Table of Contents
DG
MID CAP FUND
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Prospectus
A Diversified Portfolio of
DG Investor Series,
an Open-End Management
Investment Company
ParkSouth
Corporation
Jackson, MS
Investment Adviser
Bennett Lawrence
Management, LLC
New York, NY
Sub-Adviser to
DG Mid Cap Fund
September 3, 1997
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[FEDERATED LOGO]
Federated Investors
Federated Securities Corp., Distributor
Cusip
G00499-14 (9/97)
[RECYCLED LOGO]
DG MID CAP FUND
(A PORTFOLIO OF DG INVESTOR SERIES)
PROSPECTUS
The shares of DG Mid Cap Fund (the "Fund") offered by this prospectus represent
interests in a portfolio of DG Investor Series (the "Trust"), an open-end
management investment company (a mutual fund). The Fund's investment objective
is to provide capital appreciation by investing primarily in a portfolio of
equity securities comprising the mid-sized capitalization sector of the United
States equity market.
THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT
GUARANTY NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY
NATIONAL BANK, AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT
AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS, INCLUDING 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 September 3,
1997, with the Securities and Exchange Commission ("SEC"). 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 or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-530-7377. To
obtain other information, or make inquiries about the Fund, contact the Fund at
the address listed in the back of this prospectus. The Statement of Additional
Information, material incorporated by reference into this document, and other
information regarding the Fund is maintained electronically with the SEC at
Internet Web site (http://www.sec.gov).
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
Prospectus dated September 3, 1997
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
INVESTMENT LIMITATIONS 7
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DG INVESTOR SERIES INFORMATION 8
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Management of the Trust 8
Distribution of Fund Shares 9
Administration of the Fund 10
Brokerage Transactions 11
Expenses of the Fund 11
NET ASSET VALUE 11
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INVESTING IN THE FUND 12
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Share Purchases 12
Minimum Investment Required 12
Systematic Investment Program 12
Confirmations and Account Statements 12
Dividends and Distributions 12
EXCHANGE PRIVILEGE 13
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Exchanging Shares 13
REDEEMING SHARES 13
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Through the Bank 13
Systematic Withdrawal Program 14
Accounts With Low Balances 15
SHAREHOLDER INFORMATION 15
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Voting Rights 15
EFFECT OF BANKING LAWS 15
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TAX INFORMATION 16
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Federal Income Tax 16
State and Local Taxes 16
PERFORMANCE INFORMATION 16
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ADDRESSES 17
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SUMMARY OF FUND EXPENSES
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SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage of offering
price)...................................................................... None
Maximum Sales Charge Imposed on Reinvested Dividends
(as a percentage of offering price)......................................... None
Contingent Deferred Sales Charge (as a percentage of original purchase price
or redemption proceeds, as applicable)...................................... None
Redemption Fee (as a percentage of amount redeemed, if applicable)............ None
Exchange Fee.................................................................. None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee................................................................ 1.00%
12b-1 Fees(1)................................................................. 0.00%
Total Other Expenses.......................................................... 0.89%
Shareholder Servicing Fee..................................................... 0.15%
Total Fund Operating Expenses............................................... 2.04%
</TABLE>
(1) A 12b-1 fee exists, however, the Fund has no intention of accruing or paying
this fee for the fiscal year ending February 28, 1998. If a 12b-1 fee were
charged, long-term shareholders may pay more than the economic equivalent of the
maximum front end sales charges permitted by the National Association of
Securities Dealers, Inc.
* The Total Fund Operating Expenses in the table above are based on expenses
expected during the fiscal year ending February 28, 1998.
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 INVESTORS 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
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<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming
(1) 5% annual return and (2) redemption at the end of each time
period.
The Fund charges no contingent deferred sales charge.................. $21 $ 64
</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.
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to
offer separate series of shares of beneficial interest representing interests in
separate portfolios of securities. The shares in any one portfolio may be
offered in separate classes. Shares of the Fund are designed for retail and
trust customers of Deposit Guaranty National Bank and its affiliates as a
convenient means of participating in a professionally managed portfolio. A
minimum initial investment of $250,000 is required.
Shares are sold and redeemed at net asset value without a sales charge imposed
by the Fund.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide capital appreciation. 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. This investment objective cannot be changed without shareholder
approval.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of equity securities comprising the mid-size capitalization ("mid-cap") sector
of the United States equity market. In the adviser's and sub-adviser's opinions,
mid-cap stocks have special value in the marketplace and (like small
capitalization stocks comprising the portfolio of the DG Opportunity Fund,
another fund which is offered by the Trust through a separate prospectus) 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 ranging from $500 million to $5 billion. The Fund's
adviser and sub-adviser will invest primarily in equity securities of companies
with above-average earnings growth prospects or in companies where significant
fundamental changes are taking place. These changes could include significant
new products, services, or methods of distribution; restructuring or
reallocating business; or significant share price appreciation. Unless indicated
otherwise, the investment policies described below may be changed by the Board
of Trustees ("Trustees") without approval of shareholders. Shareholders will be
notified before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund may invest in the
following:
- common stock of U.S. companies which are either listed on the New York or
American Stock Exchanges 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 securities rated at least BBB by Standard & Poor's ("S&P") 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 and sub-adviser to be of comparable quality;
- money market instruments rated A-1 or A-2 by S&P, Prime-1 or Prime-2 by
Moody's, or F-1 or F-2 by Fitch;
- fixed rate notes and bonds and adjustable and variable rate notes of
companies whose common stock it may acquire rated BBB or better by S&P or
Baa or better by Moody's;
- zero coupon convertible securities; and
- obligations, including certificates of deposit and bankers' acceptances,
of banks or savings 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.
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 mid-cap stocks, there
are some additional risk factors associated with investments in the Fund. In
particular, stocks in the mid-cap sector of the United States equity market have
historically been more volatile in price than larger capitalization stocks, such
as those included in the S&P 500 Composite Stock Price Index ("S&P 500 Index").
This is because, among other things, mid-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
mid-companies may, to some degree, fluctuate independently of the stocks of
large companies. That is, the stocks of mid-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 S&P 500 Index.
FIXED INCOME SECURITIES. The Fund may invest in fixed income securities. The
prices of fixed income securities fluctuate inversely in relation to the
direction of interest rates. The prices of longer-term fixed income securities
fluctuate more widely in response to market interest rate changes. Bonds rated
"BBB" by S&P 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
and sub-adviser. The adviser and sub-adviser will determine whether or not the
security continues to be an acceptable investment. If not, the security may be
sold.
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 adviser's and sub-adviser's opinions, 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 adviser and sub-adviser
evaluate 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 adviser and sub-adviser consider 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.
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 laws. 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, over-the-counter options and repurchase agreements providing for
settlement in more than seven days after notice.
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 Exchanges 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 adviser or
sub-adviser to be substantial.
Other differences between investing in foreign and U.S. companies include:
- less publicly available information about foreign companies;
- the lack of uniform financial accounting standards applicable to foreign
companies;
- less readily available market quotations on foreign companies;
- differences in government regulation and supervision of foreign
securities exchanges, brokers, listed companies, and banks;
- generally lower foreign securities market volume;
- the likelihood that foreign securities may be less liquid or more
volatile;
- generally higher foreign brokerage commissions;
- possible difficulty in enforcing contractual obligations or obtaining
court judgments abroad because of differences in the legal systems;
- unreliable mail service between countries; and
- political or financial changes which adversely affect investments in some
countries.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
securities of other investment companies. The Fund will limit its investment in
other investment companies to no more than 3% of the total outstanding voting
stock of any investment company, will not invest more than 5% of its total
assets in any one investment company, or invest more than 10% of its total
assets in investment companies in general. The Fund will purchase securities of
closed-end investment companies only in open-market transactions involving only
customary broker's commissions. However, these limitations are not applicable if
the securities are acquired in a merger, consolidation, or acquisition of
assets. It should be noted that investment companies incur certain expenses,
such as management fees, and, therefore, any investment by the 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
short-term cash on a temporary basis.
PUT AND CALL OPTIONS. The Fund may purchase and sell (write) put and call
options on its portfolio securities either as a hedge to attempt to protect
securities which the Fund holds, or will be purchasing, against decreases or
increases in value, or to generate income for the Fund. The Fund may 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. In the case of put options
written by the Fund, the Trust's custodian will segregate cash, U.S. Treasury
obligations, or highly liquid debt securities with a value equal to or greater
than the exercise price of the underlying securities.
The Fund is authorized to invest in put and call options that are traded on
securities exchanges. The Fund may also purchase and write over-the-counter
options ("OTC options") on portfolio securities in negotiated transactions with
the buyers or writers of the options when options on some of the portfolio
securities held by the Fund are not traded on an exchange. The Fund purchases
and writes OTC options only with investment dealers and other financial
institutions (such as commercial banks or savings associations) deemed
creditworthy by the adviser or sub-adviser.
OTC options are two-party contracts with prices 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 OTC options may not.
FINANCIAL FUTURES AND OPTIONS ON FUTURES. The Fund may purchase and sell
financial futures contracts and stock index futures contracts to hedge all or a
portion of its portfolio securities against changes in interest rates or
securities prices. Financial futures contracts on securities call for the
delivery of particular securities at a certain time in the future. The seller of
the contract agrees to make delivery of the type of instrument called for in the
contract, and the buyer agrees to take delivery of the instrument at the
specified future time. A financial futures contract on a securities index does
not involve the actual delivery of securities, but merely requires the payment
of a cash settlement based on changes in the securities index.
The Fund may also write call options and purchase put options on financial
futures contracts as a hedge to attempt to protect securities in its portfolio
against decreases in value resulting from anticipated increases in market
interest rates or broad declines in securities prices. When the Fund writes a
call option on a financial futures contract, it is undertaking the obligation of
selling the financial futures
contract at a fixed price at any time during a specified period if the option is
exercised. Conversely, as a purchaser of a put option on a financial futures
contract, the Fund is entitled (but not obligated) to sell a financial futures
contract at the fixed price during the life of the option.
The Fund may also write put options and purchase call options on financial
futures contracts as a hedge against rising purchase prices of securities
eligible for purchase by the Fund. The Fund will use these transactions to
attempt to protect its ability to purchase securities in the future at price
levels existing at the time it enters into the transactions. When the Fund
writes a put option on a futures contract, it is undertaking to buy a particular
futures contract at a fixed price at any time during a specified period if the
option is exercised. As a purchaser of a call option on a futures contract, the
Fund is entitled (but not obligated) to purchase a futures contract at a fixed
price at any time during the life of the option.
The Fund may not purchase or sell financial futures contracts or options on
financial futures contracts if, immediately thereafter, the sum of the amount of
initial margin deposits on the Fund's existing financial futures positions and
premiums paid for related options would exceed 5% of the fair market value of
the Fund's total assets, after taking into account the unrealized profits and
losses on those contracts it has entered into. When the Fund purchases financial
futures contracts, an amount of cash and cash equivalents, equal to the
underlying commodity value of the financial futures contracts (less any related
margin deposits), will be deposited in a segregated account with the Fund's
custodian to collateralize the position and, thereby, insure that the use of
such financial futures contracts is unleveraged.
RISKS. 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 adviser and the sub-adviser could be
incorrect in their 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 adviser and
sub-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.
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 agrees 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.
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.
The Fund may dispose of a commitment prior to settlement if the adviser and
sub-adviser deem 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 or sub-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 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 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 S&P, 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.
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 adviser and sub-adviser believe it is appropriate to do so in light of the
Fund's investment objective, without regard to the length of time a particular
security may have been held. A high portfolio turnover rate may lead to
increased costs and may also result in higher taxes paid by the Fund's
shareholders. See "Tax Information" in this Prospectus.
INVESTMENT LIMITATIONS
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As a matter of fundamental investment policy, which cannot be changed without
shareholder approval, the Fund will not borrow money directly or through reverse
repurchase agreements (arrangements in which a 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 their respective total assets and pledge up to 15% of
the value of their respective total assets to secure such borrowings.
DG INVESTOR SERIES INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Fund's business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Fund are made by the Fund's investment adviser,
ParkSouth Corporation (the "Adviser"), subject to direction by the Trustees. The
Adviser, in consultation with Bennett Lawrence Management, LLC (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 1.00% of the Fund's average daily net assets. The Adviser may
voluntarily choose to waive a portion of its fee or reimburse the Fund for
certain operating expenses. The Adviser can terminate this voluntary waiver
of its advisory fee at any time at its sole discretion.
ADVISER'S BACKGROUND. ParkSouth Corporation is a registered investment
adviser providing investment management services to individuals and
institutional clients. ParkSouth Corporation is a subsidiary of Deposit
Guaranty National Bank (the "Bank"), a national banking association founded
in 1925 which, in turn, 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. DGC is listed on
the New York Stock Exchange under the symbol "DEP."
The Adviser manages, in addition to the Funds in the DG Investor Series,
$630 million in common trust fund assets. The Adviser (which succeeded to
the investment advisory business of the Bank in 1997), or the Bank, have
served as the adviser to the Trust since May 5, 1992.
As part of its regular banking operations, the 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 the 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 ParkSouth
Corporation and Bennett Lawrence Management, LLC, the Sub-Adviser will make all
determinations with respect to the investment of assets of the Fund, and shall
take such steps as may be necessary to implement the same, including the
placement of purchase and sale orders on behalf of the Fund.
SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the
Sub-Adviser receives an annual fee from the Adviser equal to the following:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE
SUB-ADVISORY FEE DAILY NET ASSETS OF THE FUND
------------------ ------------------------------------
<S> <C>
.75% on the first $5 million
.65% on the next $5 million
.55% on assets in excess of $10 million
</TABLE>
The sub-advisory fee is accrued daily and paid monthly.
SUB-ADVISER'S BACKGROUND. Bennett Lawrence Management, LLC ("Bennett
Lawrence"), a New York limited liability company, is registered as an
investment adviser with the SEC. Bennett Lawrence provides investment
management services to client discretionary accounts with assets totalling
approximately $634 million as of December 31, 1996. Its clients are both
individuals and institutions. Bennett Lawrence is currently a sub-adviser
to a multi-manager fund.
S. Van Zandt Schreiber is Chief Portfolio Manager of Bennett Lawrence
Management, LLC and has been with the Bennett Lawrence Management, LLC
since the inception of Bennett Lawrence Management, LLC on August 25, 1995,
during which time he has managed various client discretionary accounts.
Prior thereto, Mr. Schreiber was Managing Director and Senior Growth
Portfolio Manager with Deutsche Morgan Grenfell/C.J. Lawrence, Inc.
(1965-1995). Mr. Schreiber has managed the Fund since September 3, 1997
(the Fund's inception date).
Robert W. Deaton is Associate Portfolio Manager of Bennett Lawrence
Management, LLC and has been with the Bennett Lawrence Management, LLC
since the inception of Bennett Lawrence Management, LLC on August 25, 1995,
during which time he has managed various client discretionary accounts.
Prior thereto, Mr. Deaton was a Portfolio Manager and Research Analyst with
Deutsche Morgan Grenfell/C.J. Lawrence, Inc. (1994-1995). Prior to joining
Deutsche Morgan Grenfell/C.J. Lawrence, Inc., Mr. Deaton was the Manager of
the Long-Term Growth Fund for the Tennessee Consolidated Retirement System
(1992) and in 1993-1994 served as a Director and the Education Chairman of
the Nashville Financial Analysts Society. Prior to 1992, Mr. Deaton was a
private investor. Mr. Deaton has managed the Fund since September 3, 1997
(the Fund's inception date).
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for 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 AND SHAREHOLDER SERVICES PLANS. Under a distribution plan adopted
in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund
may pay to the distributor an amount computed at an annual rate of 0.25% 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 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.
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 limitations as
the distributor may, by notice to the Trust, voluntarily declare to be
effective.
The distributor will pay financial institutions a fee based upon the 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 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.
In addition, the Fund has adopted a Shareholder Services Plan (the "Services
Plan") with respect to its 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 Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings 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.
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
ADMINISTRATIVE FEE DAILY NET ASSETS OF THE TRUST
- ------------------- -------------------------------------
<S> <C>
.15% on the first $250 million
.125% on the next $250 million
.10% on the next $250 million
.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$100,000 per portfolio. Federated Administrative Services may choose voluntarily
to waive a portion of its fee at any time.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Sub-Adviser looks for prompt execution of the order at a
favorable price. In working with dealers, the Sub-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. The
Sub-Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to review by the Trustees.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of Trust expenses.
These expenses include, but are not limited to the cost of: organizing the Trust
and continuing its existence; registering the Trust and its shares; Trustees
fees; meetings of Trustees and shareholders and proxy solicitations therefor;
auditing, accounting, and legal services; investment advisory and administrative
services; custodians, transfer agents, dividend disbursing agents, shareholder
servicing agents, and registrars; issuing, purchasing, repurchasing, and
redeeming shares; reports to government agencies; preparing, printing and
mailing documents to shareholders such as financial statements, prospectuses and
proxies; taxes and commissions; insurance premiums; association membership dues;
and such non-recurring and extraordinary items as may arise.
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 all other assets, less
liabilities, by the number of shares outstanding.
The net asset value is determined as of the close of trading (normally 4:00
p.m., Eastern time) on the New York Stock Exchange, 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.
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 the Bank 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. The Fund reserves the
right to reject any purchase request.
THROUGH THE BANK. To place an order to purchase shares of the Fund, open an
account by calling Deposit Guaranty National Bank at (800) 748-8500. 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 Bank.
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 $250,000. The Fund may waive the
initial minimum investment for employees of Deposit Guaranty Corp. and its
affiliates from time to time. Subsequent minimum investments must be in the
amount of at least $1,000.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $1,000. 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 Bank.
CONFIRMATIONS AND ACCOUNT STATEMENTS
Shareholders will receive detailed confirmations of transactions. In addition,
shareholders will receive periodic statements reporting all account activity,
including dividends paid. Share certificates are not issued unless requested by
contacting the Fund or Federated Shareholder Services Company in writing.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared quarterly and paid quarterly to all shareholders invested
in the Fund on the record date. All shareholders on the record date are entitled
to the dividend. If shares are redeemed or exchanged prior to the record date,
or purchased after the record date, those shares are not entitled to that
quarter's dividend.
Distribution of any realized net long-term capital gains will be made at least
once every 12 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 Bank, as appropriate.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Fund are shareholders of DG Investor Series, which, in
addition to the Fund, is composed of the following eight portfolios: DG Equity
Fund, DG Opportunity Fund, DG Limited Term Government Income Fund, DG Government
Income Fund, DG Municipal Income Fund, DG International Equity Fund, DG U.S.
Government Money Market Fund and DG Prime Money Market Fund.
Shareholders in any of the Funds have easy access to all of the other Funds.
EXCHANGING SHARES
Shareholders of any Fund in DG Investor Series may exchange shares for the
shares of any other Fund 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 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.
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 Bank.
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 Bank
receives 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 BANK
BY TELEPHONE. A shareholder who is a customer of the Bank may redeem shares of
the Fund by calling Deposit Guaranty National Bank at (800) 748-8500.
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 Bank or a check will be
sent to the address of record.
Proceeds from redemption requests received on holidays when wire transfers are
restricted will be wired the following business day. 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 Bank. 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
Shareholder Services Company or the Bank.
If at any time the Fund determines 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 Bank. 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 should be sent unendorsed with the written request by registered or
certified mail. Shareholders should call the Bank for assistance in redeeming by
mail.
SIGNATURES. Shareholders requesting 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 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 Shareholder 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 Shareholder
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, other than retirement accounts subject to required
minimum distributions. A shareholder may apply for participation in this program
through the Bank. Due to the fact that some of the Trust's other portfolios are
sold with a sales charge, it is not advisable for shareholders to be purchasing
shares of those portfolios 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 $250,000 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 Trust owned by a shareholder gives that shareholder one vote
in Trustee elections and other matters submitted to shareholders for vote. All
shares of each portfolio in the Trust have equal voting rights, except that in
matters affecting only a particular portfolio, only shareholders of that
portfolio are entitled to vote. The Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Fund's operation and for election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust entitled
to vote.
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, selling 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.
Some entities providing services to the Fund are subject to such banking laws
and regulations. They believe, based on the advice of counsel, that they may
perform those services for the Fund contem-
plated by any agreement entered into with the Trust without violating the
Glass-Steagall Act or other applicable banking laws or regulations. 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 these entities from continuing to
perform all or a part of the above services. If this happens, the Trustees would
consider alternative means of continuing available investment services. It is
not expected that Fund shareholders would suffer any adverse financial
consequences 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 single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios 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
and distributions are received in cash or as additional shares. The Fund will
provide detailed tax information for reporting purposes.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts 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 gain
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.
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.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Investor Series
DG Mid Cap Fund Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Investment Adviser
ParkSouth Corporation P.O. Box 1200
Jackson, MS 39215-1200
- ------------------------------------------------------------------------------------------------
Sub-Adviser
Bennett Lawrence Management, LLC 757 Third Avenue, 19th Floor
New York, NY 10017
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and P.O. Box 1713
Trust Company Boston, MA 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Auditors
KPMG Peat Marwick LLP One Mellon Bank Center
Pittsburgh, PA 15219
- ------------------------------------------------------------------------------------------------
</TABLE>
DG Mid Cap Fund
(A Portfolio of DG Investor Series)
Statement of Additional Information
This Statement of Additional Information should be read with the
prospectus of DG Mid Cap Fund (the "Fund"), a portfolio of DG Investor
Series (the "Trust"), dated September 3, 1997. This Statement is not a
prospectus. You may request a copy of a prospectus or a paper copy of this
Statement, if you have received it electronically, free of charge by
calling 1-800-530-7377.
Federated Investors Tower
Pittsburgh, PA 15222-3779
Statement dated September 3, 1997
[GRAPHIC OMITTED]
Federated Securities Corp. is the distributor of the Funds
and is a subsidiary of Federated Investors.
Cusip ______________
G00499-15(8/97)
<PAGE>
1
I
Table of Contents
<PAGE>
General Information About the Fund 1
Investment Objective and Policies 1
Types of Investments 1
Corporate Debt Securities 1
Zero Coupon Convertible Securities 1
Convertible Securities 1
Money Market Instruments 1
Warrants 2
Futures and Options Transactions 2
Repurchase Agreements 4
Reverse Repurchase Agreements 4
When-Issued and Delayed Delivery Transactions 4
Lending of Portfolio Securities 5
Portfolio Turnover 5
Investment Limitations 5
DG Investor Series Management 6
Trust Ownership 10
Trustees' Compensation 10
Trustee Liability 11
Investment Advisory Services 11
Investment Adviser 11
Advisory Fees 11
Sub-Adviser 11
Sub-Advisory Fees 11
Brokerage Transactions 12
Other Services 12
Fund Administration 12
Custodian and Portfolio Accountant 12
Transfer Agent 12
Independent Auditors 12
Purchasing Shares 12
Distribution and Shareholder Services Plans 13
Conversion to Federal Funds 13
Determining Net Asset Value 13
Determining Market Value of Securities 13
Exchange Privilege 13
Requirements for Exchange 13
Making an Exchange 14
Redeeming Shares 14
Redemption in Kind 14
Massachusetts Partnership Law 14
Tax Status 14
The Fund's Tax Status 14
Shareholders' Tax Status 14
Total Return 15
Yield 15
Performance Comparisons 15
Economic and Market Information 15
Appendix 16
<PAGE>
General Information About the Fund
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated February 7, 1992. The Fund is advised by ParkSouth Corporation
(the "Adviser") and is sub-advised by Bennett Lawrence Management, LLC (the
"Sub-Adviser").
Investment Objective and Policies
The Fund's investment objective is to provide capital appreciation.
Types of Investments
Acceptable investments for the Fund include but are not limited to: convertible
securities, money market instruments, common stocks, preferred stocks, corporate
bonds, notes and put options on stocks.
Corporate Debt Securities
Corporate debt securities may bear fixed, fixed and contingent, or variable
rates of interest. They may involve equity features such as conversion or
exchange rights, warrants for the acquisition of common stock of the same or
different issuer, participations based on revenues, sales, or profits, or the
purchase of common stock in a unit transaction (where corporate debt securities
and common stock are offered as a unit).
Zero Coupon Convertible Securities
Zero coupon convertible securities are debt securities which are issued at a
discount to their face amount and do not entitle the holder to any periodic
payments of interest prior to maturity. Rather, interest earned on zero coupon
convertible securities accretes at a stated yield until the security reaches its
face amount at maturity. Zero coupon convertible securities are convertible into
a specific number of shares of the issuer's common stock. In addition, zero
coupon convertible securities usually have put features that provide the holder
with the opportunity to put the bonds back to the issuer at a stated price
before maturity. Generally, the prices of zero coupon convertible securities may
be more sensitive to market interest rate fluctuations than conventional
convertible securities.
Federal income tax law requires the holder of a zero coupon convertible security
to recognize income with respect to the security prior to the receipt of cash
payments. To maintain its qualification as a regulated investment company and
avoid liability of federal income taxes, the Fund will be required to distribute
income accrued with respect to zero coupon convertible securities which it owns,
and may have to sell portfolio securities (perhaps at disadvantageous times) in
order to generate cash to satisfy these distribution requirements.
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 Adviser's or Sub-Adviser's opinions, 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 Funds, the Adviser or the Sub-Adviser
evaluate 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 Adviser or Sub-Adviser consider 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.
Money Market Instruments
The Fund may invest in money market instruments of domestic and foreign banks
and savings associations if they have capital, surplus, and undivided profits of
over $100,000,000, or if the principal amount of the instrument is insured in
full by the Bank Insurance Fund or the Savings Association Insurance Fund, both
of which are administered by the Federal Deposit Insurance Corporation.
Warrants
Warrants are basically options to purchase common stock at a specific price
(usually at a premium above the market value of the optioned common stock at
issuance) valid for a specific period of time. Warrants may have a life ranging
from less than a year to twenty years or may be perpetual. However, most
warrants have expiration dates after which they are worthless. In addition, if
the market price of the common stock does not exceed the warrant's exercise
price during the life of the warrant, the warrant will expire as worthless.
Warrants have no voting rights, pay no dividends, and have no rights with
respect to the assets of the corporation issuing them. The percentage increase
or decrease in the market price of the warrant may tend to be greater than the
percentage increase or decrease in the market price of the optioned common
stock.
Futures and Options Transactions
As a means of reducing fluctuations in the net asset value of shares of the Fund
by hedging all or a portion of its portfolio, and in the case of put and call
options on portfolio securities, to increase its current income, the Fund may
buy and sell financial futures and stock index futures contracts, buy and write
put options on portfolio securities and listed put options on futures contracts,
and write and buy call options on portfolio securities and on futures contracts.
The Fund will maintain its position in securities, option rights, and segregated
cash subject to puts and calls until the options are exercised, closed, or have
expired. An option position on financial futures contracts may be closed out
only on an exchange which provides a secondary market from options of the same
series.
Futures Contracts
A futures contract is a firm commitment between the seller, who agrees
to make delivery of the specific type of security called for in the
contract ("going short"), and the buyer, who agrees to take delivery of
the security ("going long") at a certain time in the future.
When the Fund purchases futures contracts, an amount of cash and cash
equivalents, equal to the underlying commodity value of the futures
contracts (less any related margin deposits), will be deposited in a
segregated account with the Fund's custodian (or the broker, if legally
permitted) to collateralize the position and thereby insure that the
use of such futures contract is unleveraged.
Financial futures contracts call for the delivery of particular debt
instruments at a certain time in the future. The seller of the contract
agrees to make delivery of the type of instrument called for in the
contract and the buyer agrees to take delivery of the instrument at the
specified future time.
Stock index futures contracts are based on indexes that reflect the
market value of common stock of the firms included in the indexes. An
index futures contract is an agreement pursuant to which two parties
agree to take or make delivery of an amount of cash equal to the
differences between the value of the index at the close of the last
trading day of the contract and the price at which the index contract
was originally written.
Put Options on Financial Futures Contracts
The Fund may purchase listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date at a
specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before a
future date whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling identical options.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option will be large enough to offset both the
premiums paid by the Fund for the original option plus the decrease in
value of the hedged securities.
Alternatively, the Fund may exercise its put options to close out the
position. To do so, they would simultaneously enter into a futures
contract of the type underlying the option (for a price less than the
strike price of the option) and exercise the option. The Fund would
then deliver the futures contract in return for payment of the strike
price. If the Fund neither closes out nor exercise an option, the
option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
When the Fund sells a put on a futures contract, it receives a cash
premium which can be used in whatever way is deemed most advantageous
to the Fund. In exchange for such premium, the Fund grants to the
purchaser of the put the right to receive from the Fund, at the strike
price, a short position in such futures contract, even though the
strike price upon exercise of the option is greater than the value of
the futures position received by such holder. If the value of the
underlying futures position is not such that exercise of the option
would be profitable to the option holder, the option will generally
expire without being exercised. The Fund has no obligation to return
premiums paid to it whether or not the option is exercised. It will
generally be the policy of the Fund, in order to avoid the exercise of
an option sold by it, to cancel its obligation under the option by
entering into a closing purchase transaction, if available, unless it
is determined to be in the Fund's interest to deliver the underlying
futures position. A closing purchase transaction consists of the
purchase by the Fund of an option having the same term as the option
sold by the Fund, and has the effect of canceling the Fund's position
as a seller. The premium which the Fund will pay in executing a closing
purchase transaction may be higher than the premium received when the
option was sold, depending in large part upon the relative price of the
underlying futures position at the time of each transaction.
Call Options on Financial Futures Contracts
In addition to purchasing put options on futures, the Funds may write
listed call options on futures contracts to hedge their portfolios.
When the Fund writes a call option on a futures contract, they are
undertaking the obligation of assuming a short futures position
(selling a futures contract) at the fixed strike price at any time
during the life of the option if the option is exercised. As stock
prices fall, causing the prices of futures to go down, the Fund's
obligations under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call
option positions to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the
call, so that the Fund keeps the premium received for the options. This
premium can substantially offset the drop in value of the Fund's fixed
income or indexed portfolio which are occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of
it by the buyer, the Fund may close out the option by buying an
identical option. If the hedge is successful, the cost of the second
option will be less than the premium received by the Fund for the
initial option. The net premium income of the Fund will then
substantially offset the decrease in value of the hedged securities.
When the Fund purchases a call on a financial futures contract, it
receives in exchange for the payment of a cash premium the right, but
not the obligation, to enter into the underlying futures contract at a
strike price determined at the time the call was purchased, regardless
of the comparative market value of such futures position at the time
the option is exercised. The holder of a call option has the right to
receive a long (or buyer's) position in the underlying futures
contract.
The Fund will not maintain open positions in futures contracts it has
sold or call options they have written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds
the current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will
take prompt action to close out a sufficient number of open contracts
to bring their open futures and options positions within this
limitation.
"Margin" in Futures Transactions
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash
or U.S. Treasury bills with the custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that
initial margin in futures transactions does not involve the borrowing
of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract
which is returned to the Fund upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Fund pays or receives cash, called "variation margin," equal to the
daily change in value of the futures contract. This process is known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark to
market their open futures positions.
The Fund is also required to deposit and maintain margin when they
write call options on futures contracts.
Purchasing and Writing Put Options on Portfolio Securities
The Fund may purchase and write put options on portfolio securities.
The purchase of a put option gives the Fund, in return for a premium,
the right to sell the underlying security to the writer (seller) at a
specified price during the term of the option. When the Fund writes a
put, it receives a premium and give the purchaser of the put the right
to sell the underlying security to the Fund at the exercise price at
any time during the option period.
Writing and Purchasing Covered Call Options on Portfolio Securities
The Fund may write and purchase call options. As writer of a call
option, the Fund has the obligation upon exercise of the option during
the option period to deliver the underlying security upon payment of
the exercise price. The Fund may only sell call options either on
securities held in its portfolio or on securities which they have the
right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration). As the
purchaser of a call option, the Fund has the right to purchase common
stock at a specific price (usually at a premium above the market value
of the optioned security at the date the option is issued) valid for a
specified period of time. If the market price of the security does not
exceed the option's exercise price during the life of the option, the
option will expire as worthless. The percentage increase or decrease in
the market price of the option may tend to be greater than the
percentage increase or decrease of the market price of the optioned
security.
Repurchase Agreements
The Fund or its custodian will take possession of the securities subject to
repurchase agreements and these securities will be marked to market daily. To
the extent that the original seller does not repurchase the securities from the
Fund, the Fund could receive less than the repurchase price on any sale of such
securities. In the event that such a defaulting seller filed for bankruptcy or
became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other recognized financial
institutions, such as broker/dealers, which are found by the Adviser or
Sub-Adviser to be creditworthy pursuant to guidelines established by the
Trustees.
Reverse Repurchase Agreements
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In reverse repurchase agreements, the Fund
transfers possession of a portfolio instrument to another person, such as a
financial institution, broker, or dealer, in return for a percentage of the
instrument's market value in cash, and agree that on a stipulated date in the
future the Fund will repurchase the portfolio instrument by remitting the
original consideration plus interest at an agreed upon rate.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a
disadvantageous time.
When-Issued and Delayed Delivery Transactions
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Fund sufficient
to make payment for the securities to be purchased are segregated on the Fund's
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Fund does not intend to
engage in when-issued and delayed delivery transactions to an extent that would
cause the segregation of more than 20% of the total value of their respective
assets.
<PAGE>
Lending of Portfolio Securities
The collateral received when the Fund lend portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must furnish additional collateral to the Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
Portfolio Turnover
The Fund does not intend to invest for the purpose of seeking short-term
profits. Securities in the portfolio will be sold whenever the Adviser and
Sub-Adviser believe it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The Adviser and Sub-Adviser does not anticipate that the Fund's
portfolio turnover rate will exceed 100%.
Investment Limitations
Selling Short and Buying on Margin
The Fund will not sell any securities short or purchase any securities
on margin, but may obtain such short-term credits as may be necessary
for clearance of purchases and sales of portfolio securities. The
deposit or payment by the Fund of initial or variation margin in
connection with financial futures contracts or related options
transactions is not considered the purchase of a security on margin.
Issuing Senior Securities and Borrowing Money
The Fund will not issue senior securities except that it may borrow
money directly or through reverse repurchase agreements as a temporary
measure for extraordinary or emergency purposes and then only in
amounts not in excess of one-third of the value of its total assets;
provided that, while borrowings exceed 5% of the Fund's total assets,
any such borrowings will be repaid before additional investments are
made. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage purposes.
Concentration of Investments
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any
one industry. The Fund may at times invest 25% or more of the value of
its total assets in securities issued or guaranteed by the U.S.
government, its agencies or instrumentalities.
Investing in Commodities
The Fund will not purchase or sell commodity contracts, or commodity
futures contracts except that it may purchase and sell financial
futures and stock index futures contracts and related options.
Investing in Real Estate
The Fund will not purchase or sell real estate, including limited
partnership interests in real estate, although it may invest in
securities secured by real estate or interests in real estate.
Lending Cash or Securities
The Fund will not lend any of its assets except portfolio securities,
but it may purchase or hold corporate or government bonds, debentures,
notes, certificates of indebtedness or other debt securities of an
issuer, repurchase agreements, or other transactions which are
permitted by the Fund's investment objective and policies or the
Trust's Declaration of Trust.
Underwriting
The Fund will not underwrite any issue of securities or participate in
the marketing of securities of other issuers, except as the Fund may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with the Fund's
investment objective, policies, and limitations.
Pledging Assets
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, the Fund may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets at the time of the pledge.
For purposes of this limitation, the following are not deemed to be
pledges: margin deposits for the purchase and sale of financial futures
contracts and related options, and segregation or collateral
arrangements made in connection with options activities or the purchase
of securities on a when-issued basis.
Diversification of Investments
With respect to 75% of the value of its assets, the Fund will not
purchase the securities of any issuer (other than cash, cash items, or
securities issued or guaranteed by U.S. government, its agencies or
instrumentalities) if, as a result, more than 5% of the value of the
Fund's total assets would be invested in the securities of that issuer.
Also, the Fund will not purchase more than 10% of the outstanding
voting securities of any one issuer.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Shareholders will be notified before any
material changes in these limitations become effective.
Investing in Illiquid Securities
The Fund will not invest more than 15% of the value of its net assets
in illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice; over-the-counter
options; and certain restricted securities not determined by the
Trustees to be liquid.
Investing in Securities of Other Investment Companies
The Fund will limit its investments 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. The Fund will invest
in other investment companies primarily for the purpose of investing
its short-term cash on a temporary basis.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund has no present intent to borrow money or pledge securities in excess of
5% of the value of its total assets during the coming fiscal year.
For the purposes of its policies and limitations, the Fund considers
certificates of deposit and demand and time deposits issued by a U.S. branch of
a domestic bank or savings association having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash items."
DG Investor Series Management
Officers and Trustees are listed with their addresses, birthdates, present
positions with DG Investor Series, and principal occupations.
John F. Donahue@*
Federated Investors Tower
Pittsburgh, PA
Birthdate: July 28, 1924
Chairman and Trustee
Chairman and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; Chairman and Director, Federated Research
Corp. and Federated Global Research Corp.; Chairman, Passport Research, Ltd.;
Chief Executive Officer and Director or Trustee of the Funds.
Thomas G. Bigley
15 Old Timber Trail
Pittsburgh, PA
Birthdate: February 3, 1934
Trustee
Chairman of the Board, Children's Hospital of Pittsburgh; formerly, Senior
Partner, Ernst & Young LLP; Director, MED 3000 Group, Inc.; Director, Member of
Executive Committee, University of Pittsburgh; Director or Trustee of the Funds.
John T. Conroy, Jr.
Wood/IPC Commercial Department
John R. Wood and Associates, Inc., Realtors
3255 Tamiami Trail North
Naples, FL
Birthdate: June 23, 1937
Trustee
President, Investment Properties Corporation; Senior Vice-President, John R.
Wood and Associates, Inc., Realtors; Partner or Trustee in private real estate
ventures in Southwest Florida; formerly, President, Naples Property Management,
Inc. and Northgate Village Development Corporation; Director or Trustee of the
Funds.
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director and Member of the Executive Committee, Michael Baker, Inc.; formerly,
Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp.; Director, Ryan
Homes, Inc.; Director or Trustee of the Funds.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director of the
Funds.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Professor of Medicine, University of Pittsburgh; Medical Director, University of
Pittsburgh Medical Center - Downtown; Member, Board of Directors, University of
Pittsburgh Medical Center; formerly, Hematologist, Oncologist, and Internist,
Presbyterian and Montefiore Hospitals; Director or Trustee of the Funds.
<PAGE>
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Attorney of Counsel, Miller, Ament, Henny & Kochuba; Director, Eat'N Park
Restaurants, Inc.; formerly, Counsel, Horizon Financial, F.A., Western Region;
Director or Trustee of the Funds.
Edward C. Gonzales*
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer and Trustee
Vice Chairman, Treasurer, and Trustee, Federated Investors; Vice President,
Federated Advisers, Federated Management, Federated Research, Federated Research
Corp., Federated Global Research Corp. and Passport Research, Ltd.; Executive
Vice President and Director, Federated Securities Corp.; Trustee, Federated
Shareholder Services Company; Trustee or Director of some of the Funds;
President, Executive Vice President and Treasurer of some of the Funds.
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Consultant; Former State Representative, Commonwealth of Massachusetts;
formerly, President, State Street Bank and Trust Company and State Street Boston
Corporation; Director or Trustee of the Funds.
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Chairman, Meritcare, Inc.; Director, Eat'N Park Restaurants, Inc.; Retired from
the law firm of Miller, Ament, Henny & Kochuba; Director or Trustee of the
Funds.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
President, Law Professor, Duquesne University; Consulting Partner, Mollica and
Murray; Director or Trustee of the Funds.
<PAGE>
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Professor, International Politics; Management Consultant; Trustee, Carnegie
Endowment for International Peace, RAND Corporation, Online Computer Library
Center, Inc., National Defense University and U.S. Space Foundation; President
Emeritus, University of Pittsburgh; Founding Chairman, National Advisory Council
for Environmental Policy and Technology, Federal Emergency Management Advisory
Board and Czech Management Center, Prague; Director or Trustee of the Funds.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Public Relations/Marketing/Conference Planning; Director or Trustee of the
Funds.
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President and Trustee, Federated Investors, Federated Advisers, Federated
Management, and Federated Research; President and Director, Federated Research
Corp. and Federated Global Research Corp.; President, Passport Research, Ltd.;
Trustee, Federated Shareholder Services Company, and Federated Shareholder
Services; Director, Federated Services Company; President or Executive Vice
President of the Funds; Director or Trustee of some of the Funds. Mr. Donahue is
the son of John F. Donahue, Chairman and Trustee of the Trust.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President , Secretary and Treasurer
Executive Vice President, Secretary, and Trustee, Federated Investors; Trustee,
Federated Advisers, Federated Management, and Federated Research; Director,
Federated Research Corp. and Federated Global Research Corp.; Trustee, Federated
Shareholder Services Company; Director, Federated Services Company; President
and Trustee, Federated Shareholder Services; Director, Federated Securities
Corp.; Executive Vice President and Secretary of the Funds; Treasurer of some of
the Funds.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
Executive Vice President and Trustee, Federated Investors; Chairman and
Director, Federated Securities Corp.; President or Vice President of some of the
Funds; Director or Trustee of some of the Funds.
<PAGE>
Charles L. Davis, Jr.
Federated Investors Tower
Pittsburgh, PA
Birthdate: March 23, 1960
Vice President and Assistant Treasurer
Vice President and Assistant Treasurer of some of the Funds.
* This Trustee is deemed to be an "interested person" as defined in the
Investment Company Act of 1940.
@ Member of the Executive Committee. The Executive Committee of the
Board of Trustees handles the responsibilities of the Board between
meetings of the Board.
As referred to in the list of Trustees and Officers, "Funds" includes the
following investment companies:
111 Corcoran Funds; Arrow Funds; Automated Government Money Trust; Blanchard
Funds; Blanchard Precious Metals Fund, Inc.; Cash Trust Series II; Cash Trust
Series, Inc. ; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash
Trust; Federated Adjustable Rate U.S. Government Fund, Inc.; Federated American
Leaders Fund, Inc.; Federated ARMs Fund; Federated Equity Funds; Federated
Equity Income Fund, Inc.; Federated Fund for U.S. Government Securities, Inc.;
Federated GNMA Trust; Federated Government Income Securities, Inc.; Federated
Government Trust; Federated High Income Bond Fund, Inc.; Federated High Yield
Trust; Federated Income Securities Trust; Federated Income Trust; Federated
Index Trust; Federated Institutional Trust; Federated Insurance Series;
Federated Investment Portfolios; Federated Investment Trust; Federated Master
Trust; Federated Municipal Opportunities Fund, Inc.; Federated Municipal
Securities Fund, Inc.; Federated Municipal Trust; Federated Short-Term Municipal
Trust; Federated Short-Term U.S. Government Trust; Federated Stock and Bond
Fund, Inc.; Federated Stock Trust; Federated Tax-Free Trust; Federated Total
Return Series, Inc.; Federated U.S. Government Bond Fund; Federated U.S.
Government Securities Fund: 1-3 Years; Federated U.S. Government Securities
Fund: 2-5 Years; Federated U.S. Government Securities Fund: 5-10 Years;
Federated Utility Fund, Inc.; First Priority Funds; Fixed Income Securities,
Inc.; High Yield Cash Trust; Intermediate Municipal Trust; International Series,
Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Term
Trust, Inc. - 1999; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Money Market Management, Inc.; Money Market
Obligations Trust; Money Market Obligations Trust II; Money Market Trust;
Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument Funds;
Targeted Duration Trust; Tax-Free Instruments Trust; The Expedition Funds; The
Planters Funds; The Virtus Funds; Trust for Financial Institutions; Trust for
Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust
for U.S. Treasury Obligations; Wesmark Funds; and World Investment Series, Inc.
Trust Ownership
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
Trustees' Compensation
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $0
Chairman and Trustee
Thomas G. Bigley, $1,958
Trustee
John T. Conroy, Jr., $2,155
Trustee
William J. Copeland, $2,155
Trustee
James E. Dowd, $2,155
Trustee
<PAGE>
Lawrence D. Ellis, M.D., $1,958
Trustee
Edward L. Flaherty, Jr., $2,155
Trustee
Edward C. Gonzales, $0
President, Treasurer and Trustee
Peter E. Madden, $1,958
Trustee
Gregor F. Meyer, $1,958
Trustee
John E. Murray, Jr., $1,958
Trustee
Wesley W. Posvar, $1,958
Trustee
Marjorie P. Smuts, $1,958
Trustee
+The aggregate compensation is provided for the Trust which is currently
comprised of eight portfolios. Information is furnished for the fiscal year
ended February 28, 1997, and the seven portfolios that were effective as of that
date.
Trustee Liability
The Trust's Declaration of Trust provides that the Trustees will only be liable
for their own willful defaults. If reasonable care has been exercised in the
selection of officers, agents, employees, or investment advisers, a Trustee
shall not be liable for any neglect or wrong doing of any such person. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
Investment Advisory Services
Investment Adviser
The Fund's investment adviser is ParkSouth Corporation (the "Adviser"), a
subsidiary of Deposit Guaranty National Bank, a national banking association
founded in 1925 which, in turn, is a subsidiary of Deposit Guaranty Corp. The
Adviser shall not be liable to the Trust, the Fund or any shareholder of the
Fund for any losses that may be sustained in the purchase, holding, or sale of
any security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust. Because
of the internal controls maintained by Deposit Guaranty National Bank to
restrict the flow of non-public information, Fund investments are typically made
without any knowledge of Deposit Guaranty National Bank's or its affiliates'
lending relationships with an issuer. Advisory Fees
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
Sub-Adviser
The Fund's sub-adviser is Bennett Lawrence Management, LLC (the "Sub-Adviser"),
a New York limited liability company.
Sub-Advisory Fees
For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory
fee as described in the prospectus.
<PAGE>
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Sub-Adviser looks for prompt execution of the order at a
favorable price. In working with dealers, the Sub-Adviser will generally use
those who are recognized dealers in specific portfolio instruments, except when
a better price and execution of the order can be obtained elsewhere. The
Sub-Adviser makes decisions on portfolio transactions and selects brokers and
dealers subject to guidelines established by the Trustees. The Sub-Adviser may
select brokers and dealers who offer brokerage and research services. These
services may be furnished directly to the Fund or to the Sub-Adviser and may
include: advice as to the advisability of investing in securities; security
analysis and reports; economic studies; industry studies; receipt of quotations
for portfolio evaluations; and similar services. Research services provided by
brokers and dealers may be used by the Sub-Adviser or its affiliates in advising
the Fund and other accounts. To the extent that receipt of these services may
supplant services for which the Sub-Adviser or its affiliates might otherwise
have paid, it would tend to reduce their expenses. The Sub-Adviser and its
affiliates exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
The Fund has adopted certain procedures incorporating the standards of Rule
17e-1 of the Investment Company Act of 1940, which require that the commissions
paid to affiliated broker-dealers of the Sub-Adviser must be reasonable and fair
compared to the commission, fee, or other remuneration received, or to be
received by other brokers in connection with comparable transactions involving
similar securities during a comparable period of time.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Sub-Adviser, investments of the type the Fund
may make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Sub-Adviser are prepared to invest in, or desire
to dispose of, the same security, available investments or opportunities for
sales will be allocated in a manner believed by the Sub-Adviser to be equitable
to each. In some cases, this procedure may adversely affect the price paid or
received by the Fund or the size of the position obtained or disposed of by the
Fund. In other cases, however, it is believed that coordination and the ability
to participate in volume transactions will be to the benefit of the Fund.
Other Services
Fund Administration
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for a fee as described in the
prospectus.
Custodian
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Fund.
Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent
Federated Shareholder Services Company, Pittsburgh, Pennsylvania, a subsidiary
of Federated Investors, serves as 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.
Purchasing Shares
Shares of the Fund are sold at their net asset value next determined after an
order is received on days the New York Stock Exchange and Federal Reserve Wire
System are open for business. The procedure for purchasing shares is explained
in the prospectus under "Investing in the Fund."
<PAGE>
Distribution and Shareholder Services Plans
These arrangements permit the payment of fees to financial institutions, the
distributor, and Federated Shareholder Services, to stimulate distribution
activities and to cause services to be provided to shareholders by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to:
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations and addresses. By
adopting the Plan, the Trustees expect that the Fund will be able to achieve a
more predictable flow of cash for investment purposes and to meet redemptions.
This will facilitate more efficient portfolio management and assist the Fund in
pursuing its investment objectives. By identifying potential investors whose
needs are served by the Fund's objectives, and properly servicing these
accounts, it may be possible to curb sharp fluctuations in rates of redemptions
and sales. Other benefits, which may be realized under either arrangement, may
include: (1) providing personal services to shareholders; (2) investing
shareholder assets with a minimum of delay and administrative detail; (3)
enhancing shareholder recordkeeping systems; and (4) responding promptly to
shareholders' requests and inquiries concerning their accounts. Conversion to
Federal Funds
It is the Fund's policy to be as fully invested as possible so that maximum
interest may be earned. To this end, all payments from shareholders must be in
federal funds or be converted into federal funds. Deposit Guaranty National Bank
(the "Bank"), as well as Federated Shareholder Services Company, act as the
shareholder's agent in depositing checks and converting them to federal funds.
Determining Net Asset Value
Net asset value generally changes each day. The days on which net asset value is
calculated by the Fund are described in the prospectus. Determining Market Value
of Securities
Market values of the Fund's securities, other than options, are determined as
follows:
o for equity securities, according to the last sale price in the market
in which they are primarily traded (either national securities exchange
or the OTC market), if available;
o in the absence of recorded sales for equity securities, according to
the mean between the last closing bid and asked prices;
o according to the prices provided by an independent pricing service if
available, or at fairmarket value as determined in good faith by the
Trustees; or
o for short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost, unless the Trustees
determine that particular circumstances of the security indicate
otherwise.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices and may consider: institutional trading in
similar groups of securities, yield, quality, coupon rate, maturity, type of
issue, trading characteristics, and other market data. Exchange Privilege
Requirements for Exchange
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made. This privilege is available to shareholders
resident in any state in which the fund shares being acquired may be sold. Upon
receipt of proper instructions and required supporting documents, shares
submitted for exchange are redeemed and the proceeds invested in shares of the
other fund. Further information on the exchange privilege may be obtained by
calling the Fund.
<PAGE>
Making an Exchange
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee. Redeeming Shares Shares of the Fund are redeemed
at the next computed net asset value after the Bank receive the redemption
request. Redemption procedures are explained in the prospectus under "Redeeming
Shares." Redemption requests cannot be executed on days on which the New York
Stock Exchange is closed or on federal holidays when wire transfers are
restricted. Although State Street Bank does not charge for telephone
redemptions, it reserves the right to charge a fee for the cost of
wire-transferred redemptions of less than $5,000. Redemption in Kind
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio. Redemption in kind will be
made in conformity with applicable Securities and Exchange Commission rules,
taking such securities at the same value employed in determining net asset value
and selecting the securities in a manner the Trustees determine to be fair and
equitable. The Fund has elected to be governed by Rule 18f-1 of the Investment
Company Act of 1940 under which the Fund is obligated to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's
net asset value during any 90-day period. Massachusetts Partnership Law
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for 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.
Tax Status
The Fund's Tax Status
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
o derive at least 90% of its gross income from dividends, interest, and
gains from the sale of securities; o derive less than 30% of its gross
income from the sale of securities held less than three months; o invest
in securities within certain statutory limits; and o distribute to its
shareholders at least 90% of its net income earned during the year.
Shareholders' Tax Status
Shareholders of the Fund are subject to federal income tax on dividends received
as cash or additional shares. These dividends, and any short-term capital gains,
are taxable as ordinary income. No portion of any income dividend paid by the
Fund is eligible for the dividends received deduction available to corporations.
<PAGE>
Total Return
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
Yield
The yield for the shares of the Fund is determined by dividing the net
investment income per share (as defined by the Securities and Exchange
Commission) earned by shares of the Fund over a thirty-day period by the maximum
offering price per share of the respective class on the last day of the period.
This value is annualized using semi-annual compounding. This means that the
amount of income generated during the thirty-day period is assumed to be
generated each month over a 12-month period and is reinvested every six months.
The yield does not necessarily reflect income actually earned by the Fund
because of certain adjustments required by the Securities and Exchange
Commission and, therefore, may not correlate to the dividends or other
distributions paid to the shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Fund, the performance will be reduced for those shareholders paying those
fees.
Performance Comparisons
Investors may use financial publications and/or indices to obtain a more
complete view of the Fund's performance. When comparing performance, investors
should consider all relevant factors such as the composition of any index used,
prevailing market conditions, portfolio compositions of other funds, and methods
used to value portfolio securities and compute offering price. The financial
publications and/or indices which the Fund uses in advertising may include:
o Russell Mid Cap Growth Index contains stocks from the Russell Midcap
Index with a greater-than-average growth orientation. The stocks are
also members of the Russell 1000 Growth Index.
o S&P 500 is an unmanaged capitalization weighted index of 500 stocks
designed to measure performance of the broad domestic economy
through changes in the aggregate market value of 500 stocks
representing all major industries.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time. Advertising
and other promotional literature may include charts, graphs and other
illustrations using the Fund's returns in general, that demonstrate basic
investment concepts such as tax-deferred compounding, dollar-cost averaging and
systematic investment. In addition, the Fund can compare its performance, or
performance for the types of securities in which it invests, to a variety of
other investments, such as bank savings accounts, certificates of deposit, and
Treasury bills. Economic and Market Information
Advertising and sales literature for the Fund may include discussions of
economic, financial and political developments and their effect on the
securities market. Such discussions may take the form of commentary on these
developments by Fund portfolio managers and their views and analysis on how such
developments could affect the Fund. In addition, advertising and sales
literature may quote statistics and give general information about the mutual
fund industry, including the growth of the industry, from sources such as the
Investment Company Institute ("ICI"). For example, according to the ICI,
thirty-seven percent of American households are pursuing their financial goals
through mutual funds. These investors, as well as businesses and institutions,
have entrusted over $3.5 trillion to the more than 6,000 funds available.
<PAGE>
Appendix
Standard and Poor's Bond Ratings
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong. AA--Debt rated
AA has a very strong capacity to pay interest and repay principal and differs
from the higher rated issues only in small degree. A--Debt rated A has a strong
capacity to pay interest and repay principal although it is somewhat more
susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories. BBB--Debt rated BBB is regarded
as having an adequate capacity to pay interest and repay principal. Whereas it
normally exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories. NR--Indicates that no public rating has been requested, that there
is insufficient information on which to base a rating, or that Standard & Poor's
does not rate a particular type of obligation as a matter of policy. PLUS (+) OR
MINUS (-):--The ratings from AA to BBB may be modified by the addition of a plus
or minus sign to show relative standing within the major rating categories.
Moody's Investors Service, Inc. Corporate Bond Ratings AAA--Bonds which are
rated Aaa are judged to be of the best quality. They carry the smallest degree
of investment risk and are generally referred to as "gilt edge." Interest
payments are protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are likely to change,
such changes as can be visualized are most unlikely to impair the fundamentally
strong position of such issues. Aa--Bonds which are rated Aa are judged to be of
high quality by all standards. Together with the Aaa group, they comprise what
are generally known as high-grade bonds. They are rated lower than the best
bonds because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long term risks appear somewhat larger
than in Aaa securities. A--Bonds which are rated A possess many favorable
investment attributes and are to be considered as upper medium-grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment sometime in the future. Baa--Bonds which are rated Baa are considered
as medium-grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and, in fact, have speculative
characteristics as well. NR--Not rated by Moody's. Fitch Investors Service, Inc.
Long-Term Debt Ratings AAA--Bonds considered to be investment grade and of the
highest credit quality. The obligor has an exceptionally strong ability to pay
interest and repay principal, which is unlikely to be affected by reasonably
foreseeable events. AA--Bonds considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA. Because bonds
rated in the AAA and AA categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is generally
rated F-1+. A--Bonds considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is considered
to be strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings. BBB--Bonds
considered to be investment grade and of satisfactory credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore, impair timely
payment. NR--NR indicates that Fitch does not rate the specific issue. Standard
and Poor's Commercial Paper Ratings A-1--This designation indicates that the
degree of safety regarding timely payment is either overwhelming or very strong.
The issues determined to possess overwhelming safety characteristics are denoted
with a plus (+) sign designation. A-2--Capacity for timely payment on issues
with this designation is strong. However, the relative degree of safety is not
as high as for issues designated A-1. Moody's Investors Services, Inc.
Commercial Paper Ratings P-1--Issuers rated PRIME-1 (for related supporting
institutions) have a superior capacity for repayment of short-term promissory
obligations. PRIME-1 repayment capacity will normally be evidenced by the
following characteristics: conservative capitalization structures with moderate
reliance on debt and ample asset protection; broad margins in earning coverage
of fixed financial charges and high internal cash generation; and
well-established access to a range of financial markets and assured sources of
alternate liquidity. P-2--Issuers rated PRIME-2 (for related supporting
institutions) have a strong capacity for repayment of short-term promissory
obligations. This will normally be evidenced by many of the characteristics
cited above but to a lesser degree. Earnings trends and coverage ratios, while
sound, will be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample alternate
liquidity is maintained. Fitch Investors Service, Inc. Short-Term Ratings
F-1+--(Exceptionally Strong Credit Quality). Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality). Issues assigned to this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--(Good Credit Quality). Issues carrying this rating have a satisfactory
degree of assurance for timely payment but the margin of safety is not as great
as the F-1+ and F-1 categories.
