated by
reference, and other information regarding the ISG Funds and the DG Funds. For a
free copy of the Statement of Additional Information, write to the relevant ISG
Fund at its principal executive offices located at 3435 Stelzer Road, Columbus,
Ohio 43219-3035, or call 1-800-852-0045.
<PAGE>
TABLE OF CONTENTS
PAGE
PROPOSAL ONE
Summary................................................................. 5
Comparison of DG Funds and ISG Funds.................................... 6
Reasons for the Exchange................................................ 12
Information about the Exchange.......................................... 12
Required Vote and Board's Recommendation................................ 14
Additional Information about the DG Funds
and ISG Funds......................................................... 14
Financial Statements and Experts........................................ 15
PROPOSALS TWO AND THREE
Introduction............................................................ 15
Proposal 2 -- Ratification and Approval or Disapproval
of a New Advisory Contract............................................ 16
Proposal 3(A) -- Ratification and Approval or Disapproval
of a New Sub-Advisory Agreement (DG Opportunity
Fund Only)............................................................ 20
Proposal 3(B) -- Ratification and Approval or Disapproval
of a New Sub-Advisory Agreement (DG International
Equity Fund Only)..................................................... 22
ADDITIONAL VOTING INFORMATION........................................... 24
OTHER MATTERS........................................................... 25
NOTICE TO BANKS, BROKER/DEALERS AND
VOTING TRUSTEES AND THEIR NOMINEES.................................... 25
Appendix A: Descriptions of the
DG Funds and ISG Funds................................................ A-1
Appendix B: Directors of the ISG Funds................................. B-1
Appendix C: Form of Agreement and
Plan of Reorganization................................................ C-1
Appendix D: New Advisory Contract...................................... D-1
Appendix E: New Sub-Advisory Agreement
(DG Opportunity Fund)................................................. E-1
Appendix F: New Sub-Advisory Agreement
(DG International Equity Fund)........................................ F-1
Appendix G: Executive Officer and Directors of
First American National Bank.......................................... G-1
<PAGE>
PROPOSAL ONE
APPROVAL OR DISAPPROVAL OF AN AGREEMENT AND PLAN OF REORGANIZATION
PROVIDING FOR THE TRANSFER OF ALL OF THE ASSETS AND LIABILITIES OF
EACH DG FUND IN EXCHANGE FOR SHARES OF A CORRESPONDING ISG FUND
SUMMARY
This Summary is qualified by reference to the more complete
information contained elsewhere in this Prospectus/Proxy Statement, the relevant
DG Fund Prospectus, the ISG Fund Prospectus, the description of each DG Fund and
its corresponding ISG Fund attached to this Prospectus/Proxy Statement as
Appendix A and the form of Agreement and Plan of Reorganization attached to this
Prospectus/Proxy Statement as Appendix C.
PROPOSED TRANSACTION. The Trust's and Company's Boards, including
their respective Board members who are not "interested persons" (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act"))("Independent
Board Members"), have unanimously approved for each Fund an Agreement and Plan
of Reorganization (the "Plan"). The Plan provides that each DG Fund, subject to
the requisite approval of its Shareholders, transfer to the corresponding ISG
Fund all of its assets (subject to liabilities) in exchange for ISG Shares
having an aggregate net asset value equal to the aggregate net asset value of
the DG Fund shares. Each DG Fund will distribute all ISG Shares received by it
to its Shareholders. Trust Shares of the applicable ISG Fund will be distributed
to Shareholders who held DG Fund shares through qualified trust, custody or
agency accounts at Deposit Guaranty National Bank ("DG Bank") or affiliated and
correspondent banks of DG Bank or certain other affiliated and non-affiliated
institutions. All other Shareholders will receive Class A Shares of the
corresponding ISG Fund. Thereafter, each DG Fund will be terminated as a series
of the Trust.
The primary differences between Trust Shares and Class A Shares
offered by the ISG Funds (other than the ISG Prime Money Market Portfolio and
ISG U.S. Treasury Money Market Portfolio) are applicable sales loads and the
existence of a plan adopted under Rule 12b-1 providing for the payment of up to
.25% of Class A Shares' average daily net assets for the purpose of financing
distribution of Class A Shares. The primary difference between Trust Shares and
Class A Shares of the ISG Prime Money Market Portfolio and ISG U.S. Treasury
Money Market Portfolio is the rate of payment under a shareholder services plan
described below. The DG Funds also have adopted a Rule 12b-1 plan, but (except
for the DG Prime Money Market Fund) have made no payments thereunder. Management
of the DG Funds determined that no other DG Funds would make payments under the
Rule 12b-1 plan until the DG Fund created a separate class of shares, similar to
the ISG Trust Shares, which would not be subject to a Rule 12b-1 plan.
As a result of the Exchange, each Shareholder will cease to be a
shareholder of the relevant DG Fund and will become a shareholder of the
corresponding ISG Fund as of the close of business on the closing date of the
Exchange.
REASONS FOR THE EXCHANGE. The primary reason for the Exchange is the
recently completed Merger of Deposit Guaranty Corp., the ultimate parent of
ParkSouth prior to the Merger, each DG Fund's investment adviser, with and into
First American Corporation, the parent of First American National Bank ("First
American"), each ISG Fund's investment adviser. The proposed transaction will
combine the separate DG Fund and ISG Fund families into a single, larger
consolidated group. ParkSouth and First American have recommended that each DG
Fund be reorganized as described herein. DG Fund shareholders may benefit from
the Exchange because the expense ratio of each ISG Fund will be lower than or
equal to that of its corresponding DG Fund, while the investment objective,
management policies, investment advisory personnel and shareholder services of
each ISG Fund will remain substantially similar to those of its corresponding DG
Fund. No sales charge will be imposed on the ISG Shares received by Shareholders
in the Exchange.
The Trust's Board has concluded unanimously that the Exchange would be
in the best interests of Shareholders of each DG Fund and the interests of
existing Shareholders of each DG Fund would not be diluted as a result of the
transactions contemplated thereby. See "Reasons for the Exchange."
TAX CONSEQUENCES. The Exchange is designed to qualify for Federal
income tax purposes as a tax-free reorganization. As a condition to the closing
of the Exchange, the Trust and the Company will receive an opinion of counsel to
the effect that, for Federal income tax purposes, (a) no gain or loss will be
recognized by DG Fund Shareholders for Federal income tax purposes as a result
of the Exchange, (b) the holding period and aggregate tax basis of ISG Shares
received by a DG Fund Shareholder will be the same as the holding period and
aggregate tax basis of the Shareholder's DG Fund shares, and (c) the holding
period and tax basis of the DG Fund's assets transferred to the ISG Fund as a
result of the Exchange will be the same as the holding period and tax basis of
such assets held by the DG Fund immediately prior to the Exchange. See
"Information about the Exchange--Tax Consequences."
COMPARISON OF THE DG FUNDS AND ISG FUNDS
The following discussion summarizes certain aspects of the DG Funds
and the ISG Funds as a whole. A description of each DG Fund and its
corresponding ISG Fund is set forth in Appendix A to this Prospectus/Proxy
Statement. All such information is qualified by the more complete information
set forth in the DG Funds' Prospectuses and Statements of Additional Information
and the ISG Funds' Prospectus and Statements of Additional Information, which
are incorporated herein by reference.
INVESTMENT ADVISERS. ParkSouth, P.O. Box 1200, Jackson, Mississippi
39215, currently provides investment advisory services to each DG Fund. In
addition to managing the DG Funds, ParkSouth manages approximately $2 billion in
trust assets as of June 30, 1998. ParkSouth (which succeeded to the investment
advisory business of its parent corporation DG Bank in 1997) or DG Bank has
served as the adviser to the Trust since May 5, 1992. Lazard, located at 30
Rockefeller Plaza, New York, New York 10020, serves as the sub-investment
adviser to DG International Equity Fund, and Womack Management, located at 2120
DG Plaza, Jackson, Mississippi 39201, serves as the sub-investment adviser to DG
Opportunity Fund. Lazard, a division of Lazard Freres & Co. LLC, provides
investment management services to client discretionary accounts with assets
totaling approximately $67 billion as of June 30, 1998. Womack Management
provides investment management services to client discretionary accounts with
assets totaling approximately $300 million as of June 30, 1998.
First American, located at First American Center, 315 Deaderick
Street, Nashville, Tennessee 37237, serves as the investment adviser to each ISG
Fund. First American provides personal trust, estate, employee benefit trust,
corporate trust and custody services to over 3,000 individual and business
clients and investment advisory services. First American and its affiliates, as
of June 30, 1998, had approximately $7 billion under trust and approximately $6
billion under management. Lazard also serves as the sub-investment adviser to
ISG International Equity Portfolio and Womack Management also serves as the
sub-investment adviser to ISG Small Cap Opportunity Portfolio, respectively.
The primary portfolio manager(s) of each DG Fund will continue as the
primary portfolio manager(s) or as a member of a team of portfolio managers of
its corresponding ISG Fund, except in the case of the Pre-Existing ISG Funds,
where the primary portfolio managers of those ISG Funds also will continue in
such capacity. For a description of the primary portfolio manager(s) of the
relevant ISG Fund, see Appendix A.
Under the terms of the respective investment advisory
agreement, each DG Fund and ISG Fund has agreed to pay ParkSouth or First
American, as the case may be, a monthly fee at the annual rate set forth below
as a percentage of the relevant Fund's average daily net assets:
<TABLE>
<CAPTION>
Investment Investment
Advisory Fee Advisory Fee
DG FUNDS Payable ISG Funds Payable
<S> <C> <C> <C>
DG Equity Fund .75% ISG Large Cap Equity .75%
Portfolio
DG Government Income Fund .60% ISG Government Income .60%
Portfolio
DG International Equity Fund 1.00% ISG International Equity 1.00%
DG Limited Term Government .60% ISG Limited Duration U.S. .50%
Income Fund Government Portfolio
DG Municipal Income Fund .60% ISG Municipal Income .60%
Portfolio
DG Opportunity Fund .95% ISG Small Cap Opportunity .95%
Portfolio
DG Prime Money Market Fund .50% ISG Prime Money Market .25%
Portfolio
DG Treasury Money Market .50% ISG U.S. Treasury Money .25%
Fund Market Portfolio
</TABLE>
Under the terms of the respective sub-investment advisory agreement
with Lazard, ParkSouth and First American have agreed to pay Lazard a monthly
fee at the annual rate of .50% of the value of the average daily net assets of
DG International Equity Fund and ISG International Equity Portfolio,
respectively. Under the terms of the respective sub-investment advisory
agreement with Womack Management, ParkSouth has agreed to pay Womack Management,
with respect to DG Opportunity Fund, a monthly fee at the annual rate of the sum
of .32% of the value of the Fund's average daily net assets up to $50 million,
.075% of the value of such assets from $50 million to $70 million and .25% of
the value of such assets in excess of $70 million, and First American has agreed
to pay Womack Management, with respect to ISG Small Cap Opportunity Portfolio, a
monthly fee at the annual rate of .35% of the value of the ISG Small Cap
Opportunity Portfolio's average daily net assets.
From time to time, ParkSouth and First American may waive receipt of
their fees and/or voluntarily assume certain expenses of a Fund. For a
description of any waiver arrangements with respect to advisory fees payable by
the relevant Fund, see Appendix A.
CAPITALIZATION. Each DG Fund has one class of shares. Each ISG Fund
(except ISG U.S. Treasury Money Market Portfolio) has three classes of
shares--Class A Shares, Class B Shares and Trust Shares--which are identical,
except as to services offered to and expenses borne by each class. ISG U.S.
Treasury Money Market Portfolio has two classes of shares--Class A Shares and
Trust Shares. ISG Class B Shares are not being offered in the Exchanges and,
accordingly, no information is presented for such class. For a comparison of the
capitalization of each DG Fund and the Class A Shares and Trust Shares of the
corresponding ISG Funds, see Appendix A.
INITIAL SALES CHARGE. Shares of each DG Fund (except DG International
Equity Fund, DG Prime Money Market Fund and DG Treasury Money Market Fund) are
subject to an initial sales charge. Class A Shares of each ISG Fund (except ISG
Prime Money Market Portfolio and ISG U.S. Treasury Money Market Portfolio) are
subject to an initial sales charge. A contingent deferred sales charge of 1% may
be assessed on certain redemptions of Class A Shares of the ISG Funds (other
than the ISG Money Market Funds) purchased without an initial sales charge as
part of an initial purchase of $1 million or more. Trust Shares of each ISG Fund
are not subject to an initial sales charge or contingent deferred sales charge.
The initial sales charge for DG Fund shares and Class A Shares of the ISG Funds
may be reduced or waived for certain purchases as described in the relevant
Prospectus. ISG Class A Shares received in an Exchange will NOT be subject to an
initial sales charge. In addition, until May 1, 2000, each Shareholder who
participates in the Exchange will be able to purchase additional Class A Shares
of the relevant ISG Fund subject to the lower initial sales charge, if any,
applicable to the ISG Class A Shares or the corresponding DG Fund shares
exchanged by the Shareholder. For a comparison of the schedules of the initial
sales charge imposed on shares of the applicable DG Funds and their
corresponding ISG Funds, See Appendix A.
FEES AND EXPENSES. The annual Total Fund Operating Expenses of each
ISG Fund after the Exchange will be less than or equal to the annual Total Fund
Operating Expenses of its corresponding DG Fund. For a comparison of the fees
and expenses of each ISG Fund and its corresponding DG Fund, see Appendix A.
DISTRIBUTORS. Federated Securities Corp. ("Federated"), located at
Federated Investors Tower, Pittsburgh, Pennsylvania 15222, is the principal
distributor for shares of the DG Funds. It is a Pennsylvania corporation
organized on November 14, 1969, and is the principal distributor for a number of
investment companies. Federated is a subsidiary of Federated Investors, Inc.
BISYS Fund Services Limited Partnership ("BISYS"), located at 3435
Seltzer Road, Columbus, Ohio 43219, serves as each ISG Fund's distributor. BISYS
currently distributes the shares of other investment companies with over $200
billion in assets. BISYS is a wholly-owned subsidiary of The BISYS Group, Inc.
DISTRIBUTION PLANS AND SHAREHOLDER SERVICES PLANS. Under a
Distribution Plan adopted pursuant to Rule 12b-1 under the 1940 Act, each DG
Fund may pay Federated to finance any activity which is principally intended to
result in the sale of shares subject to the Plan. The Trust has disclosed that
fees under the Distribution Plan are being waived by Federated and will not be
paid or accrued (except with respect to DG Prime Money Market Fund) until a
separate class of shares has been created for certain institutional investors.
Class A Shares of each ISG Fund, except ISG Prime Money Market Portfolio and ISG
U.S. Treasury Money Market Portfolio, also are subject to a Distribution Plan
adopted pursuant to Rule 12b-1 under the 1940 Act. Under this Plan, each such
ISG Fund pays BISYS for advertising, marketing and distributing its Class A
Shares. ISG Trust Shares are not subject to a Distribution Plan. Pursuant to the
relevant Plan, Federated and BISYS may make payments to certain financial
institutions, securities dealers and other industry professionals (collectively,
"Service Organizations") in respect of distribution-related services for their
clients owning Fund shares.
Each DG Fund has adopted a Shareholder Services Plan, pursuant to
which the Fund may pay Service Organizations to provide administrative support
services to their customers who own DG Fund shares. These administrative support
services may include, but are not limited to, the provision of personal services
and maintenance of shareholder accounts. Currently, fees payable under the
Shareholder Services Plan with respect to DG Prime Money Market Fund are being
waived in their entirety. Each ISG Fund also adopted a Shareholder Services Plan
with respect to Class A Shares and Trust Shares. Pursuant to this Plan, each ISG
Fund may pay BISYS for providing shareholder services including personal
services relating to shareholder accounts, such as answering shareholder
inquiries regarding the Fund and providing reports and other information, and
services relating to the maintenance of such shareholder accounts. Under the
Plan, BISYS may make payments to certain Service Organizations in respect of
these services for their clients who own Fund shares.
Under the terms of their respective Distribution Plans and Shareholder
Services Plans, the DG Funds and ISG Funds (Trust Shares are not subject to a
Distribution Plan) are subject to the fees, if any, at the annual rate set forth
below as a percentage of the indicated Fund's average daily net assets.
<TABLE>
<CAPTION>
Shareholder
Distribution Services Plan
Shareholder Plan Fees Fees (Class A
Distribution Services (Class A Shares and
DG FUNDS PLAN FEES PLAN FEES ISG FUNDS SHARES ONLY) TRUST SHARES)
- ----------- ------------ --------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
DG Equity Fund .35% .15% ISG Large Cap .25% .15%
Equity Portfolio
DG Government .35% .15% ISG Government .25% .15%
Income Fund Income Portfolio
DG International .25% .15% ISG International .25% .15%
Equity Fund Equity Portfolio
DG Limited Term .35% .15% ISG Limited .25% .15%
Government Income Duration U.S.
Fund Government
Portfolio
DG Municipal Income .35% .15% ISG Municipal .25% .15%
Fund Income Portfolio
DG Opportunity Fund .35% .15% ISG Small Cap .25% .15%
Opportunity
Portfolio
DG Prime Money .25% .15% ISG Prime Money None .25% (Class
Market Fund Market Portfolio A Shares)/
.15% (Trust
Shares)
DG Treasury Money .25% .15% ISG U.S. Treasury None .25% (Class
Market Fund Money Market A Shares)/
Portfolio .15% (Trust
Shares)
</TABLE>
From time to time, Federated or BISYS may defer or waive receipt of
fees under the relevant Plan while retaining the ability to be paid under the
Plan thereafter. The fees payable to Federated and BISYS under the respective
Plan are payable without regard to actual expenses incurred. As indicated above,
no fees currently are being paid or accrued under the Trust's Distribution Plan.
ADMINISTRATIVE SERVICES. Federated Administrative Services ("FAS"), an
affiliate of Federated, provides the DG Funds with the administrative personnel
and services, such as certain legal and accounting services. FAS provides these
services at the annual rate set forth below as a percentage of the average
aggregate daily net assets of the Trust:
AVERAGE AGGREGATE DAILY
NET ASSETS OF THE TRUST MAXIMUM ADMINISTRATIVE FEE*
on the first $250 million .15%
on the next $250 million .125%
on the next $250 million .10%
on assets in excess of $750
million .075%
- ---------------
* Subject to a minimum annual fee of $100,000 per DG Fund.
BISYS serves as each ISG Fund's administrator, generally assisting in
all aspects of the ISG Funds' operations, other than providing investment
advice. As administrator, BISYS provides the ISG Funds with office facilities,
personnel, and certain clerical and bookkeeping services. BISYS provides these
services at an annual rate of .10% of the value of the average daily net assets
of the ISG Prime Money Market Portfolio and ISG U.S. Treasury Money Market
Portfolio and .15% of the value of each other ISG Fund's average daily net
assets.
From time to time, FAS or BISYS may waive voluntarily all or a portion
of its respective administration fees.
CUSTODIAN AND TRANSFER AGENT. State Street Bank and Trust Company is
the Custodian for the DG Funds and The Bank of New York is the Custodian for the
ISG Funds.
Federated Shareholder Services Company, a subsidiary of Federated,
located at Federated Investors Tower, Pittsburgh, Pennsylvania 15222, is the DG
Funds' Transfer and Dividend Disbursing Agent. BISYS Fund Services Ohio, Inc.,
an affiliate of BISYS, located at 3435 Stelzer Road, Columbus, Ohio 43219, is
the ISG Funds' Transfer and Dividend Disbursing Agent.
INDEPENDENT AUDITORS. KPMG Peat Marwick LLP are the independent
auditors for the DG Funds and ISG Funds.
BOARD MEMBERS. The business affairs of the DG Funds and ISG Funds are
managed under the general supervision of their respective Boards. The Trust and
the Company have different Board members. Until May 1, 2001 (three years after
the Merger of Deposit Guaranty Corp. into First American Corporation), at least
75% of the members of the Trust's Board and Company's Board must be Board
members who are not "interested persons" (as defined under the 1940 Act) of
ParkSouth or First American. For a description of the Company's Board members,
see Appendix B. For a description of the Trust's Board members, see the Trust's
Statement of Additional Information under the caption "DG Investor Series
Management."
PURCHASE PROCEDURES. The purchase procedures of each DG Fund and its
corresponding ISG Fund are substantially similar. See "Investing in the Funds"
in the relevant DG Funds Prospectus and "How To Buy Shares" in the ISG Funds
Prospectus for a discussion of purchase procedures.
REDEMPTION PROCEDURES. The redemption procedures of each DG Fund and
its corresponding ISG Fund are substantially similar. See "Redeeming Shares" in
the relevant DG Funds Prospectus and "How To Redeem Shares" in the ISG Funds
Prospectus for a discussion of redemption procedures.
DISTRIBUTIONS. The dividend and distributions policies of each DG Fund
and its corresponding ISG Portfolio (except for DG Limited Term Government
Income Fund and ISG Limited Duration U.S. Government Portfolio) are
substantially similar. With respect to DG Limited Term Government Income Fund,
dividends are declared and paid monthly; with respect to ISG Limited Duration
U.S. Government Portfolio, dividends are declared daily and paid monthly. See
"Investing in the Funds--Dividends and Distributions" in the relevant DG Funds
Prospectus and "Dividends, Distributions and Taxes" in the ISG Funds Prospectus
for a discussion of such policies.
SHAREHOLDER SERVICES. The shareholder services offered by each DG Fund
and its corresponding ISG Fund are substantially similar, except that each ISG
Fund offers a Directed Distribution Plan, pursuant to which you may invest
automatically dividends and capital gain distributions, if any, paid by the ISG
Fund in Class A Shares of another ISG Fund of which you are a shareholder. In
addition, the ISG Money Market Funds provide check writing privileges. The DG
Funds do not offer a directed distribution plan or check writing privileges. See
"Investing in the Funds" and "Redeeming Shares" in the relevant DG Funds
Prospectus and "Shareholder Services and Privileges" in the ISG Funds Prospectus
for a description of shareholder services.
CERTAIN ORGANIZATIONAL DIFFERENCES BETWEEN THE TRUST AND THE COMPANY.
Each DG Fund is a series of the Trust, which is a Massachusetts business trust,
and the rights of DG Fund shareholders are governed by the Trust's Declaration
of Trust (the "Trust Agreement"), Bylaws and applicable Massachusetts law. Each
ISG Fund is a series of the Company, which is Maryland corporation, and the
rights of ISG Fund shareholders are governed by the Company's Articles of
Incorporation, as amended (the "Charter"), Bylaws and the Maryland General
Corporation Law (the "Maryland Code"). Certain relevant differences between the
two forms of organization are summarized below.
SHAREHOLDER MEETINGS AND VOTING RIGHTS. Generally, neither the DG
Funds nor the ISG Funds are required to hold annual meetings of shareholders.
The Boards of the Company and Trust are each required to call a special meeting
of shareholders for the purpose of removing a Board member when requested in
writing to do so by the holders of at least 10% of its outstanding shares, and
for any other purpose when requested in writing by the holders of at least 10%,
in the case of the Trust, and at least a majority, in the case of the Company,
of its outstanding shares entitled to vote. Moreover, each Board will call a
meeting of shareholders for the purpose of electing Board members, if at any
time, less than a majority of the Board members then holding office have been
elected by shareholders.
Shares of the DG Funds and ISG Funds are entitled to one vote for each
full share held and a proportionate fractional vote for each fractional share
held. On any matter submitted to a vote of shareholders, all shares of the DG
Funds or ISG Funds then entitled to vote will be voted in the aggregate as a
single class without regard to series or classes of shares, except (i) when
required by the 1940 Act or when the respective Board members shall have
determined that the matter affects one or more series or classes differently,
shares will be voted by individual series or class, and (ii) when the respective
Board members have determined that the matter affects only the interests of one
or more series or classes, then only shareholders of such series or classes will
be entitled to vote thereon.
The Trust's Trust Agreement provides that more than 50% of the shares
entitled to vote shall constitute a quorum for the transaction of business at a
shareholders' meeting. The Company's Charter provides that one-third of the
shares entitled to vote shall constitute a quorum for the transaction of
business at a stockholders meeting. Matters requiring a larger vote by law or
under the organizational documents for the Trust or Company are not affected by
such quorum requirements.
SHAREHOLDER LIABILITY. Under Maryland law, stockholders of a Maryland
corporation have no personal liability as such for the corporation's acts or
obligations.
Under Massachusetts law, shareholders of a Massachusetts business
trust, under certain circumstances, could be held personally liable for the
obligations of the business trust. However, the Trust Agreement disclaims
shareholder liability for acts or obligations of a DG Fund or the Trust and
requires that notice of such disclaimer be given in every note, bond, contract
or other undertaking issued or entered into by or on behalf of the DG Fund, the
Trust or the Trust's Trustees. The Trust Agreement provides for indemnification
out of the Trust's property for all losses and expenses of any shareholder held
personally liable for the obligations of the Trust solely by reason of his being
or having been a DG Fund shareholder and not because of his acts or omissions or
some other reason. Thus, the Trust considers the risk of a DG Fund shareholder
incurring financial loss on account of shareholder liability to be remote since
it is limited to circumstances in which a disclaimer is inoperative or the DG
Fund itself would be unable to meet its obligations. The Trust Agreement also
provides that the Trust, upon request, shall assume the defense of any claim
made against any shareholder for any act or obligation of the DG Fund or the
Trust and satisfy any judgment thereon.
LIABILITY AND INDEMNIFICATION OF DIRECTORS AND TRUSTEES. Under the
Company's Charter and Maryland law, subject to the 1940 Act, a Director or
officer of the Company is not liable to an ISG Fund or its stockholders for
monetary damages except to the extent he or she receives an improper personal
benefit or his or her action or failure to act was the result of active and
deliberate dishonesty and was material to the cause of action adjudicated. A
Director of the Company is entitled to indemnification against judgments,
penalties, fines, settlements and reasonable expenses unless his or her act or
omission was material to the cause of action and was committed in bad faith or
was the result of active and deliberate dishonesty or the individual received an
improper personal benefit (or, in a criminal case, had reasonable cause to
believe that his act or omission was unlawful). Indemnification may be made
against amounts recoverable by settlement of suits brought by or in the right of
the Company except where the individual is adjudged liable to the Company. A
Director or officer is entitled to advances of expenses in the course of
litigation if (i) such Director or officer undertakes to repay such sums if
indemnification is ultimately denied and provides acceptable security, (ii) the
Company is insured against losses arising from the advances, or (iii) the
disinterested non-party directors or independent legal counsel determine there
is a reason to believe the Director or officer ultimately will be found to be
entitled to indemnification. Officers, employees and agents may be indemnified
to the same extent as Directors and to such further extent as is consistent with
law.
If these provisions of Maryland law are amended, the Directors and
officers will be entitled to limited liability and to indemnification to the
fullest extent of Maryland law as amended. No amendment or repeal of the
provisions of the Charter relating to limited liability and indemnification will
apply to any event, omission or proceeding which precedes the amendment or
repeal.
Under the Trust's Trust Agreement and Bylaws, a Trustee is entitled to
indemnification against all liability and expenses reasonably incurred by him in
connection with the defense or disposition of any threatened or actual
proceeding by reason of his being or having been a Trustee, unless such Trustee
shall have been adjudicated to have acted with bad faith, willful misfeasance,
gross negligence or in reckless disregard of his duties. Officers, employees and
agents of the Trust may be indemnified to the same extent as Trustees.
Under the 1940 Act, a director or trustee may not be protected against
liability to a fund and its security holders to which he would otherwise be
subject as a result of his willful misfeasance, bad faith or gross negligence in
the performance of his duties, or by reason of reckless disregard of his
obligations and duties.
RIGHT OF INSPECTION. Under Maryland law, persons who have been
stockholders of record for six months or more and who own at least 5% of the
shares of an ISG Fund may inspect the books of account and stock ledger of the
ISG Fund. DG Fund shareholders have the right to inspect the records, accounts
and books of the DG Fund for any legitimate business purpose.
* * *
The foregoing is only a summary of certain differences between the ISG
Funds, the Company's Charter, Bylaws and Maryland law, and the DG Funds, the
Trust's Trust Agreement, Bylaws or Massachusetts law. It is not a complete list
of differences, but only of material differences. Shareholders desiring copies
of the Company's Charter and Bylaws or the Trust's Trust Agreement and Bylaws
should write to the Company at 3435 Stelzer Road, Columbus, Ohio 43219-3035, or
the Trust at Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779.
REASONS FOR THE EXCHANGE
The primary reason for the Exchange is the recently completed Merger
of Deposit Guaranty Corp., the parent company of ParkSouth prior to the Merger,
with and into First American Corporation, the parent company of First American.
The Exchange described herein presents the opportunity to combine the separate
DG Funds and ISG Funds into a single, larger consolidated group. ParkSouth and
First American have recommended that each of the DG Funds be reorganized into
the corresponding ISG Fund as described in this Prospectus/Proxy Statement.
In determining whether to recommend approval of the Exchange, each
Board considered the following factors, among others: (1) the compatibility of
each DG Fund's and its corresponding ISG Fund's investment objective, management
policies and investment restrictions, as well as the shareholder services each
offers; (2) the terms and conditions of each Exchange and their conclusion that
the Exchange would not result in dilution of shareholder interests; (3) expense
ratios and published information regarding the fees and expenses of each DG Fund
and its corresponding ISG Fund, as well as the expense ratios of similar funds
and the estimated expense ratio of the combined funds; and (4) the tax-free
nature of each Exchange.
INFORMATION ABOUT THE EXCHANGE
PLAN OF EXCHANGE. The following summary of the Plan is qualified in
its entirety by reference to the form of Plan attached hereto as Appendix C. The
Plan provides that the relevant ISG Fund will acquire all of the assets of its
corresponding DG Fund in exchange for ISG Class A Shares and Trust Shares and
the assumption by the ISG Fund of the DG Fund's stated liabilities on December
11, 1998 or such later date with respect to one or more DG Funds as may be
agreed upon by the parties (the "Closing Date"). The number of ISG Shares to be
issued to the DG Fund will be determined on the basis of the relative net asset
values per share and aggregate net assets of the DG Fund shares and ISG Shares,
generally computed as of the close of trading on the floor of the New York Stock
Exchange (currently at 4:00 p.m., New York time) on the Closing Date (the
"Valuation Time"). Portfolio securities of the DG Fund and ISG Fund will be
valued in accordance with the valuation practices of the ISG Fund, which are
described under the caption "How to Buy Shares" in the ISG Funds Prospectus and
under the caption "Determination of Net Asset Value" in the ISG Funds' Statement
of Additional Information.
Before the Closing Date, each DG Fund will declare and pay a dividend
or other distribution which, together with all previous dividends and other
distributions, will have the effect of distributing to DG Fund Shareholders all
of the DG Fund's previously undistributed investment company taxable income
(computed without regard to any deduction for dividends paid), its net exempt
interest income, and its net capital gain realized (after reduction for any
capital loss carryforward), if any, for all taxable years ending on or before,
and for its current taxable year through, the Closing Date.
As conveniently as practicable after the Closing Date, each DG Fund
will distribute pro rata to its shareholders of record as of the Valuation Time,
in liquidation of the DG Fund, the ISG Shares received by it in the Exchange.
Such distribution will be accomplished by establishing an account on the share
records of the relevant ISG Fund in the name of its corresponding DG Fund
Shareholders, each account representing the respective pro rata number of ISG
Shares due to each DG Fund Shareholder. After such distribution and the winding
up of its affairs, the DG Fund will be terminated as a series of the Trust.
After the Closing Date, any outstanding certificates representing DG Fund shares
will represent the ISG Shares distributed to the record holders of the DG Fund.
Upon presentation to the transfer agent of the ISG Fund, DG Fund share
certificates will be exchanged for ISG Share certificates, at the applicable
exchange rate. Certificates for ISG Shares will be issued only upon the
investor's written request.
The Plan may be amended at any time before the Exchange. The Trust
will provide DG Fund Shareholders with information describing any material
amendment to the relevant Plan prior to DG Fund Shareholder consideration. The
obligations of the DG Fund and its corresponding ISG Fund under the Plan are
subject to various conditions, including approval by the holders of the
requisite number of DG Fund shares and the continuing accuracy of various
representations and warranties being confirmed by the respective parties. In
addition, consummation of the Exchange with respect to DG Limited Term
Government Income Fund and DG Treasury Money Market Fund and ISG Limited
Duration U.S. Government Portfolio and ISG U.S. Treasury Money Market Portfolio,
respectively, is subject to the condition that each of these Funds receive
exemptive relief from the Securities and Exchange Commission with respect to
certain restrictions under the 1940 Act that would otherwise prohibit the
Exchange with respect to such Funds. There can be no assurance that such relief
will be granted.
The total expenses of the Exchange are expected to be approximately
$120,000, and will be borne entirely by First American.
If the Exchange is not approved by Shareholders of a DG Fund, the
Trust's Board will consider other appropriate courses of action, including other
possible reorganizations.
FEDERAL INCOME TAX CONSEQUENCES. The exchange of each DG Fund's assets
for ISG Shares is intended to qualify for Federal income tax purposes as a
tax-free reorganization under Section 368(a) of the Code. As a condition to the
closing of the Exchange, the DG Funds and the ISG Funds will receive the opinion
of Stroock & Stroock & Lavan LLP, counsel to the ISG Funds, to the effect that,
on the basis of the existing provisions of the Code, Treasury regulations issued
thereunder, current administrative regulations and pronouncements and court
decisions, and certain facts, assumptions and representations, for Federal
income tax purposes: (1) the transfer of all of the DG Fund's assets in exchange
solely for ISG Shares and the assumption by the ISG Fund of the DG Fund's
liabilities, followed by the DG Fund's distribution of those shares to the DG
Fund Shareholders constructively in exchange for their DG Fund shares, will
constitute a "reorganization" within the meaning of Section 368(a)(1) of the
Code; (2) no gain or loss will be recognized by the DG Fund upon the transfer of
its assets to the ISG Fund solely in exchange for ISG Shares and the assumption
by the ISG Fund of the DG Fund's liabilities or upon the subsequent distribution
(whether actual or constructive) of ISG Shares to the DG Fund Shareholders in
constructive exchange for their DG Fund shares; (3) no gain or loss will be
recognized by the ISG Fund upon its receipt of the DG Fund's assets in exchange
solely for ISG Shares and the assumption by the ISG Fund of the DG Fund's
liabilities; (4) no gain or loss will be recognized by the DG Fund Shareholders
upon the exchange of their DG Fund shares for ISG Shares pursuant to the Plan;
(5) the aggregate tax basis for ISG Shares received by each DG Fund Shareholder
pursuant to the Exchange will be the same as the aggregate tax basis for DG Fund
shares held by such Shareholder immediately prior to the Exchange, and the
Shareholder's holding period for those ISG Shares will include the period the DG
Fund shares surrendered in exchange therefor were held by such Shareholder
(provided the DG Fund shares were held as capital assets on the date of the
Exchange); and (6) the tax basis of the DG Fund's assets transferred to the ISG
Fund will be the same as the tax basis of such assets to the DG Fund immediately
prior to the Exchange, and the holding period of the DG Fund's assets in the
hands of the ISG Fund will include the period during which those assets were
held by the DG Fund.
NONE OF THE DG FUNDS OR ISG FUNDS HAS SOUGHT A TAX RULING FROM THE
INTERNAL REVENUE SERVICE ("IRS"). THE OPINION OF COUNSEL IS NOT BINDING ON THE
IRS NOR DOES IT PRECLUDE THE IRS FROM ADOPTING A CONTRARY POSITION. DG Fund
Shareholders should consult their tax advisers regarding the effect, if any, of
the proposed Exchange in light of their individual circumstances. Since the
foregoing discussion relates only to the Federal income tax consequences of the
Exchange, DG Fund Shareholders also should consult their tax advisers as to
state and local tax consequences, if any, of the Exchange.
REQUIRED VOTE AND BOARD'S RECOMMENDATION
As to each DG Fund, the Trust's Board, including a majority of the
Independent Board Members, has approved the Plan and the Exchange and has
determined that (i) participation in the Exchange is in the DG Fund's best
interests and (ii) the interests of its Shareholders will not be diluted as a
result of the Exchange. Pursuant to the Trust's Trust Agreement, with respect to
each DG Fund, approval of the Plan and Exchange requires the affirmative vote of
(a) 67% of the DG Fund's voting securities present at this Meeting, if the
holders of more than 50% of the DG Fund's outstanding voting securities are
present or represented by proxy, or (b) more than 50% of the DG Fund's
outstanding voting securities, whichever is less.
THE TRUST'S BOARD, INCLUDING THE INDEPENDENT BOARD MEMBERS, RECOMMENDS THAT
SHAREHOLDERS OF EACH DG FUND VOTE "FOR" APPROVAL OF THE PLAN AND THE EXCHANGE.
ADDITIONAL INFORMATION ABOUT THE DG FUNDS AND ISG FUNDS
Information about the ISG Funds is incorporated by reference into this
Prospectus/Proxy Statement from the ISG Funds Prospectus and Statement of
Additional Information, forming a part of the Company's Registration Statement
on Form N-1A (File No. 33-34080).
Information about the DG Funds is incorporated by reference into this
Prospectus/Proxy Statement from the relevant DG Funds Prospectuses and
Statements of Additional Information, forming a part of the Trust's Registration
Statement on Form N-1A (File No. 33-46431).
The DG Funds and ISG Funds are subject to the requirements of the 1940
Act, and file reports, proxy statements and other information with the
Commission. Reports, proxy statements and other information filed by the DG
Funds and ISG Funds may be inspected and copied at the Public Reference
Facilities of the Commission at 450 Fifth Street, N.W., Room 1024, Washington,
D.C. 20549 and at the Northeast regional office of the Commission at 7 World
Trade Center, Suite 1300, New York, New York 10048. Copies of such material also
can be obtained from the Public Reference Branch, Office of Consumer Affairs and
Information Services, Securities and Exchange Commission, Washington, D.C.
20549, at prescribed rates.
FINANCIAL STATEMENTS AND EXPERTS
The audited financial statements of each DG Fund contained in the
February 28, 1998 Annual Report to Shareholders for the fiscal year ended
February 28, 1998, and the audited financial statements of each pre-existing
AmeriStar Fund (to be renamed the ISG Funds) contained in the December 31, 1997
Annual Report to Shareholders for the fiscal year ended December 31, 1997, have
been incorporated herein by reference in reliance upon the authority of the
reports given by KPMG Peat Marwick LLP, the DG Funds' and ISG Funds' independent
auditors, as experts in accounting and auditing. Also incorporated by reference
herein is the Semi-Annual Report of each pre-existing AmeriStar Fund (to be
renamed the ISG Funds) for the six-month period ended June 30, 1998 (unaudited).
* * *
PROPOSALS TWO AND THREE
APPROVAL OR DISAPPROVAL OF
CERTAIN ADVISORY AGREEMENTS
INTRODUCTION
At the Meeting, Shareholders of each DG Fund also will be asked to
approve or disapprove the New Advisory Contract, which is being submitted in
connection with the Merger of Deposit Guaranty Corp., the former ultimate parent
corporation of ParkSouth, with and into First American Corporation on May 1,
1998, and the payment of advisory fees to ParkSouth during the interim period
from the date of the Merger through the earlier of the date of Shareholder
approval or December 31, 1998. In addition, in connection with the Merger,
Shareholders of DG Opportunity Fund and DG International Equity Fund will be
asked to ratify and approve or disapprove the New Sub-Advisory Agreements
between ParkSouth and Womack Management and Lazard, respectively. As a result of
the Merger, the investment advisory agreement between the Trust and ParkSouth
then in effect (the "Former Advisory Contract") automatically terminated in
accordance with its terms and as required by the 1940 Act. Similarly, the
sub-investment advisory agreement between ParkSouth and Womack Management then
in effect (the "Former Womack Sub-Advisory Agreement") and the sub-investment
advisory agreement between ParkSouth and Lazard then in effect (the "Former
Lazard Sub-Advisory Agreement") each automatically terminated as a result of the
Merger. To assure the continued supervision of the investments of the DG Funds
after the Merger, at meetings held on February 26, 1998 and May 11, 1998, the
Trust's Board of Trustees, including a majority of the Independent Board
Members, approved, subject to Shareholder approval, the New Advisory Contract
and the New Sub-Advisory Agreements. Since the date of the Merger, ParkSouth has
provided advisory services to the DG Funds under the New Advisory Contract dated
May 1, 1998, which provides for the same services at the same advisory fee rate
for the relevant DG Fund as the Former Advisory Contract. Womack Management and
Lazard also have provided sub-advisory services since the date of the Merger to
DG Opportunity Fund and DG International Equity Fund, respectively, under the
relevant New Sub-Advisory Agreement dated May 1, 1998, which each provides for
the same services at the same sub-advisory fee rate as the relevant Former
Sub-Advisory Agreement.
Under Section 15(a) of the 1940 Act, investment advisory agreements
such as the New Advisory Contract and New Sub-Advisory Agreements must be
approved by shareholders. The Trust, ParkSouth, Womack Management and Lazard
have received from the Securities and Exchange Commission orders of exemption
(the "Order") from the provisions of Section 15(a) of the 1940 Act. The Order
permits the implementation, without shareholder approval, of the New Advisory
Contract and New Sub-Advisory Agreements during the interim period commencing on
the date of the Merger until such time as the relevant DG Fund's shareholders
vote on the approval of the New Advisory Contract and New Sub-Advisory
Agreements, but in no event later than December 31, 1998 (the "Interim Period").
As a condition to receiving the Order, the fees payable to ParkSouth, Womack
Management and Lazard under the respective new agreements during the Interim
Period are paid into an interest-bearing escrow account maintained by an
independent escrow agent. The escrow agent will release the amounts held in the
escrow account (including any interest earned) to ParkSouth and Womack
Management and Lazard, as the case may be, only upon approval of the relevant
new agreement by the shareholders of the relevant DG Fund. If the requisite
shareholder approval is not received for a DG Fund or new agreement prior to the
end of the Interim Period, the relevant amounts held in the escrow account will
be released to the appropriate DG Fund.
The terms of the New Advisory Contract and the New Sub-Advisory
Agreements with Womack Management and Lazard are identical in all material
respects to the Former Advisory Contract and Former Womack Sub-Advisory
Agreement and Former Lazard Sub-Advisory Agreement, respectively, except for the
effective dates and escrow provisions. In each case, the effective date is the
date of the Merger--May 1, 1998.
Shareholders should consider the following factors in determining
whether to ratify and approve the New Advisory Contract (and, in the case of
shareholders of the DG Opportunity Fund and the DG International Equity Fund,
whether to ratify and approve the respective New Sub-Advisory Agreement):
o the Board of Trustees of the Trust has unanimously approved the
New Advisory Contract for all of the DG Funds, and the New
Sub-Advisory Agreements for the affected DG Funds;
o no change in any DG Fund's investment objective or investment
policies and restrictions will take place;
o there will be no change in the fees payable by a DG Fund to
ParkSouth for advisory services, and there will be no change in
the fees payable by ParkSouth to any sub-adviser;
o investment personnel presently employed by ParkSouth, who are
experienced in managing the DG Funds, are expected to manage the
DG Funds' investment programs under the New Advisory Contract;
and
o there is not expected to be any change in the personnel at the
sub-advisers who manage the assets of the DG Opportunity Fund and
the DG International Equity Fund.
If the holders of a majority (as defined in the 1940 Act) of the
outstanding shares of a DG Fund do not approve the New Advisory Contract or a
New Sub-Advisory Agreement (if applicable), the Board of Trustees will consider
what action to take in the best interests of the shareholders of that DG Fund.
PROPOSAL 2: APPROVAL OR DISAPPROVAL OF THE NEW
ADVISORY CONTRACT
Under the New Advisory Contract, ParkSouth continues to be responsible
for providing advisory services to the DG Funds. A copy of the New Advisory
Contract is attached as Appendix D to this Prospectus/Proxy Statement. As more
fully described below, the terms and conditions of the New Advisory Contract are
identical in all material respects to the Former Advisory Contract. The sole
differences between the Former Advisory Contract and the New Advisory Contract
are the effective date which, in the case of the New Advisory Contract, is the
Merger Date, and the escrow provisions. THE NEW ADVISORY CONTRACT PROVIDES FOR
NO INCREASE IN THE ADVISORY FEES PAYABLE BY ANY DG FUND, AND IS NOT EXPECTED TO
CHANGE THE TYPE OR EXTENT OF SERVICES PROVIDED TO THE DG FUNDS.
INFORMATION ABOUT THE FORMER ADVISORY CONTRACT
The Former Advisory Contract was most recently approved by the Board
of Trustees of the Trust, including a majority of the Independent Board Members,
with respect to each DG Fund, on February 27, 1997. FAS, as the initial
shareholder of each DG Fund, initially approved the Former Advisory Contract on
the following dates:
DG Equity Fund July 17, 1992
DG Opportunity Fund July 22, 1994
DG International Equity Fund March 31, 1997
DG Limited Term Government Income Fund July 17, 1992
DG Government Income Fund July 17, 1992
DG Municipal Income Fund December 11, 1992
DG Prime Money Market Fund January 30, 1997
DG Treasury Money Market Fund May 4, 1992
The Former Advisory Contract provided that ParkSouth provide
investment management services to the DG Funds, subject to the supervision of
the Board of Trustees of the Trust. Under the Former Advisory Contract,
ParkSouth was entitled to receive advisory fees from the DG Funds, computed
daily and paid daily, at the annual rates of: 0.50% of the average daily net
assets of each of the DG Prime Money Market Fund and the DG Treasury Money
Market Fund; 0.60% of the average daily net assets of each of the DG Limited
Term Government Income Fund, the DG Government Income Fund and the DG Municipal
Income Fund; 0.75% of the average daily net assets of the DG Equity Fund; 0.95%
of the average daily net assets of the DG Opportunity Fund; and 1.00% of the
average daily net assets of the DG International Equity Fund.
The table below sets forth: (i) the net assets for each DG Fund as of
February 28, 1998; (ii) the rates of advisory fees, computed daily and payable
daily, to which ParkSouth was entitled for the services provided and expenses
assessed pursuant to the Former Advisory Contract; (iii) advisory fees (net of
waivers) paid by each DG Fund for the fiscal year ended February 28, 1998; and
(iv) the effective rates of each of the advisory fees (net of waivers) expressed
as a percentage of average net assets for the fiscal year ended February 28,
1998:
ASSETS OF DG INVESTOR SERIES AND ADVISORY FEES PAID TO PARKSOUTH CORPORATION
<TABLE>
<CAPTION>
Net Assets as Annual Advisory Actual Advisory Advisory Fees
of Fee Rate (Based Fee Rate Paid Paid (Net of
February 28, 1998 on Average Net Assets) (Net of Waivers) Waivers)*
<S> <C> <C> <C> <C>
DG Equity Fund $715,630,667 0.75% 0.75% $4,445,559
DG Opportunity Fund $122,871,510 0.95% 0.84% $854,639
DG International Equity $26,533,211 1.00% 0.50% $47,506
Fund
DG Limited Term $59,136,926 0.60% 0.44% $351,261
Government Income Fund
DG Government Income Fund $270,403,564 0.60% 0.54% $1,416,816
DG Municipal Income Fund $48,578,607 0.60% 0.29% $138,849
DG Prime Money Market $195,040,934 0.50% 0.30% $486,121
Fund
DG Treasury Money Market $349,050,709 0.50% 0.30% $844,729
Fund
TOTAL DG Investor $1,787,246,128
Series
</TABLE>
- ------------------
* Each current fee waiver represents a percentage of daily net assets of
each DG Fund calculated at an annualized rate. As under the Former
Advisory Contract, the voluntary fee waivers and reimbursements may be
modified or terminated by ParkSouth at any time at its sole discretion
under the New Advisory Contract.
For the fiscal year ended February 28, 1998, the DG Equity Fund, DG
Opportunity Fund and DG International Equity Fund paid $74,672, $498,832 and
$67,394, respectively, in total dollar amounts of brokerage commissions. None of
the other DG Funds paid any brokerage commissions or entered into any brokerage
transactions during the fiscal year ended February 28, 1998. The DG Funds,
however, engaged in transactions with dealers acting as principal and the costs
of such transactions involve dealer spreads rather than brokerage commissions.
INFORMATION ABOUT THE NEW ADVISORY CONTRACT
Under the New Advisory Contract, ParkSouth manages the DG Funds'
investments. Subject to the direction of the Board of Trustees of the Trust,
ParkSouth provides investment research and supervision of the investments of
each DG Fund, and conducts a continuous program of investment evaluation and of
appropriate sale or other disposition and reinvestment of each DG Fund's assets.
The New Advisory Contract provides that ParkSouth shall determine from time to
time what securities or other instruments will be purchased, retained or sold by
the Trust with respect to each DG Fund. ParkSouth, in its supervision of the
assets of each DG Fund, is guided by each DG Fund's investment objective and
policies, and the provisions and restrictions contained in the Declaration of
Trust and the Bylaws of the Trust and as set forth in the DG Funds'
prospectuses and statements of additional information that are on file with the
Securities and Exchange Commission.
The New Advisory Contract states that each DG Fund shall pay (or cause
to be paid) all of its own expenses and its allocable share of Trust expenses,
including, without limitation, the expenses of organizing the Trust and
continuing its existence; fees and expenses of the Trustees and officers of the
Trust; fees for investment advisory services and administrative personnel and
services; expenses incurred in the distribution of shares, including expenses of
administrative support services; fees and expenses of preparing and printing the
Trust's Registration Statements under the Securities Act of 1933 and the 1940
Act, and any amendments thereto; expenses of registering and qualifying the
Trust, the DG Funds, and shares of the DG Funds under Federal and state laws and
regulations; expenses of preparing, printing, and distributing prospectuses (and
any amendments thereto) to shareholders; interest expense, taxes, fees, and
commissions of every kind; expenses of issue (including cost of share
certificates), purchase, repurchase, and redemption of shares, including
expenses attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing and mailing costs, auditing, accounting, and
legal expenses; reports to shareholders and governmental officers and
commissions; expenses of meetings of Trustees and shareholders and proxy
solicitations therefor; insurance expenses; association membership dues and such
nonrecurring items as may arise, including all losses and liabilities incurred
in administering the Trust and the DG Funds. Each DG Fund will also pay its
allocable share of such extraordinary expenses as may arise, including expenses
incurred in connection with litigation, proceedings, and claims and the legal
obligations of the Trust to indemnify its officers and Trustees and agents with
respect thereto.
THE NEW ADVISORY CONTRACT PROVIDES THAT THE ADVISORY FEES PAYABLE TO
PARKSOUTH BY THE DG FUNDS WILL BE IDENTICAL TO THOSE PAYABLE TO PARKSOUTH UNDER
THE FORMER ADVISORY CONTRACT. The advisory fees payable under the New Advisory
Contract by the DG Funds are equal to a fixed percentage of the daily net assets
of each DG Fund calculated at an annualized rate, payable on a daily basis, and
are listed above. From time to time, ParkSouth may waive its fee or reimburse a
DG Fund for certain of its expenses in order to reduce the DG Fund's expense
ratio. As a result, the DG Fund's return and yield would be higher than it would
be if the fees and such expenses had been paid by the DG Fund.
As in the Former Advisory Contract, the New Advisory Contract provides
that in the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the obligations or duties of ParkSouth under the New
Advisory Contract, ParkSouth and its affiliates shall not be liable to the Trust
or to any shareholder for any act or omission in the course of, or connected in
any way with, rendering services or for any losses that may be sustained in the
purchase, holding, or sale of any security.
If approved by shareholders of the DG Funds at the Meeting, the New
Advisory Contract will continue for a period of two years from its date of
execution, unless terminated, and may be continued from year to year thereafter
by the Board of Trustees. The continuation of the New Advisory Contract must be
approved by a majority vote of the Trustees, including a majority of the
Independent Board Members, cast in person at a meeting called for that purpose.
Under the New Advisory Contract, ParkSouth has the right, in any year, to notify
the Trust in writing at least 60 days before the New Advisory Contract's
anniversary date that it does not desire a renewal of the New Advisory Contract.
The Trustees, or a majority of the outstanding voting shares of the Trust, may
terminate the New Advisory Contract at any time without penalty by giving
ParkSouth 60 days' written notice. The New Advisory Contract may not be assigned
by ParkSouth and will terminate automatically in the event of its assignment.
The New Advisory Contract provides that it may be amended by a vote of both a
majority of the Trustees, including a majority of the "non-interested" Trustees,
and on behalf of a DG Fund by the holders of a majority of the outstanding
voting shares of such DG Fund.
If the New Advisory Contract is approved by shareholders of one or
more DG Funds, the New Advisory Contract will become effective with respect to
such DG Funds as of May 1, 1998. If the New Advisory Contract is not approved by
the shareholders of a DG Fund, the Board of Trustees will consider what actions
should be taken.
INFORMATION ABOUT PARKSOUTH
ParkSouth has served as the investment adviser to the Trust since
March 1, 1997. Prior to that date, DG Bank had served as the investment adviser
to the Trust since May 5, 1992, the date of the Trust's establishment. ParkSouth
is an investment adviser registered under the Investment Advisers Act of 1940,
as amended (the "Advisers Act"), providing investment management services to
individuals and institutional clients. ParkSouth's address is P.O. Box 1200,
Jackson, Mississippi 39215-1200. ParkSouth is a subsidiary of DG Bank, which is
a national banking association. DG Bank is a subsidiary of First American
Corporation. ParkSouth managed, in addition to the DG Funds, $100 million in
assets, as of December 31, 1997. First American Corporation is a registered bank
holding company and a financial services company headquartered in Nashville,
Tennessee. Through its related banking subsidiaries, including First American,
First American Corporation provides banking and banking-related services
throughout the mid-south region of the United States. On December 31, 1997,
First American Corporation and its affiliates had total assets of approximately
$5.9 billion under trust and approximately $9 billion under management. The
principal executive officer and directors of First American are listed in
Appendix G.
TRUSTEES' CONSIDERATIONS
The New Advisory Contract was unanimously approved on behalf of each
DG Fund by the Board of Trustees of the Trust, including the Independent Board
Members, at meetings held on February 26, 1998 and May 11, 1998. The Trustees
considered information relating to ParkSouth, First American Corporation, First
American and the consolidated entity that would result from the consummation of
the Merger, including information provided by First American concerning its
capabilities and expertise in serving as investment adviser to the ISG Funds.
The Trustees reviewed the terms of the New Advisory Contract and noted that the
New Advisory Contract is identical to the Former Advisory Contract, except for
its date and the escrow provisions.
Specifically, in connection with approval of the New Advisory Contract
on behalf of each DG Fund, the Board considered that the terms of the Merger did
not require or result in any changes in the DG Funds' investment objectives or
policies, the investment management or operation of the DG Funds, the investment
personnel managing the DG Funds, or the shareholder services or other business
activities of the DG Funds.
In approving the New Advisory Contract, the Board noted ParkSouth's
(and its predecessor, DG Bank's) record of service to the DG Funds and the
expectation that the Merger should not have any material adverse effect on the
DG Funds' ongoing operations or on the extent or quality of services provided to
the DG Funds, or increase the cost to the DG Funds of such services.
Section 15(f) of the 1940 Act provides that in connection with the
sale of any interest in any investment adviser which results in the "assignment"
of an investment advisory agreement, an investment adviser of a registered
investment company, such as the Trust, or an affiliated person of such
investment adviser, may receive any amount or benefit if (i) for a period of
three years after the sale, at least 75% of the members of the board of the
investment company are not interested persons of the investment adviser or the
predecessor adviser, and (ii) there is no "unfair burden" imposed on the
investment company as a result of such sale or any express or implied terms,
conditions or understanding applicable thereto. For this purpose, "unfair
burden" is defined to include any arrangement during the two-year period after
the transaction, whereby the investment adviser or its predecessor or successor
investment advisers, or any interested persons of any such adviser, receives or
is entitled to receive any compensation directly or indirectly (i) from any
person in connection with the purchase or sale of securities or other property
to, from or on behalf of the investment company other than bona fide ordinary
compensation as principal underwriter for such company, or (ii) from the
investment company or its security holders for other than bona fide investment
advisory or other services. This provision of the 1940 Act was enacted by
Congress in 1975 to make it clear that an investment adviser (or an affiliated
person of the adviser) can realize a profit on the sale of the adviser's
business subject to the two safeguards described above. The Board has requested
and received a written representation from ParkSouth and assurances from First
American Corporation that no "unfair burden" will be imposed on the Trust as a
result of the Merger and the proposed transactions.
Based upon the considerations set forth above, the Trustees have
determined that the New Advisory Contract is in the best interest of each DG
Fund and its shareholders. In addition, management expects that there will be no
diminution in the scope and quality of services provided to the Trust as a
result of these transactions. In fact, as described above, the New Advisory
Contract is identical in all material respects, except as to its date and the
escrow provisions, as the Former Advisory Contract which was approved previously
by the shareholders of each DG Fund. The Board believes that the DG Funds will
receive investment management services under the New Advisory Contract
equivalent to those that they received under the Former Advisory Contract, and
at the same fee and expense levels.
REQUIRED VOTE AND TRUSTEES' RECOMMENDATION
With respect to each DG Fund, approval of this proposal requires the
affirmative vote of (a) 67% of the DG Fund's voting securities present at this
Meeting, if the holders of more than 50% of the DG Fund's outstanding voting
securities are present or represented by proxy, or (b) more than 50% of the DG
Fund's outstanding voting securities, whichever is less.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT BOARD MEMBERS, RECOMMENDS
THAT THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE NEW ADVISORY CONTRACT.
PROPOSAL 3: APPROVAL OR DISAPPROVAL OF THE NEW SUB-ADVISORY
AGREEMENT
A. NEW SUB-ADVISORY AGREEMENT BETWEEN PARKSOUTH AND WOMACK MANAGEMENT
(APPLIES ONLY TO DG OPPORTUNITY FUND)
As indicated above, consummation of the Merger caused a change in
ownership of ParkSouth which, in turn, automatically terminated the Former
Womack Sub-Advisory Agreement. Thus, although the Merger had no effect on Womack
Management, the change in ownership of ParkSouth requires approval by the
Shareholders of DG Opportunity Fund of a new Sub-Advisory Agreement (the "New
Womack Sub-Advisory Agreement") between ParkSouth, on behalf of the DG
Opportunity Fund, and Womack Management. A copy of the New Womack Sub-Advisory
Agreement is attached as Appendix E to this Prospectus/Proxy Statement.
The terms of the New Womack Sub-Advisory Agreement are identical in
all material respects to the Former Womack Sub-Advisory Agreement, except for
the effective date, which, in the case of the New Womack Sub-Advisory agreement,
is the Merger date, and the escrow provisions.
On May 14, 1997, the Former Womack Sub-Advisory Agreement was approved
by the Board of Trustees, including a majority of the Independent Board Members,
and was recommended by the Trustees for shareholder approval. At a shareholder
meeting held on July 21, 1997, a majority of the shareholders of the DG
Opportunity Fund approved the Former Womack Sub-Advisory Agreement.
Pursuant to the terms of the Former Womack Sub-Advisory Agreement and
the New Womack Sub-Advisory Agreement, subject to the direction of the Board of
Trustees and ParkSouth, Womack Management acts as the sub-adviser for all assets
of the DG Opportunity Fund other than cash and cash-equivalents. Under the terms
of the Former Womack Sub-Advisory Agreement and the New Womack Sub-Advisory
Agreement, Womack Management makes all determinations with respect to the
investment of non-cash assets of the DG Opportunity Fund, and takes such steps
as may be necessary to implement the same, including the placement of purchase
and sale orders on behalf of the DG Opportunity Fund.
The Former Womack Sub-Advisory Agreement and the New Womack
Sub-Advisory Agreement provide that Womack Management shall pay the expenses
incurred by it and its staff in connection with the performance of its services
under each Womack Sub-Advisory Agreement, including the payment of salaries of
all officers and employees who are employed by Womack Management. Under the
Former Womack Sub-Advisory Agreement and the New Womack Sub-Advisory Agreement,
ParkSouth will pay Womack Management a monthly fee based on the average daily
net assets of Opportunity Fund under management by the sub-adviser during the
preceding month. The sub-advisory fee shall be the sum of: 0.32% of the average
daily net assets up to $50 million; 0.075% of the average daily net assets in
excess of $50 million and up to $70 million; and 0.25% of the average daily net
assets in excess of $70 million. Applying the foregoing formula to the DG
Opportunity Fund's level of net assets on September 30, 1998, Womack Management
would be entitled to a sub-advisory fee equal to 0.25% of the DG Opportunity
Fund's average daily net assets, payable by ParkSouth from ParkSouth's
investment advisory fee of 0.95% of the DG Opportunity Fund's average daily net
assets. THE FEE ARRANGEMENT BETWEEN PARKSOUTH AND WOMACK MANAGEMENT IS IDENTICAL
IN THE FORMER WOMACK SUB-ADVISORY AGREEMENT AND THE NEW WOMACK SUB-ADVISORY
AGREEMENT.
The New Womack Sub-Advisory Agreement provides, with respect to the DG
Opportunity Fund that, if approved by shareholders of the DG Fund, it will
remain in effect for an initial period of two years from the date of its
execution and shall continue in effect for successive one-year periods, provided
such continuance is specifically approved at least annually by vote of a
majority of Trustees, including a majority of the Independent Board Members,
cast in person at a meeting called for the purpose of voting on such approval.
Womack Management has the right, in any year, to notify ParkSouth in writing, at
least 60 days before the New Womack Sub-Advisory Agreement's anniversary date,
that it does not desire a renewal of the New Womack Sub-Advisory Agreement. The
New Womack Sub-Advisory Agreement may be terminated by the Trustees at any time
without penalty, or by a vote of a majority of the outstanding shares of the DG
Opportunity Fund on 60 days' written notice. The New Womack Sub-Advisory
Agreement will immediately terminate in the event of its assignment (as such
term is defined in the 1940 Act) or in the event of the termination of the
Trust's then-effective advisory agreement with ParkSouth. The New Womack Sub-
Advisory Agreement provides that it may be amended by a vote of both a majority
of the Trustees, including a majority of the Independent Board Members, and by
the holders of a majority of the outstanding shares of the DG Opportunity Fund,
and when required by the 1940 Act.
If the New Womack Sub-Advisory Agreement and the New Advisory Contract
are approved by shareholders of the DG Opportunity Fund, the New Womack
Sub-Advisory Agreement will become effective as of May 1, 1998. If the New
Advisory Contract IS approved but the New Womack Sub-Advisory Agreement is NOT
approved by the shareholders of the DG Opportunity Fund, ParkSouth would be
fully responsible for the Fund's investment activities. If neither the New
Advisory Contract nor the New Womack Sub-Advisory Agreement is approved by the
shareholders of the DG Opportunity Fund, the Board of Trustees will consider
what actions should be taken.
TRUSTEES' CONSIDERATIONS
The New Womack Sub-Advisory Agreement was unanimously approved on
behalf of the DG Opportunity Fund by the Board of Trustees of the Trust,
including the Independent Board Members, at meetings held on February 26, 1998
and May 11, 1998. The Trustees considered information relating to Womack
Management, ParkSouth, First American Corporation, First American and the
consolidated entity that would result from the completion of the Merger. The
Board considered Womack Management's capabilities and expertise in serving as
sub-adviser to the DG Opportunity Fund. The Trustees reviewed the terms of the
New Womack Sub-Advisory Agreement, including the fact that the sub-advisory
services would continue to be performed at the same costs and by the same
personnel at Womack Management as they were under the Former Womack Sub-Advisory
Agreement. It was also noted that Womack Management has served as the
sub-adviser to the Fund since March 1997, and that Mr. Womack has acted as the
Fund's portfolio manager since its inception.
The section entitled "Trustees' Considerations" under Proposal 2
discusses additional factors considered by the Trustees, as well as matters such
as "assignment" of an investment advisory contract and "unfair burden" with
respect to the realization of a profit by ParkSouth or its parent as a result of
the Merger. These statements are also applicable to shareholders of the DG
Opportunity Fund with respect to the ratification and approval or disapproval of
the New Womack Sub-Advisory Agreement. Shareholders should therefore review this
information prior to determining whether to ratify and approve the New Womack
Sub-Advisory Agreement.
REQUIRED VOTE AND TRUSTEES' RECOMMENDATION
With respect to DG Opportunity Fund, approval of this proposal
requires the affirmative vote of (a) 67% of the DG Opportunity Fund's voting
securities present at this meeting, if the holders of more than 50% of the DG
Opportunity Fund's outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the DG Opportunity Fund's outstanding voting
securities, whichever is less.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT BOARD MEMBERS, RECOMMENDS THAT
THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE NEW WOMACK SUB-ADVISORY AGREEMENT.
B. NEW SUB-ADVISORY AGREEMENT BETWEEN PARKSOUTH AND LAZARD (APPLIES ONLY
TO DG INTERNATIONAL EQUITY FUND)
As indicated above, consummation of the Merger caused a change in
ownership of ParkSouth which, in turn, automatically terminated the Former
Lazard Sub-Advisory Agreement. Thus, although the Merger had no effect on
Lazard, the change in ownership of ParkSouth requires approval by the
Shareholders of DG International Equity Fund of a new Sub-Investment Advisory
Agreement (the "New Lazard Sub-Advisory Agreement") between ParkSouth, on behalf
of the DG International Equity Fund, and Lazard. A copy of the New Lazard
Sub-Advisory Agreement is attached as Appendix F to this Prospectus/Proxy
Statement.
The terms of the New Lazard Sub-Advisory Agreement are identical in
all material respects to the Former Lazard Sub-Advisory Agreement, except for
the effective date, which, in the case of the New Lazard Sub-Advisory Agreement,
is the Merger date, and the escrow provisions.
On February 27, 1997, the Former Lazard Sub-Advisory Agreement was
approved by the Board of Trustees, including a majority of the Independent Board
Members, and was recommended by the Trustees for shareholder approval. FAS, as
the sole initial shareholder of the DG International Equity Fund, approved the
Former Lazard Sub-Advisory Agreement on March 31, 1997.
Under the terms of the Former Lazard Sub-Advisory Agreement and the
New Lazard Sub-Advisory Agreement, subject to the direction of ParkSouth, Lazard
acts as sub-adviser to the DG International Equity Fund. Under the terms of the
Former Lazard Sub-Advisory Agreement and the New Lazard Sub-Advisory Agreement,
Lazard formulates and implements a continuing program for the management of the
assets of the DG International Equity Fund, and periodically amends and updates
such programs from time to time as financial and other economic conditions
warrant. Lazard makes all determinations with respect to the investment of the
assets of the DG International Equity Fund and takes all steps as may be
necessary to implement its investment decisions, including the placement of
purchase and sale orders on behalf of the DG International Equity Fund.
The Former Lazard Sub-Advisory Agreement and the New Lazard
Sub-Advisory Agreement provide that ParkSouth will pay Lazard an annual
sub-advisory fee equal to 0.50% of the average daily net assets of the DG
International Equity Fund. The sub-advisory fee is calculated by ParkSouth, is
accrued daily, and paid monthly, to Lazard. THE FEE ARRANGEMENT BETWEEN
PARKSOUTH AND LAZARD IS IDENTICAL IN THE FORMER LAZARD SUB-ADVISORY AGREEMENT
AND THE NEW LAZARD SUB-ADVISORY AGREEMENT.
If approved by shareholders of the DG International Equity Fund at the
Meeting, the New Lazard Sub-Advisory Agreement will remain in effect for an
initial period of two years from its date of execution, unless terminated, and
may be continued from year to year thereafter by the Board of Trustees. The
continuation of the New Lazard Sub-Advisory Agreement must be approved by a
majority vote of the Trustees, including a majority of the Independent Board
Members, cast in person at a meeting called for that purpose. Lazard has the
right, in any year, to notify ParkSouth in writing at least 60 days before the
New Lazard Sub-Advisory Agreement's anniversary date, that it does not desire a
renewal of the New Lazard Sub-Advisory Agreement. The Trustees, or a majority of
the outstanding voting shares of the DG International Equity Fund, may terminate
the New Lazard Sub-Advisory Agreement at any time without penalty by giving
Lazard 60 days' written notice. The New Lazard Sub-Advisory Agreement may not be
assigned and shall terminate automatically in the event of any assignment as
defined in the 1940 Act. The New Lazard Sub-Advisory Agreement provides that it
may be amended by a vote of both a majority of the Trustees, including a
majority of the Independent Board Members, and by the holders of a majority of
the outstanding voting shares of the DG International Equity Fund.
If the New Lazard Sub-Advisory Agreement and the New Advisory Contract
are approved by shareholders of the DG International Equity Fund, the New Lazard
Sub-Advisory Agreement will become effective as of May 1, 1998. If the New
Advisory Contract IS approved but the New Lazard Sub-Advisory Agreement is NOT
approved by the shareholders of the DG International Equity Fund, ParkSouth
would be fully responsible for the DG International Equity Fund's investment
activities. If neither the New Advisory Contract nor the New Lazard Sub-Advisory
Agreement is approved by the shareholders of the DG International Equity Fund,
the Board of Trustees will consider what actions should be taken.
TRUSTEES' CONSIDERATIONS
The Lazard New Sub-Advisory Agreement was unanimously approved on
behalf of the DG International Equity Fund by the Board of Trustees of the
Trust, including the Independent Board Members, at meetings held on February 26,
1998 and May 11, 1998. The Trustees considered information relating to Lazard,
ParkSouth, First American Corporation, First American and the consolidated
entity that would result from the completion of the Merger. The Board considered
Lazard's capabilities and expertise in serving as sub-adviser to the DG
International Equity Fund. The Trustees reviewed the terms of the New Lazard
Sub-Advisory Agreement, including the fact that the sub-advisory services would
continue to be performed at the same costs and by the same personnel at Lazard
as they were under the Former Lazard Sub-Advisory Agreement. It was noted that
Lazard has served as the sub-adviser to the DG International Equity Fund since
its inception.
The section entitled "Trustees' Considerations" under Proposal 2
discusses additional factors considered by the Trustees, as well as matters such
as "assignment" of an investment advisory contract and "unfair burden" with
respect to the realization of profit by ParkSouth or its parent as a result of
the Merger. These statements are also applicable to shareholders of the DG
International Equity Fund with respect to the ratification and approval or
disapproval of the New Lazard Sub-Advisory Agreement. Shareholders should
therefore review this information prior to determining whether to ratify and
approve the New Lazard Sub-Advisory Agreement.
REQUIRED VOTE AND TRUSTEES' RECOMMENDATION
With respect to DG International Equity Fund, approval of this
proposal requires the affirmative vote of (a) 67% of the DG International Equity
Fund's voting securities present at this meeting, if the holders of more than
50% of the DG International Equity Fund's outstanding voting securities are
present or represented by proxy, or (b) more than 50% of the DG International
Equity Fund's outstanding voting securities, whichever is less.
THE BOARD OF TRUSTEES, INCLUDING THE INDEPENDENT BOARD MEMBERS, RECOMMENDS THAT
THE SHAREHOLDERS VOTE "FOR" APPROVAL OF THE NEW LAZARD SUB-ADVISORY AGREEMENT.
ADDITIONAL VOTING INFORMATION
In addition to the use of the mails, proxies may be solicited by
telephone, telegraph, facsimile or personal interview. Authorizations to execute
proxies may be obtained by telephonic or electronically transmitted instructions
(including through the Internet at www.proxyvote.com) in accordance with
procedures designed to authenticate the Shareholder's identity. In all cases
where a telephonic authorization is solicited, the Shareholder will be asked to
provide his or her address, social security number (in the case of an
individual) or taxpayer identification number (in the case of a non-individual)
and the number of shares owned and to confirm that the Shareholder has received
the Prospectus/Proxy Statement and proxy card in the mail. Within 72 hours of
receiving a Shareholder's telephonic or electronically transmitted voting
instructions, a confirmation will be sent to the Shareholder to ensure that the
vote has been taken in accordance with the Shareholder's instructions and to
provide a telephone number to call immediately if the Shareholder's instructions
are not correctly reflected in the confirmation. Shareholders requiring further
information with respect to telephonic or electronically transmitted voting
instructions or the proxy generally should call toll free 1-800-733-8481,
extension 447. Any Shareholder giving a proxy may revoke it at any time before
it is exercised by submitting to the DG Funds a written notice of revocation or
a subsequently executed proxy or by attending the Meeting and voting in person.
First American Corporation has advised the DG Funds and ISG Funds that
shares of the DG Funds over which First American Corporation or its affiliates
have voting power will be voted, whenever possible, in accordance with
instructions received from beneficial owners or fiduciaries of such accounts who
are not related to First American Corporation or its affiliates. As to employee
benefit plans, First American Corporation or its affiliates may vote such shares
in accordance with the recommendation of an independent fiduciary. Where First
American Corporation is required or permitted to vote DG Fund shares, it will
vote them in favor of the proposals.
If a proxy is properly executed and returned accompanied by
instructions to withhold authority to vote, represents a broker "non-vote" (that
is, a proxy from a broker or nominee indicating that such person has not
received instructions from the beneficial owner or other person entitled to vote
DG Fund shares on a particular matter with respect to which the broker or
nominee does not have discretionary power) or is marked with an abstention
(collectively, "abstentions"), the DG Fund shares represented thereby will be
considered to be present at a Meeting for purposes of determining the existence
of a quorum for the transaction of business. Abstentions will not constitute a
vote "for" or "against" a matter and will be disregarded in determining the
"votes cast" on an issue. Signed but unmarked proxies will be voted "for" the
proposals.
If a quorum is not present at the Meeting, or if a quorum is present
but sufficient votes to approve a proposal with respect to a DG Fund are not
received, the persons named as proxies may propose one or more adjournments of
the Meeting to permit further solicitation of proxies for that DG Fund. Any
adjournment will require the affirmative vote of a majority of those shares
affected by the adjournment that are represented at the Meeting in person or by
proxy. If a quorum is present, the persons named as proxies will vote those
proxies which they are entitled to vote "for" the proposal in favor of such
adjournment, and will vote those proxies required to be voted "against" the
proposal against any adjournment. A quorum is constituted with respect to a DG
Fund by the presence in person or by proxy of the holders of more than 50% of
the outstanding DG Fund shares entitled to vote at the Meeting.
The votes of ISG Fund shareholders are not being solicited since their
approval or consent is not necessary for the Exchange or other proposals
described herein.
OTHER MATTERS
The Trustees are not aware of any other matters which may come before
the Meeting. However, should any such matters properly come before the Meeting,
it is the intention of the persons named in the accompanying form of proxy to
vote the proxy in accordance with their judgment on such matters.
<PAGE>
NOTICE TO BANKS, BROKER/DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES
Please advise the Trust, by calling Shareholders Communications at
1-800-733-8481, extension 447, whether other persons are the beneficial owners
of DG Fund shares for which proxies are being solicited from you, and, if so,
the number of copies of the Prospectus/Proxy Statement and other soliciting
material you wish to receive in order to supply copies to the beneficial owners
of such shares.
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE,
SHAREHOLDERS OF A DG FUND WHO DO NOT EXPECT TO ATTEND THE MEETING IN PERSON ARE
URGED TO COMPLETE, DATE, SIGN AND RETURN EACH ENCLOSED PROXY CARD IN THE
ENCLOSED STAMPED ENVELOPE.
<PAGE>
APPENDIX A
DESCRIPTIONS OF THE DG FUNDS AND ISG FUNDS
NAME OF FUND PAGE
DG Equity Fund/ISG Large Cap Equity Portfolio A-2
DG Government Income Fund/ISG Government Income Portfolio A-7
DG International Equity Fund/ISG International Equity
Portfolio A-12
DG Limited Term Government Income Fund/ISG Limited
Duration U.S. Government Portfolio A-17
DG Municipal Income Fund/ISG Municipal Income Portfolio A-22
DG Opportunity Fund/ISG Small Cap Opportunity Portfolio A-27
DG Prime Money Market Fund/ISG Prime Money Market
Portfolio A-32
DG Treasury Money Market Fund/ISG U.S. Treasury Money
Market Portfolio A-36
DG EQUITY FUND
COMPARISON OF DG EQUITY FUND AND ISG LARGE CAP EQUITY PORTFOLIO
o Investment Objectives are identical: Long-term capital appreciation.
Current income is a secondary objective.
o Management Policies are substantially identical:
-- Each Fund invests at least 70% of its assets in equity securities.
-- Each Fund invests primarily in equity securities of large
capitalization (in excess of $1 billion) domestic companies which, in
the opinion of the Fund's adviser, have potential to provide capital
appreciation and current income.
-- Each Fund may invest in common stocks, preferred stocks, warrants,
convertible securities, foreign securities and American Depositary
Receipts.
-- Each Fund also may invest in investment grade fixed-income
securities, zero coupon securities, money market instruments and
repurchase agreements.
-- Each Fund also may engage in options and futures transactions and
lending portfolio securities.
-- DG Equity Fund may borrow money only for temporary or emergency
purposes. ISG Large Cap Equity Portfolio may borrow money for
investment purposes, but currently intends to borrow money only for
temporary or emergency purposes.
o Investment Restrictions are substantially similar:
Unless otherwise noted, each investment restriction listed below is a
fundamental policy, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the DG Equity Fund's or ISG
Large Cap Equity Portfolio's outstanding voting shares. Neither DG Equity
Fund nor ISG Large Cap Equity Portfolio may:
(1) with respect to 75% of its total assets, invest more than 5% of
its assets in the obligations of any single issuer. This investment
restriction does not apply to the purchase of U.S. Government
securities.
(2) hold more than 10% of the outstanding voting securities of any
single issuer. With respect to ISG Large Cap Equity Portfolio, this
investment restriction applies only with respect to 75% of its total
assets.
(3) invest more than 25% of the value of its total assets in
securities of issuers in any single industry. This restriction does
not apply to the purchase of U.S. Government securities.
(4) borrow money, except the Fund may borrow up to 33-1/3% of the
value of its total assets (DG Equity Fund may borrow only for
temporary or emergency purposes).
(5) sell securities short or purchase securities on margin, except as
is necessary for purchases and sales of portfolio securities. The ISG
Large Cap Equity Portfolio has no investment restriction on selling
securities short.
(6) issue senior securities, except to the extent certain options and
futures activities may be deemed to give rise to a senior security.
(7) invest in commodities, except for the purchase and sale of options
and futures contracts.
(8) purchase or sell real estate, but the Fund may purchase or sell
securities secured by real estate. ISG Large Cap Equity Portfolio also
may invest in real estate investment trusts.
(9) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. DG Equity Fund
may lend portfolio securities up to 5% of the value of its total
assets, while ISG Large Cap Equity Portfolio may lend portfolio
securities up to 33-1/3% of the value of its total assets.
(10) act as an underwriter of securities of other issuers, except to
the extent the Fund may be deemed an underwriter by virtue of
disposing of portfolio securities.
(11) invest in the securities of a company for the purpose of
exercising management or control. This investment restriction is a
non-fundamental policy of ISG Large Cap Equity Portfolio and may be
changed by vote of a majority of the Company's Board members at any
time.
(12) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings (limited to the lesser of the
dollar amount borrowed or 15% of its total assets with respect to DG
Equity Fund) and to the extent related to the purchase of securities
on a when-issued basis and the deposit of assets in escrow in
connection with put and call options and collateral and margin
arrangements with respect to options and futures contracts. This
investment restriction is a non-fundamental policy of ISG Large Cap
Equity Portfolio and may be changed by vote of a majority of the
Company's Board members at any time.
(13) invest more than 15% of its net assets in illiquid securities.
This investment restriction is a non-fundamental policy of both DG
Equity Fund and ISG Large Cap Equity Portfolio.
(14) purchase securities of other investment companies, except to the
extent permitted by, or pursuant to an exemption from, the 1940 Act.
This investment restriction is a non-fundamental policy of both DG
Equity Fund and ISG Large Cap Equity Portfolio.
In addition, as a non-fundamental policy, DG Equity Fund may not enter
into transactions for the purpose of engaging in arbitrage. ISG Large
Cap Equity Portfolio has no such investment restriction, but currently
has no intention of engaging in arbitrage transactions.
o Fees and Expenses:
The following information concerning fees and expenses is derived from
information set forth under the captions "Summary of Fund Expenses" and
"Investing in the Funds--What Shares Cost" in the DG Equity Fund Prospectus and
"Fee Table" and "How to Buy Shares --Purchase Price" in the ISG Fund Prospectus.
The expense information set forth below does not reflect any fee waivers or
expense reimbursement arrangements that may be or may have been in effect.
SCHEDULE OF INITIAL SALES CHARGE:
Until May 1, 2000, DG Equity Fund shareholders who participate in the
Exchange and receive Class A Shares of ISG Large Cap Equity Portfolio will be
permitted to purchase Class A Shares of ISG Large Cap Equity Portfolio subject
to the lower initial sales charge, if any, applicable to the amount of
transaction set forth below for DG Equity Fund or ISG Large Cap Equity
Portfolio. Trust Shares are not subject to a sales charge.
DG EQUITY FUND
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $100,000........................ 3.50% 3.63%
$100,000 to less than $250,000............ 3.00% 3.09%
$250,000 to less than $500,000............ 2.50% 2.56%
$500,000 to less than $750,000............ 2.00% 2.04%
$750,000 to less than $1,000,000.......... 1.50% 1.52%
$1,000,000 but less than $2,000,000....... 0.50% 0.50%
$2,000,000 or more........................ 0.25% 0.25%
- ------------------------------------------------------------------------------
ISG LARGE CAP EQUITY PORTFOLIO
CLASS A
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $50,000.......................... 4.75% 4.99%
$50,000 to less than $100,000.............. 4.00% 4.17%
$100,000 to less than $250,000............. 3.25% 3.36%
$250,000 to less than $500,000............. 2.50% 2.56%
$500,000 to less than $1,000,000........... 1.75% 1.78%
$1,000,000 or more*........................ -0- -0-
- ------------------------------------------------------------------------------
- -------------------
* A contingent deferred sales charge of 1% will be assessed at the time of
redemption of Class A Shares purchased without an initial sales charge as
part of an investment of at least $1,000,000 and redeemed within one year
after purchase.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG Large Cap Equity DG Equity Pro Forma
Portfolio* Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
---------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .75% .75% .75% .75% .75%
12b-1 Fees .25% None .35%** .25% None
Other Expenses .29% .29% .29% .29% .29%
Total Fund
Operating Expenses 1.29% 1.04% 1.39%** 1.29% 1.04%
-----------------------------------------------------------------------------------------------
</TABLE>
- ----------------
* ISG Large Cap Equity Portfolio has not yet commenced operations. It is a
newly-created fund that will continue the operations of DG Equity Fund upon
consummation of the Exchange. Other expenses are based on estimated
amounts.
** Rule 12b-1 fees are being waived by Federated and are not being paid or
accrued by the DG Fund, and the Trust has disclosed that such fees would
not be paid until a separate class of shares is created for certain
institutional investors.
EXAMPLE:
An investor 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:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG Large Cap Equity DG Equity Pro Forma
Portfolio* Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 48 $ 11 $ 49 $ 48 $ 11
3 Years $ 74 $ 33 $ 77 $ 74 $ 33
5 Years $103 $ 57 $108 $103 $ 57
10 Years $185 $127 $196 $185 $127
-----------------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE REFLECT THE DEDUCTION OF THE MAXIMUM INITIAL
SALES CHARGE, IF ANY, IMPOSED ON A DG FUND SHAREHOLDER. SHARES RECEIVED IN THE
EXCHANGE WILL NOT BE SUBJECT TO AN INITIAL SALES CHARGE. THE AMOUNTS LISTED IN
THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
o Expense Reimbursement and Fee Waiver Arrangements:
As of May 1, 1998, DG Equity Fund's 12b-1 Fees were not being paid or accrued
resulting in Total Fund Operating Expenses of 1.04%. ISG Large Cap Equity
Portfolio's Total Fund Operating Expenses for Class A Shares and Trust Shares
will be capped at 1.04% until May 1, 2000.
o Primary Portfolio Manager(s):
Ronald E. Lindquist has been the primary portfolio manager of DG Equity Fund
since its inception in August 1992. He will be the primary portfolio manager of
ISG Large Cap Equity Portfolio.
o Capitalization:
The following table sets forth as of June 30, 1998, (1) the capitalization of DG
Equity Fund, (2) the capitalization of Class A Shares and Trust Shares of ISG
Large Cap Equity Portfolio and (3) the pro forma capitalization of Class A
Shares and Trust Shares of ISG Large Cap Equity Portfolio as adjusted showing
the effect of the Exchange had it occurred on such date.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG Large Cap Equity DG Equity Pro Forma
Portfolio Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
----------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Total Net Assets $0 $0 $ 769,535,072 $46,172,104 $723,362,968
Net Asset Value per
share $0 $0 $ 24.45 $24.45 $24.45
Shares Outstanding 0 0 31,478,719 1,888,723 29,589,996
------------------------------------------------------------------------------------------------
</TABLE>
o Investment Considerations and Risks are substantially identical:
The principal risk of investing in DG Equity Fund or ISG Large Cap Equity
Portfolio is that the market value of its securities (and hence, its share
price) may decline, sometimes rapidly and unpredictably. Such market risk may
affect a single issuer, industry, sector of the economy or the market as a
whole. Investments in foreign securities may involve liquidity and/or currency
risks. Under certain market conditions, options and futures can increase the
volatility of the Fund's net asset value, decrease the liquidity of the Fund's
portfolio and make more difficult the accurate pricing of the Fund's portfolio.
For a more complete discussion of investment considerations and risks, see
"Objective and Policies of Each Fund" in the DG Equity Fund Prospectus and
"Description of the Portfolios--Investment Considerations and Risk Factors" in
the ISG Fund Prospectus.
PERTAINING TO SHARE OWNERSHIP
(AS OF SEPTEMBER 14, 1998)
o DG Equity Fund Shares Outstanding: 30,855,207.620
o Entities known by DG Equity Fund to own of record or beneficially 5% or
more of its outstanding shares:
Percentage
Name and Number of Owned After
Address Shares Percentage Exchange
Houvis & Co. 14,984,797 48.56% 48.56%
First American National Bank
Attn.: Income Processing
800 First American Center
Nashville, TN 37237-0001
Houvis & Co. 12,423,397 40.26% 40.26%
First American National Bank
First American Center
300 Union Street
Nashville, TN 37237-0001
o Entities known by ISG Large Cap Equity Portfolio to own of record or
beneficially 5% or more of its outstanding Class A Shares or Trust Shares:
None
o The Company's Directors and officers, as a group, owned less than 1% of the
Class A Shares and Trust Shares of ISG Large Cap Equity Portfolio.
o The Trust's Trustees and officers, as a group, owned less than 1% of the
shares of DG Equity Fund.
<PAGE>
DG GOVERNMENT INCOME FUND
COMPARISON OF DG GOVERNMENT INCOME FUND AND ISG GOVERNMENT INCOME PORTFOLIO
o Investment Objective is identical: Current income
o Management Policies are substantially identical:
-- Each Fund invests primarily in securities which are guaranteed as to
payment of principal and interest by the U.S. Government, its agencies
or instrumentalities and will invest, under normal circumstances, at
least 65% of its total assets in U.S. Government securities.
-- Each Fund also may invest in corporate fixed income securities,
mortgage-backed securities, asset-back securities, when-issued
securities, securities of other investment companies, bank obligations,
money market instruments and repurchase agreements.
-- Each Fund may engage in options and futures transactions and lending
portfolio securities.
-- DG Government Income Fund may borrow money only for temporary or
emergency purposes. ISG Government Income Portfolio may borrow money for
investment purposes, but currently intends to borrow money only for
temporary or emergency purposes.
o Investment Restrictions are substantially similar:
Unless otherwise noted, each investment restriction listed below is a
fundamental policy, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the DG Government Income
Fund's or ISG Government Income Portfolio's outstanding voting shares.
Neither DG Government Income Fund nor ISG Government Income Portfolio may:
(1) with respect to 75% of its total assets, invest more than 5% of its
assets in the obligations of any single issuer. This investment
restriction does not apply to the purchase of U.S. Government
securities.
(2) hold more than 10% of the outstanding voting securities of any
single issuer. With respect to ISG Government Income Portfolio, this
investment restriction applies only with respect to 75% of its total
assets.
(3) borrow money, except the Fund may borrow up to 33-1/3% of the value
of its total assets (DG Government Income Fund may borrow only for
temporary or emergency purposes).
(4) sell securities short or purchase securities on margin, except as is
necessary for purchases and sales of portfolio securities. The ISG
Government Income Portfolio has no investment restriction on selling
securities short.
(5) issue senior securities, except to the extent certain options and
futures activities may be deemed to give rise to a senior security.
(6) invest in commodities, except for the purchase of options and
futures contracts.
(7) purchase or sell real estate, but the Fund may purchase or sell
securities secured by real estate. ISG Government Income Portfolio also
may invest in real estate investment trusts.
(8) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. DG Government
Income Fund may lend portfolio securities up to 5% of the value of its
total assets, while ISG Government Income Portfolio may lend portfolio
securities up to 33-1/3% of the value of its total assets.
(9) act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter by virtue of disposing of
portfolio securities.
(10) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings (limited to the lesser of the
dollar amount borrowed or 15% of its total assets with respect to DG
Government Income Fund) and to the extent related to the purchase of
securities on a when-issued basis and the deposit of assets in escrow in
connection with put and call options and collateral and margin
arrangements with respect to options and futures contracts. This
investment restriction is a non-fundamental policy of ISG Government
Income Portfolio and may be changed by vote of a majority of the
Company's Board members at any time.
(11) invest more than 15% of its net assets in illiquid securities. This
investment restriction is a non-fundamental policy of both DG
Government Income Fund and ISG Government Income Portfolio.
(12) purchase securities of other investment companies, except to the
extent permitted by, or pursuant to an exemption from, the 1940 Act.
This investment restriction is a non-fundamental policy of both DG
Government Income Fund and ISG Government Income Portfolio.
o Fees and Expenses:
The following information concerning fees and expenses is derived from
information set forth under the captions "Summary of Fund Expenses" and
"Investing in the Funds--What Shares Cost" in the DG Government Income Fund
Prospectus and "Fee Table" and "How to Buy Shares--Purchase Price" in the ISG
Fund Prospectus. The expense information set forth below does not reflect any
fee waivers or expense reimbursement arrangements that may be or may have been
in effect.
SCHEDULE OF INITIAL SALES CHARGE:
Until May 1, 2000, DG Government Income Fund shareholders who participate
in the Exchange and receive Class A Shares of ISG Government Income Portfolio
will be permitted to purchase Class A Shares of ISG Government Income Portfolio
subject to the lower initial sales charge, if any, applicable to the amount of
transaction set forth below for DG Government Income Fund or ISG Government
Income Portfolio. Trust Shares are not subject to a sales charge.
DG GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $100,000.......................... 2.00% 2.04%
$100,000 to less than $250,000.............. 1.75% 1.78%
$250,000 to less than $500,000.............. 1.50% 1.52%
$500,000 to less than $750,000.............. 1.25% 1.27%
$750,000 to less than $1,000,000............ 1.00% 1.01%
$1,000,000 but less than $2,000,000 0.50% 0.50%
$2,000,000 or more.......................... 0.25% 0.25%
- ------------------------------------------------------------------------------
ISG GOVERNMENT INCOME PORTFOLIO
CLASS A
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $50,000......................... 3.00% 3.09%
$50,000 to less than $100,000............. 2.50% 2.56%
$100,000 to less than $250,000............ 2.00% 2.04%
$250,000 to less than $500,000............ 1.50% 1.52%
$500,000 to less than $1,000,000.......... 1.00% 1.01%
$1,000,000 or more*....................... -0- -0-
- ------------------------------------------------------------------------------
- ----------------------------
* A contingent deferred sales charge of 1% will be assessed at the time of
redemption of Class A Shares purchased without an initial sales charge as
part of an investment of at least $1,000,000 and redeemed within one year
after purchase.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG Government DG Government Pro Forma
Income Portfolio* Income Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% .60% .60%
12b-1 Fees .25% None .35%** .25% None
Other Expenses .31% .31% .31% .31% .31%
Total Fund
Operating Expenses 1.16% .91% 1.26%** 1.16% .91%
----------------------------------------------------------------------------------------------------
- -----------------
* ISG Government Income Portfolio has not yet commenced operations. It is a
newly-created fund that will continue the operations of DG Government
Income Fund upon consummation of the Exchange. Other Expenses are based on
estimated amounts.
** Rule 12b-1 fees are being waived by Federated and are not being paid or
accrued by the DG Fund, and the Trust has disclosed that such fees would
not be paid until a separate class of shares is created for certain
institutional investors.
</TABLE>
EXAMPLE:
An investor 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG Government DG Government Pro Forma
Income Portfolio Income Fund After Exchange
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 32 $ 9 $ 33 $ 32 $ 9
3 Years $ 56 $ 29 $ 59 $ 56 $ 29
5 Years $ 83 $ 50 $ 88 $ 83 $ 50
10 Years $158 $112 $169 $158 $112
------------------------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE REFLECT THE DEDUCTION OF THE MAXIMUM INITIAL
SALES CHARGE, IF ANY, IMPOSED ON A DG FUND SHAREHOLDER. SHARES RECEIVED IN THE
EXCHANGE WILL NOT BE SUBJECT TO AN INITIAL SALES CHARGE. THE AMOUNTS LISTED IN
THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
o Expense Reimbursement and Fee Waiver Arrangements:
As of May 1, 1998, DG Government Income Fund's 12b-1 Fees were not being paid
or accrued resulting in Total Fund Operating Expenses of .91%. ISG Government
Income Portfolio's Total Fund Operating Expenses for Class A Shares and Trust
Shares will be capped at .91% until May 1, 2000.
o Primary Portfolio Manager(s):
John Mark McKenzie has been the primary portfolio manager of DG Government
Income Fund since August 1992. He will be the primary portfolio manager of ISG
Government Income Portfolio. He is a Senior Vice President of ParkSouth and has
been employed by DG Bank since 1984.
o Capitalization:
The following table sets forth as of June 30, 1998, (1) the capitalization of DG
Government Income Fund, (2) the capitalization of Class A Shares and Trust
Shares of ISG Government Income Portfolio and (3) the pro forma capitalization
of Class A Shares and Trust Shares of ISG Government Income Portfolio as
adjusted showing the effect of the Exchange had it occurred on such date.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG Government DG Government Pro Forma
Income Portfolio Income Fund After Exchange
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
------------------------------------ ----------------------------------
<S> <C> <C> <C> <C> <C>
Total Net Assets $0 $0 $261,765,940 $52,353 $261,713,587
Net Asset Value
per share $0 $0 $10.14 $10.14 $10.14
Shares Outstanding 0 0 769,535,072 153,907 769,381,165
------------------------------------------------------------------------------------------------------
</TABLE>
o Investment Considerations and Risks are substantially identical:
The principal risk of investing in DG Government Income Fund or ISG Government
Income Portfolio is that the market value of its securities (and hence, its
share price) may decline in response to an increase in interest rates. This
could cause a portfolio security to be worth less than the price originally paid
for it, or less than it was worth at an earlier time. The value of portfolio
securities also could decline if one or more rating agencies lowered its rating
of the issuing entities or if the financial condition of these entities
worsened. Mortgage-backed and asset-backed securities are subject to both credit
and prepayment risk, and may be more volatile and less liquid than more
traditional debt securities. Under certain market conditions, options and
futures can increase the volatility of the Fund's net asset value, decrease the
liquidity of the Fund's portfolio and make more difficult the accurate pricing
of the Fund's portfolio. For a more complete discussion of investment
considerations and risks, see "Objective and Policies of Each Fund" in the DG
Government Income Fund Prospectus and "Description of the Portfolios--Investment
Considerations and Risk Factors" in the ISG Government Income Portfolio
Prospectus.
PERTAINING TO SHARE OWNERSHIP
(AS OF SEPTEMBER 14, 1998)
o DG Government Income Fund Shares Outstanding: 25,994,249.723
o Entities known by DG Government Income Fund to own of record or
beneficially 5% or more of its outstanding shares:
Percentage
Name and Number of Owned After
Address Shares Percentage Exchange
Houvis & Co. 16,365,286 62.96% 62.96%
First American National Bank
First American Center
300 Union Street
Nashville, TN 37237-0001
Houvis & Co. 8,305,558 31.95% 31.95%
First American National Bank
Attn.: Income Processing
800 First American Center
Nashville, TN 37237-0001
o Entities known by ISG Government Income Portfolio to own of record or
beneficially 5% or more of its outstanding Class A Shares or Trust Shares:
None
o The Company's Directors and officers, as a group, owned less than 1% of the
Class A Shares and Trust Shares of ISG Government Income Portfolio.
o The Trust's Trustees and officers, as a group, owned less than 1% of the
shares of DG Government Income Fund.
<PAGE>
DG INTERNATIONAL EQUITY FUND
COMPARISON OF DG INTERNATIONAL EQUITY FUND AND ISG INTERNATIONAL EQUITY
PORTFOLIO
o Investment Objective is identical: Capital appreciation
o Management Policies are substantially identical:
-- Each Fund invests at least 65% of its total assets in equity securities
denominated in foreign currencies.
-- Each Fund invests in issuers located in at least three countries outside
of the United States.
-- Each Fund invests in equity securities of established companies
primarily in economically developed countries, however, up to 40% of DG
International Equity Fund's and up to 25% of ISG International Equity
Portfolio's assets may be invested in issuers in emerging markets.
-- In selecting investments for each Fund, LAM attempts to identify
inexpensive markets worldwide through traditional measures of value, and
focuses on individual stock selection (a "bottom-up" approach) rather
than on forecasting stock market trends.
-- Each Fund may invest in American Depositary Receipts, Global Depositary
Receipts and European Depositary Receipts.
-- Each Fund also may invest in fixed-income securities denominated in
foreign currencies, money market instruments and repurchase agreements.
-- Each Fund may engage in options and future transactions, foreign
currency transactions and lending portfolio securities.
-- DG International Equity Fund may borrow money only for temporary or
emergency purposes. ISG International Equity Portfolio may borrow money
for investment purposes, but currently intends to borrow money only for
temporary or emergency purposes.
o Investment Restrictions are substantially similar:
Unless otherwise noted, each investment restriction listed below is a
fundamental policy, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the DG International Equity
Fund's or ISG International Equity Portfolio's outstanding voting shares.
Neither DG International Equity Fund nor ISG International Equity Portfolio
may:
(1) purchase securities on margin, except as is necessary for purchases
and sales of portfolio securities.
(2) issue senior securities, except to the extent certain options and
futures activities may be deemed to give rise to a senior security.
(3) borrow money, except the Fund may borrow up to 33-1/3% of value of
its total assets. (DG International Equity Fund may borrow only for
temporary or emergency purposes.)
(4) invest more than 25% of the value of its total assets in securities
of issuers having their principal business activities in the same
industry. This investment restriction does not apply to the purchase of
U.S. Government securities.
(5) invest in commodities, except for the purchase and sale of options,
forward contracts and futures contracts.
(6) purchase or sell real estate, but the Fund may purchase or sell
securities secured by real estate or issued by companies that invest in
real estate, including real estate investment trusts.
(7) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. In addition, the
Fund may lend portfolio securities up to 33-1/3% of the value of its
total assets.
(8) act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter by virtue of disposing of
portfolio securities.
(9) acquire more than 10% of the outstanding voting securities of any
one issuer. The ISG International Equity Portfolio has no such
restriction.
(10) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings (limited to 15% of its total
assets with respect to DG International Equity Fund) and to the extent
related to the purchase of securities on a when-issued basis and the
deposit of assets in escrow in connection with put and call options and
collateral and margin arrangements with respect to options and futures
contracts. This investment restriction is a non-fundamental policy of
ISG International Equity Portfolio and may be changed by vote of a
majority of the Company's Board members at any time.
(11) invest more than 15% of its net assets in illiquid securities. This
investment restriction is a non-fundamental policy of both DG
International Equity Fund and ISG International Equity Portfolio.
(12) purchase securities of other investment companies, except to the
extent permitted by, or pursuant to an exemption from, the 1940 Act.
This investment restriction is a non-fundamental policy of both DG
International Equity Fund and ISG International Equity Portfolio.
(13) invest in securities of issuers for the purpose of exercising
management or control. This investment restriction is a non-fundamental
policy of both DG International Equity Fund and ISG International Equity
Portfolio.
Further, as a fundamental policy, DG International Equity Fund will not
permit margin deposits for financial futures contracts held by the Fund,
plus premiums paid by it for open options on financial futures contracts
to exceed 5% of the fair market value of the Fund's total assets after
taking into account the unrealized profits and losses on those
contracts. ISG International Equity Portfolio has not adopted such a
restriction as a fundamental policy. In addition, as a non-fundamental
policy, DG International Equity Fund may not invest in interests in oil,
gas or other mineral exploration, other than debentures or equity
interests therein. ISG International Equity Portfolio has no such
investment restriction, but currently has no intention of investing in
such interests.
o Fees and Expenses:
The following information concerning fees and expenses is derived from
information set forth under the captions "Summary of Fund Expenses" in the DG
International Equity Fund Prospectus and "Fee Table" and "How to Buy
Shares--Purchase Price" in the ISG Fund Prospectus. The expense information set
forth below does not reflect any fee waivers or expense reimbursement
arrangements that may be or may have been in effect.
SCHEDULE OF INITIAL SALES CHARGE:
DG International Equity Fund does not impose an initial sales charge.
Until May 1, 2000, DG International Equity Fund shareholders who participate in
the Exchange and receive Class A Shares of ISG International Equity Portfolio
will be permitted to purchase Class A Shares of ISG International Equity
Portfolio at net asset value without an initial sales charge. Trust Shares are
not subject to a sales charge.
ISG INTERNATIONAL EQUITY PORTFOLIO
CLASS A
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $50,000.......................... 4.75% 4.99%
$50,000 to less than $100,000.............. 4.00% 4.17%
$100,000 to less than $250,000............. 3.25% 3.36%
$250,000 to less than $500,000............. 2.50% 2.56%
$500,000 to less than $1,000,000........... 1.75% 1.78%
$1,000,000 or more*........................ -0- -0-
- ------------------------------------------------------------------------------
- --------------------
* A contingent deferred sales charge of 1% will be assessed at the time of
redemption of Class A Shares purchased without an initial sales charge as
part of an investment of at least $1,000,000 and redeemed within one year
after purchase.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG International DG
Equity Portfolio* International Pro Forma
Equity Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees 1.00% 1.00% 1.00% 1.00% 1.00%
12b-1 Fees .25% None .25%** .25% None
Other Expenses 1.27% 1.27% 1.27% 1.27% 1.27%
Total Fund
Operating Expenses 2.52% 2.27% 2.52%** 2.52% 2.27%
-----------------------------------------------------------------------------------------------
- -----------------
* ISG International Equity Portfolio has not commenced operations. It is a
newly-created fund that will continue the operations of DG International
Equity Fund upon consummation of the Exchange. Other Expenses are based on
estimated amounts.
** Rule 12b-1 fees are being waived by Federated and are not being paid or
accrued by the DG Fund, and the Trust has disclosed that such fees would
not be paid until a separate class of shares is created for certain
institutional investors.
</TABLE>
EXAMPLE:
An investor 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG International DG Pro Forma
Equity Portfolio International After Exchange
Equity Fund
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 26 $ 23 $ 26 $ 26 $ 23
3 Years $ 78 $ 71 $ 78 $ 78 $ 71
5 Years $134 $122 $134 $134 $122
10 Years $286 $261 $286 $286 $261
-------------------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE REFLECT THE DEDUCTION OF THE MAXIMUM INITIAL
SALES CHARGE, IF ANY, IMPOSED ON DG FUND SHAREHOLDERS. SHARES RECEIVED IN THE
EXCHANGE WILL NOT BE SUBJECT TO AN INITIAL SALES CHARGE. THE AMOUNTS LISTED IN
THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
o Expense Reimbursement and Fee Waiver Arrangements:
As of May 1, 1998, DG International Equity Fund's 12b-1 Fees were not being paid
or accrued and a portion of its Management Fees were waived voluntarily
resulting in Total Fund Operating Expenses of 1.77%. ISG International Equity
Portfolio's Total Fund Operating Expenses for Class A Shares and Trust Shares
will be capped at 1.77% until May 1, 2000.
o Primary Portfolio Manager(s):
Herbert W. Gullquist and John R. Reinsberg have been the primary portfolio
managers of DG International Equity Fund since its inception in March 1997. They
will be the primary portfolio managers of ISG International Equity Portfolio.
Mr. Gullquist is a Managing Director of LAM and has been with LAM since 1982,
during which time he has managed various client discretionary accounts. Mr.
Reinsberg is a Managing Director of LAM and has been with LAM since 1992, during
which time he has managed various client discretionary accounts.
o Capitalization:
The following table sets forth as of June 30, 1998, (1) the capitalization of DG
International Equity Fund, (2) the capitalization of Class A Shares and Trust
Shares of ISG International Equity Portfolio and (3) the pro forma
capitalization of Class A Shares and Trust Shares of ISG International Equity
Portfolio as adjusted showing the effect of the Exchange had it occurred on such
date.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG International DG
Equity Portfolio International Pro Forma
Equity Fund After Exchange
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
-------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Total Net Assets $0 $0 $29,720,407 $2,972 $29,717,435
Net Asset Value
per share $0 $0 $11.07 $11.07 $11.07
Shares Outstanding 0 0 2,684,856 268 2,684,587
-------------------------------------------------------------------------------------------------
</TABLE>
o Investment Considerations and Risks are substantially identical:
The principal risk of investing in DG International Equity Fund or ISG
International Equity Portfolio is that the market value of its securities (and
hence, its share price) may decline, sometimes rapidly and unpredictably. Such
market risk may affect a single issuer, industry, sector of the economy or the
market as a whole. Investments in foreign securities may involve liquidity
and/or currency risks. Because evidence of ownership of foreign securities
usually are held outside the United States, each Fund will be subject to
possible adverse political and economic developments, seizure or nationalization
of foreign deposits and adoption of governmental restrictions which might
adversely affect or restrict the payment of principal and interest on foreign
securities to investors located outside the country of the issuer. Emerging
market countries have economic structures that generally are less diverse and
mature, and political systems that are less stable, than those of developed
countries. Under certain market conditions, options and futures can increase the
volatility of the Fund's net asset value, decrease the liquidity of the Fund's
portfolio and make more difficult the accurate pricing of the Fund's portfolio.
For a more complete discussion of investment considerations and risks, see
"Objective and Policies of Each Fund" in the DG International Equity Fund
Prospectus and "Description of the Portfolios--Investment Considerations and
Risk Factors" in the ISG Fund Prospectus.
PERTAINING TO SHARE OWNERSHIP
(AS OF SEPTEMBER 14, 1998)
o DG International Equity Fund Shares Outstanding: 2,771,695.684
Entities known by DG International Equity Fund to own of record or beneficially
5% or more of its outstanding shares:
Percentage
Name and Number of Owned After
ADDRESS SHARES PERCENTAGE EXCHANGE
Houvis & Co. 1,832,321 66.11% 66.11%
First American National Bank
Attn.: Income Processing
800 First American Center
Nashville, TN 37237-0001
Houvis & Co. 890,458 32.13% 32.13%
First American National Bank
First American Center
300 Union Street
Nashville, TN 37237-0001
o Entities known by ISG International Equity Portfolio to own of record or
beneficially 5% or more of its outstanding Class A Shares or Trust Shares:
None
o The Company's Directors and officers, as a group, owned less than 1% of the
Class A Shares and Trust Shares of ISG International Equity Portfolio.
o The Trust's Trustees and officers, as a group, owned less than 1% of the
shares of DG International Equity Fund.
<PAGE>
DG LIMITED TERM GOVERNMENT INCOME FUND
COMPARISON OF DG LIMITED TERM GOVERNMENT INCOME FUND AND ISG LIMITED DURATION
U.S. GOVERNMENT PORTFOLIO
o Investment Objective is substantially similar: DG Limited Term Government
Income Fund seeks to provide investors with current income. ISG Limited
Duration U.S. Government Portfolio seeks to provide investors with high
current income without assuming undue risk.
o Management Policies are substantially similar:
-- Each Fund invests in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities and repurchase
agreements in respect of such securities. Under normal market
conditions, DG Limited Term Government Income Fund will invest at least
65% of the value of its total assets in U.S. Government securities. ISG
Limited Duration U.S. Government Portfolio has no such management
policy, but currently intends to invest at least 65% of the value of its
total assets in U.S. Government securities.
-- The weighted average duration of DG Limited Term Government Income
Fund's portfolio securities will at all times be limited to between one
and three years. ISG Limited Duration U.S. Government Portfolio will
seek to maintain a duration ranging between one year and four years
depending on market conditions. Under normal market conditions, the
effective duration of ISG Limited Duration U.S. Government Portfolio's
portfolio securities will approximate that of the Merrill Lynch
Government 1 to 5 Year Bond Index. As of December 31, 1997, the
securities comprising the Merrill Lynch Government 1 to 5 Year Bond
Index had an effective duration of approximately 2.20 years.
-- DG Limited Term Government Income Fund may invest in corporate bonds,
asset-backed securities and bank obligations, and may engage in options
and futures transactions. ISG Limited Duration U.S. Government Portfolio
may not invest in these securities or engage in these transactions.
-- DG Limited Term Government Income Fund may borrow money only for
temporary or emergency purposes. ISG Limited Duration U.S. Government
Portfolio may borrow money for investment purposes, but currently
intends to borrow money only for temporary or emergency purposes.
o Investment Restrictions are substantially similar:
Unless otherwise noted, each investment restriction listed below is a
fundamental policy, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the DG Limited Term
Government Income Fund's or ISG Limited Duration U.S. Government
Portfolio's outstanding voting shares. Neither DG Limited Term Government
Income Fund nor ISG Limited Duration U.S. Government Portfolio may:
(1) borrow money, except the Fund may borrow up to 33-1/3% of the value
of its total assets (DG Limited Term Government Income Fund may borrow
only for temporary or emergency purposes).
(2) sell securities short or purchase securities on margin, except as is
necessary for purchases and sales of portfolio securities. The ISG
Limited Duration U.S. Government Portfolio may sell securities short
"against the box" up to 15% of the value of its net assets.
(3) issue senior securities, except to the extent certain options and
futures activities may be deemed to give rise to a senior security.
(4) invest in commodities, except for the purchase of options and
futures contracts.
(5) purchase or sell real estate, but the Fund may purchase or sell
securities secured by real estate.
(6) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. DG Limited Term
Government Income Fund may lend portfolio securities up to 5% of the
value of its total assets, while ISG Limited Duration U.S. Government
Portfolio may lend portfolio securities up to 33-1/3% of the value of
its total assets.
(7) act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter by virtue of disposing of
portfolio securities.
(8) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings (limited to the lesser of the
dollar amount borrowed or 15% of its total assets with respect to DG
Limited Term Government Income Fund) and to the extent related to the
purchase of securities on a when-issued basis and the deposit of assets
in escrow in connection with put and call options and collateral and
margin arrangements with respect to options and futures contracts. This
investment restriction is a non-fundamental policy of ISG Limited
Duration U.S. Government Portfolio and may be changed by vote of a
majority of the Company's Board members at any time.
(9) invest more than 15% (10% in the case of ISG Limited Duration U.S.
Government Portfolio) of its net assets in illiquid securities. This
investment restriction is a non-fundamental policy of both DG Limited
Term Government Income Fund and ISG Limited Duration U.S. Government
Portfolio.
(10) purchase securities of other investment companies, except to the
extent permitted by, or pursuant to an exemption from, the 1940 Act.
This investment restriction is a non-fundamental policy of both DG
Limited Term Government Income Fund and ISG Limited Duration U.S.
Government Portfolio.
In addition, as a fundamental policy, DG Limited Term Government Income
Fund may not, with respect to 75% of its total assets, invest more than
5% of its assets in the obligations of any single issuer or hold more
than 10% of the outstanding voting securities of any single issuer. This
investment restriction does not apply to the purchase of U.S. Government
securities. ISG Limited Duration U.S. Government Portfolio is a
non-diversified fund and is not subject to this investment restriction.
As non-fundamental policies, ISG Limited Duration U.S. Government
Portfolio may not (a) invest in the securities of a company for the
purpose of exercising management or control, (b) purchase or sell puts,
calls or combinations thereof, or (c) invest more than 5% of its total
assets in securities of any company having less than three years'
continuous operations. DG Limited Term Government Income Portfolio has
no such investment restrictions, but currently intends not to (x) invest
in companies to exercise management or control or (y) purchase
securities of any company having less than three years' continuous
operations. DG Limited Term Government Income Portfolio, however, may
purchase and sell put and call options on portfolio securities.
o Fees and Expenses:
The following information concerning fees and expenses is derived from
information set forth under the captions "Summary of Fund Expenses" and
"Investing in the Funds--What Shares Cost" in the DG Limited Term Government
Income Fund Prospectus and "Fee Table" and "How to Buy Shares--Purchase Price"
in the ISG Fund Prospectus. The expense information set forth below does not
reflect any fee waivers or expense reimbursement arrangements that may be or
may have been in effect.
SCHEDULE OF INITIAL SALES CHARGE:
Until May 1, 2000, DG Limited Term Government Income Fund shareholders
who participate in the Exchange and receive Class A Shares of ISG Limited
Duration U.S. Government Portfolio will be permitted to purchase Class A Shares
of ISG Limited Duration U.S. Government Portfolio subject to the lower initial
sales charge, if any, applicable to the amount of transaction set forth below
for DG Limited Term Government Income Fund or ISG Limited Duration U.S.
Government Portfolio. Trust Shares are not subject to any sales charge.
DG LIMITED TERM GOVERNMENT INCOME FUND
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $100,000......................... 2.00% 2.04%
$100,000 to less than $250,000............. 1.75% 1.78%
$250,000 to less than $500,000............. 1.50% 1.52%
$500,000 to less than $750,000............. 1.25% 1.27%
$750,000 to less than $1,000,000........... 1.00% 1.01%
$1,000,000 but less than $2,000,000 0.50% 0.50%
$2,000,000 or more......................... 0.25% 0.25%
- ------------------------------------------------------------------------------
ISG LIMITED DURATION U.S. GOVERNMENT PORTFOLIO
CLASS A
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $50,000........................... 3.00% 3.09%
$50,000 to less than $100,000............... 2.50% 2.56%
$100,000 to less than $250,000.............. 2.00% 2.04%
$250,000 to less than $500,000.............. 1.50% 1.52%
$500,000 to less than $1,000,000............ 1.00% 1.01%
$1,000,000 or more*......................... -0- -0-
- ------------------------------------------------------------------------------
- -----------------
* A contingent deferred sales charge of 1% will be assessed at the time of
redemption of Class A Shares purchased without an initial sales charge as
part of an investment of at least $1,000,000 and redeemed within one year
after purchase.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG Limited Duration DG Limited Term
U.S. Government Government Pro Forma
Portfolio Income Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
---------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .50% .50% .60% .50% .50%
12b-1 Fees .25% None .35%* .25% None
Other Expenses .41% .41% .77% .41% .41%
Total Fund
Operating Expenses 1.16% .91% 1.72%* 1.16% .91%
-----------------------------------------------------------------------------------------------
- ------------
* Rule 12b-1 fees are being waived by Federated and are not being paid or
accrued by the DG Fund, and the Trust has disclosed that such fees would
not be paid until a separate class of shares is created for certain
institutional investors.
</TABLE>
EXAMPLE:
An investor 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG Limited Duration DG Limited Term
U.S. Government Government Pro Forma
Portfolio Income Fund After Exchange
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 32 $ 9 $ 37 $ 32 $ 9
3 Years $ 56 $ 29 $ 73 $ 56 $ 29
5 Years $ 83 $ 50 $111 $ 83 $ 50
10 Years $158 $112 $219 $158 $112
-------------------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE REFLECT THE DEDUCTION OF THE MAXIMUM INITIAL
SALES CHARGE, IF ANY, IMPOSED ON A DG FUND SHAREHOLDER. SHARES RECEIVED IN THE
EXCHANGE WILL NOT BE SUBJECT TO AN INITIAL SALES CHARGE. THE AMOUNTS LISTED IN
THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
o Expense Reimbursement and Fee Waiver Arrangements:
As of May 1, 1998, DG Limited Term Government Income Fund's 12b-1 Fees were not
being paid or accrued and a portion of its Management Fees were waived
voluntarily resulting in Total Fund Operating Expenses of 1.22%. ISG Limited
Duration U.S. Government Portfolio's Total Fund Operating Expenses for Class A
Shares and Trust Shares will be capped at 1.22% until May 1, 2000.
o Primary Portfolio Manager(s):
John Mark McKenzie and Donald F. Turk are the primary portfolio managers of DG
Limited Term Government Income Fund and ISG Limited Duration U.S. Government
Portfolio, respectively . Mr. McKenzie has been the primary portfolio manager of
DG Limited Term Government Income Fund since August 1992. Mr. Turk has been the
primary portfolio manager of the ISG Limited Duration U.S. Government Portfolio
since February 1997. Messrs. McKenzie and Turk will continue as the primary
portfolio managers of ISG Limited Duration U.S. Government Portfolio after the
Exchange.
o Capitalization:
The following table sets forth as of June 30, 1998, (1) the capitalization of DG
Limited Term Government Income Fund, (2) the capitalization of Class A Shares
and Trust Shares of ISG Limited Duration U.S. Government Portfolio and (3) the
pro forma capitalization of Class A Shares and Trust Shares of ISG Limited
Duration U.S. Government Portfolio as adjusted showing the effect of the
Exchange had it occurred on such date.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
DG Limited
ISG Limited Term
Duration U.S. Government Pro Forma
Government Portfolio Income Fund After Exchange
-----------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST
SHARES
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Total Net Assets $20,049,523 $0 $30,382,585 $1,983,351 $48,448,757
Net Asset Value
per share $10.13 $0 $9.77 $10.13 $10.13
Shares Outstanding 1,978,620 0 3,109,043 195,790 4,782,700
-----------------------------------------------------------------------------------------------------
</TABLE>
o Investment Considerations and Risks are substantially similar:
The principal risk of investing in DG Limited Term Government Income Fund or ISG
Limited Duration U.S. Government Portfolio is that the market value of its
securities (and hence, its share price) may decline in response to an increase
in interest rates. This could cause a portfolio security to be worth less than
the price originally paid for it, or less than it was worth at an earlier time.
Asset-backed securities that DG Limited Term Government Income Fund may invest
in are subject to both credit and prepayment risk, and may be more volatile and
less liquid than more traditional debt securities. DG Limited Term Government
Income Fund may engage in options transactions. Under certain market conditions,
options can increase the volatility of DG Limited Term Government Income Fund's
net asset value, decrease the liquidity of its portfolio and make more difficult
the accurate pricing of its portfolio. DG Limited Term Government Income Fund is
a diversified fund, while ISG Limited Duration U.S. Government Portfolio is a
non-diversified fund. To the extent ISG Limited Duration U.S. Government
Portfolio were to invest its assets in other than U.S. Government securities, a
relatively high percentage of such assets may be invested in the securities of a
limited number of issuers, some of which may be in the same industry, and ISG
Limited Duration U.S. Government Portfolio's securities could be more sensitive
to changes in the market value of a single issuer or industry. For a more
complete discussion of investment considerations and risks, see "Objective and
Policies of Each Fund" in the DG Limited Term Government Income Fund Prospectus
and "Description of the Portfolios-- Investment Considerations and Risks" in the
ISG Fund Prospectus.
PERTAINING TO SHARE OWNERSHIP
(AS OF SEPTEMBER 14, 1998)
o DG Limited Term Government Income Fund Shares Outstanding: 2,997,997.651
o Entities known by DG Limited Term Government Income Fund to own of record
or beneficially 5% or more of its outstanding shares:
Percentage
Name and Number of Owned After
Address Shares Percentage Exchange
Houvis & Co. 1,476,430 49.25% 29.32%
First American National Bank
Attn.: Income Processing
800 First American Center
Nashville, TN 37237-0001
Houvis & Co. 1,192,200 39.77% 23.67%
First American National Bank
First American Center
300 Union Street
Nashville, TN 37237-0001
o Entities known by ISG Limited Duration U.S. Government Portfolio to own of
record or beneficially 5% or more of its outstanding Class A Shares or
Trust Shares:
Percentage
Name and Number of Percentage Owned After
Address Shares of Class Exchange
First American National Bank
Attn: AmeriStar Investment
Management & Trust 1,955,036 99.28% 40.27%
800 First American Center Class A Shares
Nashville, TN 37237
o The Company's Directors and officers, as a group, owned less than 1% of the
Class A Shares and Trust Shares of ISG Limited Duration U.S. Government
Portfolio.
o The Trust's Trustees and officers, as a group, owned less than 1% of the
shares of DG Limited Term Government Income Fund.
<PAGE>
DG MUNICIPAL INCOME FUND
COMPARISON OF DG MUNICIPAL INCOME FUND AND ISG MUNICIPAL INCOME PORTFOLIO
o Investment Objective is identical: To provide current income that is exempt
from federal regular income tax.
o Management Policies are substantially similar:
-- Each Fund invests at least 80% of its net assets in obligations the
interest from which is exempt from federal regular income tax or so that at
least 80% of the income from its investments will be exempt from federal
regular income tax.
-- Each Fund invests in investment grade municipal securities.
-- Each Fund also may invest in participation interests, variable rate
municipal securities, municipal leases, bank obligations, money market
instruments and repurchase agreements.
-- Each Fund may lend its portfolio securities.
-- DG Municipal Income Fund may borrow money only for temporary or
emergency purposes. ISG Municipal Income Portfolio may borrow money for
leveraging purposes, but currently intends to borrow money only for
temporary or emergency purposes.
o Investment Restrictions are substantially similar:
Unless otherwise noted, each investment restriction listed below is a
fundamental policy, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the DG Municipal Income
Fund's or ISG Municipal Income Portfolio's outstanding voting shares.
Neither DG Municipal Income Fund nor ISG Municipal Income Portfolio may:
(1) with respect to 75% of its total assets, invest more than 5% of its
assets in the obligations of any single issuer. This investment
restriction does not apply to the purchase of U.S. Government
securities.
(2) hold more than 10% of the outstanding voting securities of any
single issuer. With respect to ISG Municipal Income Portfolio, this
investment restriction applies only with respect to 75% of its total
assets.
(3) invest more than 25% of the value of its total assets in securities
of issuers in any single industry. This restriction does not apply to
the purchase of U.S. Government securities. DG Municipal Income Fund
will not purchase securities if, as a result of such purchase, 25% or
more of its total assets would be invested in any one industry or in
industrial development bonds or other securities, the interest upon
which is paid from revenues of similar type projects. DG Municipal
Income Fund does not intend to purchase securities that would increase
the percentage of its total assets invested in the securities of
governmental subdivisions located in any one state, territory, or U.S.
possession to 25% or more. However, it may invest 25% or more of its
assets in tax-exempt project notes guaranteed by the U.S. government,
regardless of the location of the issuing municipality.
(4) borrow money, except the Fund may borrow up to 33-1/3% of the value
of its total assets (DG Municipal Income Fund may borrow only for
temporary or emergency purposes).
(5) sell securities short or purchase securities on margin, except as is
necessary for purchases and sales of portfolio securities. The ISG
Municipal Income Portfolio has no investment restriction on selling
securities short.
(6) issue senior securities, except to the extent certain options and
futures activities may be deemed to give rise to a senior security.
(7) purchase or sell commodities or commodities futures contracts. ISG
Municipal Income Portfolio, however, may purchase options and futures
contracts.
(8) purchase or sell real estate, but the Fund may purchase or sell
securities secured by real estate. ISG Municipal Income Portfolio also
may invest in real estate investment trusts.
(9) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each of
DG Municipal Income Fund and ISG Municipal Income Portfolio may lend its
portfolio securities up to 33-1/3% of the value of its total assets.
(10) act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter by virtue of disposing of
portfolio securities, and except that ISG Municipal Income Portfolio may
bid separately or as part of a group for the purchase of municipal
obligations directly from an issuer for its own portfolio to take
advantage of the lower purchase price available.
(11) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings (limited to the lesser of the
dollar amount borrowed or 15% of its total assets with respect to DG
Municipal Income Fund) and to the extent related to the purchase of
securities on a when-issued basis and the deposit of assets in escrow in
connection with put and call options and collateral and margin
arrangements with respect to options and futures contracts. This
investment restriction is a non-fundamental policy of ISG Municipal
Income Portfolio and may be changed by the Company's Board members at
any time.
(12) invest more than 15% of its net assets in illiquid securities. This
investment restriction is a non-fundamental policy of both DG Municipal
Income Fund and ISG Municipal Income Portfolio.
(13) purchase securities of other investment companies, except to the
extent permitted by, or pursuant to an exemption from, the 1940 Act.
This investment restriction is a non-fundamental policy of both DG
Municipal Income Fund and ISG Municipal Income Portfolio.
In addition, as a non-fundamental policy, DG Municipal Income Fund may not
enter into transactions for the purpose of engaging in arbitrage. ISG
Municipal Income Portfolio has no such investment restriction.
o Fees and Expenses:
The following information concerning fees and expenses is derived from
information set forth under the captions "Summary of Fund Expenses" and
"Investing in the Funds--What Shares Cost" in the DG Municipal Income Fund
Prospectus and "Fee Table" and "How to Buy Shares--Purchase Price" in the ISG
Fund Prospectus. The expense information set forth below does not reflect any
fee waivers or expense reimbursement arrangements that may be or may have been
in effect.
SCHEDULE OF INITIAL SALES CHARGE:
Until May 1, 2000, DG Municipal Income shareholders who participate in
the Exchange and receive Class A Shares of ISG Municipal Income Portfolio will
be permitted to purchase Class A Shares of ISG Municipal Income Portfolio
subject to the lower initial sales charge, if any, applicable to the amount of
transaction set forth below for DG Municipal Income Fund or ISG Municipal Income
Fund. Trust Shares are not subject to a sales charge.
DG MUNICIPAL INCOME FUND
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $100,000...................... 2.00% 2.04%
$100,000 to less than $250,000.......... 1.75% 1.78%
$250,000 to less than $500,000.......... 1.50% 1.52%
$500,000 to less than $750,000.......... 1.25% 1.27%
$750,000 to less than $1,000,000........ 1.00% 1.01%
$1,000,000 but less than $2,000,000 0.50% 0.50%
$2,000,000 or more...................... 0.25% 0.25%
- ------------------------------------------------------------------------------
ISG MUNICIPAL INCOME PORTFOLIO
CLASS A
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $50,000....................... 3.00% 3.09%
$50,000 to less than $100,000........... 2.50% 2.56%
$100,000 to less than $250,000.......... 2.00% 2.04%
$250,000 to less than $500,000.......... 1.50% 1.52%
$500,000 to less than $1,000,000........ 1.00% 1.01%
$1,000,000 or more*..................... -0- -0-
- ------------------------------------------------------------------------------
- ----------------
* A contingent deferred sales charge of 1% will be assessed at the time of
redemption of Class A Shares purchased without an initial sales charge as
part of an investment of at least $1,000,000 and redeemed within one year
after purchase.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG Municipal DG Municipal Pro Forma
Income Portfolio* Income Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .60% .60% .60% .60% .60%
12b-1 Fees .25% None .35%** .25% None
Other Expenses .60% .60% .60% .60% .60%
Total Fund
Operating Expenses 1.45% 1.20% 1.55%** 1.45% 1.20%
-----------------------------------------------------------------------------------------------
- ----------------
* ISG Municipal Income Portfolio has not yet commenced operations. It is a
newly-created fund that will continue the operations of DG Municipal Income
Fund upon consummation of the Exchange. Other Expenses are based on
estimated amounts.
** Rule 12b-1 fees are being waived by Federated and are not being paid or
accrued by the DG Fund, and the Trust has disclosed that such fees
would not be paid until a separate class of shares is created for
certain institutional investors.
</TABLE>
EXAMPLE:
An investor 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG Municipal DG Municipal Pro Forma
Income Portfolio Income Fund After Exchange
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 34 $ 12 $ 35 $ 34 $ 12
3 Years $ 65 $ 38 $ 68 $ 65 $ 38
5 Years $ 98 $ 66 $103 $ 98 $ 66
10 Years $190 $145 $201 $190 $145
-------------------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE REFLECT THE DEDUCTION OF THE MAXIMUM INITIAL
SALES CHARGE, IF ANY, IMPOSED ON A DG FUND SHAREHOLDER. SHARES RECEIVED IN THE
EXCHANGE WILL NOT BE SUBJECT TO AN INITIAL SALES CHARGE. THE AMOUNTS LISTED IN
THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
o Expense Reimbursement and Fee Waiver Arrangements:
As of May 1, 1998, DG Municipal Income Fund's 12b-1 Fees were not being paid or
accrued and a portion of its Management Fees were waived voluntarily resulting
in Total Fund Operating Expenses of .90%. ISG Municipal Income Portfolio's Total
Fund Operating Expenses for Class A Shares and Trust Shares will be capped at
.90% until May 1, 2000.
o Primary Portfolio Manager(s):
John Mark McKenzie has been the primary portfolio manager of DG Municipal Income
Fund since February 1997. He and Sharon S. Brown will be the primary portfolio
managers of ISG Municipal Income Portfolio. Mr. McKenzie is a Senior Vice
President of ParkSouth and has been employed by DG Bank since 1984. Ms. Brown
has been a Trust Officer of First American since 1988.
o Capitalization:
The following table sets forth as of June 30, 1998, (1) the capitalization of DG
Municipal Income Fund, (2) the capitalization of Class A Shares and Trust Shares
of ISG Municipal Income Portfolio and (3) the pro forma capitalization of Class
A Shares and Trust Shares of ISG Municipal Income Portfolio as adjusted showing
the effect of the Exchange had it occurred on such date.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
ISG Municipal DG Municipal Pro Forma
Income Portfolio Income Fund After Exchange
----------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C>
Total Net Assets $0 $0 $53,888,170 $1,724,421 $52,163,748
Net Asset Value
per share $0 $0 $10.87 $10.87 $10.87
Shares Outstanding 0 0 4,956,051 158,594 4,797,457
----------------------------------------------------------------------------------------------------
</TABLE>
o Investment Considerations and Risks are substantially identical:
The principal risk of investing in DG Municipal Income Fund or ISG Municipal
Income Portfolio is that the market value of its securities (and hence, its
share price) may decline in response to an increase in interest rates. This
could cause a portfolio security to be worth less than the price originally paid
for it, or less than it was worth at an earlier time. The value of portfolio
securities also could decline if one or more rating agencies lowered its rating
of the issuing entities or if the financial condition of these entities
worsened. For a more complete discussion of investment considerations and risks,
see "Objective and Policies of Each Fund" in the DG Municipal Income Fund
Prospectus and "Description of the Portfolios--Investment Considerations and
Risk Factors" in the ISG Fund Prospectus.
PERTAINING TO SHARE OWNERSHIP
(AS OF SEPTEMBER 14, 1998)
o DG Municipal Income Fund Shares Outstanding: 5,034,499.918
o Entities known by DG Municipal Income Fund to own of record or beneficially
5% or more of its outstanding shares:
Percentage
Name and Number of Owned After
Address Shares Percentage Exchange
Houvis & Co. 4,860,027 96.53% 96.53%
First American National Bank
First American Center
300 Union Street
Nashville, TN 37237-0001
o Entities known by ISG Municipal Income Portfolio to own of record or
beneficially 5% or more of its outstanding Class A Shares or Trust Shares:
None
o The Company's Directors and officers, as a group, owned less than 1% of the
Class A Shares and Trust Shares of ISG Municipal Income Portfolio.
o The Trust's Trustees and officers, as a group, owned less than 1% of the
shares of DG Municipal Income Fund.
<PAGE>
DG OPPORTUNITY FUND
COMPARISON OF DG OPPORTUNITY FUND AND ISG SMALL CAP OPPORTUNITY PORTFOLIO
o Investment Objective is identical: Capital appreciation
o Management Policies are substantially identical:
-- Each Fund invests at least 65% of its total assets in equity
securities of companies with a market capitalization of less than $1
billion.
-- Womack Management employs a fundamental growth-oriented approach to
selecting portfolio securities for each Fund.
-- Each Fund may invest in common stocks, fixed-income securities,
foreign securities, American Depositary Receipts, bank obligations,
money market instruments and repurchase agreements.
-- Each Fund may engage in options and futures transactions and lending
portfolio securities.
-- DG Opportunity Fund may borrow money only for temporary or emergency
purposes. ISG Small Cap Opportunity Portfolio may borrow money for
investment purposes, but currently intends to borrow money only for
temporary or emergency purposes.
o Investment Restrictions are substantially similar:
Unless otherwise noted, each investment restriction listed below is a
fundamental policy, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the DG Opportunity Fund's or
ISG Small Cap Opportunity Portfolio's outstanding voting shares. Neither DG
Opportunity Fund nor ISG Small Cap Opportunity Portfolio may:
(1) with respect to 75% of its total assets, invest more than 5% of its
assets in the obligations of any single issuer. This investment
restriction does not apply to the purchase of U.S. Government
securities.
(2) hold more than 10% of the outstanding voting securities of any
single issuer. With respect to ISG Small Cap Opportunity Portfolio, this
investment restriction applies only with respect to 75% of its total
assets.
(3) invest more than 25% of the value of its total assets in securities
of issuers in any single industry. This restriction does not apply to
the purchase of U.S. Government securities.
(4) sell securities short or purchase securities on margin, except as is
necessary for purchases and sales of portfolio securities. The ISG Small
Cap Opportunity Portfolio has no investment restriction on selling
securities short.
(5) issue senior securities, except to the extent certain options and
futures activities may be deemed to give rise to a senior security.
(6) borrow money, except the Fund may borrow up to 33-1/3% of value of
its total assets (DG Opportunity Fund may borrow only for temporary or
emergency purposes).
(7) invest in commodities, except for the purchase of options and
futures contracts.
(8) purchase or sell real estate, but the Fund may purchase or sell
securities secured by real estate. ISG Small Cap Opportunity Portfolio
also may invest in real estate investment trusts.
(9) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. However, each Fund
may lend portfolio securities up to 33-1/3% of the value of its total
assets.
(10) act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter by virtue of disposing of
portfolio securities.
(11) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings (limited to the lesser of the
dollar amount borrowed or 15% of its total assets with respect to DG
Opportunity Fund) and to the extent related to the purchase of
securities on a when-issued basis and the deposit of assets in escrow
in connection with put and call options and collateral and margin
arrangements with respect to options and futures contracts. This
investment restriction is a non-fundamental policy of ISG Small Cap
Opportunity Portfolio and may be changed by the Company's Board members
at any time.
(12) invest more than 15% of its net assets in illiquid securities. This
investment restriction is a non-fundamental policy of both DG
Opportunity Fund and ISG Small Cap Opportunity Portfolio.
(13) purchase securities of other investment companies, except to the
extent permitted by, or pursuant to an exemption from, the 1940 Act.
This restriction is a non-fundamental policy of both DG Opportunity
Fund and ISG Small Cap Opportunity Portfolio.
In addition, as a non-fundamental policy, DG Opportunity Fund may not enter
into transactions for the purpose of engaging in arbitrage. ISG Small Cap
Opportunity Portfolio has no such restriction.
o Fees and Expenses:
The following information concerning fees and expenses is derived from
information set forth under the captions "Summary of Fund Expenses" and
"Investing in the Funds--What Shares Cost" in the DG Opportunity Fund Prospectus
and "Fee Table" and "How to Buy Shares--Purchase Price" in the ISG Fund
Prospectus. The expense information set forth below does not reflect any fee
waivers or expense reimbursement arrangements that may be or may have been in
effect.
SCHEDULE OF INITIAL SALES CHARGE:
Until May 1, 2000, DG Opportunity Fund shareholders who participate in
the Exchange and receive Class A Shares of ISG Small Cap Opportunity Portfolio
will be permitted to purchase Class A Shares of ISG Small Cap Opportunity
Portfolio subject to the lower initial sales charge, if any, applicable to the
amount of transaction set forth below for DG Opportunity Fund or ISG Small Cap
Opportunity Portfolio. Trust Shares are not subject to a sales charge.
DG OPPORTUNITY FUND
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $100,000..................... 3.50% 3.63%
$100,000 to less than $250,000......... 3.00% 3.09%
$250,000 to less than $500,000......... 2.50% 2.56%
$500,000 to less than $750,000......... 2.00% 2.04%
$750,000 to less than $1,000,000....... 1.50% 1.52%
$1,000,000 but less than $2,000,000 0.50% 0.50%
$2,000,000 or more..................... 0.25% 0.25%
- ------------------------------------------------------------------------------
ISG SMALL CAP OPPORTUNITY PORTFOLIO
CLASS A
- ------------------------------------------------------------------------------
TOTAL SALES LOAD
As a % of As a % of
Amount of Transaction Offering Price Net Asset Value
Less than $50,000................... 4.75% 4.99%
$50,000 to less than $100,000....... 4.00% 4.17%
$100,000 to less than $250,000...... 3.25% 3.36%
$250,000 to less than $500,000...... 2.50% 2.56%
$500,000 to less than $1,000,000.... 1.75% 1.78%
$1,000,000 or more*................. -0- -0-
- ------------------------------------------------------------------------------
- ----------------
* A contingent deferred sales charge of 1% will be assessed at the time of
redemption of Class A Shares purchased without an initial sales charge as
part of an investment of at least $1,000,000 and redeemed within one year
after purchase.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG Small Cap DG Opportunity Pro Forma
Opportunity Fund After Exchange
Portfolio*
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .95% .95% .95% .95% .95%
12b-1 Fees .25% None .35%** .25% None
Other Expenses .38% .38% .38% .38% .38%
Total Fund
Operating Expenses 1.58% 1.33% 1.68%** 1.58% 1.33%
-----------------------------------------------------------------------------------------------
- ----------------
* ISG Small Cap Opportunity Portfolio has not yet commenced operations. It is
a newly-created fund that will continue the operations of DG Opportunity
Fund upon consummation of the Exchange. Other Expenses are based on
estimated amounts.
** Rule 12b-1 fees are being waived by Federated and are not being paid or
accrued by the DG Fund, and the Trust has disclosed that such fees would
not be paid until a separate class of shares is created for certain
institutional investors.
</TABLE>
EXAMPLE:
An investor 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG Small Cap DG Opportunity Pro Forma
Opportunity Fund After Exchange
Portfolio
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 51 $ 14 $ 51 $ 51 $ 14
3 Years $ 83 $ 42 $ 86 $ 83 $ 42
5 Years $118 $ 73 $123 $118 $ 73
10 Years $216 $160 $227 $216 $160
-------------------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE REFLECT THE DEDUCTION OF THE MAXIMUM INITIAL
SALES CHARGE, IF ANY, IMPOSED ON A DG FUND SHAREHOLDER. SHARES RECEIVED IN THE
EXCHANGE WILL NOT BE SUBJECT TO AN INITIAL SALES CHARGE. THE AMOUNTS LISTED IN
THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF PAST OR FUTURE
EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE INDICATED.
MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS THAN
5%.
o Expense Reimbursement and Fee Waiver Arrangements:
As of May 1, 1998, DG Opportunity Fund's 12b-1 Fees were not being paid or
accrued resulting in Total Fund Operating Expenses of 1.33%. ISG Small Cap
Opportunity Portfolio's Total Fund Operating Expenses for Class A Shares and
Trust Shares will be capped at 1.33% until May 1, 2000.
o Primary Portfolio Manager(s):
William A. Womack has been the primary portfolio manager of DG Opportunity Fund
since February 1997. He will be the primary portfolio manager of ISG Small Cap
Opportunity Portfolio. Mr. Womack formed Womack Management in February 1997. For
more than five years prior thereto, he was a Senior Vice President and Trust
Officer of DG Bank.
o Capitalization:
The following table sets forth as of June 30, 1998, (1) the capitalization of DG
Opportunity Fund, (2) the capitalization of Class A Shares and Trust Shares of
ISG Small Cap Opportunity Portfolio and (3) the pro forma capitalization of
Class A Shares and Trust Shares of ISG Small Cap Opportunity Portfolio as
adjusted showing the effect of the Exchange had it occurred on such date.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
ISG Small Cap DG Opportunity Pro Forma
Opportunity Fund After Exchange
Portfolio
-----------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
Total Net Assets $0 $0 $114,719,651 $11,471,965 $103,247,686
Net Asset Value
per share $0 $0 $13.99 $13.99 $13.99
Shares Outstanding 0 0 8,198,325 819,832 7,378,492
-----------------------------------------------------------------------------------------------------
</TABLE>
o Investment Considerations and Risks are substantially identical:
The principal risk of investing in DG Opportunity Fund or ISG Small Cap
Opportunity Portfolio is that the market value of its securities (and hence, its
share price) may decline, sometimes rapidly and unpredictably. Such market risk
may affect a single issuer, industry, sector of the economy or the market as a
whole. Each Fund may purchase the securities of smaller companies the prices of
which may be subject to more abrupt or erratic market movements than larger,
more established companies. Investments in foreign securities may involve
liquidity and/or currency risks. Under certain market conditions, options and
futures can increase the volatility of the Fund's net asset value, decrease the
liquidity of the Fund's portfolio and make more difficult the accurate pricing
of the Fund's portfolio. For a more complete discussion of investment
considerations and risks, see "Objective and Policies of Each Fund" in the DG
Opportunity Fund Prospectus and "Description of the Portfolios--Investment
Considerations and Risk Factors" in the ISG Fund Prospectus.
PERTAINING TO SHARE OWNERSHIP
(AS OF SEPTEMBER 14, 1998)
o DG Opportunity Fund Shares Outstanding: 8,490,267.360
o Entities known by DG Opportunity Fund to own of record or beneficially 5%
or more of its outstanding shares:
Percentage
Name and Number of Owned After
Address Shares Percentage Exchange
Houvis & Co. 4,222,445 49.37% 49.37%
First American National Bank
Attn.: Income Processing
800 First American Center
Nashville, TN 37237-0001
Houvis & Co. 2,876,820 33.88% 33.88%
First American National Bank
First American Center
300 Union Street
Nashville, TN 37237-0001
o Entities known by ISG Small Cap Opportunity Portfolio to own
of record or beneficially 5% or more of its outstanding Class
A Shares or Trust Shares: None
o The Company's Directors and officers, as a group, owned less than 1% of the
Class A Shares and Trust Shares of ISG Small Cap Opportunity Portfolio.
o The Trust's Trustees and officers, as a group, owned less than 1% of the
shares of DG Opportunity Fund.
<PAGE>
DG PRIME MONEY MARKET FUND
COMPARISON OF DG PRIME MONEY MARKET FUND AND ISG PRIME MONEY MARKET PORTFOLIO
o Investment Objective is substantially identical: DG Prime Money Market Fund
seeks to provide investors with current income consistent with stability of
principal. ISG Prime Money Market Portfolio seeks to provide investors with
as high a level of current income as is consistent with the preservation of
capital and the maintenance of liquidity.
o Management Policies are substantially similar:
-- Each Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, each Fund uses the amortized cost
method of valuing its securities pursuant to Rule 2a-7 under the 1940 Act,
which includes various maturity, quality and diversification requirements.
There can be no assurance that either Fund will be able to maintain a
stable net asset value of $1.00 per share.
-- Each Fund invests in U.S. dollar denominated high quality short term
money market obligations (including securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, certificates of
deposit, time deposits and bankers' acceptances issued by domestic and
foreign banks) which are either rated in the highest short term rating
category or are of comparable quality.
-- DG Prime Money Market Fund may invest 25% or more of its total assets in
commercial paper issued by finance companies and may invest 25% or more of
its total assets in instruments issued by a U.S. branch of a domestic bank
or savings association meeting certain requirements. ISG Prime Money Market
Portfolio invests 25% or more of its total assets in securities issued by
banks.
-- Each Fund may invest in loan participation agreements, asset-backed
securities, high quality domestic and foreign commercial paper, other high
quality short term corporate obligations, such as floating or variable rate
demand notes and bonds, and repurchase agreements. ISG Prime Money Market
Portfolio also may invest in guaranteed investment contracts issued by
highly rated U.S. insurance companies.
-- Each Fund may engage in lending portfolio securities.
-- DG Prime Money Market Fund may borrow money only for temporary or
emergency purposes. ISG Prime Money Market Portfolio may borrow money for
investment purposes, but currently intends to borrow money only for
temporary or emergency purposes.
o Investment Restrictions are substantially similar:
Unless otherwise noted, each investment restriction listed below is a
fundamental policy, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the DG Prime Money Market
Fund's or ISG Prime Money Market Portfolio's outstanding voting shares.
Neither DG Prime Money Market Fund nor ISG Prime Money Market Portfolio
may:
(1) with respect to 75% of its total assets, invest more than 5% of its
assets in the obligations of any single issuer. This investment
restriction does not apply to the purchase of U.S. Government
securities.
(2) with respect to 75% of its total assets, hold more than 10% of the
outstanding voting securities of any single issuer.
(3) invest more than 25% of its total assets in the securities of
issuers in any one industry, except that DG Prime Money Market Fund may
invest 25% or more of its total assets in commercial paper issued by
finance companies and may invest 25% or more of its total assets in
instruments issued by a U.S. branch of a domestic bank or savings
association meeting certain requirements, and ISG Prime Money Market
Portfolio will invest 25% or more of its total assets in securities
issued by banks. This investment restriction does not apply to the
purchase of U.S. Government securities.
(4) sell securities short or purchase securities on margin, but may
obtain such short-term credits as are necessary for the clearance of
transactions.
(5) issue senior securities.
(6) borrow money, except the Fund may borrow up to 33-1/3% of the value
of its total assets (DG Prime Money Market Fund may borrow only for
temporary or emergency purposes).
(7) pledge, mortgage or hypothecate its assets, except to the extent
necessary to secure permitted borrowings. This investment restriction is
a non-fundamental policy of ISG Prime Money Market Portfolio and may be
changed by vote of a majority of the Company's Board members at any
time.
(8) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. Each Fund may lend
portfolio securities up to 33-1/3% of the value of its total assets.
(9) invest in commodities.
(10) act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter by virtue of disposing of
portfolio securities.
(11) invest more than 10% of its net assets in illiquid securities. This
investment restriction is a non-fundamental policy of both DG Prime
Money Market Fund and ISG Prime Money Market Portfolio.
(12) purchase securities of other investment companies, except to the
extent permitted by, or pursuant to an exemption from, the 1940 Act.
This investment restriction is a non-fundamental policy of both DG Prime
Money Market Fund and ISG Prime Money Market Portfolio.
(13) invest in the securities of a company for the purpose of exercising
management or control. This investment restriction is a non-fundamental
policy of both DG Prime Money Market Fund and ISG Prime Money Market
Portfolio.
(14) invest in puts, calls or combinations thereof. This investment
restriction is a non-fundamental policy of both DG Prime Money Market
Fund and ISG Prime Money Market Portfolio.
In addition, as a fundamental policy, ISG Prime Money Market Portfolio may
not purchase, hold or deal in real estate, or oil, gas or other mineral
leases or exploration or development programs. DG Prime Money Market Fund
has no such investment restriction, but currently has no intention of
investing in real estate or oil and gas.
o Fees and Expenses:
The following information concerning fees and expenses is derived from
information set forth under the captions "Summary of Fund Expenses" in the DG
Prime Money Market Fund Prospectus and "Annual Operating Expenses" in the ISG
Fund Prospectus. The expense information set forth below does not reflect any
fee waivers or expense reimbursement arrangements that may be or may
have been in effect.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG Prime Money Market DG Prime Money Pro Forma
Portfolio Market Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .25% .25% .50% .25% .25%
12b-1 Fees none none .25% none none
Other Expenses .62% .37% .26%* .62% .37%
Total Fund
Operating Expenses .87% .62% 1.01%* .87% .62%
-----------------------------------------------------------------------------------------------
- ---------
* The DG Fund currently is not paying or accruing fees under its Shareholder
Services Plan.
</TABLE>
EXAMPLE:
An investor 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG Prime
Money Market DG Prime Money Pro Forma
Portfolio Market Fund After Exchange
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 9 $ 6 $ 10 $ 9 $ 6
3 Years $ 28 $ 20 $ 32 $ 28 $ 20
5 Years $ 48 $ 35 $ 56 $ 48 $ 35
10 Years $107 $ 77 $124 $107 $ 77
-------------------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S
ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS
THAN 5%.
o Expense Reimbursement and Fee Waiver Arrangements:
As of May 1, 1998, a portion of DG Prime Money Market Fund's Management Fees and
Other Expenses (including Shareholder Services Plan fees of .15%) were waived
voluntarily resulting in Total Fund Operating Expenses of .66%. ISG Prime Money
Market Portfolio's Total Fund Operating Expenses for Class A Shares and Trust
Shares will be capped at .66% until May 1, 2000.
o Capitalization:
The following table sets forth as of June 30, 1998, (1) the capitalization of DG
Prime Money Market Fund, (2) the capitalization of the Class A Shares and Trust
Shares of ISG Prime Money Market Portfolio and (3) the pro forma capitalization
of the Class A Shares and Trust Shares of ISG Prime Money Market Portfolio as
adjusted showing the effect of the Exchange had it occurred on such date.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
ISG Prime DG Prime Pro Forma
Money Market Portfolio Money Market After Exchange
Fund
-----------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
-------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Total Net Assets $107,989,421 $55,716,106 $216,007,435 $110,149,495 $269,563,467
Net Asset Value
per share $1.00 $1.00 $1.00 $1.00 $1.00
Shares Outstanding 107,991,769 55,717,185 216,007,435 110,151,843 269,564,546
----------------------------------------------------------------------------------------------------
</TABLE>
o Investment Considerations and Risks are substantially identical:
The principal risk of investing in DG Prime Money Market Fund or ISG Prime Money
Market Portfolio is that the market value of its securities may decline in
response to an increase in interest rates. This could cause a portfolio security
to be worth less than the price originally paid for it, or less than it was
worth at an earlier time. However, if the security is held to maturity, no loss
would be realized. In addition, to the extent the Fund's investments are
concentrated in the banking industry or, in the case of DG Prime Money Market
Fund, finance companies, the Fund will have correspondingly greater exposure to
the risk factors affecting such investments. Sustained increases in interest
rates can adversely affect the availability or liquidity and cost of capital
funds for finance companies' and banks' lending activities, and a deterioration
in general economic conditions could increase the exposure to credit losses. For
a more complete discussion of investment considerations and risks, see
"Objective and Policies of Each Fund" in the DG Prime Money Market Fund
Prospectus and "Description of the Portfolios--Investment Considerations and
Risk Factors" in the ISG Fund Prospectus.
PERTAINING TO SHARE OWNERSHIP
(AS OF SEPTEMBER 14, 1998)
o DG Prime Money Market Fund Shares Outstanding: 217,953,930.22
o Entities known by DG Prime Money Market Fund to own of record or
beneficially 5% or more of its outstanding shares:
Percentage
Name and Number of Owned After
Address Shares Percentage Exchange
National Financial 216,388,747 99.37% 78.47%
(for the exclusive benefit
of our customers)
P.O. Box 3752
Church Street Station
New York, NY 10008-3750
o Entities known by ISG Prime Money Market Portfolio to own of record or
beneficially 5% or more of its outstanding Class A Shares or Trust Shares:
Percentage of
Class
Name and Number of Owned After
Address Shares Percentage Exchange
First American National Bank
Attn: AmeriStar Investment
Management & Trust 69,476,952 Trust 99.99% 95.51%
800 First American Center Shares
Nashville, TN 37237
o The Company's Directors and officers, as a group, owned less than 1% of the
Class A Shares and Trust Shares of ISG Prime Money Market Portfolio.
o The Trust's Trustees and officers, as a group, owned less than 1% of the
shares of DG Prime Money Market Fund.
<PAGE>
DG TREASURY MONEY MARKET FUND
COMPARISON OF DG TREASURY MONEY MARKET FUND AND ISG U.S. TREASURY MONEY MARKET
PORTFOLIO
o Investment Objective is substantially identical: DG Treasury Money Market
Fund seeks to provide investors with current income consistent with
stability of principal and liquidity. ISG U.S. Treasury Money Market
Portfolio seeks to provide investors with as high a level of current income
as is consistent with the preservation of capital and the maintenance of
liquidity.
o Management Policies are substantially similar:
-- Each Fund seeks to maintain a net asset value of $1.00 per share for
purchases and redemptions. To do so, each Fund uses the amortized cost
method of valuing its securities pursuant to Rule 2a-7 under the 1940
Act, which includes various maturity and diversification requirements.
There can be no assurance that either Fund will be able to maintain a
stable net asset value of $1.00 per share.
-- Each Fund invests primarily in U.S. Treasury securities and
repurchase agreements in respect thereof.
-- Each Fund may engage in lending portfolio securities.
-- DG Treasury Money Market Fund may borrow money only for temporary or
emergency purposes. ISG U.S. Treasury Money Market Portfolio may borrow
money for investment purposes, but currently intends to borrow money
only for temporary or emergency purposes.
o Investment Restrictions are substantially similar:
Unless otherwise noted, each investment restriction listed below is a
fundamental policy, which cannot be changed without approval by the holders
of a majority (as defined in the 1940 Act) of the DG Treasury Money Market
Fund's or ISG U.S. Treasury Money Market Portfolio's outstanding voting
shares. Neither DG Treasury Money Market Fund nor ISG U.S. Treasury Money
Market Portfolio may:
(1) sell securities short or purchase securities on margin, but may
obtain such short-term credits as are necessary for the clearance of
transactions.
(2) issue senior securities.
(3) borrow money, except the Fund may borrow up to 33-1/3% of the value
of its total assets (DG Treasury Money Market Fund may borrow only for
temporary or emergency purposes).
(4) pledge, mortgage or hypothecate its assets, except, with respect to
ISG U.S. Treasury Money Market Portfolio, to the extent necessary to
secure permitted borrowings or, with respect to DG Treasury Money Market
Fund, in an amount up to 15% of its total assets. This investment
restriction is a non-fundamental policy of ISG U.S. Treasury Money
Market Portfolio and may be changed by vote of a majority of the
Company's Board members at any time.
(5) make loans to others, except through the purchase of debt
obligations and the entry into repurchase agreements. Each Fund may lend
portfolio securities up to 33-1/3% of the value of its total assets.
(6) invest in commodities.
(7) purchase or sell real estate, including, with respect to DG Treasury
Money Market Fund, limited partnership interests in real estate,
although the Fund may invest in securities secured by real estate or
interests in real estate.
(8) act as an underwriter of securities of other issuers, except to the
extent the Fund may be deemed an underwriter by virtue of disposing of
portfolio securities.
(9) invest more than 10% of its net assets in illiquid securities. This
investment restriction is a non-fundamental policy of both DG Treasury
Money Market Fund and ISG U.S. Treasury Money Market Portfolio.
(10) purchase securities of other investment companies, except to the
extent permitted by, or pursuant to an exemption from, the 1940 Act.
This investment restriction is a non-fundamental policy of both DG
Treasury Money Market Fund and ISG U.S. Treasury Money Market Portfolio.
(11) invest in puts, calls or combinations thereof. This investment
restriction is a non-fundamental policy of both DG Treasury Money Market
Fund and ISG U.S. Treasury Money Market Portfolio.
In addition, as a fundamental policy, ISG U.S. Treasury Money Market
Portfolio may not invest more than 25% of its total assets in the
securities of issuers in any one industry. This investment restriction does
not apply to the purchase of U.S. government securities. As a
non-fundamental policy, ISG U.S. Treasury Money Market Portfolio may not
invest in securities of a company for the purpose of exercising management
or control. DG Treasury Money Market Fund has neither of these investment
restrictions, but currently has no intention of investing more than 25% of
its total assets in any one industry or investing for the purpose of
exercising management or control.
o Fees and Expenses:
The following information concerning fees and expenses is derived from
information set forth under the captions "Summary of Fund Expenses" in the DG
Treasury Money Market Fund Prospectus and "Annual Operating Expenses" in the ISG
Fund Prospectus. The expense information set forth below does not reflect any
fee waivers or expense reimbursement arrangements that may be or may have been
in effect.
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS):
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
ISG U.S. Treasury DG Treasury
Money Market Portfolio Money Market Pro Forma
Fund After Exchange
-----------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
Management Fees .25% .25% .50% .25% .25%
12b-1 Fees none none .25%* none none
Other Expenses .50% .25% .30% .50% .25%
Total Fund
Operating Expenses .75% .50% 1.05%* .75% .50%
-----------------------------------------------------------------------------------------------
- --------------
* Rule 12b-1 fees are being waived by Federated and are not being paid or
accrued by the DG Fund, and the Trust has disclosed that such fees would
not be paid until a separate class of shares is created for certain
institutional investors.
</TABLE>
EXAMPLE:
An investor 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:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
ISG U.S. Treasury DG Treasury
Money Market Portfolio Money Market Pro Forma
Fund After Exchange
-------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
--------------------------------------- ---------------------------------
<S> <C> <C> <C> <C> <C>
1 Year $ 8 $ 5 $ 11 $ 8 $ 5
3 Years $ 24 $ 16 $ 33 $ 24 $ 16
5 Years $ 42 $ 28 $ 58 $ 42 $ 28
10 Years $ 93 $ 63 $128 $ 93 $ 63
-------------------------------------------------------------------------------------------------
</TABLE>
THE AMOUNTS LISTED IN THE EXAMPLE SHOULD NOT BE CONSIDERED AS REPRESENTATIVE OF
PAST OR FUTURE EXPENSES AND ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE
INDICATED. MOREOVER, WHILE THE EXAMPLE ASSUMES A 5% ANNUAL RETURN, EACH FUND'S
ACTUAL PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN GREATER OR LESS
THAN 5%.
o Expense Reimbursement and Fee Waiver Arrangements:
As of May 1, 1998, DG Treasury Money Market Fund's 12b-1 Fees were not being
paid or accrued and a portion of its Management Fees were waived voluntarily
resulting in Total Fund Operating Expenses of .60%. ISG U.S. Treasury Money
Market Portfolio's Total Fund Operating Expenses for Class A Shares and Trust
Shares will be capped at .60% until May 1, 2000.
o Capitalization:
The following table sets forth as of June 30, 1998 (1) the capitalization of DG
Treasury Money Market Fund, (2) the capitalization of the Class A Shares and
Trust Shares of ISG U.S. Treasury Money Market Portfolio and (3) the pro forma
capitalization of the Class A Shares and Trust Shares of ISG U.S. Treasury Money
Market Portfolio as adjusted showing the effect of the Exchange had it occurred
on such date.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
ISG U.S. TREASURY MONEY DG TREASURY
MARKET PORTFOLIO MONEY MARKET PRO FORMA
FUND AFTER EXCHANGE
----------------------------------------------------------------------------------------------------
CLASS A TRUST SHARES CLASS A TRUST SHARES
------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
Total Net Assets $82,829,141 $85,625,007 $313,449,480 $89,098,131 $392,805,497
Net Asset Value
per share $1.00 $1.00 $1.00 $1.00 $1.00
Shares Outstanding 82,829,141 85,625,007 313,449,480 89,098,131 392,805,497
----------------------------------------------------------------------------------------------------
</TABLE>
o Investment Considerations and Risks are substantially identical:
The principal risk of investing in DG Treasury Money Market Fund or ISG U.S.
Treasury Money Market Portfolio is that the market value of its securities may
decline in response to an increase in interest rates. This could cause a
portfolio security to be worth less than the price originally paid for it, or
less than it was worth at an earlier time. However, if the security is held to
maturity, no loss would be realized. The value of U.S. Treasury securities also
will be affected by the supply and demand, as well as the perceived supply and
demand, for such securities. For a more complete discussion of investment
considerations and risks, see "Objective and Policies of Each Fund" in the DG
Treasury Money Market Fund Prospectus and "Description of the Portfolios" in the
ISG Fund Prospectus.
PERTAINING TO SHARE OWNERSHIP
(AS OF SEPTEMBER 14, 1998)
o DG Treasury Money Market Fund Shares Outstanding: 314,014,084.86
1 Entities known by DG Treasury Money Market Fund to own of record or
beneficially 5% or more of its outstanding shares:
Percentage
Name and Number of Owned After
Address Shares Percentage Exchange
Houvis & Co. 219,562,039 69.92% 55.61%
First American National Bank
First American Center
300 Union Street
Nashville, TN 37237-0001
The Bank of New York 78,046,765 24.85% 19.77%
Attn.: Peter Chan
2nd Floor
One Wall Street
New York, NY 10005-2500
o Entities known by ISG U.S. Treasury Money Market Portfolio to own of record
or beneficially 5% or more of its outstanding Class A Shares or Trust
Shares:
Percentage of
Class
Name and Number of Owned After
Address Shares Percentage Exchange
First American National Bank
Attn: AmeriStar Investment
Management & Trust 63,194,388 62.99% 58.08%
800 First American Center Class A Shares
Nashville, TN 37237
Hare & Co.
c/o Bank of New York
Attn: Stif/Master Note 30,629,533 30.53% 28.15%
2nd Floor Class A Shares
One Wall Street
New York, NY 10286
First American National Bank
Attn: AmeriStar Investment
Management & Trust 89,306,319 Trust 99.99% 22.61%
800 First American Center Shares
Nashville, TN 37237
o The Company's Directors and officers, as a group, owned less than 1% of the
Class A Shares and Trust Shares of ISG U.S. Treasury Money Market
Portfolio.
o The Trust's Trustees and officers, as a group, owned less than 1% of the
shares of DG Treasury Money Market Fund.
APPENDIX B
DIRECTORS OF THE ISG FUNDS
Directors of the Company, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each Director who is an "interested person" of the Company, as defined in
the 1940 Act, is indicated by an asterisk.
*WILLIAM B. BLUNDIN, PRESIDENT AND CHAIRMAN OF THE BOARD OF DIRECTORS. An
employee of BISYS Fund Services, Inc., BISYS' general partner. Mr.
Blundin also is an officer of other investment companies administered
by BISYS or its affiliates. He is 60 years old and his address is 90
Park Avenue, New York, New York 10016.
NORMA A. COLDWELL, DIRECTOR. International Economist and Consultant;
Executive Vice President of Coldwell Financial Consultants; Trustee
and Treasurer of Meridian House International (International Education
and Cultural Group); Member of the Board of Advisors of Meridian
International Center and Emerging Capital Markets, S.A. (Montevideo,
Uruguay); formerly Chief International Economist of Riggs National
Bank, Washington, D.C. She is 72 years old and her address is 3330
Southwestern Boulevard, Dallas, Texas 75225.
RICHARD H. FRANCIS, DIRECTOR. Former Executive Vice President and Chief
Financial Officer of Pan American World Airways, Inc. (currently,
debtor-in-possession under the U.S. Bankruptcy Code), March 1988 to
October 1991; Senior Vice President and Chief Financial Officer of
American Standard Inc., 1960 to March 1988. Mr. Francis is a director
of Allendale Mutual Insurance and The Indonesia Fund, Inc. He is 66
years old and his address is 40 Grosvenor Road, Short Hills, New
Jersey 07078.
WILLIAM W. McINNES, DIRECTOR. Private investor. From July 1978 to February
1993, he was Vice President--Finance and Treasurer of Hospital Corp.
of America. He is also a director of Gulf South Medical Supply and
Diversified Trust Co. He is 48 years old and his address is 116 30th
Avenue South, Nashville, Tennessee 37212.
ROBERT A. ROBINSON, DIRECTOR. Private investor. Since 1991, President
Emeritus, and from 1968 to 1991, President of The Church Pension
Group, NYC. From 1956 to 1966, Senior Vice President of Colonial Bank
& Trust Co. He is also a director of Mariner Institutional Funds,
Inc., Mariner Tax-Free Institutional Funds, Inc., UST Master Funds,
UST Master Tax Exempt Funds, H.B. and F.H. Bugher Foundation,
Morehouse-Barlow Co. Publishers, The Canterbury Cathedral Trust in
America, The Living Church Foundation and Hoosac School. He is 71
years old and his address is 2 Hathaway Common, New Canaan,
Connecticut 06840.
<PAGE>
APPENDIX C
FORM OF
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION dated as of September 18, 1998
(the "Agreement"), between DG INVESTOR SERIES, a Massachusetts business trust
(the "Trust"), on behalf of its ____1____ (the "Acquired Fund"), and THE
INFINITY MUTUAL FUNDS, INC., a Maryland corporation (the "Company"), on behalf
of its ____2____ (the "Acquiring Fund"). All agreements, representations,
actions and obligations described herein that are made or to be taken or
undertaken by the Acquired Fund are made and shall be taken or undertaken by the
Trust on behalf of the Acquired Fund. All agreements, representations, actions
and obligations described herein that are made or to be taken or undertaken by
the Acquiring Fund are made and shall be taken or undertaken by the Company on
behalf of the Acquiring Fund.
WHEREAS, the Trust and the Company wish to effect a reorganization,
which will consist of the transfer of all of the assets of the Acquired Fund to
the Acquiring Fund in exchange solely for Class A Shares and Trust Shares of
common stock, par value $.001 per share, of the Acquiring Fund (the "Acquiring
Fund Shares") and the assumption by the Acquiring Fund of certain liabilities of
the Acquired Fund and the distribution of the Acquiring Fund Shares to the
shareholders of the Acquired Fund in liquidation of the Acquired Fund as
provided herein (the "Reorganization"), all upon the terms and conditions
hereinafter set forth in this Agreement;
WHEREAS, the Trust and the Company intend this Agreement to be a plan
of reorganization and liquidation within the meaning of Section 368(a)(1)
____(3)____ of the United States Internal Revenue Code of 1986, as amended (the
"Code");
- --------
1 Insert DG Equity Fund, DG Government Income Fund, DG International
Equity Fund, DG Limited Term Government Income Fund, DG Municipal
Income Fund, DG Opportunity Fund, DG Prime Money Market Fund or DG
Treasury Money Market Fund, as appropriate.
2 Insert ISG Large Cap Equity Portfolio, ISG Government Income
Portfolio, ISG International Equity Portfolio, ISG Limited Duration
U.S. Government Portfolio, ISG Municipal Income Portfolio, ISG Small
Cap Opportunity Portfolio, ISG Prime Money Market Portfolio or ISG
U.S. Treasury Money Market Portfolio, as appropriate.
3 Insert D with respect to Pre-Existing ISG Funds, or F with respect to
each other ISG Fund.
WHEREAS, the Acquired Fund and the Acquiring Fund are registered,
open-end management investment companies, and the Acquired Fund owns securities
which are assets of the character in which the Acquiring Fund is permitted to
invest;
WHEREAS, the Acquiring Fund and the Acquired Fund are authorized to
issue their respective shares of common stock and beneficial interest,
respectively;
WHEREAS, Acquired Fund shareholders who hold Acquired Fund shares
through a qualified trust, custody or agency accounts at Deposit Guaranty
National Bank or affiliated and correspondent banks of Deposit Guaranty National
Bank or certain other affiliated and non-affiliated institutions will receive
Trust Shares of the Acquiring Fund and all other Acquired Fund shareholders will
receive Class A Shares of the Acquiring Fund;
WHEREAS, First American National Bank has agreed to bear the costs
incurred in connection with the Reorganization;
WHEREAS, the Board of the Company has determined that the exchange of
all of the assets of the Acquired Fund for Acquiring Fund Shares, and the
assumption of the Acquired Fund's liabilities by the Acquiring Fund is in the
best interests of the Acquiring Fund and its shareholders and that the interests
of the Acquiring Fund's existing shareholders would not be diluted as a result
of this transaction; and
WHEREAS, the Board of the Trust has determined that the exchange of
all of the assets of the Acquired Fund for Acquiring Fund Shares, and the
assumption of the Acquired Fund's liabilities by the Acquiring Fund is in the
best interests of the Acquired Fund and its shareholders and that the interests
of the Acquired Fund's existing shareholders would not be diluted as a result of
this transaction:
NOW THEREFORE, in consideration of the premises and of the covenants
and agreements hereinafter set forth, the parties agree as follows:
1. TRANSFER OF ASSETS OF THE ACQUIRED FUND IN EXCHANGE FOR THE ACQUIRING
FUND SHARES AND ASSUMPTION OF ACQUIRED FUND LIABILITIES AND
LIQUIDATION OF THE ACQUIRED FUND.
1.1. Subject to the requisite approval of the shareholders of the
Acquired Fund and to the other terms and conditions contained herein:
(a) The Acquired Fund agrees to assign, transfer and convey to
the Acquiring Fund at the Closing (as defined and provided for in paragraph 3.1)
all of the Assets of the Acquired Fund (as defined in paragraph 1.2).
(b) The Acquiring Fund agrees in exchange therefor at the Closing
(i) to issue and deliver to the Acquired Fund the number of Acquiring Fund
Shares, including fractional Acquiring Fund Shares, determined as set forth in
paragraph 2.3; and (ii) to assume certain liabilities of the Acquired Fund, as
set forth in paragraph 1.3. In lieu of delivering certificates for the Acquiring
Fund Shares, the Acquiring Fund shall credit the Acquiring Fund Shares to the
Acquired Fund's account on the books of the Acquiring Fund and shall deliver a
confirmation thereof to the Acquired Fund.
1.2. (a) The assets of the Acquired Fund to be acquired by the
Acquiring Fund (the "Assets") shall consist of all property, including, without
limitation, all securities, cash, cash equivalents, commodities and futures
interest, dividend and interest receivables, claims and rights of action that
are owned by the Acquired Fund, any deferred or pre-paid expenses shown as
assets on the books of the Acquired Fund, on the Closing Date (as defined in
paragraph 3.1), and all books and records of the Acquired Fund. The Assets shall
be invested at all times through the Closing in a manner that insures compliance
with paragraph 4.1(j).
(b) The Acquired Fund has provided the Acquiring Fund with a list
of all of its property, including all of the Assets, as of the date of the
execution of this Agreement. The Acquired Fund reserves the right to sell any of
these assets prior to the Closing Date. The Acquiring Fund will, within a
reasonable time prior to the Closing Date, furnish the Acquired Fund with a list
of any assets on such list that do not conform to the Acquiring Fund's
investment objective, policies and restrictions or that the Acquiring Fund
otherwise does not desire to hold. The Acquired Fund will dispose of such assets
prior to the Closing Date to the extent practicable and to the extent the
Acquired Fund would not be affected adversely by such a disposition. In
addition, if it is determined that the portfolios of the Acquired Fund and the
Acquiring Fund, when aggregated, would contain investments exceeding certain
percentage limitations imposed upon the Acquiring Fund with respect to such
investments, the Acquired Fund, if requested to do so by the Acquiring Fund,
will dispose of and/or reinvest a sufficient amount of such investments as may
be necessary to avoid violating such limitations as of the Closing Date.
1.3. The Acquired Fund will endeavor to discharge all of its known
liabilities and obligations prior to the Closing Date. At the Closing, the
Acquiring Fund shall assume all known liabilities, debts, obligations, expenses,
costs, charges and reserves reflected in the calculation of the Acquired Fund's
net asset value and set forth on an unaudited statement of assets and
liabilities of the Acquired Fund prepared by the Acquired Fund's administrator,
as of the Valuation Time (as defined in paragraph 2.1), in accordance with
generally accepted accounting principles consistently applied from the prior
audited period (the "Liabilities"). The Acquiring Fund shall assume only those
liabilities of the Acquired Fund reflected in that unaudited statement of assets
and liabilities and shall not assume any other liabilities, whether absolute or
contingent.
1.4. The Acquired Fund shall deliver the Assets at the Closing to The
Bank of New York, 90 Washington Street, New York, New York 10286, the Acquiring
Fund's custodian (the "Custodian"), for the account of the Acquiring Fund, with
all securities not in bearer or book-entry form duly endorsed, or accompanied by
duly executed separate assignments or stock powers, in proper form for transfer,
with signatures guaranteed, and with all necessary stock transfer stamps,
sufficient to transfer good and marketable title thereto (including all accrued
interest and dividends and rights pertaining thereto) to the Custodian for the
account of the Acquiring Fund free and clear of (other than the Liabilities) all
liens, encumbrances, rights, restrictions and claims. All cash delivered shall
be in the form of immediately available funds payable to the order of the
Custodian for the account of the Acquiring Fund.
1.5. The Acquired Fund will pay or transfer or cause to be paid or
transferred to the Acquiring Fund any dividends, interest, distributions, rights
or other assets received by the Acquired Fund on or after the Closing Date as
distributions on or with respect to any of the Assets. Any such dividends,
interest, distributions, rights, or other assets so paid or transferred, or
received directly by the Acquired Fund, shall be allocated by the Acquired Fund
to the account of the Acquiring Fund, and shall be deemed included in the Assets
transferred to the Acquiring Fund on the Closing Date and shall not be
separately valued.
1.6. As soon after the Closing Date as is conveniently practicable
(the "Liquidation Date"), the Acquired Fund will liquidate and distribute pro
rata to the Acquired Fund's shareholders of record, determined as of the
Valuation Time (the "Acquired Fund Shareholders"), the Acquiring Fund Shares
received by the Acquired Fund pursuant to paragraph 1.1. Such liquidation and
distribution will be accomplished by transferring the applicable Acquiring Fund
Shares then credited to the account of the Acquired Fund on the books of the
Acquiring Fund to open accounts on the share records of the Acquiring Fund in
the names of the Acquired Fund Shareholders and representing the respective pro
rata number of the applicable full and fractional Acquiring Fund Shares due such
shareholders. All issued and outstanding shares of the Acquired Fund
simultaneously will be canceled on the books of the Acquired Fund.
1.7. Ownership of Acquiring Fund Shares will be shown on the books of
the Acquiring Fund's transfer agent. Shares of the Acquiring Fund will be issued
in the manner described in the Acquiring Fund's current prospectus and statement
of additional information, which are and shall be consistent with the policies
currently in effect for the Acquired Fund.
1.8. Any transfer taxes payable upon issuance of the Acquiring Fund
Shares in a name other than the registered holder of the Acquired Fund shares on
the books of the Acquired Fund as of that time shall, as a condition of such
issuance and transfer, be paid by the person to whom such Acquiring Fund Shares
are to be issued and transferred.
1.9. Any reporting responsibility of the Acquired Fund is and shall
remain the responsibility of the Acquired Fund up to and including the Closing
Date and such later date on which the Acquired Fund's existence is terminated.
2. VALUATION.
2.1. The value of the Assets and the amount of the Liabilities to be
acquired by the Acquiring Fund hereunder shall each be computed as of the close
of trading on the floor of the New York Stock Exchange (currently, 4:00 p.m.,
New York time), except that any options and futures contracts will be valued 15
minutes after the close of trading on the floor of the New York Stock Exchange,
on the Closing Date (such time and date being hereinafter called the "Valuation
Time"), using the valuation procedures set forth in the Company's Articles of
Incorporation, as the same may have been amended (the "Company's Charter"), and
the Acquiring Fund's then-current prospectus or statement of additional
information, which are and shall be consistent with the policies currently in
effect for the Acquired Fund.
2.2. The net asset value of an Acquiring Fund Share shall be the net
asset value per share computed as of the Valuation Time, using the valuation
procedures set forth in the Company's Charter and the Acquiring Fund's
then-current prospectus or statement of additional information, which are and
shall be consistent with the policies currently in effect for the Acquired Fund.
[APPLICABLE ONLY WITH RESPECT TO THE MONEY MARKET FUNDS] The value of
the Acquired Fund's assets and the value of the Acquiring Fund Shares for
purposes of sales and redemptions shall be based on the amortized cost valuation
procedures that have been adopted by the Board of the Trust and the Company,
respectively. Any provision in this Agreement to the contrary notwithstanding,
if the difference between the per share net asset values of the Acquired Fund
and the Acquiring Fund equals or exceeds $.0025 at the Valuation Time, as
computed by using such market values in accordance with the policies and
procedures established by the Company (or as otherwise mutually determined by
the Board of the Trust and the Company), either the Board of the Trust or of the
Company shall have the right to postpone the Valuation Time until such time as
the per share difference is less than $.0025.
2.3. The number of Acquiring Fund Shares to be issued (including
fractional shares, if any) in exchange for the Assets shall be determined by
dividing the value of the Assets minus the Liabilities determined using the same
valuation procedures referred to in paragraph 2.1 by the net asset value of one
Acquiring Fund Share determined in accordance with paragraph 2.2.
2.4. All computations and calculations of value shall be made in
accordance with the regular practices of the Acquiring Fund.
3. CLOSING AND CLOSING DATE.
3.1. The exchange of the Assets and Liabilities of the Acquired Fund
for Acquiring Fund Shares according to the terms of this Agreement (the
"Closing") shall occur ____________, 1998 or at such later date as the parties
may mutually agree (the "Closing Date"). All acts taking place at the Closing
shall be deemed to take place simultaneously as of the close of business on the
Closing Date unless otherwise provided. The Closing shall be held at _:__ p.m.,
Eastern time, at the offices of ________________________, or such other time
and/or place as the parties may mutually agree.
3.2. The Custodian shall deliver at the Closing a certificate of an
authorized officer stating that the Acquired Fund's portfolio securities, cash
and any other assets have been presented for examination to the Acquiring Fund
prior to the Closing Date and have been delivered in proper form to the
Acquiring Fund.
3.3. If at the Valuation Time (a) the New York Stock Exchange or
another primary trading market for portfolio securities of either party shall be
closed to trading or trading thereon shall be restricted; or (b) trading or the
reporting of trading on said Exchange or elsewhere shall be disrupted so that
accurate appraisal of the value of the net assets of either party is
impracticable, the Closing Date shall be postponed until the first business day
after the day when trading shall have been fully resumed and reporting shall
have been restored.
3.4. The transfer agent for the Acquired Fund shall deliver at the
Closing a certificate of an authorized officer stating that its records contain
the names and addresses of the Acquired Fund Shareholders and the number and
percentage ownership of outstanding shares of the Acquired Fund owned by each
such Shareholder immediately prior to the Closing. The Acquiring Fund shall
issue and deliver a confirmation evidencing the Acquiring Fund Shares to be
credited on the Closing Date to the Secretary of the Acquired Fund, or provide
evidence satisfactory to the Acquired Fund that such Acquiring Fund Shares have
been credited to the Acquired Fund's account on the books of the Acquiring Fund.
At the Closing, each party shall deliver to the other such bills of sale,
checks, assignments, receipts or other documents as such other party or its
counsel may reasonably request.
4. REPRESENTATIONS AND WARRANTIES.
4.1. The Trust, on behalf of the Acquired Fund, represents and
warrants to the Company, on behalf of the Acquiring Fund, as follows:
(a) The Acquired Fund is a series of the Trust, a business trust
duly organized and validly existing and in good standing under the laws of The
Commonwealth of Massachusetts, and has power to own all of its properties and
assets and to carry out this Agreement.
(b) The Trust is registered under the Investment Company Act of
1940, as amended (the "1940 Act"), as an open-end management investment company,
of which the Acquired Fund is a separate ____4____ portfolio, and such
registration has not been revoked or rescinded and is in full force and effect.
- --------
4 Insert diversified for all DG Funds, except DG International Equity
Fund. Insert non-diversified for DG International Equity Fund.
(c) The current prospectus and statement of additional
information of the Acquired Fund conform in all material respects to the
applicable requirements of the Securities Act of 1933, as amended (the "1993
Act"), and the 1940 Act and the rules and regulations of the Securities and
Exchange Commission (the "SEC") thereunder and do not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) The Acquired Fund is not, and the execution, delivery and
performance of this Agreement will not result, in any material violation of the
Trust's Declaration of Trust, as the same may have been amended (the "Trust's
Trust Agreement"), or its Bylaws or of any agreement, indenture, instrument,
contract, lease or other undertaking with respect to the Acquired Fund to which
the Trust is a party or by which it is bound.
(e) The Acquired Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will be terminated
with liability to it on or prior to the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted by
the Acquiring Fund, no litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to the
Trust's knowledge threatened against the Trust with respect to the Acquired Fund
or any of its properties or assets which, if adversely determined, would
adversely affect the Acquired Fund's financial condition or the conduct of its
business. The Trust knows of no facts which might form the basis for the
institution of such litigation, proceeding or investigation, and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body which adversely affects the Acquired Fund's business or its
ability to consummate the transactions herein contemplated.
(g) The Statements of Assets and Liabilities of the Acquired Fund
from its commencement of operations through its fiscal year ended February 28,
1998 have been audited by KPMG Peat Marwick LLP, independent auditors, and are
in accordance with generally accepted accounting principles, consistently
applied, and such statements (copies of which have been furnished to the
Company) fairly reflect the financial condition of the Acquired Fund as of such
dates, and there are no known contingent liabilities of the Acquired Fund as of
such dates not disclosed therein.
(h) Since February 28, 1998, there has not been any material
adverse change in the Acquired Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquired Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as disclosed on the
statement of assets and liabilities referred to in Section 1.3 hereof.
(i) At the Closing Date, all Federal and other tax returns and
reports of the Acquired Fund required by law to have been filed by such date
shall have been filed, and all Federal and other taxes shall have been paid so
far as due, or provision shall have been made for the payment thereof, and to
the best of the Trust's knowledge no such return is currently under audit and no
assessment has been asserted with respect to such returns.
(j) The Acquired Fund is a "fund" as defined in Section 851(g)(2)
of the Code; for each fiscal year of its operation ended prior to the Closing
Date, the Acquired Fund has met the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company; based on the
Acquired Fund's activities and operations through the Closing Date, the Acquired
Fund will continue to meet all such requirements for its taxable year (or
portion thereof) that ends on or includes the Closing Date; and the Acquired
Fund will monitor its activities and operations through the Closing Date to
assure compliance with the requirements of Subchapter M of the Code for
qualification and treatment as a regulated investment company. The Acquired Fund
has no earnings and profits accumulated in any taxable year to which the
provisions of Subchapter M did not apply.
(k) The Liabilities were incurred by the Acquired Fund in the
ordinary course of its business.
(l) The Acquired Fund is not under the jurisdiction of a court in
a proceeding under Title 11 of the United States Code or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(m) The Acquired Fund will distribute the Acquiring Fund Shares
it receives in the Reorganization to the Acquired Fund Shareholders.
(n) The Acquired Fund will be terminated as soon as reasonably
practicable after the Reorganization.
(o) All issued and outstanding shares of the Acquired Fund are,
and at the Closing Date will be, duly and validly issued and outstanding, fully
paid and non-assessable by the Acquired Fund. All of the issued and outstanding
shares of the Acquired Fund will, at the time of Closing, be held by the persons
and in the amounts set forth in the records of the transfer agent as provided in
paragraph 3.4. The Acquired Fund does not have outstanding any options, warrants
or other rights to subscribe for or purchase any of the Acquired Fund shares,
nor is there outstanding any security convertible into any of the Acquired Fund
shares.
(p) On the Closing Date, the Acquired Fund will have full right,
power and authority to sell, assign, transfer and deliver the Assets to be
transferred by it hereunder.
(q) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary action
on the part of the Trust's Board and, subject to the approval of the Acquired
Fund Shareholders and assuming due authorization, execution and delivery hereof
by the Company, on behalf of the Acquiring Fund, this Agreement will constitute
the valid and legally binding obligation of the Trust, on behalf of the Acquired
Fund, enforceable in accordance with its terms, subject to the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and
other similar laws relating to or affecting creditors' rights generally and
court decisions with respect thereto, and to general principles of equity and
the discretion of the court (regardless of whether the enforceability is
considered in a proceeding in equity or at law).
(r) With respect to facts relating to the Acquired Fund, the
prospectus/proxy statement and statement of additional information (the "Proxy
Statement") included in the Registration Statement (referred to in paragraph
5.5) and the information incorporated by reference into the Registration
Statement (other than information therein that has been furnished by the
Company) will, on the effective date of the Registration Statement and on the
Closing Date, not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which such statements
were made, not misleading.
4.2. The Company, on behalf of the Acquiring Fund, represents and
warrants to the Trust, on behalf of the Acquired Fund, as follows:
(a) The Acquiring Fund is a series of the Company, a corporation
duly organized, validly existing and in good standing under the laws of the
State of Maryland, and has power to carry on its business as it is now being
conducted and to carry out this Agreement.
(b) The Company is registered under the 1940 Act as an open-end,
management investment company, of which the Acquiring Fund is a separate
____5____ portfolio, and such registration has not been revoked or rescinded and
is in full force and effect.
- --------
5 Insert diversified for all ISG Portfolios, except ISG International
Equity Portfolio and ISG Limited Duration U.S. Government Portfolio.
Insert non-diversified for ISG International Equity Portfolio and ISG
Limited Duration U.S.
Government Portfolio.
(c) The current prospectus and statement of additional
information of the Acquiring Fund conform in all material respects to the
applicable requirements of the 1933 Act and the 1940 Act and the rules and
regulations of the SEC thereunder and do not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(d) The Acquiring Fund is not, and the execution, delivery and
performance of this Agreement will not result, in any material violation of the
Company's Charter or its Bylaws or of any agreement, indenture, instrument,
contract, lease or other undertaking to which the Acquiring Fund is a party or
by which it is bound.
(e) The Acquiring Fund has no material contracts or other
commitments outstanding (other than this Agreement) which will be terminated
with liability to it on or prior to the Closing Date.
(f) Except as otherwise disclosed in writing to and accepted by
the Acquired Fund, no litigation or administrative proceeding or investigation
of or before any court or governmental body is currently pending or to the
Company's knowledge threatened against the Company with respect to the Acquiring
Fund or any of its properties or assets which, if adversely determined, would
adversely affect the Acquiring Fund's financial condition or the conduct of its
business. The Company knows of no facts which might form the basis for the
institution of such litigation, proceeding or investigation, and is not a party
to or subject to the provisions of any order, decree or judgment of any court or
governmental body which adversely affects the Acquiring Fund's business or its
ability to consummate the transactions contemplated herein.
(g) [APPLICABLE ONLY WITH RESPECT TO ISG LIMITED DURATION U.S.
GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND ISG U.S. TREASURY
MONEY MARKET PORTFOLIO] The Statements of Assets and Liabilities of the
Acquiring Fund from its commencement of operations through its fiscal year ended
December 31, 1997 have been audited by KPMG Peat Marwick LLP, independent
auditors, and are in accordance with generally accepted accounting principles,
consistently applied, and such statements (copies of which have been furnished
to the Trust) fairly reflect the financial condition of the Acquiring Fund as of
such dates, and there are no known contingent liabilities of the Acquiring Fund
as of such dates not disclosed therein; the unaudited statement of assets and
liabilities of the Acquiring Fund for the six month period ended June 30, 1998,
are in accordance with generally accepted accounting principles, consistently
applied, and such statement (copies of which have been furnished to the Trust)
fairly reflect the financial condition of the Acquiring Fund as of such date,
and there are no known contingent liabilities of the Acquiring Fund as of such
date not disclosed therein.
(h) [APPLICABLE ONLY WITH RESPECT TO ISG LIMITED DURATION U.S.
GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND ISG U.S. TREASURY
MONEY MARKET PORTFOLIO] Since June 30, 1998, there has not been any material
adverse change in the Acquiring Fund's financial condition, assets, liabilities
or business other than changes occurring in the ordinary course of business, or
any incurrence by the Acquiring Fund of indebtedness maturing more than one year
from the date such indebtedness was incurred, except as disclosed on the
statement of assets and liabilities as of June 30, 1998 referred to in Section
4.2(g) hereof.
(i) [APPLICABLE ONLY WITH RESPECT TO ISG LIMITED DURATION U.S.
GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND ISG U.S. TREASURY
MONEY MARKET PORTFOLIO] At the Closing Date, all Federal and other tax returns
and reports of the Acquiring Fund required by law to have been filed by such
date shall have been filed, and all Federal and other taxes shall have been paid
so far as due, or provision shall have been made for the payment thereof, and to
the best of the Company's knowledge no such return is currently under audit and
no assessment has been asserted with respect to such returns.
(j) [APPLICABLE ONLY WITH RESPECT TO ISG LIMITED DURATION U.S.
GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND ISG U.S. TREASURY
MONEY MARKET PORTFOLIO] The Acquiring Fund is a "fund" as defined in Section
851(g)(2) of the Code; for each fiscal year of its operation ended prior to the
Closing Date, the Acquiring Fund has met the requirements of Subchapter M of the
Code for qualification and treatment as a regulated investment company; it will
continue to meet all such requirements for its taxable year that includes the
Closing Date; and it has no earnings and profits accumulated in any taxable year
to which the provisions of Subchapter M did not apply.
(k) No consideration other than the Acquiring Fund Shares (and
the Acquiring Fund's assumption of the Liabilities) will be issued in exchange
for the Assets in the Reorganization.
(l) The Acquiring Fund is not under the jurisdiction of a court
in a proceeding under Title 11 of the United States Code or similar case within
the meaning of Section 368(a)(3)(A) of the Code.
(m) The Acquiring Fund has no plan or intention to issue
additional Acquiring Fund Shares following the Reorganization except for shares
issued in the ordinary course of its business as a series of an open-end
investment company; nor does the Acquiring Fund have any plan or intention to
redeem or otherwise reacquire any Acquiring Fund Shares issued to the Acquired
Fund Shareholders pursuant to the Reorganization, other than through redemptions
arising in the ordinary course of that business.
(n) [APPLICABLE ONLY WITH RESPECT TO ISG LIMITED DURATION U.S.
GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND ISG U.S. TREASURY
MONEY MARKET PORTFOLIO] The Acquiring Fund (i) will, after the Reorganization,
continue the historic business that the Acquired Fund conducted before the
Reorganization, (ii) has no plan or intention to sell or otherwise dispose of
more than 10% of the Assets by value, except for dispositions made in the
ordinary course of that business (i.e., dispositions resulting from investment
decisions made after the Reorganization on the basis of investment
considerations independent of the Reorganization) and dispositions necessary to
maintain its status as a regulated investment company, and (iii) expects to use
a significant portion of the Acquired Fund's historic business assets in that
business.
[APPLICABLE ONLY WITH RESPECT TO ISG LARGE CAP EQUITY PORTFOLIO,
ISG GOVERNMENT INCOME PORTFOLIO, ISG INTERNATIONAL EQUITY PORTFOLIO, ISG
MUNICIPAL INCOME PORTFOLIO AND ISG SMALL CAP OPPORTUNITY PORTFOLIO] The
Acquiring Fund (i) will, after the Reorganization, continue the historic
business that the Acquired Fund conducted before the Reorganization in a
substantially unchanged manner, and (ii) has no plan or intention to sell or
otherwise dispose of any of the Assets, except for dispositions made in the
ordinary course of that business (i.e., dispositions resulting from investment
decisions made after the Reorganization on the basis of investment
considerations independent of the Reorganization) and dispositions necessary to
maintain its status as a regulated investment company.
(o) There is no plan or intention for the Acquiring Fund to be
dissolved or merged into another corporation or business trust or any "fund"
thereof (within the meaning of Section 851(g)(2) of the Code) following the
Reorganization.
(p) [APPLICABLE ONLY WITH RESPECT TO ISG LIMITED DURATION U.S.
GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND ISG U.S. TREASURY
MONEY MARKET PORTFOLIO] The Acquiring Fund does not own, directly or indirectly,
nor on the Closing Date will it own, directly or indirectly, nor has it owned,
directly or indirectly, at any time during the past five years, any shares of
the Acquired Fund.
(q) All issued and outstanding shares of the Acquiring Fund are,
and (including the shares of the Acquiring Fund that are issued in the
Reorganization) at the Closing Date will be, duly and validly issued and
outstanding, fully paid and non-assessable. The Acquiring Fund does not have
outstanding any options, warrants or other rights to subscribe for or purchase
any of the Acquiring Fund Shares, nor is there outstanding any security
convertible into any Acquiring Fund Shares.
(r) The execution, delivery and performance of this Agreement
will have been duly authorized prior to the Closing Date by all necessary
action, if any, on the part of the Company's Board, and, subject to the approval
of the Acquired Fund Shareholders and assuming due authorization, execution and
delivery hereof by the Trust, on behalf of the Acquired Fund, this Agreement
will constitute the valid and legally binding obligation of the Company, on
behalf of the Acquiring Fund, enforceable in accordance with its terms, subject
to the effect of bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance and other similar laws relating to or affecting creditors' rights
generally and court decisions with respect thereto, and to general principles of
equity and the discretion of the court (regardless of whether the enforceability
is considered in a proceeding in equity or at law).
(s) With respect to facts relating to the Acquiring Fund, the
Proxy Statement included in the Registration Statement (referred to in paragraph
5.5) and the information incorporated by reference into the Registration
Statement (other than information therein that has been furnished by the Trust)
will, on the effective date of the Registration Statement and on the Closing
Date, not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which such statements were made,
not misleading.
(t) [APPLICABLE ONLY WITH RESPECT TO ISG LIMITED DURATION U.S.
GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND ISG U.S. TREASURY
MONEY MARKET PORTFOLIO] Immediately after the Reorganization, the Acquired Fund
Shareholders will be in "control" of the Acquiring Fund within the meaning of
Section 304(c) of the Code.
[APPLICABLE ONLY WITH RESPECT TO ISG LARGE CAP EQUITY PORTFOLIO,
ISG GOVERNMENT INCOME PORTFOLIO, ISG INTERNATIONAL EQUITY PORTFOLIO, ISG
MUNICIPAL INCOME PORTFOLIO, AND ISG SMALL CAP OPPORTUNITY PORTFOLIO] Immediately
after the Reorganization, the Acquired Fund Shareholders will own all of the
outstanding shares of the Acquiring Fund and will own such shares solely by
reason of their ownership of Acquired Fund shares immediately before the
Reorganization.
(u) [APPLICABLE ONLY WITH RESPECT TO ISG LARGE CAP EQUITY
PORTFOLIO, ISG GOVERNMENT INCOME PORTFOLIO, ISG INTERNATIONAL EQUITY PORTFOLIO,
ISG MUNICIPAL INCOME PORTFOLIO, AND ISG SMALL CAP OPPORTUNITY PORTFOLIO]
Immediately after the Reorganization, the Acquiring Fund will possess the same
assets and liabilities, except for any assets used to pay expenses incurred in
connection with the Reorganization, as those possessed by the Acquired Fund
immediately prior to the Reorganization. Any assets used to pay expenses
incurred in connection with the Reorganization and all redemptions and
distributions (except for regular, normal dividends) made by the Acquired Fund
immediately before the Reorganization will, in the aggregate, constitute less
than 1% of the net assets of the Acquired Fund.
4.3. Each of the Trust, on behalf of the Acquired Fund, and the
Company, on behalf of the Acquiring Fund, represents and warrants to the other
as follows:
(a) The fair market value of the Acquiring Fund Shares, when
received by the Acquired Fund Shareholders, will be approximately equal to the
fair market value of their Acquired Fund shares constructively surrendered in
exchange therefor.
(b) Its management (i) is unaware of any plan or intention of
Acquired Fund Shareholders to redeem or otherwise dispose of any portion of the
Acquiring Fund Shares to be received by them in the Reorganization and (ii) does
not anticipate dispositions of those Acquiring Fund Shares at the time of or
soon after the Reorganization to exceed the usual rate and frequency of
dispositions of shares of the Acquired Fund as a series of an open-end
investment company. Consequently, its management expects that the percentage of
Acquired Fund Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be DE MINIMIS. Nor does its
management anticipate that there will be extraordinary redemptions of Acquiring
Fund Shares immediately following the Reorganization.
(c) The Acquired Fund Shareholders will pay their own expenses,
if any, incurred in connection with the Reorganization.
(d) The fair market value on a going concern basis of the Assets
will equal or exceed the Liabilities to be assumed by the Acquiring Fund and
those to which the Assets are subject.
(e) [APPLICABLE ONLY WITH RESPECT TO DG LIMITED TERM GOVERNMENT
INCOME FUND, DG PRIME MONEY MARKET FUND, DG TREASURY MONEY MARKET FUND, ISG
LIMITED DURATION U.S. GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND
ISG U.S. TREASURY MONEY MARKET PORTFOLIO] The total adjusted basis of the Assets
will equal or exceed the sum of the Liabilities to be assumed by the Acquiring
Fund and those to which the Assets are subject.
(f) There is no intercompany indebtedness between the Acquired
Fund and the Acquiring Fund that was issued or acquired, or will be settled, at
a discount.
(g) [APPLICABLE ONLY WITH RESPECT TO DG LIMITED TERM GOVERNMENT
INCOME FUND, DG PRIME MONEY MARKET FUND, DG TREASURY MONEY MARKET FUND, ISG
LIMITED DURATION U.S. GOVERNMENT PORTFOLIO, ISG PRIME MONEY MARKET PORTFOLIO AND
ISG U.S. TREASURY MONEY MARKET PORTFOLIO] Pursuant to the Reorganization, the
Acquired Fund will transfer to the Acquiring Fund, and the Acquiring Fund will
acquire, at least 90% of the fair market value of the net assets, and at least
70% of the fair market value of the gross assets, held by the Acquired Fund
immediately before the Reorganization. For purposes of this representation, any
amounts used by the Acquired Fund to pay its Reorganization expenses and
redemptions and distributions made by it immediately before the Reorganization
(except for (i) distributions made to conform to its policy of distributing all
or substantially all of its income and gains to avoid the obligation to pay
Federal income tax and/or excise tax under Section 4982 of the Code and (ii)
redemptions not made as part of the Reorganization) will be included as assets
thereof held immediately before the Reorganization.
(h) None of the compensation received by any Acquired Fund
Shareholder who is an employee of the Acquired Fund will be separate
consideration for, or allocable to, any of the Acquired Fund shares held by such
Acquired Fund Shareholder-employee; none of the Acquiring Fund Shares received
by any such Acquired Fund Shareholder-employee will be separate consideration
for, or allocable to, any employment agreement; and the consideration paid to
any such Acquired Fund Shareholder-employee will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's-length for similar services.
5. COVENANTS OF THE FUNDS.
5.1. Each Fund will operate its business in the ordinary course
between the date hereof and the Closing Date, it being understood that such
ordinary course of business will include payment of customary dividends and
other distributions.
5.2. The Trust will call a meeting of the Acquired Fund Shareholders
to consider and act upon this Agreement and to take all other action necessary
to obtain approval of the transactions contemplated herein.
5.3. Subject to the provisions of this Agreement, the Trust and
Company will take, or cause to be taken, all action, and do or cause to be done,
all things reasonably necessary, proper or advisable to consummate and make
effective the transactions contemplated by this Agreement.
5.4. As promptly as practicable, but in any case within sixty days
after the Closing Date, the Trust shall furnish the Company, in such form as is
reasonably satisfactory to the Company, a statement of the earnings and profits
of the Acquired Fund for Federal income tax purposes which will be carried over
to the Acquiring Fund as a result of Section 381 of the Code and which will be
certified by the Trust's President or its Vice President and Treasurer.
5.5. The Trust, on behalf of the Acquired Fund, and the Company, on
behalf of the Acquiring Fund, shall cooperate in the provision of all
information reasonably necessary for the preparation and filing of the
registration statement of the Company relating to the Acquiring Fund Shares on
Form N-14, in compliance with the 1933 Act, the Securities Exchange Act of 1934,
as amended, and the 1940 Act, and, if applicable, state Blue Sky laws (the
"Registration Statement"), including the Proxy Statement, referred to in
paragraph 4.1(r), in connection with the meeting of the Acquired Fund
Shareholders to consider approval of this Agreement and the transactions
contemplated herein.
5.6. The Trust, on behalf of the Acquired Fund, and the Company, on
behalf of the Acquiring Fund, shall cooperate in the preparation and filing as
promptly as practicable with the Securities and Exchange Commission of an
application, in form and substance reasonably satisfactory to their respective
counsel, for exemptive relief from the provisions of Section 17 of the 1940 Act,
and from any other provision of the 1940 Act deemed necessary or advisable by
such counsel, to permit consummation of the transactions contemplated herein
(the "Exemptive Application"). The Trust and the Company shall use all
reasonable efforts to obtain the relief requested by the Exemptive Application.
5.7. The Company, on behalf of the Acquiring Fund, agrees to use all
reasonable efforts to obtain the approvals and authorizations required by the
1933 Act, the 1940 Act and such of the state Blue Sky or securities laws as it
may deem appropriate in order to continue its operations after the Closing Date.
6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING FUND. The
obligations of the Acquiring Fund to complete the transactions provided for
herein shall be subject, at the Company's election, to the performance by the
Acquired Fund of all the obligations to be performed by it hereunder on or
before the Closing Date and, in addition thereto, the following conditions:
6.1. All representations and warranties of the Trust, on behalf of the
Acquired Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date.
6.2. The Trust, on behalf of the Acquired Fund, shall have delivered
to the Company, on behalf of the Acquiring Fund, at the Closing a statement of
the Assets and Liabilities, including a schedule of the Assets setting forth for
all of the Acquired Fund's portfolio securities their adjusted tax basis and
holding periods by lot, as of the Closing Date, certified by the Trust's
Treasurer.
6.3. The Trust, on behalf of the Acquired Fund, shall have delivered
to the Company, on behalf of the Acquiring Fund, at the Closing a certificate
executed in its name by the Trust's President or Vice President and its
Treasurer, in form and substance satisfactory to the Company, to the effect that
the representations and warranties of the Trust, on behalf of the Acquired Fund,
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Company shall reasonably request.
7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRED FUND.
The obligations of the Acquired Fund to complete the transactions
provided for herein shall be subject, at the Trust's election, to the
performance by the Acquiring Fund of all the obligations to be performed by it
hereunder on or before the Closing Date and, in addition thereto, the following
conditions:
7.1. All representations and warranties of the Company, on behalf of
the Acquiring Fund, contained in this Agreement shall be true and correct in all
material respects as of the date hereof and, except as they may be affected by
the transactions contemplated by this Agreement, as of the Closing Date with the
same force and effect as if made on and as of the Closing Date.
7.2. The Company, on behalf of the Acquiring Fund, shall have
delivered to the Trust on the Closing Date a certificate executed in its name by
the Company's President or Vice President and its Treasurer, in form and
substance reasonably satisfactory to the Trust, to the effect that the
representations and warranties of the Company, on behalf of the Acquiring Fund,
made in this Agreement are true and correct at and as of the Closing Date,
except as they may be affected by the transactions contemplated by this
Agreement, and as to such other matters as the Trust shall reasonably request.
8. FURTHER CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH FUND.
If any of the conditions set forth below do not exist on or before the
Closing Date with respect to either Fund, the other party to this Agreement
shall, at its option, not be required to complete the transactions contemplated
by this Agreement.
8.1. This Agreement and the transactions contemplated herein shall
have been approved by the requisite vote of the holders of the outstanding
shares of the Acquired Fund in accordance with the provisions of the Trust's
Trust Agreement.
8.2. On the Closing Date, no action, suit or other proceeding shall be
pending before any court or governmental agency in which it is sought to
restrain or prohibit, or obtain damages or other relief in connection with, this
Agreement or the transactions contemplated herein.
8.3. All consents of other parties and all other consents, orders and
permits of Federal, state and local regulatory authorities (including those of
the SEC and of state Blue Sky and securities authorities) deemed necessary by
the Trust or Company to permit consummation, in all material respects, of the
transactions contemplated hereby shall have been obtained, except where failure
to obtain any such consent, order or permit would not involve a risk of a
material adverse effect on the assets or properties of either Fund, provided
that either party hereto may for itself waive any of such conditions.
8.4. The Registration Statement shall have become effective under the
1933 Act and no stop orders suspending the effectiveness thereof shall have been
issued and, to the best knowledge of the parties hereto, no investigation or
proceeding for that purpose shall have been instituted or be pending, threatened
or contemplated under the 1933 Act.
8.5. The relief requested by the Exemptive Application shall have been
granted in form and substance reasonably satisfactory to the respective counsel
for the Trust and the Company.
8.6. Prior to the Closing Date, the Acquired Fund shall have declared
and paid a dividend and/or other distribution which, together with all previous
dividends and other distributions, shall have the effect of distributing to the
Acquired Fund Shareholders all of the Acquired Fund's investment company taxable
income for all taxable years ended prior to the Closing Date and for its current
taxable year through the Closing Date (computed without regard to any deduction
for dividends paid); the excess of its interest income excludable from gross
income under Section 103(a) of the Code over its disallowed deductions under
Sections 265 and 171(a)(2) of the Code for all such taxable years (or portion
thereof); and all of its net capital gain realized in all such taxable years (or
portion thereof)(after reduction for any capital loss carryforward).
8.7. The parties shall have received an opinion of Stroock & Stroock &
Lavan LLP as to the Federal income tax consequences mentioned below ("Tax
Opinion"). In rendering the Tax Opinion, such counsel may rely as to factual
matters, exclusively and without independent verification, on the
representations made in this Agreement (or in separate letters addressed to such
counsel) and the certificates delivered pursuant to paragraphs 6.3 and 7.2 of
this Agreement. The Tax Opinion shall be substantially to the effect that, based
on the facts and assumptions stated therein and conditioned on consummation of
the Reorganization in accordance with this Agreement, for Federal income tax
purposes:
(a) The Acquired Fund's transfer of the Assets to the Acquiring
Fund in exchange solely for the Acquiring Fund Shares and the assumption by the
Acquiring Fund of the Liabilities, followed by the Acquired Fund's distribution
of those shares to the Acquired Fund Shareholders constructively in exchange for
their Acquired Fund shares, will constitute a "reorganization" within the
meaning of Section 368(a)(1) ____(6)____ of the Code; (b) No gain or loss will
be recognized by the Acquiring Fund upon its receipt of the Assets in exchange
solely for the Acquiring Fund Shares and the assumption by the Acquiring Fund of
the Liabilities; (c) No gain or loss will be recognized by the Acquired Fund
upon the transfer of the Assets to the Acquiring Fund solely in exchange for the
Acquiring Fund Shares and the assumption by the Acquiring Fund of the
Liabilities or upon the subsequent distribution (whether actual or constructive)
of the Acquiring Fund Shares to Acquired Fund Shareholders in constructive
exchange for their shares of the Acquired Fund; (d) No gain or loss will be
recognized by the Acquired Fund Shareholders upon the exchange of their Acquired
Fund shares for Acquiring Fund Shares; (e) The aggregate tax basis for the
Acquiring Fund Shares received by each of the Acquired Fund Shareholders
pursuant to the Reorganization will be the same as the aggregate tax basis of
the Acquired Fund shares held by such shareholder immediately prior to the
Reorganization, and the holding period of the Acquiring Fund Shares to be
received by each Acquired Fund Shareholder will include the period during which
the Acquired Fund shares exchanged therefor were held by such Shareholder
(provided the Acquired Fund shares were held as capital assets on the date of
the Reorganization); and (f) The Acquiring Fund's tax basis for the Assets will
be the same as the tax basis of such assets to the Acquired Fund immediately
prior to the Reorganization, and the Acquiring Fund's holding period for the
Assets will include the period during which the Assets were held by the Acquired
Fund.
- --------
6 Insert D or F, as appropriate.
9. TERMINATION OF AGREEMENT.
9.1. This Agreement and the transactions contemplated hereby may be
terminated and abandoned by resolution of the Board of the Trust or the Company,
at any time prior to the Closing (notwithstanding any vote of the Acquired Fund
Shareholders) if circumstances should develop that, in the opinion of the Board
of the Trust or the Company, make proceeding with this Agreement inadvisable.
9.2. If this Agreement is terminated and the Reorganization is
abandoned pursuant to the provisions of this Section 9, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto or the Board members, or officers of the Trust or the Company or the
shareholders of either Fund, in respect of this Agreement.
10. WAIVER.
At any time prior to the Closing Date, any of the foregoing conditions
may be waived by the Board of the Trust or the Company if, in the judgment of
such Board, such waiver will not have a material adverse effect on the benefits
intended under this Agreement to the Acquired Fund's shareholders or the
Acquiring Fund's shareholders, as the case may be.
11. MISCELLANEOUS.
11.1. None of the representations and warranties included or provided
for herein shall survive consummation of the Reorganization.
11.2. This Agreement contains the entire agreement and understanding
between the parties hereto with respect to the subject matter hereof, and merges
and supersedes all prior discussions, agreements and understandings of every
kind and nature between them relating to the subject matter hereof. Neither
party shall be bound by any condition, definition, warranty or representation,
other than as set forth or provided in this Agreement or as may be, on or
subsequent to the date hereof, set forth in a writing signed by the party to be
bound thereby.
11.3. This Agreement shall be governed and construed in accordance
with the internal laws of the State of New York, without giving effect to
principles of conflict of laws; provided, however, that the due authorization,
execution and delivery of this Agreement by the Company, on behalf of the
Acquiring Fund, and the Trust, on behalf of the Acquired Fund, shall be governed
and construed in accordance with the internal laws of the State of Maryland and
The Commonwealth of Massachusetts, respectively, without giving effect to
principles of conflict of laws; and provided further that, in the case of any
conflict between any such laws and the Federal securities laws, the Federal
securities laws shall govern.
11.4. This Agreement may be executed in counterparts, each of which,
when executed and delivered, shall be deemed to be an original.
11.5. This Agreement shall bind and inure to the benefit of the
parties hereto and their respective successors and assigns, but no assignment or
transfer hereof or of any rights or obligations hereunder shall be made by any
party without the written consent of the other party. Nothing herein expressed
or implied is intended or shall be construed to confer upon or give any person,
firm or corporation, other than the parties hereto and their respective
successors and assigns, any rights or remedies under or by reason of this
Agreement.
11.6. (a) The names ____"7"____ and "Trustees of DG Investor Series"
refer respectively to the Acquired Fund and the Trust's Trustees, as trustees
but not individually or personally, acting from time to time under the Trust's
Trust Agreement, a copy of which is on file at the office of the Secretary of
The Commonwealth of Massachusetts and at the principal office of the Trust. The
obligations of the Trust, on behalf of the Acquired Fund, entered into by any of
the Trustees, representatives or agents are made not individually, but in such
capacities, and are not binding upon any of the Trust's Trustees, or
shareholders or representatives of the Acquired Fund personally, but bind only
the Acquired Fund's property, and all persons dealing with shares of the
Acquired Fund must look solely to the Acquired Fund's property for the
enforcement of any claims against the Acquired Fund.
- --------
7 Insert DG Equity Fund, DG Government Income Fund, DG International
Equity Fund, DG Limited Term Government Income Fund, DG Municipal
Income Fund, DG Opportunity Fund, DG Prime Money Market Fund or DG
Treasury Money Market Fund, as appropriate.
(b) The obligations of the Company, on behalf of the Acquiring
Fund, hereunder are binding only upon the assets and property of the Acquiring
Fund, and all persons dealing with shares of the Acquiring Fund must look solely
to the Acquiring Fund's assets and property for the enforcement of any claims
against the Acquiring Fund.
<PAGE>
IN WITNESS WHEREOF, the Company, on behalf of the Acquiring Fund, and
the Trust, on behalf of the Acquired Fund, have caused this Agreement and Plan
of Reorganization to be executed and attested on their behalf by their duly
authorized representatives as of the date first above written.
THE INFINITY MUTUAL FUNDS,
INC., on behalf of its *
PORTFOLIO
By: /s/ WILLIAM B. BLUNDIN
William B. Blundin, President
ATTEST: /s/ JEFFREY C. CUSICK
Jeffrey C. Cusick, Vice President
and Assistant Secretary
DG INVESTOR SERIES, on behalf
of its ** FUND
By: /s/ EDWARD C. GONZALES
Edward C. Gonzales, President
ATTEST: /s/ TIMOTHY S. JOHNSON
Timothy S. Johnson, Assistant Secretary
- --------
* Insert ISG LARGE CAP EQUITY, ISG GOVERNMENT INCOME, ISG INTERNATIONAL
EQUITY, ISG LIMITED DURATION U.S. GOVERNMENT, ISG MUNICIPAL INCOME, ISG
SMALL CAP OPPORTUNITY, ISG PRIME MONEY MARKET OR ISG U.S. TREASURY MONEY
MARKET, as appropriate.
** Insert DG EQUITY, DG GOVERNMENT INCOME, DG INTERNATIONAL EQUITY, DG LIMITED
TERM GOVERNMENT INCOME, DG MUNICIPAL INCOME, DG OPPORTUNITY, DG PRIME MONEY
MARKET or DG TREASURY MONEY MARKET, as appropriate.
<PAGE>
APPENDIX D
DG INVESTOR SERIES
NEW ADVISORY CONTRACT
This Contract is made this 1st day of May, 1998, between ParkSouth
Corporation, a Mississippi corporation having its principal place of business in
Jackson, Mississippi (the "Adviser"), and DG Investor Series, a Massachusetts
business trust having its principal place of business in Pittsburgh,
Pennsylvania (the "Trust").
WHEREAS the Trust is an open-end management investment company as that term
is defined in the Investment Company Act of 1940, as amended, and is registered
as such with the Securities and Exchange Commission; and
WHEREAS Adviser is engaged in the business of rendering investment advisory
and management services.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. The Trust hereby appoints Adviser as Investment Adviser for each of the
portfolios ("Funds") of the Trust which executes an exhibit to this Contract,
and Adviser accepts the appointments. Subject to the direction of the Trustees,
Adviser shall provide investment research and supervision of the investments of
the Funds and conduct a continuous program of investment evaluation and of
appropriate sale or other disposition and reinvestment of each Fund's assets.
2. Adviser, in its supervision of the investments of each of the Funds will
be guided by each of the Fund's investment objective and policies and the
provisions and restrictions contained in the Declaration of Trust and By-Laws of
the Trust and as set forth in the Registration Statements and exhibits as may be
on file with the Securities and Exchange Commission.
3. Each Fund shall pay or cause to be paid all of its own expenses and its
allocable share of Trust expenses, including, without limitation, the expenses
of organizing the Trust and continuing its existence; fees and expenses of
Trustees and officers of the Trust; fees for investment advisory services and
administrative personnel and services; expenses incurred in the distribution of
its shares ("Shares"), including expenses of administrative support services;
fees and expenses of preparing and printing its Registration Statements under
the Securities Act of 1933 and the Investment Company Act of 1940, as amended,
and any amendments thereto; expenses of registering and qualifying the Trust,
the Funds, and Shares of the Funds under federal and state laws and regulations;
expenses of preparing, printing, and distributing prospectuses (and any
amendments thereto) to shareholders; interest expense, taxes, fees, and
commissions of every kind; expenses of issue (including cost of Share
certificates), purchase, repurchase, and redemption of Shares, including
expenses attributable to a program of periodic issue; charges and expenses of
custodians, transfer agents, dividend disbursing agents, shareholder servicing
agents, and registrars; printing and mailing costs, auditing, accounting, and
legal expenses; reports to shareholders and governmental officers and
commissions; expenses of meetings of Trustees and shareholders and proxy
solicitations therefor; insurance expenses; association membership dues and such
nonrecurring items as may arise, including all losses and liabilities incurred
in administering the Trust and the Funds. Each Fund will also pay its allocable
share of such extraordinary expenses as may arise including expenses incurred in
connection with litigation, proceedings, and claims and the legal obligations of
the Trust to indemnify its officers and Trustees and agents with respect
thereto.
4. Each of the Funds shall pay to Adviser, for all services rendered to
each Fund by Adviser hereunder, the fees set forth in the exhibits attached
hereto.
5. The net asset value of each Fund's Shares as used herein will be
calculated to the nearest 1/10th of one cent.
6. The Adviser may from time to time and for such periods as it deems
appropriate reduce its compensation (and, if appropriate, assume expenses of one
or more of the Funds) to the extent that any Fund's expenses exceed such lower
expense limitation as the Adviser may, by notice to the Fund, voluntarily
declare to be effective.
7. This Contract shall begin for each Fund as of the date of execution of
the applicable exhibit and shall continue in effect with respect to each Fund
presently set forth on an exhibit (and any subsequent Funds added pursuant to an
exhibit during the initial term of this Contract) for two years from the date of
this Contract set forth above and thereafter for successive periods of one year,
subject to the provisions for termination and all of the other terms and
conditions hereof if: (a) such continuation shall be specifically approved at
least annually by the vote of a majority of the Trustees of the Trust, including
a majority of the Trustees who are not parties to this Contract or interested
persons of any such party cast in person at a meeting called for that purpose;
and (b) Adviser shall not have notified a Fund in writing at least sixty (60)
days prior to the anniversary date of this Contract in any year thereafter that
it does not desire such continuation with respect to that Fund. If a Fund is
added after the first approval by the Trustees as described above, this Contract
will be effective as to that Fund upon execution of the applicable exhibit and
will continue in effect until the next annual approval of this Contract by the
Trustees and thereafter for successive periods of one year, subject to approval
as described above.
8. Notwithstanding any provision in this Contract, it may be terminated at
any time with respect to any Fund, without the payment of any penalty, by the
Trustees of the Trust or by a vote of the shareholders of that Fund on sixty
(60) days' written notice to Adviser.
9. This Contract may not be assigned by Adviser and shall automatically
terminate in the event of any assignment. Adviser may employ or contract with
such other person, persons, corporation, or corporations at its own cost and
expense as it shall determine in order to assist it in carrying out this
Contract.
10. In the absence of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the obligations or duties under this Contract on the part
of Adviser, Adviser shall not be liable to the Trust or to any of the Funds or
to any shareholder for any act or omission in the course of or connected in any
way with rendering services or for any losses that may be sustained in the
purchase, holding, or sale of any security.
11. This Contract may be amended at any time by agreement of the parties
provided that the amendment shall be approved both by the vote of a majority of
the Trustees of the Trust including a majority of the Trustees who are not
parties to this Contract or interested persons of any such party to this
Contract (other than as Trustees of the Trust) cast in person at a meeting
called for that purpose, and, where required by Section 15(a)(2) of the Act, on
behalf of a Fund by a majority of the outstanding voting securities of such Fund
as defined in Section 2(a)(42) of the Act.
12. The Adviser acknowledges that all sales literature for investment
companies (such as the Trust) are subject to strict regulatory oversight. The
Adviser agrees to submit any proposed sales literature for the Trust (or any
Fund) or for itself or its affiliates which mentions the Trust (or any Fund) to
the Trust's distributor for review and filing with the appropriate regulatory
authorities prior to the public release of any such sales literature, provided,
however, that nothing herein shall be construed so as to create any obligation
or duty on the part of the Adviser to produce sales literature for the Trust (or
any Fund). The Trust agrees to cause its distributor to promptly review all such
sales literature to ensure compliance with relevant requirements, to promptly
advise Adviser of any deficiencies contained in such sales literature, to
promptly file complying sales literature with the relevant authorities, and to
cause such sales literature to be distributed to prospective investors in the
Trust.
13. Adviser is hereby expressly put on notice of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees that
the obligations pursuant to this Contract of a particular Fund and of the Trust
with respect to that particular Fund be limited solely to the assets of that
particular Fund, and Adviser shall not seek satisfaction of any such obligation
from any other Fund, the shareholders of any Fund, the Trustees, officers,
employees or agents of the Trust, or any of them.
14. The Trust and the Funds are hereby expressly put on notice of the
limitation of liability as set forth in the Declaration of Trust of the Adviser
and agree that the obligations assumed by the Adviser pursuant to this Contract
shall be limited in any case to the Adviser and its assets and, except to the
extent expressly permitted by the Investment Company Act of 1940, as amended,
the Trust and the Funds shall not seek satisfaction of any such obligation from
the shareholders of the Adviser, the Trustees, officers, employees, or agents of
the Adviser, or any of them.
15. This Contract shall be construed in accordance with and governed by the
laws of the Commonwealth of Pennsylvania.
16. This Contract will become binding on the parties hereto upon their
execution of the attached exhibits to this Contract.
<PAGE>
EXHIBIT A
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG TREASURY MONEY MARKET FUND
For all services rendered by Adviser hereunder, the above-named Fund of the
DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 0.50 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.50 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this May 1, 1998.
ATTEST: PARKSOUTH CORPORATION
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
ATTEST: DG INVESTOR SERIES
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
<PAGE>
EXHIBIT B
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG LIMITED TERM GOVERNMENT INCOME FUND
For all services rendered by Adviser hereunder, the above-named Fund of the
DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 0.60 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.60 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this May 1, 1998.
ATTEST: PARKSOUTH CORPORATION
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
ATTEST: DG INVESTOR SERIES
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
<PAGE>
EXHIBIT C
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG GOVERNMENT INCOME FUND
For all services rendered by Adviser hereunder, the above-named Fund of the
DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 0.60 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.60 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this May 1, 1998.
ATTEST: PARKSOUTH CORPORATION
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
ATTEST: DG INVESTOR SERIES
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
<PAGE>
EXHIBIT D
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG EQUITY FUND
For all services rendered by Adviser hereunder, the above-named Fund of the
DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 0.75 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.75 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this May 1, 1998.
ATTEST: PARKSOUTH CORPORATION
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
ATTEST: DG INVESTOR SERIES
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
<PAGE>
EXHIBIT E
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG MUNICIPAL INCOME FUND
For all services rendered by Adviser hereunder, the above-named Fund of the
DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 0.60 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.60 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this May 1, 1998.
ATTEST: PARKSOUTH CORPORATION
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
ATTEST: DG INVESTOR SERIES
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
<PAGE>
EXHIBIT F
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG OPPORTUNITY FUND
For all services rendered by Adviser hereunder, the above-named Fund of the
DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 0.95 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.95 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this May 1, 1998.
ATTEST: PARKSOUTH CORPORATION
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
ATTEST: DG INVESTOR SERIES
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
<PAGE>
EXHIBIT G
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG PRIME MONEY MARKET FUND
For all services rendered by Adviser hereunder, the above-named Fund of the
DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 0.50 of 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 0.50 of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this May 1, 1998.
ATTEST: PARKSOUTH CORPORATION
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
ATTEST: DG INVESTOR SERIES
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
<PAGE>
EXHIBIT H
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG INTERNATIONAL EQUITY FUND
For all services rendered by Adviser hereunder, the above-named Fund of the
DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the Fund
shall be accrued daily at the rate of 1/365th of 1% applied to the daily net
assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this May 1, 1998.
ATTEST: PARKSOUTH CORPORATION
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
ATTEST: DG INVESTOR SERIES
By:-------------------------- By:--------------------------
Title:------------------- Title:-------------------
<PAGE>
EXHIBIT J
to the
Investment Advisory Contract
DG INVESTOR SERIES
During the period from and including May 1, 1998 (the "Escrow Beginning
Date") until the date of approval by shareholders of the relevant Funds of the
Trust in conformity with the provisions of the Investment Company Act of 1940
(the "1940 Act"), including but not limited to Section 15(c) thereof (the
"Escrow Termination Date"), any and all advisory fees (the "Advisory Fees")
payable under this Investment Advisory Contract (the "Management Agreement")
shall be paid in accordance with this Exhibit J. From and including the Escrow
Beginning Date to, but not including, the Escrow Termination Date, any and all
Advisory Fees shall be paid into an interest bearing escrow account (the "Escrow
Account") maintained by an unaffiliated financial institution (the "Escrow
Agent"). Pursuant to a letter agreement with the Escrow Agent, the Advisory Fees
(including interest earned on such Advisory Fees) will be paid to ParkSouth
Corporation (the "Adviser") only if shareholders of each Fund approve the
Management Agreement. Further pursuant to the letter agreement, on the Escrow
Termination Date the Advisory Fees will be released by the Escrow Agent from the
Escrow Account to the Adviser, only upon receipt by the Escrow Agent of a
certificate from officers of the Trust stating that the Management Agreement has
received the requisite shareholder vote. In the event that the requisite
shareholder vote is not obtained and the Escrow Termination Date does not
therefore occur, the officers of the Trust shall execute and deliver to the
Escrow Agent, no later than December 31, 1998, a certificate stating that the
requisite shareholder vote has not been obtained and that the Advisory Fees (and
interest) in the Escrow Account should be paid over to the respective Funds of
the Trust to which such Advisory Fees (and interest) relate. The provisions of
this Exhibit J shall terminate and be of no further force and effect, and may be
removed from the Management Agreement, upon (i) the Escrow Termination Date, or
(ii) December 31, 1998.
<PAGE>
APPENDIX E
DG INVESTOR SERIES
NEW SUB-ADVISORY AGREEMENT
THIS INVESTMENT SUB-ADVISORY AGREEMENT (the "Agreement") is made and
entered into as of the 1st day of May, 1998 by and between ParkSouth Corporation
(the "Adviser") and Womack Asset
Management (the "Sub-Adviser").
PRELIMINARY STATEMENTS
A. DG Investor Series, a Massachusetts business trust (the "Trust"), is an
open-end management company as defined in the Investment Company Act of 1940 and
is registered as such with the Securities and Exchange Commission.
B. The Adviser has been retained by the Trust under the Investment Advisory
Contract dated as of May 1, 1998 (the "Contract") to act as investment adviser
with respect to each of the Trust's investment portfolios, including the DG
Opportunity Fund (the "Fund").
C. The Adviser is authorized under the Contract to "contract with such
other person, persons, corporation, or corporations at its own cost and expense
as it shall determine in order to assist it in carrying out this Contract."
D. The Adviser wishes to retain the Sub-Adviser to provide, and the
Sub-Adviser wishes to render, portfolio management services for the Fund, all
upon the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and the covenants
herein contained, the Adviser and the Sub-Adviser agree as follows:
1. APPOINTMENT. The Adviser hereby appoints the Sub- Adviser to act as a
discretionary sub-adviser to the Fund for all assets of the Fund other than cash
and cash equivalents. The Sub-Adviser hereby accepts the appointment and agrees
to use its best professional judgment to make and implement investment decisions
for the Fund in accordance with the provisions of this Agreement.
2. DUTIES OF THE SUB-ADVISER.
(a) Subject to the direction and control of the Adviser and the Board
of Trustees of the Trust, the Sub-Adviser shall be responsible for the
management of the investment operations of the Fund and the determination of
what portion of the Fund's assets will be held in cash and cash equivalents and
what portion will be invested in equity securities and other assets. Any cash
and cash equivalents in the Fund shall be managed by the Adviser. The
Sub-Adviser is hereby authorized to select portfolio securities for investment,
to determine whether to purchase and sell securities for the Fund, and upon
making any purchase or sale decision for the Fund, to place orders for the
execution of such portfolio transactions in accordance with Section 4 of this
Agreement and any operational procedures that may be specified by the Adviser
from time to time ("Operational Procedures"). The Sub-Adviser shall consult with
the Adviser upon the Adviser's reasonable request with respect to any investment
decision made by it for the Fund and assist the Adviser and the Trust's officers
in connection with the operation of the Fund and perform any further acts that
may be necessary to effectuate the purposes of this Agreement.
(b) In providing portfolio management services to the Fund, the
Sub-Adviser shall be subject to such investment restrictions as are set forth in
the Investment Company Act of 1940 and rules thereunder; the Internal Revenue
Code; applicable state securities laws; the supervision and control of the Board
of Trustees; such specific instructions as the Board of Trustees may adopt and
as may be communicated to the Sub-Adviser; the investment objectives, policies
and restrictions of the Fund; and instructions from the Adviser.
3. SUPERVISION AND COMPLIANCE. Notwithstanding any provision of this
Agreement, the Adviser shall retain all rights to supervise, and, in its
discretion, conduct investment advisory activities relating to the Fund. The
activities of the Sub-Adviser shall be subject at all times to the direction
and control of the Board of Trustees of the Trust and the Adviser, and shall
comply with: (a) the Declaration of Trust and By-Laws of the Trust; (b) the
Registration Statement of the Trust, as it may be amended from time to time,
including the investment objectives and policies set forth therein; (c) the
Investment Company Act of 1940 and the Investment Advisers Act of 1940 and the
regulations thereunder; (d) the Internal Revenue Code and the regulations
thereunder applicable to regulated investment companies; (e) any other
applicable laws or regulations; and (f) such other limitations as the Adviser or
the Board of Trustees of the Trust may adopt. The Sub-Adviser shall comply with
all requests by the officers and agents of the Trust to review, examine or audit
any records concerning the Sub-Adviser's investment advisory activities in
connection with the Fund. The Sub-Adviser shall provide all information, records
or other materials as the Adviser may reasonably request in order to oversee
compliance by the Sub-Adviser with the provisions of this Agreement and with
applicable law and shall take such actions or refrain from taking such actions
as the Adviser in its best judgment may reasonably request as necessary to
promote or ensure such compliance.
4. PURCHASE AND SALE OF SECURITIES. The Sub-Adviser shall place orders for
the purchase or sale of securities on behalf of the Fund with any broker and/or
dealer who deals in such securities, all in the manner as set forth herein and
in accordance with the Operational Procedures.
(a) In placing orders with brokers and/or dealers, the Sub-Adviser
shall use its best efforts to obtain the best net price and the most favorable
execution of its orders, after taking into account all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker and/or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Sub-Adviser may, to the extent permitted by law, purchase and sell portfolio
securities using brokers who provide brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934) to or for the
benefit of the Fund and/or other accounts over which the Sub-Adviser or the
Adviser exercises investment discretion. The Sub-Adviser is authorized to pay a
broker who provides such brokerage and research services a commission for
effecting a securities transaction which is in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of brokerage and research services provided by such
broker. This determination may be viewed in terms of either that particular
transaction or of the overall responsibilities of the Sub-Adviser with respect
to the accounts as to which it exercises investment discretion.
(b) Notwithstanding the foregoing, the Board of Trustees and the
Adviser periodically may review the commissions paid by the Fund and determine
whether those commissions were reasonable in relation to the brokerage and
research services received.
5. EXPENSES. The Sub-Adviser shall furnish, at its own expense, all office
space, office facilities, equipment and personnel necessary or appropriate to
the performance of its duties under this Agreement. The Sub-Adviser also shall
pay the salaries of all personnel performing services related to the Sub-
Adviser's duties under this Agreement.
6. COMPENSATION OF THE SUB-ADVISER. In consideration of the services to be
rendered by the Sub-Adviser under this Agreement, the Adviser shall pay the
Sub-Adviser a fee as set forth in EXHIBIT A to this Agreement.
7. SERVICES TO OTHERS. The services of the Sub-Adviser to the Adviser and
the Trust are not to be deemed exclusive, and, except as may be provided in any
other agreement between the Sub-Adviser and the Adviser, the Sub-Adviser may
render services to others and to engage in other activities, so long as such
services and activities do not adversely affect the Sub-Adviser's ability to
perform its obligations under this Agreement; provided, however, that during the
term of this Agreement, the Sub-Adviser shall not render any portfolio
management services to any other open-end management company except with the
prior written consent of the Adviser.
8. REPRESENTATIONS, WARRANTIES, AND AGREEMENTS OF THE SUB-ADVISER.
(a) As of the Effective Date of this Agreement (as defined below in
Section 10(a) of this Agreement), the Sub-Adviser will be registered as an
"investment adviser" under the Investment Advisers Act of 1940.
(b) The Sub-Adviser will comply with the provisions of the Adviser's
written code of ethics and any policies and procedures thereunder (including any
sanctions imposed by the Adviser), and with the Adviser's policies and
procedures designed to detect and prevent the misuse of material, nonpublic
information that are applicable to its sub-advisory services rendered under this
Agreement. In addition, the Sub-Adviser will adopt or has adopted a written code
of ethics complying with the requirements of Rule 17j-1 under the Investment
Company Act of 1940, will provide the Adviser with a copy of that code of ethics
and evidence of its adoption, and will make such reports to the Trust as
required by Rule 17j-1. The Sub-Adviser will also adopt or has adopted policies
and procedures sufficient to enable the Sub-Adviser to detect and prevent the
misuse of material, nonpublic information by the Sub-Adviser or any person
associated with the Sub-Adviser, in compliance with the federal and state
securities laws.
(c) The Sub-Adviser will prepare, maintain, keep current and preserve
on behalf of the Trust and the Adviser all records concerning the Sub-Adviser's
activities in connection with the Fund that the Fund is required by law to
maintain, including, but not limited to, records required under paragraphs
(b)(5), (b)(6), (b)(9), (b)(10), and (f) of Rule 31a-1 under the Investment
Company Act (a summary of these provisions as currently in effect is attached
hereto as EXHIBIT B). Any records required to be maintained and preserved
pursuant to the provisions of Rule 31a-1 and Rule 31a-2 under the Investment
Company Act of 1940 that are prepared by the Sub-Adviser on behalf of the Fund
are the property of the Fund and will be surrendered promptly on request to the
Fund or any person acting on behalf of the Trust during the term of this
Agreement and at any time after the termination of this Agreement. The Sub-
Adviser will comply with all reasonable requests for information by the Adviser
or the Trust's officers or Board of Trustees, including information required for
the Fund's filings with the Securities and Exchange Commission and state
securities commissions.
(d) The Sub-Adviser will promptly after filing with the Securities and
Exchange Commission any amendment to its Form ADV furnish a copy of such
amendment to the Trust and the Adviser.
(e) The Sub-Adviser will immediately notify the Adviser of the
occurrence of any event which would disqualify the Sub-Adviser from serving as
an investment adviser of an investment company under Section 9(a) of the
Investment Company Act or otherwise.
9. LIMITATIONS ON LIABILITY; INDEMNIFICATION.
(a) The Sub-Adviser hereby is notified expressly of the limitation of
liability as set forth in Article XI of the Declaration of Trust and agrees that
the obligations under this Agreement of the Fund and of the Trust with respect
to the Fund are limited solely to the assets of the Fund, and the Sub-Adviser
shall not seek satisfaction of any such obligation from any other investment
portfolio of the Trust; any shareholders of any investment portfolio; any
Trustee; or officers, employees or agents of the Trust.
(b) The Sub-Adviser shall give the Adviser and the Trust the benefit
of its best judgment and efforts in rendering services under this Agreement. The
Sub-Adviser agrees to indemnify and hold harmless the Adviser, its shareholders,
officers, directors, employees, agents and affiliates (referred to collectively
herein as the Adviser) from and against any and all claims, demands, judgments,
losses, costs, expenses (including, without limitation, court costs and
attorneys' fees), liabilities, or damages, which at any time or from time to
time may be paid, incurred or suffered by or asserted against the Adviser,
arising out of, based upon or resulting from any act or omission of the
Sub-Adviser in performing its obligations under this Agreement; provided,
however, that the Sub-Adviser shall not be obligated to indemnify the Adviser to
the extent that such matters arise from or are caused by the Adviser's willful
malfeasance or bad faith.
10. EFFECTIVE DATE; TERMINATION; AND ASSIGNMENT.
(a) This Agreement shall become effective as of the Effective Date as
defined below and shall continue in effect for two years from the Effective Date
and thereafter for successive periods of one year, subject to the provisions for
termination and all of the other terms and conditions in this Agreement if: (i)
such continuation is specifically approved at least annually by the vote of a
majority of the Trustees of the Trust, including a majority of the Trustees who
are not parties to this Agreement or interested persons of any such party (other
than as Trustees of the Trust), cast in person at a meeting called for that
purpose, and, where required under the Investment Company Act of 1940, by vote
of a majority of the outstanding voting securities of the Fund; and (ii) neither
party has notified the other in writing at least sixty (60) days prior to the
anniversary date of the Effective Date in any year thereafter that it does not
desire such continuation. The Effective Date is the date on which this Agreement
is approved by the vote of a majority of the outstanding voting securities of
the Fund.
(b) This Agreement may be terminated at any time without the payment
of any penalty (i) by action of the Board of Trustees or by vote of a majority
of the outstanding voting securities of the Fund upon sixty (60) days' written
notice to the Sub-Adviser and (ii) in the event of termination of the Contract
for any reason whatsoever. This Agreement also may be terminated at any time by
the Adviser (i) on account of the Sub-Adviser's repeated failure to comply with
the Adviser's requests or instructions issued hereunder, or (ii) in the event of
a breach of fiduciary duty by the Sub-Adviser.
(c) Termination of this Agreement will not affect (i) the validity of
any action previously taken by the Adviser or the Sub-Adviser under this
Agreement or (ii) liabilities or obligations of the parties from transactions
initiated before termination of this Agreement. Anything herein to the contrary
notwithstanding, termination of this Agreement shall not affect the
indemnification provisions set forth above in Section 9 of this Agreement, which
shall remain operative and in full force and effect notwithstanding such
termination.
(d) The Agreement shall terminate automatically in the event of its
assignment (as defined in the Investment Company Act of 1940 and any rules
thereunder, as they may be interpreted by the staff of the Securities and
Exchange Commission).
(e) So long as both the Adviser and the Sub-Adviser shall be legally
qualified to act as an investment adviser to the Fund, neither the Adviser nor
the Sub-Adviser shall act as an investment adviser (as such term is defined in
the Investment Company Act of 1940) to the Fund except as provided herein and in
the Contract or in such other manner as may be expressly agreed between the
Adviser and the Sub-Adviser; provided, however, that if the Adviser or the
Sub-Adviser shall resign or for any reason be unable or unwilling to serve prior
to the end of the term of this Agreement, the remaining party, the Sub-Adviser
or the Adviser as the case may be, shall not be prohibited from serving as an
investment adviser to the Fund by reason of the provisions of this Subsection
10(e).
11. GOVERNING LAW. This Agreement shall be construed in accordance with the
laws of the Commonwealth of Pennsylvania without giving effect to the choice of
law provisions thereof, to the extent that such laws are consistent with
provisions of the Investment Company Act of 1940 and the regulations thereunder.
12. AMENDMENT. This Agreement may be amended from time to time by agreement
of the parties; provided, however, such amendment shall be approved by the vote
of a majority of the Trustees of the Trust, including a majority of the Trustees
who are not parties to this Agreement or interested persons of any such party
(other than as Trustees of the Trust), cast in person at a meeting called for
that purpose, and, where required under the Investment Company Act of 1940, by
vote of a majority of the outstanding voting securities of the Fund.
13. WAIVER. The failure of either party to insist, in one or more
instances, upon strict performance of the obligations of this Agreement, or to
exercise any rights contained herein, shall not be construed as a waiver, or
relinquishment for the future of such obligation or right, which shall remain
and continue in full force and effect.
14. MISCELLANEOUS. The captions in this Agreement are included for the
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. Should any
part of this Agreement be held or made invalid by a court decision, statute,
regulation, or otherwise, the remainder of this Agreement shall not be affected
thereby. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Adviser and the Sub-Adviser have caused this
Agreement to be executed and delivered in their names and on their behalf by the
undersigned, duly authorized officers, all as of the day and year first above
written.
PARKSOUTH CORPORATION
By:------------------------------------------
Name: Raymond F. Thompson, Jr.
Title: President and Chief
Executive Officer
WOMACK ASSET MANAGEMENT, INC.
By:------------------------------------------
Name: William A. Womack
Title: President
<PAGE>
EXHIBIT A
DG INVESTOR SERIES
DG OPPORTUNITY FUND
Sub-Advisory Agreement
SUB-ADVISORY FEES
For all services rendered by the Sub-Adviser hereunder, the Adviser shall
pay, on a monthly basis, a Sub-Advisory Fee, based on the average daily net
assets of the Fund under management by the Sub-Adviser during the preceding
month, as described below. The Sub-Advisory fee shall be the sum of: 0.32% of
average daily net assets up to $50 million; 0.075% of average daily net assets
in excess of $50 million and up to $70 million; and 0.25% of average daily net
assets in excess of $70 million. The Sub-Advisory Fee will be accrued daily,
and for any period in which the Sub-Advisor provides portfolio management
services under this Agreement for less than one full month, the Sub-Advisory Fee
will be prorated by the number of the days of the month during which such
services were rendered.
Notwithstanding anything herein to the contrary, if the Sub-Advisory Fee
received by the Sub-Adviser during the first year of this Agreement, when added
to any other compensation paid by the Adviser to the Sub-Adviser for any
purposes during the same one-year period, does not equal or exceed $190,000 (One
Hundred Ninety Thousand Dollars) (the "Threshold Amount"), the Adviser shall
pay, at its own expense and cost, any resulting shortfall at the end of that
one-year period. If this Agreement is terminated before the end of that one-year
period, there shall be subtracted from the Threshold Amount a percentage of the
Threshold Amount equal to (x) a fraction equal to the number of the days of the
one-year period remaining at the date of termination, divided by 365, multiplied
by (y) a fraction equal to the total net assets of clients of the Adviser
managed by the Sub-Adviser at the time of such termination ("Aggregate Net
Assets"), divided by the Aggregate Net Assets minus the amount, if any, of net
assets of other clients remaining under management by the Sub-Adviser following
such termination.
<PAGE>
EXHIBIT B
DG INVESTOR SERIES
DG OPPORTUNITY FUND
Sub-Advisory Agreement
RECORDS TO BE MAINTAINED BY THE SUB-ADVISER
1. (RULE 31A-1(B)(5) AND (6) OF THE INVESTMENT COMPANY ACT OF 1940). A
record of each brokerage order, and all other portfolio purchase and sales
orders by the Sub-Adviser or on behalf of the Fund for, or in connection with,
the purchase or sale of securities, whether executed or unexecuted. Such records
shall include:
A. The name of the broker,
B. The terms and conditions of the order, and of any modification or
cancellation thereof,
C. The time of entry or cancellation,
D. The price at which executed,
E. The time of receipt of report of execution, and
F. The name of the person who placed the order on behalf of the Fund.
2. (RULE 31A-1(B)(9) OF THE INVESTMENT COMPANY ACT OF 1940). A record for
each fiscal quarter, completed within ten (10) days after the end of the
quarter, showing specifically the basis or bases upon which the allocation of
orders for the purchase and sale of portfolio securities to brokers or dealers
was made, and the division of brokerage commissions or other compensation on
such purchase and sale orders. The record:
A. Shall include the consideration given to:
(i) the sale of shares of a feeder fund of the Portfolio
(ii) the supplying of services or benefits by brokers or dealers to:
(a) The Fund,
(b) The Adviser,
(c) Yourself (the Sub-Adviser), and
(d) Any person other than the foregoing.
(iii) Any other considerations other than the technical
qualifications of the brokers and dealers as such.
B. Shall show the nature of the services or benefits made available.
C. Shall describe in detail the application of any general or specific
formula or other determinant used in arriving at such allocation of
purchase and sale orders and such division of brokerage commissions
or other compensation.
D. Shall include the name of the person responsible for making the
determination of such allocation and such division of brokerage
commissions or other compensation.
3. (RULE 31A-1(B)(10) OF THE INVESTMENT COMPANY ACT OF 1940). A record in
the form of an appropriate memorandum identifying the person or persons,
committees, or groups authorizing the purchase or sale of portfolio securities.
Where an authorization is made by a committee or group, a record shall be kept
of the names of its members who participate in the authorization. There shall be
retained as part of this record any memorandum, recommendation, or instruction
supporting or authorizing the purchase or sale of portfolio securities and such
other information as is appropriate to support the authorization.*
- --------
* Such information might include: the current Form 10-K, annual and quarterly
reports, press releases, reports by analysts and from brokerage firms
(including their recommendations, i.e., buy, sell, hold), and any internal
reports of portfolio manager reviews.
4. (RULE 31A-1(F) OF THE INVESTMENT COMPANY ACT OF 1940). Such accounts,
books and other documents as are required to be maintained by registered
investment advisers by rule adopted under Section 204 of the Investment Advisers
Act of 1940, to the extent such records are necessary or appropriate to record
the Sub-Adviser's transactions made with respect to the Fund Account.
<PAGE>
EXHIBIT C
to the
Sub-Advisory Agreement
DG INVESTOR SERIES
DG OPPORTUNITY FUND (THE "FUND")
During the period from and including May 1, 1998 (the "Escrow Beginning
Date") until the date of approval by shareholders of the Fund in conformity with
the provisions of the Investment Company Act of 1940 (the "1940 Act"), including
but not limited to Section 15(c) thereof (the "Escrow Termination Date"), any
and all advisory fees (the "Advisory Fees") payable under this Sub-Advisory
Agreement (the "Sub-Advisory Agreement") shall be paid in accordance with this
Exhibit C. From and including the Escrow Beginning Date to, but not including,
the Escrow Termination Date, any and all Advisory Fees shall be paid into an
interest bearing escrow account (the "Escrow Account") maintained by an
unaffiliated financial institution (the "Escrow Agent"). Pursuant to a letter
agreement with the Escrow Agent, the Advisory Fees (including interest earned on
such Advisory Fees) will be paid to Womack Asset Management (the "Sub-Adviser")
only if shareholders of the Fund approve the Sub-Advisory Agreement. Further
pursuant to the letter agreement, on the Escrow Termination Date the Advisory
Fees will be released by the Escrow Agent from the Escrow Account to the
Sub-Adviser, only upon receipt by the Escrow Agent of a certificate from
officers of the Trust stating that the Sub-Advisory Agreement has received the
requisite shareholder vote. In the event that the requisite shareholder vote is
not obtained and the Escrow Termination Date does not therefore occur, the
officers of the Trust shall execute and deliver to the Escrow Agent, no later
than December 31, 1998, a certificate stating that the requisite shareholder
vote has not been obtained and that the Advisory Fees (and interest) in the
Escrow Account should be paid over to the Fund. The provisions of this Exhibit C
shall terminate and be of no further force and effect, and may be removed from
the Sub-Advisory Agreement, upon (i) the Escrow Termination Date, or (ii)
December 31, 1998.
<PAGE>
APPENDIX F
DG INVESTOR SERIES
NEW SUB-ADVISORY AGREEMENT
THIS AGREEMENT is made between ParkSouth Corporation, a Mississippi
corporation (hereinafter referred to as "Adviser") and Lazard Asset Management,
a division of Lazard Freres & Co. L.L.C., a New York limited liability company
(hereinafter referred to as the "Sub-Adviser").
WITNESSETH:
That the parties hereto, intending to be legally bound hereby agree as
follows:
1. The Adviser in its capacity as investment adviser to the DG
International Equity Fund (the "Fund"), a portfolio of DG Investor Series
("Trust"), appoints the Sub-Adviser as a discretionary investment sub-adviser to
the Fund pursuant to the terms set forth in this Agreement.
2. (a) The Sub-Adviser will deal in good faith and with due diligence and
will use professional skill, care and judgment in the performance of its duties
under this Agreement. In so doing, the Sub-Adviser shall formulate and implement
a continuing program for the management of the assets of the Fund. The
Sub-Adviser shall amend and update such program from time to time as financial
and other economic conditions warrant. The Sub-Adviser shall make all
determinations with respect to the investment of the assets of the Fund and
shall take such steps as may be necessary to implement the same, including the
placement of purchase and sale orders on behalf of the Fund. The Adviser shall
be responsible for the administration of the investment activities of the Fund,
including compliance with the requirements of the Investment Company Act of
1940, except for the investment management activities specifically delegated to
the Sub-Adviser to this Agreement.
(b) The Sub-Adviser will adopt or has adopted a written code of ethics
complying with the requirements of Rule 17j-1 under the Investment Company Act
of 1940, will provide the Adviser with a copy of the code of ethics and evidence
of its adoption, and will make such reports to the Trust as required by Rule
17j-1. The Sub-Adviser will also adopt or has adopted policies and procedures
sufficient to enable the Sub-Adviser to detect and prevent the misuse of
material, nonpublic information by the Sub-Adviser or any person associated with
the Sub-Adviser, in compliance with federal and state securities laws.
(c) The Sub-Adviser will prepare, maintain, keep current and preserve
on behalf of the Trust and the Adviser all records concerning the Sub-Adviser's
activities in connection with the Fund that the Fund is required by law to
maintain, including, but not limited to, records required under paragraphs
(b)(5), (b)(6), (b)(9), (b)(10), and (f) of rule 31a-1 under the Investment
Company Act. Any records required to be maintained and preserved pursuant to the
provisions of Rule 31a-1 and Rule 31a-2 under the Investment Company Act of 1940
that are prepared by the Sub-Adviser on behalf of the Fund are the property of
the Fund and will be surrendered promptly on request to the Fund or any person
acting on behalf of the Trust during the term of this Agreement and at any time
after the termination of this Agreement; provided, however, that the Sub-Adviser
has the right to make and retain copies. The Sub-Adviser will comply with all
reasonable requests for information by the Adviser or the Trust's officers or
Board of Trustees, including information required for the Fund's filings with
the Securities and Exchange Commission and state securities commissions.
(d) The Sub-Adviser will promptly after filing with the Securities and
Exchange Commission an amendment to its Form ADV furnish a copy of such
amendment to the Trust and the Adviser.
(e) The Sub-Adviser will immediately notify the Adviser of the
occurrence of any event which would disqualify the Sub-Adviser from serving as
an investment adviser of an investment company pursuant to Section 9(a) of the
Investment Company Act of 1940 or otherwise.
3. (a) The Sub-Adviser's power to direct the investment and reinvestment of
the assets of the Fund shall be exercised in accordance with applicable law, the
Fund's governing documents and the investment objectives, policies and
restrictions set forth in the then-current Prospectus and Statement of
Additional Information (collectively the "Prospectus") relating to the Fund
contained in the Trust's Registration Statement under the Investment Company Act
of 1940 and the Securities Act of 1933, as amended. The Adviser may also place
additional limitations on the Sub-Adviser's investment decisions by written
notice to the Sub-Adviser. The Adviser agrees to provide promptly, or cause to
be provided promptly, to the Sub-Adviser a copy of the documents mentioned above
and all changes made to such documents.
(b) While the Sub-Adviser will have day-to-day responsibility for the
discretionary investment decisions to be made on behalf of the Fund, the
Sub-Adviser will be subject to oversight by the Adviser. Such oversight,
however, shall not require prior approval of discretionary investment decisions
made by the Sub-Adviser by the Adviser pursuant to the preceding sentence.
(c) The Trust retains the right, on reasonable prior written notice to
the Adviser and the Sub-Adviser, to amend the Fund's investment objectives,
policies and restrictions placed on the Sub-Adviser's investment decisions.
Similarly, the Adviser retains the right, on reasonable prior written notice to
the Sub-Adviser, to amend any additional limitations, if any, that have been
placed on the Sub-Adviser's investment decisions with respect to the Fund. Upon
receipt of such prior notice from either the Trust or the Adviser, the
Sub-Adviser will promptly notify both the Fund and the Adviser if adoption of
such amendment would interfere with the completion of any transaction commenced
on behalf of the Fund prior to the Sub-Adviser's receipt of the notice. In the
event that the Trust or the Adviser proceeds to amend the Fund's investment
objectives, policies and restrictions or any additional limitations after being
notified by the Sub-Adviser of the pending transaction commenced on behalf of
the Fund, or in the event that the Trust or the Adviser amends the Fund's
investment objectives, policies and restrictions or any additional limitations
without providing reasonable prior notice to the Sub-Adviser, the Sub-Adviser
may complete such transaction unless doing so would violate any applicable law,
rule or regulation. In such an event, the Sub-Adviser will not be responsible
for any loss that may result from the completion of the transaction.
(d) Except as may be qualified elsewhere in this Agreement, the
Sub-Adviser is hereby authorized, for and on behalf of the Fund, in its
discretion, to:
(i) exercise any conversion and/or subscription rights available in
connection with any securities or other investments held in the Fund;
(ii) maintain all or part of the Fund's assets uninvested in
short-term income-producing instruments for such periods of time as shall be
deemed responsible and prudent by the Sub-Adviser;
(iii) instruct the Custodian, to deliver for cash received,
securities or other cash and/or securities instruments sold, exchanged, redeemed
or otherwise disposed of from the Fund, and to pay cash for securities or other
cash and/or securities instruments delivered to the Custodian and/or credited to
the Fund upon acquisition of the same for the Fund;
(iv) determine how to vote all proxies received with respect to
securities held in the Fund and direct the Custodian as to the voting of such
proxies; and
(v) generally, perform any other act necessary to enable the
Sub-Adviser to carry out its obligations under the Agreement.
4. (a) The Sub-Adviser shall select the brokers and dealers through whom
transactions on behalf of the Fund will be executed and the markets on or in
which such transactions will be executed. The Sub-Adviser shall place, in the
name of the Fund or its nominee (or appropriate foreign equivalent), all such
orders for the purchase or sale or of securities due to or from the Fund with
any broker and/or dealer who deals in such securities, all in the manner as set
forth below and in accordance with such operational procedures as may be agreed
to from time to time by the Adviser and the Sub-Adviser.
(b) In placing orders with brokers and/or dealers, the Sub-Adviser
shall use its best efforts to obtain the best net price and the most favorable
execution of its orders, after taking into account all factors it deems
relevant, including the breadth of the market in the security, the price of the
security, the financial condition and execution capability of the broker and/or
dealer, and the reasonableness of the commission, if any, both for the specific
transaction and on a continuing basis. Consistent with this obligation, the
Sub-Adviser may, to the extent permitted by law, purchase and sell portfolio
securities using brokers who provide brokerage and research services (within the
meaning of Section 28(e) of the Securities Exchange Act of 1934) to or for the
benefit of the Fund and/or other accounts over which the Sub-Adviser or the
Adviser exercises investment discretion. The Sub-Adviser is authorized to pay a
broker that provides such brokerage and research services a commission for
effecting a securities transaction which is in excess of the amount of
commission another broker would have charged for effecting that transaction, if
the Sub-Adviser determines in good faith that such commission was reasonable in
relation to the value of brokerage and research services provided by such
broker. This determination may be viewed in terms of either that particular
transactions or of the overall responsibilities of the Sub-Adviser with respect
to the accounts as to which it exercises investment discretion.
(c) Notwithstanding the foregoing, the Board of Trustees and the
Adviser periodically shall review the commissions paid by the Fund and determine
whether those commissions were reasonable in relation to the brokerage and
research services received. In addition, the Board of Trustees of the Trust, in
its discretion, may instruct the Sub-Adviser to effect all or a portion of its
securities transactions with one or more brokers and/or dealers selected by the
Board of Trustees, if it determines that the use of such brokers and/or dealers
is in the best interest of the Fund.
5. It is understood that certain other clients (including other funds,
portfolios and accounts) of the Sub-Adviser may have investment objectives and
policies similar to those of the Fund and that the Sub-Adviser may, from time to
time, make recommendations that result in the purchase (or sale) of a particular
security by its other clients and the Fund during the same period of time. If
transactions on behalf of more than one client during the same period increase
the demand for securities being purchased or the supply of securities being
sold, there may be an adverse effect on price or quantity. In such event, the
Sub-Adviser shall allocate the securities or investments to be purchased or
sold, as well as the expense incurred in the transactions (including price) in a
manner the Sub-Adviser considers equitable and consistent with its obligations
to the Fund and the Sub-Adviser's other clients.
6. The Sub-Adviser agrees that it will only enter into transactions that
are covered by Section 10(f) or Section 17(e) of the Investment Company Act of
1940 if it has (i) complied with Rule 10f-3 or Rule 17e-1 thereunder,
respectively, or the terms of an appropriate exemptive order issued to the Fund
by the SEC, and (ii) has complied with the procedures adopted thereunder by the
Board of Trustees of the Trust which may, pursuant to authority granted by the
Trust, be supplemented by interpretive guidelines of the Adviser. Aside from
parties that are known or should be known by the Sub-Adviser, the Adviser shall
promptly notify the Sub-Adviser of any additional parties with whom engaging in
a transaction for the Fund would result in a violation of the Investment Company
Act of 1940.
7. For its services under this Agreement, Sub-Adviser shall receive from
Adviser an annual fee (the "Sub-Advisory Fee"), as set forth in the exhibit
hereto.
8. This Agreement shall begin for the Fund on the date that the parties
execute the exhibit to this Agreement relating to such Fund and shall continue
in effect for the Fund for two years from the date of its execution and from
year to year thereafter, subject to the provisions for termination and all of
the other terms and conditions hereof if: (a) such continuation shall be
specifically approved at least annually by the vote of a majority of the
Trustees of the Trust, including a majority of the Trustees who are not parties
to this Agreement or interested persons of any such party (other than as
Trustees of the Trust) cast in person at a meeting called for that purpose; and
(b) the Adviser shall not have notified the Trust in writing at least sixty (60)
days prior to the anniversary date of this Agreement in any year thereafter that
it does not desire such continuation with respect to the Fund.
9. Notwithstanding any provision in this Agreement, it may be terminated at
any time without the payment of any penalty: (a) by the Trustees of the Trust or
by a vote of a majority of the outstanding voting securities (as defined in
Section 2(a)(42) of the Act) of the Fund on sixty (60) days' written notice to
the Adviser; (b) by the Sub-Adviser or the Adviser upon 60 days' written notice
to the other party to the Agreement. Termination of this Agreement will not
affect (i) the validity of any action previously taken by the Adviser or the
Sub-Adviser under this Agreement or (ii) liabilities or obligations of the
parties from transactions initiated before termination of this Agreement.
10. This Agreement shall automatically terminate:
(a) in the event of its assignment (as defined in the Investment
Company Act of 1940); or
(b) in the event of termination of the Investment Advisory Contract for
any reason whatsoever.
11. So long as both the Adviser and the Sub-Adviser shall be legally
qualified to act as an investment adviser to the Fund, neither the Adviser nor
the Sub-Adviser shall act as an investment adviser (as such term is defined in
the Investment Company Act of 1940) to the Fund except as provided herein and in
the Investment Advisory Contract or in such other manner as may be expressly
agreed between the Adviser and the Sub-Adviser.
Provided, however, that if the Adviser or Sub-Adviser shall resign prior to
the end of any term of this Agreement or for any reason be unable or unwilling
to serve for a successive term which has been approved by the Trustees of the
Trust pursuant to the provisions of Paragraph 8 of this Agreement or Paragraph 6
of the Investment Advisory Contract, the remaining party, the Sub-Adviser or the
Adviser, as the case may be, shall not be prohibited from serving as an
investment adviser to such Fund by reason of the provisions of this Paragraph
11.
12. This Agreement may be amended from time to time by agreement of the
parties hereto provided that such amendment shall be approved both by the vote
of a majority of Trustees of the Trust, including a majority of Trustees who are
not parties to this Agreement or interested persons, as defined in Section
2(a)(19) of the Investment Company Act of 1940, of any such party at a meeting
called for that purpose, and, where required by Section 15(a)(2) of the
Investment Company Act of 1940, by the holders of a majority of the outstanding
voting securities (as defined in Section 2(a)(42) of the Investment Company Act
of 1940) of the Fund.
13. This Agreement shall be construed in accordance with the laws of the
Commonwealth of Pennsylvania without giving effect to the choice of law
provisions thereof, to the extent that such laws are consistent with provisions
of the Investment Company Act of 1940 and the regulations thereunder. The
failure of either party to insist, in one or more instances, upon strict
performance of the obligations of this Agreement, or to exercise any rights
contained herein, shall not be construed as a waiver, or relinquishment for the
future of such obligation of right, which shall remain and continue in full
force and effect. Should any part of this Agreement be held or made invalid by a
court decision, statute, regulation, or otherwise, the remainder of this
Agreement shall not be affected thereby. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
<PAGE>
EXHIBIT A
DG INVESTOR SERIES
DG INTERNATIONAL EQUITY FUND
Sub-Advisory Agreement
For all services rendered by Sub-Adviser hereunder, Adviser shall pay
Sub-Adviser a Sub-Advisory Fee equal to 0.50% (one-half of one percent) of the
average daily net assets of the above-mentioned portfolio. The Sub-Advisory Fee
shall be accrued daily, and paid monthly as set forth in the Investment Advisory
Contract dated May 1, 1998.
This Exhibit duly incorporates by reference the Sub-Advisory Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Exhibit to be
executed on their behalf by their duly authorized officers, and their corporate
seals to be affixed hereto this 1st day of May, 1998.
ATTEST: PARKSOUTH CORPORATION
By:--------------------------- By:----------------------------------
Title:-------------------- Title:---------------------------
ATTEST: LAZARD ASSET MANAGEMENT, A
DIVISION OF LAZARD FRERES & CO.,
L.L.C.
By:--------------------------- By:----------------------------------
Title:-------------------- Title:---------------------------
<PAGE>
EXHIBIT B
to the
Sub-Advisory Agreement
DG INVESTOR SERIES
DG INTERNATIONAL EQUITY FUND (THE "FUND")
During the period from and including May 1, 1998 (the "Escrow Beginning
Date") until the date of approval by shareholders of the Fund in conformity with
the provisions of the Investment Company Act of 1940 (the "1940 Act"), including
but not limited to Section 15(c) thereof (the "Escrow Termination Date"), any
and all advisory fees (the "Advisory Fees") payable under this Sub-Advisory
Agreement (the "Sub-Advisory Agreement") shall be paid in accordance with this
Exhibit B. From and including the Escrow Beginning Date to, but not including,
the Escrow Termination Date, any and all Advisory Fees shall be paid into an
interest bearing escrow account (the "Escrow Account") maintained by an
unaffiliated financial institution (the "Escrow Agent"). Pursuant to a letter
agreement with the Escrow Agent, the Advisory Fees (including interest earned on
such Advisory Fees) will be paid to Lazard Asset Management, a division of
Lazard Fr_res & Co., L.L.C. (the "Sub-Adviser") only if shareholders of the Fund
approve the Sub-Advisory Agreement. Further pursuant to the letter agreement, on
the Escrow Termination Date the Advisory Fees will be released by the Escrow
Agent from the Escrow Account to the Sub-Adviser, only upon receipt by the
Escrow Agent of a certificate from officers of the Trust stating that the
Sub-Advisory Agreement has received the requisite shareholder vote. In the event
that the requisite shareholder vote is not obtained and the Escrow Termination
Date does not therefore occur, the officers of the Trust shall execute and
deliver to the Escrow Agent, no later than December 31, 1998, a certificate
stating that the requisite shareholder vote has not been obtained and that the
Advisory Fees (and interest) in the Escrow Account should be paid over to the
Fund. The provisions of this Exhibit B shall terminate and be of no further
force and effect, and may be removed from the Sub-Advisory Agreement, upon (i)
the Escrow Termination Date, or (ii) December 31, 1998.
<PAGE>
APPENDIX G
The principal executive officer and directors of First American are listed in
the table below. The business address of each such individual is First American
Center, 315 Deaderick Street, Nashville, Tennessee 37237. Certain executive
officers and directors of First American also hold or have held various
positions with bank and non-bank affiliates of First American, including First
American Corporation.
Position with Other Substantial Business,
First American Profession, Vocation
NAME NATIONAL BANK or Employment
Dennis C. Bottorff Chairman and Chairman and Chief Executive
Chief Officer of First American
Executive Corporation
Officer
Earnest W. Deavenport, Director Chairman and Chief Executive
Jr. Officer of Eastman Chemical
Company
Reginald D. Dickson Director President Emeritus of
INROADS, Inc.
James A. Haslam, II Director Chairman of the Board of
Pilot Corporation
Warren A. Hood, Jr. Director Chairman of Hood Industries,
Inc.
Martha R. Ingram Director Chairman of the Board of
Ingram Industries, Inc.
Walter G. Knestrick Director Chairman of the Board of
Walter Knestrick Contractor,
Inc.
Gene C. Koonce Director Vice Chairman of United
Cities Gas Company
James R. Martin Director Chairman and Chief Executive
Officer of Plasti-Line, Inc.
Robert A. McCabe, Jr. Director Vice Chairman of First
American Corporation and
President of First American
Enterprises
Howard L. McMillan, Director Chairman of Deposit Guaranty
Jr. System
John N. Palmer Director Chairman and Chief Executive
Officer of SkyTel
Communications, Inc.
Dale W. Polley Director President and Principal
Financial Officer of First
American Corporation
E.B. Robinson, Jr. Director Vice Chairman and Chief
Operating Officer of First
American Corporation and
President of First American
National Bank
Roscoe R. Robinson Director Former Vice Chancellor for
Health Affairs of Vanderbilt
University Medical Center
James F. Smith Director Former Chairman of the Board
of First American
Corporation
Cal Turner, Jr. Director Chairman and Chief Executive
Officer of Dollar General
Corporation
Celia A. Wallace Director Chairman and Chief Executive
Officer of Southern Medical
Health Systems, Inc.
Ted H. Welch Director Real Estate Developer,
President and Chief
Executive Officer of Eagle
Communications
J. Kelley Williams, Director Chairman and Chief Executive
Sr. Officer of ChemFirst, Inc.
David K. Wilson Director Chairman of the Board of
Cherokee Equity Corporation
Toby S. Wilt Director President of TSW Investment
Company
William S. Wire, II Director Former Chairman of the Board
of Genesco, Inc.
