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
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 2
- ------------------------------------------------------
GENERAL INFORMATION 3
- ------------------------------------------------------
INVESTMENT INFORMATION 3
- ------------------------------------------------------
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
- ------------------------------------------------------
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
- ------------------------------------------------------
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
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
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
- ------------------------------------------------------
DG Investor Series 14
Exchanging Shares 15
REDEEMING SHARES 15
- ------------------------------------------------------
Through the Banks 15
By Telephone 15
By Mail 16
Signatures 16
Systematic Withdrawal Plan 16
Accounts With Low Balances 17
SHAREHOLDER INFORMATION 17
- ------------------------------------------------------
Voting Rights 17
Massachusetts Partnership Law 17
EFFECT OF BANKING LAWS 18
- ------------------------------------------------------
TAX INFORMATION 18
- ------------------------------------------------------
Federal Income Tax 18
PERFORMANCE INFORMATION 19
- ------------------------------------------------------
FINANCIAL STATEMENTS 20
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 29
- ------------------------------------------------------
ADDRESSES 30
- ------------------------------------------------------
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)......................................................... 0.40%
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
- ------------------------------------------------------------- ------ ------- ------- --------
<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
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
- --------------------------------------------------------------------
Net investment income 0.49 0.52 0.36
- --------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (0.23) (0.17) 0.07
- -------------------------------------------------------------------- ------ ------ -----
Total from investment operations 0.26 0.35 0.43
- --------------------------------------------------------------------
LESS DISTRIBUTIONS
- --------------------------------------------------------------------
Distributions from net investment income (0.48) (0.52) (0.36)
- --------------------------------------------------------------------
Distributions from net realized gain on investment transactions -- (0.03) --
- -------------------------------------------------------------------- ------ ------ ------
Total distributions (0.48) (0.55) (0.36)
- -------------------------------------------------------------------- ------ ------ -----
NET ASSET VALUE, END OF PERIOD $ 9.65 $ 9.87 $10.07
- -------------------------------------------------------------------- ------ ------ -----
TOTAL RETURN(B) 2.72% 3.52% 4.43%
- --------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
- --------------------------------------------------------------------
Expenses 0.63% 0.59% 0.50%(c)
- --------------------------------------------------------------------
Net investment income 5.00% 5.21% 6.25%(c)
- --------------------------------------------------------------------
Expense waiver/reimbursement(d) 0.25% 0.29% 0.42%(c)
- --------------------------------------------------------------------
SUPPLEMENTAL DATA
- --------------------------------------------------------------------
Net assets, end of period (000 omitted) $96,216 $116,660 $99,921
- --------------------------------------------------------------------
Portfolio turnover 14% 76% 18%
- --------------------------------------------------------------------
</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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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
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
- ------------------------------------------------------
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
- ------------------------------------------------------
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
- ------------------------------------------------------
INVESTING IN THE FUND 10
- ------------------------------------------------------
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
- ------------------------------------------------------
DG Investor Series 13
Exchanging Shares 13
REDEEMING SHARES 14
- ------------------------------------------------------
Through the Banks 14
By Telephone 14
By Mail 14
Signatures 15
Systematic Withdrawal Program 15
Accounts With Low Balances 15
SHAREHOLDER INFORMATION 16
- ------------------------------------------------------
Voting Rights 16
Massachusetts Partnership Law 16
EFFECT OF BANKING LAWS 16
- ------------------------------------------------------
TAX INFORMATION 17
- ------------------------------------------------------
Federal Income Tax 17
PERFORMANCE INFORMATION 17
- ------------------------------------------------------
FINANCIAL STATEMENTS 19
- ------------------------------------------------------
INDEPENDENT AUDITORS' REPORT 29
- ------------------------------------------------------
ADDRESSES 30
- ------------------------------------------------------
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........................................................................ 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
- --------------------------------------------------------------------------------
(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
- --------------------------------------------------------------------------------
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 LIMITED TERM GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995
MANAGEMENT DISCUSSION AND ANALYSIS:
---------------------------------------------------------------------------
Short and intermediate term bond yields rose for the six-month period
ended February 28, 1995. The declining market value of these bonds
associated with this rate increase continued to disappoint investors.
Longer term bonds (bonds with maturities ranging from 10 to 30 years) held
their value and collected coupon income.
The rate increase was primarily attributed to evidence of a
strengthening economy and the possibility that inflation might accompany
it. A strong fourth quarter gross domestic product report and a tightening
of the Federal Funds rate added to the rate pressure in the short end of
the market.
For the fiscal year ended February 28, 1995, the DG Limited Term
Government Income Fund's total rate of return was 2.72%* based on net asset
value (0.68% taking into account the sales charge) compared to the Merrill
Lynch 1-3 Year Treasury Index** total return of 3.37%. The Fund's duration
and average maturity were reduced during the period. U.S. Treasury
securities continue to hold a majority position in the Fund. Corporate
securities may be utilized more in the future as spreads to Treasuries have
widened, providing a more adequate return for the additional risk.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
** This index is unmanaged.
DG LIMITED TERM GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN DG LIMITED TERM GOVERNMENT INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
DG Limited Term Government Income Fund (the "Fund") from August 1, 1992 (start
of performance) to February 28, 1995 compared to the Merrill Lynch 1-3 Year
Treasury Index (ML1-3).+
Graphic presentation. See Appendix A.
<TABLE>
<CAPTION>
DG Limited Merrill- Lynch
Term Gov- 1-3 Year
Measurement Period ernment In- Treasury
(Fiscal Year Covered) come Fund Index
<S> <C> <C>
8/1/92 9800 10000
2/28/93 10234 10396
2/28/94 10594 10755
2/28/95 10882 11117
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED FEBRUARY 28, 1995
1 Year.............................................................. 0.68%
Start of Performance (August 1, 1992)............................... 3.35%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge
= $9,800). The Fund's performance assumes the reinvestment of all dividends
and distributions. The ML1-3 has been adjusted to reflect reinvestment of
dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The ML1-3 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance.
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
23321N400
2061003ARS (4/95)
DG GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995
MANAGEMENT DISCUSSION AND ANALYSIS:
---------------------------------------------------------------------------
Short and intermediate term bond yields rose for the six-month period
ended February 28, 1995. The declining market value of these bonds
associated with this rate increase continued to disappoint investors.
Longer term bonds (bonds with maturities ranging from 10 to 30 years) held
their value and collected coupon income.
The rate increase was primarily attributed to evidence of a
strengthening economy and the possibility that inflation might accompany
it. A strong fourth quarter gross domestic product report and a tightening
of the Federal Funds rate added to the rate pressure in the short end of
the market.
For the fiscal year ended February 28, 1995, DG Government Income
Fund's total return was 1.20% (-0.80% taking into account the sales load)*
compared to the Lehman Brothers Government/Corporate Total Index** return
of 1.34%. We continued to utilize a barbell strategy during this period.
Our duration and average maturity continue to be shorter than the
benchmark.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
** This index is unmanaged.
DG GOVERNMENT INCOME FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN DG GOVERNMENT INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
DG Government Income Fund (the "Fund") from August 1, 1992 (start of
performance) to February 28, 1995 compared to the Lehman Brothers
Government/Corporate Total Index ("LBGCT").+
Graphic presentation. See Appendix B.
<TABLE>
<CAPTION>
DG Govern-
Measurement Period ment Income
(Fiscal Year Covered) Fund LBGCT
<S> <C> <C>
8/1/92 9800 10000
2/28/93 10427 10674
2/28/94 10901 11285
2/28/95 11032 11437
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED FEBRUARY 28, 1995
1 Year............................................................. (0.80%)
Start of Performance (August 1, 1992).............................. 3.90%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge
= $9,800). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LBGCT has been adjusted to reflect reinvestment of
dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBGCT is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
23321N301
2061002ARS (4/95)
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995
MANAGEMENT DISCUSSION AND ANALYSIS:
---------------------------------------------------------------------------
DG Municipal Income Fund (the "Fund") was established in December 1992
to provide investors with the ability to invest in a diversified portfolio
of quality longer term municipal issues. The investment objective of the
Fund is to provide dividend income that is exempt from federal regular
income tax.*
Issues purchased by the Fund during the last twelve months consisted
largely of general obligations of states, cities, and counties. The Fund is
currently managed with a twelve and a half year average maturity. This is a
change from our last reporting period. We have taken advantage of the
latest rally in municipal bond prices and shortened the portfolio's average
weighted maturity. The investment adviser believes that the value in the
market is in higher quality municipal issues and continues to reflect this
strategy in the Fund's portfolio.
The total rate of return (income plus capital appreciation) for the
past twelve months was 0.81% based on net asset value (-1.24% taking into
account the sales charge).**
The Fund's 30-day distribution rate as of February 28, 1995 was 4.90%
for shares based on net asset value (and 4.80% taking into account the
sales charge).*** The Fund's net assets increased from $34.4 million on
February 28, 1994 to $41.6 million as of February 28, 1995.
* Income may be subject to the federal alternative minimum tax and state
and local taxes.
** Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
*** Distribution rate reflects actual distribution made to shareholders. It
is calculated by dividing the monthly annualized dividend plus
short-term capital gains, if any, by the average 30-day offering price.
DG MUNICIPAL INCOME FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN DG MUNICIPAL INCOME FUND
The graph below illustrates the hypothetical investment of $10,000 in the
DG Municipal Income Fund (the "Fund") from December 21, 1992 (start of
performance) to February 28, 1995 compared to the Lehman Brothers Municipal Bond
Index ("LBMBI").+
Graphic presentation. See Appendix C.
<TABLE>
<CAPTION>
Lehman
Brothers Mu-
Measurement Period DG Municipal nicipal Bond
(Fiscal Year Covered) Income Fund Index
<S> <C> <C>
12/21/92 9800 10000
2/28/93 10354 10482
2/28/94 10907 11063
2/28/95 10995 11271
AVERAGE ANNUAL TOTAL RETURN** FOR THE
PERIOD ENDED FEBRUARY 28, 1995
1 Year............................................................. (1.24%)
Start of Performance (December 21, 1992)........................... 4.44%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge
= $9,800). The Fund's performance assumes the reinvestment of all dividends
and distributions. The LBMBI has been adjusted to reflect reinvestment of
dividends on securities in the index.
** Total return quoted reflects all applicable sales charges and contingent
deferred sales charges.
+ The LBMBI is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
23321N509
2112511ARS (4/95)
DG EQUITY FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995
MANAGEMENT DISCUSSION AND ANALYSIS:
---------------------------------------------------------------------------
In the early months of the second half of DG Equity Fund's (the
"Fund") fiscal year, the stock market alternately surged, stumbled, and
leaped only to stagger lower to levels near 1994's previously established
troughs. From about mid-December through our Fund's fiscal year-end, equity
prices began to run upward. The irrepressibly robust economy, coupled with
the October to November reversal in the bond market's thirteen month
decline, seemed to provide the bulk of the impetus in the market's upward
thrust. Since we continue to believe that additional interest rate risk
will be relatively constrained over the remainder of this cycle and that
the economy's underlying growth/productivity ratio remains more than just
healthily aligned, the market's record high levels pose no significant
long-term concern to us at this time. Short term, however, the market
fluctuation may well get bumpier!
Reversing the Fund's market experience during the first half of the
fiscal year, our portfolio's stock values increased at a rate more than
twice that of our long-term benchmark, the Standard & Poor's 500 Index*
("S&P 500"), during the fiscal year's second half. Our recent investment
results more closely reflected those of the major large capitalization
growth-style benchmarks. This very short-term period of out-performing the
broader market indicators was largely the result of two principal
influences. The first was the Fund's favorable economic sector weightings
in comparison to the economic sector weightings of the S&P 500. The second,
and possibly the most important influence, was our favorable stock
selection.
For the fiscal year as a whole, it was a good time to be a large-cap
growth-style manager as growth stocks outperformed value stocks by some
400+ basis points. Last year, it may be recalled, the shoe was on the other
foot with value stocks outperforming growth stocks by nearly 900 basis
points. So, the pendulum swings, but not always evenly or when convenient.
We plan to take advantage of the market's practices and
unpredictability by applying our large-cap growth approach consistently and
without fail. By doing so, we believe a major equity management pitfall can
be avoided. We believe that sudden shifts of management style have proven
to be many a manager's Achilles heel. Being successful by shifting
management style over the long-run requires a degree of prescience well
beyond that demonstrated by most money managers. We, on the other hand,
believe stock price follows earnings growth. In our opinion, the best
equity investment for the long-run is a well-diversified portfolio of
growth stocks in which company earnings can reasonably be expected to grow
rapidly and consistently. Coupled with our very high quality issue
requirements, a portfolio such as ours offers excellent long-term equity
investment potential.
* This index is unmanaged.
DG EQUITY FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN DG EQUITY FUND
The graph below illustrates the hypothetical investment of $10,000 in the DG
Equity Fund (the "Fund") from August 1, 1992 (start of performance) to February
28, 1995 compared to the Standard and Poor's 500 Index ("S&P 500").+
Graphic presentation. See Appendix D.
<TABLE>
<CAPTION>
Measurement Period DG Equity DG Equity
(Fiscal Year Covered) Fund-2.00% Fund-3.50% S&P 500
<S> <C> <C> <C>
8/1/92 9800 9650 10000
2/28/93 10427 10267 10632
2/28/94 10948 10780 11512
2/28/95 11859 11677 12359
AVERAGE ANNUAL TOTAL RETURN*** FOR THE
PERIOD ENDED FEBRUARY 28, 1995
1 Year......................................................................... 4.48%
Start of Performance (August 1, 1992).......................................... 6.17%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the original maximum sales charge of 2.00% ($10,000 investment minus $200
sales charge = $9,800). The Fund's performance assumes the reinvestment of
all dividends and distributions. The S&P 500 has been adjusted to reflect
reinvestment of dividends on securities in the index.
** Represents a hypothetical investment of $10,000 in the Fund after deducting
the current maximum sales charge of 3.50% (effective 5/1/95) ($10,000
investment minus $350 sales charge = $9,650). The Fund's performance assumes
the reinvestment of all dividends and distributions. The S&P 500 has been
adjusted to reflect reinvestment of dividends on securities in the index.
*** Total return quoted reflects all applicable current maximum sales charges
and contingent deferred sales charges.
+ The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees
that the SEC requires to be reflected in the Fund's performance. This index
is unmanaged.
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
2061001ARS (4/95)
23321N202
2061001ARS (4/95)
DG OPPORTUNITY FUND
- --------------------------------------------------------------------------------
ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995
MANAGEMENT DISCUSSION AND ANALYSIS:
---------------------------------------------------------------------------
DG Opportunity Fund (the "Fund") was established in July 1994 to
provide investors with a diversified portfolio of smaller capitalized
companies. The investment objective of the Fund is to provide capital
appreciation.
Stocks purchased by the Fund since July have mostly been smaller
capitalization issues. The stock selection has been well diversified with
some concentrations being made in the technology, financial and consumer
sectors. We anticipate more sector rotation during the next six months.
The total rate of return (income plus capital appreciation) since
inception of the Fund was 11.84% based on net asset value (7.96% taking
into account the sales charge).*
The Fund's 30-day distribution rate as of February 28, 1995 was 0.76%
for shares based on net asset value (and 0.75% taking into account the
sales charge).** The Fund's net assets have increased since inception to
$36.7 million as of February 28, 1995.
* Performance quoted represents past performance. Investment return and
principal value will fluctuate, so that an investor's shares, when
redeemed, may be worth more or less than their original cost.
** Distribution rate reflects actual distributions made to shareholders. It
is calculated by dividing the monthly annualized dividend plus
short-term capital gains, if any, by the average 30-day offering price.
DG OPPORTUNITY FUND
- --------------------------------------------------------------------------------
GROWTH OF $10,000 INVESTED IN DG OPPORTUNITY FUND
The graph below illustrates the hypothetical investment of $10,000 in the DG
Opportunity Fund (the "Fund") from August 1, 1994 (start of performance) to
February 28, 1995 compared to the Russell 2000 Index.+
Graphic presentation. See Appendix E.
<TABLE>
<CAPTION>
Measurement Period DG Opportunity DG Opportunity Russell 2000
(Fiscal Year Covered) Fund- 2.00% Fund- 3.50% Index
<S> <C> <C> <C>
8/1/94 9800 9650 10000
2/28/95 10960 10793 10632
AVERAGE ANNUAL TOTAL RETURN*** FOR THE
PERIOD ENDED FEBRUARY 28, 1995
Start of Performance (August 1, 1994) (cumulative)............................. 7.96%
</TABLE>
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN
AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE
WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR
GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED.
* Represents a hypothetical investment of $10,000 in the Fund after deducting
the original maximum sales charge of 2.00% ($10,000 investment minus $200
sales charge = $9,800). The Fund's performance assumes the reinvestment of
all dividends and distributions. The Russell 2000 Index has been adjusted to
reflect reinvestment of dividends on securities in the index.
** Represents a hypothetical investment of $10,000 in the Fund after deducting
the current maximum sales charge of 3.50% (effective 5/1/95) ($10,000
investment minus $350 sales charge = $9,650). The Fund's performance assumes
the reinvestment of all dividends and distributions. The Russell 2000 Index
has been adjusted to reflect reinvestment of dividends on securities in the
index.
*** Total return quoted reflects all applicable current maximum sales charges
and contingent deferred sales charges.
+ The Russell 2000 Index is not adjusted to reflect sales loads, expenses, or
other fees that the SEC requires to be reflected in the Fund's performance.
FEDERATED SECURITIES CORP.
(LOGO)
- --------------------------------------------------------------------------------
Distributor
23321N608
G00499-03 (4/95)
APPENDIX A
The graphic presentation here displayed consists of a line graph
comparing the performance of DG Limited Term Government Income Fund (the
"Fund") to the performance of the Merrill Lynch 1-3 Year Treasury Index
(the "Index"). The Fund's performance is represented by a solid line.
The Index's performance is represented by a broken line. The line graph
presents the change in value of a hypothetical $10,000 purchase in the
Fund and the Index. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from August 1, 1992, through
February 28, 1995. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the Index; the ending
values are $10,882, and $11,117, respectively.
APPENDIX B
The graphic presentation here displayed consists of a line graph
comparing the performance of DG Government Income Fund (the "Fund") to
the performance of the Lehman Brothers Government/Corporate Total Index
(the "Index"). The Fund's performance is represented by a solid line.
The Index's performance is represented by a broken line. The line graph
presents the change in value of a hypothetical $10,000 purchase in the
Fund and the Index. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from August 1, 1992, through
February 28, 1995. The right margin reflects the ending value of the
hypothetical investment in the Fund as compared to the Index; the ending
values are $11,032, and $11,437, respectively.
APPENDIX C
The graphic presentation here displayed consists of a line graph
comparing the performance of DG Municipal Income Fund (the "Fund") to
the performance of the Lehman Brother Municipal Bond Index (the
"Index"). The Fund's performance is represented by a solid line. The
Index's performance is represented by a broken line. The line graph
presents the change in value of a hypothetical $10,000 purchase in the
Fund and the Index. The "y" axis reflects the cost of the investment.
The "x" axis reflects computation periods from December 21, 1992,
through February 28, 1995. The right margin reflects the ending value
of the hypothetical investment in the Fund as compared to the Index; the
ending values are $10,995, and $11,271, respectively.
APPENDIX D
The graphic presentation here displayed consists of a line graph
comparing the performance of DG Equity Fund (the "Fund") to the
performance of the Standard & Poor's 500 Index (the "Index"). The
Fund's performance, assuming a 2.00% sales load, is represented by a
solid line. The Fund's performance, assuming a 3.50% sales load, is
represented by a dotted line. The Index's performance is represented by
a broken line. The line graph presents the change in value of a
hypothetical $10,000 purchase in the Fund and the Index, less any
applicable sales loads. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from August 1,
1992, through February 28, 1995. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared to the
Index; the ending values are $11,859, and $11,677, and $12,359,
respectively.
APPENDIX E
The graphic presentation here displayed consists of a line graph
comparing the performance of DG Opportunity Fund (the "Fund") to the
performance of the Russell 2000 Index (the "Index"). The Fund's
performance, assuming a 2.00% sales load, is represented by a solid
line. The Fund's performance, assuming a 3.50% sales load, is
represented by a dotted line. The Index's performance is represented by
a broken line. The line graph presents the change in value of a
hypothetical $10,000 purchase in the Fund and the Index, less any
applicable sales loads. The "y" axis reflects the cost of the
investment. The "x" axis reflects computation periods from August 1,
1994, through February 28, 1995. The right margin reflects the ending
value of the hypothetical investment in the Fund as compared to the
Index; the ending values are $10,960, and $10,793, and $10,632,
respectively.
