INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 20, 1994
DG OPPORTUNITY FUND
(A PORTFOLIO OF DG INVESTOR SERIES)
PROSPECTUS
The shares of DG Opportunity Fund (the "Fund") offered by this prospectus
represent interests in a diversified portfolio of DG Investor Series (the
"Trust"), an open-end, management investment company (a mutual fund).
The investment objective of the Fund is to provide capital appreciation.
The Fund pursues its investment objective by investing primarily in a
portfolio of equity securities comprising the small capitalization sector
of the United States equity market.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF
DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT
ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL
NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY.
INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE
LOSS OF PRINCIPAL.
This prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated July
, 1994, with the Securities and Exchange Commission. The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information free of charge, obtain other information, or make
inquiries about the Fund by writing or calling the Fund.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated July , 1994
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Repurchase Agreements 3
Investing in Securities of Other
Investment Companies 3
Securities of Foreign Issuers 3
Put and Call Options 4
Futures Contracts and Options
on Futures 4
Risks 4
When-Issued and Delayed
Delivery Transactions 5
Lending of Portfolio Securities 5
Temporary Investments 5
Investment Considerations 5
Portfolio Turnover 6
Investment Limitations 6
DG INVESTOR SERIES INFORMATION 6
- ------------------------------------------------------
Management of the Trust 6
Board of Trustees 6
Investment Adviser 6
Advisory Fees 7
Adviser's Background 7
Sub-Adviser 7
Sub-Advisory Fees 7
Sub-Adviser's Background 7
Distribution of Fund Shares 8
Distribution Plan 8
Shareholder Servicing Arrangements 9
ADMINISTRATION OF THE FUND 9
- ------------------------------------------------------
Administrative Services 9
Shareholder Services Plan 9
Custodian 9
Transfer Agent, Dividend Disbursing
Agent, and Shareholder
Servicing Agent 10
Legal Counsel 10
Independent Auditors 10
Brokerage Transactions 10
Expenses of the Fund 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
Share Purchases 11
Through the Banks 11
Minimum Investment Required 11
What Shares Cost 11
Purchases at Net Asset Value 12
Sales Charge Reallowance 12
Reducing the Sales Charge 12
Quantity Discounts and Accumulated
Purchases 12
Letter of Intent 13
Reinvestment Privilege 13
Concurrent Purchases 13
Systematic Investment Program 13
Certificates and Confirmations 13
Dividends and Distributions 13
Exchanging Securities For Fund Shares 14
EXCHANGE PRIVILEGE 14
- ------------------------------------------------------
DG Investor Series 14
EXCHANGING SHARES 14
- ------------------------------------------------------
REDEEMING SHARES 15
- ------------------------------------------------------
Through the Banks 15
By Telephone 15
By Mail 15
Signatures 15
Systematic Withdrawal Program 16
Accounts With Low Balances 16
SHAREHOLDER INFORMATION 16
- ------------------------------------------------------
Voting Rights 16
Massachusetts Partnership Law 17
EFFECT OF BANKING LAWS 17
- ------------------------------------------------------
TAX INFORMATION 18
- ------------------------------------------------------
Federal Income Tax 18
PERFORMANCE INFORMATION 18
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... 2.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)........................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price or
redemption proceeds, as applicable)........................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable).............. None
Exchange Fee.................................................................... None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)................................................ 0.27%
12b-1 Fee(2).................................................................... 0.00%
Total Other Expenses (after waiver)(3).......................................... 0.53%
Shareholder Services Fee(2)................................................. 0.00%
Total Fund Operating Expenses(4)............................................ 0.80%
</TABLE>
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver by the adviser. The adviser may terminate this voluntary waiver
at any time at its sole discretion. The maximum management fee is 0.95%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees or shareholder services fees. The Fund will not accrue or pay 12b-1 fees or
shareholder services fees until a separate class of shares has been created for
certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee and
up to 0.15% as a shareholder services fee.
(3) Total Other Expenses are estimated to be 0.67% absent the anticipated
voluntary waiver by the administrator. The administrator may terminate this
voluntary waiver at any time at its sole discretion.
(4) Total Fund Operating Expenses are anticipated to be 1.61% absent the
voluntary waivers described above in notes 1 and 3.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time period.
The Fund charges no redemption fees......................................... $ 28 $ 45
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING FEBRUARY
28, 1995.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes.
Shares of the Fund are designed for retail and trust customers of Deposit
Guaranty National Bank and Commercial National Bank and their affiliates as a
convenient means of participating in a professionally managed, diversified
portfolio consisting primarily of equity securities. A minimum initial
investment of $1,000 is required.
Fund shares are sold at net asset value plus an applicable sales charge and are
redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide capital appreciation. The
investment objective cannot be changed without approval of shareholders. While
there is no assurance that the Fund will achieve its investment objective, it
endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of equity securities comprising the small capitalization sector of the United
States equity market. In the investment adviser's opinion, small capitalization
stocks have special value in the marketplace and can provide greater growth of
principal than large capitalization stocks. The Fund attempts to select
companies with potential for above-average capital appreciation commensurate
with increased risk. Under normal market conditions, the Fund intends to invest
at least 65% of its total assets in equity securities of companies that have a
market value capitalization of less than $1 billion.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Trustees ("Trustees") without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS. In pursuing its investment objective, the Fund will
employ investment strategies that utilize a fundamental growth-oriented approach
along with technical analysis and relative valuation to select the small
capitalization stocks which will comprise the Fund's investment portfolio.
Acceptable investments include, but are not limited to:
- common stock of U.S. companies which are either listed on the New York or
American Stock Exchange or traded in over-the-counter markets, preferred
stock of such companies, warrants, and preferred stock convertible into
common stock of such companies;
- convertible bonds rated at least BBB by Standard & Poor's Corporation
("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch") or at
least Baa by Moody's Investors Service, Inc. ("Moody's") or, if not
rated, are determined by the adviser to be of comparable quality;
- investments in American Depository Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market;
- money market instruments;
- fixed rate notes, bonds and adjustable and variable rate notes of
companies whose common stock it may acquire rated BBB or better by
Standard & Poor's or Baa or better by Moody's;
- zero coupon convertible securities;
- securities of other investment companies; and
- obligations, including certificates of deposit and bankers' acceptances,
of banks or savings and loan associations having at least $1 billion in
deposits as of the date of their most recently published financial
statements and which are insured by the Bank Insurance Fund or the
Savings Association Insurance Fund, both of which are administered by the
Federal Deposit Insurance Corporation, including U.S. branches of foreign
banks and foreign branches of U.S. banks.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, broker/dealers, and other recognized financial
institutions sell U.S. government securities to the Fund and agree at the time
of sale to repurchase them at a mutually agreed upon time and price. To the
extent that the seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund will limit its
investment in other investment companies to no more than 3% of the total
outstanding voting stock of any investment company, will not invest more than 5%
of its total assets in any one investment company, or invest more than 10% of
its total assets in investment companies in general. The Fund will purchase
securities of closed-end investment companies only in open-market transactions
involving only customary broker's commissions. However, these limitations are
not applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies incur
certain expenses, such as management fees, and, therefore, any investment by a
fund in shares of another investment company would be subject to such duplicate
expenses. The Fund will invest in other investment companies primarily for the
purpose of investing its short-term cash on a temporary basis. The adviser will
waive its investment advisory fee on assets invested in securities of open-end
investment companies.
SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities of foreign
issuers traded on the New York or American Stock Exchange or in the
over-the-counter market in the form of depositary receipts. Securities of a
foreign issuer may present greater risks in the form of nationalization,
confiscation, domestic marketability, or other national or international
restrictions. As a matter of practice, the Fund will not invest in the
securities of a foreign issuer if any such risk appears to the investment
adviser to be substantial.
PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio
securities as a hedge to attempt to protect securities which the Fund holds, or
will be purchasing, against decreases in value. The Fund may also write (sell)
call options on all or any portion of its portfolio to generate income for the
Fund. The Fund will write call options on securities either held in its
portfolio or which it has the right to obtain without payment of further
consideration or for which it has segregated cash or U.S. government securities
in the amount of any additional consideration.
The Fund may purchase and write over-the-counter options on portfolio securities
in negotiated transactions with the buyers or writers of the options when
options on the portfolio securities held by the Fund are not traded on an
exchange. The Fund purchases and writes options only with investment dealers and
other financial institutions (such as commercial banks or savings and loan
associations) deemed creditworthy by the Fund's adviser.
Over-the-counter options are two-party contracts with price and terms negotiated
between buyer and seller. In contrast, exchange-traded options are third-party
contracts with standardized strike prices and expiration dates and are purchased
from a clearing corporation. Exchange-traded options have a continuous liquid
market, while over-the-counter options may not.
FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures and stock index futures contracts to hedge all or a portion of
its portfolio against changes in the price of its portfolio securities, but will
not engage in futures transactions for speculative purposes.
The Fund may also write call options and purchase put options on financial
futures and stock index futures contracts as a hedge to attempt to protect
securities in its portfolio against decreases in value.
The Fund may not purchase or sell futures contracts or related options if
immediately thereafter the sum of the amount of margin deposits on the Fund's
existing futures positions and premiums paid for related options would exceed 5%
of the market value of the Fund's total assets.
RISKS. When the Fund writes a call option, the Fund risks not participating in
any rise in the value of the underlying security. In addition, when the Fund
uses futures and options on futures as hedging devices, there is a risk that the
prices of the securities subject to the futures contracts may not correlate
perfectly with the prices of the securities in the Fund's portfolio. This may
cause the futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's investment
adviser could be incorrect in its expectations about the direction or extent of
market factors, such as interest rate and stock price movements. In these
events, the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures contracts or
options will exist at all times. Although the investment adviser will consider
liquidity before entering into options transactions, there is no assurance that
a liquid secondary market will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close out
futures and options positions depends on this secondary market.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase portfolio
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Fund purchases securities with payment and delivery
scheduled for a future time. In when-issued and delayed delivery transactions,
the Fund relies on the seller to complete the transaction. The seller's failure
to complete the transaction may cause the Fund to miss a price or yield
considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend portfolio securities on a short-term or long-term basis, or both,
to broker/dealers, banks, or other institutional borrowers of securities. The
Fund will only enter into loan arrangements with broker/dealers, banks, or other
institutions which the adviser has determined are creditworthy under guidelines
established by the Trustees, and will receive collateral in the form of cash or
U.S. government securities equal to at least 100% of the value of the securities
loaned at all times.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest
temporarily in cash and short-term obligations during times of unusual market
conditions and to maintain liquidity. These investments may include obligations
such as:
- commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or
Prime-2 by Moody's, or F-1 or F-2 by Fitch;
- obligations of the U.S. government or its agencies or instrumentalities;
and
- repurchase agreements.
INVESTMENT CONSIDERATIONS
As with other mutual funds that invest primarily in equity securities, the Fund
is subject to market risks. That is, the possibility exists that common stocks
will decline over short or even extended periods of time. The United States
equity market tends to be cyclical, experiencing both periods when stock prices
generally increase and periods when stock prices generally decrease. However,
because the Fund invests primarily in small capitalization stocks, there are
some additional risk factors associated with investments in the Fund. In
particular, stocks in the small capitalization sector of the United States
equity market have historically been more volatile in price than larger
capitalization stocks, such as those included in the Standard & Poor's 500
Composite Stock Price Index ("Standard & Poor's 500 Index"). This is because,
among other things, small companies have less certain growth prospects than
larger companies; have a lower degree of liquidity in the equity market; and
tend to have a greater sensitivity to changing economic conditions. Further, in
addition to exhibiting greater volatility, the stocks of small companies may, to
some degree, fluctuate independently of the stocks of large companies. That is,
the stocks of small companies may decline in price as the prices of large
company stocks rise or vice versa. Therefore, investors should expect that the
Fund will be more volatile than, and may fluctuate independently of, broad stock
market indices such as the Standard & Poor's 500 Index.
Bonds rated "BBB" by Standard & Poor's or "Baa" by Moody's have speculative
characteristics. Changes in economic conditions or other circumstances are more
likely to lead to weakened capacity to make principal and interest payments than
higher rated bonds.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in the portfolio will be sold whenever the
investment adviser believes it is appropriate to do so in light of the Fund's
investment objectives, without regard to the length of time a particular
security may have been held. The investment adviser anticipates that the Fund's
portfolio turnover rate will not exceed 200%. A high portfolio turnover rate may
lead to increased costs and may also result in higher taxes paid by the Fund's
shareholders.
INVESTMENT LIMITATIONS
The Fund will not:
- borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow money and engage in reverse repurchase agreements in amounts
up to one-third of the value of its total assets and pledge up to 15% of
the value of its total assets to secure such borrowings.
The above limitation cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
The Fund will not:
- invest more than 15% of its net assets in illiquid securities, including
repurchase agreements providing for settlement more than seven days after
notice, over-the-counter options and certain restricted securities not
determined by the Trustees to be liquid; or
- invest more than 5% of the Fund's net assets in warrants; however, no
more than 2% of this 5% may be warrants which are not listed on the New
York or American Stock Exchange.
DG INVESTOR SERIES INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees
are responsible for managing the Trust's business affairs and for exercising all
of the powers of the Trust except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Trustees'
responsibilities between meetings of the Trustees.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by Deposit Guaranty National Bank,
the Fund's investment adviser (the "Adviser"), subject to direction by the
Trustees. The Adviser, in consultation with the sub-adviser, continually
conducts investment research and supervision for the Fund and is responsible for
the purchase and sale of portfolio instruments.
ADVISORY FEES. The Fund's Adviser receives an annual investment advisory
fee equal to 0.95 of 1% of the Fund's average daily net assets. The fee
paid by the Fund, while higher than the advisory fee paid by other mutual
funds in general, is comparable to fees paid by other mutual funds with
similar objective and policies. The investment advisory contract provides
for the voluntary reimbursement of expenses by the Adviser to the extent
any Fund expenses exceed such lower expense limitation as the Adviser may,
by notice to the Fund, voluntarily declare to be effective. The Adviser can
terminate this voluntary reimbursement of expenses at any time at its sole
discretion. The Adviser has undertaken to reimburse the Fund for operating
expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking
association formed in 1925, is a subsidiary of Deposit Guaranty Corp
("DGC"). Through its subsidiaries and affiliates, DGC offers a full range
of financial services to the public, including commercial lending,
depository services, cash management, brokerage services, retail banking,
mortgage banking, investment advisory services and trust services.
As of December 31, 1993, the Trust Division of Deposit Guaranty National
Bank had approximately $9 billion under administration, of which it had
investment discretion over $1.4 billion. Deposit Guaranty National Bank has
served as the Trust's investment adviser since May 5, 1992.
SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit
Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the
Sub-Adviser will furnish to the Adviser such investment advice, statistical and
other factual information as may be requested by the Adviser. The portfolio
managers from the Trust Divisions of Deposit Guaranty National Bank and
Commercial National Bank will form an investment committee (the "DG Asset
Management Group") to discuss investment strategies and evaluate securities and
the economic outlook.
SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the
Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of
the average daily net assets of the Fund. The sub-advisory fee is accrued
daily and paid monthly. In the event that the fee due from the Trust to the
Adviser on behalf of the Fund is reduced in order to meet expense
limitations imposed on the Fund by state securities laws and regulations,
the sub-advisory fee will be reduced by one-half of said reduction in the
fee due from the Trust to the Adviser on behalf of the Fund.
Notwithstanding any other provision in the sub-advisory agreement, the
Sub-Adviser may, from time to time and for such periods as it deems
appropriate, reduce its compensation (and, if appropriate, assume expenses
of the Fund or class of the Fund) to the extent that the Fund's expenses
exceed such lower expense limitation as the Sub-Adviser may, by notice to
the Trust on behalf of the Fund, voluntarily declare to be effective.
SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking
association which received its charter in 1886, is a subsidiary of DGC. As
of December 31, 1993, the Trust Division at Commercial National Bank had
approximately $1.2 billion in trust assets under administration, for which
it had investment discretion over $1 billion. Commercial National Bank has
served as sub-adviser to DG Government Income Fund, DG Limited Term
Government Income Fund and DG Equity Fund since July 20, 1992. It has
served as sub-adviser to DG Municipal Income Fund since
December 12, 1992, and to the Fund since May 25, 1994. All of these funds
are portfolios of the Trust.
William A. Womack is a Vice President and Trust Investment Officer, and has
been with Deposit Guaranty National Bank for ten years. Mr. Womack spent
eight years prior to joining Deposit Guaranty in the investment brokerage
business. A graduate of Louisiana State University, he received a B.S. in
Finance, with a minor in Economics. Mr. Womack is a member of the
Mississippi Chapter of the Society of Financial Analysts. Mr. Womack has
managed the Fund since July , 1994 (the inception of the Fund). He also
manages the DG Municipal Income Fund.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Fund.
It is a Pennsylvania corporation organized on November 14, 1969, and is the
principal distributor for a number of investment companies. Federated Securities
Corp. is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the
Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the
distributor an amount computed at an annual rate of 0.35 of 1% of the average
daily net asset value of the Fund to finance any activity which is principally
intended to result in the sale of shares subject to the Plan. The Fund will not
accrue or pay 12b-1 fees until a separate class of shares has been created for
certain institutional investors.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense limitation as
the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers ("brokers")
to provide distribution and/or administrative services as agents for their
clients or customers. Administrative services may include, but are not limited
to, the following functions: providing office space, equipment, telephone
facilities, and various clerical, supervisory, computer, and other personnel as
necessary or beneficial to establish and maintain shareholder accounts and
records; processing purchase and redemption transactions and automatic
investments of client account cash balances; answering routine client inquiries;
assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as may reasonably be requested.
The distributor will pay financial institutions a fee based upon shares subject
to the Plan and owned by their clients or customers. The schedules of such fees
and the basis upon which such fees will be paid will be determined from time to
time by the distributor.
The Fund's Plan is a compensation type plan. As such, the Fund makes no payments
to the distributor except as described above. Therefore, the Fund does not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Fund, interest,
carrying or other financing charges in connection with excess amounts expended,
or the distributor's overhead expenses. However, the distributor may be able to
recover such amounts or may earn a profit from future payments made by the Fund
under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
State securities laws governing the ability of depository institutions to act as
underwriters or distributors of securities may differ from interpretations given
to the Glass-Steagall Act and, therefore, banks and financial institutions may
be required to register as dealers pursuant to state laws.
SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial
institutions a fee with respect to the average net asset value of Shares held by
their customers for providing administrative services. This fee, if paid, will
be reimbursed by the Adviser and not the Fund.
ADMINISTRATION OF THE FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a
subsidiary of Federated Investors, provides the Fund with the administrative
personnel and services necessary to operate the Fund. Such services include
shareholder servicing and certain legal and accounting services. Federated
Administrative Services provides these at an annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- --------------------- ------------------------------------
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall aggregate at least
$100,000 per Fund. Federated Administrative Services may choose voluntarily to
waive a portion of its fee at any time.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to the shares. Under the Services Plan,
financial institutions will enter into shareholder service agreements with the
Fund to provide administrative support services to their customers who from time
to time may be owners of record or beneficial owners of the shares. In return
for providing these support services, a financial institution may receive
payments from the Fund at a rate not exceeding 0.15% of the average daily net
assets of the shares beneficially owned by the financial institution's customers
for whom it is holder of record or with whom it has a servicing relationship.
These administrative services may include, but are not limited to, the provision
of personal services and maintenance of shareholder accounts. The Fund will not
accrue or pay shareholder services fees until a separate class of shares has
been added for certain institutional investors.
CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston,
Massachusetts, is custodian for the securities and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT.
Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the
shares of the Fund, dividend disbursing agent for the Fund, and shareholder
servicing agent for the Fund.
LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston &
Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington,
D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick, Pittsburgh, Pennsylvania.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Fund and other funds
distributed by Federated Securities Corp. The Adviser makes decisions on
portfolio transactions and selects brokers and dealers subject to review by the
Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust expenses.
The expenses borne by the Fund include, but are not limited to, the cost of:
organizing the Trust and continuing its existence; Trustee fees; investment
advisory and administrative services; printing prospectuses and other Fund
documents for shareholders; registering the Trust, the Fund, and shares of the
Fund with federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such non-recurring and extraordinary items as may arise. However, the
Adviser may voluntarily waive some expenses and has, in addition, undertaken to
reimburse the Fund, up to the amount of the advisory fee, the amount by which
operating expenses exceed limitations imposed by certain states.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Fund shares may be ordered by
telephone through procedures established with Commercial National Bank and
Deposit Guaranty National Bank (collectively, the "Banks") in connection with
qualified account relationships. Such procedures may include arrangements under
which certain accounts are swept periodically and amounts exceeding an agreed
upon minimum are invested automatically in Fund shares. Texas residents must
purchase shares of the Fund through Federated Securities Corp. at
1-800-356-2805. The Fund reserves the right to reject any purchase request.
THROUGH THE BANKS. To place an order to purchase Fund shares, open an account
by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial
National Bank at (800) 274-1907. Information needed to establish the account
will be taken over the telephone.
Payment may be made by either check, federal funds or by debiting a customer's
account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern
time). Payment is required before 4:00 p.m. on the next business day in order to
earn dividends for that day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund is $1,000. Subsequent investments may
be in any amounts of $100 or more. The Fund may waive the initial minimum
investment for employees of DGC and its affiliates from time to time.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET ASSET VALUE
- -------------------------------------------------------------------------- -----------------
<S> <C> <C>
Less than $100,000................................. 2.00% 2.04%
$100,000 but less than $250,000.................... 1.75% 1.78%
$250,000 but less than $500,000.................... 1.50% 1.52%
$500,000 but less than $750,000.................... 1.25% 1.27%
$750,000 but less than $1 million.................. 1.00% 1.01%
$1 million but less than $2 million................ 0.50% 0.50%
$2 million or more................................. 0.25% 0.25%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which there are not sufficient changes in the
value of the Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) the following
holidays: New Year's
Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and
Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net
asset value, without a sales charge by: the Trust Division of the Banks for
funds which are held in a fiduciary, agency, custodial or similar capacity;
Trustees and employees of the Fund, the Banks or Federated Securities Corp.
or their affiliates and their spouses and children under 21; or any bank or
investment dealer who has a sales agreement with Federated Securities Corp.
with regard to the Fund.
SALES CHARGE REALLOWANCE. For sales of shares of the Fund, the Banks or any
authorized dealer will normally receive up to 85% of the applicable sales
charge. Any portion of the sales charge which is not paid to the Banks or
authorized dealers will be retained by the distributor. However, the distributor
will, periodically, uniformly offer to pay additional amounts in the form of
cash or promotional incentives consisting of trips to sales seminars at luxury
resorts, tickets or other such items, to all dealers selling shares of the Fund.
Such payments, all or a portion of which may be paid from the sales charge it
normally retains or any other source available to it, will be predicated upon
the amount of shares of the Fund that are sold by the dealer.
The sales charge for shares sold other than through the Banks or authorized
dealers will be retained by the distributor. The distributor may pay fees to the
Banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the Banks' customers in connection with the
initiation of customer accounts and purchases of Fund shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Fund shares through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent;
- using the reinvestment privilege; or
- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. The Fund will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales charge. In addition, the sales charge, if
applicable, is reduced for purchases made at one time by a trustee or fiduciary
for a single trust estate or a single fiduciary account.
If an additional purchase of Fund shares is made, the Fund will consider the
previous purchase still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 1.75%, not 2.00%.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by the Banks at the time the purchase
is made that Fund shares are already owned or that purchases are being combined.
The Fund will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the funds in the Trust over the next 13 months, the sales charge may
be reduced by signing a letter of intent to that effect. This letter includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
2.00% of the total amount intended to be purchased in escrow (in shares) until
such purchase is completed.
The 2.00% held in escrow will be applied to the shareholder's account at the end
of the 13-month period unless the amount specified in the letter of intent is
not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. This letter may be
dated as of a prior date to include any purchases made within the past 90 days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge.
Federated Securities Corp. must be notified by the shareholder in writing or by
the Banks of the reinvestment in order to eliminate a sales charge. If the
shareholder redeems his shares in the Fund, there may be tax consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in one of the other
funds in the Trust with a sales charge and $70,000 in this Fund, the sales
charge would be reduced.
To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by the Banks at the time the
concurrent purchases are made. The Fund will reduce the sales charge after it
confirms the purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares. A shareholder may apply for participation in this
program through the Banks.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Fund, Federated Services Company maintains a share
account for each shareholder. Share certificates are not issued unless requested
by contacting the Fund.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. Quarterly confirmations are sent to report dividends paid during
the quarter.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared quarterly and paid quarterly. Distribution of any
realized long-term capital gains will be made at least once every twelve months.
Dividends are automatically reinvested in
additional shares of the Fund on payment dates at the ex-dividend date's net
asset value without a sales charge, unless cash payments are requested by
writing to the Fund or the Banks, as appropriate.
EXCHANGING SECURITIES FOR FUND SHARES
Investors may exchange certain securities or a combination of certain securities
and cash for Fund shares. The Fund reserves the right to determine the
acceptability of securities to be exchanged. On the day securities are accepted
by the Fund, they are valued in the same manner as the Fund values its assets
unless such securities are to be acquired in a bona fide reorganization,
statutory merger, or similar transaction. Such securities must meet the
investment objective and policies of the Fund, must be liquid and must not be
subject to restrictions on resale. Investors wishing to exchange securities
should first contact the Banks.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
DG INVESTOR SERIES
All shareholders of the Fund are shareholders of DG Investor Series.
Shareholders in the Fund have easy access to the other portfolios of DG Investor
Series.
EXCHANGING SHARES
- --------------------------------------------------------------------------------
Shareholders of the Fund may exchange shares of the Fund for shares of the other
funds in DG Investor Series. In addition, shares of the Fund may also be
exchanged for certain other funds distributed by Federated Securities Corp. that
are not advised by the Banks ("Federated Funds"). For further information on the
availability of Federated Funds for exchanges, please call Deposit Guaranty
National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907.
Shares of funds with a sales charge may be exchanged at net asset value for
shares of other funds with an equal sales charge or no sales charge. Shares of
the funds with no sales charge acquired by direct purchase or reinvestment of
dividends on such shares may be exchanged for shares of funds with a sales
charge at net asset value plus the applicable sales charge.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales charge would be at net asset
value.
Prior to any exchange, the shareholder must receive a copy of the current
prospectus of the fund into which an exchange is to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value. Written
exchange instructions may require a signature guarantee. Exercise of this
privilege is treated as a sale for federal income tax purposes and, depending on
the circumstances, a short or long-term capital gain or loss may be realized.
The exchange privilege may be terminated at any time.
Shareholders will be notified of the termination of the exchange privilege. A
shareholder may obtain further information on the exchange privilege by calling
the Banks. Telephone exchange instructions may be recorded. If reasonable
procedures are not followed by the Fund, it may be liable for losses due to
unauthorized or fraudulent telephone instructions.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after the Banks
receive the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on Federal holidays when
wire transfers are restricted. Requests for redemption can be made by telephone
or by mail.
THROUGH THE BANKS
BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem
shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500
or Commercial National Bank at (800) 274-1907. For orders received before 4:00
p.m. (Eastern time), proceeds will normally be wired the next day to the
shareholder's account at the Banks or a check will be sent to the address of
record. In no event will proceeds be sent more than seven days after a proper
request for redemption has been received. An authorization form permitting the
Fund to accept telephone requests must first be completed. Authorization forms
and information on this service are available from the Banks. Telephone
redemption instructions may be recorded. If reasonable procedures are not
followed by the Fund, it may be liable for losses due to unauthorized or
fraudulent telephone instructions.
In the event of drastic economic or market changes, a shareholder may experience
difficulty in redeeming by telephone. If such a case should occur, another
method of redemption should be utilized, such as a written request to Federated
Services Company or the Banks.
If at any time the Fund shall determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
BY MAIL. Any shareholder may redeem Fund shares by sending a written request to
the Banks. The written request should include the shareholder's name, the Fund
name, the account number, and the share or dollar amount requested, and should
be signed exactly as the shares are registered. If share certificates have been
issued, they must be properly endorsed and should be sent by registered or
certified mail with the written request. Shareholders should call the Banks for
assistance in redeeming by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption of any amount to be sent to an address other than on record with the
Fund, or a redemption payable other than to the shareholder of record must have
signatures on written redemption requests guaranteed by:
- a trust company or commercial bank whose deposits are insured by the Bank
Insurance Fund, which is administered by the Federal Deposit Insurance
Corporation ("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings and loan association whose deposits are insured
by the Savings Association Insurance Fund, which is administered by the
FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and Federated Services Company have adopted standards for accepting
signature guarantees from the above institutions. The Fund may elect in the
future to limit eligible signature guarantors to institutions that are members
of a signature guarantee program. The Fund and Federated Services Company
reserve the right to amend these standards at any time without notice.
Normally, a check for the proceeds is mailed within one business day, but in no
event more than seven days, after receipt of a proper written redemption
request.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments and the
amount of dividends paid with respect to Fund shares, redemptions may reduce,
and eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. To be eligible to participate in
this program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through the Banks. Due
to the fact that shares are sold with a sales charge, it is not advisable for
shareholders to be purchasing shares of the Fund while participating in this
program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in the Fund's net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders of the Fund for vote. All shares of all
classes of each Fund in the Trust have equal voting rights, except that in
matters affecting only a particular Fund or class, only shareholders of that
Fund or class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust or Fund's operation and for the
election of Trustees under certain circumstances.
Trustees may be removed by the shareholders at a special meeting. A special
meeting of the shareholders for this purpose shall be called by the Trustees
upon the written request of shareholders owning at least 10% of all shares of
the Trust entitled to vote.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
The Glass-Steagall Act and other banking laws and regulations presently prohibit
a bank holding company registered under the Bank Holding Company Act of 1956 or
any bank or non-bank affiliate thereof from sponsoring, organizing or
controlling a registered, open-end investment company continuously engaged in
the issuance of its shares, and from issuing, underwriting, or distributing
securities in general. Such laws and regulations do not prohibit such a holding
company or bank or non-bank affiliate from acting as investment adviser,
transfer agent or custodian to such an investment company or from purchasing
shares of such a company as agent for and upon the order of their customer. The
Fund's Adviser and Sub-Adviser, Deposit Guaranty National Bank and Commercial
National Bank, respectively, are subject to such banking laws and regulations.
The Banks believe, based on the advice of counsel, that they may perform the
investment advisory services for the Fund contemplated by the advisory agreement
with the Trust and the sub-advisory agreement between the Banks without
violating the Glass-Steagall Act or other applicable banking laws or
regulations. Such counsel has pointed out, however, that changes in either
federal or state statutes and regulations relating to the permissible activities
of banks and their subsidiaries or affiliates, as well as further judicial or
administrative decisions or interpretations of present or future statutes and
regulations, could prevent the Banks from continuing to perform all or a part of
the above services for their customers and/or the Fund. In such event, changes
in the operation of the Fund may occur, including the possible alteration or
termination of any automatic or other Fund share investment and redemption
services then being provided by the Banks, and the Trustees would consider
alternative investment advisers and other means of continuing available
investment services. It is not expected that Fund shareholders would suffer any
adverse financial consequences (if another adviser and/or sub-adviser with
equivalent abilities to Deposit Guaranty National Bank and/or Commercial
National Bank are found) as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, if any, will not be combined for tax purposes with
those realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
are received in cash or as additional shares. The Fund will provide detailed tax
information for reporting purposes.
Shareholders are urged to consult their own tax advisers regarding the status of
their account under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return and yield.
Total return represents the change over a specified period of time in the value
of an investment in the Fund after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This number is then annualized using semi-annual
compounding. The yield does not necessarily reflect income actually earned by
the Fund and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales load which,
if excluded, would increase the total return and yield.
From time to time, the Fund may advertise its performance using certain
financial publications and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Opportunity Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
Deposit Guaranty National Bank P.O. Box 23100
Jackson, Mississippi 39225-3100
- ------------------------------------------------------------------------------------------------
Sub-Adviser
Commercial National Bank P.O. Box 21119
Shreveport, Louisiana 71152
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 1713
Trust Company Boston, Massachusetts 02105
- ------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent, and
Shareholder Servicing Agent Federated Investors Tower
Federated Services Company Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, DC 20037
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
DG OPPORTUNITY FUND
PROSPECTUS
A Diversified Portfolio of
DG Investor Series,
An Open-End, Management
Investment Company
DEPOSIT GUARANTY NATIONAL BANK
Jackson, Mississippi
COMMERCIAL NATIONAL BANK
Shreveport, Louisiana
July , 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
G00499-01 (7/94)
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE
OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD
BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 20, 1994
DG OPPORTUNITY FUND
(A PORTFOLIO OF DG INVESTOR SERIES)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the prospectus for
DG Opportunity Fund (the "Fund") dated July , 1994. This Statement is not a
prospectus itself. To receive a copy of the prospectus, write or call the Fund.
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
Statement dated July , 1994
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
A subsidiary of FEDERATED INVESTORS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ----------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ----------------------------------------------------------------
Types of Investments 1
Futures and Options Transactions 2
Futures Contracts 2
Put Options on Financial Futures Contracts 2
Call Options on Financial Futures Contracts 2
"Margin" in Futures Transactions 3
Purchasing Put Options on Portfolio Securities 3
Writing Covered Call Options on
Portfolio Securities 3
Corporate Debt Securities 3
Repurchase Agreements 3
Reverse Repurchase Agreements 4
When-Issued and Delayed Delivery Transactions 4
Lending of Portfolio Securities 4
Investment Limitations 4
DG INVESTOR SERIES MANAGEMENT 6
- ----------------------------------------------------------------
Officers and Trustees 6
The Funds 9
Fund Ownership 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
- ----------------------------------------------------------------
Adviser to the Fund 9
Advisory Fees 9
Sub-Adviser to the Fund 9
Sub-Advisory Fees 9
ADMINISTRATIVE SERVICES 10
- ----------------------------------------------------------------
BROKERAGE TRANSACTIONS 10
- ----------------------------------------------------------------
PURCHASING SHARES 10
- ----------------------------------------------------------------
Distribution Plan 10
Conversion to Federal Funds 11
DETERMINING NET ASSET VALUE 11
- ----------------------------------------------------------------
Determining Market Value of Securities 11
EXCHANGE PRIVILEGE 11
- ----------------------------------------------------------------
Requirements for Exchange 11
Making an Exchange 11
REDEEMING SHARES 11
- ----------------------------------------------------------------
Redemption in Kind 11
TAX STATUS 12
- ----------------------------------------------------------------
The Fund's Tax Status 12
Shareholders' Tax Status 12
TOTAL RETURN 12
- ----------------------------------------------------------------
YIELD 12
- ----------------------------------------------------------------
PERFORMANCE COMPARISONS 12
- ----------------------------------------------------------------
APPENDIX 14
- ----------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
The Fund is a portfolio in DG Investor Series (the "Trust") which was
established as a Massachusetts business trust under a Declaration of Trust dated
February 7, 1992.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to provide capital appreciation. The
investment objective cannot be changed without approval of shareholders.
Unless otherwise indicated, the investment policies described below may be
changed by the Board of Trustees
(the "Trustees") without shareholder approval. Shareholders will be notified
before any material change in these
policies becomes effective.
TYPES OF INVESTMENTS
Acceptable investments include, among other investments, common stocks,
preferred stocks, convertible securities, zero coupon convertible securities,
money market instruments, corporate bonds, notes, and put options on stocks.
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of the issuer's underlying
common stock at the option of the holder during a specified time period.
Convertible securities may take the form of convertible preferred stock,
convertible bonds or debentures, units consisting of "usable" bonds and
warrants, or a combination of the features of several of these
securities. The investment characteristics of each convertible security
vary widely, which allows convertible securities to be employed for
different investment objectives.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in
which, in the investment adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objective. Otherwise, the Fund may hold or trade
convertible securities. In selecting convertible securities for the Fund,
the Fund's adviser evaluates the investment characteristics of the
convertible security as a fixed income instrument and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible
security, the Fund's adviser considers numerous factors, including the
economic and political outlook, the value of the security relative to
other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
ZERO COUPON CONVERTIBLE SECURITIES
Zero coupon convertible securities are debt securities which are issued
at a discount to their face amount and do not entitle the holder to any
periodic payments of interest prior to maturity. Rather, interest earned
on zero coupon convertible securities accretes at a stated yield until
the security reaches its face amount at maturity. Zero coupon convertible
securities are convertible into a specific number of shares of the
issuer's common stock.
In addition, zero coupon convertible securities usually have put features
that provide the holder with the opportunity to put the bonds back to the
issuer at a stated price before maturity. Generally, the prices of zero
coupon convertible securities may be more sensitive to market interest
rate fluctuations than conventional convertible securities.
Federal income tax law requires the holder of a zero coupon convertible
security to recognize income with respect to the security prior to the
receipt of cash payments. To maintain its qualification as a regulated
investment company and avoid liability of federal income taxes, the Fund
will be required to distribute income accrued with respect to zero coupon
convertible securities which it owns, and may have to sell portfolio
securities (perhaps at disadvantageous times) in order to generate cash
to satisfy these distribution requirements.
MONEY MARKET INSTRUMENTS
The Fund may invest in money market instruments of domestic and foreign
banks and savings and loans if they have capital, surplus, and undivided
profits of over $100,000,000, or if the principal amount of the
instrument is insured in full by the Bank Insurance Fund or the Savings
Association Insurance Fund, both of which are administered by the Federal
Deposit Insurance Corporation.
WARRANTS
Warrants are basically options to purchase common stock at a specific
price (usually at a premium above the market value of the optioned common
stock at issuance) valid for a specific period of time. Warrants may have
a
- --------------------------------------------------------------------------------
life ranging from less than a year to twenty years or may be perpetual.
However, most warrants have expiration dates after which they are
worthless. In addition, if the market price of the common stock does not
exceed the warrant's exercise price during the life of the warrant, the
warrant will expire as worthless. Warrants have no voting rights, pay no
dividends, and have no rights with respect to the assets of the
corporation issuing them. The percentage increase or decrease in the
market price of the warrant may tend to be greater than the percentage
increase or decrease in the market price of the optioned common stock.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures and stock index futures contracts, buying put
options on portfolio securities and listed put options on futures contracts, and
writing call options on futures contracts. The Fund may also write covered call
options on portfolio securities to attempt to increase its current income. The
Fund will maintain its positions in securities, option rights, and segregated
cash subject to puts and calls until the options are exercised, closed, or have
expired. An option position on financial futures contracts may be closed out
only on an exchange which provides a secondary market from options of the same
series.
FUTURES CONTRACTS
A futures contract is a firm commitment between the seller, who agrees to make
delivery of the specific type of security called for in the contract ("going
short"), and the buyer, who agrees to take delivery of the security ("going
long") at a certain time in the future.
When the Fund purchases futures contracts, an amount of cash and cash
equivalents, equal to the underlying commodity value of the futures contracts
(less any related margin deposits), will be deposited in a segregated account
with the Fund's custodian (or the broker, if legally permitted) to collateralize
the position and thereby insure that the use of such futures contract is
unleveraged.
Financial futures contracts call for the delivery of particular debt instruments
at a certain time in the future. The seller of the contract agrees to make
delivery of the type of instrument called for in the contract and the buyer
agrees to take delivery of the instrument at the specified future time.
Stock index futures contracts are based on indexes that reflect the market value
of common stock of the firms included in the indexes. An index futures contract
is an agreement pursuant to which two parties agree to take or make delivery of
an amount of cash equal to the differences between the value of the index at the
close of the last trading day of the contract and the price at which the index
contract was originally written.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase listed put options on financial futures contracts. Unlike
entering directly into a futures contract, which requires the purchaser to buy a
financial instrument on a set date at a specified price, the purchase of a put
option on a futures contract entitles (but does not obligate) its purchaser to
decide on or before a future date whether to assume a short position at the
specified price.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write listed call
options on futures contracts to hedge its portfolio. When the Fund writes a call
option on a futures contract, it is undertaking the obligation of assuming a
short futures position (selling a futures contract) at the fixed strike price at
any time during the life of the option if the option is exercised. As stock
prices fall, causing the prices of futures to go down, the Fund's obligation
under a call option on a future (to sell a futures contract) costs less to
fulfill, causing the value of the Fund's call option position to increase.
- --------------------------------------------------------------------------------
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can substantially
offset the drop in value of the Fund's fixed income or indexed portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect against
price movements in particular securities in its portfolio. A put option gives
the Fund, in return for a premium, the right to sell the underlying security to
the writer (seller) at a specified price during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As writer of a
call option, the Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price. The Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any additional
consideration).
CORPORATE DEBT SECURITIES
Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest. They may involve equity features such as conversion or
exchange rights, warrants for the acquisition of common stock of the same or
different issuer, participations based on revenues, sales, or profits, or the
purchase of common stock in a unit transaction (where corporate debt securities
and common stock are offered as a unit).
REPURCHASE AGREEMENTS
The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other
- --------------------------------------------------------------------------------
recognized financial institutions, such as broker/dealers, which are found by
the Fund's adviser to be creditworthy pursuant to guidelines established by the
Board of Trustees ("Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In a reverse repurchase agreement, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agrees that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and maintained until the transaction is settled.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objectives and
policies, not for investment leverage.
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and maintained until the transaction is settled. The Fund may
engage in these transactions to an extent that would cause the segregation of an
amount up to 20% of the total value of the assets.
During the current year, the Fund does not anticipate investing more than 10% of
its total assets in when-issued and delayed delivery transactions.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
clearance of purchases and sales of portfolio securities. The deposit or
payment by the Fund of initial or variation margin in connection with
financial futures contracts or related options transactions is not
considered the purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior
securities except that the Fund may borrow money directly or through reverse
repurchase agreements as a temporary measure for extraordinary or
emergency purposes and then only in amounts not in excess of one-third of
the value of its total assets; provided that, while borrowings exceed 5%
of the Fund's total assets, any such borrowings will be repaid before
additional investments are made. The Fund will not borrow money or engage
in reverse repurchase agreements for investment leverage purposes.
- --------------------------------------------------------------------------------
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry. However, the Fund may at times invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Fund may purchase and sell
financial futures and stock index futures contracts and related options.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests in real estate, although it may invest in
securities secured by real estate or interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities and
except that it may purchase or hold corporate or government bonds,
debentures, notes, certificates of indebtedness or other debt securities
of an issuer, repurchase agreements, or other transactions which are
permitted by the Fund's investment objective and policies or the Trust's
Declaration of Trust.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge. For purposes
of this limitation, the following are not deemed to be pledges: margin
deposits for the purchase and sale of financial futures contracts and
related options, and segregation or collateral arrangements made in
connection with options activities or the purchase
of securities on a when-issued basis.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its assets, the Fund will not
purchase the securities of any issuer (other than cash, cash items, or
securities issued or guaranteed by the U.S. government, its agencies or
instrumentalities) if, as a result, more than 5% of the value of its
total assets would be invested in the securities of that issuer, or if it
would own more than 10% of the outstanding voting securities of that
issuer.
The above investment limitations cannot be changed without shareholder
approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified
before any material changes in these limitations become effective.
RESTRICTED SECURITIES
The Fund will not invest more than 5% of the value of its total assets in
securities subject to restrictions on resale under the Securities Act of
1933, except for certain restricted securities which meet the criteria
for liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement more than seven days after notice, over-the-counter options,
and certain restricted securities not determined by the Trustees to be
liquid.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, other mineral
exploration or development programs, or leases, although it may purchase
the publicly traded securities of companies engaging in such activities.
- --------------------------------------------------------------------------------
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser owning
individually more than 1/2 of 1% of the issuer's securities together own
more than 5% of the issuer's securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its net assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on the New York or American Stock
Exchange to 2% of its net assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants acquired by the Fund in
units or attached to securities may be deemed to be without value.
ARBITRAGE TRANSACTIONS
The Fund will not enter into transactions for the purpose of engaging in
arbitrage.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's total assets would be invested in premiums on open
put option positions.
INVESTING TO EXERCISE CONTROL
The Fund will not purchase securities for the purpose of exercising
control over the issuer of securities.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
Except with respect to borrowing money, if a percentage limitation is
adhered to at the time of investment, a later increase or decrease in
percentage resulting from any change in value or net assets will not
result in a violation of such restriction.
For the purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan having capital, surplus,
and undivided profits in excess of $100,000,000 at the time of investment
to be "cash items."
DG INVESTOR SERIES MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Deposit Guaranty National
Bank and Commercial National Bank, Federated Investors, Federated Securities
Corp., and Federated Administrative Services and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
John F. Donahue+* Chairman and Chairman and Trustee, Federated Investors;
Federated Investors Trustee Chairman and Trustee, Federated Advisers,
Tower Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company;
Chief Executive Officer and Director, Trustee,
or Managing General Partner of the Funds;
formerly, Director, The Standard Fire Insurance
Company. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the
Trust.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation;
Wood/IPC Commercial Senior Vice President, John R. Wood and
Department Associates, Inc., Realtors; President,
John R. Wood and Northgate Village Development Corporation;
Associates, Inc., General Partner or Trustee in private real
Realtors estate ventures in Southwest Florida; Director,
3255 Tamiami Trail North Trustee, or Managing General Partner of the
Naples, FL Funds; formerly, President Naples Property
Management Inc.
- ---------------------------------------------------------------------------------------------------------------
William J. Copeland Trustee Director and Member of the Executive Committee,
One PNC Plaza Michael Baker, Inc.; Director, Trustee, or
23rd Floor Managing General Partner of the Funds;
Pittsburgh, PA formerly, Vice Chairman and Director, PNC Bank,
N.A., and PNC Bank Corp. and Director, Ryan
Homes, Inc.
- ---------------------------------------------------------------------------------------------------------------
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany
571 Hayward Mill Road Fund, Inc.; Director, Trustee, or Managing
Concord, MA General Partner of the Funds; formerly,
Director, Blue Cross of Massachusetts, Inc.
- ---------------------------------------------------------------------------------------------------------------
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist,
3471 Fifth Avenue Presbyterian and Montefiore Hospitals; Clinical
Suite 1111 Professor of Medicine and Trustee, University
Pittsburgh, PA of Pittsburgh; Director, Trustee, or Managing
General Partner of the Funds.
- ---------------------------------------------------------------------------------------------------------------
Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty;
5916 Penn Mall Director, Eat 'N Park Restaurants, Inc., and
Pittsburgh, PA Statewide Settlement Agency, Inc.; Director,
Trustee, or Managing General Partner of the
Funds; formerly, Counsel, Horizon Financial,
F.A.,
Western Region.
- ---------------------------------------------------------------------------------------------------------------
Peter E. Madden Trustee Consultant; State Representative, Commonwealth
225 Franklin Street of Massachusetts; Director, Trustee, or
Boston, MA Managing General Partner of the Funds;
formerly, President, State Street Bank and
Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic
Foundation, Inc.
- ---------------------------------------------------------------------------------------------------------------
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty;
5916 Penn Mall Chairman, Meritcare, Inc.; Director, Eat 'N
Pittsburgh, PA Park Restaurants, Inc.; Director, Trustee, or
Managing General Partner of the Funds;
formerly, Vice Chairman, Horizon Financial,
F.A.
- ---------------------------------------------------------------------------------------------------------------
Wesley W. Posvar Trustee Professor, Foreign Policy and Management
1202 Cathedral of Consultant; Trustee, Carnegie Endowment for
Learning International Peace, RAND Corporation, Online
University of Pittsburgh Computer Library Center, Inc., and U.S. Space
Pittsburgh, PA Foundation; Chairman, Czecho Slovak Management
Center; Director, Trustee, or Managing General
Partner of the Funds;
President Emeritus, University of Pittsburgh;
formerly Chairman, National Advisory Council
for Environmental Policy and Technology.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
POSITION WITH PRINCIPAL OCCUPATION
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
Marjorie P. Smuts Trustee Public relations/marketing consultant;
4905 Bayard Street Director, Trustee, or Managing General Partner
Pittsburgh, PA of the Funds.
- ---------------------------------------------------------------------------------------------------------------
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee,
Federated Investors Treasurer, Federated Investors; Vice President and
Tower and Trustee Treasurer, Federated Advisers, Federated
Pittsburgh, PA Management, and Federated Research; Executive
Vice President, Treasurer, and Director,
Federated Securities Corp.; Chairman,
Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of
some of the Funds; Vice President and Treasurer
of the Funds.
- ---------------------------------------------------------------------------------------------------------------
J. Christopher Donahue Vice President President and Trustee, Federated Investors;
Federated Investors Trustee, Federated Advisers, Federated
Tower Management, and Federated Research; President
Pittsburgh, PA and Trustee, Federated Administrative Services;
President or Vice President of the Funds;
Director, Trustee, or Managing General Partner
of some of the Funds. Mr. Donahue is the son of
John F. Donahue, Chairman and Trustee of the
Trust.
- ---------------------------------------------------------------------------------------------------------------
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated
Federated Investors Investors; Chairman and Director, Federated
Tower Securities Corp.; President or Vice President
Pittsburgh, PA of the Funds; Director or Trustee of some of
the Funds.
- ---------------------------------------------------------------------------------------------------------------
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and
Federated Investors and Secretary Trustee, Federated Investors; Vice President,
Tower Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research;
Executive Vice President, Secretary, and
Trustee, Federated Administrative Services;
Director and Executive Vice President,
Federated Securities Corp.; Vice President and
Secretary of the Funds.
- ---------------------------------------------------------------------------------------------------------------
Charles L. Davis, Jr. Vice President Vice President, Federated Administrative
Federated Investors and Assistant Services; Vice President and Assistant
Tower Treasurer Treasurer of some of the Funds; formerly, Vice
Pittsburgh, PA President and Directors of Investor Relations,
MNC Financial, Inc., and Vice President,
Product Management, MNC Financial, Inc.
- ---------------------------------------------------------------------------------------------------------------
John A. Staley, IV Vice President Vice President and Trustee, Federated
Federated Investors Investors; Executive Vice President, Federated
Tower Securities Corp.; President and Trustee,
Pittsburgh, PA Federated Advisers, Federated Management, and
Federated Research; Vice President of the
Funds; Director, Trustee, or Managing General
Partner of some of the Funds; formerly, Vice
President, The Standard Fire Insurance Company
and President of its Federated Research
Division.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
+ Member of the Trust's Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board of Trustees
between meetings of the Board.
- --------------------------------------------------------------------------------
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: American
Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust;
Automated Government Money Trust; California Municipal Cash Trust; Cash Trust
Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co.
Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.;
Federated GNMA Trust; Federated Government Trust; Federated Growth Trust;
Federated High Yield Trust; Federated Income Securities Trust; Federated Income
Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated
Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government
Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust;
Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority
Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government
Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.;
Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management
Series; Intermediate Municipal Trust; International Series, Inc.; Investment
Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.;
Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.;
Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc.-1999;
Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain
Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money
Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust;
111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO
Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select
Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond
Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust;
Trademark Funds; Trust for Financial Institutions; Trust For Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; and World Investment Series, Inc.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will only be liable
for their own willful defaults. If reasonable care has been exercised in the
selection of officers, agents, employees, or investment advisers, a Trustee
shall not be liable for any neglect or wrong doing of any such person. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Deposit Guaranty National Bank (the "Adviser"),
a subsidiary of Deposit Guaranty Corp. The Adviser shall not be liable to the
Trust, the Fund or any shareholder of the Fund for any losses that may be
sustained in the purchase, holding, or sale of any security, or for anything
done or omitted by it, except acts or omissions involving willful misfeasance,
bad faith, gross negligence, or reckless disregard of the duties imposed upon it
by its contract with the Trust. Because of internal controls maintained by
Deposit Guaranty National Bank to restrict the flow of non-public information,
Fund investments are typically made without any knowledge of Deposit Guaranty
National Bank's or affiliates lending relationship with an issuer.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
SUB-ADVISER TO THE FUND
The Fund's sub-adviser is Commercial National Bank (the "Sub-Adviser'), a
subsidiary of Deposit Guaranty Corp.
SUB-ADVISORY FEES
For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory
fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets, 2%
per year of the next
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$70 million of average net assets, and 1 1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its expenses
over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the amount of
the excess, subject to an annual adjustment. If the expense limitation is
exceeded, the amount to be reimbursed by the Adviser will be limited, in any
single fiscal year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended or
rescinded in the future.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus.
John A. Staley, IV, an officer of the Fund, holds approximately 15% of the
outstanding common stock and serves as a director of Commercial Data Services,
Inc., a company which provides computer processing services to Federated
Administrative Services.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
- - advice as to the advisability of investing in securities;
- - security analysis and reports;
- - economic studies;
- - industry studies;
- - receipt of quotations for portfolio evaluations; and
- - similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser in advising the
Fund and other accounts. To the extent that receipt of these services may
supplant services for which the Adviser or its affiliates might otherwise have
paid, it would tend to reduce their expenses.
PURCHASING SHARES
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Shares of the Fund are sold at their net asset value next determined after an
order is received, plus a sales charge, on days the New York Stock Exchange and
Federal Reserve Wire System are open for business. The procedure for purchasing
shares is explained in the prospectus under "Investing in the Fund."
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission pursuant to the
Investment Company Act of 1940. The Plan provides for payment of fees to
Federated Securities Corp. to finance any activity which is principally intended
to result in the sale of the Fund's shares subject to the Plan. Such activities
may include the advertising and marketing of shares of the Fund; preparing,
printing, and distributing prospectuses and sales literature to prospective
shareholders, brokers, or administrators; and implementing and operating the
Plan. Pursuant to the Plan, Federated Securities Corp. may pay fees to brokers
and others for such services.
- --------------------------------------------------------------------------------
The Trustees expect that the adoption of the Plan will result in the sale of a
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objectives.
CONVERSION TO FEDERAL FUNDS
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Deposit Guaranty National Bank
and Commercial National Bank (the "Banks"), as well as Federated Services
Company, act as the shareholder's agent in depositing checks and converting them
to federal funds.
DETERMINING NET ASSET VALUE
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The net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus. Net asset value
will not be calculated on Good Friday and on certain federal holidays as set
forth in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market value of the Fund's portfolio securities are determined as follows:
- - for equity securities and bonds and other fixed income securities, according
to the last sale price on a national securities exchange, if available;
- - in the absence of recorded sales of equity securities, according to the mean
between the last closing bid and asked prices, and for bonds and other fixed
income securities as determined by an independent pricing service;
- - for unlisted equity securities, the latest bid prices;
- - for short-term obligations, according to the mean between bid and asked prices
as furnished by an independent pricing service or for short-term obligations
with remaining maturities of 60 days or less at the time of purchase, at
amortized cost; or
- - for all other securities, at fair value as determined in good faith by the
Trustees.
EXCHANGE PRIVILEGE
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REQUIREMENTS FOR EXCHANGE
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made. This privilege is available to shareholders
resident in any state in which the fund shares being acquired may be sold. Upon
receipt of proper instructions and required supporting documents, shares
submitted for exchange are redeemed and the proceeds invested in shares of the
other fund.
Further information on the exchange privilege and prospectuses may be obtained
by calling the Fund.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
REDEEMING SHARES
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Shares of the Fund are redeemed at the next computed net asset value after the
Banks receive the redemption request. Redemption procedures are explained in the
prospectus under "Redeeming Shares." Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays when
wire transfers are restricted.
Although State Street Bank does not charge for telephone redemptions, it
reserves the right to charge a fee for the cost of wire-transferred redemptions
of less than $5,000.
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable Securities and
Exchange Commission rules, taking such securities at the same value employed in
determining net asset value and selecting the securities in a manner the
Trustees determine to be fair and equitable.
- --------------------------------------------------------------------------------
The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act
of 1940 under which the Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net
asset value during any 90-day period.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
- - derive at least 90% of its gross income from dividends, interest, and gains
from the sale of securities;
- - derive less than 30% of its gross income from the sale of securities held less
than three months;
- - invest in securities within certain statutory limits; and
- - distribute to its shareholders at least 90% of its net income earned during
the year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. These dividends, and any short-term capital gains, are
taxable as ordinary income.
TOTAL RETURN
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The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the quarterly
reinvestment of all dividends and distributions. Cumulative total return
reflects the Fund's total performance over a specific period of time. This total
return assumes and is reduced by the payment of the maximum sales load.
YIELD
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The yield for the Fund is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the offering price per share of the Fund on the last
day of the period. This value is then annualized using semi-annual compounding.
This means that the amount of income generated during the thirty-day period is
assumed to be generated each month over a 12-month period and is reinvested
every six months. The yield does not necessarily reflect income actually earned
by the Fund because of certain adjustments required by the Securities and
Exchange Commission and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
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The Fund's performance depends upon such variables as:
- - portfolio quality;
- - average portfolio maturity;
- - type of instruments in which the portfolio is invested;
- - changes in interest rates and market value of portfolio securities;
- - changes in the Fund's expenses; and
- - various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return.
- --------------------------------------------------------------------------------
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
- - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "equity,
growth and income" category in advertising and sales literature.
- - DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected
blue-chip industrial corporations as well as public utility and transportation
companies. The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of
industries. Because it represents the top corporations of America, the DJIA's
index movements are leading economic indicators for the stock market as a
whole.
- - STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, and financial and public
utility companies can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the Standard
& Poor's index assumes reinvestments of all dividends paid by stocks listed on
its index. Taxes due on any of these distributions are not included, nor are
brokerage or other fees calculated, in Standard & Poor's figures.
- - MORNINGSTAR, INC., an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
- - NASDAQ OVER-THE-COUNTER COMPOSITE INDEX covers 4,500 stocks traded over the
counter. It represents many small company stocks but is heavily influenced by
about 100 of the largest NASDAQ stocks. It is a value-weighted index
calculated on price change only and does not include income.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
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STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS
AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
AA--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
BAA--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
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PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
PRIME-1--Issues rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternative liquidity.
PRIME-2--Issues rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory obligations. This will normally
be evidenced by many of the characteristics cited above but to a lesser degree.
Earnings trends and coverage ratios, while sound, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS
F-1+--(Exceptionally strong Credit Quality) Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
G00499-02 (7/94)
