1933 Act File No. 33-46431
1940 Act File No. 811-6607
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No.
Post-Effective Amendment No. 9 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 11 X
DG INVESTOR SERIES
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
X on April 30, 1995 pursuant to paragraph (b)
60 days after filing pursuant to paragraph (a) (i)
on pursuant to paragraph (a) (i).
75 days after filing pursuant to paragraph (a)(ii)
on _________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a
declaration pursuant to Rule 24f-2 under the Investment Company Act of
1940, and:
X filed the Notice required by that Rule on April 13, 1995; or
intends to file the Notice required by that Rule on or about
____________; or
during the most recent fiscal year did not sell any securities
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and,
pursuant to Rule 24f-2(b)(2), need not file the Notice.
Copies To:
Matthew G. Maloney, Esquire
Dickstein, Shapiro & Morin, L.L.P.
2101 L Street, N.W.
Washington, D.C. 20037
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of DG INVESTOR SERIES
which consists of six portfolios: (1) DG U.S. Government Money Market
Fund, (2) DG Limited Term Government Income Fund, (3) DG Government
Income Fund, (4) DG Equity Fund, (5) DG Municipal Income Fund, and
(6) DG Opportunity Fund, relates only to (6) DG Opportunity Fund and is
comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page (1-6) Cover Page.
Item 2. Synopsis (1-6) Summary of Fund
Expenses; (1-6) Financial
Highlights.
Item 3. Condensed Financial
Information (1-6) Performance Information.
Item 4. General Description of
Registrant (1-6) General Information; (1-
6) Investment Information; (1-
6) Investment Objective; (1-6)
Investment Policies; (1-6)
Investment Limitations.
Item 5. Management of the Fund (1-6) DG Investor Series
Information; (1-6) Management
of the Trust; (1-6)
Distribution of Fund Shares;
(1-6) Administration of the
Fund; (6) Shareholder Services
Plan; (1-6) Expenses of the
Fund; (2) Brokerage
Transactions.
Item 6. Capital Stock and Other
Securities (1-6) Dividends; (1) Capital
Gains; (1-6) Shareholder
Information; (1-6) Voting
Rights; (1-6) Massachusetts
Partnership Law; (1-6) Tax
Information; (1-6) Federal
Income Tax; (1-6) Effect of
Banking Laws.
Item 7. Purchase of Securities Being
Offered (1-6) Net Asset Value; (1-6)
Investing in the Fund; (1-6)
Share Purchases; (2-6) Minimum
Investment Required; (1-6)
Distribution Plan; (1-6)
Shareholder Servicing
Arrangements; (1-6) What
Shares Cost; (2-6) Reducing
the Sales Charge; (1-6)
Systematic Investment Program;
(1-6) Certificates and
Confirmations; (1-6)
Exchanging Securities for Fund
Shares; (1-6) Exchange
Privilege; (1-6) DG Investor
Series; (1-6) Exchanging
Shares.
Item 8. Redemption or Repurchase (1-6) Redeeming Shares; (1-6)
Through the Banks; (1-6)
Systematic Withdrawal Program;
(1-6) Accounts With Low
Balances; (1-6) Redemption in
Kind.
Item 9. Pending Legal Proceedings None.
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL IFORMATION.
Item 10. Cover Page (1-6) Cover Page.
Item 11. Table of Contents (1-6) Table of Contents.
Item 12. General Information and
History (1-6) General Information
About the Fund.
Item 13. Investment Objectives and
Policies (1-6) Investment Objective(s)
and Policies.
Item 14. Management of the Fund (1-6) DG Investor Series
Management.
Item 15. Control Persons and Principal
Holders of Securities (1-6) Fund Ownership.
Item 16. Investment Advisory and Other
Services (1-6) Investment Advisory
Services; (1-6) Administrative
Services.
Item 17. Brokerage Allocation (1-6) Brokerage Transactions.
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered (1-6) Purchasing Shares; (1-6)
Exchange Privilege; (1-6)
Determining Net Asset Value;
(1-6) Redeeming Shares.
Item 20. Tax Status Tax Status.
Item 21. Underwriters (1-6) Distribution Plan.
Item 22. Calculation of Performance
Data (1-6) Performance Comparisons;
(1-6) Yield; (1) Effective
Yield; (2-6) Total Return; (5)
Tax-Equivalent Yield.
Item 23. Financial Statements (6) Filed in Part A.
DG U.S. GOVERNMENT MONEY MARKET FUND
(A PORTFOLIO OF DG INVESTOR SERIES)
PROSPECTUS
The shares of DG U.S. Government Money Market 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),
investing in short-term U.S. government securities to achieve current income
consistent with stability of principal and liquidity.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
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.
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 April 30,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling 1-800-530-7377.
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 April 30, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Repurchase Agreements 4
Lending of Portfolio Securities 4
When-Issued and Delayed
Delivery Transactions 4
Investment Limitations 4
Regulatory Compliance 5
DG INVESTOR SERIES INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Board of Trustees 5
Investment Adviser 5
Advisory Fees 5
Adviser's Background 6
Distribution of Fund Shares 6
Distribution Plan 6
Shareholder Servicing Arrangements 7
ADMINISTRATION OF THE FUND 7
- ------------------------------------------------------
Administrative Services 7
Custodian 7
Transfer Agent, Dividend
Disbursing Agent, and
Shareholder Servicing Agent 7
Independent Auditors 7
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN THE FUND 8
- ------------------------------------------------------
Share Purchases 8
Through the Banks 8
Minimum Investment Required 8
What Shares Cost 8
Systematic Investment Program 9
Certificates and Confirmations 9
Dividends 9
Capital Gains 9
EXCHANGE PRIVILEGE 9
- ------------------------------------------------------
DG Investor Series 9
Exchanging Shares 9
REDEEMING SHARES 10
- ------------------------------------------------------
Through the Banks 10
By Telephone 10
Checkwriting 10
Systematic Withdrawal Program 11
Accounts With Low Balances 11
SHAREHOLDER INFORMATION 11
- ------------------------------------------------------
Voting Rights 11
Massachusetts Partnership Law 12
EFFECT OF BANKING LAWS 12
- ------------------------------------------------------
TAX INFORMATION 13
- ------------------------------------------------------
Federal Income Tax 13
PERFORMANCE INFORMATION 13
- ------------------------------------------------------
FINANCIAL STATEMENTS 14
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 22
- ------------------------------------------------------
ADDRESSES 23
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......... None
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 average net assets)
Management Fee (after waiver)(1).................................................... 0.30%
12b-1 Fees(2)....................................................................... 0.00%
Total Other Expenses................................................................ 0.23%
Total Fund Operating Expenses(3)............................................... 0.53%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
investment advisory fee by the investment adviser. The adviser can terminate
this voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.50%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund will not accrue or pay 12b-1 fees until a separate class of
shares has been created for certain institutional investors. The Fund can pay up
to 0.25% as a 12b-1 fee to the distributor.
(3) The Total Fund Operating Expenses would have been 0.73% absent the voluntary
waiver of the investment advisory fee.
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 5 years 10 years
- -------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <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....... $5 $17 $30 $ 66
</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.
DG U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors,
on page 22.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
---------------------------
1995 1994 1993(A)
----- ----- -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00
- --------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------
Net investment income 0.04 0.03 0.02
- --------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------
Distributions from net investment income (0.04) (0.03) (0.02)
- -------------------------------------------------------------- ----- ----- -------
NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00
- -------------------------------------------------------------- ----- ----- -------
TOTAL RETURN(B) 4.06% 2.74% 1.97%
- --------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------
Expenses 0.53% 0.54% 0.41%(c)
- --------------------------------------------------------------
Net investment income 3.96% 2.70% 2.88%(c)
- --------------------------------------------------------------
Expense waiver/reimbursement(d) 0.20% 0.20% 0.38%(c)
- --------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------
Net assets, end of period (000 omitted) $162,515 $189,315 $189,024
- --------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from July 1, 1992 (date of initial public
investment) to February, 28, 1993. For the period from March 31, 1992 (start
of business) to June 30, 1992, all income was distributed to the
administrator.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(See Notes which are an integral part of the Financial Statements)
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 or Commercial National Bank and their affiliates as a
convenient means of participating in a professionally managed, diversified
portfolio limited to short-term U.S. government securities. A minimum initial
investment of $1,000 is required.
The Fund attempts to stabilize the value of a share at $1.00. Fund shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The investment objective of the Fund is current income consistent with stability
of principal and liquidity. 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 short-term U.S. government securities. The average maturity of U.S.
government securities in the Fund's portfolio, computed on a dollar-weighted
basis, will be 90 days or less, and the Fund will invest only in securities with
remaining maturities of 13 months or less at the time of purchase by the Fund.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Trustees ("Trustees") without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as the Farm Credit System, including the National
Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives;
Federal Home Loan Banks; Government National Mortgage Association;
Federal Home Loan Mortgage Corporation; and Student Loan Marketing
Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and
credit of the U.S. Treasury. No assurances can be given that the U.S. government
will provide financial support to other agencies or instrumentalities, since it
is not obligated to do so. These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
REPURCHASE AGREEMENTS. The U.S. government 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.
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.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase 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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. 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.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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 limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
- invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice and certain restricted securities
determined by the Trustees not to be liquid.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended. The Fund will invest more
than 5% of its assets in any one issuer only under the circumstances permitted
by Rule 2a-7. The Fund may change these operational policies to reflect changes
in the laws and regulations without the approval of its shareholders.
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 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 .50 of 1% of the Fund's average daily net assets. The investment
advisory contract provides for the voluntary reimbursement of expenses by the
Adviser to the extent any Fund expenses exceed such lower expense limitation as
the Adviser may, by notice to the Fund, voluntarily declare to be effective. The
Adviser can terminate this voluntary reimbursement of expenses at any time at
its sole discretion. The Adviser has undertaken to reimburse the Fund for
operating expenses in excess of limitations established by certain states.
ADVISER'S BACKGROUND. 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, 1994, the Trust Division of Deposit Guaranty National Bank
had approximately $9.1 billion under administration, of which it had investment
discretion over $1.4 billion. Deposit Guaranty National Bank has served as the
Trust's Adviser since May 5, 1992.
As part of their regular banking operations, Deposit Guaranty National Bank may
make loans to public companies. Thus, it may be possible from time to time, for
the Fund to hold or acquire the securities of issuers which are also lending
clients of Deposit Guaranty National Bank. The lending relationship will not be
a factor in the selection of securities.
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 .25 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 distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense limitation as
the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor may select financial institutions such as banks, fiduciaries,
custodians for public funds, investment advisers, and broker/dealers to provide
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
reimburse a portion of its fee at any time.
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.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, Pittsburgh, Pennsylvania.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing
the portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting total liabilities from total assets and
dividing the remainder by the number of shares outstanding. The Fund, of course,
cannot guarantee that its net asset value will always remain at $1.00 per share.
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, a
subsidiary of DGC, 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 11:00 a.m. (Eastern
time). Payment is required before 3:00 p.m. (Eastern time) on the same 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
Shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m.
(Eastern time), and 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) on the following federal 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.
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.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends will be reinvested on
payment dates in additional shares of the Fund unless cash payments are
requested by writing to the Fund or the Banks as appropriate. Purchase orders
must be received by the Banks before 11:00 a.m. (Eastern time). Payment is
required before 3:00 p.m. (Eastern time) on the same business day in order to
earn dividends for that day.
CAPITAL GAINS
Capital gains, if any, could result in an increase in dividends. Capital losses,
if any, could result in a decrease in dividends. If for some extraordinary
reason the Fund realizes net long-term or short-term capital gains, it will
distribute them at least once every 12 months.
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. Prior to any exchange, the shareholder must receive
a copy of the current prospectus of the fund into which an exchange is to be
effected.
Shares may be exchanged at net asset value, plus the difference between the
Funds' sales charge (if any) already paid and any sales charge of the fund into
which shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus an exchange
of such shares for shares of a fund with a sales charge would be at net asset
value.
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 in person or
by telephone.
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.
For orders received before 11:00 a.m. (Eastern time), proceeds will normally be
wired the same day to the shareholder's account at the Banks or a check will be
sent to the address of record. Those shares will not be entitled to the dividend
declared on the day the redemption request was received. 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.
CHECKWRITING. At the shareholder's request, State Street Bank will establish a
checking account for redeeming Fund shares. A fee may be charged for this
service. With a Fund checking account, shares may be redeemed simply by writing
a check. With a Fund checking account, shares may be redeemed simply by writing
a check for $100 or more. The redemption will be made at the net asset value on
the date that State Street Bank presents the check to the Fund. A check may not
be written to close an account. If a shareholder wishes to redeem shares and
have the proceeds available, a check may be
written and negotiated through the shareholder's bank. Checks should never be
sent to State Street Bank to redeem shares. For further information, contact the
Fund.
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.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $1,000 due to
shareholder redemptions.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders of the Fund for vote. All shares of 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. As of April 17, 1995 Deposit
Guaranty National Bank, Jackson, Mississippi, acting in various capacities for
numerous accounts, was the owner of record of approximately 110,548,007 shares
(66.8%), and Commercial National Bank, Shreveport, Louisiana, acting in various
capacities for numerous accounts, was the owner of record of approximately
48,729,409 shares (29.5%), and therefore, may, for certain purposes, be deemed
to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
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 investment adviser, Deposit Guaranty National Bank, is subject to such
banking laws and regulations.
Deposit Guaranty National Bank believes, based on the advice of its counsel,
that it may perform the investment advisory services for the Fund contemplated
by its advisory agreement with the Trust 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
Deposit Guaranty National Bank from continuing to perform all or a part of the
above services for its customers and/or the Fund. In such event, changes in the
operation of the Fund may occur, including the possible alteration or
termination of any automatic or other Fund share investment and redemption
services then being provided by Deposit Guaranty National Bank, and the Trustees
would consider alternative investment advisers and other means of continuing
available investment services. It is not expected that Fund shareholders would
suffer any adverse financial consequences (if another adviser with equivalent
abilities to Deposit Guaranty National Bank is found) as a result of any of
these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund will pay no federal income tax because it expects to meet requirements
of the Internal Revenue Code applicable to regulated investment companies and to
receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios, 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 yield and effective yield.
The yield of the Fund represents the annualized rate of income earned on an
investment in the Fund over a seven-day period. It is the annualized dividends
earned during the period on the investment, shown as a percentage of the
investment. The effective yield is calculated similarly to the yield, but, when
annualized, the income earned by an investment in the Fund is assumed to be
reinvested daily. The effective yield will be slightly higher than the yield
because of the compounding effect of this assumed reinvestment.
Advertisements and other sales literature may also refer to total return. Total
return represents the change, over a specified period of time, in the value of
an investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
DG U.S. GOVERNMENT MONEY MARKET FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
U.S. TREASURY OBLIGATIONS--49.1%
- ------------------------------------------------------------------------------------
U.S. TREASURY BILLS--38.0%
----------------------------------------------------------------
$ 4,000,000 3/16/1995 $ 3,991,333
----------------------------------------------------------------
4,000,000 3/30/1995 3,982,906
----------------------------------------------------------------
4,000,000 4/06/1995 3,977,710
----------------------------------------------------------------
4,000,000 4/27/1995 3,963,963
----------------------------------------------------------------
4,000,000 5/04/1995 3,958,436
----------------------------------------------------------------
3,000,000 5/18/1995 2,962,170
----------------------------------------------------------------
4,000,000 5/25/1995 3,944,939
----------------------------------------------------------------
4,000,000 6/08/1995 3,936,750
----------------------------------------------------------------
4,000,000 7/06/1995 3,911,312
----------------------------------------------------------------
4,000,000 7/13/1995 3,908,136
----------------------------------------------------------------
4,000,000 7/20/1995 3,903,493
----------------------------------------------------------------
4,000,000 8/10/1995 3,891,010
----------------------------------------------------------------
4,000,000 8/17/1995 3,889,681
----------------------------------------------------------------
4,000,000 8/24/1995 3,880,809
----------------------------------------------------------------
4,000,000 10/19/1995 3,840,693
----------------------------------------------------------------
4,000,000 11/16/1995 3,819,444
---------------------------------------------------------------- ------------
Total 61,762,785
---------------------------------------------------------------- ------------
U.S. TREASURY NOTES--11.1%
----------------------------------------------------------------
4,000,000 3.875%, 4/30/1995 3,984,318
----------------------------------------------------------------
3,000,000 8.50%, 5/15/1995 3,016,345
----------------------------------------------------------------
</TABLE>
DG U.S. GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ---------------------------------------------------------------- ------------
<C> <C> <S> <C>
U.S. TREASURY OBLIGATIONS--CONTINUED
- ------------------------------------------------------------------------------------
U.S. TREASURY NOTES--CONTINUED
----------------------------------------------------------------
$ 4,000,000 4.125%, 5/31/1995 $ 3,981,145
----------------------------------------------------------------
3,000,000 4.625%, 2/15/1996 2,940,498
----------------------------------------------------------------
4,000,000 7.875%, 2/15/1996 4,037,057
---------------------------------------------------------------- ------------
Total 17,959,363
---------------------------------------------------------------- ------------
TOTAL U.S. TREASURY OBLIGATIONS 79,722,148
---------------------------------------------------------------- ------------
*REPURCHASE AGREEMENTS--51.2%
- ------------------------------------------------------------------------------------
6,000,000 Cantor, Fitzgerald Securities Corp., 6.05%, dated 2/28/1995, due
3/01/1995 6,000,000
----------------------------------------------------------------
6,500,000 Daiwa Securities America, Inc., 6.05%, dated 2/28/1995, due
3/01/1995 6,500,000
----------------------------------------------------------------
6,684,506 Eastbridge Capital, Inc., 6.05%, dated 2/28/1995, due 3/01/1995 6,684,506
----------------------------------------------------------------
24,000,000 ** First Union Corp., 5.92%, dated 2/21/1995, due 3/6/1995 24,000,000
----------------------------------------------------------------
40,000,000 ** Smith Barney, Inc., 5.93%, dated 2/27/1995, due 3/13/1995 40,000,000
---------------------------------------------------------------- ------------
TOTAL REPURCHASE AGREEMENTS 83,184,506
---------------------------------------------------------------- ------------
TOTAL INVESTMENTS, AT AMORTIZED COST $162,906,654+
---------------------------------------------------------------- ------------
</TABLE>
* The repurchase agreements are fully collateralized by U.S. Treasury
obligations based on market prices at the date of the portfolio.
** Although final maturity falls beyond seven days, a liquidity feature is
included in each transaction to permit termination of the repurchase
agreement.
+ Also represents cost for federal tax purposes.
Note: The categories of investments are shown as a percentage of net assets
($162,514,706) at February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
DG U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in repurchase agreements $83,184,506
- ------------------------------------------------------------------
Investments in securities 79,722,148
- ------------------------------------------------------------------ -----------
Total investments in securities, at amortized cost and value $162,906,654
- --------------------------------------------------------------------------------
Income receivable 233,252
- --------------------------------------------------------------------------------
Receivable for shares sold 365
- --------------------------------------------------------------------------------
Deferred expenses 33,063
- -------------------------------------------------------------------------------- ------------
Total assets 163,173,334
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Income distribution payable 619,456
- ------------------------------------------------------------------
Payable for shares redeemed 99
- ------------------------------------------------------------------
Accrued expenses 39,073
- ------------------------------------------------------------------ -----------
Total liabilities 658,628
- -------------------------------------------------------------------------------- ------------
Net Assets for 162,514,706 shares outstanding $162,514,706
- -------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($162,514,706 / 162,514,706 shares outstanding) $1.00
- -------------------------------------------------------------------------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ----------------------------------------------------------------------------------
Interest $7,526,835
- ----------------------------------------------------------------------------------
EXPENSES:
- ----------------------------------------------------------------------------------
Investment advisory fee $ 837,617
- ---------------------------------------------------------------------
Administrative personnel and services fee 210,182
- ---------------------------------------------------------------------
Custodian fees 20,026
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 31,825
- ---------------------------------------------------------------------
Directors'/Trustees' fees 3,510
- ---------------------------------------------------------------------
Auditing fees 12,002
- ---------------------------------------------------------------------
Legal fees 4,625
- ---------------------------------------------------------------------
Portfolio accounting fees 43,263
- ---------------------------------------------------------------------
Share registration costs 38,518
- ---------------------------------------------------------------------
Printing and postage 8,101
- ---------------------------------------------------------------------
Insurance premiums 7,346
- ---------------------------------------------------------------------
Miscellaneous 8,485
- --------------------------------------------------------------------- ----------
Total expenses 1,225,500
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 335,047
- --------------------------------------------------------------------- ----------
Net expenses 890,453
- ---------------------------------------------------------------------------------- ----------
Net investment income $6,636,382
- ---------------------------------------------------------------------------------- ----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG U.S. GOVERNMENT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
FEBRUARY 28, FEBRUARY 28,
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------------
Net investment income $ 6,636,382 $ 4,342,390
- ------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------------
Distributions from net investment income (6,636,382) (4,342,390)
- ------------------------------------------------------------- ------------- -------------
SHARE TRANSACTIONS--
- -------------------------------------------------------------
Proceeds from sale of shares 394,768,127 317,109,684
- -------------------------------------------------------------
Net asset value of shares issued to shareholders in payment
of distributions declared 51,622 4,328
- -------------------------------------------------------------
Cost of shares redeemed (421,619,818) (316,822,908)
- ------------------------------------------------------------- ------------- -------------
Change in net assets resulting from share transactions (26,800,069) 291,104
- ------------------------------------------------------------- ------------- -------------
Change in net assets (26,800,069) 291,104
- -------------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------------
Beginning of period 189,314,775 189,023,671
- ------------------------------------------------------------- ------------- -------------
End of period $ 162,514,706 $ 189,314,775
- ------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG U.S. GOVERNMENT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
DG Investor Series (the "Fund") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of six diversified portfolios. The financial statements
included herein present only those of DG U.S. Government Money Market Fund (the
"Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value
its portfolio securities is in accordance with Rule 2a-7 under the Act.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
DG U.S GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering the shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years from the Fund's
commencement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value). At
February 28, 1995, capital paid-in aggregated $162,514,706.
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
- ------------------------------------------------------ ----------------- -----------------
<S> <C> <C>
Shares sold 394,768,127 317,109,684
- ------------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 51,622 4,328
- ------------------------------------------------------
Shares redeemed (421,619,818) (316,822,908)
- ------------------------------------------------------ --------------- ---------------
Net change resulting from share transactions (26,800,069) 291,104
- ------------------------------------------------------ --------------- ---------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Trust's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to .50 of 1% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AGENT FEES AND PORTFOLIO ACCOUNTING FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
DG U.S GOVERNMENT MONEY MARKET FUND
- --------------------------------------------------------------------------------
FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $40,903 were initially borne
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following May 5, 1992 (the date the Fund became
effective). For the year ended February 28, 1995, the Fund paid $4,992 pursuant
to this agreement.
GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholder
DG INVESTOR SERIES:
We have audited the statement of assets and liabilities, including the portfolio
of investments, of the DG U.S. Government Money Market Fund (a portfolio within
DG Investor Series) as of February 28, 1995, and the related statement of
operations for the year then ended, the statements of changes in net assets for
the years ended February 28, 1995 and 1994, and the financial highlights, which
is presented on page 2 of this prospectus, for the years or periods from March
31, 1992 (commencement of operations) to February 28, 1995. These financial
statements and the financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and the financial highlights. Investment securities held in custody
are confirmed to us by the custodian. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and the financial highlights referred
to above present fairly, in all material respects, the financial position of the
DG U.S. Government Money Market Fund at February 28, 1995, and the results of
its operations for the year then ended, and the changes in its net assets and
the financial highlights for each of the periods listed above in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
April 7, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG U.S. Government Money Federated Investors Tower
Market Fund 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
- ------------------------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick LLP One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
DG
U.S. GOVERNMENT
MONEY MARKET FUND
- --------------------------------------------------------------------------------
PROSPECTUS
A Diversified Portfolio of
DG Investor Series,
an Open-End Management
Investment Company
Deposit Guaranty
National Bank
Jackson, MS
Investment Adviser
APRIL 30, 1995
- --------------------------------------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
2040203A (4/95)
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.
DG LIMITED TERM GOVERNMENT INCOME FUND
(A PORTFOLIO OF DG INVESTOR SERIES)
PROSPECTUS
The shares of DG Limited Term Government Income 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 current income. The Fund pursues its
investment objective by investing primarily in government securities to achieve
current income.
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 April 30,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling 1-800-530-7377.
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 April 30, 1995
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 4
Average Portfolio Duration 4
Corporate Bonds 4
Mortgage-Backed Securities 4
Collateralized Mortgage Obligations 5
Asset-Backed Securities 5
Bank Instruments 5
Put and Call Options 5
Risks 6
Temporary Investments 6
Repurchase Agreements 6
Lending of Portfolio Securities 7
When-Issued and Delayed
Delivery Transactions 7
Investment Limitations 7
DG INVESTOR SERIES INFORMATION 8
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Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 8
Sub-Adviser 9
Sub-Advisory Fees 9
Sub-Adviser's Background 9
Distribution of Fund Shares 9
Distribution Plan 9
Shareholder Servicing Arrangements 10
ADMINISTRATION OF THE FUND 10
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Administrative Services 10
Custodian 11
Transfer Agent, Dividend Disbursing
Agent, and Shareholder Servicing Agent 11
Independent Auditors 11
Brokerage Transactions 11
NET ASSET VALUE 11
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INVESTING IN THE FUND 11
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Share Purchases 11
Through the Banks 11
Minimum Investment Required 12
What Shares Cost 12
Purchases at Net Asset Value 12
Sales Charge Reallowance 12
Reducing the Sales Charge 13
Quantity Discounts and
Accumulated Purchases 13
Letter of Intent 13
Reinvestment Privilege 13
Purchases with Proceeds from Redemptions
of Unaffiliated Investment Companies 14
Concurrent Purchases 14
Systematic Investment Program 14
Certificates and Confirmations 14
Dividends and Distributions 14
EXCHANGE PRIVILEGE 14
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DG Investor Series 14
Exchanging Shares 15
REDEEMING SHARES 15
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Through the Banks 15
By Telephone 15
By Mail 16
Signatures 16
Systematic Withdrawal Plan 16
Accounts With Low Balances 17
SHAREHOLDER INFORMATION 17
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Voting Rights 17
Massachusetts Partnership Law 17
EFFECT OF BANKING LAWS 18
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TAX INFORMATION 18
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Federal Income Tax 18
PERFORMANCE INFORMATION 19
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FINANCIAL STATEMENTS 20
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INDEPENDENT AUDITORS' REPORT 29
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ADDRESSES 30
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <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 average net assets)
Management Fee (after waiver)(1)......................................................... 0.40%
12b-1 Fees(2)............................................................................ 0.00%
Total Other Expenses..................................................................... 0.29%
Total Fund Operating Expenses(3)..................................................... 0.69%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
investment advisory fee by the investment adviser. The adviser can terminate
this voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.60%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund will not accrue or pay 12b-1 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 to the distributor.
(3) The Total Fund Operating Expenses were 0.63% for the fiscal year ended
February 28, 1995. The Total Fund Operating Expenses in the above table reflect
a reduction in the voluntary waiver of the investment advisory fee for the
fiscal year ending February 29, 1996. The Total Fund Operating Expenses for the
fiscal year ending February 29, 1996, are anticipated to be 0.89% absent the
voluntary waiver of the investment advisory fee.
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 5 years 10 years
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<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return, (2) redemption at the end of
each time period, and (3) payment of the maximum sales
load....................................................... $ 27 $42 $58 $104
</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
29, 1996.
DG LIMITED TERM GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors,
on page 29.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-------------------------------
1995 1994 1993(A)
------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.87 $10.07 $10.00
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INCOME FROM INVESTMENT OPERATIONS
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Net investment income 0.49 0.52 0.36
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Net realized and unrealized gain (loss) on investments (0.23) (0.17) 0.07
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Total from investment operations 0.26 0.35 0.43
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LESS DISTRIBUTIONS
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Distributions from net investment income (0.48) (0.52) (0.36)
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Distributions from net realized gain on investment transactions -- (0.03) --
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Total distributions (0.48) (0.55) (0.36)
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NET ASSET VALUE, END OF PERIOD $ 9.65 $ 9.87 $10.07
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TOTAL RETURN(B) 2.72% 3.52% 4.43%
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RATIOS TO AVERAGE NET ASSETS
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Expenses 0.63% 0.59% 0.50%(c)
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Net investment income 5.00% 5.21% 6.25%(c)
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Expense waiver/reimbursement(d) 0.25% 0.29% 0.42%(c)
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SUPPLEMENTAL DATA
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Net assets, end of period (000 omitted) $96,216 $116,660 $99,921
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Portfolio turnover 14% 76% 18%
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</TABLE>
(a) Reflects operations for the period from August 3, 1992 (date of initial
public investment) to February 28, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended February 28, 1995, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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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 its affiliates as a
convenient means of participating in a professionally managed, diversified
portfolio consisting primarily of government 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
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INVESTMENT OBJECTIVE
The investment objective of the Fund is current income, the weighted-average
duration of which will at all times be limited to between one and six years. 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 securities
which are guaranteed as to payment of principal and interest by the U.S.
government or U.S. government agencies or instrumentalities. The Fund may also
invest in corporate bonds, asset-backed securities and bank instruments. Under
normal circumstances, the Fund will invest at least 65% of the value of its
total assets in U.S. government securities.
The net asset value of the Fund is expected to fluctuate with changes in
interest rates and bond market conditions, although this fluctuation should be
more moderate than that of a fund with a longer average portfolio maturity. The
adviser, however, will attempt to minimize principal fluctuation through, among
other things, diversification, careful credit analysis and security selection,
and adjustments of the Fund's average portfolio maturity. In periods of rising
interest rates and falling bond prices, the adviser may shorten the Fund's
average duration to minimize the effect of declining bond values on the Fund's
net asset value. Conversely, during times of falling interest rates and rising
prices a longer average maturity to seven years may be sought.
Unless indicated otherwise, the investment policies may be changed by the Board
of Trustees ("Trustees") without the approval of shareholders. Shareholders will
be notified before any material change in these investment policies becomes
effective.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund will
invest include:
- direct obligations of the U.S. Treasury such as bills, notes, and bonds;
and
- notes, bonds, and discount notes issued by the Federal Home Loan Banks;
Government National Mortgage Association; Farm Credit System, including
the National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Tennessee Valley Authority; Export-Import Bank of the
United States; Commodity Credit Corporation; Federal Financing Bank;
Student Loan Marketing Association; Federal Home Loan Mortgage
Corporation; or National Credit Union Administration.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and credit of the U.S. Treasury. No
assurance can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
AVERAGE PORTFOLIO DURATION. Although the Fund will not maintain a stable net
asset value, the adviser will seek to limit, to the extent consistent with the
Fund's investment objective of current income, the magnitude of fluctuations in
the Fund's net asset value by limiting the dollar-weighted average duration of
the Fund's portfolio. Although the Fund's dollar-weighted average duration will
not exceed six years, the weighted average maturity of the Fund's portfolio
could be longer than six years. Generally, the duration of a security is shorter
than the maturity of a security. A typical security makes coupon payments prior
to its maturity date and duration takes into account the timing of a security's
cash flow. Duration is a commonly used measure of the potential volatility of
the price of a debt security, or the aggregate market value of a portfolio of
debt securities, prior to maturity. Securities with shorter durations generally
have less volatile prices than securities of comparable quality with longer
durations. The Fund should be expected to maintain a higher average duration
during periods of falling interest rates, and a lower average duration during
periods of rising interest rates. The prices of fixed income securities
fluctuate inversely to the direction of interest rates.
CORPORATE BONDS. The Fund may invest in issues of corporate debt obligations
which are rated in one of the three highest categories by a nationally
recognized statistical rating organization (rated Aaa, Aa, or A by Moody's
Investors Service, Inc. ("Moody's"); AAA, AA, or A by Standard & Poor's Ratings
Group ("Standard & Poor's") or by Fitch Investors Service, Inc. ("Fitch"), or
which are of comparable quality in the judgment of the adviser).
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three basic
types of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae")
and the Federal Home Loan Mortgage Corporation ("Freddie Mac"); (ii) those
issued by private issuers that represent an interest in or are collateralized by
mortgage-backed securities issued or guaranteed by the U.S. government or one of
its agencies or instrumentalities; and (iii) those issued by private issuers
that represent an interest in or are collateralized by whole loans or
mortgage-backed securities without a government guarantee but usually having
some form of private credit enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole
loans or private pass-through securities.
The Fund will only invest in CMOs which are rated AAA by a nationally
recognized rating agency, and which may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or (c) securities in which the proceeds of
the issuance are invested in mortgage securities and payment of the
principal and interest are supported by the credit of an agency or
instrumentality of the U.S. government.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-backed securities but have underlying assets that are not
mortgage loans or interests in mortgage loans. The Fund may invest in
asset-backed securities rated A or higher by a nationally recognized rating
agency. The collateral for such securities will consist of motor vehicle
installment purchase obligations and credit card receivables. These securities
may be in the form of pass-through instruments or asset-backed bonds. The
securities are issued by non-governmental entities and carry no direct or
indirect government guarantee.
BANK INSTRUMENTS. The Fund only invests in bank instruments issued by an
institution having capital, surplus and undivided profits over $100 million, or
insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance
Fund ("SAIF").
PUT AND CALL OPTIONS. The Fund may purchase put options on financial futures
contracts and put options on portfolio securities. Financial futures may include
index futures. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. For the immediate
future, the Fund will enter into futures contracts directly only when it desires
to exercise a financial futures put option in its portfolio rather than either
closing out the option or allowing it to expire. The Fund will only purchase
puts on financial futures contracts which are traded on a recognized exchange.
The Fund will generally purchase over-the-counter put options on portfolio
securities in negotiated transactions with the writers of the options on the
portfolio securities held by the Fund which are typically not traded on an
exchange. The Fund purchases options only from investment dealers and other
financial associations (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Fund's adviser.
Over-the-counter put 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.
The Fund may also write 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 in the amount of
any additional consideration. The call options which the Fund writes and sells
must be listed on a recognized options exchange. Although the Fund reserves the
right to write covered call options on its entire portfolio, it will not write
such options on more than 25% of its total assets unless a higher limit is
authorized by its Trustees.
The Fund may attempt to hedge the portfolio by entering into financial futures
contracts and to write calls on financial futures contracts. The Fund will
notify shareholders before it begins engaging in these transactions.
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 purchases puts on financial futures contracts to protect against
declines in prices of portfolio securities, 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 its corresponding put 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 movements.
In such an event, the Fund may lose the purchase price of the put option.
Finally, it is not certain that a secondary market for 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 on an exchange will exist for any particular option
at any particular time. The Fund's ability to establish and close out
option positions depends on this secondary market.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may invest
temporarily in cash and cash items during times of unusual market conditions and
to maintain liquidity. Cash items may include short-term obligations such as:
- obligations of the U.S. government or its agencies or instrumentalities;
- repurchase agreements; and
- 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.
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.
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.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase 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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. 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.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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 arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may, borrow up to one-third of the value of its total assets and pledge
up to 15% of the value of those assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this investment limitation becomes effective.
The Fund will not:
- invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice, over-the-counter options and certain
restricted securities not determined by the Trustees to be liquid.
DG INVESTOR SERIES INFORMATION
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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 .60 of 1% of the Fund's average daily net assets. The
investment advisory contract provides for the voluntary reimbursement of
expenses by the Adviser to the extent any Fund expenses exceed such lower
expense limitation as the Adviser may, by notice to the Fund, voluntarily
declare to be effective. The Adviser can terminate this voluntary
reimbursement of expenses at any time at its sole discretion. The Adviser
has undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. 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, 1994, the Trust Division of Deposit Guaranty National
Bank had approximately $9.1 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.
As part of their regular banking operations, Deposit Guaranty National Bank
and Commercial National Bank, the Fund's sub-adviser, may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Deposit Guaranty National Bank or Commercial National Bank. The lending
relationships will not be a factor in the selection of securities.
John Mark McKenzie has been with Deposit Guaranty National Bank for ten
years and is a Vice President and Trust Investment Officer. Previously, Mr.
McKenzie was associated with a Jackson bank as a trust officer. He received
a B.B.A. in Banking and Finance from the University of Mississippi. He is a
member of the Mississippi Chapter of the Memphis Society of Financial
Analysts, and is a member of the Mississippi State and Hinds County Bar
Association. Mr. McKenzie has managed the DG Limited Term Government Income
Fund since August 1, 1992 (the inception of the Fund).
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 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, 1994, the Trust Division at Commercial National Bank had
approximately $1.2 billion in trust assets under administration, of which
it had investment discretion over $856 million. Commercial National Bank
has served as sub-adviser to DG Equity Fund, DG Government Income Fund, and
the Fund since July 20, 1992, DG Municipal Income Fund since December 12,
1992, and DG Opportunity Fund since May 25, 1994 each a portfolio of the
Trust.
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 .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 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 pays the
distributor the fee described above as opposed to reimbursing the distributor
for actual expenses incurred. Therefore, the Fund does not pay for amounts
expended by the distributor in excess of amounts received by it from the Fund,
which may include 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
on assets in excess of $750
.075 of 1% 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
reimburse a portion of its fee at any time.
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.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, 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.
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 AMOUNT INVESTED
- ---------------------------------------------- ---------------------- -------------------
<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; non-trust
customers of financial advisers; Trustees and employees of the Fund, the Banks
or Federated Securities Corp. or their affiliates and their spouses and children
under 21; current and retired directors of the Banks; 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 100% 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. The distributor will,
periodically, uniformly offer to pay cash or promotional incentives in the form
of trips to sales seminars at luxury resorts, tickets or other items to all
dealers selling shares of the Fund. Such payments will be predicated upon the
amount of shares of the Fund that are sold by the dealer.
The sales charge for shares sold other than through the Banks or registered
broker/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 purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 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. The current balance in
the shareholder's account will provide a purchase credit towards fulfillment of
the letter of intent.
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.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which was
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. The purchase must be made within 60 days of the redemption, and
Federated Securities Corp. must be notified by the investor in writing, or by
his financial institution, at the time the purchase is made.
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. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly. 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 net asset value without a sales charge, unless cash
payments are requested by writing to the Fund or the Banks as appropriate.
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. Prior to any exchange, the shareholder must receive
a copy of the current prospectus of the fund into which an exchange is to be
effected.
Shares may be exchanged at net asset value, plus the difference between the
Funds' sales charge (if any) already paid and any sales charge of the fund into
which shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with 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.
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 instruction 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.
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.
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.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
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 BIF,
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 SAIF, 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. As of April 17, 1995, Deposit
Guaranty National Bank, Jackson, Mississippi, acting in various capacities for
numerous accounts, was the owner of record of approximately 7,583,682 shares
(76.1%), and therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders.
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 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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
DG LIMITED TERM GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
CORPORATE BONDS--23.4%
- --------------------------------------------------------------------------------------
BANKING--2.8%
------------------------------------------------------------------
$ 1,200,000 Bankers Trust New York Corp., 4.70%, 7/1/1996 $ 1,165,104
------------------------------------------------------------------
1,500,000 NationsBank Corp., 5.375%, 12/1/1995 1,486,815
------------------------------------------------------------------ -----------
Total 2,651,919
------------------------------------------------------------------ -----------
BUSINESS EQUIPMENT & SERVICES--1.0%
------------------------------------------------------------------
1,000,000 International Business Machines Corp., 6.375%, 11/1/1997 977,500
------------------------------------------------------------------ -----------
CAPITAL GOODS--1.6%
------------------------------------------------------------------
1,500,000 General Electric Capital Corp., 5.25%, 11/15/1995 1,486,485
------------------------------------------------------------------ -----------
CONSUMER NON-DURABLES--3.0%
------------------------------------------------------------------
1,447,000 Kellogg Co., 5.90%, 7/15/1997 1,406,831
------------------------------------------------------------------
723,000 PepsiCo, Inc., 5.625%, 7/1/1995 722,046
------------------------------------------------------------------
725,000 Philip Morris Cos., Inc., 7.50%, 3/15/1997 726,921
------------------------------------------------------------------ -----------
Total 2,855,798
------------------------------------------------------------------ -----------
FINANCIAL SERVICES--4.5%
------------------------------------------------------------------
905,000 American General Finance Corp., 7.15%, 5/15/1997 903,461
------------------------------------------------------------------
1,500,000 Ford Motor Credit Corp., 5.625%, 3/3/1997 1,455,660
------------------------------------------------------------------
306,000 ITT Financial Corp., 7.25%, 5/15/1997 303,962
------------------------------------------------------------------
1,000,000 Norwest Financial, Inc., 6.25%, 2/15/1997 984,280
------------------------------------------------------------------
723,000 Toyota Motor Credit Corp., 5.75%, 6/15/1995 721,822
------------------------------------------------------------------ -----------
Total 4,369,185
------------------------------------------------------------------ -----------
HEALTH CARE--1.2%
------------------------------------------------------------------
1,250,000 Upjohn Co., 5.875%, 4/15/2000 1,159,250
------------------------------------------------------------------ -----------
PHARMACEUTICALS--1.1%
------------------------------------------------------------------
1,000,000 American Home Products, 7.70%, 2/15/2000 1,008,550
------------------------------------------------------------------ -----------
</TABLE>
DG LIMITED TERM GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- --------------------------------------------------------------------------------------
POLLUTION CONTROL--0.7%
------------------------------------------------------------------
$ 723,000 Waste Management, Inc., 6.375%, 7/1/1997 $ 710,456
------------------------------------------------------------------ -----------
PUBLISHING--1.0%
------------------------------------------------------------------
1,000,000 Gannett, Inc., 5.25%, 3/1/1998 945,850
------------------------------------------------------------------ -----------
RETAIL--1.1%
------------------------------------------------------------------
1,136,000 Wal-Mart Stores Inc., 5.50%, 9/15/1997 1,094,104
------------------------------------------------------------------ -----------
UTILITIES--5.4%
------------------------------------------------------------------
1,000,000 GTE California, Inc., 6.25%, 1/15/1998 971,600
------------------------------------------------------------------
1,000,000 New England Telephone & Telegraph Co., 6.25%, 12/15/1997 974,040
------------------------------------------------------------------
1,500,000 Northern States Power Co., 5.50%, 2/1/1999 1,403,145
------------------------------------------------------------------
1,000,000 Pacific Gas & Electric Co., 5.375%, 8/1/1998 938,350
------------------------------------------------------------------
1,000,000 Southern California Edison Co., 5.60%, 12/15/1998 937,690
------------------------------------------------------------------ -----------
Total 5,224,825
------------------------------------------------------------------ -----------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $23,003,111) 22,483,922
------------------------------------------------------------------ -----------
GOVERNMENT AGENCIES--1.6%
- --------------------------------------------------------------------------------------
1,500,000 Federal Home Loan Mortgage Corp., 6.50%, 6/15/1999
(IDENTIFIED COST, $1,511,250) 1,501,830
------------------------------------------------------------------ -----------
U.S. TREASURY NOTES--63.9%
- --------------------------------------------------------------------------------------
9,000,000 3.875%, 3/31/1995 8,991,810
------------------------------------------------------------------
5,000,000 4.125%, 6/30/1995 4,971,850
------------------------------------------------------------------
3,000,000 4.25%, 7/31/1995 2,977,500
------------------------------------------------------------------
9,000,000 5.125%, 3/31/1998 8,554,860
------------------------------------------------------------------
4,000,000 5.75%, 10/31/1997 3,891,120
------------------------------------------------------------------
15,000,000 6.25%, 1/31/1997 14,866,800
------------------------------------------------------------------
4,000,000 6.75%, 6/30/1999 3,956,120
------------------------------------------------------------------
2,000,000 7.50%, 10/31/1999 2,034,220
------------------------------------------------------------------
11,000,000 8.00%, 10/15/1996 11,216,920
------------------------------------------------------------------ -----------
TOTAL U.S. TREASURY NOTES (IDENTIFIED COST, $63,428,276) 61,461,200
------------------------------------------------------------------ -----------
</TABLE>
DG LIMITED TERM GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ------------------------------------------------------------------ -----------
<C> <C> <S> <C>
*REPURCHASE AGREEMENT--9.5%
- --------------------------------------------------------------------------------------
$ 9,103,300 Cantor, Fitzgerald Securities Corp., 6.05%, dated 2/28/1995, due
3/1/1995 (AT AMORTIZED COST) $ 9,103,300
------------------------------------------------------------------ -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $97,045,937) $94,550,252+
------------------------------------------------------------------ -----------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $97,045,937. The
unrealized depreciation of investments on a federal tax basis amounts to
$2,495,685, which is comprised of $110,754 appreciation and $2,606,439
depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($96,216,434) at February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
DG LIMITED TERM GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost $97,045,937) $ 94,550,252
- -------------------------------------------------------------------------------
Income receivable 1,325,711
- -------------------------------------------------------------------------------
Receivable for shares sold 390,346
- -------------------------------------------------------------------------------
Deferred expenses 15,810
- ------------------------------------------------------------------------------- ------------
Total assets 96,282,119
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed $37,299
- ---------------------------------------------------------------------
Accrued expenses 28,386
- --------------------------------------------------------------------- -------
Total liabilities 65,685
- ------------------------------------------------------------------------------- ------------
Net Assets for 9,975,150 shares outstanding $ 96,216,434
- ------------------------------------------------------------------------------- ------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid in capital $100,461,727
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,495,685)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (1,843,544)
- -------------------------------------------------------------------------------
Undistributed net investment income 93,936
- ------------------------------------------------------------------------------- ------------
Total Net Assets $ 96,216,434
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($96,216,434 / 9,975,150 shares outstanding) $9.65
- ------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/98.00 of $9.65)* $9.85
- ------------------------------------------------------------------------------- ------------
</TABLE>
* See "What Shares Cost."
(See Notes which are an integral part of the Financial Statements)
DG LIMITED TERM GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest $ 6,020,395
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee $642,168
- ---------------------------------------------------------------------
Administrative personnel and services fee 134,312
- ---------------------------------------------------------------------
Custodian fees 14,870
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 32,488
- ---------------------------------------------------------------------
Directors'/Trustees' fees 2,785
- ---------------------------------------------------------------------
Auditing fees 12,005
- ---------------------------------------------------------------------
Legal fees 3,574
- ---------------------------------------------------------------------
Portfolio accounting fees 48,810
- ---------------------------------------------------------------------
Share registration costs 24,429
- ---------------------------------------------------------------------
Printing and postage 10,406
- ---------------------------------------------------------------------
Insurance premiums 6,890
- ---------------------------------------------------------------------
Miscellaneous 7,306
- --------------------------------------------------------------------- --------
Total expenses 940,043
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 267,570
- --------------------------------------------------------------------- --------
Net expenses 672,473
- -------------------------------------------------------------------------------- -----------
Net investment income 5,347,922
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized loss on investments (1,068,070)
- --------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (1,836,643)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized loss on investments (2,904,713)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 2,443,209
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG LIMITED TERM GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- -------------------------------------------------------
OPERATIONS--
- -------------------------------------------------------
Net investment income $ 5,347,922 $ 6,023,613
- -------------------------------------------------------
Net realized loss on investments ($1,406,691 net loss
and $347,369 net gain, respectively, as computed for
federal tax purposes) (1,068,070) (367,399)
- -------------------------------------------------------
Net change in unrealized depreciation of investments (1,836,643) (1,681,025)
- ------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from operations 2,443,209 3,975,189
- ------------------------------------------------------- ---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS--
- -------------------------------------------------------
Distributions from net investment income (5,266,273) (6,011,126)
- -------------------------------------------------------
Distributions from net realized gains -- (344,594)
- ------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from distributions
to shareholders (5,266,273) (6,355,720)
- ------------------------------------------------------- ---------------- ----------------
SHARE TRANSACTIONS--
- -------------------------------------------------------
Proceeds from sale of shares 43,863,105 70,831,278
- -------------------------------------------------------
Net asset value of shares issued to shareholders in
payment of distributions declared 2,064,317 2,764,678
- -------------------------------------------------------
Cost of shares redeemed (63,548,352) (54,475,647)
- ------------------------------------------------------- ---------------- ----------------
Change in net assets resulting from share
transactions (17,620,930) 19,120,309
- ------------------------------------------------------- ---------------- ----------------
Change in net assets (20,443,994) 16,739,778
- -------------------------------------------------------
NET ASSETS:
- -------------------------------------------------------
Beginning of period 116,660,428 99,920,650
- ------------------------------------------------------- ---------------- ----------------
End of period (including undistributed net investment
income of $93,936 and $12,287, respectively) $ 96,216,434 $ 116,660,428
- ------------------------------------------------------- ---------------- ----------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG LIMITED TERM GOVERNMENT INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
DG Investor Series (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of six diversified portfolios. The financial statements
included herein present only those of DG Limited Term Government Income Fund
(the "Fund"). The financial statements of the other portfolios are presented
separately. The assets of each portfolio are segregated and a shareholder's
interest is limited to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities are generally valued at the
mean between the over-the-counter bid and asked prices as furnished by an
independent pricing service. Listed corporate bonds, unlisted securities and
short-term securities are valued at prices provided by an independent pricing
service. Short-term securities with remaining maturities of sixty days or less
may be valued at amortized cost, which approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
DG LIMITED TERM GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
At February 28, 1995, the Fund, for federal tax purposes, had a capital loss
carryforward of $1,406,691, which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the extent
permitted by the Code, and thus will reduce the amount of the distributions to
shareholders which would otherwise be necessary to relieve the Fund of any
liability for federal tax. Pursuant to the Code, such capital loss
carryforward will expire as indicated below. Additionally, net capital losses
of $437,277, attributable to security transactions incurred after October 31,
1994 are treated as arising on March 1, 1995, the first day of the Fund's next
taxable year.
<TABLE>
<CAPTION>
EXPIRATION YEAR EXPIRATION AMOUNT
--------------------------------- ---------------------------------
<S> <C>
2003 $1,406,691
</TABLE>
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering the shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years from the Fund's
commencement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
FEBRUARY 28, 1995 FEBRUARY 28, 1994
- --------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Shares sold 4,548,639 7,051,287
- ---------------------------------------------------
Shares issued to shareholders in payment of
distributions declared 214,556 276,031
- ---------------------------------------------------
Shares redeemed (6,604,481) (5,433,649)
- --------------------------------------------------- --------------- ----------
Net change resulting from share transactions (1,841,286) 1,893,669
- --------------------------------------------------- --------------- ----------
</TABLE>
DG LIMITED TERM GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to .60 of 1% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
Under the terms of a sub-advisory agreement between the Adviser and the Trust
Division of Commercial National Bank, Commercial National Bank receives an
annual fee from the Adviser equal to .25 of 1% of the Fund's average daily net
assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses of $24,074 were initially borne
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following July 20, 1992 (the date the Fund became
effective). For the year ended February 28, 1995, the Fund paid $4,482 pursuant
to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $18,099,343
- ------------------------------------------------------------------------------- -----------
SALES $13,765,312
- ------------------------------------------------------------------------------- -----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
DG INVESTOR SERIES:
We have audited the statement of assets and liabilities, including the portfolio
of investments of the DG Limited Term Government Income Fund (a portfolio within
DG Investor Series) as of February 28, 1995, and the related statements of
operations for the period then ended, the statement of changes in net assets and
the financial highlights, which is presented on page 2 of this prospectus, for
the periods from August 3, 1992 (commencement of operations) to February 28,
1995. These financial statements and financial highlights are the responsibility
of the Funds' management. Our responsibility is to express an opinion on these
financial statements and the financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to gain
reasonable assurance about whether the financial statements and the financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the DG
Limited Term Government Income Fund at February 28, 1995, and the results of its
operations for the year then ended, and the changes in its net assets and the
financial highlights for each of the periods listed above, in conformity with
generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
April 7, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Limited Term Government Federated Investors Tower
Income Fund 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 Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick LLP One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
DG
LIMITED TERM
GOVERNMENT
INCOME FUND
- --------------------------------------------------------------------------------
PROSPECTUS
A Diversified Portfolio of
DG Investor Series,
an Open-End Management
Investment Company
Deposit Guaranty
National Bank
Jackson, MS
Investment Adviser
Commercial
National Bank
Shreveport, LA
Sub-Adviser
APRIL 30, 1995
- --------------------------------------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
2061003A (4/95)
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.
DG GOVERNMENT INCOME FUND
(A PORTFOLIO OF DG INVESTOR SERIES)
PROSPECTUS
The shares of DG Government Income 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 current income. The Fund pursues its
investment objective by investing primarily in government securities to achieve
current income.
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 April 30,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling 1-800-530-7377.
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 April 30, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Corporate Bonds 4
Mortgage-Backed Securities 4
Collateralized Mortgage Obligations 4
Asset-Backed Securities 4
Bank Instruments 5
Put and Call Options 5
Risks 5
Temporary Investments 6
Repurchase Agreements 6
Lending of Portfolio Securities 6
When-Issued and Delayed Delivery
Transactions 6
Investment Limitations 7
DG INVESTOR SERIES INFORMATION 7
- ------------------------------------------------------
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Sub-Adviser 8
Sub-Advisory Fees 8
Sub-Adviser's Background 8
Distribution of Fund Shares 9
Distribution Plan 9
Shareholder Servicing Arrangements 10
ADMINISTRATION OF THE FUND 10
- ------------------------------------------------------
Administrative Services 10
Custodian 10
Transfer Agent, Dividend
Disbursing Agent, and
Shareholder Servicing Agent 10
Independent Auditors 10
Brokerage Transactions 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
Purchases with Proceeds from
Redemptions of Unaffiliated
Investment Companies 13
Concurrent Purchases 13
Systematic Investment Program 13
Certificates and Confirmations 13
Dividends and Distributions 14
EXCHANGE PRIVILEGE 14
- ------------------------------------------------------
DG Investor Series 14
Exchanging Shares 14
REDEEMING SHARES 14
- ------------------------------------------------------
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 16
EFFECT OF BANKING LAWS 17
- ------------------------------------------------------
TAX INFORMATION 17
- ------------------------------------------------------
Federal Income Tax 17
PERFORMANCE INFORMATION 18
- ------------------------------------------------------
FINANCIAL STATEMENTS 19
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 30
- ------------------------------------------------------
ADDRESSES 31
- ------------------------------------------------------
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 average net assets)
Management Fee (after waiver)(1).................................................... 0.50%
12b-1 Fees(2)....................................................................... 0.00%
Total Other Expenses................................................................ 0.22%
Total Fund Operating Expenses(3)................................................ 0.72%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
investment advisory fee by the investment adviser. The adviser can terminate
this voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.60%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund will not accrue or pay 12b-1 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 to the distributor.
(3) The Total Fund Operating Expenses were 0.68% for the fiscal year ended
February 28, 1995. The Total Fund Operating Expenses in the above table reflect
a reduction in the voluntary waiver of the investment advisory fee for the
fiscal year ending February 29, 1996. The Total Fund Operating Expenses for the
fiscal year ending February 29, 1996, are anticipated to be 0.82% absent the
voluntary waiver of the investment advisory fee.
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 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment assuming (1) 5% annual return, (2)
redemption at the end of each time period, and
(3) payment of the maximum sales load............ $ 27 $43 $59 $108
</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
29, 1996.
DG GOVERNMENT INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors,
on page 30.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
--------------------------------
1995 1994 1993(A)
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 9.90 $10.25 $10.00
- ---------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ---------------------------------------------------------------
Net investment income 0.54 0.55 0.37
- ---------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.44) (0.09) 0.25
- --------------------------------------------------------------- ------ ------ ------
Total from investment operations 0.10 0.46 0.62
- --------------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS
- ---------------------------------------------------------------
Distributions from net investment income (0.53) (0.55) (0.37)
- ---------------------------------------------------------------
Distributions from net realized gain on investment
transactions -- (0.25) --
- ---------------------------------------------------------------
Distributions in excess of net realized gain on
investments(e) -- (0.01) --
- --------------------------------------------------------------- ------ ------ ------
Total distributions (0.53) (0.81) (0.37)
- --------------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $ 9.47 $ 9.90 $10.25
- --------------------------------------------------------------- ------ ------ ------
TOTAL RETURN(B) 1.20% 4.55% 6.40%
- ---------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ---------------------------------------------------------------
Expenses 0.68% 0.70% 0.50%(c)
- ---------------------------------------------------------------
Net investment income 5.79% 5.34% 6.45%(c)
- ---------------------------------------------------------------
Expense waiver/reimbursement(d) 0.15% 0.19% 0.41%(c)
- ---------------------------------------------------------------
SUPPLEMENTAL DATA
- ---------------------------------------------------------------
Net assets, end of period (000 omitted) $168,313 $118,695 $111,435
- ---------------------------------------------------------------
Portfolio turnover 31% 49% 78%
- ---------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from August 3, 1992 (date of initial
public investment) to February 28, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(e) This distribution does not represent a return of capital for federal tax
purposes.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended February 28, 1995, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
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 government 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 current income. The investment objective
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in securities
which are guaranteed as to payment of principal and interest by the U.S.
government or U.S. government agencies or instrumentalities. The Fund may also
invest in corporate bonds, asset-backed securities and bank instruments. Under
normal circumstances, the Fund will invest at least 65% of the value of its
total assets in U.S. government securities.
Unless indicated otherwise, the investment policies may be changed by the Board
of Trustees ("Trustees") without the approval of shareholders. Shareholders will
be notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund will
invest include:
- direct obligations of the U.S. Treasury such as bills, notes, and bonds;
and
- notes, bonds, and discount notes issued by the Federal Home Loan Banks;
Government National Mortgage Association; Farm Credit System, including
the National Bank for Cooperatives, Farm Credit Banks, and Banks for
Cooperatives; Tennessee Valley Authority; Export-Import Bank of the
United States; Commodity Credit Corporation; Federal Financing Bank;
Student Loan Marketing Association; Federal Home Loan Mortgage
Corporation; or National Credit Union Administration.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association participation
certificates, are backed by the full faith and
credit of the U.S. Treasury. No assurance can be given that the U.S. government
will provide financial support to other agencies or instrumentalities, since it
is not obligated to do so. These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
CORPORATE BONDS. The Fund may invest in issues of corporate debt obligations
which are rated in one of the three highest categories by a nationally
recognized statistical rating organization (rated Aaa, Aa, or A by Moody's
Investors Service, Inc. ("Moody's"); AAA, AA, or A by Standard & Poor's Ratings
Group ("Standard & Poor's") or by Fitch Investors Service, Inc. ("Fitch"), or
which are of comparable quality in the judgment of the adviser). The prices of
fixed income securities fluctuate inversely to the direction of interest rates.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three basic
types of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac"); (ii) those issued by private issuers that represent an interest
in or are collateralized by mortgage-backed securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities; and (iii) those
issued by private issuers that represent an interest in or are collateralized by
whole loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole
loans or private pass-through securities.
The Fund will only invest in CMOs which are rated AAA by a nationally
recognized rating agency, and which may be: (a) collateralized by pools of
mortgages in which each mortgage is guaranteed as to payment of principal
and interest by an agency or instrumentality of the U.S. government; (b)
collateralized by pools of mortgages in which payment of principal and
interest is guaranteed by the issuer and such guarantee is collateralized
by U.S. government securities; or (c) securities in which the proceeds of
the issuance are invested in mortgage securities and payment of the
principal and interest are supported by the credit of an agency or
instrumentality of the U.S. government.
ASSET-BACKED SECURITIES. Asset-backed securities have structural
characteristics similar to mortgage-backed securities but have underlying assets
that are not mortgage loans or interests in mortgage loans. The Fund may invest
in asset-backed securities rated A or higher by a nationally recognized rating
agency. The collateral for such securities will consist of motor vehicle
installment purchase obligations
and credit card receivables. These securities may be in the form of pass-through
instruments or asset-backed bonds. The securities are issued by non-governmental
entities and carry no direct or indirect government guarantee.
BANK INSTRUMENTS. The Fund only invests in bank instruments issued by an
institution having capital, surplus and undivided profits over $100 million, or
insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance
Fund ("SAIF").
PUT AND CALL OPTIONS. The Fund may purchase put options on financial futures
contracts and put options on portfolio securities. Financial futures may include
index futures. These options will be used as a hedge to attempt to protect
securities which the Fund holds against decreases in value. For the immediate
future, the Fund will enter into futures contracts directly only when it desires
to exercise a financial futures put option in its portfolio rather than either
closing out the option or allowing it to expire. The Fund will only purchase
puts on financial futures contracts which are traded on a recognized exchange.
The Fund will generally purchase over-the-counter put options on portfolio
securities in negotiated transactions with the writers of the options on the
portfolio securities held by the Fund which are typically not traded on an
exchange. The Fund purchases options only from investment dealers and other
financial associations (such as commercial banks or savings and loan
institutions) deemed creditworthy by the Fund's adviser.
Over-the-counter put 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.
The Fund may also write 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 in the amount of
any additional consideration. The call options which the Fund writes and sells
must be listed on a recognized options exchange. Although the Fund reserves the
right to write covered call options on its entire portfolio, it will not write
such options on more than 25% of its total assets unless a higher limit is
authorized by its Trustees.
The Fund may attempt to hedge the portfolio by entering into financial futures
contracts and to write calls on financial futures contracts. The Fund will
notify shareholders before it begins engaging in these transactions.
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 purchases puts on financial futures contracts to
protect against declines in prices of portfolio securities, 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 its corresponding put 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 movements. In such an event, the Fund may lose the purchase
price of the put option.
Finally, it is not certain that a secondary market for 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 on an exchange will exist for any particular option
at any particular time. The Fund's ability to establish and close out
option positions depends on this secondary market.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may invest
temporarily in cash and cash items during times of unusual market conditions and
to maintain liquidity. Cash items may include short-term obligations such as:
- obligations of the U.S. government or its agencies or instrumentalities;
- repurchase agreements; and
- 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.
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.
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.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase 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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. 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.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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 arrangement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may, borrow up to one-third of the value of its total assets and pledge
up to 15% of the value of those assets to secure such borrowings.
The above investment limitation cannot be changed without shareholder approval.
The following investment limitation, however, may be changed by the Trustees
without shareholder approval. Shareholders will be notified before any material
change in this investment limitation becomes effective.
The Fund will not:
- invest more than 15% of the value of its net assets in illiquid
securities, including repurchase agreements providing for settlement in
more than seven days after notice, over-the-counter options and certain
restricted securities not determined by the Trustees to be liquid.
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 .60 of 1% of the Fund's average daily net assets. The
investment advisory contract provides for the voluntary reimbursement of
expenses by the Adviser to the extent any Fund expenses exceed such lower
expense limitation as the Adviser may, by notice to the Fund, voluntarily
declare to be effective. The Adviser can terminate this voluntary
reimbursement of expenses at any time at its sole discretion. The Adviser
has undertaken to reimburse the Fund for operating expenses in excess of
limitations established by certain states.
ADVISER'S BACKGROUND. 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, 1994, the Trust Division of Deposit Guaranty National
Bank had approximately $9.1 billion under administration, of which it had
investment discretion over $1.4 billion. Deposit Guaranty National Bank has
served as the Trust's Adviser since May 5, 1992.
As part of their regular banking operations, Deposit Guaranty National Bank
and Commercial National Bank, the Fund's sub-adviser, may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Deposit Guaranty National Bank or Commercial National Bank. The lending
relationships will not be a factor in the selection of securities.
John Mark McKenzie has been with Deposit Guaranty National Bank for ten
years and is a Vice President and Trust Investment Officer. Previously, Mr.
McKenzie was associated with a Jackson bank as a trust officer. He received
a B.B.A. in Banking and Finance from the University of Mississippi. He is a
member of the Mississippi Chapter of the Memphis Society of Financial
Analysts, and is a member of the Mississippi State and Hinds County Bar
Association. Mr. McKenzie has managed the DG Government Income Fund since
August 1, 1992 (the inception of the Fund).
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 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, 1994, the Trust Division at Commercial National Bank had
approximately $1.2 billion in trust assets under administration, of which
it had investment discretion over $856 million. Commercial National Bank
has served as sub-adviser to DG Equity Fund, DG Limited Term Government
Income Fund, and the Fund since July 20, 1992, DG Municipal Income Fund
since December 12, 1992, and DG Opportunity Fund since May 25, 1994 each a
portfolio of the Trust.
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 .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 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
reimburse a portion of its fee at any time.
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.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, 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.
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 AMOUNT INVESTED
- ---------------------------------------------- ---------------------- -------------------
<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; non-trust
customers of financial advisers; Trustees and employees of the Fund, the Banks
or Federated Securities Corp. or their affiliates and their spouses and children
under 21; current and retired directors of the Banks; 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 100% 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. The distributor will,
periodically, uniformly offer to pay cash or promotional incentives in the form
of trips to sales seminars at luxury resorts, tickets or other items to all
dealers selling shares of the Fund. Such payments will be predicated upon the
amount of shares of the Fund that are sold by the dealer.
The sales charge for shares sold other than through the Banks or registered
broker/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 purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 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. The current balance in
the shareholder's account will provide a purchase credit towards fulfillment of
the letter of intent.
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.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which was
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. The purchase must be made within 60 days of the redemption, and
Federated Securities Corp. must be notified by the investor in writing, or by
his financial institution, at the time the purchase is made.
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. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly. 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 net asset value without a sales charge, unless cash
payments are requested by writing to the Fund or the Banks as appropriate.
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. Prior to any exchange, the shareholder must receive
a copy of the current prospectus of the fund into which an exchange is to be
effected. Shares may be exchanged at net asset value, plus the difference
between the Fund's sales charge (if any) already paid and any sales charge of
the fund into which shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus an exchange
of such shares for shares of a fund with a sales charge would be at net asset
value.
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 instruction 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.
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.
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.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
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 BIF,
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 SAIF, 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.
As of April 17, 1995, Commercial National Bank, Shreveport, Louisiana, owned
approximately 4,074,326 shares (27.4%); and Deposit Guaranty National Bank,
Jackson, Mississippi, owned approximately 10,126,940 shares (68.1%), and
therefore, may, for certain purposes, be deemed to control the Fund and be able
to affect the outcome of certain matters presented for a vote of shareholders.
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 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 semiannual
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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
DG GOVERNMENT INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--15.2%
- -------------------------------------------------------------------------------------
BANKING--1.0%
-----------------------------------------------------------------
$ 800,000 Bankers Trust New York Corp., 4.70%, 7/1/1996 $ 776,736
-----------------------------------------------------------------
1,000,000 NationsBank Corp., 5.375%, 4/15/2000 904,630
----------------------------------------------------------------- ------------
Total 1,681,366
----------------------------------------------------------------- ------------
BUSINESS EQUIPMENT & SERVICE--0.9%
-----------------------------------------------------------------
1,500,000 International Business Machines Corp., 6.375%, 11/1/1997 1,466,250
----------------------------------------------------------------- ------------
CONSUMER NON-DURABLES--1.6%
-----------------------------------------------------------------
889,000 Anheuser-Busch Cos., 6.90%, 10/1/2002 846,924
-----------------------------------------------------------------
1,000,000 H.J. Heinz Co., 6.75%, 10/15/1999 975,850
-----------------------------------------------------------------
919,000 PepsiCo, Inc., 5.625%, 7/1/1995 917,787
----------------------------------------------------------------- ------------
Total 2,740,561
----------------------------------------------------------------- ------------
FINANCIAL SERVICES--2.0%
-----------------------------------------------------------------
1,500,000 Ford Motor Credit Corp., 5.625%, 3/3/1997 1,455,660
-----------------------------------------------------------------
437,000 General Motors Acceptance Corp., 9.75%
(Callable 5/15/1996 @ par), 5/15/1999 448,441
-----------------------------------------------------------------
1,000,000 Norwest Financial, Inc., 6.25%, 2/15/1997 984,280
-----------------------------------------------------------------
437,000 TNE Funding, 9.00%, 5/1/1995 438,744
----------------------------------------------------------------- ------------
Total 3,327,125
----------------------------------------------------------------- ------------
HEALTH CARE--0.6%
-----------------------------------------------------------------
1,000,000 Upjohn Co., 5.875%, 4/15/2000 927,400
----------------------------------------------------------------- ------------
PHARMACEUTICAL-HEALTH CARE--0.8%
-----------------------------------------------------------------
1,400,000 American Home Products, 7.70%, 2/15/2000 1,411,970
----------------------------------------------------------------- ------------
PUBLISHING-PRINTING--0.8%
-----------------------------------------------------------------
1,500,000 Gannett, Inc., 5.25%, 3/1/1998 1,418,775
----------------------------------------------------------------- ------------
</TABLE>
DG GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------
RAW MATERIALS--0.8%
-----------------------------------------------------------------
$ 889,000 DuPont (E.I.) de Nemours & Co., 6.75%, 10/15/2002 $ 845,474
-----------------------------------------------------------------
437,000 DuPont (E.I.) de Nemours & Co., 9.15%, 4/15/2000 468,071
----------------------------------------------------------------- ------------
Total 1,313,545
----------------------------------------------------------------- ------------
RETAIL--1.5%
-----------------------------------------------------------------
437,000 Sears, Roebuck & Co., 9.00%, 9/15/1996 448,615
-----------------------------------------------------------------
437,000 Limited, Inc. 7.80%, 5/15/2002 438,678
-----------------------------------------------------------------
437,000 Wal-Mart, Inc., 10.875% (Callable 8/15/1995 @ 102.51), 8/15/2000 456,097
-----------------------------------------------------------------
1,200,000 Wal-Mart, Inc., 5.50%, 9/15/1997 1,155,744
----------------------------------------------------------------- ------------
Total 2,499,134
----------------------------------------------------------------- ------------
SHELTER--0.3%
-----------------------------------------------------------------
437,000 Kimberly Clark Corp., 9.125%, 6/1/1997 454,580
----------------------------------------------------------------- ------------
TECHNOLOGY--0.5%
-----------------------------------------------------------------
437,000 Boeing Co., 8.375%, 3/1/1996 443,756
-----------------------------------------------------------------
437,000 Texas Instruments, Inc., 9.25%, 6/15/2003 474,770
----------------------------------------------------------------- ------------
Total 918,526
----------------------------------------------------------------- ------------
UTILITIES--4.4%
-----------------------------------------------------------------
1,000,000 Alabama Power Co., 6.75% (Callable 2/1/1998 @ 101.60), 2/1/2003 934,050
-----------------------------------------------------------------
437,000 ALLTEL Corp., 10.375%, 4/1/2009 467,284
-----------------------------------------------------------------
1,500,000 GTE California, 6.25%, 1/15/1998 1,457,400
-----------------------------------------------------------------
1,500,000 New England Telephone & Telegraph Co., 6.25%, 12/15/1997 1,461,060
-----------------------------------------------------------------
1,500,000 Northern States Power Co., 5.50%, 2/1/1999 1,403,145
-----------------------------------------------------------------
</TABLE>
DG GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
CORPORATE BONDS--CONTINUED
- -------------------------------------------------------------------------------------
UTILITIES--CONTINUED
-----------------------------------------------------------------
$ 1,000,000 Pacific Gas and Electric Co., 6.25%, 3/1/2004 $ 898,670
-----------------------------------------------------------------
1,000,000 Southern California Edison Co., 5.625%, 10/1/2002 881,260
----------------------------------------------------------------- ------------
Total 7,502,869
----------------------------------------------------------------- ------------
TOTAL CORPORATE BONDS (IDENTIFIED COST, $26,590,326) 25,662,101
----------------------------------------------------------------- ------------
GOVERNMENT AGENCIES--0.9%
- -------------------------------------------------------------------------------------
1,500,000 Federal Home Loan Mortgage Corp., 6.50% (Callable 6/15/1995 @
par), 6/15/1999 (IDENTIFIED COST, $1,511,250) 1,501,830
----------------------------------------------------------------- ------------
U.S. TREASURY OBLIGATIONS--75.0%
- -------------------------------------------------------------------------------------
U.S. TREASURY BONDS--19.9%
-----------------------------------------------------------------
9,000,000 7.125%, 2/15/2023 8,573,310
-----------------------------------------------------------------
3,000,000 7.25%, 8/15/2022 2,896,140
-----------------------------------------------------------------
11,000,000 7.50%, 11/15/2016 10,903,310
-----------------------------------------------------------------
11,000,000 7.625%, 11/15/2022 11,107,140
----------------------------------------------------------------- ------------
Total 33,479,900
----------------------------------------------------------------- ------------
U.S. TREASURY NOTES--55.1%
-----------------------------------------------------------------
10,000,000 4.00%, 1/31/1996 9,788,200
-----------------------------------------------------------------
4,000,000 5.00%, 1/31/1999 3,727,760
-----------------------------------------------------------------
3,000,000 5.875%, 3/31/1999 2,878,380
-----------------------------------------------------------------
8,000,000 5.875%, 5/15/1995 8,000,880
-----------------------------------------------------------------
8,000,000 6.375%, 8/15/2002 7,622,720
-----------------------------------------------------------------
10,000,000 7.50%, 10/31/1999 10,171,100
-----------------------------------------------------------------
15,000,000 7.50%, 2/15/2005 15,295,650
-----------------------------------------------------------------
5,000,000 7.875%, 11/15/2004 5,226,450
-----------------------------------------------------------------
7,000,000 7.875%, 8/15/2001 7,260,610
-----------------------------------------------------------------
</TABLE>
DG GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
U.S. TREASURY OBLIGATIONS--CONTINUED
- -------------------------------------------------------------------------------------
U.S. TREASURY NOTES--CONTINUED
-----------------------------------------------------------------
$13,000,000 8.00%, 1/15/1997 $ 13,285,480
-----------------------------------------------------------------
5,000,000 8.50%, 11/15/2000 5,326,850
-----------------------------------------------------------------
4,000,000 9.375%, 4/15/1996 4,121,880
----------------------------------------------------------------- ------------
Total 92,705,960
----------------------------------------------------------------- ------------
TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $128,112,540) 126,185,860
----------------------------------------------------------------- ------------
*REPURCHASE AGREEMENT--7.9%
- -------------------------------------------------------------------------------------
13,247,700 Cantor, Fitzgerald Securities Corp., 6.05%, dated 2/28/1995,
due 3/1/1995 (AT AMORTIZED COST) 13,247,700
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $169,461,816) $166,597,491+
----------------------------------------------------------------- ------------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $169,461,816. The
unrealized depreciation of investments on a federal tax basis amounts to
$2,864,325, which is comprised of $1,328,215 appreciation and $4,192,540
depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($168,313,485) at February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
DG GOVERNMENT INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in securities, at value (identified cost and tax cost,
$169,461,816) $166,597,491
- -------------------------------------------------------------------------------
Cash 51
- -------------------------------------------------------------------------------
Income receivable 2,140,047
- -------------------------------------------------------------------------------
Receivable for shares sold 20,511
- -------------------------------------------------------------------------------
Deferred expenses 18,042
- ------------------------------------------------------------------------------- ------------
Total assets 168,776,142
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable for shares redeemed $432,827
- --------------------------------------------------------------------
Accrued expenses 29,830
- -------------------------------------------------------------------- --------
Total liabilities 462,657
- ------------------------------------------------------------------------------- ------------
Net Assets for 17,772,717 shares outstanding $168,313,485
- ------------------------------------------------------------------------------- ------------
NET ASSETS CONSISTS OF:
- -------------------------------------------------------------------------------
Paid in capital $173,367,892
- -------------------------------------------------------------------------------
Net unrealized depreciation of investments (2,864,325)
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (2,363,158)
- -------------------------------------------------------------------------------
Undistributed net investment income 173,076
- ------------------------------------------------------------------------------- ------------
Total Net Assets $168,313,485
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($168,313,485 / 17,772,717 shares outstanding) $9.47
- ------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/98.00 of $9.47)* $9.66
- ------------------------------------------------------------------------------- ------------
</TABLE>
* See "What Shares Cost."
(See Notes which are an integral part of the Financial Statements)
DG GOVERNMENT INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $ 9,997,796
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $ 926,421
- --------------------------------------------------------------------
Administrative personnel and services fee 193,697
- --------------------------------------------------------------------
Custodian fees 12,394
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 27,816
- --------------------------------------------------------------------
Directors'/Trustees' fees 2,296
- --------------------------------------------------------------------
Auditing fees 12,515
- --------------------------------------------------------------------
Legal fees 2,622
- --------------------------------------------------------------------
Portfolio accounting fees 45,130
- --------------------------------------------------------------------
Share registration costs 37,753
- --------------------------------------------------------------------
Printing and postage 12,238
- --------------------------------------------------------------------
Insurance premiums 6,396
- --------------------------------------------------------------------
Miscellaneous 5,926
- -------------------------------------------------------------------- ----------
Total expenses 1,285,204
- --------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 231,605
- -------------------------------------------------------------------- ----------
Net expenses 1,053,599
- --------------------------------------------------------------------------------- -----------
Net investment income 8,944,197
- --------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized loss on investments (2,301,667)
- ---------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (2,720,070)
- --------------------------------------------------------------------------------- -----------
Net realized and unrealized loss on investments (5,021,737)
- --------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 3,922,460
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG GOVERNMENT INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------
FEBRUARY 28, FEBRUARY 28,
1995 1994
------------ ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------
Net investment income $ 8,944,197 $ 5,123,208
- ---------------------------------------------------------------
Net realized gain (loss) on investments ($181,520 net loss and
$924,978 net gain, respectively, as computed for federal tax
purposes) (2,301,667) 863,884
- ---------------------------------------------------------------
Net change in unrealized depreciation of investments (2,720,070) (2,189,669)
- --------------------------------------------------------------- ----------- -----------
Change in net assets resulting from operations 3,922,460 3,797,423
- --------------------------------------------------------------- ----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------
Distributions from net investment income (8,775,580) (5,120,294)
- ---------------------------------------------------------------
Distributions from net realized gains -- (2,324,618)
- ---------------------------------------------------------------
Distributions in excess of net realized gains -- (61,491)
- --------------------------------------------------------------- ----------- -----------
Change in net assets resulting from distributions to
shareholders (8,775,580) (7,506,403)
- --------------------------------------------------------------- ----------- -----------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------
Proceeds from sale of shares 101,532,823 78,872,953
- ---------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 3,719,989 3,614,024
- ---------------------------------------------------------------
Cost of shares redeemed (50,781,330) (71,518,109)
- --------------------------------------------------------------- ----------- -----------
Change in net assets resulting from share transactions 54,471,482 10,968,868
- --------------------------------------------------------------- ----------- -----------
Change in net assets 49,618,362 7,259,888
- ---------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------
Beginning of period 118,695,123 111,435,235
- --------------------------------------------------------------- ----------- -----------
End of period (including undistributed net investment income of
$173,076 and $4,459, respectively) $168,313,485 $118,695,123
- --------------------------------------------------------------- ----------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG GOVERNMENT INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
DG Investor Series (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of six diversified portfolios. The financial statements
included herein present only those of DG Government Income Fund (the "Fund").
The financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--U.S. government securities are generally valued at the
mean between the over-the-counter bid and asked prices as furnished by an
independent pricing service. Listed corporate bonds (and other fixed-income
and asset-backed securities), unlisted securities (and other fixed-income and
asset-backed securities and/or private placements), and short-term securities
are valued at the prices provided by an independent pricing service.
Short-term securities with remaining maturities of sixty days or less at the
time of purchase may be valued at amortized cost, which approximates fair
market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to be
paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed by
the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
DG GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary. At February 28, 1995, the Fund, for
federal tax purposes, had a capital loss carryforward of $181,520, which will
reduce the Fund's taxable income arising from future net realized gain on
investments, if any, to the extent permitted by the Code, and thus will reduce
the amount of the distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal tax. Pursuant to
the Code, such capital loss carryforward will expire as indicated below.
Additionally, net capital losses of $2,181,240 attributable to security
transactions incurred after October 31, 1994 are treated as arising on March
1, 1995, the first day of the Fund's next taxable year.
Expiration Year Expiration Amount
--------------- -----------------
2003 $181,520
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering the shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years from the Fund's
commencement date.
OTHER--Investment transactions are accounted for on the trade date.
DG GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
FEBRUARY 28, FEBRUARY 28,
1995 1994
------------ ------------
<S> <C> <C>
- ------------------------------------------------------------
Shares sold 10,805,072 7,738,340
- ------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 397,343 355,836
- ------------------------------------------------------------
Shares redeemed (5,423,669) (6,968,280)
- ------------------------------------------------------------ ------------ ------------
Net change resulting from share transactions 5,778,746 1,125,896
- ------------------------------------------------------------ ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment
adviser (the "Adviser"), receives for its services an annual investment advisory
fee equal to .60 of 1% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee. The Adviser can modify or
terminate this voluntarily waiver at any time at its sole discretion. Under the
terms of a sub-advisory agreement between the Adviser and the Trust Division of
Commercial National Bank, Commercial National Bank receives an annual fee from
the Adviser equal to .25 of 1% of the Fund's average daily net assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($21,681) were initially borne
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following July 20, 1992 (the date the Fund became
effective). For the year ended February 28, 1995, the Fund paid $3,530 pursuant
to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
DG GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $91,962,430
- ------------------------------------------------------------------------------- -----------
SALES $43,239,680
- ------------------------------------------------------------------------------- -----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
DG INVESTOR SERIES:
We have audited the statement of assets and liabilities, including the portfolio
of investments of the DG Government Income Fund (a portfolio within DG Investor
Series) as of February 28, 1995, and the related statement of operations for the
period then ended, the statements of changes in net assets for the years ended
February 28, 1995 and 1994, and the financial highlights, which is presented on
page 2 of this prospectus, for the periods from August 3, 1992 (commencement of
operations) to February 28, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to gain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the DG
Government Income Fund at February 28, 1995, and the results of its operations
for the year then ended, and the changes in its net assets and the financial
highlights for each of the periods listed above, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
April 7, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Government Federated Investors Tower
Income Fund 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 Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick LLP One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
DG
GOVERNMENT
INCOME FUND
- --------------------------------------------------------------------------
PROSPECTUS
A Diversified Portfolio of
DG Investor Series,
an Open-End Management
Investment Company
Deposit Guaranty
National Bank
Jackson, MS
Investment Adviser
Commercial
National Bank
Shreveport, LA
Sub-Adviser
APRIL 30, 1995
- --------------------------------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
2061002A (4/95)
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.
DG MUNICIPAL INCOME FUND
(A PORTFOLIO OF DG INVESTOR SERIES)
PROSPECTUS
The shares of DG Municipal Income 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 dividend income that is
exempt from federal regular income tax. The Fund pursues its investment
objective by investing in municipal securities.
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 April 30,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling 1-800-530-7377.
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 April 30, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Characteristics 4
Participation Interests 4
Variable Rate Municipal Securities 4
Municipal Leases 4
When-Issued and Delayed
Delivery Transactions 5
Lending of Portfolio Securities 5
Temporary Investments 5
Other Investment Techniques 5
Municipal Securities 5
Investment Risks 6
Investment Limitations 6
DG INVESTOR SERIES INFORMATION 7
- ------------------------------------------------------
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Sub-Adviser 8
Sub-Advisory Fees 8
Sub-Adviser's Background 8
Distribution of Fund Shares 8
Distribution Plan 8
Shareholder Servicing Arrangements 9
ADMINISTRATION OF THE FUND 9
- ------------------------------------------------------
Administrative Services 9
Custodian 10
Transfer Agent, Dividend
Disbursing Agent, and
Shareholder Servicing Agent 10
Independent Auditors 10
Brokerage Transactions 10
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN THE FUND 10
- ------------------------------------------------------
Share Purchases 10
Through the Banks 10
Minimum Investment Required 11
What Shares Cost 11
Purchases at Net Asset Value 11
Sales Charge Reallowance 11
Reducing the Sales Charge 12
Quantity Discounts and
Accumulated Purchases 12
Letter of Intent 12
Reinvestment Privilege 12
Purchases with Proceeds from Redemptions
of Unaffiliated Investment Companies 13
Concurrent Purchases 13
Systematic Investment Program 13
Certificates and Confirmations 13
Dividends and Distributions 13
EXCHANGE PRIVILEGE 13
- ------------------------------------------------------
DG Investor Series 13
Exchanging Shares 14
REDEEMING SHARES 14
- ------------------------------------------------------
Through the Banks 14
By Telephone 14
By Mail 15
Signatures 15
Systematic Withdrawal Program 15
Accounts With Low Balances 16
SHAREHOLDER INFORMATION 16
- ------------------------------------------------------
Voting Rights 16
Massachusetts Partnership Law 16
EFFECT OF BANKING LAWS 17
- ------------------------------------------------------
TAX INFORMATION 17
- ------------------------------------------------------
Federal Income Tax 17
Other State and Local Taxes 18
PERFORMANCE INFORMATION 18
- ------------------------------------------------------
FINANCIAL STATEMENTS 19
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <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 average net assets)
Management Fee (after waiver)(1).................................................... 0.25%
12b-1 Fees(2)....................................................................... 0.00%
Total Other Expenses................................................................ 0.48%
Total Fund Operating Expenses(3)................................................ 0.73%
</TABLE>
(1) The management fee has been reduced to reflect the voluntary waiver of the
investment advisory fee by the investment adviser. The adviser can terminate
this voluntary waiver at any time at its sole discretion. The maximum management
fee is 0.60%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund will not accrue or pay 12b-1 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 to the distributor.
(3) The Annual Fund Operating Expenses were 0.75% for the fiscal year ended
February 28, 1995. The Annual Fund Operating Expenses in the above table reflect
a reduction in the voluntary waiver of the investment advisory fee for the
fiscal year ending February 29, 1996. The Total Fund Operating Expenses are
anticipated to be 1.08% absent the voluntary waiver of the investment advisory
fee.
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 5 years 10 years
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return, (2) redemption at the end of
each time period, and (3) payment of the maximum sales
load..................................................... $ 27 $ 43 $ 60 $ 109
</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
29, 1996.
DG MUNICIPAL INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors,
on page 31.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------
1995 1994 1993(A)
------ ------ -------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.57 $10.51 $10.00
- --------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------------
Net investment income 0.49 0.48 0.07
- --------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.43) 0.08 0.49
- -------------------------------------------------------------------------- ------ ------ -----
Total from investment operations 0.06 0.56 0.56
- --------------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------------
Distributions from net investment income (0.48) (0.49) (0.05)
- --------------------------------------------------------------------------
Distributions from net realized gain on investment transactions -- (0.01) --
- -------------------------------------------------------------------------- ------ ------ -----
Total distributions (0.48) (0.50) (0.05)
- -------------------------------------------------------------------------- ------ ------ -----
NET ASSET VALUE, END OF PERIOD $10.15 $10.57 $10.51
- -------------------------------------------------------------------------- ------ ------ -----
TOTAL RETURN(B) 0.81% 5.34% 5.65%
- --------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------------
Expenses 0.75% 0.74% 0.48%(c)
- --------------------------------------------------------------------------
Net investment income 4.93% 4.60% 4.11%(c)
- --------------------------------------------------------------------------
Expense waiver/reimbursement(d) 0.41% 0.67% 1.02%(c)
- --------------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------
Net assets end of period, (000 omitted) $41,542 $34,435 $15,644
- --------------------------------------------------------------------------
Portfolio turnover 9% 9% 93%
- --------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from December 21, 1992 (date of initial
public investment) to February 28, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended February 28, 1995, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
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 government 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 dividend income that is
exempt from federal regular income tax. Interest income of the Fund that is
exempt from federal regular income tax retains its tax-free status when
distributed to the Fund's shareholders. This investment objective cannot be
changed without the approval of the Fund's 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 in municipal securities.
As a matter of investment policy, which may not be changed without shareholder
approval, under normal circumstances, the Fund will be invested so that at least
80% of the income from investments will be exempt from federal regular income
tax or that at least 80% of its net assets are invested in obligations, the
interest from which is exempt from federal regular income tax.
Unless indicated otherwise, the investment policies of the Fund may be changed
by the Board of Trustees ("Trustees") without the approval of shareholders.
Shareholders will be notified before any material change in these policies
becomes effective.
ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are:
- debt obligations and municipal leases issued by or on behalf of any
state, territory, or possession of the United States, including the
District of Columbia, or any political subdivision of any of them; and
- participation interests, as described below, in any of the above
obligations,
the interest from which is, in the opinion of bond counsel for the issuers or in
the opinion of officers of the Fund and/or the investment adviser to the Fund,
exempt from federal regular income tax.
CHARACTERISTICS. The municipal securities in which the Fund invests are:
- rated "investment grade," i.e., Baa or better by Moody's Investors
Service, Inc. ("Moody's"), or BBB or better by Standard & Poor's Ratings
Group ("S&P") or Fitch Investors Service, Inc. ("Fitch");
- guaranteed at the time of purchase by the U.S. government, its agencies
or instrumentalities, as to the payment of principal and interest;
- fully collateralized by an escrow of U.S. government or other securities
acceptable to the Fund's investment adviser;
- rated at the time of purchase within Moody's highest short-term municipal
obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial
paper rating (P-1) or S&P's highest short-term municipal commercial paper
rating (SP-1) or Fitch's highest tax-exempt municipal obligation rating
(FIN-1);
- unrated if, at the time of purchase, longer term municipal securities of
the issuer are rated Baa or better by Moody's or BBB or better by S&P or
Fitch (however, investments in unrated securities will not exceed 20% of
the Fund's total assets); or
- determined by the Fund's investment adviser to be equivalent to municipal
securities which are rated Baa or better by Moody's or BBB or better by
S&P or Fitch.
It should be noted that securities rated BBB by S&P or Baa by Moody's are
considered to 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. A description of the
rating categories is contained in the Appendix to the Statement of Additional
Information. The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
PARTICIPATION INTERESTS. The Fund may purchase participation interests
from financial institutions such as commercial banks, savings and loan
associations, and insurance companies. These participation interests give
the Fund an undivided interest in municipal securities. The financial
institutions from which the Fund purchases participation interests
frequently provide or secure irrevocable letters of credit or guarantees to
assure that the participation interests are of high quality. The Trustees
will determine that participation interests meet the prescribed quality
standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. The Fund may purchase municipal
securities that have variable interest rates. Variable interest rates are
ordinarily stated as a percentage of a published interest rate, interest
rate index, or some similar standard, such as the 91-day U.S. Treasury bill
rate.
Many variable rate municipal securities are subject to payment of principal
on demand by the Fund, usually in not more than seven days. All variable
rate municipal securities will meet the quality standards for the Fund.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and may be considered to be illiquid. They may take the form
of a lease, an installment purchase contract, or a conditional sales
contract.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase 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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. Settlement dates
may be a month or more after entering these transactions, and the market values
of the securities purchased may vary from the purchase prices. Accordingly, the
Fund may pay more or less than the market value of the securities on the
settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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 portfolio
securities loaned at all times.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
TEMPORARY INVESTMENTS. From time to time, on a temporary basis, or when the
investment adviser determines that market conditions call for a temporary
defensive posture, the Fund may invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: fixed or variable
rate notes issued by or on behalf of municipal or corporate issuers; obligations
issued or guaranteed by the U.S. government, its agencies or instrumentalities;
other debt securities; securities of other investment companies; commercial
paper; certificates of deposit, demand and time deposits, bankers' acceptances,
deposit notes, and other instruments of domestic and foreign banks and other
deposit institutions ("Bank Instruments"); and repurchase agreements
(arrangements in which the institution selling the Fund a bond or temporary
investment agrees at the time of sale to repurchase it at a mutually agreed upon
time and price). There are no rating requirements applicable to temporary
investments.
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal regular income tax.
OTHER INVESTMENT TECHNIQUES. The Fund may purchase a right to sell a security
held by it back to the issuer or to another party at an agreed upon price at any
time during a stated period or on a certain date. These rights may be referred
to as "liquidity puts" or "standby commitments."
MUNICIPAL SECURITIES
Municipal securities are generally issued to finance public works such as
airports, bridges, highways, housing, hospitals, mass transportation projects,
schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS
Yields on municipal securities depend on a variety of factors, including: the
general conditions of the money market and the taxable and municipal bond
markets; the size of the particular offering; the maturity of the obligations;
and the rating of the issue. The ability of the Fund to achieve its investment
objective also depends on the continuing ability of the issuers of municipal
securities and participation interests, or the guarantors of either, to meet
their obligations for the payment of interest and principal when due.
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
its total assets to secure such borrowings.
The above investment 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 total assets in securities subject to
restrictions on resale under the Securities Act of 1933, except for
commercial paper issued under Section 4(2) of the Securities Act of 1933
and certain other restricted securities which meet the criteria for
liquidity as established by the Trustees; or
- invest more than 15% of its net assets in illiquid securities, including
repurchase agreements providing for settlement more than seven days after
notice and certain restricted securities not determined by the Trustees
to be liquid.
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 .60 of 1% of the Fund's average daily net assets. The
investment advisory contract provides for the voluntary waiver of expenses
by the adviser from time to time. The adviser has undertaken to waive up to
the amount of the advisory fee for operating expenses in excess of
limitations established by certain states. The adviser may voluntarily
choose to waive a portion of its fees or reimburse the Fund for certain
other expenses, but reserves the right to terminate such waiver or
reimbursement at any time at its sole discretion.
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. Deposit
Guaranty National Bank has served as the Trust's investment adviser since
May 5, 1992.
As of December 31, 1994, the Trust Division of Deposit Guaranty National
Bank had approximately $9.1 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.
As part of their regular banking operations, Deposit Guaranty National Bank
and Commercial National Bank, the Fund's sub-adviser, may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Deposit Guaranty National Bank and Commercial National Bank. The lending
relationships will not be a factor in the selection of securities.
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 Memphis Society of Financial Analysts. Mr.
Womack has managed the DG Municipal Income Fund since December 21, 1992
(the inception of the Fund).
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 Adviser. The portfolio managers
from the Trust Divisions of Deposit Guaranty National Bank and Commercial
National Bank will form an investment committee (the "Deposit Guaranty 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.
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, 1994, the Trust Division at Commercial National Bank had
approximately $1.2 billion in trust assets under administration, of which
it had investment discretion over $856 million. 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, to the Fund
since December 12, 1992, and DG Opportunity Fund since May 25, 1994, each a
portfolio of the Trust.
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 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 form 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:
<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
reimburse a portion of its fee at any time.
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.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, 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.
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. (Eastern time) on the next business
day in order to earn dividends for that day. Payment is considered
received after payment by check is converted into federal funds and received by
the Banks, normally the next business day. When payment is made with federal
funds, the payment is considered received when federal funds are received by the
Banks or available in the customer's account.
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 AMOUNT INVESTED
---------------------------------------- ----------------------- --------------------------
<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) on the
following federal holidays: New Year's Day, Martin Luther King Day, Presidents'
Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day. In addition, the net asset value will not be
calculated on Good Friday.
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; non-trust
customers of financial advisers; Trustees and employees of the Fund, the Banks
or Federated Securities Corp. or their affiliates and their spouses and children
under 21; current and retired directors of the Banks; 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 100% 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. The distributor will,
periodically, uniformly offer to pay cash or promotional incentives in the form
of trips to sales seminars at luxury resorts, tickets or other items to all
dealers selling shares of the Fund. Such payments will be predicated upon the
amount of shares of the Fund that are sold by the dealer.
The sales charge for shares sold other than through the Banks or registered
broker/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 purchases still invested in the Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 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. The current balance in
the shareholder's account will provide a purchase credit towards fulfillment of
the letter of intent.
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.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which was
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. The purchase must be made within 60 days of the redemption, and
Federated Securities Corp. must be notified by the investor in writing, or by
his financial institution, at the time the purchase is made.
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. Monthly confirmations are sent to report dividends paid during the
month.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly. 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 net asset value without a sales charge, unless cash
payments are requested by writing to the Fund or the Banks as appropriate.
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. Prior to any exchange, the shareholder must receive
a copy of the current prospectus of the fund into which an exchange is to be
effected.
Shares may be exchanged at net asset value, plus the difference between the
Fund's sales charge (if any) already paid and any sales charge of the fund into
which shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus an exchange
of such shares for shares of a fund with an equal sales charge would be at net
asset value.
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 instruction 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.
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.
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.
If reasonable procedures are not followed by the Fund, it may be liable for
losses due to unauthorized or fraudulent telephone instructions.
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. As of April 17, 1995, Deposit
Guaranty National Bank, Jackson, Mississippi, acting in various capacities for
numerous accounts, was the owner of record of approximately 3,648,424 shares
(90.0%), and therefore, may, for certain purposes, be deemed to control the Fund
and be able to affect the outcome of certain matters presented for a vote of
shareholders.
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, 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 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 Subchapter M 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 funds will not be combined for tax purposes with those realized by
the Fund.
Shareholders are not required to pay the federal regular income tax on any
dividends received from the Fund that represent net interest on tax-exempt
municipal securities. However, under the Tax Reform Act of 1986, dividends
representing net interest earned on certain "private activity" bonds issued
after August 7, 1986, may be included in calculating the federal individual
alternative minimum tax or the federal alternative minimum tax for corporations.
The Fund may purchase all types of municipal bonds, including private activity
bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Shareholders should consult with their tax adviser to determine whether they are
subject to the alternative minimum tax or the corporate alternative minimum tax
and, if so, the tax treatment of dividends paid by the Fund.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
Distributions representing net long-term capital gains realized by the Fund, if
any, will be taxable as long-term capital gains regardless of the length of time
shareholders have held their shares.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
OTHER STATE AND LOCAL TAXES
Distributions representing net interest received on tax-exempt municipal
securities are not necessarily free from income taxes of any state or local
taxing authority. State laws differ on this issue and shareholders are urged to
consult their own tax adviser regarding the status of their accounts under state
and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its total return, yield, and
tax-equivalent 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 tax-equivalent yield of the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund would have had
to earn to equal its actual yield, assuming a specific tax rate. The yield and
the tax-equivalent yield do 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 reduced or excluded, would increase the total return, yield, and
tax-equivalent yield.
From time to time, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
DG MUNICIPAL INCOME FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- -------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--97.0%
- ----------------------------------------------------------------------
ALABAMA--3.6%
--------------------------------------------------------
$ 500,000 Huntsville, AL, 6.00% GO Bonds, 11/1/2012
(Callable 11/1/2002 @ 102) AA $ 503,960
--------------------------------------------------------
1,000,000 Jefferson County, AL, 6.00% Sewer Revenue Bonds
(Original Issue Discount: 6.30%), 9/1/2013 (Callable
9/1/2002 @ 102) A1 990,080
-------------------------------------------------------- -----------
Total 1,494,040
-------------------------------------------------------- -----------
ARIZONA--2.2%
--------------------------------------------------------
1,000,000 Phoenix, AZ, 4.90% GO Bonds (Series C), 7/1/2008 AA+ 925,880
-------------------------------------------------------- -----------
CALIFORNIA--2.4%
--------------------------------------------------------
1,000,000 State of California, 5.75% GO UT Bonds, 5/1/2007
(Callable 5/1/2005 @ 102) A1 999,900
-------------------------------------------------------- -----------
CONNECTICUT--2.5%
--------------------------------------------------------
1,000,000 State of Connecticut, 5.80% GO UT Bonds (Series C),
8/15/2008 (Callable 8/15/2004 @ 101) Aa 1,017,570
-------------------------------------------------------- -----------
FLORIDA--7.0%
--------------------------------------------------------
1,000,000 Broward County, FL, School District, 5.60% UT Bonds,
2/15/2007 (Callable 2/15/2003 @ 102) AA 1,003,000
--------------------------------------------------------
1,000,000 Jacksonville, FL, Electric Authority, 5.50% Refunding
Revenue Bonds, 10/1/2013 Aa1 954,050
--------------------------------------------------------
1,000,000 St. Petersburg, FL, Public Utilities, 5.50% Revenue
Bonds, 10/1/2009 Aa 969,710
-------------------------------------------------------- -----------
Total 2,926,760
-------------------------------------------------------- -----------
HAWAII--1.2%
--------------------------------------------------------
500,000 State of Hawaii, 5.75% GO Bonds, 1/1/2008 AA 507,215
-------------------------------------------------------- -----------
ILLINOIS--5.9%
--------------------------------------------------------
500,000 Metropolitan Fair and Expo Authority, 6.00% Revenue
Bonds (MBIA Insured), 6/1/2014 AAA 490,440
--------------------------------------------------------
500,000 Du Page County, IL, 5.40% GO Bonds, 1/1/2007 AAA 490,115
--------------------------------------------------------
</TABLE>
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- -------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
ILLINOIS--CONTINUED
--------------------------------------------------------
$ 1,000,000 State of Illinois, 5.60% GO UT Bonds, 4/1/2008 (Callable
4/1/2004 @ 102) Aa $ 972,840
--------------------------------------------------------
500,000 State of Illinois, 5.875% GO Bonds, 6/1/2011
(Callable 6/1/2002 @ 102) Aa 490,970
-------------------------------------------------------- -----------
Total 2,444,365
-------------------------------------------------------- -----------
INDIANA--1.3%
--------------------------------------------------------
500,000 Indianapolis, IN, 6.00% Local Public Improvement
GO Bonds, 7/1/2010 (Callable 7/1/2003 @ 102) Aa 511,550
-------------------------------------------------------- -----------
KENTUCKY--2.2%
--------------------------------------------------------
1,000,000 State of Kentucky, Property & Building Commission,
5.00% Revenue Refunding Bonds (Project No. 55), 9/1/2009 A 896,850
-------------------------------------------------------- -----------
LOUISIANA--1.2%
--------------------------------------------------------
500,000 Louisiana Public Facilities Authority, 6.05% Hospital
Revenue Refunding Bonds (MBIA Insured), 12/1/2008 AAA 511,880
-------------------------------------------------------- -----------
MARYLAND--2.4%
--------------------------------------------------------
1,000,000 State of Maryland, 5.50% GO UT Bonds (Series BB),
6/1/2009 (Callable 6/1/2004 @ 102) AAA 989,200
-------------------------------------------------------- -----------
MASSACHUSETTS--1.1%
--------------------------------------------------------
450,000 State of Massachusetts, 6.00% GO Bonds (Consolidated
Loan Series A)/(Capital Guaranty Insured), 6/1/2011 AAA 454,149
-------------------------------------------------------- -----------
MISSISSIPPI--19.4%
--------------------------------------------------------
300,000 Hinds County, MS, 5.40% Hospital Revenue Bonds
(Mississippi Methodist Hospital & Rehabilitation)/(AMBAC
Insured), 5/1/2006 AAA 295,596
--------------------------------------------------------
1,000,000 Hinds County, MS, 5.50% GO UT Refunding Bonds (MBIA
Insured), 3/1/2008 AAA 983,590
--------------------------------------------------------
400,000 Jackson County, MS, 5.60% GO Bonds (Series B), 5/1/2008 A 393,024
--------------------------------------------------------
400,000 Jackson County, MS, 5.70% GO Bonds (Series B), 5/1/2009 A 393,288
--------------------------------------------------------
</TABLE>
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- -------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
MISSISSIPPI--CONTINUED
--------------------------------------------------------
$ 1,125,000 Jackson, MS, 5.85% GO UT Bonds (MBIA Insured), 5/1/2006
(Callable 5/1/2002 @ Par) AAA $ 1,147,984
--------------------------------------------------------
500,000 Jackson, MS, Redevelopment Authority Urban Renewal,
5.75%, 7/1/2008 A 488,585
--------------------------------------------------------
700,000 Lamar County, MS, 4.85% Pollution Control Revenue Bonds,
12/1/2006 (Callable 12/1/2003 @ Par) Aa3 623,469
--------------------------------------------------------
1,000,000 Madison County, MS, 5.10% Refunding School
District GO Bonds (AMBAC Insured), 6/1/2008 AAA 942,830
--------------------------------------------------------
1,000,000 Mississippi Hospital Equipment & Facilities Authority,
5.50% Revenue Refunding & Improvement Bonds (AMBAC
Insured), 5/15/2009 AAA 965,500
--------------------------------------------------------
900,000 Mississippi Hospital Equipment & Facilities, 5.55%
Revenue Bonds (Rankin Medical Center), 3/1/2014 A 791,406
--------------------------------------------------------
1,000,000 State of Mississippi, 5.90% Capital Improvement GO Bonds
(Original Issue Discount: 5.95%), 12/15/2008 AAA 1,046,260
-------------------------------------------------------- -----------
Total 8,071,532
-------------------------------------------------------- -----------
MISSOURI--1.2%
--------------------------------------------------------
500,000 State of Missouri Water Pollution Control, 5.25% GO
Bonds (Series B), 8/1/2008 (Callable 8/1/2008 @ Par) AAA 487,290
-------------------------------------------------------- -----------
MONTANA--2.2%
--------------------------------------------------------
1,000,000 State of Montana, 4.875% GO Bonds (Series A), 8/1/2009 Aa 916,790
-------------------------------------------------------- -----------
NEVADA--3.4%
--------------------------------------------------------
500,000 Las Vegas Valley, NV, 5.75% Water District
(MBIA Insured), 9/1/2008 AAA 501,805
--------------------------------------------------------
1,000,000 State of Nevada, 4.90% Refunding Bonds,
(Project R-5)/(Series A), 11/1/2007 AA 926,700
-------------------------------------------------------- -----------
Total 1,428,505
-------------------------------------------------------- -----------
NEW JERSEY--1.2%
--------------------------------------------------------
500,000 State of New Jersey, 5.90% Refunding GO Bonds (Series
B), 2/15/2008 AA+ 512,470
-------------------------------------------------------- -----------
</TABLE>
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- -------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
NORTH CAROLINA--5.6%
--------------------------------------------------------
$ 1,000,000 North Carolina Eastern Municipal Power Agency, 5.50%
Revenue Refunding Bonds (Series C)/(Original Issue
Discount: 5.70%), 1/1/2007 A $ 916,640
--------------------------------------------------------
500,000 North Carolina Eastern Municipal Power Agency, 6.125%
Revenue Refunding Bonds (Series B)/(Original Issue
Discount: 6.30%), 1/1/2009 A 491,040
--------------------------------------------------------
1,000,000 North Carolina Municipal Power Agency, 5.75%
#1 Catawba Electric Revenue Bonds, 1/1/2015
(Callable 1/1/2015 @ Par) A 917,980
-------------------------------------------------------- -----------
Total 2,325,660
-------------------------------------------------------- -----------
NORTH DAKOTA--1.2%
--------------------------------------------------------
500,000 North Dakota Building Authority, 6.00% Revenue Bonds
(Series A)/(MBIA Insured), 6/1/2010 AAA 509,530
-------------------------------------------------------- -----------
OREGON--2.3%
--------------------------------------------------------
1,000,000 Portland, OR, 4.90% GO Bonds, 10/1/2007 AAA 939,880
-------------------------------------------------------- -----------
PENNSYLVANIA--1.1%
--------------------------------------------------------
450,000 State of Pennsylvania, 5.875% GO UT Bonds, 12/1/2006 AA 462,046
-------------------------------------------------------- -----------
RHODE ISLAND--1.2%
--------------------------------------------------------
500,000 Providence, RI, 5.90% GO Bonds, 1/15/2009
(Callable 1/15/2002 @ 101) AA+ 507,580
-------------------------------------------------------- -----------
TENNESSEE--4.7%
--------------------------------------------------------
1,000,000 Memphis, TN, 4.90% GO Bonds (Series A), 8/1/2006
(Callable 8/1/2002 @ 101) AA 947,930
--------------------------------------------------------
1,000,000 Metropolitan Government Nashville & Davidson County, TN,
5.70% GO Bonds (Original Issue Discount: 5.80%),
5/15/2007 (Callable 5/15/2002 @ 102) AA 1,013,490
-------------------------------------------------------- -----------
Total 1,961,420
-------------------------------------------------------- -----------
TEXAS--9.1%
--------------------------------------------------------
500,000 Corpus Christi, TX, 6.00% GO Bonds (Series 1993),
3/1/2010 (Callable 3/1/2003 @ Par) AAA 508,570
--------------------------------------------------------
</TABLE>
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL CREDIT
AMOUNT RATING* VALUE
- ----------- -------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
TEXAS--CONTINUED
--------------------------------------------------------
$ 500,000 El Paso, TX, 5.75% Refunding Bonds (Series A),
7/1/2007 (Callable 7/1/2002 @ Par) AAA $ 504,120
--------------------------------------------------------
500,000 Harris County, TX, 6.20% Flood Control Bonds
(Series B), 10/1/2011 (Callable 10/1/2002 @ Par) AA+ 531,325
--------------------------------------------------------
500,000 Houston, TX, 5.90% Water & Sewer Revenue Bonds,
12/1/2005 (Callable 2/1/2002 @ 102) AAA 517,950
--------------------------------------------------------
1,000,000 Houston, TX, School District, 5.50% Refunding Bonds,
8/15/2008 AAA 989,670
--------------------------------------------------------
205,000 San Antonio, TX, 6.00% Electric and Gas Revenue
Refunding Bonds (MBIA Insured), 2/1/2008 (Callable
2/1/2002 @ 101) AA 215,861
--------------------------------------------------------
500,000 State of Texas Public Finance Authority, 5.90% GO Bonds
(Original Issue Discount: 6.00%), 10/1/2011 (Callable
4/1/2005 @ Par) AA 502,610
-------------------------------------------------------- -----------
Total 3,770,106
-------------------------------------------------------- -----------
VIRGINIA--3.6%
--------------------------------------------------------
1,000,000 Fairfax County, VA, 5.50% Public Improvement, GO UT
Bonds (Series A), 6/1/2008 (Callable 6/1/2002 @ 102) AAA 998,040
--------------------------------------------------------
500,000 State of Virginia, Transportation Board, 6.00% Revenue
Bonds, 4/1/2010 (Callable 4/1/2002 @ 102) AA 507,660
-------------------------------------------------------- -----------
Total 1,505,700
-------------------------------------------------------- -----------
WASHINGTON--5.3%
--------------------------------------------------------
500,000 King County, WA, 6.00% GO Bonds (Series A),
12/1/2010 (Callable 12/1/2003 @ Par) AA+ 504,685
--------------------------------------------------------
500,000 Port of Seattle, WA, 6.25% GO Bonds (Series A),
11/1/2010 (Callable 11/1/2002 @ 102) Aa 517,550
--------------------------------------------------------
500,000 State of Washington, 6.25% GO Bonds, 9/1/2009
(Callable 9/1/2001 @ Par) AA 512,050
--------------------------------------------------------
650,000 Tacoma, WA, 6.25% Electric Revenue Bonds (AMBAC
Insured), 1/1/2011 (Callable 1/1/2002 @ 102) AAA 668,135
-------------------------------------------------------- -----------
Total 2,202,420
-------------------------------------------------------- -----------
</TABLE>
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT CREDIT
OR SHARES RATING* VALUE
- ----------- -------------------------------------------------------- -------- -----------
<C> <S> <C> <C>
MUNICIPAL SECURITIES--CONTINUED
- ----------------------------------------------------------------------
WISCONSIN--2.5%
--------------------------------------------------------
$ 500,000 Green Bay, WI, 6.00% GO Bonds, 4/1/2010 Aa $ 503,510
--------------------------------------------------------
500,000 State of Wisconsin, 6.30% GO Bonds
(Series A), 5/1/2012 (Callable 5/1/2002 @ Par) AA 533,465
-------------------------------------------------------- -----------
Total 1,036,975
-------------------------------------------------------- -----------
TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST,
$40,804,966) 40,317,263
-------------------------------------------------------- -----------
MUTUAL FUNDS--0.3%
- ----------------------------------------------------------------------
139,539 Lehman Municipal Money Market Fund
(AT NET ASSET VALUE) 139,539
-------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $40,944,505) $40,456,802+
-------------------------------------------------------- -----------
</TABLE>
+ The cost of investments for federal tax purposes amounts to $40,944,505. The
unrealized depreciation of investments on a federal tax basis amounts to
$487,703, which is comprised of $909,804 appreciation and $1,397,507
depreciation at February 28, 1995.
* Please refer to the Appendix of the Statement of Additional Information for an
explanation of the credit ratings. Current credit ratings are unaudited.
Note: The categories of investments are shown as a percentage of net assets
($41,542,143) at February 28, 1995.
The following abbreviations are used throughout this portfolio:
<TABLE>
<S> <C>
AMBAC -- American Municipal Bond Assurance Corporation
GO -- General Obligation
MBIA -- Municipal Bond Investors Insurance
UT -- Unlimited Tax
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG MUNICIPAL INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- --------------------------------------------------------------------------------
Investments in securities, at value (identified cost and tax cost, $40,944,505) $40,456,802
- --------------------------------------------------------------------------------
Income receivable 642,032
- --------------------------------------------------------------------------------
Receivable for investments sold 1,018,011
- --------------------------------------------------------------------------------
Receivable for shares sold 10,000
- --------------------------------------------------------------------------------
Deferred expenses 3,045
- -------------------------------------------------------------------------------- -----------
Total assets 42,129,890
- --------------------------------------------------------------------------------
LIABILITIES:
- --------------------------------------------------------------------------------
Payable for investments purchased $497,884
- ---------------------------------------------------------------------
Payable for shares redeemed 61,475
- ---------------------------------------------------------------------
Accrued expenses 18,075
- ---------------------------------------------------------------------
Payable to transfer agent 3,720
- ---------------------------------------------------------------------
Payable to portfolio accountant 6,593
- --------------------------------------------------------------------- --------
Total liabilities 587,747
- -------------------------------------------------------------------------------- -----------
Net Assets for 4,090,893 shares outstanding $41,542,143
- -------------------------------------------------------------------------------- -----------
NET ASSETS CONSISTS OF:
- --------------------------------------------------------------------------------
Paid in capital $41,992,509
- --------------------------------------------------------------------------------
Net unrealized depreciation of investments (487,703)
- --------------------------------------------------------------------------------
Accumulated net realized gain on investments 11,477
- --------------------------------------------------------------------------------
Undistributed net investment income 25,860
- -------------------------------------------------------------------------------- -----------
Total Net Assets $41,542,143
- -------------------------------------------------------------------------------- -----------
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE:
Net Asset Value Per Share ($41,542,143 / 4,090,893 shares outstanding) $10.15
- -------------------------------------------------------------------------------- -----------
Offering Price Per Share (100/98 of $10.15)* $10.36
- -------------------------------------------------------------------------------- -----------
</TABLE>
* See "What Shares Cost."
(See Notes which are an integral part of the Financial Statements)
DG MUNICIPAL INCOME FUND
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- --------------------------------------------------------------------------------
Interest $ 2,134,466
- --------------------------------------------------------------------------------
EXPENSES:
- --------------------------------------------------------------------------------
Investment advisory fee $225,528
- ---------------------------------------------------------------------
Administrative personnel and services fee 47,162
- ---------------------------------------------------------------------
Custodian fees 19,251
- ---------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 29,698
- ---------------------------------------------------------------------
Directors'/Trustees' fees 2,274
- ---------------------------------------------------------------------
Auditing fees 12,004
- ---------------------------------------------------------------------
Legal fees 2,257
- ---------------------------------------------------------------------
Portfolio accounting fees 53,864
- ---------------------------------------------------------------------
Share registration costs 21,273
- ---------------------------------------------------------------------
Printing and postage 10,770
- ---------------------------------------------------------------------
Insurance premiums 5,702
- ---------------------------------------------------------------------
Miscellaneous 5,409
- --------------------------------------------------------------------- --------
Total expenses 435,192
- ---------------------------------------------------------------------
Deduct--Waiver of investment advisory fee 154,111
- --------------------------------------------------------------------- --------
Net expenses 281,081
- -------------------------------------------------------------------------------- -----------
Net investment income 1,853,385
- -------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- --------------------------------------------------------------------------------
Net realized gain on investments 11,477
- --------------------------------------------------------------------------------
Net change in unrealized depreciation of investments (1,201,336)
- -------------------------------------------------------------------------------- -----------
Net realized and unrealized loss on investments (1,189,859)
- -------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $ 663,526
- -------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG MUNICIPAL INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
FEBRUARY 28, FEBRUARY 28,
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 1,853,385 $ 1,184,276
- --------------------------------------------------------------
Net realized gain on investments ($11,477 and $20,558,
respectively, as computed for federal tax purposes) 11,477 20,558
- --------------------------------------------------------------
Net change in unrealized appreciation (depreciation) of
investments (1,201,336) 52,310
- -------------------------------------------------------------- ------------- -------------
Change in net assets resulting from operations 663,526 1,257,144
- -------------------------------------------------------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income (1,838,300) (1,193,319)
- --------------------------------------------------------------
Distributions from net realized gains -- (20,558)
- -------------------------------------------------------------- ------------- -------------
Change in net assets resulting from distributions to
shareholders (1,838,300) (1,213,877)
- -------------------------------------------------------------- ------------- -------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 17,562,723 25,360,605
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 18,007 9,035
- --------------------------------------------------------------
Cost of shares redeemed (9,298,915) (6,622,204)
- -------------------------------------------------------------- ------------- -------------
Change in net assets resulting from share transactions 8,281,815 18,747,436
- -------------------------------------------------------------- ------------- -------------
Change in net assets 7,107,041 18,790,703
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 34,435,102 15,644,399
- -------------------------------------------------------------- ------------- -------------
End of period (including undistributed net investment income
of $25,860 and $10,775, respectively) $41,542,143 $34,435,102
- -------------------------------------------------------------- ------------- -------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG MUNICIPAL INCOME FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
DG Investors Series (the "Fund") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of six diversified portfolios. The financial statements
included herein present only those of DG Municipal Income Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing
service, taking into consideration yield, liquidity, risk, credit quality,
coupon, maturity, type of issue, and any other factors or market data the
pricing service deems relevant in determining valuations for normal
institutional size trading units of debt securities. The independent pricing
service does not rely exclusively on quoted prices. Short-term securities with
remaining maturities of sixty days or less at the time of purchase may be
valued at amortized cost, which approximates fair market value. Investments in
other open-end investment companies are valued at net asset value.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses
are accrued daily. Bond premium and discount, if applicable, are amortized as
required by the Internal Revenue Code, as amended (the "Code"). Distributions
to shareholders are recorded on the ex-dividend date.
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the securities
purchased. Securities purchased on a when-issued or delayed delivery basis are
marked to market daily and begin earning interest on the settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration
of its shares in its first fiscal year, excluding the initial expense of
registering the shares, have been deferred and are being amortized using the
straight-line method not to exceed a period of five years from the Fund's
commencement date.
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
-----------------------------
1995 1994
- --------------------------------------------------------------- ---------- ----------
<S> <C> <C>
Shares sold 1,764,990 2,391,912
- ---------------------------------------------------------------
Shares issued to shareholders in payment of distributions
declared 1,825 844
- ---------------------------------------------------------------
Shares redeemed (933,737) (623,977)
- --------------------------------------------------------------- ---------- ----------
Net change resulting from share transactions 833,078 1,768,779
- --------------------------------------------------------------- ---------- ----------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to .60 of 1% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
Under the terms of a sub-advisory agreement between the Adviser and the Trust
Division of Commercial National Bank, Commercial National Bank receives an
annual fee from the Adviser equal to .25 of 1% of the Fund's average daily net
assets.
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Fund for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company
("FServ") serves as transfer agent and dividend disbursing agent for the Fund.
The fee is based on the size, type, and number of accounts and transactions made
by shareholders.
FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($25,535) were initially borne
by FAS. The Fund has agreed to reimburse FAS for the organizational expenses
during the five year period following December 2, 1992 (the date the Fund became
effective). For the year ended February 28, 1995, the Fund paid $3,864 pursuant
to this agreement.
GENERAL--Certain of the Officers and Trustees of the Fund are Officers and
Directors or Trustees of the above companies.
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $12,020,016
- ------------------------------------------------------------------------------- -----------
SALES $ 3,315,383
- ------------------------------------------------------------------------------- -----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
DG INVESTOR SERIES:
We have audited the statement of assets and liabilities, including the portfolio
of investments of the DG Municipal Income Fund (a portfolio within DG Investor
Series) as of February 28, 1995, and the related statements of operations for
the year then ended, the statement of changes in net assets for the years ended
February 28, 1995 and 1994, and the financial highlights, which is presented on
page 2 of this prospectus, for the periods from December 21, 1992 (commencement
of operations) to February 28, 1995. These financial statements and financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to gain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the DG
Municipal Income Fund at February 28, 1995, and the results of its operations
for the year then ended, and the changes in its net assets and the financial
highlights for each of the periods listed above in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
April 7, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Municipal Income 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 Trust Company P.O. Box 1713
Boston, Massachusetts 02105
- ------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Shareholder Servicing Agent
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick LLP One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
DG
MUNICIPAL
INCOME FUND
- --------------------------------------------------------------------------------
PROSPECTUS
A Diversified Portfolio of
DG Investor Series,
an Open-End Management
Investment Company
Deposit Guaranty
National Bank
Jackson, MS
Investment Adviser
Commercial
National Bank
Shreveport, LA
Sub-Adviser
APRIL 30, 1995
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FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
2112511A (4/95)
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.
DG EQUITY FUND
(A PORTFOLIO OF DG INVESTOR SERIES)
PROSPECTUS
The shares of DG Equity 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 primary investment objective of the Fund is to provide long-term capital
appreciation. Current income is a secondary objective. The Fund pursues its
investment objectives by investing primarily in a professionally managed,
diversified portfolio of equity securities.
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 April 30,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference in this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling 1-800-530-7377.
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 April 30, 1995
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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FINANCIAL HIGHLIGHTS 2
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GENERAL INFORMATION 3
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INVESTMENT INFORMATION 3
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Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Repurchase Agreements 4
Securities of Foreign Issuers 4
Put and Call Options 4
Futures Contracts and Options on
Futures 5
Risks 5
When-Issued and Delayed Delivery
Transactions 5
Lending of Portfolio Securities 5
Temporary Investments 6
Investment Limitations 6
DG INVESTOR SERIES INFORMATION 6
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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 8
Distribution of Fund Shares 8
Distribution Plan 8
Shareholder Servicing Arrangements 9
ADMINISTRATION OF THE FUND 9
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Administrative Services 9
Custodian 9
Transfer Agent, Dividend
Disbursing Agent, and
Shareholder Servicing Agent 9
Independent Auditors 9
Brokerage Transactions 10
NET ASSET VALUE 10
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INVESTING IN THE FUND 10
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Share Purchases 10
Through the Banks 10
Minimum Investment Required 10
What Shares Cost 11
Purchases at Net Asset Value 11
Sales Charge Reallowance 11
Reducing the Sales Charge 11
Quantity Discounts and Accumulated
Purchases 12
Letter of Intent 12
Reinvestment Privilege 12
Purchases with Proceeds from
Redemptions of Unaffiliated
Investment Companies 12
Concurrent Purchases 13
Systematic Investment Program 13
Certificates and Confirmations 13
Dividends and Distributions 13
EXCHANGE PRIVILEGE 13
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DG Investor Series 13
Exchanging Shares 13
REDEEMING SHARES 14
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Through the Banks 14
By Telephone 14
By Mail 14
Signatures 15
Systematic Withdrawal Program 15
Accounts With Low Balances 15
SHAREHOLDER INFORMATION 16
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Voting Rights 16
Massachusetts Partnership Law 16
EFFECT OF BANKING LAWS 16
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TAX INFORMATION 17
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Federal Income Tax 17
PERFORMANCE INFORMATION 17
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FINANCIAL STATEMENTS 19
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INDEPENDENT AUDITORS' REPORT 29
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ADDRESSES 30
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SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... 3.50%
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 average net assets)
Management Fee........................................................................ 0.75%
12b-1 Fees(1)......................................................................... 0.00%
Total Other Expenses.................................................................. 0.20%
Total Fund Operating Expenses.................................................... 0.95%
</TABLE>
(1) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund will not accrue or pay 12b-1 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 to the distributor.
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 5 years 10 years
------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000
investment, assuming (1) 5% annual return,
(2) redemption at the end of each time period,
and (3) payment of the maximum sales load......... $ 44 $64 $86 $148
</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.
DG EQUITY FUND
FINANCIAL HIGHLIGHTS
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(FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD)
Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors,
on page 29.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28,
------------------------------
1995 1994 1993(A)
------ ------ ------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.87 $10.54 $10.00
- ----------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- ----------------------------------------------------------
Net investment income 0.16 0.14 0.12
- ----------------------------------------------------------
Net realized and unrealized gain (loss) on investments 0.71 0.38 0.52
- ---------------------------------------------------------- ------ ------ ------
Total from investment operations 0.87 0.52 0.64
- ---------------------------------------------------------- ------ ------ ------
LESS DISTRIBUTIONS
- ----------------------------------------------------------
Distributions from net investment income (0.16) (0.14) (0.10)
- ----------------------------------------------------------
Distributions from net realized gain on investment
transactions (0.17) (0.05) --
- ---------------------------------------------------------- ------ ------ ------
Total distributions (0.33) (0.19) (0.10)
- ---------------------------------------------------------- ------ ------ ------
NET ASSET VALUE, END OF PERIOD $11.41 $10.87 $10.54
- ---------------------------------------------------------- ------ ------ ------
TOTAL RETURN(B) 8.23% 4.99% 6.40%
- ----------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- ----------------------------------------------------------
Expenses 0.95% 0.96% 0.51%(c)
- ----------------------------------------------------------
Net investment income 1.54% 1.38% 2.15%(c)
- ----------------------------------------------------------
Expense waiver/reimbursement(d) -- 0.01% 0.53%(c)
- ----------------------------------------------------------
SUPPLEMENTAL DATA
- ----------------------------------------------------------
Net assets, end of period (000 omitted) $259,998 $284,203 $181,239
- ----------------------------------------------------------
Portfolio turnover 1% 7% 28%
- ----------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from August 3, 1992 (date of initial
public investment) to
February 28, 1993.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended February 28, 1995, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
GENERAL INFORMATION
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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 OBJECTIVES
The primary investment objective of the Fund is to provide long-term capital
appreciation. Current income is a secondary objective. The investment objectives
cannot be changed without approval of shareholders. While there is no assurance
that the Fund will achieve its investment objectives, it endeavors to do so by
following the investment policies described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objectives by investing at least 70% of its
assets in equity securities. The equity securities in which the Fund may invest
include, but are not limited to, large capitalization stocks which, in the
opinion of the Fund's investment adviser, have potential to provide for capital
appreciation and current income. Issuers of large capitalization stocks have
equity market valuation in excess of $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. Consistent with the above, the Fund invests primarily
in:
- 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;
- investments in American Depositary Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market;
- convertible bonds rated at least BBB by Standard & Poor's Ratings Group
("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. 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. The prices of fixed income
securities fluctuate inversely to the direction of interest rates.
- money market instruments;
- fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock it may acquire;
- zero coupon convertible securities; 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 ("BIF") or
the Savings Association Insurance Fund ("SAIF"), both of which are
administered by the Federal Deposit Insurance Corporation ("FDIC"),
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.
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. The Fund will
not buy call options or write put options without further notification to
shareholders.
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 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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. 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.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest
temporarily in cash and cash items during times of unusual market conditions and
to maintain liquidity. Cash items may include short-term 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 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 0.75 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 objectives 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, 1994, the Trust Division of Deposit Guaranty National
Bank had approximately $9.1 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.
As part of their regular banking operations, Deposit Guaranty National Bank
and Commercial National Bank, the Fund's sub-adviser, may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Deposit Guaranty National Bank or Commercial National Bank. The lending
relationships will not be a factor in the selection of securities.
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 (collectively, the "Banks") 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, 1994, the Trust Division at Commercial National Bank had
approximately $1.2 billion in trust assets under administration, for which
it had investment discretion over $856 million. Commercial National Bank
has served as sub-adviser to DG Government Income Fund, DG Limited Term
Government Income Fund and the Fund since July 20, 1992, DG Municipal
Income Fund since December 12, 1992, and DG Opportunity Fund since May 25,
1994 each a portfolio of the Trust.
Ronald E. Lindquist, Senior Vice President and Trust Investment Officer,
has served as manager of Commercial National Bank's Trust Investment
Department for more than ten years. Mr. Lindquist's primary area of
responsibility is the management of the Equity Fund. He received his B.S.
in Finance from Florida State University and a M.S.M. in Finance from
Florida International University. Mr. Lindquist has managed the DG Equity
Fund since August 1, 1992 (the inception of the 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 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
on assets in excess of $750
.075 of 1% 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
reimburse a portion of its fee at any time.
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.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, 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.
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. (Eastern time) 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 AMOUNT INVESTED
- ---------------------------------------------- ---------------------- -------------------
<S> <C> <C>
Less than $100,000............................ 3.50% 3.63%
$100,000 but less than $250,000............... 3.00% 3.09%
$250,000 but less than $500,000............... 2.50% 2.56%
$500,000 but less than $750,000............... 2.00% 2.04%
$750,000 but less than $1 million............. 1.50% 1.52%
$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; non-trust
customers of financial advisers; Trustees and employees of the Fund, the Banks
or Federated Securities Corp. or their affiliates and their spouses and children
under 21; current and retired directors of the Banks; 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 100% 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. The distributor will,
periodically, uniformly offer to pay cash or promotional incentives in the form
of trips to sales seminars at luxury resorts, tickets or other items, to all
dealers selling shares of the Fund. Such payments will be predicated upon the
amount of shares of the Fund that are sold by the dealer.
The sales charge for shares sold other than through the Banks or registered
broker/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 3.00%, not 3.50%.
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
3.50% of the total amount intended to be purchased in escrow (in shares) until
such purchase is completed.
The 3.50% 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. The current balance in
the shareholder's account will provide a purchase credit towards fulfillment of
the letter of intent.
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.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase Shares at net asset value, without sales charge, with
the proceeds from the redemption of shares of an investment company which was
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. The purchase must be made within 60 days of the redemption, and
Federated Securities Corp. must be notified by the investor in writing, or by
his financial institution, at the time the purchase is made.
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.
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. Prior to any exchange, the shareholder must receive
a copy of the current prospectus of the fund into which an exchange is to be
effected.
Shares may be exchanged at net asset value, plus the difference between the
Funds' sales charge (if any) already paid and any sales charge of the fund into
which shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares
retain the character of the exchanged shares for purposes of exercising further
exchange privileges; thus, an exchange of such shares for shares of a fund with
a sales charge would be at net asset value.
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 instruction 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 BIF,
which is administered by the 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 SAIF, 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.
As of April 17, 1995, Deposit Guaranty National Bank, Jackson, Mississippi,
acting in various capacities for numerous accounts, was the owner of record of
approximately 17,315,998 shares (68.6%), and therefore, may, for certain
purposes, be deemed to control the Fund and be able to affect the outcome of
certain matters presented for a vote of shareholders.
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, advertisements for the Fund may refer to ratings, ranking,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
DG EQUITY FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--90.4%
- -------------------------------------------------------------------------------------
BUSINESS EQUIPMENT AND SERVICES--10.0%
------------------------------------------------------------------
150,000 Automatic Data Processing, Inc. $ 9,225,000
------------------------------------------------------------------
150,000 Donnelley (R.R.) & Sons Co. 5,137,500
------------------------------------------------------------------
100,000 Dun & Bradstreet Corp. 5,162,500
------------------------------------------------------------------
180,000 Pitney Bowes, Inc. 6,390,000
------------------------------------------------------------------ ------------
Total 25,915,000
------------------------------------------------------------------ ------------
CAPITAL GOODS--7.6%
------------------------------------------------------------------
100,000 Dover Corp. 5,950,000
------------------------------------------------------------------
135,000 General Electric Co. 7,408,125
------------------------------------------------------------------
150,000 PPG Industries, Inc. 5,512,500
------------------------------------------------------------------
16,900 Tyco International, LTD 880,913
------------------------------------------------------------------ ------------
Total 19,751,538
------------------------------------------------------------------ ------------
CONSUMER DURABLES--1.0%
------------------------------------------------------------------
50,000 Whirlpool Corp. 2,718,750
------------------------------------------------------------------ ------------
CONSUMER NON-DURABLES--22.1%
------------------------------------------------------------------
100,000 Coca-Cola Co. 5,500,000
------------------------------------------------------------------
60,000 Eastman Kodak Co. 3,060,000
------------------------------------------------------------------
110,000 Heinz (H.J.) Co. 4,331,250
------------------------------------------------------------------
200,000 International Flavors & Fragrances 9,625,000
------------------------------------------------------------------
160,000 PepsiCo, Inc. 6,260,000
------------------------------------------------------------------
80,000 Philip Morris Cos., Inc. 4,860,000
------------------------------------------------------------------
120,000 Proctor & Gamble Co. 7,980,000
------------------------------------------------------------------
140,000 Quaker Oats Co. 4,567,500
------------------------------------------------------------------
180,000 Sara Lee Corp. 4,725,000
------------------------------------------------------------------
</TABLE>
DG EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
CONSUMER NON-DURABLES--CONTINUED
------------------------------------------------------------------
140,000 Sysco Corp. $ 3,972,500
------------------------------------------------------------------
60,000 Tambrands, Inc. 2,595,000
------------------------------------------------------------------ ------------
Total 57,476,250
------------------------------------------------------------------ ------------
CONSUMER SERVICES--4.8%
------------------------------------------------------------------
175,000 Disney (Walt) Co. 9,340,625
------------------------------------------------------------------
8,000 * Viacom, Inc.--Class A 370,000
------------------------------------------------------------------
60,615 * Viacom, Inc.--Class B 2,712,521
------------------------------------------------------------------
100,000 * Viacom, Inc.--Variable Common Rights 100,000
------------------------------------------------------------------ ------------
Total 12,523,146
------------------------------------------------------------------ ------------
ENERGY--4.5%
------------------------------------------------------------------
60,000 Amoco Corp. 3,555,000
------------------------------------------------------------------
43,000 Anadarko Petroleum Corp. 1,886,625
------------------------------------------------------------------
90,000 Chevron Corp. 4,275,000
------------------------------------------------------------------
35,400 Schlumberger, Ltd. 2,013,375
------------------------------------------------------------------ ------------
Total 11,730,000
------------------------------------------------------------------ ------------
HEALTHCARE--9.9%
------------------------------------------------------------------
100,000 Abbott Laboratories 3,550,000
------------------------------------------------------------------
120,000 Bristol-Myers Squibb Co. 7,440,000
------------------------------------------------------------------
50,000 Eli Lilly & Co. 3,350,000
------------------------------------------------------------------
70,000 Hillenbrand Industry, Inc. 1,968,750
------------------------------------------------------------------
58,800 Merck and Co., Inc. 2,491,650
------------------------------------------------------------------
85,000 Pfizer, Inc. 7,033,750
------------------------------------------------------------------ ------------
Total 25,834,150
------------------------------------------------------------------ ------------
</TABLE>
DG EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------ ------------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- -------------------------------------------------------------------------------------
RAW MATERIALS--3.9%
------------------------------------------------------------------
75,000 Great Lakes Chemical Corp. $ 4,509,375
------------------------------------------------------------------
90,000 Lubrizol Corp. 3,015,000
------------------------------------------------------------------
90,000 Morton International, Inc. 2,632,500
------------------------------------------------------------------ ------------
Total 10,156,875
------------------------------------------------------------------ ------------
RETAIL--9.5%
------------------------------------------------------------------
320,000 McDonald's Corp. 10,640,000
------------------------------------------------------------------
35,000 Melville Corp. 1,137,500
------------------------------------------------------------------
155,000 Walgreen Company 7,323,750
------------------------------------------------------------------
240,000 Wal-Mart Stores, Inc. 5,700,000
------------------------------------------------------------------ ------------
Total 24,801,250
------------------------------------------------------------------ ------------
TECHNOLOGY--12.9%
------------------------------------------------------------------
30,000 AMP Inc. 2,250,000
------------------------------------------------------------------
85,000 Boeing Co. 3,920,625
------------------------------------------------------------------
170,000 * Compaq Computer Corp. 5,865,000
------------------------------------------------------------------
100,000 * Digital Equipment Corp. 3,350,000
------------------------------------------------------------------
100,000 Hewlett-Packard Co. 11,500,000
------------------------------------------------------------------
40,000 International Business Machines Corp. 3,010,000
------------------------------------------------------------------
50,000 Raytheon Co. 3,525,000
------------------------------------------------------------------ ------------
Total 33,420,625
------------------------------------------------------------------ ------------
</TABLE>
DG EQUITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ----------- ----------------------------------------------------------------- ------------
<C> <C> <S> <C>
COMMON STOCK--CONTINUED
- -------------------------------------------------------------------------------------
UTILITIES--4.2%
-----------------------------------------------------------------
100,000 American Telephone & Telegraph Co. $ 5,175,000
-----------------------------------------------------------------
35,000 BellSouth Corp. 2,065,000
-----------------------------------------------------------------
80,000 Central & Southwest Corp. 1,970,000
-----------------------------------------------------------------
40,000 Southwestern Bell Corp. 1,665,000
----------------------------------------------------------------- ------------
Total 10,875,000
----------------------------------------------------------------- ------------
TOTAL COMMON STOCKS (IDENTIFIED COST, $208,867,580) 235,202,584
----------------------------------------------------------------- ------------
**REPURCHASE AGREEMENT--8.2%
- -------------------------------------------------------------------------------------
$21,226,332 Cantor Fitzgerald Securities Corp., 6.05%, dated 2/28/1995, due
3/1/1995 (AT AMORTIZED COST) 21,226,332
----------------------------------------------------------------- ------------
TOTAL INVESTMENTS (IDENTIFIED COST, $230,093,912) $256,428,916+
----------------------------------------------------------------- ------------
</TABLE>
* Non-income producing security.
** The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $230,093,912. The
net unrealized appreciation of investments on a federal tax cost basis
amounts to $26,335,004, which is comprised of $36,467,450 appreciation and
$10,132,446 depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($259,997,924) at February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
DG EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- -------------------------------------------------------------------------------
Investments in securities, at value (identified and tax cost, $230,093,912) $256,428,916
- -------------------------------------------------------------------------------
Receivable for shares sold 1,788,688
- -------------------------------------------------------------------------------
Receivable for investments sold 1,139,460
- -------------------------------------------------------------------------------
Income receivable 638,237
- -------------------------------------------------------------------------------
Deferred expenses 30,830
- ------------------------------------------------------------------------------- ------------
Total assets 260,026,131
- -------------------------------------------------------------------------------
LIABILITIES:
- -------------------------------------------------------------------------------
Payable to portfolio accountant $ 5,707
- ---------------------------------------------------------------------
Payable for shares redeemed 5,021
- ---------------------------------------------------------------------
Payable to transfer and dividend disbursing agent 4,578
- ---------------------------------------------------------------------
Accrued expenses 12,901
- --------------------------------------------------------------------- -------
Total liabilities 28,207
- ------------------------------------------------------------------------------- ------------
Net Assets for 22,777,372 shares outstanding $259,997,924
- ------------------------------------------------------------------------------- ------------
NET ASSETS CONSIST OF:
- -------------------------------------------------------------------------------
Paid in capital $233,132,212
- -------------------------------------------------------------------------------
Net unrealized appreciation of investments 26,335,004
- -------------------------------------------------------------------------------
Accumulated net realized loss on investments (87,030)
- -------------------------------------------------------------------------------
Undistributed net investment income 617,738
- ------------------------------------------------------------------------------- ------------
Total Net Assets $259,997,924
- ------------------------------------------------------------------------------- ------------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($259,997,924 / 22,777,372 shares outstanding) $11.41
- ------------------------------------------------------------------------------- ------------
Offering Price Per Share (100/98.00 of $11.41)* $11.64
- ------------------------------------------------------------------------------- ------------
</TABLE>
* Effective May 1, 1995, the maximum sales load is 3.50%. See "What Shares
Cost."
(See Notes which are an integral part of the Financial Statements)
DG EQUITY FUND
STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
- ---------------------------------------------------------------------------------
Interest $ 670,040
- ---------------------------------------------------------------------------------
Dividends 5,673,263
- --------------------------------------------------------------------------------- -----------
Total income 6,343,303
- ---------------------------------------------------------------------------------
EXPENSES:
- ---------------------------------------------------------------------------------
Investment advisory fee $1,907,646
- --------------------------------------------------------------------
Administrative personnel and services fee 319,181
- --------------------------------------------------------------------
Custodian fees 29,500
- --------------------------------------------------------------------
Transfer and dividend disbursing agent fees and expenses 36,577
- --------------------------------------------------------------------
Directors'/Trustees' fees 4,732
- --------------------------------------------------------------------
Auditing fees 11,522
- --------------------------------------------------------------------
Legal fees 1,213
- --------------------------------------------------------------------
Portfolio accounting fees 65,281
- --------------------------------------------------------------------
Share registration costs 23,164
- --------------------------------------------------------------------
Printing and postage 9,808
- --------------------------------------------------------------------
Insurance premiums 8,826
- --------------------------------------------------------------------
Miscellaneous 5,394
- -------------------------------------------------------------------- ----------
Total expenses 2,422,844
- --------------------------------------------------------------------------------- -----------
Net investment income 3,920,459
- --------------------------------------------------------------------------------- -----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- ---------------------------------------------------------------------------------
Net realized gain on investments 2,434,655
- ---------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 11,661,159
- --------------------------------------------------------------------------------- -----------
Net realized and unrealized gain on investments 14,095,814
- --------------------------------------------------------------------------------- -----------
Change in net assets resulting from operations $18,016,273
- --------------------------------------------------------------------------------- -----------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
FEBRUARY 28, FEBRUARY 28,
1995 1994
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS:
- --------------------------------------------------------------
OPERATIONS--
- --------------------------------------------------------------
Net investment income $ 3,920,459 $ 3,524,794
- --------------------------------------------------------------
Net realized gain on investments ($2,523,351 and $2,837,598,
respectively, as computed for federal tax purposes) 2,434,655 3,099,223
- --------------------------------------------------------------
Net change in unrealized appreciation of investments 11,661,159 7,867,219
- -------------------------------------------------------------- ------------- ------------
Change in net assets resulting from operations 18,016,273 14,491,236
- -------------------------------------------------------------- ------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS--
- --------------------------------------------------------------
Distributions from net investment income (3,923,189) (3,253,053)
- --------------------------------------------------------------
Distributions from net realized gains (3,737,081) (1,382,777)
- -------------------------------------------------------------- ------------- ------------
Change in net assets resulting from distributions to
shareholders (7,660,270) (4,635,830)
- -------------------------------------------------------------- ------------- ------------
SHARE TRANSACTIONS--
- --------------------------------------------------------------
Proceeds from sale of shares 61,047,804 134,529,308
- --------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 4,839,980 3,351,297
- --------------------------------------------------------------
Cost of shares redeemed (100,448,383) (44,772,757)
- -------------------------------------------------------------- ------------- ------------
Change in net assets resulting from share transactions (34,560,599) 93,107,848
- -------------------------------------------------------------- ------------- ------------
Change in net assets (24,204,596) 102,963,254
- --------------------------------------------------------------
NET ASSETS:
- --------------------------------------------------------------
Beginning of period 284,202,520 181,239,266
- -------------------------------------------------------------- ------------- ------------
End of period (including undistributed net investment income
of $617,738 and $620,468, respectively) $ 259,997,924 $284,202,520
- -------------------------------------------------------------- ------------- ------------
</TABLE>
(See Notes which are an integral part of the Financial Statements)
DG EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
DG Investor Series (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of six diversified portfolios. The financial statements
included herein present only those of DG Equity Fund (the "Fund"). The financial
statements of the other portfolios are presented separately. The assets of each
portfolio are segregated and a shareholder's interest is limited to the
portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term securities are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining maturities
of sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income and expenses are accrued daily. Bond premium and discount, if
applicable, are amortized as required by the Internal Revenue Code, as
amended (the "Code").
DG EQUITY FUND
- --------------------------------------------------------------------------------
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year all of its income. Accordingly, no provisions for
federal tax are necessary. Additionally, net capital losses of $88,697
attributable to security transactions incurred after October 31, 1994 are
treated as arising on March 1, 1995, the first day of the Fund's next
taxable year.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------
FEBRUARY 28, FEBRUARY 28,
1995 1994
------------- -------------
<S> <C> <C>
Shares sold 5,663,505 12,800,127
- --------------------------------------------------------------
Shares issued to shareholders in payment of dividends declared 455,037 315,593
- --------------------------------------------------------------
Shares redeemed (9,475,512) (4,180,747)
- -------------------------------------------------------------- ------------ ------------
Net change resulting from Fund share transactions (3,356,970) 8,934,973
- -------------------------------------------------------------- ------------ ------------
</TABLE>
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's
investment adviser (the "Adviser"), receives for its services an annual
investment advisory fee equal to .75 of 1% of the Fund's average daily net
assets. Under the terms of a sub-advisory agreement between the Adviser and
the Trust Division of Commercial National Bank, Commercial National Bank
receives an annual fee from the Adviser equal to .25 of 1% of the Fund's
average daily net assets.
DG EQUITY FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the
Trust with certain administrative personnel and services. The FAS fee is
based on the level of average aggregate net assets of the Trust for the
period. FAS may voluntarily choose to waive a portion of its fee.
TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund.
This fee is based on the size, type, and number of accounts and transactions
made by shareholders.
FServ also maintains the Fund's accounting records for which it receives a
fee. The fee is based on the level of the Fund's average net assets for the
period, plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses ($23,061) were initially
borne by FAS. The Fund has agreed to reimburse FAS for the organizational
expenses during the five year period following July 20, 1992 (the date the
Fund became effective). For the year ended February 28, 1995, the Fund paid
$3,806, pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
year ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $ 1,417,175
- ------------------------------------------------------------------------------- -----------
SALES $42,767,879
- ------------------------------------------------------------------------------- -----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholders
DG INVESTOR SERIES:
We have audited the statement of assets and liabilities, including the portfolio
of investments, of the DG Equity Fund (a portfolio within DG Investor Series) as
of February 28, 1995, and the related statement of operations for the period
then ended, the statements of changes in net assets for the years ended February
28, 1995 and 1994, and the financial highlights, which is presented on page 2 of
this prospectus, for the periods from August 3, 1992 (commencement of
operations) to February 28, 1995. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to gain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are confirmed to us by the
custodian. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the DG
Equity Fund at February 28, 1995 and the results of its operations for the year
then ended, and the changes in its net assets and the financial highlights for
each of the periods listed above, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
April 7, 1995
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Equity 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 Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick LLP One Mellon Bank Center
Pittsburgh, Pennsylvania 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
DG
EQUITY FUND
- --------------------------------------------------------------------------------
PROSPECTUS
A Diversified Portfolio of
DG Investor Series,
an Open-End Management
Investment Company
Deposit Guaranty
National Bank
Jackson, MS
Investment Adviser
Commercial
National Bank
Shreveport, LA
Sub-Adviser
APRIL 30, 1995
- --------------------------------------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
2061001A (4/95)
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.
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 April 30,
1995, with the Securities and Exchange Commission. The information contained in
the Statement of Additional Information is incorporated by reference into this
prospectus. You may request a copy of the Statement of Additional Information
free of charge, obtain other information, or make inquiries about the Fund by
writing to the Fund or calling 1-800-530-7377.
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 April 30, 1995
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
Investment Objective 3
Investment Policies 3
Acceptable Investments 3
Convertible Securities 4
Repurchase Agreements 4
Investing in Securities of Other
Investment Companies 5
Securities of Foreign Issuers 5
Put and Call Options 5
Futures Contracts and Options on Futures 5
Risks 6
When-Issued and Delayed
Delivery Transactions 6
Lending of Portfolio Securities 6
Restricted and Illiquid Securities 7
Temporary Investments 7
Investment Risks 7
Portfolio Turnover 7
Investment Limitations 8
DG INVESTOR SERIES INFORMATION 8
- ------------------------------------------------------
Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 9
Sub-Adviser 9
Sub-Advisory Fees 9
Sub-Adviser's Background 10
Distribution of Fund Shares 10
Distribution Plan 10
Shareholder Servicing Arrangements 11
ADMINISTRATION OF THE FUND 11
- ------------------------------------------------------
Administrative Services 11
Shareholder Services Plan 11
Custodian 11
Transfer Agent, Dividend Disbursing
Agent, and Shareholder
Servicing Agent 12
Independent Auditors 12
Brokerage Transactions 12
NET ASSET VALUE 12
- ------------------------------------------------------
INVESTING IN THE FUND 12
- ------------------------------------------------------
Share Purchases 12
Through the Banks 12
Minimum Investment Required 13
What Shares Cost 13
Purchases at Net Asset Value 13
Sales Charge Reallowance 13
Reducing the Sales Charge 14
Quantity Discounts and Accumulated
Purchases 14
Letter of Intent 14
Reinvestment Privilege 14
Purchases with Proceeds from
Redemptions of Unaffiliated
Investment Companies 15
Concurrent Purchases 15
Systematic Investment Program 15
Certificates and Confirmations 15
Dividends and Distributions 15
EXCHANGE PRIVILEGE 15
- ------------------------------------------------------
DG Investor Series 15
EXCHANGING SHARES 16
- ------------------------------------------------------
REDEEMING SHARES 16
- ------------------------------------------------------
Through the Banks 16
By Telephone 16
By Mail 17
Signatures 17
Systematic Withdrawal Program 17
Accounts With Low Balances 18
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
Massachusetts Partnership Law 18
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
FINANCIAL STATEMENTS 21
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 31
- ------------------------------------------------------
ADDRESSES 32
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... 3.50%
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 average net assets)
Management Fee (after waiver)(1)................................................ 0.50%
12b-1 Fee(2).................................................................... 0.00%
Total Other Expenses............................................................ 0.71%
Shareholder Services Fee(2)................................................. 0.00%
Total Fund Operating Expenses(3)............................................ 1.21%
</TABLE>
(1) The management fee has been reduced to reflect the 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) The Total Fund Operating Expenses were 0.79% for the fiscal year ended
February 28, 1995. The Total Fund Operating Expenses in the table above reflect
a reduction in the voluntary waiver of the investment advisory fee and
administrative fee for the fiscal year ending February 29, 1996. The Total Fund
Operating Expenses for the fiscal year ending February 29, 1996, are anticipated
to be 1.66% absent the voluntary waiver of the investment advisory fee.
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 5 years 10 years
- ----------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment
assuming (1) 5% annual return, (2) redemption at the end
of each time period, and (3) payment of the maximum sales
load..................................................... $ 47 $72 $99 $176
</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
29, 1996.
DG OPPORTUNITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors,
on page 31.
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1995(A)
------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $10.00
- -----------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- -----------------------------------------------------------------------------
Net investment income 0.02
- -----------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.17
- ----------------------------------------------------------------------------- ---------
Total from investment operations 1.19
- -----------------------------------------------------------------------------
LESS DISTRIBUTIONS
- -----------------------------------------------------------------------------
Distributions from net investment income (0.02)
- -----------------------------------------------------------------------------
Distributions from net realized gain on investment transactions (0.02)
- ----------------------------------------------------------------------------- ---------
Total distributions (0.04)
- -----------------------------------------------------------------------------
NET ASSET VALUE, END OF PERIOD $11.15
- ----------------------------------------------------------------------------- ---------
TOTAL RETURN(B) 11.84%
- -----------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- -----------------------------------------------------------------------------
Expenses 0.79%(c)
- -----------------------------------------------------------------------------
Net investment income 0.06%(c)
- -----------------------------------------------------------------------------
Expense waiver/reimbursement(d) 1.34%(c)
- -----------------------------------------------------------------------------
SUPPLEMENTAL DATA
- -----------------------------------------------------------------------------
Net assets, end of period (000 omitted) $36,664
- -----------------------------------------------------------------------------
Portfolio turnover 45%
- -----------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from August 1, 1994 (date of initial
public investment) to February 28, 1995.
(b) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(c) Computed on an annualized basis.
(d) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
Further information about the Fund's performance is contained in the Fund's
annual report for the fiscal year ended February 28, 1995, which can be obtained
free of charge.
(See Notes which are an integral part of the Financial Statements)
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, but will not necessarily do so. The
Fund attempts to select companies whose potential for capital appreciation
exceeds that of larger capitalization stocks 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 valuation relative to the Standard & Poor's
500 and the stock market 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 Ratings Group
("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 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;
- 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;
- 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.
CONVERTIBLE SECURITIES. The Fund may invest up to 10% of its total assets in
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.
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. While it is the Fund's policy to waive its investment
advisory fees on assets invested in securities of other open-end investment
companies, 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 up to 20% of its total
assets 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 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. The seller's failure to complete these transactions may cause the
Fund to miss a price or yield considered to be advantageous. 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.
Accordingly, the Fund may pay more or less than the market value of the
securities on the settlement date.
The Fund may dispose of a commitment prior to settlement if the adviser deems it
appropriate to do so. In addition, the Fund may enter into transactions to sell
its purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Fund may realize short-term profits or losses upon the sale of such
commitments.
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.
There is the risk that when lending portfolio securities, the securities may not
be available to the Fund on a timely basis and the Fund may, therefore, lose the
opportunity to sell the securities at a desirable price. In addition, in the
event that a borrower of securities would file for bankruptcy or become
insolvent, disposition of the securities may be delayed pending court action.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will not invest more than 15% of its net assets in illiquid securities,
including certain restricted securities not determined by the Trustees to be
liquid, non-negotiable time deposits, over-the-counter options and repurchase
agreements providing for settlement in more than seven days after notice.
TEMPORARY INVESTMENTS. The Fund may also invest in cash and short-term
obligations during times of unusual market conditions for defensive purposes.
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 RISKS
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. Downgraded securities will be evaluated on a case by case
basis by the adviser. The adviser will determine whether or not the security
continues to be an acceptable investment. If not, the security may be sold. The
prices of fixed income securities fluctuate inversely to the direction of
interest rates.
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. A high portfolio turnover rate may lead
to increased costs and may also result in higher taxes paid by the Fund's
shareholders. During the period from October 1, 1994 (date of initial public
investment), through February 28, 1995, the Fund's portfolio turnover rate was
45%.
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 limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
- 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, 1994, the Trust Division of Deposit Guaranty National
Bank had approximately $9.1 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.
As part of their regular banking operations, Deposit Guaranty National Bank
and Commercial National Bank, the Fund's sub-adviser, may make loans to
public companies. Thus, it may be possible, from time to time, for the Fund
to hold or acquire the securities of issuers which are also lending clients
of Deposit Guaranty National Bank or Commercial National Bank. The lending
relationships will not be a factor in the selection of securities.
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 26, 1994 (the inception of the Fund). He also
manages the DG Municipal Income Fund. Mr. Womack is responsible for the day
to day management of the Fund's portfolio.
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, 1994, the Trust Division at Commercial National Bank had
approximately $1.2 billion in trust assets under administration, for which
it had investment discretion over $856 million. 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 and DG Equity Fund since May 25, 1994. All of these funds
are portfolios of the Trust.
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.
INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat
Marwick LLP, 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.
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................................. 3.50% 3.63%
$100,000 but less than $250,000.................... 3.00% 3.09%
$250,000 but less than $500,000.................... 2.50% 2.56%
$500,000 but less than $750,000.................... 2.00% 2.04%
$750,000 but less than $1 million.................. 1.50% 1.52%
$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; non-trust
customers of financial advisers; Trustees and employees of the Fund, the Banks
or Federated Securities Corp. or their affiliates and their spouses and children
under 21; current and retired directors of the Banks; 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 100% 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 3.00%, not 3.50%.
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
3.50% of the total amount intended to be purchased in escrow (in shares) until
such purchase is completed.
The 3.50% 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. The current balance in
the shareholder's account will provide a purchase credit towards fulfillment of
the letter of intent.
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.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which was
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. The purchase must be made within 60 days of the redemption, and
Federated Securities Corp. must be notified by the investor in writing, or by
his financial institution, at the time the purchase is made.
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.
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. Prior to any exchange, the shareholder must receive
a copy of the current prospectus of the fund into which an exchange is to be
effected. Shares may be exchanged at net asset value, plus the difference
between the Funds' sales charge (if any) already paid and any sales charge of
the fund into which shares are to be exchanged, if higher.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a fund with a sales charge would be at net asset
value.
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.
As of April 17, 1995, Deposit Guaranty National Bank, acting in various
capacities for numerous accounts, was the owner of record of 3,326,877 shares
(98.5%) of the Fund, and therefore, may for certain purposes be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.
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, advertisements for the Fund may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Fund's performance to certain indices.
DG OPPORTUNITY FUND
PORTFOLIO OF INVESTMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--97.5%
- --------------------------------------------------------------------------------------
BROADCASTING--1.8%
-------------------------------------------------------------------
43,000 New World Communications $ 677,250
------------------------------------------------------------------- -----------
COMMUNICATIONS EQUIPMENT--2.4%
-------------------------------------------------------------------
40,000 Mobile Telecommunications 885,000
------------------------------------------------------------------- -----------
CONSUMER DURABLES--2.1%
-------------------------------------------------------------------
62,000 River Oaks Furniture, Inc. 790,500
------------------------------------------------------------------- -----------
CONSUMER NON-DURABLES--2.0%
-------------------------------------------------------------------
30,000 Pan American Beverage 731,250
------------------------------------------------------------------- -----------
ENERGY--8.0%
-------------------------------------------------------------------
38,500 Devon Energy Corp. 693,000
-------------------------------------------------------------------
15,000 Oceaneering International, Inc. 131,250
-------------------------------------------------------------------
30,500 Quaker State Corp. 442,250
-------------------------------------------------------------------
54,700 Stone Energy Corp. 854,688
-------------------------------------------------------------------
42,900 Union Texas Petroleum Holdings, Inc. 825,825
------------------------------------------------------------------- -----------
Total 2,947,013
------------------------------------------------------------------- -----------
FINANCIAL SERVICES--18.3%
-------------------------------------------------------------------
50,000 A.G. Edwards, Inc. 1,125,000
-------------------------------------------------------------------
24,000 CCP Insurance, Inc. 510,000
-------------------------------------------------------------------
40,000 Commercial Bankshares, Inc. 585,000
-------------------------------------------------------------------
42,000 Coral Gables Federal Corp., Inc. 1,071,000
-------------------------------------------------------------------
35,000 Life Bancorp, Inc. 398,125
-------------------------------------------------------------------
39,500 Morgan Keegan, Inc. 592,500
-------------------------------------------------------------------
33,000 Stewart Enterprises, Inc. 882,750
-------------------------------------------------------------------
33,000 T. Rowe Price & Associates, Inc. 1,056,000
-------------------------------------------------------------------
14,300 United Companies Financial Corp. 471,900
------------------------------------------------------------------- -----------
Total 6,692,275
------------------------------------------------------------------- -----------
</TABLE>
DG OPPORTUNITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
HEALTH CARE--12.7%
-------------------------------------------------------------------
81,000 Clintrials Research, Inc. $ 961,875
-------------------------------------------------------------------
100,000 Gensia, Inc. 337,500
-------------------------------------------------------------------
12,000 Medaphis Corp. 678,000
-------------------------------------------------------------------
64,000 Ornda Healthcorp 972,000
-------------------------------------------------------------------
42,000 Ren Corp. USA 630,000
-------------------------------------------------------------------
20,000 Renal Treatment Centers, Inc. 435,000
-------------------------------------------------------------------
35,000 Res Care, Inc. 638,750
------------------------------------------------------------------- -----------
Total 4,653,125
------------------------------------------------------------------- -----------
HOTELS--3.0%
-------------------------------------------------------------------
78,000 Casino America, Inc. 809,250
-------------------------------------------------------------------
51,000 Casino Magic Corp. 274,125
------------------------------------------------------------------- -----------
Total 1,083,375
------------------------------------------------------------------- -----------
RETAIL--18.5%
-------------------------------------------------------------------
54,000 Advanced Promotion 185,625
-------------------------------------------------------------------
46,100 COMPUSA, Inc. 870,137
-------------------------------------------------------------------
96,000 Cato Corp. 672,000
-------------------------------------------------------------------
50,000 Checkers Drive-In Restaurants 148,437
-------------------------------------------------------------------
67,000 Hechinger Co. 774,687
-------------------------------------------------------------------
75,000 Longhorn Steaks, Inc. 703,125
-------------------------------------------------------------------
31,700 Morrison Restaurants, Inc. 847,975
-------------------------------------------------------------------
35,000 Outback Steakhouse, Inc. 914,375
-------------------------------------------------------------------
29,000 Pollo Tropical, Inc. 213,875
-------------------------------------------------------------------
60,000 Stein Mart, Inc. 667,500
-------------------------------------------------------------------
65,000 The Good Guys, Inc. 771,875
------------------------------------------------------------------- -----------
Total 6,769,611
------------------------------------------------------------------- -----------
SHELTER--0.6%
-------------------------------------------------------------------
19,000 Southern Energy Homes, Inc. 213,750
------------------------------------------------------------------- -----------
</TABLE>
DG OPPORTUNITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
COMMON STOCKS--CONTINUED
- --------------------------------------------------------------------------------------
TECHNOLOGY--17.0%
-------------------------------------------------------------------
31,000 Altera Corp. $ 1,763,125
-------------------------------------------------------------------
33,000 Emulux Corp. 478,500
-------------------------------------------------------------------
40,000 Gateway 2000 Inc. 735,000
-------------------------------------------------------------------
1,500 General Magic, Inc. 27,375
-------------------------------------------------------------------
35,000 Landmark Graphics Corp. 726,250
-------------------------------------------------------------------
5,000 Merix Corp. 121,875
-------------------------------------------------------------------
27,000 Micro Warehouse, Inc. 776,250
-------------------------------------------------------------------
28,125 Molex, Inc. 892,969
-------------------------------------------------------------------
50,000 Quantum Corp. 737,500
------------------------------------------------------------------- -----------
Total 6,258,844
------------------------------------------------------------------- -----------
TRANSPORTATION--4.9%
-------------------------------------------------------------------
35,000 KLLM Transportation Services, Inc. 509,688
-------------------------------------------------------------------
100,000 Mesa Airlines, Inc. 625,000
-------------------------------------------------------------------
28,000 Swift Transportation, Inc. 651,000
------------------------------------------------------------------- -----------
Total 1,785,688
------------------------------------------------------------------- -----------
UTILITIES--6.2%
-------------------------------------------------------------------
26,500 ALC Communications Corp. 781,750
-------------------------------------------------------------------
23,000 LDDS Communications, Inc. 539,063
-------------------------------------------------------------------
27,000 MFS Communications, Inc. 938,250
------------------------------------------------------------------- -----------
Total 2,259,063
------------------------------------------------------------------- -----------
TOTAL COMMON STOCKS (IDENTIFIED COST, $35,011,669) 35,746,744
------------------------------------------------------------------- -----------
</TABLE>
DG OPPORTUNITY FUND
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
OR SHARES VALUE
- ---------- ------------------------------------------------------------------- -----------
<C> <C> <S> <C>
MUTUAL FUNDS--1.0%
- --------------------------------------------------------------------------------------
365,910 Lehman Brothers Institutional Funds Group Trust (AT NET ASSET
VALUE) $ 365,910
------------------------------------------------------------------- -----------
</TABLE>
<TABLE>
<C> <C> <S> <C>
*REPURCHASE AGREEMENT--8.2%
- --------------------------------------------------------------------------------------
$3,000,000 Eastbridge Capital, Inc., 6.05%, dated 2/28/1995, due 3/1/1995 (AT
AMORTIZED COST) 3,000,000
------------------------------------------------------------------- -----------
TOTAL INVESTMENTS (IDENTIFIED COST, $38,377,579) $39,112,654+
------------------------------------------------------------------- -----------
</TABLE>
* The repurchase agreement is fully collateralized by U.S. Treasury obligations
based on market prices at the date of the portfolio.
+ The cost of investments for federal tax purposes amounts to $38,405,079. The
unrealized appreciation of investments on a federal tax basis amounts to
$707,575, which is comprised of $2,939,361 appreciation and $2,231,786
depreciation at February 28, 1995.
Note: The categories of investments are shown as a percentage of net assets
($36,663,553) at February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
DG OPPORTUNITY FUND
STATEMENT OF ASSETS AND LIABILITIES
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS:
- ---------------------------------------------------------------------------------
Investments in securities, at value (identified cost $38,377,579; tax cost
$38,405,079) $39,112,654
- ---------------------------------------------------------------------------------
Receivable for investments sold 1,257,205
- ---------------------------------------------------------------------------------
Income receivable 23,101
- ---------------------------------------------------------------------------------
Receivable for shares sold 7,427
- --------------------------------------------------------------------------------- -----------
Total assets 40,400,387
- ---------------------------------------------------------------------------------
LIABILITIES:
- ---------------------------------------------------------------------------------
Payable for investments purchased $3,700,748
- --------------------------------------------------------------------
Accrued expenses 36,086
- -------------------------------------------------------------------- ----------
Total liabilities 3,736,834
- --------------------------------------------------------------------------------- -----------
Net assets for 3,287,942 shares outstanding $36,663,553
- --------------------------------------------------------------------------------- -----------
NET ASSETS CONSIST OF:
- ---------------------------------------------------------------------------------
Paid in capital $35,474,555
- ---------------------------------------------------------------------------------
Net unrealized appreciation of investments 735,075
- ---------------------------------------------------------------------------------
Accumulated net realized gain on investments 453,825
- ---------------------------------------------------------------------------------
Undistributed net investment income 98
- --------------------------------------------------------------------------------- -----------
Total Net Assets $36,663,553
- --------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share:
Net Asset Value Per Share ($36,663,553 / 3,287,942 shares outstanding) $11.15
- --------------------------------------------------------------------------------- ------
Offering Price Per Share (100/98.00 of $11.15)* $11.38
- --------------------------------------------------------------------------------- ------
</TABLE>
* Effective May 1, 1995, the maximum sales load is 3.50%. See "What Shares
Cost."
(See Notes which are an integral part of the Financial Statements)
DG OPPORTUNITY FUND
STATEMENT OF OPERATIONS
PERIOD ENDED FEBRUARY 28, 1995*
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
INVESTMENT INCOME:
- -------------------------------------------------------------------------------------
Interest $ 85,433
- -------------------------------------------------------------------------------------
Dividends 31,608
- ------------------------------------------------------------------------------------- ----------
Total income 117,041
- -------------------------------------------------------------------------------------
EXPENSES:
- -------------------------------------------------------------------------------------
Investment advisory fee $131,668
- -------------------------------------------------------------------------
Administrative personnel and services fee 100,000
- -------------------------------------------------------------------------
Custodian fees 12,709
- -------------------------------------------------------------------------
Transfer agent and dividend disbursing agent fees and expenses 5,461
- -------------------------------------------------------------------------
Directors'/Trustees' fees 354
- -------------------------------------------------------------------------
Legal fees 1,315
- -------------------------------------------------------------------------
Portfolio accounting fees 29,769
- -------------------------------------------------------------------------
Printing and postage 3,846
- -------------------------------------------------------------------------
Insurance premiums 5,294
- -------------------------------------------------------------------------
Miscellaneous 5,100
- ------------------------------------------------------------------------- --------
Total expenses 295,516
- -------------------------------------------------------------------------
Deduct--
- -------------------------------------------------------------------------
Waiver of investment advisory fee $105,660
- --------------------------------------------------------------
Waiver of administrative personnel and services fee 80,736
- -------------------------------------------------------------- --------
Total waivers 186,396
- ------------------------------------------------------------------------- --------
Net expenses 109,120
- ------------------------------------------------------------------------------------- ----------
Net investment income 7,921
- ------------------------------------------------------------------------------------- ----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
- -------------------------------------------------------------------------------------
Net realized gain on investments 501,584
- -------------------------------------------------------------------------------------
Net change in unrealized appreciation of investments 735,075
- ------------------------------------------------------------------------------------- ----------
Net realized and unrealized gain on investments 1,236,659
- ------------------------------------------------------------------------------------- ----------
Change in net assets resulting from operations $1,244,580
- ------------------------------------------------------------------------------------- ----------
</TABLE>
* For the period from July 21, 1994 (start of business) to February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
DG OPPORTUNITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28,
1995*
------------
<S> <C>
INCREASE (DECREASE) IN NET ASSETS:
- ---------------------------------------------------------------------------
OPERATIONS--
- ---------------------------------------------------------------------------
Net investment income $ 7,921
- ---------------------------------------------------------------------------
Net realized gain on investments ($529,084 net gain as computed for federal
tax purposes) 501,584
- ---------------------------------------------------------------------------
Net change in unrealized appreciation of investments 735,075
- --------------------------------------------------------------------------- -----------
Change in net assets resulting from operations 1,244,580
- --------------------------------------------------------------------------- -----------
DISTRIBUTIONS TO SHAREHOLDERS--
- ---------------------------------------------------------------------------
Distributions from net investment income (7,823)
- ---------------------------------------------------------------------------
Distributions from net realized gains (47,759)
- --------------------------------------------------------------------------- -----------
Change in net assets resulting from distributions to shareholders (55,582)
- --------------------------------------------------------------------------- -----------
SHARE TRANSACTIONS--
- ---------------------------------------------------------------------------
Proceeds from sale of shares 38,226,967
- ---------------------------------------------------------------------------
Net asset value of shares issued to shareholders in payment of
distributions declared 37,506
- ---------------------------------------------------------------------------
Cost of shares redeemed (2,789,918)
- --------------------------------------------------------------------------- -----------
Change in net assets resulting from share transactions 35,474,555
- --------------------------------------------------------------------------- -----------
Change in net assets 36,663,553
- ---------------------------------------------------------------------------
NET ASSETS:
- ---------------------------------------------------------------------------
Beginning of period --
- --------------------------------------------------------------------------- -----------
End of period (including undistributed net investment income of $98) $36,663,553
- --------------------------------------------------------------------------- -----------
</TABLE>
* For the period from July 21, 1994 (start of business) to February 28, 1995.
(See Notes which are an integral part of the Financial Statements)
DG OPPORTUNITY FUND
NOTES TO FINANCIAL STATEMENTS
FEBRUARY 28, 1995
- --------------------------------------------------------------------------------
(1) ORGANIZATION
DG Investor Series (the "Trust") is registered under the Investment Company Act
of 1940, as amended (the "Act"), as an open-end management investment company.
The Trust consists of six diversified portfolios. The financial statements
included herein present only those of DG Opportunity Fund (the "Fund"). The
financial statements of the other portfolios are presented separately. The
assets of each portfolio are segregated and a shareholder's interest is limited
to the portfolio in which shares are held.
(2) SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. These
policies are in conformity with generally accepted accounting principles.
INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale
price reported on national securities exchanges. Unlisted securities and
short-term securities are generally valued at the prices provided by an
independent pricing service. Short-term securities with remaining maturities
of sixty days or less at the time of purchase may be valued at amortized
cost, which approximates fair market value. Investments in other open-end
investment companies are valued at net asset value.
REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian
bank to take possession, to have legally segregated in the Federal Reserve
Book Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral under repurchase agreement transactions.
Additionally, procedures have been established by the Fund to monitor, on a
daily basis, the market value of each repurchase agreement's collateral to
ensure that the value of collateral at least equals the repurchase price to
be paid under the repurchase agreement transaction.
The Fund will only enter into repurchase agreements with banks and other
recognized financial institutions, such as broker/dealers, which are deemed
by the Fund's adviser to be creditworthy pursuant to the guidelines and/or
standards reviewed or established by the Board of Trustees (the "Trustees").
Risks may arise from the potential inability of counterparties to honor the
terms of the repurchase agreement. Accordingly, the Fund could receive less
than the repurchase price on the sale of collateral securities.
INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and
distributions to shareholders are recorded on the ex-dividend date. Interest
income and expenses are accrued daily.
DG OPPORTUNITY FUND
- --------------------------------------------------------------------------------
Bond premium and discount, if applicable, are amortized as required by the
Internal Revenue Code, as amended (the "Code").
FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the
Code applicable to regulated investment companies and to distribute to
shareholders each year substantially all of its income. Accordingly, no
provisions for federal tax are necessary.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in
when-issued or delayed delivery transactions. The Fund records when-issued
securities on the trade date and maintains security positions such that
sufficient liquid assets will be available to make payment for the
securities purchased. Securities purchased on a when-issued or delayed
delivery basis are marked to market daily and begin earning interest on the
settlement date.
DEFERRED EXPENSES--The costs incurred by the Fund with respect to
registration of its shares in its first fiscal year, excluding the initial
expense of registering the shares, have been deferred and are being
amortized using the straight-line method not to exceed a period of five
years from the Fund's commencement date.
OTHER--Investment transactions are accounted for on the trade date.
(3) SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest (without par value).
Transactions in shares were as follows:
<TABLE>
<CAPTION>
PERIOD ENDED
FEBRUARY 28, 1995*
------------------
<S> <C>
Shares sold 3,539,667
- -----------------------------------------------------------------------
Shares issued to shareholders in payment of distributions declared 3,640
- -----------------------------------------------------------------------
Shares redeemed (255,365)
- ----------------------------------------------------------------------- ---------------
Net change resulting from share transactions 3,287,942
- ----------------------------------------------------------------------- ---------------
</TABLE>
* For the period from July 21, 1994 (start of business) to February 28, 1995.
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment
adviser, (the "Adviser"), receives for its services an annual investment
advisory fee equal to .95 of 1% of the Fund's average daily net assets. The
Adviser may voluntarily choose to waive a portion of its fee. The Adviser can
modify or terminate this voluntary waiver at any time at its sole discretion.
Under the terms of a sub-advisory agreement between the Adviser and the Trust
Division of Commercial National Bank, Commercial National Bank receives an
annual fee from the Adviser equal to .25 of 1% of the Fund's average daily net
assets.
DG OPPORTUNITY FUND
- --------------------------------------------------------------------------------
ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund
with certain administrative personnel and services. The FAS fee is based on the
level of average aggregate net assets of the Trust for the period. FAS may
voluntarily choose to waive a portion of its fee.
TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company
("FServ") serves as transfer and dividend disbursing agent for the Fund. This
fee is based on the size, type, and number of accounts and transactions made by
shareholders.
FServ also maintains the Fund's accounting records for which it receives a fee.
The fee is based on the level of the Fund's average net assets for the period,
plus out-of-pocket expenses.
ORGANIZATIONAL EXPENSES--Organizational expenses incurred by the Fund were
initially borne by FAS and are estimated at $30,000. The Fund has agreed to
reimburse FAS for the organizational expenses during the five year period
following July 25, 1994 (the date the Fund became effective). For the period
ended February 28, 1995, the Fund paid $1,167 pursuant to this agreement.
GENERAL--Certain of the Officers and Trustees of the Trust are Officers and
Directors or Trustees of the above companies.
(5) INVESTMENT TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the
period ended February 28, 1995, were as follows:
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------
PURCHASES $45,034,292
- ------------------------------------------------------------------------------- -----------
SALES $10,524,207
- ------------------------------------------------------------------------------- -----------
</TABLE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Trustees and Shareholder
DG INVESTOR SERIES:
We have audited the statement of assets and liabilities, including the portfolio
of investments of the DG Opportunity Fund (a portfolio within DG Investor
Series) as of February 28, 1995, and the related statements of operations for
the period then ended, the statements of changes in net assets and the financial
highlights, which is presented on page 2 of this prospectus, for the period from
July 21, 1994 (commencement of operations) to February 28, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and the financial highlights based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to gain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Investment securities held in custody are confirmed to us by the custodian. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the DG
Opportunity Fund at February 28, 1995, and the results of its operations for the
period then ended, and the changes in its net assets and the financial
highlights for the period listed above, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Pittsburgh, Pennsylvania
April 7, 1995
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
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick LLP 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, MS
Investment Adviser
Commercial
National Bank
Shreveport, LA
Sub-Adviser
APRIL 30, 1995
- --------------------------------------------------------------------------------
FEDERATED SECURITIES CORP.
(LOGO)
- ---------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
G00499-01 (4/95)
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.
DG U.S. Government Money Market Fund
(A Portfolio of DG Investor Series)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus for DG U.S. Government Money Market Fund (the "Fund")
dated April 30, 1995. 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 April 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
When-Issued and Delayed
Delivery Transactions 1
Lending of Portfolio Securities 2
Investment Limitations 2
DG Investor Series Management 3
Fund Ownership 8
Trustees Compensation 8
Trustee Liability 8
Investment Advisory Services 9
Adviser to the Fund 9
Advisory Fees 9
Administrative Services 9
Brokerage Transactions 9
Distribution Plan 10
Conversion to Federal Funds 10
Determining Net Asset Value 10
Use of the Amortized Cost
Method 10
Exchange Privilege 11
Requirements for Exchange 11
Making an Exchange 11
Redeeming Shares 11
Redemption in Kind 12
Tax Status 12
The Fund's Tax Status 12
Shareholders' Tax Status 12
Yield 12
Effective Yield 12
Performance Comparisons 13
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 current income consistent with
stability of principal and liquidity. This investment objective cannot
be changed without approval of shareholders.
Types of Investments
The Fund invests primarily in short-term U.S. government securities.
Variable Rate U.S. Government Securities
Some of the short-term U.S. government securities the Fund may
purchase variable interest rates. These securities have a rate of
interest subject to adjustment at least annually. This adjusted
interest rate is ordinarily tied to some objective standard, such
as the 91-day U.S. Treasury bill rate.
Variable interest rates will reduce the changes in the market
value of such securities from their original purchase prices.
Accordingly, the potential for capital appreciation or capital
depreciation should not be greater than the potential for capital
appreciation or capital depreciation of fixed interest rate U.S.
government securities having maturities equal to the interest rate
adjustment dates of the variable rate U.S. government securities.
The Fund may purchase variable rate U.S. government securities
upon the determination by the Board of Trustees that the interest
rate as adjusted will cause the instrument to have a current
market value that approximates its par value on the adjustment
date.
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 made to secure what is considered to be an
advantageous price or 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 on the Fund's records
at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of more than 20% of the total
value of its assets.
During the current year, the Fund does not anticipate investing more
than 5% 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 securities.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund
may borrow money directly or through reverse repurchase agreements
in amounts up to one-third of the value of its total assets
including the amount borrowed. The Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency measure or
to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess
of 5% of the value of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge or hypothecate any assets,
except to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 15% of the value of total assets of
the Fund at the time of the pledge.
Underwriting
The Fund will not underwrite any issue of securities except as it
may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with
its investment objective, policies, and limitations.
Investing in Real Estate
The Fund will not buy 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.
Investing in Commodities
The Fund will not buy or sell commodities, commodity contracts, or
commodities futures contracts.
Lending Cash or Securities
The Fund will not lend any of its assets, except portfolio
securities. This shall not prevent the Fund from purchasing or
holding bonds, debentures, notes, certificates of indebtedness or
other debt securities, entering into repurchase agreements or
engaging in other transactions where permitted by its investment
objective, policies and limitations or its Declaration of Trust.
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 change in these limitations becomes effective.
Restricted Securities
The Fund will not invest more than 5% of the value of its net
assets in securities subject to restrictions on resale under the
Securities Act of 1933, except for certain restricted securities
which meet criteria for liquidity as established by the Trustees.
Investing in Illiquid Securities
The Fund will not invest more than 10% of the value of its net
assets in illiquid securities, including repurchase agreements
providing for settlement more than seven days after notice and
certain restricted securities determined by the Trustees not to be
liquid.
Dealing in Puts and Calls
The Fund will not buy or sell puts, calls, straddles, spreads, or
any combination of these.
Investing in Securities of Other Investment Companies
The Fund will limit its investment in other investment companies
to no more than 3% of the total outstanding voting stock of any
investment company, invest 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 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.
Investing in Minerals
The Fund will not purchase or sell oil, gas, or other mineral
exploration or development programs, or leases.
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.
DG Investor Series Management
Officers and Trustees are listed with their addresses, present positions
with DG Investor Series, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder 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
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; 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
Institutional 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; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; The Virtus Funds; World Investment Series,
Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of April 17, 1995, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Deposit Guaranty National
Bank, Jackson, Mississippi, owned approximately 110,548,007 shares
(66.8%); Commercial National Bank, Shreveport, Louisiana, owned
approximately 48,729,409 shares (29.4%).
Trustees Compensation
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $ - 0-
Chairman and Trustee
Thomas G. Bigley, $860
Trustee
John T. Conroy, Jr., $1,889
Trustee
William J. Copeland, $1,889
Trustee
James E. Dowd, $1,889
Trustee
Lawrence D. Ellis, M.D., $1,713
Trustee
Edward L. Flaherty, Jr., $1,889
Trustee
Edward C. Gonzales, $ -0-
President and Trustee
Peter E. Madden, $1,455
Trustee
Gregor F. Meyer, $1,713
Trustee
John E. Murray, Jr., $ -0-
Trustee
Wesley W. Posvar, $1,713
Trustee
Marjorie P. Smuts, $1,713
Trustee
+The aggregate compensation is provided for the Trust which is
comprised of six portfolios. Information is furnished for the fiscal
year ended February 28, 1995.
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 the 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 relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the years ended February 28, 1995, and 1994, and for the period from
March 31, 1992 (start of business) to February 28, 1993, the Fund's
Adviser earned $837,617, $805,013, and $342,115, respectively, of which
$335,047, $322,005, and $256,301, respectively, were voluntarily waived.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2 1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1 1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be
reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amount to
be reimbursed by the Adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the years ended February 28, 1995, and
1994, and for the period from March 31, 1992 (start of business) to
February 28, 1993, the Fund incurred administrative service fees of
$210,182, $207,210, and $95,975, respectively, of which $0, $0 and
$6,691, respectively, were voluntarily waived.
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 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
Shares of the Fund are sold at their net asset value without 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 for
distribution and administrative services and to administrators for
administrative services provided to the Fund. The administrative
services are provided by a representative who has knowledge of the
shareholder's particular circumstances and goals, and include, but are
not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption
transactions; providing or arranging to provide accounting support for
all transactions, wiring funds and receiving funds for purchases and
redemptions of Fund shares, confirming and reconciling all transactions,
reviewing the activity in Fund accounts and providing training and
supervision of broker personnel; posting and reinvesting dividends to
Fund accounts or arranging for this service to be performed by the
Fund's transfer agent; and maintaining and distributing current copies
of prospectuses and shareholder reports to the beneficial owners of Fund
shares and prospective shareholders.
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 objective.
For the years ended February 28, 1995, and 1994, and for the period from
March 31, 1992 (start of business) to February 28, 1993, brokers and
administrators (financial institutions) received no fees pursuant to the
Plan.
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
The Fund attempts to stabilize the value of a share at $1.00. The days
on which net asset value is calculated by the Fund are described in the
prospectus.
Use of the Amortized Cost Method
The Trustees have decided that the best method for determining the value
of portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for
amortization of premium or accumulation of discount rather than at
current market value.
The Fund's use of the amortized cost method of valuing portfolio
instruments depends on its compliance with certain conditions contained
in Rule 2a-7 (the "Rule") under the Investment Company Act of 1940.
Under the Rule, the Trustees must establish procedures reasonably
designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into
account current market conditions and the Fund's investment objective.
Monitoring Procedures
The Trustees' procedures include monitoring the relationship
between the amortized cost value per share and the net asset value
per share based upon available indications of market value. The
Trustees will decide what, if any, steps should be taken if there
is a difference of more than .5 of 1% between the two values. The
Trustees will take any steps they consider appropriate (such as
redemption in kind or shortening the average portfolio maturity)
to minimize any material dilution or other unfair results arising
from differences between the two methods of determining net asset
value.
Investment Restrictions
The Rule requires that the Fund limit its investments to
instruments that, in the opinion of the Trustees, present minimal
credit risks. The Rule also requires the Fund to maintain a dollar-
weighted average portfolio maturity (not more than 90 days)
appropriate to the objective of maintaining a stable net asset
value of $1.00 per share. In addition, no instrument with a
remaining maturity of more than thirteen months can be purchased
by the Fund.
Should the disposition of a portfolio security result in a dollar-
weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to
90 days or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio
securities to take advantage of short-term market variations. This
policy may, from time to time, result in high portfolio turnover.
Under the amortized cost method of valuation, neither the amount
of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield
on shares of the Fund computed by dividing the annualized daily
income on the Fund's portfolio by the net asset value computed as
above may tend to be higher than a similar computation made by
using a method of valuation based upon market prices and
estimates.
In periods of rising interest rates, the indicated daily yield on
shares of the Fund computed the same way may tend to be lower than
a similar computation made by using a method of calculation based
upon market prices and estimates.
Exchange Privilege
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
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 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
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. No portion of any income dividend paid by the
Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are
taxable as ordinary income.
Yield
The Fund's yield for the seven-day period ended February 28, 1995, was
5.49%.
The Fund calculates its yield daily, based upon the seven days ending on
the day of the calculation, called the "base period." This yield is
computed by:
- determining the net change in the value of a hypothetical account
with a
- balance of one share at the beginning of the base period, with the
net change excluding capital changes but including the value of
any additional shares purchased with dividends earned from the
original one share and all dividends declared on the original and
any purchased shares;
- dividing the net change in the account's value by the value of the
account at the beginning of the base period to determine the base
period return; and
- multiplying the base period return by (365/7).
To the extent that financial institutions and brokers/dealers charge
fees in connection with services provided in conjunction with an
investment in the Fund, the performance, will be reduced for those
shareholders paying those fees.
Effective Yield
The Fund's effective yield for the seven-day period ended February 28,
1995, was 5.64%.
The Fund's effective yield is computed by compounding the unannualized
base period return by:
- adding 1 to the base period return;
- raising the sum to the (365/7)th power; and
- subtracting 1 from the result.
Performance Comparisons
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 on money market instruments;
- changes in the Fund's expenses; and
- the relative amount of Fund cash flow.
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:
- Discount Corporation of New York 30-Day Federal Agencies, for
example, is a weekly quote of the average daily offering price for
selected federal agency issues maturing in 30 days.
- Salomon 30-Day Treasury Bill Index is a weekly quote of the most
representative yields for selected securities issued by the U.S.
Treasury, maturing in 30 days.
- Lipper Analytical Services, Inc. ranks funds in various fund
categories bymaking 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 "Short-term U.S. government
funds" category in advertising and sales literature.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These
total returns represent the change, over a specified period of time, in
the value of an investment in the Fund based on monthly reinvestment of
dividends and other investments.
2040203B (4/95)
DG Limited Term Government Income Fund
(A Portfolio of DG Investor Series)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus for DG Limited Term Government Income Fund (the "Fund")
dated April 30, 1995. 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 April 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Weighted Average Portfolio
Duration 1
Mortgage-Backed and Asset-
Backed Securities Risks 1
Option Transactions 2
Repurchase Agreements 3
Reverse Repurchase Agreements 3
When-Issued and Delayed
Delivery Transactions 3
Lending of Portfolio Securities 3
Portfolio Turnover 3
Investment Limitations 4
DG Investor Series Management 6
Fund Ownership 10
Trustees Compensation 11
Trustee Liability 11
Investment Advisory Services 11
Adviser to the Fund 11
Advisory Fees 12
Sub-Adviser to the Fund 12
Sub-Advisory Fees 12
Administrative Services 12
Purchasing Shares 13
Distribution Plan 13
Conversion to Federal Funds 13
Determining Net Asset Value 13
Determining Market Value of
Securities 13
Exchange Privilege 14
Requirements for Exchange 14
Making an Exchange 14
Redeeming Shares 14
Redemption in Kind 14
Tax Status 14
The Fund's Tax Status 14
Shareholders' Tax Status 15
Total Return 15
Yield 15
Performance Comparisons 15
Appendix 16
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 current income, the weighted-average
duration of which will at all times be limited to between one and six
years. This investment objective cannot be changed without approval of
shareholders.
Types of Investments
The Fund invests primarily in a portfolio of government securities and
corporate securities. The investment portfolio includes the following
securities:
- U.S. government securities, including Treasury bills, notes,
bonds, and securities issued by agencies and instrumentalities of
the U.S. government;
- mortgage-backed securities;
- corporate debt securities rated within the three highest
categories by a nationally recognized statistical rating
organization, including bonds, notes, and debentures;
- asset-backed securities; and
- bank instruments.
Weighted Average Portfolio Duration
Duration is a commonly used measure of the potential volatility of the
price of a debt security, or the aggregate market value of a portfolio
of debt securities, prior to maturity. Duration measures the magnitude
of the change in the price of a debt security relative to a given change
in the market rate of interest. The duration of a debt security depends
upon three primary variables: the security's coupon rate, maturity date
and the level of market interest rates for similar debt securities.
Generally, debt securities with lower coupons or longer maturities will
have a longer duration than securities with higher coupons or shorter
maturities.
Duration is calculated by dividing the sum of the time-weighted values
of cash flows of a security or portfolio of securities, including
principal and interest payments, by the sum of the present values of the
cash flows. Certain debt securities, such as asset-backed securities,
may be subject to prepayment at irregular intervals. The duration of
these instruments will be calculated based upon assumptions established
by the investment adviser as to the probable amount and sequence of
principal prepayments.
Mortgage-Backed and Asset-Backed Securities Risks
Mortgage-backed and asset-backed securities generally pay back principal
and interest over the life of the security. At the time the Fund
reinvests the payments and any unscheduled prepayments of principal
received, the Fund may receive a rate of interest which is actually
lower than the rate of interest paid on these securities ("prepayment
risks"). Mortgage-backed and asset-backed securities are subject to
higher prepayment risks than most other types of debt instruments with
prepayment risks because the underlying mortgage loans or the collateral
supporting asset-backed securities may be prepaid without penalty or
premium. Prepayment risks on mortgaged-backed securities tend to
increase during periods of declining mortgage interest rates because
many borrowers refinance their mortgages to take advantage of the more
favorable rates. Prepayments on mortgage-backed securities are also
affected by other factors, such as the frequency with which people sell
their homes or elect to make unscheduled payments on their mortgages.
Although asset-backed securities generally are less likely to experience
substantial prepayments than are mortgage-backed securities, certain of
the factors that affect the rate of prepayments on mortgage-backed
securities also affect the rate of prepayments on asset-backed
securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws,
many of which give such debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance due. Most issuers
of asset-backed securities backed by motor vehicle installment purchase
obligations permit the servicer of such receivables to retain possession
of the underlying obligations. If the servicer sells these obligations
to another party, there is a risk that the purchaser would acquire an
interest superior to that of the holders of the related asset-backed
securities. Further, if a vehicle is registered in one state and is then
reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the
vehicle in certain cases. In addition, because of the large number of
vehicles involved in a typical issuance and technical requirements under
state laws, the trustee for the holders of asset-backed securities
backed by automobile receivables may not have a proper security interest
in all of the obligations backing such receivables. Therefore, there is
the possibility that recoveries on repossessed collateral may not, in
some cases, be available to support payments on these securities.
Option 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 through the purchase of put options on portfolio securities
and listed put options on financial futures contracts for portfolio
securities. The Fund may also write covered call options on its
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 may be closed out only on an exchange which provides
a secondary market for an option of the same series.
Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures
contracts. These options will be used only to protect portfolio
securities against decreases in value resulting from market
factors such as an anticipated increase in interest rates.
A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of instrument
called for in the contract ("going short") and the buyer who
agrees to take delivery of the instrument ("going long") at a
certain time in the future.
Financial futures contracts call for the delivery of particular
debt instruments issued or guaranteed by the U.S. Treasury or by
specified agencies or instrumentalities of the U.S. government. If
the Fund could enter into financial futures contracts directly to
hedge its holdings of fixed income securities, it would enter into
contracts to deliver securities at a predetermined price (i.e.,
"go short") to protect itself against the possibility that the
prices of its fixed income securities may decline during the
Fund's anticipated holding period.
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 realized decrease in
value of the hedged securities.
Alternately, 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.
Currently, the Fund will only enter into futures contracts in
order to exercise put options in its portfolio. 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.
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
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 listed 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 such additional consideration).
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 made to secure what is considered to be an
advantageous price or 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 on the Fund's records
at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of more than 20% of the total
value of its 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.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of 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 objective without regard to the length of time a
particular security may have been held. The investment adviser does not
anticipate that the Fund's portfolio turnover rate will exceed 100%. For
the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the Fund's portfolio turnover rates were 14%, 76% and 18%, respectively.
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 securities.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund
may borrow money directly or through reverse repurchase agreements
in amounts up to one-third of the value of its total assets
including the amount borrowed. The Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency measure or
to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess
of 5% of the value of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge or hypothecate any assets,
except to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 15% of the value of total assets of
the Fund at the time of the pledge.
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. Also, the Fund will not purchase more
than 10% of the outstanding voting securities of any one issuer.
Underwriting
The Fund will not underwrite any issue of securities except as it
may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with
its investment objective, policies, and limitations.
Investing in Real Estate
The Fund will not buy 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.
Investing in Commodities
The Fund will not buy or sell commodities. However, the Fund may
purchase put options on portfolio securities and on financial
futures contracts. In addition, the Fund reserves the right to
hedge the portfolio by entering into financial futures contracts
and to sell calls on financial futures contracts.
Lending Cash or Securities
The Fund will not lend any of its assets 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, or lend portfolio securities valued
at not more than 5% of its total assets to broker/dealers.
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 change in these limitations becomes 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 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 and
certain restricted securities not determined by the Trustees to be
liquid.
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.
Writing Covered Put and Call Options and Purchasing Put 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. When
writing put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise
price of the underlying securities. The Fund will not purchase put
options on securities unless the securities are held in the Fund's
portfolio.
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 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.
Investing in Minerals
The Fund will not purchase or sell oil, gas, or other mineral
exploration or development programs, or leases.
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 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 are listed with their addresses, present positions
with DG Investor Series, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder 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
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; 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
Institutional 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; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; The Virtus Funds; World Investment Series,
Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of April 17, 1995, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Deposit Guaranty National
Bank, Jackson, Mississippi, owned approximately 7,583,682 shares
(76.1%); Commercial National Bank, Shreveport, Louisiana, owned
approximately 1,564,073 shares (15.7%).
Trustees Compensation
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $ - 0-
Chairman and Trustee
Thomas G. Bigley, $860
Trustee
John T. Conroy, Jr., $1,889
Trustee
William J. Copeland, $1,889
Trustee
James E. Dowd, $1,889
Trustee
Lawrence D. Ellis, M.D., $1,713
Trustee
Edward L. Flaherty, Jr., $1,889
Trustee
Edward C. Gonzales, $ -0-
President and Trustee
Peter E. Madden, $1,455
Trustee
Gregor F. Meyer, $1,713
Trustee
John E. Murray, Jr., $ -0-
Trustee
Wesley W. Posvar, $1,713
Trustee
Marjorie P. Smuts, $1,713
Trustee
+The aggregate compensation is provided for the Trust which is
comprised of six portfolios. Information is furnished for the fiscal
year ended February 28, 1995.
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 the internal controls maintained by Deposit Guaranty National
Bank and Commercial National Bank, the Fund's sub-adviser, to restrict
the flow of non-public information, Fund investments are typically made
without any knowledge of Deposit Guaranty National Bank's or its
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the Fund's Adviser earned advisory fees of $642,168, $693,635 and
$191,747, respectively, of which $267,570, $338,182 and $131,121,
respectively, were voluntarily waived.
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.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the Fund's Sub-Adviser earned sub-advisory fees of $267,570, $289,015
and $79,895, respectively, all of which were voluntarily waived.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2 1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1 1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be
reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amount to
be reimbursed by the Adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the years ended February 28, 1995, and
1994, and for the period from August 3, 1992 (date of initial public
investment) to February 28, 1993, the Fund incurred costs for
administrative services of $134,312, $148,906 and $44,080, respectively,
of which $0, $0 and $3,347, respectively, were voluntarily waived.
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 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
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 for
distribution and administrative services and to administrators for
administrative services provided to the Fund. The administrative
services are provided by a representative who has knowledge of the
shareholder's particular circumstances and goals, and include, but are
not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption
transactions; providing or arranging to provide accounting support for
all transactions, wiring funds and receiving funds for purchases and
redemptions of Fund shares, confirming and reconciling all transactions,
reviewing the activity in Fund accounts and providing training and
supervision of broker personnel; posting and reinvesting dividends to
Fund accounts or arranging for this service to be performed by the
Fund's transfer agent; and maintaining and distributing current copies
of prospectuses and shareholder reports to the beneficial owners of Fund
shares and prospective shareholders.
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 objective.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
brokers and administrators (financial institutions) received no fees
pursuant to the Plan.
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
The net asset value generally changes each day. The days on which net
asset value is calculated by the Fund are described 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
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
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
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. No portion of any income dividend paid by the
Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are
taxable as ordinary income.
Total Return
The Fund's average annual total returns for the fiscal year ended
February 28, 1995, and for the period from August 3, 1992 (date of
initial public investment) to February 28, 1995, were 0.68%, and 3.35%,
respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the maximum offering price per share at the
end of the period. The number of shares owned at the end of the period
is based on the number of shares purchased at the beginning of the
period with $1,000, less any applicable sales load, adjusted over the
period by any additional shares, assuming the quarterly reinvestment of
all dividends and distributions.
Yield
The Fund's yield for the thirty-day period ended February 28, 1995 was
6.18%.
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 net asset value 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
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 net asset value per share fluctuate daily. Both net
earnings and net asset value 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:
- Merrill Lynch 1-3 Year Treasury Index is an unmanaged index
tracking short-term U.S. government securities with maturities
between 1 and 2.99 years. The index is produced by Merrill Lynch,
Pierce, Fenner & Smith, Inc.
- 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 "Short-term U.S. government
funds" category in advertising and sales literature.
Advertisements may quote performance information which does not reflect
the effect of the sales load.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. 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.
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.
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.
NR--NR indicates that Fitch does not rate the specific issue.
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 Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's Investors Service, Inc., Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have
a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Fitch Investors Service, Inc. Commercial Paper Rating
Fitch-1--(Highest Grade) Commercial paper assigned this rating is
regarded as having the strongest degree of assurance for timely payment.
Fitch-2--(Very Good Grade) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the
strongest issues.
2061003B (4/95)
DG Government Income Fund
(A Portfolio of DG Investor Series)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus for DG Government Income Fund (the "Fund") dated April
30, 1995. 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 April 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Mortgage-Backed and Asset-
Backed Securities Risks 1
Option Transactions 1
Repurchase Agreements 2
Reverse Repurchase Agreements 3
When-Issued And Delayed
Delivery Transactions 3
Lending of Portfolio Securities 3
Portfolio Turnover 3
Investment Limitations 3
DG Investor Series Management 5
Fund Ownership 9
Trustees Compensation 10
Trustee Liability 10
Investment Advisory Services 10
Adviser to the Fund 10
Advisory Fees 11
Sub-Adviser to the Fund 11
Sub-Advisory Fees 11
Administrative Services 11
Purchasing Shares 12
Distribution Plan 12
Conversion to Federal Funds 12
Determining Net Asset Value 12
Determining Market Value of
Securities 12
Exchange Privilege 13
Requirements for Exchange 13
Making an Exchange 13
Redeeming Shares 13
Redemption In Kind 13
Tax Status 13
The Fund's Tax Status 13
Shareholders' Tax Status 14
Total Return 14
Yield 14
Performance Comparisons 14
Appendix 16
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 current income. This investment
objective cannot be changed without approval of shareholders.
Types of Investments
The Fund invests primarily in a portfolio of government securities. The
investment portfolio includes the following securities:
- U.S. government securities, including Treasury bills, notes,
bonds, and securities issued by agencies and instrumentalities of
the U.S. government;
- mortgage-backed securities;
- corporate debt securities rated within the three highest
categories by a nationally recognized statistical rating
organization, including bonds, notes and debentures;
- asset-backed securities; and
- bank instruments.
Mortgage-Backed and Asset-Backed Securities Risks
Mortgage-backed and asset-backed securities generally pay back principal
and interest over the life of the security. At the time the Fund
reinvests the payments and any unscheduled prepayments of principal
received, the Fund may receive a rate of interest which is actually
lower than the rate of interest paid on these securities ("prepayment
risks"). Mortgage-backed and asset-backed securities are subject to
higher prepayment risks than most other types of debt instruments with
prepayment risks because the underlying mortgage loans or the collateral
supporting asset-
backed securities may be prepaid without penalty or premium. Prepayment
risks on mortgaged-backed securities tend to increase during periods of
declining mortgage interest rates because many borrowers refinance their
mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as
the frequency with which people sell their homes or elect to make
unscheduled payments on their mortgages. Although asset-backed
securities generally are less likely to experience substantial
prepayments than are mortgage-backed securities, certain of the factors
that affect the rate of prepayments on mortgage-backed securities also
affect the rate of prepayments on asset-backed securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the
benefit of the same security interest in the related collateral. Credit
card receivables are generally unsecured and the debtors are entitled to
the protection of a number of state and federal consumer credit laws,
many of which give such debtors the right to set off certain amounts
owed on the credit cards, thereby reducing the balance due. Most issuers
of asset-backed securities backed by motor vehicle installment purchase
obligations permit the servicer of such receivables to retain possession
of the underlying obligations. If the servicer sells these obligations
to another party, there is a risk that the purchaser would acquire an
interest superior to that of the holders of the related asset-backed
securities. Further, if a vehicle is
registered in one state and is then reregistered because the owner and
obligor moves to another state, such reregistration could defeat the
original security interest in the vehicle in certain cases. In addition,
because of the large number of vehicles involved in a typical issuance
and technical requirements under state laws, the trustee for the holders
of asset-backed securities backed by automobile receivables may not have
a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on
repossessed collateral may not, in some cases, be available to support
payments on these securities.
Option 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 through the purchase of put options on portfolio securities
and listed put options on financial futures contracts for portfolio
securities. The Fund may also write covered call options on its
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 may be closed out only on an exchange which provides
a secondary market for an option of the same series.
Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures
contracts. These options will be used only to protect portfolio
securities against decreases in value resulting from market
factors such as an anticipated increase in interest rates.
A futures contract is a firm commitment by two parties: the seller
who agrees to make delivery of the specific type of instrument
called for in the contract ("going short") and the buyer who
agrees to take delivery of the instrument ("going long") at a
certain time in the future. Financial futures contracts call for
the delivery of particular debt instruments issued or guaranteed
by the U.S. Treasury or by specified agencies or instrumentalities
of the U.S. government. If the Fund could enter into financial
futures contracts directly to hedge its holdings of fixed income
securities, it would enter into contracts to deliver securities at
a predetermined price (i.e., "go short") to protect itself against
the possibility that the prices of its fixed income securities may
decline during the Fund's anticipated holding period.
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 realized decrease in
value of the hedged securities.
Alternately, 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.
Currently, the Fund will only enter into futures contracts in
order to exercise put options in its portfolio. 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.
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
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 listed 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 such additional consideration).
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 made to secure what is considered to be an
advantageous price or 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 on the Fund's records
at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of more than 20% of the total
value of its 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.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of 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 objective without regard to the length of time a
particular security may have been held. The investment adviser does not
anticipate that the Fund's portfolio turnover rate will exceed 100%. For
the years ended February 28, 1995, and 1994 and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the Fund's portfolio turnover rates were 31%, 49% and 78%, respectively.
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 securities.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities, except that the Fund
may borrow money directly or through reverse repurchase agreements
in amounts up to one-third of the value of its total assets
including the amount borrowed. The Fund will not borrow money or
engage in reverse repurchase agreements for investment leverage,
but rather as a temporary, extraordinary, or emergency measure or
to facilitate management of the portfolio by enabling the Fund to
meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess
of 5% of the value of its total assets are outstanding.
Pledging Assets
The Fund will not mortgage, pledge or hypothecate any assets,
except to secure permitted borrowings. In those cases, it may
pledge assets having a market value not exceeding the lesser of
the dollar amounts borrowed or 15% of the value of total assets of
the Fund at the time of the pledge.
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. Also, the Fund will not purchase more
than 10% of the outstanding voting securities of any one issuer.
Underwriting
The Fund will not underwrite any issue of securities except as it
may be deemed to be an underwriter under the Securities Act of
1933 in connection with the sale of securities in accordance with
its investment objective, policies, and limitations.
Investing in Real Estate
The Fund will not buy 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.
Investing in Commodities
The Fund will not buy or sell commodities. However, the Fund may
purchase put options on portfolio securities and on financial
futures contracts. In addition, the Fund reserves the right to
hedge the portfolio by entering into financial futures contracts
and to sell calls on financial futures contracts.
Lending Cash or Securities
The Fund will not lend any of its assets 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, or lend portfolio securities valued
at not more than 5% of its total assets to broker/dealers.
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 change in these limitations becomes 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 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 and
certain restricted securities not determined by the Trustees to be
liquid.
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.
Writing Covered Put and Call Options and Purchasing Put 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. When
writing put options, the Fund will segregate cash or U.S. Treasury
obligations with a value equal to or greater than the exercise
price of the underlying securities. The Fund will not purchase put
options on securities unless the securities are held in the Fund's
portfolio.
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 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.
Investing in Minerals
The Fund will not purchase or sell oil, gas, or other mineral
exploration or development programs, or leases.
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 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 are listed with their addresses, present positions
with DG Investor Series, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Rese
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder 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
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; 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
Institutional 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; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; The Virtus Funds; World Investment Series,
Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of April 17, 1995, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Deposit Guaranty National
Bank, Jackson, Mississippi, owned approximately 10,126,940 shares
(68.1%); Commercial National Bank, Shreveport, Louisiana, owned
approximately 4,074,326 shares (27.4%).
Trustees Compensation
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $ - 0-
Chairman and Trustee
Thomas G. Bigley, $860
Trustee
John T. Conroy, Jr., $1,889
Trustee
William J. Copeland, $1,889
Trustee
James E. Dowd, $1,889
Trustee
Lawrence D. Ellis, M.D., $1,713
Trustee
Edward L. Flaherty, Jr., $1,889
Trustee
Edward C. Gonzales, $ -0-
President and Trustee
Peter E. Madden, $1,455
Trustee
Gregor F. Meyer, $1,713
Trustee
John E. Murray, Jr., $ -0-
Trustee
Wesley W. Posvar, $1,713
Trustee
Marjorie P. Smuts, $1,713
Trustee
+The aggregate compensation is provided for the Trust which is
comprised of six portfolios. Information is furnished for the fiscal
year ended February 28, 1995.
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 the internal controls maintained by Deposit Guaranty National
Bank and Commercial National Bank, the Fund's sub-adviser, to restrict
the flow of non-public information, Fund investments are typically made
without any knowledge of Deposit Guaranty National Bank's or its
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the Fund's Adviser earned $926,421, $575,982 and $283,853, respectively,
of which $231,605, $184,327 and $186,193, respectively, were voluntarily
waived.
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.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment), to February 28,
1993, the Sub-Adviser earned sub-advisory fees of $386,009, $239,992 and
$118,272, respectively, all of which were voluntarily waived.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2 1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1 1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be
reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amount to
be reimbursed by the Adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the years ended February 28, 1995, and
1994, and for the period from August 3, 1992 (date of initial public
investment) to February 28, 1993, the Fund incurred administrative
services fees of $193,697, $123,503 and $65,895, respectively, of which
$0, $0 and $9,137, respectively, were voluntarily waived.
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 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
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 for
distribution and administrative services and to administrators for
administrative services provided to the Fund. The administrative
services are provided by a representative who has knowledge of the
shareholder's particular circumstances and goals, and include, but are
not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption
transactions; providing or arranging to provide accounting support for
all transactions, wiring funds and receiving funds for purchases and
redemptions of Fund shares, confirming and reconciling all transactions,
reviewing the activity in Fund accounts and providing training and
supervision of broker personnel; posting and reinvesting dividends to
Fund accounts or arranging for this service to be performed by the
Fund's transfer agent; and maintaining and distributing current copies
of prospectuses and shareholder reports to the beneficial owners of Fund
shares and prospective shareholders.
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 objective.
For the years ended February 28, 1995, 1994, and for the period from
August 3, 1992 (date of initial public investment), to February 28,
1993, brokers and administrators (financial institutions) received no
fees pursuant to the Plan.
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
The net asset value generally changes each day. The days on which net
asset value is calculated by the Fund are described 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
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
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
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. No portion of any income dividend paid by the
Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are
taxable as ordinary income.
Total Return
The Fund's average annual total return for the year ended February 28,
1995, and for the period from August 3, 1992 (date of initial public
investment) to February 28, 1995 were (0.80)%, and 3.90% respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the maximum offering price per share at the
end of the period. The number of shares owned at the end of the period
is based on the number of shares purchased at the beginning of the
period with $1,000, less any applicable sales load, adjusted over the
period by any additional shares, assuming the quarterly reinvestment of
all dividends and distributions.
Yield
The Fund's yield for the thirty-day period ended February 28, 1995 was
6.53%.
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 net asset value 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
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 net asset value per share fluctuate daily. Both net
earnings and net asset value 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:
- Lehman Brothers Government/Corporate (Total) index is comprised of
approximately 5,000 issues which include: non-convertible bonds
publicly issued by the U.S. government or its agencies; corporate
bonds guaranteed by the U.S. government and quasi-federal
corporations; and publicly issued, fixed rate, non-convertible
domestic bonds of companies in industry, public utilities, and
finance. The average maturity of these bonds approximates nine
years. Tracked by Lehman Brothers, Inc., the index calculates
total returns for one month, three month, twelve month, and ten
year periods and year-to-date.
- 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 "Short-term U.S. government
funds" category in advertising and sales literature.
Advertisements may quote performance information which does not reflect
its effect of the sales load.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Ratings Group. 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.
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.
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.
NR--NR indicates that Fitch does not rate the specific issue.
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 highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have
a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Fitch Investors Service, Inc. Commercial Paper Rating
Fitch-1--(Highest Grade) Commercial paper assigned this rating is
regarded as having the strongest degree of assurance for timely payment.
Fitch-2--(Very Good Grade) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than the
strongest issues.
2061002B (4/95)
DG Municipal Income Fund
(A Portfolio of DG Investor Series)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus for DG Municipal Income Fund (the "Fund") dated April
30, 1995. 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 April 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
When-Issued and Delayed
Delivery Transactions 2
Temporary Investments 2
Other Investment Techniques 2
Repurchase Agreements 2
Reverse Repurchase Agreements 3
Portfolio Turnover 3
Investment Limitations 3
DG Investor Series Management 6
Fund Ownership 10
Trustees Compensation 11
Trustee Liability 11
Investment Advisory Services 11
Adviser to the Fund 11
Advisory Fees 12
Sub-Adviser to the Fund 12
Sub-Advisory Fees 12
Administrative Services 12
Brokerage Transactions 12
Distribution Plan 13
Conversion to Federal Funds 13
Determining Net Asset Value 13
Valuing Municipal Securities 14
Exchange Privilege 14
Requirements for Exchange 14
Making an Exchange 14
Redeeming Shares 14
Redemption in Kind 14
Tax Status 14
The Fund's Tax Status 14
Total Return 14
Yield 15
Tax-Equivalent Yield 15
Performance Comparisons 16
Appendix 18
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 dividend income that is
exempt from federal regular income tax. The investment objective cannot
be changed without approval of shareholders.
Types of Investments
The Fund will invest in a diversified portfolio of municipal securities.
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.
Characteristics
The municipal securities in which the Fund invests have the
characteristics set forth in the prospectus. The Fund may use
similar services or ratings other than Moody's Investors Service,
Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"), or
Fitch Investors Service, Inc. ("Fitch"). If a security's rating is
reduced below the required minimum after the Fund has purchased
it, the Fund is not required to sell the security, but may
consider doing so. If ratings made by Moody's, S&P, or Fitch
change because of changes in those organizations or in their
rating systems, the Fund will try to use comparable ratings as
standards in accordance with the investment policies described in
the Fund's prospectus.
Participation Interests
The financial institutions from which the Fund purchases
participation interests frequently provide or secure from another
financial institution irrevocable letters of credit or guarantees
and give the Fund the right to demand payment of the principal
amounts of the participation interests, plus accrued interest, on
short notice (usually within seven days). These financial
institutions may charge certain fees in connection with their
repurchase commitments, including a fee equal to the excess of the
interest paid on the municipal securities over the negotiated
yield at which the participation interests were purchased by the
Fund. By purchasing participation interests having a seven-day
demand feature, the Fund is buying a security meeting the maturity
and quality requirements of the Fund and also is receiving the tax-
free benefits of the underlying securities.
Variable Rate Municipal Securities
Variable interest rates generally reduce changes in the market
value of municipal securities from their original purchase prices.
Accordingly, as interest rates decrease or increase, the potential
for capital appreciation or depreciation is less for variable rate
municipal securities than for fixed income obligations. Many
municipal securities with variable interest rates purchased by the
Fund are subject to repayment of principal (usually within seven
days) on the Fund's demand. The terms of these variable rate
demand instruments require payment of principal and accrued
interest from the issuer of the municipal obligations, the issuer
of the participation interests, or a guarantor of either issuer.
Municipal Leases
The Fund may purchase municipal securities in the form of
participation interests that represent an undivided proportional
interest in lease payments by a governmental or non-profit entity.
The lease payments and other rights under the lease provide for
and secure payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation
for the lease. In particular, lease obligations may be subject to
periodic appropriation. If the entity does not appropriate funds
for future lease payments, the entity cannot be compelled to make
such payments. Furthermore, a lease may provide that the
participants cannot accelerate lease obligations upon default. The
participants would only be able to enforce lease payments as they
became due. In the event of a default or failure of appropriation,
unless the participation interests are credit enhanced, it is
unlikely that the participants would be able to obtain an
acceptable substitute source of payment.
In determining the liquidity of municipal lease securities, the
Adviser, under the authority delegated by the Board of Trustees,
will base its determination on the following factors:
- whether the lease can be terminated by the lessee;
- the potential recovery, if any, from a sale of the leased
property
- upon termination of the lease;
- the lessee's general credit strength (e.g., its debt,
administrative, economic and financial characteristics and
prospects);
- the likelihood that the lessee will discontinue appropriating
funding for the leased property because the property is no
longer deemed essential to its operations (e.g., the potential
for an "event of non-appropriation");
- any credit enhancement or legal recourse provided upon an event
of non-appropriation or other termination of the lease.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an
advantageous price or 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 on the Fund's records
at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of more than 20% of the total
value of its assets.
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.
Temporary Investments
The Fund may also invest in temporary investments from time to time for
defensive purposes.
Bank Instruments
The Fund only invests in Bank Instruments (as defined in the
prospectus) either issued by an institution having capital,
surplus, and undivided profits over $100 million or insured by the
Bank Insurance Fund or the Savings Association Insurance Fund,
both of which are administered by the Federal Deposit Insurance
Corporation.
Other Investment Techniques
The Fund may acquire securities that are subject to puts and standby
commitments ("demand features") to purchase the securities at their
principal amount (usually with accrued interest) within a fixed period
(usually seven days) following a demand by the Fund. The demand feature
may be issued by the issuer of the underlying securities, a dealer in
the securities or by another third party, and may not be transferred
separately from the underlying security. The Fund uses these
arrangements to provide the Fund with liquidity and not to protect
against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature,
or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the
liquidity of the underlying security.
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 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.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in its portfolio will be sold whenever
the Fund's investment adviser believes it is appropriate to do so in
light of the Fund's investment objective, without regard to the length
of time a particular security may have been held. It is not anticipated
that the portfolio trading engaged in by the Fund will result in its
annual rate of portfolio turnover exceeding 100%. For the years ended
February 28, 1995, and 1994, and for the period from December 21, 1992
(date of initial public investment) to February 28, 1993, the portfolio
turnover rates were 9%, 9% and 93%, respectively.
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.
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.
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 its total assets at the time
of the pledge.
Diversification of Investments
With respect to 75% of its assets, the Fund will not invest more
than 5% of its total assets in any one issuer (except cash and
cash items, repurchase agreements, and U.S. government
obligations).
Also, the Fund will not purchase more than 10% of the outstanding
voting securities of any one issuer. For these purposes, the Fund
considers common stock and all preferred stock of an issuer each
as a single class, regardless of priorities, series, designations,
or other differences.
Under this limitation, each governmental subdivision, including
states and the District of Columbia, territories and possessions
of the United States or their political subdivisions, agencies,
authorities, instrumentalities, or similar entities, will be
considered a separate issuer if its assets and revenues are
separate from those of the governmental body creating it and the
security is backed only by its own assets and revenues.
Private activity bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that
user. If, in the case of a private activity bond or government-
issued security, a governmental or other entity guarantees the
security, such guarantee would be considered a separate security
issued by the guarantor as well as the other issuer, subject to
limited exclusions allowed by the Investment Company Act of 1940.
Concentration of Investments
The Fund will not purchase securities if, as a result of such
purchase, 25% or more of its total assets would be invested in any
one industry or in industrial development bonds or other
securities, the interest upon which is paid from revenues of
similar type projects.
The Fund may invest, as temporary investments, 25% or more of its
total assets in cash or cash items, securities issued and/or
guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by these money market
instruments, such as repurchase agreements.
The Fund does not intend to purchase securities that would
increase the percentage of its total assets invested in the
securities of governmental subdivisions located in any one state,
territory, or U.S. possession to 25% or more. However, the Fund
may invest 25% or more of its assets in tax-exempt project notes
guaranteed by the U.S. government, regardless of the location of
the issuing municipality.
If the value of Fund assets invested in the securities of a
governmental subdivision changes because of changing values, the
Fund will not be required to make any reduction in its holdings.
Investing in Commodities
The Fund will not purchase or sell commodities, commodity
contracts, or commodity futures contracts.
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 of companies whose business involves the purchase or
sale of real estate or 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 up to one-third of the value of its total assets. This
shall not prevent the Fund from purchasing or holding corporate or
government bonds, debentures, notes, certificates of indebtedness
or other debt securities of an issuer, entering into repurchase
agreements, or engaging in 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.
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 change in these limitations becomes effective.
Restricted Securities
The Fund will not invest more than 5% of its total assets in
securities subject to restrictions on resale under the Securities
Act of 1933, except for commercial paper issued under Section 4(2)
of the Securities Act of 1933 and certain other restricted
securities which meet the criteria for liquidity as established by
the Trustees.
Investing in Illiquid Securities
The Fund will not invest more than 15% of its net assets in
illiquid securities, including repurchase agreements providing for
settlement more than seven days after notice and certain
restricted securities not determined by the Trustees to be liquid.
To comply with certain state restrictions, the Fund will limit
these transactions to 10% of its net assets. (If state
restrictions change, this latter restriction may be revised
without shareholder approval or notification.)
Investing in Minerals
The Fund will not purchase or sell oil, gas, other mineral
exploration or development programs, or mineral leases, although
it may purchase the securities of issuers that invest in or
sponsor such programs.
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 other 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.
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 its total assets in
industrial development bonds where the payment of principal and
interest is the responsibility of companies, including their
predecessors, with less than three years of operating history.
Arbitrage Transactions
The Fund will not enter into transactions for the purpose of
engaging in arbitrage.
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 of total or net assets
will not result in a violation of such restriction.
For purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S.
branch of a domestic bank or savings and loan 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 are listed with their addresses, present positions
with DG Investor Series, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder 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
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; 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
Institutional 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; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; The Virtus Funds; World Investment Series,
Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of April 17, 1995, the following shareholder of record owned 5% or
more of the outstanding shares of the Fund: Deposit Guaranty National
Bank, Jackson, Mississippi, owned approximately 3,648,424 shares
(90.0%).
Trustees Compensation
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $ - 0-
Chairman and Trustee
Thomas G. Bigley, $860
Trustee
John T. Conroy, Jr., $1,889
Trustee
William J. Copeland, $1,889
Trustee
James E. Dowd, $1,889
Trustee
Lawrence D. Ellis, M.D., $1,713
Trustee
Edward L. Flaherty, Jr., $1,889
Trustee
Edward C. Gonzales, $ -0-
President and Trustee
Peter E. Madden, $1,455
Trustee
Gregor F. Meyer, $1,713
Trustee
John E. Murray, Jr., $ -0-
Trustee
Wesley W. Posvar, $1,713
Trustee
Marjorie P. Smuts, $1,713
Trustee
+The aggregate compensation is provided for the Trust which is
comprised of six portfolios. Information is furnished for the fiscal
year ended February 28, 1995.
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 the internal controls maintained by Deposit Guaranty National
Bank and Commercial National Bank, the Fund's sub-adviser, to restrict
the flow of non-public information, Fund investments are typically made
without any knowledge of Deposit Guaranty National Bank's or its
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus. For the years ended
February 28, 1995, and 1994, and for the period from December 21, 1992
(date of initial public investment) to February 28, 1993, the Adviser
earned advisory fees of $225,528, $154,612 and $13,652, respectively, of
which $154,111, $154,612, and $13,652, respectively, was voluntarily
waived.
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. For the years ended
February 28, 1995, and 1994, and for the period from December 21, 1992
(date of initial public investment) to February 28, 1993, the Sub-
Adviser earned sub-advisory fees of $93,970, $64,421 and $5,688,
respectively, all of which were voluntarily waived.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitation
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2 1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1 1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be
reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amount to
be reimbursed by the Adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the years ended February 28, 1995, and
1994, and for the period from December 21, 1992 (date of initial public
investment) to February 28, 1993, the Fund incurred administrative
service fees of $47,162, $50,000, and $9,452, respectively, of which $0,
$16,903 and $0 were voluntarily waived respectively.
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 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.
Although investment decisions for the Fund are made independently from
those of the other accounts managed by the Adviser, investments of the
type the Fund may make may also be made by those other accounts. When
the Fund and one or more other accounts managed by the Adviser are
prepared to invest in, or desire to dispose of, the same security,
available investments or opportunities for sales will be allocated in a
manner believed by the Adviser to be equitable to each. In some cases,
this procedure may adversely affect the price paid or received by the
Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the
Fund.
Purchasing Shares
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 for distribution and
administrative services and to administrators for administrative
services provided to the Fund. The administrative services are provided
by a representative who has knowledge of the shareholder's particular
circumstances and goals, and include, but are not limited to:
communicating account openings; communicating account closings; entering
purchase transactions; entering redemption transactions; providing or
arranging to provide accounting support for all transactions; wiring
funds and receiving funds for purchases and redemptions of Fund shares;
confirming and reconciling all transactions; reviewing the activity in
Fund accounts; providing training and supervision of broker personnel;
posting and reinvesting dividends to Fund accounts or arranging for this
service to be performed by the Fund's transfer agent; and maintaining
and distributing current copies of prospectuses and shareholder reports
to the beneficial owners of Fund shares and prospective shareholders.
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 objective.
For the years ended February 28, 1995, and 1994, and for the period from
December 21, 1992 (date of initial public investment) to February 28,
1993, brokers and administrators (financial institutions) received no
fees pursuant to the Plan.
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
The net asset value generally changes each day and is based on market
value of the securities and other assets held by the Fund. The days on
which the net asset value is calculated by the Fund are described in the
prospectus.
Valuing Municipal Securities
The Trustees use an independent pricing service to value municipal
securities. The independent pricing service takes into consideration:
yield; stability; risk; quality; coupon rate; maturity; type of issue;
trading characteristics; special circumstances of a security or trading
market; and any other factors or market data it considers relevant in
determining valuations for normal institutional size trading units of
debt securities and does not rely exclusively on quoted prices.
Exchange Privilege
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
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
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.
Total Return
The Fund's average annual total returns for the year ended February 28,
1995, and for the period from December 21, 1992 (date of initial public
investment) to February 28, 1995, were (1.24%), and 4.44%, respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the maximum offering price per share at the
end of the period. The number of shares owned at the end of the period
is based on the number of shares purchased at the beginning of the
period with $1,000, less any applicable sales load, adjusted over the
period by any additional shares, assuming the quarterly reinvestment of
all dividends and distributions.
Yield
The Fund's yield for the 30-day period ended February 28, 1995 was 4.93%
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 maximum offering
price per share of the Fund on the last day of the period. This value is
then annualized using semi-annual compounding. This means that the
amount of income generated during the thirty-day period is assumed to be
generated each month over a 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.
Tax-Equivalent Yield
The tax-equivalent yield for the thirty-day period ended February 28,
1995 was 7.14%.
The tax-equivalent yield of the Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that the Fund would
have had to earn to equal its actual yield, assuming a 31% tax rate (the
maximum effective federal rate for individuals) and assuming that the
income of the Fund is 100% tax-exempt.
Tax-Equivalency Table
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal securities in the
Fund's portfolio generally remains free from federal regular income
tax,* and is often free from state and local taxes as well. As the table
below indicates, a "tax-free" investment is an attractive choice for
investors, particularly in times of narrow spreads between tax-free and
taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1995
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $39,001- $94,251- $143,601- OVER
RETURN 39,000 94,250 143,600 256,500 256,500
SINGLE $1- $23,351- $56,551- $117,951- OVER
RETURN 23,350 56,550 117,950 256,500 256,500
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56%
1.66%
1.50% 1.76% 2.08% 2.17% 2.34%
2.48%
2.00% 2.35% 2.78% 2.90% 3.13%
3.31%
2.50% 2.94% 3.47% 3.62% 3.91%
4.14%
3.00% 3.53% 4.17% 4.35% 4.69%
4.97%
3.50% 4.12% 4.86% 5.07% 5.47%
5.79%
4.00% 4.71% 5.56% 5.80% 6.25%
6.62%
4.50% 5.29% 6.25% 6.52% 7.03%
7.45%
5.00% 5.88% 6.94% 7.25% 7.81%
8.28%
5.50% 6.47% 7.64% 7.97% 8.59%
9.11%
6.00% 7.06% 8.33% 8.70% 9.38%
9.93%
6.50% 7.65% 9.03% 9.42% 10.16%
10.76%
7.00% 8.24% 9.72% 10.14% 10.94%
11.59%
7.50% 8.82% 10.42% 10.87% 11.72%
12.42%
8.00% 9.41% 11.11% 11.59% 12.50%
13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional
state and local taxes paid on comparable taxable investments were
not used to increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares.
* Some portion of the Fund's income may be subject to the federal
alternative minimum tax and state and local income taxes.
Performance Comparisons
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 net asset value per share fluctuate daily. Both net
earnings and net asset value 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:
- Lehman Brothers Municipal Bond Index is a total return performance
benchmark for the long-term, investment grade, tax-exempt bond
market. Returns and attributes for this index are calculated semi-
monthly using municipal bonds classified as General Obligation
Bonds (state and local), Revenue Bonds (excluding insured revenue
bonds), Insured Bonds (includes all bond insurers with Aaa/AAA
ratings), and Prerefunded Bonds.
- 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, and takes into account any
change in net asset value over a specified period of time. From
time to time, the Fund will quote its Lipper ranking in the
"municipal funds" categories in advertising and sales literature.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These
total returns represent the change, over a specified period of time, in
the value of an investment in the Fund based on monthly reinvestment of
dividends and other investments.
Advertisements may quote performance information which does not reflect
the effect of the sales load.
Appendix
Standard and Poor's Ratings Group Municipal Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. 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., Municipal 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 or municipal 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 of 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.
NR--NR indicates that Fitch does not rate the specific issue.
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" or
"D" categories.
Standard & Poor's Ratings Group Municipal Note Ratings
SP-1--Very strong or strong capacity to pay principal and interest.
Those issues determined to possess overwhelming safety characteristics
will be given a plus (+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
Moody's Investors Service, Inc., Short-Term Municipal Obligations
Ratings
MIG1/VMIG1--This designation denotes best quality. There is a present
strong protection by established cash flows, superior liquidity support
or demonstrated broadbased access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection
are ample although not so large as in the preceding group.
Standard and Poor's Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's Investors Service, Inc., Commercial Paper Ratings
Prime-1--Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earning coverage of fixed financial charges and
high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2--Issuers rated Prime-2 (or related supporting institutions) have
a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Fitch Investors Service, Inc., Short-Term Debt 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+.
F-2--Good Credit Quality. Issues carrying this rating have a
satisfactory degree of assurance for timely payment, but the margin of
safety is not as great as the F-1+ and F-1 categories.
2112511B (4/95)
DG Equity Fund
(A Portfolio of DG Investor Series)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus for DG Equity Fund (the "Fund") dated April 30, 1995.
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 April 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objectives 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 4
Reverse Repurchase Agreements 4
When-Issued and Delayed
Delivery Transactions 4
Lending of Portfolio Securities 4
Portfolio Turnover 4
Investment Limitations 5
DG Investor Series Management 7
Fund Ownership 11
Trustees Compensation 12
Trustee Liability 12
Investment Advisory Services 12
Adviser to the Fund 12
Advisory Fees 13
Sub-Adviser to the Fund 13
Sub-Advisory Fees 13
Brokerage Transactions 13
Purchasing Shares 14
Distribution Plan 14
Conversion to Federal Funds 14
Determining Net Asset Value 14
Determining Market Value of
Securities 14
Exchange Privilege 15
Requirements for Exchange 15
Making an Exchange 15
Redeeming Shares 15
Redemption in Kind 15
Tax Status 15
The Fund's Tax Status 15
Shareholders' Tax Status 16
Total Return 16
Yield 16
Performance Comparisons 16
Appendix 18
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 Objectives and Policies
The Fund's primary investment objective is to provide long-term capital
appreciation. Current income is a secondary objective. The investment
objectives cannot be changed without approval of shareholders.
Types of Investments
The Fund may invest in convertible securities, zero coupon convertible
securities, money market instruments, common stocks, preferred stocks,
corporate bonds, notes, and put options on stocks. The following are
also permitted investments of the Fund:
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 objectives. 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 made to secure what is considered to be an
advantageous price or 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 on the Fund's records
at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of more than 20% of the total
value of its 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.
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 does not
anticipate that the Fund's portfolio turnover rate will exceed 100%. For
the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the portfolio turnover rates were 1%, 7% and 28%, respectively.
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.
Investing to Exercise Control
The Fund will not purchase securities for the purpose of
exercising control over the issuer of securities.
Lending Cash or Securities
The Fund will not lend any of its assets 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 objectives and policies or the
Trust's Declaration of Trust, or lend portfolio securities valued
at not more than 5% of its total assets to broker/dealers.
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 objectives, 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 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. Also, the Fund will not purchase more than 10% of
the outstanding voting securities of any one 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 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 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.
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.
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 are listed with their addresses, present positions
with DG Investor Series, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Rese
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder 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
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; 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
Institutional 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; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; The Virtus Funds; World Investment Series,
Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of April 17, 1995, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Deposit Guaranty National
Bank, Jackson, Mississippi, owned approximately 17,315,998 shares
(68.6%); Commercial National Bank, Shreveport, Louisiana, owned
approximately 5,884,749 shares (23.3%).
Trustees Compensation
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $ - 0-
Chairman and Trustee
Thomas G. Bigley, $860
Trustee
John T. Conroy, Jr., $1,889
Trustee
William J. Copeland, $1,889
Trustee
James E. Dowd, $1,889
Trustee
Lawrence D. Ellis, M.D., $1,713
Trustee
Edward L. Flaherty, Jr., $1,889
Trustee
Edward C. Gonzales, $ -0-
President and Trustee
Peter E. Madden, $1,455
Trustee
Gregor F. Meyer, $1,713
Trustee
John E. Murray, Jr., $ -0-
Trustee
Wesley W. Posvar, $1,713
Trustee
Marjorie P. Smuts, $1,713
Trustee
+The aggregate compensation is provided for the Trust which is
comprised of six portfolios. Information is furnished for the fiscal
year ended February 28, 1995.
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 the internal controls maintained by Deposit Guaranty National
Bank and Commercial National Bank, the Fund's sub-adviser, to restrict
the flow of non-public information, Fund investments are typically made
without any knowledge of Deposit Guaranty National Bank's or its
affiliates' lending relationships with an issuer.
Advisory Fees
For its advisory services, the Adviser receives an annual investment
advisory fee as described in the prospectus.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the Fund's Adviser earned $1,907,646, $1,915,318, and $463,189,
respectively, of which $0, $27,126, and $310,735, respectively, were
voluntarily waived.
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.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the Fund's Sub-Adviser earned sub-advisory fees of $635,882, $638,439,
and $154,396, respectively, all of which was voluntarily waived.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose
shares are registered for sale in those states. If the Fund's
normal operating expenses (including the investment advisory fee,
but not including brokerage commissions, interest, taxes, and
extraordinary expenses) exceed 2 1/2% per year of the first $30
million of average net assets, 2% per year of the next $70 million
of average net assets, and 1 1/2% per year of the remaining
average net assets, the Adviser will reimburse the Fund for its
expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
expense limitation, the investment advisory fee paid will be
reduced by the amount of the excess, subject to an annual
adjustment. If the expense limitation is exceeded, the amount to
be reimbursed by the Adviser will be limited, in any single fiscal
year, by the amount of the investment advisory fee.
This arrangement is not part of the advisory contract and may be
amended or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for the fees
set forth in the prospectus. For the years ended February 28, 1995, and
1994, and for the period from August 3, 1992 (date of initial public
investment) to February 28, 1993, the Fund incurred administrative
services fees of $319,181, $328,534, and $86,303, respectively, of which
$0, $0 and $15,266, respectively, were voluntarily waived.
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 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.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
the Fund paid total commissions of $65,931, $159,709 and $278,238,
respectively, on brokerage transactions.
Purchasing Shares
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 for
distribution and administrative services and to administrators for
administrative services provided to the Fund. The administrative
services are provided by a representative who has knowledge of the
shareholder's particular circumstances and goals, and include, but are
not limited to: communicating account openings; communicating account
closings; entering purchase transactions; entering redemption
transactions; providing or arranging to provide accounting support for
all transactions, wiring funds and receiving funds for purchases and
redemptions of Fund shares, confirming and reconciling all transactions,
reviewing the activity in Fund accounts and providing training and
supervision of broker personnel; posting and reinvesting dividends to
Fund accounts or arranging for this service to be performed by the
Fund's transfer agent; and maintaining and distributing current copies
of prospectuses and shareholder reports to the beneficial owners of Fund
shares and prospective shareholders.
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.
For the years ended February 28, 1995, and 1994, and for the period from
August 3, 1992 (date of initial public investment) to February 28, 1993,
brokers and administrators (financial institutions) received no fees
pursuant to the Plan.
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
The net asset value generally changes each day. The days on which the
net asset value is calculated by the Fund are described in the
prospectus.
Determining Market Value of Securities
Market 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
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
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
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
The Fund's average annual total returns for the year ended February 28,
1995, and for the period from August 3, 1992 (date of initial public
investment) to February 28, 1995, were 4.48%, and 6.17%, respectively.
The average annual total return for the Fund is the average compounded
rate of return for a given period that would equate a $1,000 initial
investment to the ending redeemable value of that investment. The ending
redeemable value is computed by multiplying the number of shares owned
at the end of the period by the maximum offering price per share at the
end of the period. The number of shares owned at the end of the period
is based on the number of shares purchased at the beginning of the
period with $1,000, less any applicable sales load, adjusted over the
period by any additional shares, assuming the quarterly reinvestment of
all dividends and distributions.
Yield
The Fund's yield for the thirty-day period ended February 28, 1995, was
1.52%.
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
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.
Advertisements and other sales literature for the Fund may quote total
returns which are calculated on non-standardized base periods. These
total returns represent the change, over a specified period of time, in
the value of an investment in the Fund based on monthly reinvestment of
dividends and other investments.
Advertisements may quote performance information which does not reflect
the effect of the sales load.
Appendix
Standard and Poor's Ratings Group Corporate Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. 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 effect
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.
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 Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding
timely payment is strong. Those issues determined to possess extremely
strong safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated A-1.
Moody's Investors Service, Inc. Commercial Paper Ratings
Prime-1--Issuers rated PRIME-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory obligations.
PRIME-1 repayment capacity will normally be evidenced by the following
characteristics: leading market positions in well established
industries; high rates of return on funds employed; conservative
capitalization structure 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--Issuers rated PRIME-2 (or related supporting institutions) have
a strong capacity for repayment of short-term promissory obligations.
This will normally be evidenced by many of the characteristics cited
above, but to a lesser degree. Earnings trends and coverage ratios,
while sound, will be more subject to variation. Capitalization
characteristics, while still appropriate, may be more affected by
external conditions. Ample alternate liquidity is maintained.
Fitch Investors Service, Inc. Commercial Paper Ratings
F-1+(Exceptionally Strong Credit Quality)Issues assigned this rating is
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+.
2061001B (4/95)
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 April 30,
1995. 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 April 30, 1995
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED
INVESTORS
General Information About the
Fund 1
Investment Objective and Policies 1
Types of Investments 1
Futures and Options
Transactions 1
Futures Contracts 1
Put Options on Financial
Futures Contracts 2
Call Options on Financial
Futures Contracts 2
"Margin" in Futures
Transactions 2
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 3
When-Issued and Delayed
Delivery Transactions 3
Lending of Portfolio Securities 4
Portfolio Turnover 4
Investment Limitations 4
DG Investor Series Management 6
Fund Ownership 11
Trustees Compensation 11
Trustee Liability 11
Investment Advisory Services 12
Adviser to the Fund 12
Advisory Fees 12
Sub-Adviser to the Fund 12
State Expense Limitations 12
Administrative Services 12
Brokerage Transactions 12
Purchasing Shares 13
Distribution and Shareholder
Services Plans 13
Conversion To Federal Funds 13
Determining Net Asset Value 13
Determining Market Value of
Securities 14
Exchange Privilege 14
Requirements for Exchange 14
Making an Exchange 14
Redeeming Shares 14
Redemption in Kind 14
Tax Status 14
The Fund's Tax Status 14
Shareholders' Tax Status 15
Total Return 15
Yield 15
Performance Comparisons 15
Appendix 17
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, money market instruments,
corporate bonds, notes, and put options on stocks.
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 made to secure what is considered to be an
advantageous price or 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 on the Fund's records
at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not
intend to engage in when-issued and delayed delivery transactions to an
extent that would cause the segregation of more than 20% of the total
value of its 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.
Portfolio Turnover
Although the Fund does not intend to invest for the purpose of 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 objective without regard to the length of time a
particular security may have been held. The investment adviser does not
anticipate that the Fund's portfolio turnover rate will exceed 100%. For
the period from July 21, 1994 (start of business) to February 28, 1995,
the Fund's portfolio turnover rate was 45%.
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.
The Fund does not expect to borrow money in excess of 5% of the
value of its net assets during the coming year.
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 are listed with their addresses, present positions
with DG Investor Series, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated
Research Corp.; Chairman, Passport Research, Ltd.; Director, AEtna Life
and Casualty Company; Chief Executive Officer and Director, Trustee, or
Managing General Partner of the Funds. Mr. Donahue is the father of J.
Christopher Donahue, Vice President of the Trust.
Thomas G. Bigley
28th Floor, One Oxford Centre
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Director, Oberg Manufacturing Co.; Chairman of the Board, Children's
Hospital of Pittsburgh; Director, Trustee, or Managing General Partner
of the Funds; formerly, Senior Partner, Ernst & Young LLP.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President,
John R. Wood and Associates, Inc., Realtors; President, Northgate
Village Development Corporation; Partner or Trustee in private real
estate ventures in Southwest Florida; Director, Trustee, or Managing
General Partner of the Funds; formerly, President, Naples Property
Management, Inc.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Director,
Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D.
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine and Member, Board of Trustees, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Member, Board of Directors, University of Pittsburgh Medical
Center; formerly, Hematologist, Oncologist, and Internist, Presbyterian
and Montefiore Hospitals; Director, Trustee, or Managing General Partner
of the Funds.
Edward L. Flaherty, Jr.@
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Director,
Eat'N Park Restaurants, Inc., and Statewide Settlement Agency, Inc.;
Director, Trustee, or Managing General Partner of the Funds; formerly,
Counsel, Horizon Financial, F.A., Western Region.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
Vice President, Treasurer, and Trustee
Vice President, Treasurer, and Trustee, Federated Investors; Vice
President and Treasurer, Federated Advisers, Federated Management,
Federated Research, Federated Research Corp., and Passport Research,
Ltd.; Executive Vice President, Treasurer, and Director, Federated
Securities Corp.; Trustee, Federated Services Company and Federated
Shareholder Services; Chairman, Treasurer, and Trustee, Federated
Administrative Services; Trustee or Director of some of the Funds; Vice
President and Treasurer of the Funds.
Peter E. Madden
225 Franklin Street
Boston, MA
Birthdate: April 16, 1942
Trustee
Consultant; State Representative, Commonwealth of Massachusetts;
Director, Trustee, or Managing General Partner of the Funds; formerly,
President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer
Henny, Koehuba, Meyer and Flaherty
Two Gateway Center - Suite 674
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Attorney-at-law; Partner, Henny, Koehuba, Meyer and Flaherty; Chairman,
Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Director,
Trustee, or Managing General Partner of the Funds; formerly, Vice
Chairman, Horizon Financial, F.A.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner,
Mollica, Murray and Hogue; Director, Trustee or Managing General Partner
of the Funds.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer
Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
Management Center; Director, Trustee, or Managing General Partner of the
Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: July 21, 1935
Trustee
Public relations/marketing consultant; Director, Trustee, or Managing
General Partner of the Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Vice President
President and Trustee, Federated Investors, Federated Advisers,
Federated Management, and Federated Research; President and Director,
Federated Research Corp.; President, Passport Research, Ltd.; Trustee,
Federated Administrative Services, Federated Services Company, and
Federated Shareholder 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
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Director,
Federated Research Corp.; Chairman and Director, Federated Securities
Corp.; President or Vice President of some of the Funds; Director or
Trustee of some of the Funds.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Vice President and Secretary
Vice President, Secretary, General Counsel, and Trustee, Federated
Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Federated Management, and Federated Research; Vice President and
Secretary, Federated Research Corp. and Passport Research, Ltd.;
Trustee, Federated Services Company; Executive Vice President,
Secretary, and Trustee, Federated Administrative Services; Secretary and
Trustee, Federated Shareholder Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President, Federated Administrative Services; Vice President and
Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined
in the Investment Company Act of 1940, as amended.
@ Member of the Executive Committee. The Executive Committee of
the Board of Trustees handles the responsibilities of the Board
of Trustees between meetings of the Board.
As used in the table above, "The Funds" and "Funds" mean the following
investment companies: American Leaders Fund, Inc.; Annuity Management
Series; Arrow Funds; 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
Institutional 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; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; New York Municipal Cash Trust; 111 Corcoran
Funds; Peachtree Funds; The Planters Funds; RIMCO Monument Funds; The
Shawmut Funds; Short-Term Municipal Trust; 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; The Virtus Funds; World Investment Series,
Inc.
Fund Ownership
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of April 17, 1995, the following shareholders of record owned 5% or
more of the outstanding shares of the Fund: Deposit Guaranty National
Bank, Jackson, Mississippi, owned approximately 3,326,877 shares
(98.5%).
Trustees Compensation
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $ - 0-
Chairman and Trustee
Thomas G. Bigley, $860
Trustee
John T. Conroy, Jr., $1,889
Trustee
William J. Copeland, $1,889
Trustee
James E. Dowd, $1,889
Trustee
Lawrence D. Ellis, M.D., $1,713
Trustee
Edward L. Flaherty, Jr., $1,889
Trustee
Edward C. Gonzales, $ -0-
President and Trustee
Peter E. Madden, $1,455
Trustee
Gregor F. Meyer, $1,713
Trustee
John E. Murray, Jr., $ -0-
Trustee
Wesley W. Posvar, $1,713
Trustee
Marjorie P. Smuts, $1,713
Trustee
+The aggregate compensation is provided for the Trust which is
comprised of six portfolios. Information is furnished for the fiscal
year ended February 28, 1995.
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 and Commercial National Bank, the Fund's sub-adviser, to restrict
the flow of non-public information, Fund investments are typically made
without any knowledge of Deposit Guaranty National Bank's or its
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.
During the period from July 21, 1994 (start of business) through
February 28, 1995, the Adviser earned $131,668, of which $105,660 was
voluntarily waived.
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.
During the period from July 21, 1994 (start of business) through
February 28, 1995, the Sub-Adviser earned $34,649, all of which was
voluntarily waived.
State Expense Limitations
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2 1/2% per year of the first $30 million of average net assets,
2% per year of the next $70 million of average net assets, and 1 1/2%
per year of the remaining average net assets, the Adviser will reimburse
the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
Administrative Services
Federated Administrative Services, a subsidiary of Federated Investors,
provides administrative personnel and services to the Fund for a fee as
described in the prospectus. For the period from July 21, 1994 (start
of business) to February 28, 1995, the Fund incurred administrative
service costs of $100,000, of which $80,736 was voluntarily waived.
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 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.
For the period from July 21, 1994 (start of business) to February 28,
1995, the Fund paid $36,029 in brokerage commissions on brokerage
transactions.
Purchasing Shares
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 and Shareholder Services Plans
These arrangements permit the payment of fees to financial institutions
to stimulate distribution activities and services to shareholders
provided by a representative who has knowledge of the shareholder's
particular circumstances and goals. These activities and services may
include, but are not limited to, marketing efforts; providing office
space, equipment, telephone facilities, and various clerical,
supervisory, computer, and other personnel as necessary or beneficial to
establish and maintain shareholder accounts and records; processing
purchase and redemption transactions and automatic investments of client
account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and
addresses.
By adopting the Distribution Plan, the Board of Trustees expects that
the Fund will be able to achieve a more predictable flow of cash for
investment purposes and to meet redemptions. This will facilitate more
efficient portfolio management and assist the Fund in pursuing its
investment objectives. By identifying potential investors whose needs
are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of
redemptions and sales.
Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail;
and (3) enhancing shareholder recordkeeping systems; and (4) responding
promptly to shareholders' requests and inquiries concerning their
accounts.
For the period from July 21, 1994 (start of business) to February 28,
1995, no payments were made pursuant to the Distribution Plan. In
addition, for the period from July 21, 1994 (start of business) to
February 28, 1995, no payments were made pursuant to the Shareholder
Services Plan.
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
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
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
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
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
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.
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. The Fund's cumulative total return is
representative of only five months of fund activity since the Fund' s
effective date.
The Fund's cumulative total return from August 1, 1994 (start of
performance) to February 28, 1995, was 7.96%.
Yield
The Fund's yield for the thirty-day period ended February 28, 1995 was
(0.07%).
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
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.
- Russell 2000 Small Stock Index is a broadly diversified index
consisting of approximately 2,000 small capitalization common
stocks that can be used to compare to the total returns of funds
whose portfolios are invested primarily in small capitalization
common stocks.
- 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
Standard and Poor's Ratings Group 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.
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 Ratings Group 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 (4/95)
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements (Filed in Part A)
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the
Registrant (1.);
(i) Conformed copy of Amendment No. 1 of
Declaration of Trust of the Registrant
(2.);
(ii) Conformed copy of Amendment No. 3 of
Declaration of Trust of the Registrant
(4.);
(iii) Conformed copy of Amendment to the
Declaration of Trust of the Registrant
dated May 17, 1994 (8.);
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of
Beneficial Interest of DG U.S. Government
Money Market Fund (3.);
(ii) Copy of Specimen Certificate for Shares of
Beneficial Interest of DG Limited Term
Government Income Fund (3.);
(iii) Copy of Specimen Certificate for Shares of
Beneficial Interest of DG Government
Income Fund (3.);
(iv) Copy of Specimen Certificate for Shares of
Beneficial Interest of DG Equity Fund
(3.);
(v) Copy of Specimen Certificate for Shares of
Beneficial Interest of DG Municipal Income
(6.);
(vi) Copy of Specimen Certificate for Shares of
Beneficial Interest of DG Opportunity Fund
(8.);
(5) (i) Copy of Investment Advisory Contract of
Registrant (7.);
(a) Conformed copy of Exhibit A for DG
U.S. Government Money Market Fund
(8.);
(b) Conformed copy of Exhibit B for DG
Limited Term Government Income Fund
(8.);
(c) Conformed copy of Exhibit C for DG
Government Income Fund (8.);
(d) Conformed copy of Exhibit D for DG
Equity Fund (8.);
(e) Conformed copy of Exhibit E for DG
Municipal Income Fund (8.);
(f) Conformed copy of Exhibit F for DG
Opportunity Funds; (9.)
(ii) Copy of Sub-Advisory Agreement between
Deposit Guaranty National Bank and
Commercial National Bank (6.);
(a) Conformed copy of Exhibit A for DG
Equity Fund (8.);
(b) Conformed copy of Exhibit B for DG
Government Income Fund (8.);
(c) Conformed copy of Exhibit C for DG
Limited Term Government Income Fund
(8.);
(d) Conformed copy of Exhibit D for DG
Municipal Income Fund (8.);
(e) Conformed copy of Exhibit E for DG
Opportunity Fund; (9.)
(6) Copy of Distributor's Contract of the Registrant
(3.);
(i) Conformed copy of Exhibit A for DG vs
Government Money Market Fund (8.);
(ii) Copy of Exhibit B for DG Limited Term
Government Income Fund (8.);
(iii) Conformed copy of Exhibit C for DG
Government Income Fund (8.);
(iv) Conformed copy of Exhibit D for DG Equity
Income Fund (8.);
(v) Conformed copy of Exhibit E for DG
Municipal Income Fund (8.);
(vi) Conformed copy of Exhibit F for DG
Opportunity Fund;(9.)
(7) Not applicable
(8) Copy of Custodian Agreement of the Registrant
(6.);
(9) (i) Copy of Transfer Agency and Service
Agreement of Registrant (6.);
(ii) Conformed copy of Administrative Services
Agreement (7.);
(iii) Copy of Shareholder Services Agreement
(8.);
(iv) Conformed copy of Shareholder Services
Plan; (9.)
(v) Conformed copy of Exhibit A to Shareholder
Services Plan; (9.)
(10) Copy of Opinion and Consent of Counsel as to
legality of shares being registered (2.);
(11) Conformed copy of consent of independent
auditors; +
(12) Not applicable;
(13) Copy of Initial Capital Understanding (2.);.
(14) Not applicable;
(15) (i) Copy of Distribution Plan of the
Registrant (2.);
(a) Conformed copy of Exhibit A for D.G.
U.S. Government Money Market Fund
(8.);
(b) Conformed copy of Exhibit B for DG
Limited Term Government Income Fund
(8.);
(c) Conformed copy of Exhibit C for DG
Government Income Fund (8.);
(d) Conformed copy of Exhibit D for DG
Equity Fund (8.);
(e) Conformed copy of Exhibit E for DG
Municipal Income Fund (8.);
(f) Conformed copy of Exhibit F for DG
Opportunity Fund; (9.)
(ii) Copy of Rule 12b-1 Agreement of the
Registrant (8.);
(16) Schedule for Computation of Fund Performance
Data (5.);
(i) DG Equity Fund(5.);
(ii) DG Government Income Fund(5.);
(iii) DG Limited Term Government Income
Fund(5.);
(iv) DG U.S. Government Money Market Fund(5.);
(v) DG Municipal Income Fund (6.);
(vi) DG Opportunity Fund; (9.)
(17) Financial Data Schedules; +
(18) Conformed copy of Power of Attorney; +
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed March 18, 1992. (File
Nos. 33-46431 and 811-6607)
2. Response is incorporated by reference to Registrant's Pre-
Effective Amendment No. 1 on Form N-1A filed April 29, 1992.
(File Nos. 33-46431 and 811-6607)
3. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 1 on Form N-1A filed May 22, 1992. (File
Nos. 33-46431 and 811-6607)
4. Response is incorporated by reference to Registrant's Post-
Effective Amendment No.2 on Form N-1A filed October 14, 1992.
(File Nos. 33-46431 and 811-6607)
5. Response is incorporated by reference to Registrant's Post-
Effective Amendment No.3 on Form N-1A filed October 28, 1992.
(File Nos. 33-46431 and 811-6607)
6. Response is incorporated by Reference to Registrant's Post-
Effective Amendment No. 4 on Form N-1A filed April 23, 1993.
(File Nos. 33-46431 and 811-6607)
7. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 5 on Form N-1A filed April 27, 1994.
(File Nos. 33-46431 and 811-6607)
8. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 6 on Form N-1A filed May 26, 1994. (File
Nos. 33-46431 and 811-6607)
9. Response is incorporated by reference to Registrant's Post-
Effective Amendment No. 8 on Form N-1A filed February 10, 1995.
(File Nos. 33-46431 and 811-6607)
Item 25. Persons Controlled by or Under Common Control with
Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of April 17, 1995
Shares of beneficial interest
(no par value)
DG U.S. Government Money
Market Fund 46
DG Limited Term Government
Income Fund 208
DG Government Income Fund 131
DG Equity Fund 451
DG Municipal Income Fund 61
DG Opportunity Fund 63
Item 27. Indemnification: (4)
Item 28. Business and Other Connections of Investment Adviser:
(a) 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, 1994, 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.
The principal executive officers of the Fund's
Investment Adviser, and the Directors of the Fund's
Adviser, are set forth in the following tables. Unless
otherwise noted, the position listed under Other
Substantial Business, Profession, Vocation or
Employment is with Deposit Guaranty National Bank.
Other Substantial
Position With Business, Profession,
Name the Adviser Vocation or Employment
E.B. Robinson, Jr. Chairman of the Board
and Chief Executive
Howard L. McMillan, Jr. President and Chief
Operating Officer
Robert G. Barnett General Counsel and
Secretary to the Board
William R. Boone Executive Vice President
Thomas M. Hontzas Executive Vice President
W. Parks Johnson Executive Vice President
James S. Lenoir Executive Vice President
W. Murray Pate Executive Vice President
W. Stanley Pratt Executive Vice President
Arlen L. McDonald Treasurer and Chief
Financial Officer
DIRECTORS
Haley R. Barbour Warren A. Hood, Jr. W.R. Newman, III
Michael B. Bemis Charles L. Irby John N. Palmer
B. L. Chain W. Randolph James E.B. Robinson, Jr.
Sharon S. Greener Booker T. Jones Robert D. Robinson
Charles G. Hathaway Jean C. Lindsey Robert L.T. Smith, Jr.
Harris B. Henley Howard L. McMillan, Jr. Victor P. Smith
Douglas A. Herring Richard D. McRae, Jr. J. Kelley Williams
W. Henry Holman, Jr.
(b) Commercial National Bank, a national banking
association which received its charter in 1886, is a
subsidiary of DGC and serves as Investment Sub-Adviser
to DG Limited Term Government Income Fund, DG Government
Income Fund, DG Equity Fund, DG Municipal Income Fund
and DG Opportunity Fund. As of December 31, 1993, the
Trust Division at Commercial National Bank had
approximately $1.2 billion in trust assets under
administration, of which it had investment discretion
over $1.02 billion. Commercial National Bank has served
as sub-adviser to DG Limited Term Government Income
Fund, DG Government Income Fund, DG Equity Fund and DG
Municipal Income Fund since July 20, 1992 and for DG
Opportunity Fund since May 25, 1994.
The principal executive officers of the Investment Sub-
Adviser, and the Directors of the Investment Sub-
Adviser, are set forth in the following tables. Unless
otherwise noted, the position listed under Other
Substantial Business, Profession, Vocation or Employment
is with Commercial National Bank.
Other Substantial
Position With Business, Profession,
Name the Sub-Adviser Vocation or Employment
Steven C. Walker President and Chief
Executive Officer
P. Michael Adkins Executive Vice President
C. David Barrentine, Jr. Executive Vice President
David H. Nordyke Executive Vice President
Robert H. Boehmler, Jr. Senior Vice President
V. Odell Mimms Senior Vice President
Richard H. Sale Senior Vice President
F.M. Freeman Senior Vice President
DIRECTORS
Willis L. Meadows Dewey W. Corley C. W. Holtsclaw, Jr.
Gordon A. Marsalis Howard L. McMillan, Jr. William C. Peatross
W. C. Rasberry E. B. Robinson, Jr. Steven C. Walker
Donald W. Weir N. H. Wheless, Jr. Fred Wilson
George D. Wray, Jr. Richard H. Bremer
Item 29. Principal Underwriters:
(a) Federated Securities Corp., the Distributor for shares of
the Registrant, also acts as principal underwriter for
the following open-end investment companies: Alexander
Hamilton Funds; American Leaders Fund, Inc.; Annuity
Management Series; Arrow Funds; Automated Cash
Management Trust; Automated Government Money Trust;
BayFunds; The Biltmore Funds; The Biltmore Municipal
Funds; California Municipal Cash Trust; Cash Trust
Series, Inc.; Cash Trust Series II; 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 Institutional
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; First Union
Funds; Fixed Income Securities, Inc.; Fortress
Adjustable Rate U.S. Government Fund, Inc.; Fortress
Municipal Income Fund, Inc.; Fortress Utility Fund,
Inc.; Fountain Square Funds; Fund for U.S. Government
Securities, Inc.; Government Income Securities, Inc.;
High Yield Cash Trust; Independence One Mutual Funds;
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 Utility Fund,
Inc.; Liquid Cash Trust; Managed Series Trust; Marshall
Funds, Inc.; Money Market Management, Inc.; Money
Market Obligations Trust; Money Market Trust; The
Monitor Funds; Municipal Securities Income Trust;
Newpoint Funds; New York Municipal Cash Trust; 111
Corcoran Funds; Peachtree Funds; The Planters Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term
Municipal Trust; SouthTrust Vulcan Funds; Star Funds;
The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration
Trust; Tax-Free Instruments Trust; Tower Mutual Funds;
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; The Virtus Funds; Vision
Fiduciary Funds, Inc.; Vision Group of Funds, Inc.; and
World Investment Series, Inc.
Federated Securities Corp. also acts as principal
underwriter for the following closed-end investment
company: Liberty Term Trust, Inc.- 1999.
(b)
<TABLE>
<CAPTION>
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, and
Asst. Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice President,
Federated Investors Tower President, and Treasurer, Treasurer and
Pittsburgh, PA 15222-3779 Federated Securities Trustee
Corp.
John W. McGonigle Director, Executive Vice Vice President and
Federated Investors Tower President, and Assistant Secretary
Pittsburgh, PA 15222-3779 Secretary, Federated
Securities Corp.
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust
Pittsburgh, PA 15222-3779 Federated Securities Corp.
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
H. Joseph Kennedy Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph L. Epstein Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael D. Fitzgerald Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David C. Glabicki Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Scott A. Hutton Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William J. Kerns Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William E. Kugler Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dennis M. Laffey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Stephen A. LaVersa Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Francis J. Matten, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Jeffrey Niss Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. O'Brien Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charles A. Robison Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John C. Shelar, Jr. Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jamie M. Teschner Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Philip C. Hetzel Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President,
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Ernest L. Linane Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
S. Elliott Cohan Secretary, Assistant
Federated Investors Tower Federated Securities Corp. Secretary
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 throught 31a-3 promulgated thereunder are
maintained at one of the following locations:
DG Investor Series Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Services Company Federated Investors Tower
Transfer Agent, Dividend Pittsburgh, PA 15222-3779
Disbursing Agent and
Shareholder Servicing Agent
Federated Administrative Services Federated Investors Tower
Administrator Pittsburgh, PA 15222-3779
Deposit Guaranty National Bank P.O. Box 1200
Adviser Jackson, Mississippi 39215-1200
Commercial National Bank P.O. Box 21119
Sub-Adviser Shreveport, Louisiana 71152
(except DG U.S. Government Money
Market Fund)
State Street Bank and Trust Company P.O. Box 1713
Custodian Boston, Massachusetts 021205
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions
of Section 16(c) of the 1940 Act with respect to the removal
of Trustees and the calling of special shareholder meetings
by shareholders.
Registrant hereby undertakes to furnish each person to whom
a prospectus for each portfolio of the Trust is delivered
with a copy of Registrant's latest annual report to
shareholders upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, DG Investor Series,
certifies that it meets all of the requirements for effectiveness of
this Amendment to its Registration Statement pursuant to Rule 485(b)
under the Securities Act of 1933 and has duly caused this Amendment to
its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 25th day of April, 1995.
DG INVESTOR SERIES
BY: /s/Karen M. Brownlee
Karen M. Brownlee, Assistant Secretary
Attorney in Fact for John F. Donahue
April 25, 1995
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to its Registration Statement has been signed below by the
following person in the capacity and on the date indicated:
NAME TITLE DATE
By: /s/Karen M. Brownlee
Karen M. Brownlee Attorney In Fact April 25, 1995
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Edward C. Gonzales* President, Treasurer and
Trustee (Principal Financial
and Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
With respect to this Post Effective Amendment No. 9 to the
Registration Statement on Form N-1A of the DG Investor Series, we
consent to the use of our reports dated April 7, 1995, on the financial
statements of the funds listed below, included herein and to the
references to our Firm under the headings "Financial Highlights" and
"Administration of the Fund - Independent Auditors" in Part A of the
Registration Statement.
DG U.S. Government Money Market Fund;
DG Equity Fund;
DG Government Income fund;
DG Limited Term Government Income Fund;
DG Municipal Income Fund;
DG Opportunity Fund
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
April 20, 1995
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and
appoints the Secretary and Assistant Secretary of DG Investor Series and
the Assistant General Counsel of Federated Investors, and each of them,
their true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution for them and in their names, place and
stead, in any and all capacities, to sign any and all documents to be
filed with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, by means of the Securities and Exchange
Commission's electronic disclosure system known as EDGAR; and to file
the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and
authority to sign and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents
and purposes as each of them might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or
any of them, or their or his substitute or substitutes, may lawfully do
or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/ _John F. Donahue Chairman and Trustee April 13, 1995
John F. Donahue (Chief Executive Officer)
/s/ _Edward C. Gonzales President and Treasurer April 13, 1995
Edward C. Gonzales and Trustee(Principal
Financial andAccounting
Officer)
/s/_Thomas G. Bigley Trustee April 13, 1995
Thomas G. Bigley
/s/ _John T. Conroy, Jr. Trustee April 13, 1995
John T. Conroy, Jr.
/s/ _William J. Copeland Trustee April 13, 1995
William J. Copeland
/s/ _James E. Dowd Trustee April 13, 1995
James E. Dowd
SIGNATURES TITLE DATE
/s/Lawrence D. Ellis, M.D. Trustee April 13, 1995
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. Trustee April 13, 1995
Edward L. Flaherty, Jr.
/s/ _Peter E. Madden Trustee April 13, 1995
Peter E. Madden
/s/ _Gregor F. Meyer Trustee April 13, 1995
Gregor F. Meyer
/s/ John E. Murray, Jr. Trustee April 13, 1995
John E. Murray, Jr.
/s/ _Wesley W. Posvar Trustee April 13, 1995
Wesley W. Posvar
/s/ _Marjorie P. Smuts Trustee April 13, 1995
Marjorie P. Smuts
Sworn to and subscribed before me this 13th day of April, 1995
/s/ Marie M. Hamm
Notary Public
Notarial Seal
Marie M. Hamm, Notary Public
Plum Boro, Allegheny County
My Commission Expires September 16, 1996
Member, Pennsylvania Association of Notaries
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 1
<NAME> DG Equity Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 230,093,912
<INVESTMENTS-AT-VALUE> 256,428,916
<RECEIVABLES> 3,566,385
<ASSETS-OTHER> 30,830
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 260,026,131
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 28,207
<TOTAL-LIABILITIES> 28,207
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 233,132,212
<SHARES-COMMON-STOCK> 22,777,372
<SHARES-COMMON-PRIOR> 26,134,342
<ACCUMULATED-NII-CURRENT> 617,738
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (87,030)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 26,335,004
<NET-ASSETS> 259,997,924
<DIVIDEND-INCOME> 5,673,263
<INTEREST-INCOME> 670,040
<OTHER-INCOME> 0
<EXPENSES-NET> 2,422,844
<NET-INVESTMENT-INCOME> 3,920,459
<REALIZED-GAINS-CURRENT> 2,434,655
<APPREC-INCREASE-CURRENT> 11,661,159
<NET-CHANGE-FROM-OPS> 18,016,273
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,923,189
<DISTRIBUTIONS-OF-GAINS> 3,737,081
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 5,663,505
<NUMBER-OF-SHARES-REDEEMED> 9,475,512
<SHARES-REINVESTED> 455,037
<NET-CHANGE-IN-ASSETS> (24,204,596)
<ACCUMULATED-NII-PRIOR> 620,468
<ACCUMULATED-GAINS-PRIOR> 1,215,396
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,907,646
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,422,844
<AVERAGE-NET-ASSETS> 255,965,723
<PER-SHARE-NAV-BEGIN> 10.870
<PER-SHARE-NII> 0.160
<PER-SHARE-GAIN-APPREC> 0.710
<PER-SHARE-DIVIDEND> 0.160
<PER-SHARE-DISTRIBUTIONS> 0.170
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.410
<EXPENSE-RATIO> 95
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 2
<NAME> DG Government Income Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 169,461,816
<INVESTMENTS-AT-VALUE> 166,597,491
<RECEIVABLES> 2,160,558
<ASSETS-OTHER> 18,093
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 168,776,142
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 462,657
<TOTAL-LIABILITIES> 462,657
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 173,367,892
<SHARES-COMMON-STOCK> 17,772,717
<SHARES-COMMON-PRIOR> 11,993,971
<ACCUMULATED-NII-CURRENT> 173,076
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,363,158)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,864,325)
<NET-ASSETS> 168,313,485
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,997,796
<OTHER-INCOME> 0
<EXPENSES-NET> 1,053,599
<NET-INVESTMENT-INCOME> 8,944,197
<REALIZED-GAINS-CURRENT> (2,301,667)
<APPREC-INCREASE-CURRENT> (2,720,070)
<NET-CHANGE-FROM-OPS> 3,922,460
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,775,580
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 10,805,072
<NUMBER-OF-SHARES-REDEEMED> 5,423,669
<SHARES-REINVESTED> 397,343
<NET-CHANGE-IN-ASSETS> 49,618,362
<ACCUMULATED-NII-PRIOR> 4,459
<ACCUMULATED-GAINS-PRIOR> (61,491)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 926,421
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,285,204
<AVERAGE-NET-ASSETS> 153,105,722
<PER-SHARE-NAV-BEGIN> 9.900
<PER-SHARE-NII> 0.540
<PER-SHARE-GAIN-APPREC> (0.440)
<PER-SHARE-DIVIDEND> 0.530
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.470
<EXPENSE-RATIO> 68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 3
<NAME> DG Limited Term GovernmentIncome Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 97,045,937
<INVESTMENTS-AT-VALUE> 94,550,252
<RECEIVABLES> 1,716,057
<ASSETS-OTHER> 15,810
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 96,282,119
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65,685
<TOTAL-LIABILITIES> 65,685
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,461,727
<SHARES-COMMON-STOCK> 9,975,150
<SHARES-COMMON-PRIOR> 11,816,436
<ACCUMULATED-NII-CURRENT> 93,936
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,843,544)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (2,495,685)
<NET-ASSETS> 96,216,434
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,020,395
<OTHER-INCOME> 0
<EXPENSES-NET> 672,473
<NET-INVESTMENT-INCOME> 5,347,922
<REALIZED-GAINS-CURRENT> (1,068,070)
<APPREC-INCREASE-CURRENT> (1,836,643)
<NET-CHANGE-FROM-OPS> 2,443,209
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,266,273
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 4,548,639
<NUMBER-OF-SHARES-REDEEMED> 6,604,481
<SHARES-REINVESTED> 214,556
<NET-CHANGE-IN-ASSETS> (20,443,994)
<ACCUMULATED-NII-PRIOR> 12,287
<ACCUMULATED-GAINS-PRIOR> (775,474)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 642,168
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 940,043
<AVERAGE-NET-ASSETS> 106,842,314
<PER-SHARE-NAV-BEGIN> 9.870
<PER-SHARE-NII> 0.490
<PER-SHARE-GAIN-APPREC> (0.230)
<PER-SHARE-DIVIDEND> 0.480
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.650
<EXPENSE-RATIO> 63
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 4
<NAME> DG Municipal Income Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 40,944,505
<INVESTMENTS-AT-VALUE> 40,456,802
<RECEIVABLES> 1,670,043
<ASSETS-OTHER> 3,045
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 42,129,890
<PAYABLE-FOR-SECURITIES> 497,884
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 89,863
<TOTAL-LIABILITIES> 587,747
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 41,992,509
<SHARES-COMMON-STOCK> 4,090,893
<SHARES-COMMON-PRIOR> 3,257,815
<ACCUMULATED-NII-CURRENT> 25,860
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 11,477
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (487,703)
<NET-ASSETS> 41,542,143
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,134,466
<OTHER-INCOME> 0
<EXPENSES-NET> 281,081
<NET-INVESTMENT-INCOME> 1,853,385
<REALIZED-GAINS-CURRENT> 11,477
<APPREC-INCREASE-CURRENT> (1,201,336)
<NET-CHANGE-FROM-OPS> 663,526
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,838,300
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,764,990
<NUMBER-OF-SHARES-REDEEMED> 933,737
<SHARES-REINVESTED> 1,825
<NET-CHANGE-IN-ASSETS> 7,107,041
<ACCUMULATED-NII-PRIOR> 10,775
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 225,528
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 435,192
<AVERAGE-NET-ASSETS> 37,542,041
<PER-SHARE-NAV-BEGIN> 10.570
<PER-SHARE-NII> 0.490
<PER-SHARE-GAIN-APPREC> (0.430)
<PER-SHARE-DIVIDEND> 0.480
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.150
<EXPENSE-RATIO> 75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 5
<NAME> DG Opportunity Fund
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 38,377,579
<INVESTMENTS-AT-VALUE> 39,112,654
<RECEIVABLES> 1,287,733
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 40,400,387
<PAYABLE-FOR-SECURITIES> 3,700,748
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,086
<TOTAL-LIABILITIES> 3,736,834
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,474,555
<SHARES-COMMON-STOCK> 3,287,942
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 98
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 453,825
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 735,075
<NET-ASSETS> 36,663,553
<DIVIDEND-INCOME> 31,608
<INTEREST-INCOME> 85,433
<OTHER-INCOME> 0
<EXPENSES-NET> 109,120
<NET-INVESTMENT-INCOME> 7,921
<REALIZED-GAINS-CURRENT> 501,584
<APPREC-INCREASE-CURRENT> 735,075
<NET-CHANGE-FROM-OPS> 1,244,580
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7,823
<DISTRIBUTIONS-OF-GAINS> 47,759
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,539,667
<NUMBER-OF-SHARES-REDEEMED> 255,365
<SHARES-REINVESTED> 3,640
<NET-CHANGE-IN-ASSETS> 36,663,553
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 131,668
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 295,516
<AVERAGE-NET-ASSETS> 22,475,720
<PER-SHARE-NAV-BEGIN> 10.950
<PER-SHARE-NII> 0.000
<PER-SHARE-GAIN-APPREC> 0.220
<PER-SHARE-DIVIDEND> 0.020
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 11.150
<EXPENSE-RATIO> 79
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 6
<NAME> DG U.S. Government Money Market Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1995
<PERIOD-END> Feb-28-1995
<INVESTMENTS-AT-COST> 162,906,654
<INVESTMENTS-AT-VALUE> 162,906,654
<RECEIVABLES> 233,617
<ASSETS-OTHER> 33,063
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 163,173,334
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 658,628
<TOTAL-LIABILITIES> 658,628
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 162,514,706
<SHARES-COMMON-STOCK> 162,514,706
<SHARES-COMMON-PRIOR> 189,314,775
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 162,514,706
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 7,526,835
<OTHER-INCOME> 0
<EXPENSES-NET> 890,453
<NET-INVESTMENT-INCOME> 6,636,382
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 6,636,382
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 6,636,382
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 394,768,127
<NUMBER-OF-SHARES-REDEEMED> 421,619,818
<SHARES-REINVESTED> 51,622
<NET-CHANGE-IN-ASSETS> (26,800,069)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 837,617
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,225,500
<AVERAGE-NET-ASSETS> 167,523,414
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.040
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.040
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
