1933 Act File No. 33-46431
1940 Act File No. 811-6607
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ..........................
Post-Effective Amendment No. 15............................. X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
---
Amendment No. 18................................................ X
-- ---
DG INVESTOR SERIES
(Exact Name of Registrant as Specified in Charter)
Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower,
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
__ on _______________, pursuant to paragraph (b)
X 60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i) 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Registrant has filed with the Securities and Exchange Commission a declaration
pursuant to Rule 24f-2 under the Investment Company Act of 1940, and:
X filed the Notice required by that Rule on April 15, 1997; or intends to file
the Notice required by that Rule on or about ____________; or
during the most recent fiscal year did not sell any securities pursuant to
Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to Rule
24f-2(b)(2), need not file the Notice.
Copies To:
Matthew G. Maloney, Esquire
Dickstein Shapiro Morin & Oshinsky LLP
2101 L Street, N.W.
Washington, D.C. 20037
<PAGE>
CROSS-REFERENCE SHEET
This Amendment to the Registration Statement of DG INVESTOR SERIES
which consists of nine portfolios: (1) DG U.S. Government Money Market Fund, (2)
DG Limited Term Government Income Fund, (3) DG Government Income Fund, (4) DG
Equity Fund, (5) DG Municipal Income Fund, (6) DG Opportunity Fund, (7) DG Prime
Money Market Fund, (8) DG International Equity Fund and (9) DG Mid Cap Fund
(currently in registration), relates only to portfolio (8) and is comprised of
the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page..............(1-9) Cover Page.
----------
Item 2. Synopsis................(1-6) Synopsis; (7,8,9) General
Information; (1-9) Summary of Fund
Expenses; (1-6) Financial Highlights.
--------
Item 3. Condensed Financial
Information (1-9) Performance Information.
Item 4. General Description of
Registrant..............(1-6) Objectives and Policies of Each
Fund;(7,8,9) Investment Information;
(8,9) Investment Objective; (8,9)
Investment Policies; (1-6)
Portfolio Investments and Strategies;
(8) Risks Associated With Financial
Futures Contracts And Options on
Financial Futures Contracts; (8)
Non-Diversified; (1-9) Investment
Limitations.
Item 5. Management of the Fund..(1-6,9) DG Investor Series
Information;(7,8) Trust Information;
(1-9) Management of the Trust; (1-9)
Distribution of Fund Shares; (1-6)
----------------------
Administration of the Funds;(7,8,9)
Administration of the Fund; (8,9)
Distribution and Shareholder Services
Plans; (8,9) Shareholder Servicing
Arrangements; (6) Shareholder Services
Plan; (1-9) Brokerage Transactions; (9)
Expenses of the Fund.
Item 6. Capital Stock and Other
Securities..............(1-6,9) Dividends and Distributions;
(7, 8) Dividends; (1,7,8,9) Capital
Gains; (1-6,9) Shareholder
Information; (7,8) Account &
Shareholder Information; (1-9) Voting
Rights; (1-9) Tax Information; (1-9)
Federal Income Tax; (5) Additional Tax
Information for Municipal Income Fund;
(5) Other State and Local Taxes; (9)
State and Local Taxes; (1-9) Effect of
Banking Laws.
Item 7. Purchase of Securities Being
Offered.....................................(1-9) Net Asset
Value; (1-6)
Investing in the
Funds; (7,8,9)
Investing in the
Fund; (1-9) Share
Purchases; (1-9)
Minimum Investment
Required; (1-9)
What Shares Cost;
(2-6) Reducing the
Sales Charge;
(1-9) Systematic
Investment
Program; (1-9)
Certificates and
Confirmations;
(1-9) Exchanging
Shares; (1-9)
Exchange
Privilege.
Item 8. Redemption or Repurchase....................(1-9) Redeeming
Shares; (1-9) Through the Banks;
(1-9) Systematic Withdrawal
Program; (1-9) Accounts With Low
Balances.
------------------------
Item 9. Pending Legal Proceedings...................None.
-------------------------
<PAGE>
PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL INFORMATION.
Item 10. Cover Page....................(1-9) Cover Page.
----------
Item 11. Table of Contents.............(1-9) Table of Contents.
-----------------
Item 12. General Information and
History ......................(1-6) General Information About
the Funds; (8,9) General
Information About the Fund.
Item 13. Investment Objectives and
Policies.....................(1-6,8,9) Investment Objective(s)
and Policies; (7) Investment
Policies; (4,6) Equity Fund and
Opportunity Fund; (2,3) Limited
Term Fund and
Government Income Fund; (5)
Municipal Income Fund; (1) Money
Market Fund; (1-6) Investment
Policies and Strategies; (1-9)
Investment Limitations;(1,7)
Regulatory Compliance.
Item 14. Management of the Fund........(1-9) DG Investor Series
Management.
----------------------
Item 15. Control Persons and Principal
Holders of Securities.........(1-6,9) Trust Ownership;
(7,8) Share Ownership; (1-9)
Trustees' Compensation; (1-9)
Trustee Liability.
Item 16. Investment Advisory and Other
Services......................(1-9) Investment
Advisory Services;
(1-6) Adviser to
the Funds; (7,8,9)
Investment
Adviser; (8,9)
Sub-Adviser;(1-9)
Advisory Fees;
(2-6) Sub-Adviser
to the Funds;
(8,9) Sub-Adviser;
(2-6,8,9)
Sub-Advisory Fees;
(1-8) Other
Services; (1-6)
Administration of
the Trust; (8,9)
Fund
Administration;(1-6)
Custodian; (7,8,9)
Custodian &
Portfolio
Accountant; (1-6)
Transfer Agent,
Dividend
Disbursing Agent
and Shareholder
Servicing Agent;
(7,8,9) Transfer
Agent; (1-9)
Independent
Auditors.
Item 17. Brokerage Allocation..........(1-9) Brokerage Transactions.
--------------------
Item 18. Capital Stock and Other
Securities Not Applicable.
Item 19. Purchase, Redemption and
Pricing of Securities Being
Offered.......................(1-9) Purchasing
Shares; (1-9)
Conversion to
Federal Funds;
(1-9) Exchange
Privilege; (1-9)
Requirements for
Exchange; (1-9)
Making an
Exchange; (1-9)
Determining Net
Asset Value;
(2-4,6)
Determining Market
Value of
Securities; (5)
Valuing Municipal
Securities; (1)
Use of the
Amortized Cost
Method; (1-9)
Redeeming Shares;
(1-9) Redemption
in Kind; (1-9)
Massachusetts
Partnership Law.
Item 20. Tax Status....................(1-9) Tax Status (1-6) The
Funds' Tax Status; (7,8,9) The
Fund's Tax Status; (1-9)
Shareholders' Tax Status;
----------
Item 21. Underwriters..................(1-5,7) Distribution Plan;
(6,8,9) Distribution and
Shareholder Services Plans;
------------
Item 22. Calculation of Performance
Data..........................(1-9) Performance Comparisons;
(1-9) Yield; (1,7) Effective
Yield; (1-9) Total Return; (5)
Tax-Equivalent Yield; (5) Tax-
Equivalency Table;
----
Item 23. Financial Statements..........(1-6) Incorporated herein by
reference to the Trust's Annual
Report dated February 28, 1997
(File Nos. 33-46431 and
811-6607); (7,8,9) To be
--------------------
filed by amendment.
DG INTERNATIONAL EQUITY FUND
(A Portfolio of DG Investor Series)
Supplement to Prospectus dated June 30, 1997
1. The following is to be inserted as the second sentence under the section
entitled "Acceptable Investments," on page 10:
"In addition, International Equity Fund may invest up to 40% of its
total assets in equity securities of established companies located in countries
having emerging markets."
2. The following is to be inserted after the section entitled "Short Sales,"
on page 13:
"Emerging Market Securities. International Equity Fund may invest up to
40% of its total assets in equity securities of established companies
located in countries having emerging markets. International Equity
Fund's sub-adviser considers countries having emerging markets to be all
countries that are generally considered to have developing or emerging
markets or economies. Furthermore, the sub-adviser considers emerging
market countries to be all countries considered by the International
Bank for Reconstruction and Development (more commonly known as the
World Bank) and the International Finance Corporation, as well as
countries that are classified by the United Nations or otherwise
regarded by their authorities, as developing.
"Generally included in emerging markets are all countries in the world
except Australia, Canada, Japan, New Zealand, the United States, and
most western European countries. The International Equity Fund will
focus on countries which the sub-adviser believes to have strongly
developing economies and markets including, among others, the following
countries: Argentina, Bolivia, Botswana, Brazil, Chile, China, Colombia,
Cyprus, Czech Republic, Ecuador, Egypt, Ghana, Greece, Hong Kong,
Hungary, India, Indonesia, Jamaica, Jordan, Kenya, Korea, Malaysia,
Mauritius, Mexico, Morocco, Nigeria, Oman, Pakistan, Peru, Philippines,
Poland, Russia, Singapore, Slovakia, South Africa, Sri Lanka, Swaziland,
Taiwan, Thailand, Tunisia, Turkey, Uruguay, Venezuela, and Zimbabwe.
International Equity Fund may invest in countries other than those
defined above, if , in the opinion of the sub-adviser, they are
considered to be emerging markets. While the sub-adviser considers the
above-mentioned countries eligible for investment, International Equity
Fund will not be invested in all such markets at all times. Furthermore,
International Equity Fund may not pursue investment in such countries
due to lack of adequate custody of the Fund's assets, overly burdensome
restrictions and repatriation, lack of an organized and liquid market,
or unacceptable political or other risks.
"Emerging markets companies are defined as (i) those for which the
principal securities trading market is an emerging market country, as
described above; (ii) those which are organized under the laws of, or
with a principal office in, an emerging market country; or (iii) those,
wherever organized or traded, who derive (directly or indirectly through
subsidiaries) at least 50% of their total assets, capitalization, gross
revenue or profit from its most current year from goods produced,
services performed, or sales made in such emerging market countries."
3. The first paragraph under the section entitled "Risks Associated With
Investing in Foreign Companies," on page 13, is hereby amended to read in its
entirety as follows:
"Investing in non-U.S. securities carries substantial risks in addition to those
associated with domestic investments. In an attempt to reduce these risks,
International Equity Fund diversifies its investments broadly among foreign
countries. At least three different countries will always be represented."
4. The second paragraph under the section entitled "Risks Associated With
Investing in Foreign Companies," on page 13, is hereby deleted.
5. The following is to be inserted after the section entitled "Risks Associated
With Investing in Foreign Companies," on page 15:
"Additional Risks Associated With Investing in Emerging Markets
"Investing in securities of issuers in emerging market countries
involves exposure to significantly higher risk than investing in
countries with developed markets. Emerging market countries may have
economic structures that are generally less diverse and mature and
political systems that can be expected to be less stable than those of
developed countries.
"Securities prices in emerging market countries can be significantly
more volatile than in developed countries, reflecting the greater
uncertainties of investing in lesser developed markets and economies. In
particular, emerging market countries may have relatively unstable
governments, and may present a greater risk of nationalization of
businesses, expropriation, confiscatory taxation or, in certain
instances, reversion to closed market, centrally planned economies. Such
countries may also have greater restrictions on foreign ownership or
prohibitions on the repatriation of assets, and may have less protection
of property rights, than developed countries.
"The economies of emerging market countries may be predominantly based
on only a few industries or dependent on revenues from particular
commodities or on international aid or development assistance, may be
highly vulnerable to changes in local or global trade conditions, and
may suffer from extreme and volatile debt burdens or inflation rates. In
addition, securities markets in emerging market countries may trade a
small number of securities and may be unable to respond effectively to
increases in trading volume, potentially resulting in a lack of
liquidity and in volatility in the price of securities traded on those
markets. Also, securities markets in emerging market countries typically
offer less regulatory protection for investors."
October 21, 1997
[GRAPHIC OMITTED]
Cusip 23321N806
G01258-18 (10/97)
[GRAPHIC OMITTED]
DG EQUITY FUND
(A Portfolio of DG Investor Series)
Supplement to the Combined Prospectus dated June 30, 1997
There will be a special offering period during which shares of the DG Equity
Fund may be purchased with no sales charge. This offering period will end August
31, 1997. The following sections in the Combined Prospectus should be noted in
regard to this offering only for the aforementioned time period: "Summary of
Fund Expenses"; "What Shares Cost"; and "Reducing the Sales Charge."
July 11, 1997
[GRAPHIC OMITTED]
Cusip 23321N202
G01258-14 (7/97)
[GRAPHIC OMITTED]
DG EQUITY FUND
DG OPPORTUNITY FUND
DG INTERNATIONAL EQUITY FUND
DG LIMITED TERM GOVERNMENT INCOME FUND
DG GOVERNMENT INCOME FUND
DG MUNICIPAL INCOME FUND
(Portfolios of DG Investor Series)
Supplement to the Combined Prospectus dated June 30, 1997
Effective August 1, 1997, DG Equity Fund, DG Opportunity Fund, DG International
Equity Fund, DG Limited Term Government Income Fund, DG Government Income Fund
and DG Municipal Income Fund (the "Funds") will, pursuant to the existing
Shareholder Services Plan, accrue and pay shareholder services fees of 0.15% of
each Fund's average daily net assets. Effective July 21, 1997, Womack Asset
Management, Inc. (the "sub-adviser") became the sub-adviser to DG Opportunity
Fund (the "Opportunity Fund"). Under the terms of the Sub-Advisory Agreement
between ParkSouth Corporation (the "Adviser") and the sub-adviser, the
sub-adviser will determine whether to purchase or sell securities for
Opportunity Fund, and upon making any purchase or sale decision for Opportunity
Fund, will place orders for the execution of such portfolio transactions. For
its services under the Sub-Advisory Agreement, the sub-adviser receives a
monthly fee based on the average daily net assets of Opportunity Fund under
management by the sub-adviser during the preceding month, as described below.
The sub-advisory fee shall be the sum of: 0.32% of the average daily net assets
up to $50 million; 0.075% of the average daily net assets in excess of $50
million and up to $70 million; and 0.25% of the average daily net assets in
excess of $70 million. The sub-advisory fee will be accrued daily, and for any
period in which the sub-adviser provides portfolio management services for less
than one full month, the sub-advisory fee will be prorated by the number of days
of the month during which the services were rendered. Womack Asset Management,
based in Jackson, Mississippi, is a registered investment adviser formed in 1997
by William A. Womack, who also became the portfolio manager for Opportunity Fund
on July 21, 1997, replacing Gerald L. White. Mr. Womack, until February 1997,
had been Senior Vice President and Trust Investment Officer of Deposit Guaranty
National Bank ("DGNB"), which is the parent corporation of the Adviser and
which, prior to March 1, 1997, was the adviser to the Funds. From March 1984 to
August 1994, Mr. Womack served as portfolio manager of Opportunity Fund's
predecessor, a common trust fund, formerly managed by DGNB. Mr. Womack was
Opportunity Fund's portfolio manager from
<PAGE>
August 1994 to February 1997, and DG Municipal Income Fund's portfolio manager
from December 1992 to February 1997. In February 1997, Mr. Womack left DGNB in
order to establish and operate the sub-adviser.
July 24, 1997
[GRAPHICOMITTED] Cusip 23321N301 Cusip 23321N400 Cusip 23321N103 Cusip
23321N509 Cusip 23321N202 Cusip 23321N806 G01258-15 (7/97)
[GRAPHIC OMITTED]
DG INVESTOR SERIES
STOCK AND BOND FUNDS
PROSPECTUS
DG Investor Series (the "Trust") is an open-end, management investment company
(a mutual fund). This combined prospectus offers investors interests in the
following six separate investment portfolios (individually or collectively
referred to as the "Fund" or "Funds" as the context requires), each having a
distinct investment objective and policies:
- DG Equity Fund;
- DG Opportunity Fund;
- DG International Equity Fund;
- DG Limited Term Government Income Fund;
- DG Government Income Fund; and
- DG Municipal Income Fund.
This combined prospectus contains the information you should read and know
before you invest in any of the Funds. Keep this prospectus for future
reference.
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 BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE
SHARES INVOLVES INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
The Funds have also filed a Statement of Additional Information dated June 30,
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 any of the Funds, contact the
Trust at the address listed on the back of this prospectus, or you can visit the
DG Investors Series' Internet site on the World Wide Web at (www.dgb.com). The
Statement of Additional Information, material incorporated by reference into
this document, and other information regarding the Funds 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 June 30, 1997
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
SUMMARY OF FUND EXPENSES 3
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 6
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 8
- ------------------------------------------------------
Equity Fund 8
Opportunity Fund 9
International Equity Fund 10
Limited Term Fund 16
Government Income Fund 18
Municipal Income Fund 18
PORTFOLIO INVESTMENTS AND STRATEGIES 21
- ------------------------------------------------------
Put and Call Options 21
Futures Contracts and Options
on Futures 21
Repurchase Agreements 22
When-Issued and Delayed
Delivery Transactions 23
Lending of Portfolio Securities 23
Temporary Investments 23
Investing in Securities of
Other Investment Companies 23
Restricted and Illiquid Securities 24
Fixed Income Securities 24
INVESTMENT LIMITATIONS 24
- ------------------------------------------------------
DG INVESTOR SERIES INFORMATION 25
- ------------------------------------------------------
Management of the Trust 25
Distribution of Fund Shares 26
ADMINISTRATION OF THE FUNDS 27
- ------------------------------------------------------
Brokerage Transactions 28
Expenses of the Fund 28
NET ASSET VALUE 28
- ------------------------------------------------------
INVESTING IN THE FUNDS 29
- ------------------------------------------------------
Share Purchases 29
Minimum Investment Required 29
What Shares Cost 29
Reducing the Sales Charge 31
Systematic Investment Program 32
Certificates and Confirmations 32
Dividends and Distributions 32
EXCHANGE PRIVILEGE 33
- ------------------------------------------------------
Exchanging Shares 33
REDEEMING SHARES 33
- ------------------------------------------------------
Through the Bank 34
Systematic Withdrawal Program 35
Accounts With Low Balances 35
SHAREHOLDER INFORMATION 35
- ------------------------------------------------------
Voting Rights 35
EFFECT OF BANKING LAWS 36
- ------------------------------------------------------
TAX INFORMATION 37
- ------------------------------------------------------
Federal Income Tax 37
Additional Tax Information for
Municipal Income Fund 37
Other State and Local Taxes 37
PERFORMANCE INFORMATION 38
- ------------------------------------------------------
ADDRESSES 39
- ------------------------------------------------------
SYNOPSIS
- --------------------------------------------------------------------------------
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 Funds are designed for retail and
trust customers of Deposit Guaranty National Bank and its affiliates as a
convenient means of participating in professionally managed, diversified
portfolios.
As of the date of this prospectus, the Trust is composed of eight portfolios.
The following six portfolios are offered in this prospectus:
-DG Equity Fund ("Equity Fund")--seeks to provide long-term capital
appreciation (and current income as a secondary objective) by investing at
least 70% of its assets in equity securities including large
capitalization stocks that, in the opinion of the Adviser, have potential
to provide for capital appreciation and current income;
-DG Opportunity Fund ("Opportunity Fund")--seeks to provide capital
appreciation by investing primarily in a portfolio of equity securities
comprising the small capitalization sector of the United States equity
market;
-DG International Equity Fund ("International Equity Fund")--seeks to
provide capital appreciation by investing primarily in a portfolio of
non-U.S. securities, of which a substantial portion will be equity
securities of established companies in economically developed countries;
-DG Limited Term Government Income Fund ("Limited Term Fund")--seeks to
provide current income, the weighted average duration of which will at all
times be limited to between one and six years, by investing primarily in
securities which are guaranteed as to payment of principal and interest by
the U.S. government or U.S. government agencies or instrumentalities;
- DG Government Income Fund ("Government Income Fund")--seeks to provide
current income by investing primarily in securities which are guaranteed
as to payment of principal and interest by the U.S. government or U.S.
government agencies or instrumentalities; and
-DG Municipal Income Fund ("Municipal Income Fund")--seeks to provide
dividend income that is exempt from federal regular income tax by
investing primarily in municipal securities.
For information on how to purchase shares of any of the Funds, please refer to
"Investing in the Funds." A minimum initial investment of $1,000 is required for
each Fund. Subsequent investments must be in amounts of at least $100. Shares of
each Fund are sold at net asset value plus any applicable sales charge, and are
redeemed at net asset value. Information on redeeming shares may be found under
"Redeeming Shares." The Funds are advised by ParkSouth Corporation (the
"Adviser"). The International Equity Fund is sub-advised by Lazard Freres Asset
Management (the "Sub-Adviser").
RISK FACTORS
Investors should be aware of the following general considerations: market values
of fixed income securities, which constitute a major part of the investments of
some Funds, may vary inversely in response to changes in prevailing interest
rates. The foreign securities in which some Funds may invest may be subject to
certain risks in addition to those inherent in U.S. investments. Shareholders of
Municipal Income Fund may be subject to the federal alternative minimum tax on
that part of its dividends derived from interest on certain municipal
securities. One or more Funds may make certain investments and employ certain
investment techniques that involve other risks, including entering into
repurchase agreements, lending portfolio securities and entering into financial
futures contracts and related options as hedges. These risks and those
associated with investing in mortgage-backed securities, when-issued securities,
options, and variable rate securities are described under "Objective of Each
Fund" and "Portfolio Investments and Strategies."
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
GOVERNMENT MUNICIPAL
EQUITY OPPORTUNITY INTERNATIONAL LIMITED TERM INCOME INCOME
FUND FUND EQUITY FUND FUND FUND FUND
------ ----------- ------------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases (as a percentage of
offering price)................... 3.50% 3.50% None 2.00% 2.00% 2.00%
Maximum Sales Charge Imposed on
Reinvested Dividends (as a
percentage of offering price)..... None None None None None None
Contingent Deferred Sales Charge (as
a percentage of original purchase
price or redemption proceeds, as
applicable)....................... None None None None None None
Redemption Fee (as a percentage of
amount redeemed, if applicable)... None None None None None None
Exchange Fee........................ None None None None None None
ANNUAL FUND OPERATING EXPENSES
(As a percentage of average net assets)*
Management Fee (after waiver)(1).... 0.75% 0.85% 1.00% 0.45% 0.55% 0.30%
12b-1 Fees(2)....................... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Other Expenses................ 0.17% 0.29% 1.38% 0.26% 0.18% 0.39%
Shareholder Services Fees(3)........ 0.00% 0.00% 0.15% 0.00% 0.00% 0.00%
Total Fund Operating
Expenses(4)................... 0.92% 1.14% 2.53% 0.71% 0.73% 0.69%
</TABLE>
(1) The management fees of Opportunity Fund, Limited Term Fund, Government
Income Fund and Municipal Income Fund have been reduced to reflect the voluntary
waivers by the Adviser. The Adviser can terminate these voluntary waivers at any
time at its sole discretion. The maximum management fees for these Funds are
0.95%, 0.60%, 0.60%, and 0.60%, respectively.
(2) As of the date of this prospectus, the Funds are not paying or accruing
12b-1 fees. The Funds will not accrue or pay 12b-1 fees until a separate class
of shares has been created for certain institutional investors. The Funds,
except for International Equity Fund could each pay 0.35% as a 12b-1 fee to the
distributor. The International Equity Fund could pay 0.25% as a 12b-1 Fee to the
distributor.
(3) As of the date of this prospectus, Equity Fund, Opportunity Fund, Limited
Term Fund, Government Income Fund and Municipal Income Fund are not paying or
accruing shareholder services fees. If these Funds were paying or accruing the
shareholder services fee, the Funds would be able to pay up to 0.15% of their
average daily net assets for the shareholder services fee.
(4) Total Fund Operating Expenses above for the Equity Fund reflect those for
the year ended February 28, 1997. Total Fund Operating Expenses above for the
Opportunity Fund, International Equity Fund, Limited Term Fund, Government
Income Fund and Municipal Income Fund are based on expenses expected during the
fiscal year ending February 28, 1998. Total Fund Operating Expenses for
Opportunity Fund, Limited Term Fund, and Government Income Fund would be, 1.24%,
0.86%, and 0.78%, respectively, absent the voluntary waivers described above in
note (1). Total Fund Operating Expenses for Municipal Income Fund would be 1.06%
absent the voluntary waiver described above in note (1) and the voluntary waiver
of a portion of the administrative personnel and services fee. Total Fund
Operating Expenses for the Opportunity Fund, Limited Term Fund, Government
Income Fund, and Municipal Income Fund were 1.14%, 0.68%, 0.70% and 0.70%,
respectively, for the year ended February 28, 1997.
* Annual Fund Operating Expenses for International Equity Fund are based on
projected average net assets for 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 FUNDS WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUNDS."
Wire-transferred redemptions of less than $5,000 may be subject to additional
fees.
LONG-TERM SHAREHOLDERS MAY PAY MORE THAN THE ECONOMIC EQUIVALENT OF THE
MAXIMUM SALES CHARGES PERMITTED UNDER THE RULES OF THE NATIONAL ASSOCIATION OF
SECURITIES DEALERS, INC.
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years 5 Years 10 Years
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5%
annual return, (2) redemption at the end of each time period, and (3) payment
of the maximum sales charge. The Funds charge no contingent deferred sales
charges.
Equity Fund.................................................................. $ 44 $ 63 $ 84 $ 144
Opportunity Fund............................................................. $ 46 $ 70 $ 96 $ 169
International Equity Fund.................................................... $ 26 $ 79 -- --
Limited Term Fund............................................................ $ 27 $ 42 $ 59 $ 106
Government Income Fund....................................................... $ 27 $ 43 $ 60 $ 109
Municipal Income Fund........................................................ $ 27 $ 42 $ 58 $ 104
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THE
OPPORTUNITY FUND, INTERNATIONAL EQUITY FUND, LIMITED TERM FUND, GOVERNMENT
INCOME FUND, AND THE MUNICIPAL INCOME FUND EXAMPLES ARE BASED ON EXPENSES
EXPECTED TO BE INCURRED FOR THE FUND'S FISCAL YEAR ENDING FEBRUARY 28, 1998.
NOTES
------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
(For a share outstanding throughout each period)
The following table has been audited by KPMG Peat Marwick LLP, the Fund's
independent auditors. Their report, dated April 11, 1997, on the Fund's
financial statements for the year ended February 28, 1997, and on the following
table for each of the periods presented, is included in the Annual Report, which
is incorporated by reference. This table should be read in conjunction with the
Fund's financial statements and notes thereto, which may be obtained from the
Fund.
<TABLE>
<CAPTION>
DISTRIBUTIONS
NET ASSET NET REALIZED DISTRIBUTIONS DISTRIBUTIONS IN EXCESS OF
YEAR ENDED VALUE, NET AND UNREALIZED TOTAL FROM FROM NET FROM NET NET REALIZED
FEBRUARY 28 OR BEGINNING INVESTMENT GAIN/(LOSS) ON INVESTMENT INVESTMENT REALIZED GAIN GAIN ON
29, OF PERIOD INCOME(LOSS) INVESTMENTS OPERATIONS INCOME ON INVESTMENTS INVESTMENTS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EQUITY FUND
1993(a) $ 10.00 0.12 0.52 0.64 (0.10) -- --
1994 $ 10.54 0.14 0.38 0.52 (0.14) (0.05) --
1995 $ 10.87 0.16 0.71 0.87 (0.16) (0.17) --
1996 $ 11.41 0.16 3.63 3.79 (0.17) (0.54) --
1997 $ 14.49 0.14 2.54 2.68 (0.14) (0.35) --
OPPORTUNITY FUND
1995(b) $ 10.00 0.02 1.17 1.19 (0.02) (0.02) --
1996 $ 11.15 -- 3.30 3.30 -- (1.66) --
1997 $ 12.79 (.03) 1.60 1.57 -- (0.83) --
LIMITED TERM FUND
1993(a) $ 10.00 0.36 0.07 0.43 (0.36) -- --
1994 $ 10.07 0.52 (0.17) 0.35 (0.52) (0.03) --
1995 $ 9.87 0.49 (0.23) 0.26 (0.48) -- --
1996 $ 9.65 0.54 0.15 0.69 (0.54) -- --
1997 $ 9.80 0.52 (0.08) 0.44 (0.53) -- --
GOVERNMENT INCOME FUND
1993(a) $ 10.00 0.37 0.25 0.62 (0.37) -- --
1994 $ 10.25 0.55 (0.09) 0.46 (0.55) (0.25) (0.01)(g)
1995 $ 9.90 0.54 (0.44) 0.10 (0.53) -- --
1996 $ 9.47 0.58 0.41 0.99 (0.59) -- --
1997 $ 9.87 0.57 (0.18) 0.39 (0.57) -- --
MUNICIPAL INCOME FUND
1993(c) $ 10.00 0.07 0.49 0.56 (0.05) -- --
1994 $ 10.51 0.48 0.08 0.56 (0.49) (0.01) --
1995 $ 10.57 0.49 (0.43) 0.06 (0.48) -- --
1996 $ 10.15 0.49 0.50 0.99 (0.48) -- --
1997 $ 10.66 0.49 (0.07) 0.42 (0.48) (0.01) --
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Reflects operations for the period from August 3, 1992 (date of initial
public investment) to February 28, 1993.
(b) Reflects operations for the period from August 1, 1994 (date of initial
public investment) to February 28, 1995.
(c) Reflects operations for the period from December 29, 1992 (date of initial
public investment) to February 28, 1993.
(d) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(e) Computed on an annualized basis.
(f) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(g) This distribution does not represent a return of capital for federal tax
purposes.
(h) Represents total commissions paid on portfolio securities divided by total
portfolio shares purchased or sold on which commissions were charged. This
disclosure is required for fiscal years beginning on or after September 1,
1995.
Further information about the Funds' performance is contained in the Funds'
Annual Report, dated February 28, 1997, which can be obtained free of charge.
The International Equity Fund had not yet commenced operations at February 28,
1997.
<TABLE>
<CAPTION>
RATIOS TO AVERAGE NET ASSETS
--------------------------------------
NET ASSET NET NET ASSETS, PORTFOLIO
TOTAL VALUE, TOTAL INVESTMENT EXPENSE END OF PERIOD TURNOVER
DISTRIBUTIONS END OF PERIOD RETURN (D) EXPENSES INCOME WAIVER (F) (000 OMITTED) RATE
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(0.10) $ 10.54 6.40% 0.51%(e) 2.15%(e) 0.53%(e) $ 181,239 28%
(0.19) $ 10.87 4.99% 0.96% 1.38% 0.01% $ 284,203 7%
(0.33) $ 11.41 8.23% 0.95% 1.54% -- $ 259,998 1%
(0.71) $ 14.49 33.73% 0.94% 1.24% -- $ 385,145 15%
(0.49) $ 16.68 18.79% 0.92% 0.95% -- $ 490,392 7%
(0.04) $ 11.15 11.84% 0.79%(e) 0.06%(e) 1.34%(e) $ 36,664 45%
(1.66) $ 12.79 31.42% 1.17% -- 0.35% $ 53,477 154%
(0.83) $ 13.53 12.08% 1.14% (0.24)% 0.16% $ 80,527 116%
(0.36) $ 10.07 4.43% 0.50%(e) 6.25%(e) 0.42%(e) $ 99,921 18%
(0.55) $ 9.87 3.52% 0.59% 5.21% 0.29% $ 116,600 76%
(0.48) $ 9.65 2.72% 0.63% 5.00% 0.25% $ 96,216 14%
(0.54) $ 9.80 7.34% 0.69% 5.49% 0.20% $ 93,276 56%
(0.53) $ 9.71 4.66% 0.68% 5.39% 0.20% $ 84,385 28%
(0.37) $ 10.25 6.40% 0.50%(e) 6.45%(e) 0.41%(e) $ 111,435 78%
(0.81) $ 9.90 4.55% 0.70% 5.34% 0.19% $ 118,695 49%
(0.53) $ 9.47 1.20% 0.68% 5.79% 0.15% $ 168,313 31%
(0.59) $ 9.87 10.70% 0.72% 5.96% 0.10% $ 184,226 87%
(0.57) $ 9.69 4.07% 0.70% 5.82% 0.10% $ 249,618 7%
(0.05) $ 10.51 5.65% 0.48%(e) 4.11%(e) 1.02%(e) $ 15,644 93%
(0.50) $ 10.57 5.34% 0.74% 4.60% 0.67% $ 34,435 9%
(0.48) $ 10.15 0.81% 0.75% 4.93% 0.41% $ 41,542 9%
(0.48) $ 10.66 9.96% 0.70% 4.65% 0.47% $ 44,578 20%
(0.49) $ 10.59 4.12% 0.70% 4.69% 0.46% $ 46,928 9%
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
AVERAGE
COMMISSION
TOTAL RATE PAID
DISTRIBUTIONS (H)
- -------------
<S> <C>
(0.10) --
(0.19) --
(0.33) --
(0.71) $ 0.0653
(0.49) $ 0.0761
(0.04) --
(1.66) $ 0.0098
(0.83) $ 0.0568
(0.36) --
(0.55) --
(0.48) --
(0.54) --
(0.53) --
(0.37) --
(0.81) --
(0.53) --
(0.59) --
(0.57) --
(0.05) --
(0.50)
(0.48) --
(0.48) --
(0.49) --
- -------------
</TABLE>
OBJECTIVE AND POLICIES OF EACH FUND
- --------------------------------------------------------------------------------
The investment objective and policies of each Fund appear below. The investment
objective of a Fund cannot be changed without the approval of holders of a
majority of that Fund's shares. While there is no assurance that a Fund will
achieve its investment objective, it endeavors to do so by following the
investment policies described in this prospectus.
Unless indicated otherwise, the investment policies and limitations of a Fund
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.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below, appears in
the "Portfolio Investments and Strategies" section of this Prospectus and in the
Statement of Additional Information.
EQUITY FUND
The primary investment objective of Equity Fund is to provide long-term capital
appreciation. Current income is a secondary objective. Equity Fund pursues its
investment objectives by investing at least 70% of its assets in equity
securities. The equity securities in which the Equity Fund may invest include,
but are not limited to, large capitalization stocks which, in the opinion of the
Adviser, have potential to provide for capital appreciation and current income.
Issuers of large capitalization stocks have equity market valuation in excess of
$1 billion.
ACCEPTABLE INVESTMENTS. Consistent with the above, Equity Fund may invest in:
- common stock of U.S. companies which are either listed on the New York or
American Stock Exchange or traded in over-the-counter markets, preferred
stock of such companies, warrants, and preferred stock convertible into
common stock of such companies;
- investments in American Depositary Receipts ("ADRs") of foreign companies
traded on the New York Stock Exchange or in the over-the-counter market.
(For a description of certain risks associated with investing in foreign
companies, see "International Equity Fund-Risks Associated with Investing
in Foreign Securities.");
- convertible bonds 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 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.
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.
Equity 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 opinion, the investment characteristics of the underlying common
shares will assist Equity Fund in achieving its investment objective. Otherwise,
Equity Fund may hold or trade convertible securities. In selecting convertible
securities for Equity Fund, the Adviser evaluates the investment characteristics
of the convertible security as a fixed income instrument and the investment
potential of the underlying equity security for capital appreciation. In
evaluating these matters with respect to a particular convertible security, the
Adviser considers numerous factors, including the economic and political
outlook, the value of the security relative to other investment alternatives,
trends in the determinants of the issuer's profits, and the issuer's management
capability and practices.
CERTAIN OTHER PORTFOLIO STRATEGIES. Equity Fund may also invest or engage in
repurchase agreements, securities of foreign issuers, put and call options,
futures contracts and options on futures, lending of portfolio securities,
when-issued and delayed delivery transactions, temporary investments and
securities of other investment companies. See "Portfolio Investments and
Strategies."
OPPORTUNITY FUND
The investment objective of Opportunity Fund is to provide capital appreciation.
Opportunity Fund pursues its investment objective by investing primarily in a
portfolio of equity securities comprising the small capitalization sector of the
United States equity market. In the Adviser's opinion, small capitalization
stocks have special value in the marketplace and can provide greater growth of
principal than large capitalization stocks, but will not necessarily do so.
Opportunity Fund attempts to select companies whose potential for capital
appreciation exceeds that of larger capitalization stocks commensurate with
increased risk. Under normal market conditions, Opportunity Fund intends to
invest at least 65% of its total assets in equity securities of companies that
have a market value capitalization of less than $1 billion.
In pursuing its investment objective, Opportunity Fund will employ investment
strategies that utilize a fundamental growth-oriented approach along with
technical analysis and valuation relative to the S&P 500 and the stock market to
select the small capitalization stocks which will comprise Opportunity Fund's
investment portfolio.
ACCEPTABLE INVESTMENTS. Opportunity Fund may invest in common stocks,
convertible bonds, ADRs, money market instruments, fixed rate notes and bonds
and adjustable and variable rate notes, and obligations of banks or savings
associations of the kind that are described under "Equity Fund--
Acceptable Investments." (For a description of certain risks associated with
investing in foreign companies, see "International Equity Fund--Risks Associated
with Investing in Foreign Securities.")
INVESTMENT RISKS. As with other mutual funds that invest primarily in equity
securities, Opportunity 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 Opportunity Fund invests
primarily in small capitalization stocks, there are some additional risk factors
associated with investments in Opportunity Fund. In particular, stocks in the
small capitalization sector of the United States equity market have historically
been more volatile in price than larger capitalization stocks, such as those
included in the S&P 500 Composite Stock Price Index ("S&P 500 Index"). This is
because, among other things, small companies have less certain growth prospects
than larger companies; have a lower degree of liquidity in the equity market;
and tend to have a greater sensitivity to changing economic conditions. Further,
in addition to exhibiting greater volatility, the stocks of small companies may,
to some degree, fluctuate independently of the stocks of large companies. That
is, the stocks of small companies may decline in price as the prices of large
company stocks rise or vice versa. Therefore, investors should expect that
Opportunity Fund will be more volatile than, and may fluctuate independently of,
broad stock market indices such as the S&P 500 Index.
PORTFOLIO TURNOVER. Although Opportunity Fund does not intend to invest for the
purpose of seeking short-term profits, securities in the portfolio will be sold
whenever the Adviser believes it is appropriate to do so in light of Opportunity
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 Opportunity Fund's
shareholders. During the fiscal years ended February 28, 1997 and February 29,
1996, Opportunity Fund's portfolio turnover rate was 116% and 154%,
respectively.
CERTAIN PORTFOLIO STRATEGIES. Opportunity Fund may also invest or engage in
repurchase agreements, securities of foreign issuers, put and call options,
futures contracts and options on futures, when-issued and delayed delivery
transactions, lending of portfolio securities, temporary investments and
securities of other investment companies. See "Portfolio Investments and
Strategies."
INTERNATIONAL EQUITY FUND
The investment objective of International Equity Fund is to seek capital
appreciation. International Equity pursues its investment objective by investing
primarily in non-U.S. securities. A substantial portion of these will be equity
securities of established companies in economically developed countries.
ACCEPTABLE INVESTMENTS. The International Equity Fund will invest at least 65%,
and under normal market conditions substantially all, of its total assets in
equity securities denominated in foreign currencies, including European Currency
Units, of issuers located in at least three countries outside of the United
States and sponsored or unsponsored American Depositary Receipts ("ADRs"),
Global Depositary Receipts ("GDRs"), and European Depositary Receipts ("EDRs"),
collectively, "Depositary Receipts." International Equity Fund may also purchase
corporate and government fixed income securities denominated in currencies other
than U.S. Dollars; enter into forward commitments,
repurchase agreements, and foreign currency transactions; maintain reserves in
foreign or U.S. money market instruments; and purchase options and financial
futures contracts.
EQUITY SECURITIES. International Equity Fund will commit its assets primarily to
equity securities. In selecting investments for International Equity Fund,
Lazard Freres Asset Management attempts to identify inexpensive markets
worldwide through traditional measures of value, including low price to earnings
ratio, high yield, unrecognized assets, potential for management change and/or
the potential to improve profitability. In addition, the Sub-Adviser seeks to
identify companies that it believes are financially productive and undervalued
in those markets. The Sub-Adviser focuses on individual stock selection (a
"bottom-up" approach) rather than on forecasting stock market trends (a
"top-down" approach).
The Sub-Adviser recognizes that some of the best opportunities are in securities
not generally followed by investment professionals. Thus, the Sub-Adviser relies
on its research capabilities and also maintains a dialogue with foreign brokers
and with the management of foreign companies in an effort to gather the type of
"local knowledge" that it believes is critical to successful investment abroad.
To this end, the Sub-Adviser communicates with its affiliates, Lazard Freres &
Cie. in Paris, Lazard Brothers & Co. Ltd. in London and Lazard Japan Asset
Management K.K. in Tokyo, for information concerning current business trends, as
well as for a better understanding of the management of local businesses. The
information supplied by these affiliates of the Sub-Adviser will be limited to
statistical and factual information, advice regarding economic factors and
trends or advice as to occasional transactions in specific securities.
FIXED INCOME AND OTHER SECURITIES. As a temporary defensive position,
International Equity Fund may invest up to 100% of its total assets in fixed
income securities, warrants, or other obligations of foreign companies or
governments, if they appear to offer potential higher return. Fixed income
securities include preferred stock, convertible securities, bonds, notes, or
other debt securities which are investment grade or higher. However, in no event
will International Equity Fund invest more than 25% of its total assets in the
debt securities of any one foreign country.
The high-quality debt securities in which International Equity Fund will invest
will possess a minimum credit rating of A as assigned by S&P or A by Moody's,
or, if unrated, will be judged by the Adviser or Sub-Adviser to be of comparable
quality. Because the average quality of International Equity Fund's debt
securities should remain constantly between A and AAA, International Equity Fund
will seek to avoid the adverse consequences that may arise for some debt
securities in difficult economic circumstances. Downgraded securities will be
evaluated on a case by case basis by the Sub-Adviser. The Sub-Adviser will
determine whether or not the security continues to be an acceptable investment.
If not, the security will be sold.
The prices of fixed income securities generally fluctuate inversely to the
direction of interest rates.
DEPOSITARY RECEIPTS. International Equity Fund may invest in foreign issuers by
purchasing sponsored or unsponsored ADRs, GDRs, and EDRs. ADRs are depositary
receipts typically issued by a United States bank or trust company which
evidence ownership of underlying securities issued by a foreign corporation.
EDRs and GDRs are typically issued by foreign banks or trust companies, although
they also may be issued by United States banks or trust companies, and evidence
ownership of underlying securities issued by either a foreign or a United States
corporation. Generally, depositary
receipts in registered form are designed for use in the United States securities
market and depositary receipts in bearer form are designed for use in securities
markets outside the United States. Depositary receipts may not necessarily be
denominated in the same currency as the underlying securities into which they
may be converted. Ownership of unsponsored depositary receipts may not entitle
International Equity Fund to financial or other reports from the issuer of the
underlying security, to which it would be entitled as the owner of sponsored
depositary receipts.
FORWARD COMMITMENTS. Forward commitments are contracts to purchase securities
for a fixed price at a date beyond customary settlement time. International
Equity Fund may enter into these contracts if liquid securities in amounts
sufficient to meet the purchase price are segregated on International Equity
Fund's records at the trade date and maintained until the transaction has been
settled. Risk is involved if the value of the security declines before
settlement. Although International Equity Fund enters into forward commitments
with the intention of acquiring the security, it may dispose of the commitment
prior to settlement and realize short-term profit or loss.
MONEY MARKET INSTRUMENTS. International Equity Fund may invest in U.S. and
foreign short-term money market instruments, including interest-bearing call
deposits with banks, government obligations, certificates of deposit, bankers'
acceptances, commercial paper, short-term corporate debt securities, and
repurchase agreements. The commercial paper in which International Equity Fund
invests will be rated A-1 by S&P or P-1 by Moody's. These investments may be
used to temporarily invest cash received from the sale of International Equity
Fund shares, to establish and maintain reserves (up to 100% of International
Equity Fund's assets) for temporary defensive purposes, or to take advantage of
market opportunities. Investments in the World Bank, Asian Development Bank, or
Inter-American Development Bank are not anticipated.
FOREIGN CURRENCY TRANSACTIONS. International Equity Fund will enter into foreign
currency transactions to obtain the necessary currencies to settle securities
transactions. Currency transactions may be conducted either on a spot or cash
basis at prevailing rates or through forward foreign currency exchange
contracts.
International Equity Fund may also enter into foreign currency transactions to
protect Fund assets against adverse changes in foreign currency exchange rates
or exchange control regulations. Such changes could unfavorably affect the value
of Fund assets which are denominated in foreign currencies, such as foreign
securities or funds deposited in foreign banks, as measured in U.S. Dollars.
Although foreign currency exchanges may be used by International Equity Fund to
protect against a decline in the value of one or more currencies, such efforts
may also limit any potential gain that might result from a relative increase in
the value of such currencies and might, in certain cases, result in losses to
International Equity Fund.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency exchange
contract ("forward contract") is an obligation to purchase or sell an amount of
a particular currency at a specific price and on a future date agreed upon by
the parties.
Generally, no commission charges or deposits are involved. At the time
International Equity Fund enters into a forward contract, Fund assets with a
value equal to the Fund's obligation under the forward contract are segregated
on the Fund's records and are maintained until the contract has been settled.
International Equity Fund will not enter into a forward contract with a term of
more than one
year. International Equity Fund will generally enter into a forward contract to
provide the proper currency to settle a securities transaction at the time the
transaction occurs ("trade date"). The period between the trade date and
settlement date will vary between 24 hours and 30 days, depending upon local
custom.
International Equity Fund may also protect against the decline of a particular
foreign currency by entering into a forward contract to sell an amount of that
currency approximating the value of all or a portion of International Equity
Fund's assets denominated in that currency ("hedging"). The success of this type
of short-term hedging strategy is highly uncertain due to the difficulties of
predicting short-term currency market movements and of precisely matching
forward contract amounts and the constantly changing value of the securities
involved. Although the Adviser will consider the likelihood of changes in
currency values when making investment decisions, the Adviser believes that it
is important to be able to enter into forward contracts when it believes the
interests of International Equity Fund will be served. International Equity Fund
will not enter into forward contracts for hedging purposes in a particular
currency in an amount in excess of the Fund's assets denominated in that
currency.
SHORT SALES. International Equity Fund intends to sell securities it owns or has
a right to acquire short from time to time, subject to certain restrictions. A
short sale occurs when a borrowed security is sold in anticipation of a decline
in its price. If the decline occurs, shares equal in number to those sold short
can be purchased at the lower price. If the price increases, the higher price
must be paid. The purchased shares are then returned to the original lender.
Risk arises because no loss limit can be placed on the transaction. When
International Equity Fund enters into a short sale, assets, equal to the market
price of the securities sold short or any lesser price at which the Fund can
obtain such securities, are segregated on the Fund's records and maintained
until the Fund meets its obligations under the short sale.
RISKS ASSOCIATED WITH INVESTING IN FOREIGN COMPANIES. Investing in non-U.S.
securities carries substantial risks in addition to those associated with
domestic investments. In an attempt to reduce some of these risks, International
Equity Fund diversifies its investments broadly among foreign countries,
including both developed and developing countries. At least three different
countries will always be represented.
International Equity Fund occasionally takes advantage of the unusual
opportunities for higher returns available from investing in developing
countries. As discussed in the Statement of Additional Information, however,
these investments carry considerably more volatility and risk because they are
associated with less mature economies and less stable political systems.
The economies of foreign countries may differ from the U.S. economy in such
respects as growth of gross domestic product, rate of inflation, currency
depreciation, capital reinvestment, resource self-sufficiency, and balance of
payments position. Further, the economies of developing countries generally are
heavily dependent on international trade and, accordingly, have been, and may
continue to be, adversely affected by trade barriers, exchange controls, managed
adjustments in relative currency values, and other protectionist measures
imposed or negotiated by the countries with which they trade. These economies
also have been, and may continue to be, adversely affected by economic
conditions in the countries with which they trade.
Prior governmental approval for foreign investments may be required under
certain circumstances in some countries, and the extent of foreign investment in
certain debt securities and domestic companies may be subject to limitation.
Foreign ownership limitations also may be imposed by the charters of individual
companies to prevent, among other concerns, violation of foreign investment
limitations.
Repatriation of investment income, capital, and the proceeds of sales by foreign
investors may require governmental registration and/or approval in some
countries. International Equity Fund could be adversely affected by delays in,
or a refusal to grant, any required governmental registration or approval for
such repatriation. Any investment subject to such repatriation controls will be
considered illiquid if it appears reasonably likely that this process will take
more than seven days.
With respect to any foreign country, there is the possibility of
nationalization, expropriation or confiscatory taxation, political changes,
governmental regulation, social instability or diplomatic developments
(including war) which could affect adversely the economies of such countries or
the value of International Equity Fund's investments in those countries. In
addition, it may be difficult to obtain and enforce a judgment in a court
outside of the United States.
Brokerage commissions, custodial services, and other costs relating to
investment may be more expensive than in the United States. Foreign markets may
have different clearance and settlement procedures and in certain markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
The inability of International Equity Fund to make intended security purchases
due to settlement problems could cause International Equity Fund to miss
attractive investment opportunities. Inability to dispose of a portfolio
security due to settlement problems could result either in losses to
International Equity Fund due to subsequent declines in value of the portfolio
security or, if International Equity Fund has entered into a contract to sell
the security, could result in possible liability to the purchaser.
Other differences between investing in foreign and U.S. companies include:
- less publicly available information about foreign companies;
- the lack of uniform accounting, auditing, and financial reporting
standards and practices or regulatory requirements comparable to those
applicable to U.S. companies;
- less readily available market quotations on foreign companies;
- differences in government regulation and supervision of foreign stock
exchanges, brokers, listed companies, and banks;
- differences in legal systems which may affect the ability to enforce
contractual obligations or obtain court judgments;
- the limited size of many foreign securities markets and limited trading
volume in issuers compared to the volume of trading in U.S. securities,
which could cause prices to be erratic for reasons apart from factors
that affect the quality of securities;
- the likelihood that foreign securities may be less liquid or more
volatile;
- higher foreign brokerage commissions;
- unreliable mail service between countries;
- political or financial changes which adversely affect investments in some
countries;
- increased risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities;
- requirements of certain markets that payment for securities be made
before delivery;
- religious and ethnic instability; and
- certain national policies which may restrict the Fund's investment
opportunities, including those restricting investment in issuers or
industries deemed sensitive to national interests.
U.S. GOVERNMENT POLICIES. In the past, U.S. government policies have
discouraged or restricted certain investments abroad by investors such as
International Equity Fund. Investors are advised that when such policies are
instituted, International Equity Fund will abide by them.
CURRENCY RISKS. Because the majority of the securities purchased by
International Equity Fund are denominated in currencies other than the U.S.
Dollar, changes in foreign currency exchange rates will affect International
Equity Fund's net asset value; the value of interest earned; gains and losses
realized on the sales of securities; and net investment income and capital gain,
if any, to be distributed to shareholders by International Equity Fund. If the
value of a foreign currency rises against the U.S. Dollar, the value of
International Equity Fund's assets denominated in that currency will increase;
correspondingly, if the value of a foreign currency declines against the U.S.
Dollar, the value of International Equity Fund's assets denominated in that
currency will decrease.
The exchange rates between the U.S. Dollar and foreign currencies are a function
of such factors as supply and demand in the currency exchange markets,
international balances of payments, governmental interpretation, speculation and
other economic and political conditions. Although International Equity Fund
values its assets daily in U.S. Dollars, International Equity Fund will not
convert its holdings of foreign currencies to U.S. Dollars daily. When
International Equity Fund converts its holdings to another currency, it may
incur conversion costs. Foreign exchange dealers may realize a profit on the
difference between the price at which they buy and sell currencies.
NON-DIVERSIFICATION. International Equity Fund is a non-diversified investment
portfolio. As such, there is no limit on the percentage of assets which can be
invested in any single issuer. An investment in International Equity Fund,
therefore, will entail greater risk than would exist in a diversified portfolio
of securities because the higher percentage of investments among fewer issuers
may result in greater fluctuation in the total market value of International
Equity Fund's portfolio. Any economic, political, or regulatory developments
affecting the value of the securities in International Equity Fund's portfolio
will have a greater impact on the total value of the portfolio than would be the
case if the portfolio was diversified among more issuers.
International Equity Fund intends to comply with Subchapter M of the Internal
Revenue Code, as amended. This undertaking requires that at the end of each
quarter of the taxable year, with regard to at least 50% of International Equity
Fund's total assets, no more than 5% of its total assets are invested in the
securities of a single issuer; and beyond that, that no more than 25% of its
total assets are invested in the securities of a single issuer.
CERTAIN PORTFOLIO STRATEGIES. International Equity Fund may also invest or
engage in put and call options, futures contracts and options on futures,
repurchase agreements, lending of portfolio securi-
ties, when-issued and delayed delivery transactions and securities of other
investment companies. See "Portfolio Investments and Strategies."
LIMITED TERM FUND
The investment objective of Limited Term Fund is current income, the
weighted-average duration of which will at all times be limited to between one
and six years. Limited Term Fund pursues its investment objective by investing
primarily in securities which are guaranteed as to payment of principal and
interest by the U.S. government or U.S. government agencies or
instrumentalities. Limited Term Fund may also invest in corporate bonds,
asset-backed securities and bank instruments. Under normal circumstances,
Limited Term Fund will invest at least 65% of the value of its total assets in
U.S. government securities.
The net asset value of Limited Term Fund is expected to fluctuate with changes
in interest rates and bond market conditions, although this fluctuation should
be more moderate than that of a fund with a longer average portfolio maturity.
The Adviser, however, will attempt to minimize principal fluctuation through,
among other things, diversification, careful credit analysis and security
selection, and adjustments of Limited Term Fund's average portfolio maturity. In
periods of rising interest rates and falling bond prices, the Adviser may
shorten Limited Term Fund's average duration to minimize the effect of declining
bond values on its net asset value.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which Limited Term
Fund will invest include:
- direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds;
- notes, bonds, and discount notes issued or guaranteed by U.S. government
agencies and instrumentalities supported by the full faith and credit of
the United States;
- notes, bonds, and discount notes of U.S. government agencies or
instrumentalities which receive or have access to federal funding; and
- notes, bonds, and discount notes of other U.S. government
instrumentalities supported only by the credit of the instrumentalities.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government are backed by the full faith and credit of the U.S. Treasury. No
assurances can be given that the U.S. government will provide financial support
to other agencies or instrumentalities, since it is not obligated to do so.
These instrumentalities are supported by:
- the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
- the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
- the credit of the agency or instrumentality.
CORPORATE BONDS. Limited Term Fund may invest in issues of corporate debt
obligations which are rated in one of the three highest categories by a
nationally recognized statistical rating organization (rated Aaa, Aa, or A by
Moody's; AAA, AA, or A by S&P or by Fitch, or which are of comparable quality in
the judgment of the Adviser).
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. There are currently three basic
types of mortgage-backed securities: (i) those issued or guaranteed by the U.S.
government or one of its agencies or instrumentalities, such as the Government
National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac"); (ii) those issued by private issuers that represent an interest
in or are collateralized by mortgage-backed securities issued or guaranteed by
the U.S. government or one of its agencies or instrumentalities; and (iii) those
issued by private issuers that represent an interest in or are collateralized by
whole loans or mortgage-backed securities without a government guarantee but
usually having some form of private credit enhancement.
COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations
("CMOs") are debt obligations collateralized by mortgage loans or mortgage
pass-through securities. Typically, CMOs are collateralized by Ginnie Mae,
Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole
loans or private pass-through securities.
Limited Term Fund and Government Income Fund will only invest in CMOs which
are rated AAA by a nationally recognized rating agency, and which may be:
(a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of
mortgages in which payment of principal and interest is guaranteed by the
issuer and such guarantee is collateralized by U.S. government securities;
or (c) securities in which the proceeds of the issuance are invested in
mortgage securities and payment of the principal and interest are supported
by the credit of an agency or instrumentality of the U.S. government.
ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics
similar to mortgage-backed securities but have underlying assets that are not
mortgage loans or interests in mortgage loans. Limited Term Fund may invest in
asset-backed securities rated A or higher by a nationally recognized rating
agency. The collateral for such securities will consist of motor vehicle
installment purchase obligations and credit card receivables. These securities
may be in the form of pass-through instruments or asset-backed bonds. The
securities are issued by non-governmental entities and carry no direct or
indirect government guarantee.
BANK INSTRUMENTS. Limited Term Fund only invests in bank instruments issued by
an institution having capital, surplus and undivided profits over $100 million,
or insured by BIF or SAIF.
AVERAGE PORTFOLIO DURATION. Although Limited Term Fund will not maintain a
stable net asset value, the Adviser will seek to limit, to the extent consistent
with its investment objective of current income, the magnitude of fluctuations
in Limited Term Fund's net asset value by limiting the dollar-weighted average
duration of the portfolio. Although the dollar-weighted average duration will
not exceed six years, the weighted average maturity of Limited Term Fund's
portfolio could be longer than six years. Generally, the duration of a security
is shorter than the maturity of a security. A typical security makes coupon
payments prior to its maturity date and duration takes into account the timing
of a security's cash flow. Duration is a commonly used measure of the potential
volatility of the price of a debt security, or the aggregate market value of a
portfolio of debt securities, prior to maturity.
Securities with shorter durations generally have less volatile prices than
securities of comparable quality with longer durations. Limited Term Fund should
be expected to maintain a higher average duration during periods of falling
interest rates, and a lower average duration during periods of rising interest
rates.
CERTAIN OTHER PORTFOLIO STRATEGIES. Limited Term Fund may also invest or engage
in put and call options, temporary investments, repurchase agreements, lending
of portfolio securities, when-issued and delayed delivery transactions and
securities of other investment companies. See "Portfolio Investments and
Strategies."
GOVERNMENT INCOME FUND
The investment objective of Government Income Fund is current income. Government
Income Fund pursues its investment objective by investing primarily in
securities which are guaranteed as to payment of principal and interest by the
U.S. government or U.S. government agencies or instrumentalities. Government
Income Fund may also invest in corporate bonds, asset-backed securities and bank
instruments. Under normal circumstances, Government Income Fund will invest at
least 65% of the value of its total assets in U.S. government securities.
ACCEPTABLE INVESTMENTS. Government Income Fund may invest in U.S. government
securities, corporate bonds, mortgage-backed securities (including
collateralized mortgage obligations), asset-backed securities and bank
instruments of the kind described under "Limited Term Fund--Acceptable
Investments."
CERTAIN OTHER PORTFOLIO STRATEGIES. Government Income Fund may also invest or
engage in put and call options, temporary investments, repurchase agreements,
lending of portfolio securities, when-issued and delayed delivery transactions
and securities of other investment companies. See "Portfolio Investments and
Strategies."
MUNICIPAL INCOME FUND
The investment objective of Municipal Income Fund is to provide dividend income
that is exempt from federal regular income tax. Interest income of Municipal
Income Fund that is exempt from federal regular income tax retains its tax-free
status when distributed to Municipal Income Fund's shareholders. Municipal
Income Fund pursues its investment objective by investing in municipal
securities. As a matter of investment policy, which may not be changed without
shareholder approval, under normal circumstances, Municipal Income Fund will be
invested so that at least 80% of the income from investments will be exempt from
federal regular income tax or that at least 80% of its net assets are invested
in obligations, the interest from which is exempt from federal regular income
tax.
ACCEPTABLE INVESTMENTS. The municipal securities in which Municipal Income Fund
invests are:
- debt obligations and municipal leases issued by or on behalf of any
state, territory, or possession of the United States, including the
District of Columbia, or any political subdivision of any of them; and
- participation interests, as described below, in any of the above
obligations, the interest from which is, in the opinion of bond counsel
for the issuers or in the opinion of officers of Municipal Income Fund
and/or the Adviser, exempt from federal regular income tax.
CHARACTERISTICS. The municipal securities in which Municipal Income Fund
invests are:
- rated "investment grade," i.e., Baa or better by Moody's, or BBB or
better by S&P or Fitch;
- guaranteed at the time of purchase by the U.S. government, its agencies
or instrumentalities, as to the payment of principal and interest;
- fully collateralized by an escrow of U.S. government or other securities
acceptable to the Adviser;
- rated at the time of purchase within Moody's highest short-term municipal
obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial
paper rating (P-1) or S&P's highest short-term municipal commercial paper
rating (SP-1) or Fitch's highest tax-exempt municipal obligation rating
(FIN-1);
- unrated if, at the time of purchase, longer term municipal securities of
the issuer are rated Baa or better by Moody's or BBB or better by S&P or
Fitch (however, investments in unrated securities will not exceed 20% of
Municipal Income Fund's total assets); or
- determined by the Adviser to be equivalent to municipal securities which
are rated Baa or better by Moody's or BBB or better by S&P or Fitch.
It should be noted that securities rated BBB by S&P or Baa by Moody's are
considered to have speculative characteristics. Changes in economic conditions
or other circumstances are more likely to lead to weakened capacity to make
principal and interest payments than higher rated bonds. A description of the
rating categories is contained in the Appendix to the Statement of Additional
Information. The prices of fixed income securities fluctuate inversely to the
direction of interest rates.
PARTICIPATION INTERESTS. Municipal Income Fund may purchase participation
interests from financial institutions such as commercial banks, savings
associations, and insurance companies. These participation interests give
Municipal Income Fund an undivided interest in municipal securities. The
financial institutions from which Municipal Income Fund purchases participation
interests frequently provide or secure irrevocable letters of credit or
guarantees to assure that the participation interests are of high quality. The
Trustees will determine that participation interests meet the prescribed quality
standards for Municipal Income Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Municipal Income Fund may purchase municipal
securities that have variable interest rates. Variable interest rates are
ordinarily stated as a percentage of a published interest rate, interest rate
index, or some similar standard, such as the 91-day U.S. Treasury bill rate.
Many variable rate municipal securities are subject to payment of principal on
demand by Municipal Income Fund, usually in not more than seven days. All
variable rate municipal securities will meet the quality standards for Municipal
Income Fund.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and local
governments or authorities to finance the acquisition of equipment and
facilities and may be considered to be illiquid. They may take the form of a
lease, an installment purchase contract, or a conditional sales contract.
TEMPORARY INVESTMENTS. From time to time, on a temporary basis, or when the
Adviser determines that market conditions call for a temporary defensive
posture, Municipal Income Fund may invest in short-term tax-exempt or taxable
temporary investments. These temporary investments include: fixed
or variable rate notes issued by or on behalf of municipal or corporate issuers;
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities; other debt securities; securities of other investment
companies; commercial paper; certificates of deposit, demand and time deposits,
bankers' acceptances, deposit notes, and other instruments of domestic and
foreign banks and other deposit institutions ("Bank Instruments"); and
repurchase agreements (arrangements in which the institution selling Municipal
Income Fund a bond or temporary investment agrees at the time of sale to
repurchase it at a mutually agreed upon time and price). There are no rating
requirements applicable to temporary investments.
Although Municipal Income Fund is permitted to make taxable, temporary
investments, there is no current intention of generating income subject to
federal regular income tax.
OTHER INVESTMENT TECHNIQUES. Municipal Income Fund may purchase a right to sell
a security held by it back to the issuer or to another party at an agreed upon
price at any time during a stated period or on a certain date. These rights may
be referred to as "liquidity puts" or "standby commitments."
MUNICIPAL SECURITIES. Municipal securities are generally issued to finance
public works such as airports, bridges, highways, housing, hospitals, mass
transportation projects, schools, streets, and water and sewer works. They are
also issued to repay outstanding obligations, to raise funds for general
operating expenses, and to make loans to other public institutions and
facilities.
Municipal securities include industrial development bonds issued by or on behalf
of public authorities to provide financing aid to acquire sites or construct and
equip facilities for privately or publicly owned corporations. The availability
of this financing encourages these corporations to locate within the sponsoring
communities and thereby increases local employment.
The two principal classifications of municipal securities are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and taxing power for the payment of
principal and interest. Interest on and principal of revenue bonds, however, are
payable only from the revenue generated by the facility financed by the bond or
other specified sources of revenue. Revenue bonds do not represent a pledge of
credit or create any debt of or charge against the general revenues of a
municipality or public authority. Industrial development bonds are typically
classified as revenue bonds.
INVESTMENT RISKS. Yields on municipal securities depend on a variety of factors,
including: the general conditions of the money market and the taxable and
municipal bond markets; the size of the particular offering; the maturity of the
obligations; and the rating of the issue. The ability of Municipal Income Fund
to achieve its investment objective also depends on the continuing ability of
the issuers of municipal securities and participation interests, or the
guarantors of either, to meet their obligations for the payment of interest and
principal when due.
CERTAIN OTHER PORTFOLIO STRATEGIES. Municipal Income Fund may also invest or
engage in when-issued and delayed delivery transactions, lending of portfolio
securities and securities of other investment companies. See "Portfolio
Investments and Strategies."
PORTFOLIO INVESTMENTS AND STRATEGIES
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PUT AND CALL OPTIONS
Equity Fund, Opportunity Fund, International Equity Fund, Limited Term Fund and
Government Income Fund may purchase and sell (write) put and call options on
their portfolio of securities either as a hedge to attempt to protect securities
which the Funds hold, or will be purchasing, against decreases or increases in
value, or to generate income for the Fund. The Funds may write call options on
securities either held in their portfolio or which they have the right to obtain
without payment of further consideration or for which they have segregated cash
in the amount of any additional consideration. In the case of put options
written by the Funds, 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 Funds are authorized to invest in put and call options that are traded on
securities exchanges. The Funds 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 Funds are not traded on an exchange. The Funds will
purchase and write 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 price and terms negotiated between
buyer and seller. In contrast, exchange-traded options are third-party contracts
with standardized strike prices and expiration dates and are purchased from a
clearing corporation. Exchange-traded options have a continuous liquid market
while OTC options may not.
Opportunity Fund will not buy call options or write put options without further
notification to shareholders. Although Limited Term Fund and Government Income
Fund reserve the right to write covered call options on their entire portfolios,
they will not write options on more than 25% of their respective total assets
unless a higher limit is authorized by the Trustees.
FUTURES CONTRACTS AND OPTIONS ON FUTURES
Equity Fund, Opportunity Fund and International Equity Fund may purchase and
sell financial futures contracts and stock index futures contracts to hedge all
or a portion of their respective 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. Limited Term Fund and Government Income Fund may also attempt to hedge
their portfolios by entering into financial futures contracts, but will notify
shareholders before they begin engaging in these transactions.
Equity Fund, Opportunity Fund, International Equity Fund, Limited Term Fund and
Government Income Fund may also write call options and purchase put options on
financial futures contracts as a hedge to attempt to protect securities in their
respective portfolio against decreases in value resulting
from anticipated increases in market interest rates or broad declines in
securities prices. When a 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, a Fund is entitled (but not obligated) to sell a financial futures
contract at the fixed price during the life of the option.
Equity Fund, Opportunity Fund, International Equity Fund, Limited Term Fund and
Government Income Fund 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 a Fund. A 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 a 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, a
Fund is entitled (but not obligated) to purchase a futures contract at a fixed
price at any time during the life of the option.
A 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 a Fund's existing financial futures positions and
premiums paid for related options would exceed 5% of the fair market value of a
Fund's total assets, after taking into account the unrealized profits and losses
on those contracts it has entered into. When a 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 Funds use 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
Funds' portfolios. This may cause the futures contract and any related options
to react differently than the portfolio securities to market changes. In
addition, the Adviser could be incorrect in its expectations about the direction
or extent of market factors, such as interest rate and stock price movements. In
these events, the Funds 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 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 Funds' ability to establish and close out futures and
options positions depends on this secondary market.
REPURCHASE AGREEMENTS
With the exception of Municipal Income Fund, certain securities in which the
Funds invest 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 Funds and agree at
the time of sale to repurchase them at a mutually agreed upon time and price. To
the extent that the seller does not repurchase the securities from the Funds,
the Funds could receive less than the repurchase price on any sale of such
securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
The Funds may purchase securities on a when-issued or delayed delivery basis.
These transactions are arrangements in which the Funds purchase securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Funds 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 Funds may dispose of a commitment prior to settlement if the Adviser deems
it appropriate to do so. In addition, the Funds may enter into transactions to
sell their purchase commitments to third parties at current market values and
simultaneously acquire other commitments to purchase similar securities at later
dates. The Funds may realize short-term profits or losses upon the sale of such
commitments.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, the Funds 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 Funds will only enter into loan
arrangements with broker/dealers, banks, or other institutions which the Adviser
or Sub-Adviser (with respect to International Equity Fund) has determined are
creditworthy under guidelines established by the Trustees, and will receive
collateral in the form of cash or U.S. government securities equal to at least
100% of the value of the securities loaned at all times.
TEMPORARY INVESTMENTS
For defensive purposes only, the Funds (with the exception of Municipal Income
Fund, which may invest in temporary investments described under "Municipal
Income Fund--Temporary Investments" and International Equity Fund, which may
invest in temporary investments described under "International Equity
Fund--Money Market Instruments" and "Fixed Income and Other Securities") 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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds may invest in securities of other investment companies. A 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. A Fund will purchase
securities of closed-end investment companies only in open-market transactions
involving only customary broker's commissions. However, these limitations are
not applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets. It should be noted that investment companies incur
certain expenses, such as management fees, and, therefore, any investment by a
fund in shares of another investment company would be subject to such duplicate
expenses. The Funds will
invest in other investment companies primarily for the purpose of investing
short-term cash on a temporary basis.
RESTRICTED AND ILLIQUID SECURITIES
The Funds may invest in restricted securities. Restricted securities are any
securities in which a Fund may otherwise invest pursuant to its investment
objective and policies but which are subject to restrictions on resale under
federal securities law. However, the Funds will not invest more than 15% of
their respective net assets in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid; over-the-counter options
(for those Funds which are permitted to invest in options); and repurchase
agreements providing for settlement in more than seven days after notice.
FIXED INCOME SECURITIES
The Funds 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. The Adviser will
determine whether or not the security continues to be an acceptable investment.
If not, the security may be sold.
INVESTMENT LIMITATIONS
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Equity Fund, Opportunity Fund, Limited Term Fund, Government Income Fund and
Municipal Income 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 Funds
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.
International Equity Fund will not:
- borrow money or pledge securities except, under certain circumstances,
the Fund may borrow up to one-third of the value of its total assets and
pledge up to 15% of the value of those assets to secure such borrowings;
or
- permit margin deposits for financial futures contracts held by the Fund,
plus premiums paid by it for open options on financial futures contracts,
to exceed 5% of the fair market value of the Fund's total assets, after
taking into account the unrealized profits and losses on those contracts.
The above limitations cannot be changed without shareholder approval.
DG INVESTOR SERIES INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Trust's business affairs and for exercising all of
the powers of the Trust except those reserved for the shareholders. The
Executive Committee of the Board of Trustees handles the Trustees'
responsibilities between meetings of the Trustees.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Funds are made by the Funds' investment adviser,
ParkSouth Corporation, subject to direction by the Trustees. The Adviser (in
consultation with Lazard Freres Asset Management, the Sub-Adviser with respect
to International Equity Fund), continually conducts investment research and
supervision for the Funds and is responsible for the purchase and sale of
portfolio instruments.
ADVISORY FEES. The Funds' Adviser receives an annual investment advisory fee at
annual rates equal to percentages of the relevant Fund's average net assets as
follows: Equity Fund--0.75%; Opportunity Fund--0.95%; International Equity
Fund--1.00%; and Limited Term Fund, Government Income Fund and Municipal Income
Fund--0.60%. The Adviser may voluntarily choose to waive a portion of its fee or
reimburse the Funds for certain operating expenses. The Adviser can terminate
this voluntary waiver of its advisory fees 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 as of December 31, 1996. 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 Funds 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.
John Mark McKenzie has been with the Bank since 1984 and is a Senior Vice
President with the Adviser. Previously, Mr. McKenzie was associated with a
Jackson bank as a trust officer. He received a B.B.A. in Banking and Finance and
a J.D. from the University of Mississippi. He is a member of the Mississippi
Chapter of the Memphis Society of Financial Analysts, and is a member of the
Mississippi State and Hinds County Bar Associations. Mr. McKenzie has managed
Limited Term Fund and Government Income Fund since August 1, 1992, and has
managed the Municipal Income Fund since February, 1997.
Gerald L. White has been with the Bank since 1978 and is a Senior Vice President
and Senior Investment Officer of the Bank and a Senior Vice President of the
Adviser. He received a B.A. from the University of Mississippi, and a J.D. from
Mississippi College and is a graduate of the National Graduate Trust School at
Northwestern University. He is a member of the Mississippi State and Hinds
County Bar Associations and a Certified Financial Service Counselor. Mr. White
has managed the Opportunity Fund since February, 1997. Mr. White previously
served as manager of the Opportunity Fund's predecessor Common Trust Fund from
1982 through 1984.
Ronald E. Lindquist has been with the Bank since 1978 and is a Senior Vice
President with the Adviser. Mr. Lindquist's primary area of responsibility is
the management of the Equity Fund. He received his B.S. in Finance from Florida
State University and a M.S.M. in Finance from Florida International University.
Mr. Lindquist has managed the Equity Fund since its inception on August 1, 1992.
SUB-ADVISER. With respect to International Equity Fund, under the terms of a
sub-advisory agreement between the Adviser and the Sub-Adviser, 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 0.50% of the
average daily net assets of the Fund. The sub-advisory fee is accrued daily and
paid monthly.
SUB-ADVISER'S BACKGROUND. Lazard Freres Asset Management is a division of Lazard
Freres & Co. LLC, a New York limited liability company, which is registered as
an investment adviser with the SEC and is a member of the New York, American and
Midwest Stock Exchanges. The Sub-Adviser provides investment management services
to client discretionary accounts with assets totaling approximately $38.1
billion as of December 31, 1996. Its clients are both individuals and
institutions.
Herbert W. Gullquist is a Managing Director of the Sub-Adviser and has been with
the Sub-Adviser since 1982, during which time he has managed various client
discretionary accounts. Mr. Gullquist has co-managed International Equity Fund
since March 31, 1997 (the Fund's inception date).
John R. Reinsberg is a Managing Director of the Sub-Adviser and has been with
the Sub-Adviser since 1992, during which time he has managed various client
discretionary accounts. Prior thereto, Mr. Reinsberg was Executive Vice
President of General Electric Investment Company. Mr. Reinsberg has co-managed
International Equity Fund since March 31, 1997.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for shares of the Funds.
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 Funds
may pay to the distributor an amount computed at an annual rate of 0.35% (0.25%
in the case of International Equity Fund) of the average daily net asset value
of the Funds 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 Funds will not accrue or
pay 12b-1 fees until a separate class of shares has been created for certain
institutional investors.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense 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 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 Funds' Plan is a compensation type plan. As such, the Funds make no payments
to the distributor except as described above. Therefore, the Funds do not pay
for unreimbursed expenses of the distributor, including amounts expended by the
distributor in excess of amounts received by it from the Funds, 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 Funds
under the Plan.
In addition, the Funds have 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 Funds 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 each 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 Funds.
ADMINISTRATION OF THE FUNDS
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ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a
subsidiary of Federated Investors, provides the Funds with the administrative
personnel and services necessary to operate the
Funds. Such services include shareholder servicing and certain legal and
accounting services. Federated Administrative Services provides these at an
annual rate as specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
- ------------------- ------------------------------------
<S> <C>
.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 aggregate at least
$100,000 per Fund. 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 Adviser (and Sub-Adviser, with respect to International Equity
Fund) look for prompt execution of the order at a favorable price. In working
with dealers, the Adviser and 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. In selecting among firms
believed to meet these criteria, the Adviser and Sub-Adviser may give
consideration to those firms which have sold or are selling shares of the Funds
and other funds distributed by Federated Securities Corp. The Adviser and
Sub-Adviser make decisions on portfolio transactions and selects brokers and
dealers subject to review by the Trustees.
EXPENSES OF THE FUNDS
Each 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
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The Funds' net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
The net asset value for the Funds 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 Funds' portfolio securities that their 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 FUNDS
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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 Funds reserve the
right to reject any purchase request.
THROUGH THE BANKS. To place an order to purchase shares of the Funds, 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 Funds is $1,000. Subsequent investments
may be in amounts of $100 or more. The Funds may waive the initial minimum
investment for employees of Deposit Guaranty Corp. and its affiliates from time
to time.
WHAT SHARES COST
Shares of Equity Fund and Opportunity Fund are sold at their net asset value
next determined after an order is received, plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING NET AMOUNT INVESTED
------------------------------------------ -------------------- --------------------------
<S> <C> <C>
Less than $100,000........................ 3.50% 3.63%
$100,000 but less than $250,000........... 3.00% 3.09%
$250,000 but less than $500,000........... 2.50% 2.56%
$500,000 but less than $750,000........... 2.00% 2.04%
$750,000 but less than $1 million......... 1.50% 1.52%
$1 million but less than $2 million....... 0.50% 0.50%
$2 million or more........................ 0.25% 0.25%
</TABLE>
Shares of Limited Term Fund, Government Income Fund and Municipal Income Fund
are sold at their net asset value next determined after an order is received,
plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF TRANSACTION PUBLIC OFFERING NET AMOUNT INVESTED
------------------------------------------ -------------------- --------------------------
<S> <C> <C>
Less than $100,000........................ 2.00% 2.04%
$100,000 but less than $250,000........... 1.75% 1.78%
$250,000 but less than $500,000........... 1.50% 1.52%
$500,000 but less than $750, 000.......... 1.25% 1.27%
$750,000 but less than $1 million......... 1.00% 1.01%
$1 million but less than $2 million....... 0.50% 0.50%
$2 million or more........................ 0.25% 0.25%
</TABLE>
Shares of International Equity Fund are sold at their net asset value, without a
sales charge, next determined after an order is received.
PURCHASES AT NET ASSET VALUE. Shares of Equity Fund, Opportunity Fund, Limited
Term Fund, Government Income Fund and Municipal Income Fund may be purchased at
net asset value, without a sales charge by: the Trust Division of the Bank for
funds which are held in a fiduciary, agency, custodial or similar capacity;
non-trust customers of financial advisers; Trustees and employees of the Funds,
the Bank or Federated Securities Corp. or their affiliates and their spouses and
children under 21; current and retired directors of the Bank; or any bank or
investment dealer who has a sales agreement with Federated Securities Corp. with
regard to the Funds.
In addition, no sales charge is imposed for Fund shares purchased through
financial intermediaries that do not receive a reallowance of a sales charge.
However, investors who purchase Fund shares through a trust department,
investment adviser, or other financial intermediary may be charged a service or
other fee by the financial intermediary. Furthermore, no sales charge is imposed
on Fund shares purchased through "wrap accounts" or similar programs under which
clients pay a fee for services.
SALES CHARGE REALLOWANCE. For sales of shares of Equity Fund, Opportunity Fund,
Limited Term Fund, Government Income Fund and Municipal Income Fund, the Bank or
any authorized dealer will normally receive up to 100% of the applicable sales
charge. Any portion of the sales charge which is not paid to the Bank or
authorized dealers will be retained by the distributor. The distributor will,
periodically, uniformly offer to pay additional amounts in the form of cash or
promotional incentives consisting of trips to sales seminars at luxury resorts,
tickets or other such items, to all dealers selling shares of the Funds. Such
payments, all or a portion of which may be paid from the sales charge it
normally retains or any other source available to it, will be predicated upon
the amount of shares of the Fund that are sold by the dealer.
The sales charge for shares sold other than through the Bank or authorized
dealers will be retained by the distributor. The distributor may pay fees to the
Banks out of the sales charge in exchange for sales and/or administrative
services performed on behalf of the Banks' customers in connection with the
initiation of customer accounts and purchases of Fund shares.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of Equity Fund, Opportunity
Fund, Limited Term Fund, Government Income Fund and Municipal Income Fund shares
through:
- quantity discounts and accumulated purchases;
- signing a 13-month letter of intent;
- using the reinvestment privilege; or
- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above,
larger purchases reduce the sales charge paid. Each Fund will combine purchases
made on the same day by the investor, his spouse, and his children under age 21
when it calculates the sales charge. In addition, the sales charge, if
applicable, is reduced for purchases made at one time by a trustee or fiduciary
for a single trust estate or a single fiduciary account.
If an additional purchase of Fund shares is made, each Fund will consider the
previous purchase still invested in that Fund. For example, if a shareholder
already owns shares having a current value at the public offering price of
$90,000 and he purchases $10,000 more at the current public offering price, the
sales charge on the additional purchase according to the schedule now in effect
would be 3.00%, not 3.50% with respect to Equity Fund and Opportunity Fund and
1.75% not 2.00% with respect to Limited Term Fund, Government Income Fund, and
Municipal Income Fund.
To receive the sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by the Banks at the time the purchase
is made that Fund shares are already owned or that purchases are being combined.
Each Fund will reduce the sales charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Funds in the Trust over the next 13 months, the sales charge may
be reduced by signing a letter of intent to that effect. This letter includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
3.50% with respect to Equity Fund and Opportunity Fund and 2.00% with respect to
Limited Term Fund, Government Income Fund, and Municipal Income Fund, of the
total amount intended to be purchased in escrow (in shares) until such purchase
is completed.
The 3.50% held in escrow with respect to Equity Fund and Opportunity Fund and
2.00% held in escrow with respect to Limited Term Fund, Government Income Fund,
and Municipal Income Fund will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if he does, each purchase during the period will be at the sales charge
applicable to the total amount intended to be purchased. The current balance in
the shareholder's account will provide a purchase credit towards fulfillment of
the letter of intent.
REINVESTMENT PRIVILEGE. If shares in a Fund have been redeemed, the shareholder
has a one-time right, within 30 days, to reinvest the redemption proceeds at the
next-determined net asset value
without any sales charge. Federated Securities Corp. must be notified by the
shareholder in writing or by the Bank of the reinvestment in order to eliminate
a sales charge. If the shareholder redeems his shares in a Fund, there may be
tax consequences.
PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES.
Investors may purchase shares at net asset value, without a sales charge, with
the proceeds from the redemption of shares of an investment company which was
sold with a sales charge or commission and was not distributed by Federated
Securities Corp. The purchase must be made within 60 days of the redemption, and
Federated Securities Corp. must be notified by the investor in writing, or by
his financial institution, at the time the purchase is made.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
Funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in one of the other
funds in the Trust with a sales charge and $70,000 in another Fund, the sales
charge would be reduced.
To receive this sales charge reduction, Federated Securities Corp. must be
notified by the shareholder in writing or by the Bank at the time the concurrent
purchases are made. The Fund will reduce the sales charge after it confirms the
purchases.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $100. Under this program, funds may be
automatically withdrawn periodically from the shareholder's checking account and
invested in Fund shares. A shareholder may apply for participation in this
program through the Bank.
CERTIFICATES AND CONFIRMATIONS
As transfer agent for the Funds, Federated Shareholder Services Company
maintains a share account for each shareholder. Share certificates are not
issued unless requested by contacting the Funds or Federated Shareholder
Services Company in writing.
Detailed confirmations of each purchase or redemption are sent to each
shareholder. With respect to Equity Fund and Opportunity Fund, quarterly
confirmations are sent to report dividends paid during the quarter.
With respect to Limited Term Fund, Government Income Fund and Municipal Income
Fund, monthly confirmations are sent to report dividends paid during the month.
With respect to International Equity Fund, annual confirmations are sent to
report dividends paid during the year.
DIVIDENDS AND DISTRIBUTIONS
With respect to Equity Fund and Opportunity Fund, dividends are declared
quarterly and paid quarterly. With respect to Limited Term Fund, Government
Income Fund and Municipal Income Fund, dividends are declared and paid monthly.
With respect to International Equity Fund dividends are declared and paid
annually. 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 year's dividend.
Distribution of any realized net long-term capital gains will be made at least
once every twelve months. Dividends are automatically reinvested in additional
shares of the corresponding 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 applicable Fund or the Bank, as appropriate.
EXCHANGE PRIVILEGE
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All shareholders of the Funds are shareholders of DG Investor Series, which, in
addition to the Funds, is composed of the following two portfolios: DG Prime
Money Market Fund and DG U.S. Government Money Market Fund.
Shareholders in any of the Funds have easy access to all of the other Funds.
EXCHANGE 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 Funds, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
REDEEMING SHARES
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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
Funds compute their 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
a 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 Funds 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 Funds, they 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 Funds determine it necessary to terminate or modify this
method of redemption, shareholders would be promptly notified.
BY MAIL. Any shareholder may redeem Fund shares by sending a written request to
the 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 must be properly endorsed and should be sent by registered or
certified mail with the written request. 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 Funds, 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 Funds do not accept signatures guaranteed by a notary public.
The Funds and Federated Shareholder Services Company have adopted standards for
accepting signature guarantees from the above institutions. The Funds may elect
in the future to limit eligible signature guarantors to institutions that are
members of a signature guarantee program. The Funds 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 Funds. For this
reason, payments under this program should not be considered as yield or income
on the shareholders' investment in the Funds. To be eligible to participate in
this program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through the Bank. Due to
the fact that some of the Funds' shares are sold with a sales charge, it is not
advisable for shareholders to be purchasing shares of those Funds while
participating in this program.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Funds may
redeem shares in any account and pay the proceeds to the shareholder if the
account balance falls below a required minimum value of $1,000 due to
shareholder redemptions. This requirement does not apply, however, if the
balance falls below $1,000 because of changes in the Funds' net asset value.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of each Fund gives the shareholder one vote in Trustee elections and
other matters submitted to shareholders of the Funds for vote. All shares of all
classes of each Fund in the Trust have equal voting rights, except that in
matters affecting only a particular Fund or class, only shareholders of that
Fund or class are entitled to vote. As a Massachusetts business trust, the Trust
is not required to hold annual shareholder meetings. Shareholder approval will
be sought only for certain changes in the Trust or Funds' operation and for the
election of Trustees under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting of the shareholders for this purpose shall be called by the
Trustees upon the written request of shareholders owning at least 10% of all
shares of the Trust entitled to vote.
As of June 9, 1997, Deposit Guaranty National Bank, acting in various capacities
for numerous accounts, was the owner of record of 19,039,344 shares (64.43%) of
Equity Fund, and therefore, may for certain purposes be deemed to control the
Fund and be able to affect the outcome of certain matters presented for a vote
of shareholders.
As of June 9, 1997, Deposit Guaranty National Bank, acting in various capacities
for numerous accounts, was the owner of record of 4,533,888 shares (74.24%) of
Opportunity Fund, and therefore, may for
certain purposes be deemed to control the Fund and be able to affect the outcome
of certain matters presented for a vote of shareholders.
As of June 9, 1997, Federated ADM Services was the owner of record of 10 shares
(100%) of International Equity Fund, and therefore, may for certain purposes be
deemed to control the Fund and be able to affect the outcome of certain matters
presented for a vote of shareholders.
As of June 9, 1997, Deposit Guaranty National Bank, acting in various capacities
for numerous accounts, was the owner of record of 6,923,745 shares (80.31%) of
Limited Term Fund, and therefore, may for certain purposes be deemed to control
the Fund and be able to affect the outcome of certain matters presented for a
vote of shareholders.
As of June 9, 1997, Deposit Guaranty National Bank, acting in various capacities
for numerous accounts, was the owner of record of 18,948,257 shares (70.26%) of
Government Income Fund, and therefore, may for certain purposes be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.
As of June 9, 1997, Deposit Guaranty National Bank, acting in various capacities
for numerous accounts, was the owner of record of 4,146,486 shares (91.02%) of
Municipal Income Fund, and therefore, may for certain purposes be deemed to
control the Fund and be able to affect the outcome of certain matters presented
for a vote of shareholders.
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 Funds are subject to such banking laws
and regulations. They believe, based on the advice of counsel, that they may
perform those services for the Funds contemplated 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 Funds will pay no federal income tax because they expect to meet
requirements, of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies.
The Funds will be treated as single, separate entities for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's portfolios will not be combined for tax purposes with those realized by
the individual Funds.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
are received in cash or as additional shares. The Funds will provide detailed
tax information for reporting purposes. With respect to Municipal Income Fund,
information on the tax status of dividends and distributions is provided
annually.
Shareholders are urged to consult their own tax advisers regarding the status of
their account under state and local tax laws.
ADDITIONAL TAX INFORMATION FOR MUNICIPAL INCOME FUND
With respect to Municipal Income Fund, shareholders are not required to pay the
federal regular income tax on any dividends received from Municipal Income Fund
that represent net interest on tax-exempt municipal securities. However, under
the Tax Reform Act of 1986, dividends representing net interest earned on
certain "private activity" bonds issued after August 7, 1986, may be included in
calculating the federal individual alternative minimum tax or the federal
alternative minimum tax for corporations. Municipal Income Fund may purchase all
types of municipal bonds, including private activity bonds.
The alternative minimum tax applies when it exceeds the regular tax for the
taxable year. Alternative minimum taxable income is equal to the regular taxable
income of the taxpayer increased by certain "tax preference" items not included
in regular taxable income and reduced by only a portion of the deductions
allowed in the calculation of the regular tax.
Dividends of Municipal Income Fund representing net interest income earned on
some temporary investments and any realized net short-term gains are taxed as
ordinary income. Distributions representing net long-term capital gains realized
by Municipal Income Fund, if any, will be taxable as long-term capital gains
regardless of the length of time shareholders have held their shares.
With respect to Municipal Income Fund, shareholders should consult their tax
adviser to determine whether they are subject to the alternative minimum tax or
the corporate alternative minimum tax and, if so, the tax treatment of dividends
paid by Municipal Income Fund.
OTHER STATE AND LOCAL TAXES
With respect to Municipal Income Fund, interest received may not be exempt from
all state and local income taxes. Shareholders may be required to pay state and
local taxes on dividends received from
Municipal Income Fund. 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 Funds advertise one or more of the following performance
numbers: total return, yield and tax-equivalent yield.
Total return represents the change over a specified period of time in the value
of an investment in the Funds after reinvesting all income and capital gains
distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Funds is calculated by dividing the net investment income per
share (as defined by the SEC) earned by each Fund over a thirty-day period by
the maximum offering price per share of each Fund on the last day of the period.
This number is then annualized using semi-annual compounding.
The tax-equivalent yield of Municipal Income Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that Municipal Income Fund
would have had to earn to equal its actual yield, assuming a specific tax rate.
The yield and tax-equivalent yield do not necessarily reflect income actually
earned by the Funds and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
The performance information reflects the effect of the maximum sales charge
which, if excluded, would increase the total return, yield, and tax-equivalent
yield.
From time to time, advertisements for the Funds may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Funds' performance to certain indices.
Opportunity Fund is the successor to the portfolio of a collective trust fund
formerly managed by the Adviser. On August 1, 1994 (the date of the Opportunity
Fund's commencement of operations), the assets of the collective trust fund were
transferred to the Opportunity Fund in exchange for Opportunity Fund shares. The
Adviser has represented that the Opportunity Fund's investment objective,
policies and limitations are in all material respects identical to those of the
collective trust fund.
The Opportunity Fund's average annual compounded total returns for the one-,
five- and ten-year periods ended February 28, 1997, and since inception (January
1, 1982), on a loaded basis, were 8.19%, 15.10%, 15.92%, and 13.77%,
respectively. The Opportunity Fund's average annual compounded total returns for
the one-, five- and ten-year periods ended February 28, 1997, and since
inception, on a no-load basis, were 12.08%, 15.93%, 16.33%, and 14.04%,
respectively. The quoted performance data includes the performance of the
collective trust fund for the period before the date on which the Opportunity
Fund commenced operations (August 1, 1994), as adjusted to reflect the
Opportunity Fund's then anticipated expenses as set forth in the "Expenses of
the Fund" section of the Opportunity Fund's initial prospectus. The collective
trust fund was not registered under the Investment Company Act of 1940 (the
"1940 Act"), and therefore was not subject to certain investment restrictions
that are imposed by the 1940 Act. If the collective trust fund had been
registered under the 1940 Act, the performance may have been adversely affected.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Investor Series
DG Equity Fund Federated Investors Tower
DG Opportunity Fund Pittsburgh, PA 15222-3779
DG International Equity Fund
DG Limited Term Government Income Fund
DG Government Income Fund
DG Municipal Income Fund
- ------------------------------------------------------------------------------------------------
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 for DG International Equity Fund
Lazard Freres Asset Management 30 Rockefeller Plaza
New York, NY 10020
- ------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 1713
Boston, MA 02266-8600
- ------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent,
and Shareholder Servicing Agent
Federated Shareholder Services Company Federated Investors Tower
Pittsburgh, PA 15222-3779
- ------------------------------------------------------------------------------------------------
Independent Public Accountants
KPMG Peat Marwick LLP One Mellon Bank Center
Pittsburgh, PA 15219
- ------------------------------------------------------------------------------------------------
Deposit Guaranty National Bank DGB-14
Mutual Funds Services P.O. Box 1200
Jackson, MS 39215-1200
- ------------------------------------------------------------------------------------------------
</TABLE>
DG INVESTOR SERIES
EQUITY FUND
OPPORTUNITY FUND
INTERNATIONAL EQUITY FUND
LIMITED TERM GOVERNMENT INCOME FUND
GOVERNMENT INCOME FUND
MUNICIPAL INCOME FUND
[LOGO]
DG INVESTORS SERIES
COMBINED PROSPECTUS
DIVERSIFIED PORTFOLIOS OF
DG INVESTOR SERIES,
AN OPEN-END MANAGEMENT
INVESTMENT COMPANY
PARKSOUTH
CORPORATION
JACKSON, MS
INVESTMENT ADVISER
LAZARD FRERES
ASSET MANAGEMENT
NEW YORK, NY
SUB-ADVISER TO
INTERNATIONAL EQUITY FUND
JUNE 30, 1997
[LOGO]
FEDERATED INVESTORS
Federated Securities Corp., Distributor
Cusip 23321N301 Cusip 23321N400 Cusip 23321N103 Cusip 23321N509 Cusip 23321N202
Cusip 23321N806 G00499-11 (6/97)
DG INTERNATIONAL EQUITY FUND
(A Portfolio of DG Investor Series)
Supplement to Statement of Additional Information dated June 30, 1997
The following is to be inserted after the section entitled "Warrants," on page
3:
"Special Considerations Affecting Emerging Markets
"Investing in equity securities of companies in emerging
markets may entail greater risks than investing in equity
securities in developed countries. These risks include (i)
less social, political and economic stability; (ii) the small
current size of the markets for such securities and the
currently low or nonexistent volume of trading, which result
in a lack of liquidity and in greater price volatility; (iii)
certain national policies which may restrict International
Equity Fund's investment opportunities, including restrictions
on investment in issuers or industries deemed sensitive to
national interest; (iv) foreign taxation; and (v) the absence
of developed structures governing private or foreign
investment or allowing for judicial redress for injury to
private property. Investing in the securities of companies in
emerging markets, may entail special risks relating to the
potential political and economic instability and the risks of
expropriation, nationalization, confiscation or the imposition
of restrictions on foreign investment, convertibility of
currencies into U.S. dollars and on repatriation of capital
invested. In the event of such expropriation, nationalization
or other confiscation by any country, International Equity
Fund could lose its entire investment in any such country.
"Settlement mechanisms in emerging markets may be less
efficient and reliable than in more developed markets. In such
emerging securities markets there may be share registration
and delivery delays or failures.
"Most Latin American countries have experienced substantial,
and in some periods extremely high, rates of inflation for
many years. Inflation and rapid fluctuations in inflation
rates and corresponding currency devaluations have had and may
continue to have negative effects on the economies and
securities markets of certain Latin American countries.
"Political, Social and Economic Risks. Even though
opportunities for investment may exist in emerging markets,
any change in the leadership or policies of the governments of
those countries or in the leadership or policies of any other
government which exercises a significant influence over these
countries, may halt the expansion of or reverse the
liberalization of foreign investment policies now occurring
and thereby eliminate any investment opportunities which may
currently exist.
"Investors should note that upon the accession to power of
authoritarian regimes, the governments of a number of Latin
American countries previously expropriated large quantities of
real and personal property similar to the property which will
be represented by the securities purchased by International
Equity Fund. The claims of property owners against those
governments were never finally settled. There can be no
assurance that any property represented by securities
purchased by International Equity Fund will not also be
expropriated, nationalized, or otherwise confiscated. If such
confiscation were to occur, International Equity Fund could
lose its entire investment in such countries. International
Equity Fund's investment would similarly be adversely affected
by exchange control regulation in any of those countries.
"Certain countries in which International Equity Fund may
invest may have groups that advocate radical religious or
revolutionary philosophies or support ethnic independence. Any
disturbance on the part of such individuals could carry the
potential for widespread destruction or confiscation of
property owned by individuals and entities foreign to such
country and could cause the loss of International Equity
Fund's investment in those countries. Instability may also
result from, among other things: (i) authoritarian governments
or military involvement in political and economic
decision-making, including changes in government though
extraconstitutional means; (ii) popular unrest associated with
demands for improved political, economic and social
conditions; and (iii) hostile relations with neighboring or
other countries. Such political, social and economic
instability could disrupt the principal financial markets in
which International Equity Fund invests and adversely affect
the value of the Fund's assets."
October 21, 1997
[GRAPHIC OMITTED]
Cusip 23321N806
G01258-19 (10/97)
DG Investor Series
Stock and Bond Funds
Statement of Additional Information
This Statement of Additional Information relates to the following six
portfolios (individually or collectively referred to as the "Fund" or
"Funds" as the context requires) of DG Investor Series (the "Trust"):
DG Equity Fund;
DG Opportunity Fund;
DG International Equity Fund;
DG Limited Term Government Income Fund;
DG Government Income Fund; and
DG Municipal Income Fund.
This Statement should be read with the prospectus of the Funds dated
June 30, 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, or
you can visit the DG Investors Series' Internet site on the World Wide
Web at (www.dgb.com).
Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
Statement dated June 30, 1997
[GRAPHIC OMITTED]
Cusip 23321N301 Cusip 23321N400 Cusip 23321N806 Cusip 23321N103 Cusip
23321N509 Cusip 23321N202 G00499-13 (6/97)
<PAGE>
- --------------------------------------------------------------------------------
Table of Contents
- --------------------------------------------------------------------------------
I
General Information About the Funds 1
Investment Objectives and Policies 1
Equity Fund and Opportunity Fund 1
Types of Investments 1
Zero Coupon Convertible Securities 1
Convertible Securities 1
Money Market Instruments 2
Warrants 2
Corporate Debt Securities 2
International Equity Fund 2
Types of Investments 2
Restricted and Illiquid Securities 3
Warrants 3
Additional Risk Considerations 3
Portfolio Turnover 3
Limited Term Fund and Government Income Fund 3
Types of Investments 3
Weighted Average Portfolio Duration 4
Mortgage-Backed and Asset-Backed Securities
Risks 4
Municipal Income Fund 4
Types of Investments 4
Temporary Investments 5
Other Investment Techniques 5
Investment Policies and Strategies 6
Futures and Options Transactions 6
Repurchase Agreements 8
Reverse Repurchase Agreements 8
When-Issued and Delayed Delivery Transactions 8
Lending of Portfolio Securities 9
Portfolio Turnover 9
Investment Limitations 9
DG Investor Series Management 13
Trust Ownership 17
Trustees' Compensation 18
Trustee Liability 18
Investment Advisory Services 18
Adviser to the Funds 18
Advisory Fees 19
Sub-Adviser to the International Equity Fund 19
Sub-Advisory Fees 19
Brokerage Transactions 19
Other Services 20
Administration of the Trust 20
Custodian 20
Transfer Agent, Dividend Disbursing Agent,
and Shareholder Servicing Agent 20
Independent Auditors 20
Purchasing Shares 20
Distribution and Shareholder Services Plans 20
Conversion to Federal Funds 21
Determining Net Asset Value 21
Determining Market Value of Securities 21
Trading in Foreign Securities 21
Valuing Municipal Securities 22
Exchange Privilege 22
Requirements for Exchange 22
Making an Exchange 22
Redeeming Shares 22
Redemption in Kind 22
Massachusetts Partnership Law 22
Tax Status 23
The Funds' Tax Status 23
Foreign Taxes 23
Shareholders' Tax Status 23
Total Return 23
Yield 23
Tax-Equivalent Yield 24
Tax-Equivalency Table 25
Performance Comparisons 26
Economic and Market Information 27
Financial Statements 27
Appendix 28
<PAGE>
General Information About the Funds
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated February 7, 1992. This Statement of Additional Information
relates to the following six portfolios: DG Equity Fund ("Equity Fund"), DG
Opportunity Fund ("Opportunity Fund"), DG International Equity Fund
("International Equity Fund"), DG Limited Term Government Income Fund ("Limited
Term Fund"), DG Government Income Fund ("Government Income Fund"), and DG
Municipal Income Fund ("Municipal Income Fund").
The Funds are advised by ParkSouth Corporation (the "Adviser") and are
sub-advised (with respect to International Equity Fund) by Lazard Freres Asset
Management (the "Sub-Adviser").
Investment Objectives and Policies
The prospectus discusses the objective of each Fund and the policies employed to
achieve those objectives. The following discussion supplements the description
of the Funds' investment policies in the prospectus. The Funds' respective
investment objectives cannot be changed without approval of shareholders. Unless
otherwise indicated, the investment policies described below may be changed by
the Board of Trustees ("Trustees") without shareholder approval. Shareholders
will be notified before any material change in these policies becomes effective.
Additional information about investment limitations, strategies that one or more
Funds may employ, and certain investment policies mentioned below appear in the
prospectus sections, "Objective and Policies of Each Fund" and "Portfolio
Investments and Strategies."
Equity Fund and Opportunity Fund
Types of Investments
Acceptable investments for Equity Fund and Opportunity Fund include but are not
limited to: convertible securities, money market instruments, common stocks,
preferred stocks, corporate bonds, notes and put options on stocks.
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, Equity 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.
<PAGE>
Equity Fund and Opportunity Fund will exchange or convert the convertible
securities held in their portfolios into shares of the underlying common stock
in instances in which, in the Adviser's opinion, the investment characteristics
of the underlying common shares will assist the Funds in achieving their
investment objectives. Otherwise, the Funds may hold or trade convertible
securities. In selecting convertible securities for the Funds, the Adviser
evaluates the investment characteristics of the convertible security as a fixed
income instrument and the investment potential of the underlying equity security
for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the Adviser considers numerous factors,
including the economic and political outlook, the value of the security relative
to other investment alternatives, trends in the determinants of the issuer's
profits, and the issuer's management capability and practices.
Money Market Instruments
Equity Fund and Opportunity 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.
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).
International Equity Fund
Types of Investments
International Equity Fund invests in a diversified portfolio composed primarily
of non-U.S. securities. A substantial portion of these instruments will be
equity securities of established companies in economically developed countries.
International Equity Fund Fund will invest at least 65%, and under normal market
conditions, substantially all of its total assets, in equity securities
denominated in foreign currencies, including European Currency Units, of issuers
located in at least three countries outside of the United States and sponsored
or unsponsored American Depositary Receipts ("ADRs"), Global Depositary Receipts
("GDRs"), and European Depositary Receipts ("EDRs"), collectively, "Depositary
Receipts." International Equity Fund Fund may also purchase investment grade
fixed income securities and foreign government securities; enter into forward
commitments, repurchase agreements, and foreign currency transactions; and
maintain reserves in foreign or U.S. money market instruments.
<PAGE>
Restricted and Illiquid Securities
International Equity Fund expects that any restricted securities would be
acquired either from institutional investors who orginally acquired the
securities in private placements or directly from the issuers of the securities
in private placements. Restricted securities and securities that are not readily
marketable may sell at a discount from the price they would bring if freely
marketable.
The Trustees consider the following criteria in determining the liquidity of
certain restricted securities:
o the frequency of trades and quotes for the security;
o the number of dealers willing to purchase or sell the security and
the number of other potential buyers;
o dealer undertakings to make a market in the security; and
o the nature of the security and the nature of the marketplace trades.
When the International Equity Fund invests in certain restricted securities
determined by the Trustees to be liquid, such investments could have the effect
of increasing the level of International Equity Fund illiquidity to the extent
that the buyers in the secondary market for such securities (whether in Rule
144A resales or other exempt transactions) become, for a time, uninterested in
purchasing these securities.
Warrants
International Equity Fund may invest in warrants. For a description of these
securities, see "Equity Fund and Opportunity Fund-Warrants."
Additional Risk Considerations
The Trustees consider at least annually the likelihood of the imposition by any
foreign government of exchange control restrictions which would affect the
liquidity of the International Equity Fund's assets maintained with custodians
in foreign countries, as well as the degree of risk from political acts of
foreign governments to which such assets may be exposed. The Trustees also
consider the degree of risk involved through the holding of portfolio securities
in domestic and foreign securities depositories. However, in the absence of
willful misfeasance, bad faith or gross negligence on the part of the Adviser,
any losses resulting from the holding of the International Equity Fund's
portfolio securities in foreign countries and/or with securities depositories
will be at the risk of shareholders. No assurance can be given that the
Trustees' appraisal of the risks will always be correct or that such exchange
control restrictions or political acts of foreign governments might not occur.
Portfolio Turnover
The International Equity Fund will not attempt to set or meet a portfolio
turnover rate since any turnover would be incidental to transactions undertaken
in an attempt to achieve the International Equity Fund's investment objective.
Portfolio securities will be sold when the Adviser believes it is appropriate,
regardless of how long those securities have been held. The Adviser does not
anticipate that the Fund's portfolio turnover rate will exceed 50%.
Limited Term Fund and Government Income Fund
Types of Investments
Limited Term Fund invests primarily in a portfolio of government and corporate
securities and Government Income Fund invests primarily in a portfolio of
government and corporate securities. The investment portfolios include the
following securities:
o U.S. government securities, including Treasury bills, notes, bonds,
and securities issued by agencies and instrumentalities of the U.S.
government;
o mortgage-backed securities;
o corporate debt securities rated within the three highest categories
by a nationally recognized statistical rating organization, including bonds,
notes, and debentures;
o asset-backed securities; and
o bank instruments.
<PAGE>
Weighted Average Portfolio Duration
With respect to Limited Term Fund, duration is a commonly used measure of the
potential volatility of the price of a debt security, or the aggregate market
value of a portfolio of debt securities, prior to maturity. Duration measures
the magnitude of the change in the price of a debt security relative to a given
change in the market rate of interest. The duration of a debt security depends
upon three primary variables: the security's coupon rate, maturity date and the
level of market interest rates for similar debt securities. Generally, debt
securities with lower coupons or longer maturities will have a longer duration
than securities with higher coupons or shorter maturities.
Duration is calculated by dividing the sum of the time-weighted values of cash
flows of a security or portfolio of securities, including principal and interest
payments, by the sum of the present values of the cash flows. Certain debt
securities, such as asset-backed securities, may be subject to prepayment at
irregular intervals. The duration of these instruments will be calculated based
upon assumptions established by the Adviser as to the probable amount and
sequence of principal prepayments.
Mortgage-Backed and Asset-Backed Securities Risks
Mortgage-backed and asset-backed securities generally pay back principal and
interest over the life of the security. At the time the Funds reinvest the
payments and any unscheduled prepayments of principal received, the Funds may
receive a rate of interest which is actually lower than the rate of interest
paid on these securities ("prepayment risks"). Mortgage-backed and asset-backed
securities are subject to higher prepayment risks than most other types of debt
instruments with prepayment risks because the underlying mortgage loans or the
collateral supporting asset-backed securities may be prepaid without penalty or
premium. Prepayment risks on mortgaged-backed securities tend to increase during
periods of declining mortgage interest rates because many borrowers refinance
their mortgages to take advantage of the more favorable rates. Prepayments on
mortgage-backed securities are also affected by other factors, such as the
frequency with which people sell their homes or elect to make unscheduled
payments on their mortgages. Although asset-backed securities generally are less
likely to experience substantial prepayments than are mortgage-backed
securities, certain of the factors that affect the rate of prepayments on
mortgage-backed securities also affect the rate of prepayments on asset-backed
securities.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Primarily, these securities do not have the benefit
of the same security interest in the related collateral. Credit card receivables
are generally unsecured and the debtors are entitled to the protection of a
number of state and federal consumer credit laws, many of which give such
debtors the right to set off certain amounts owed on the credit cards, thereby
reducing the balance due. Most issuers of asset-backed securities backed by
motor vehicle installment purchase obligations permit the servicer of such
receivables to retain possession of the underlying obligations. If the servicer
sells these obligations to another party, there is a risk that the purchaser
would acquire an interest superior to that of the holders of the related
asset-backed securities. Further, if a vehicle is registered in one state and is
then reregistered because the owner and obligor moves to another state, such
reregistration could defeat the original security interest in the vehicle in
certain cases. In addition, because of the large number of vehicles involved in
a typical issuance and technical requirements under state laws, the trustee for
the holders of asset-backed securities backed by automobile receivables may not
have a proper security interest in all of the obligations backing such
receivables. Therefore, there is the possibility that recoveries on repossessed
collateral may not, in some cases, be available to support payments on these
securities.
Municipal Income Fund
Types of Investments
Municipal Income Fund will invest in a diversified portfolio of municipal
securities.
Characteristics
The municipal securities in which Municipal Income Fund invests have
the characteristics set forth in the prospectus. Municipal Income Fund
may use similar services or ratings other than Moody's Investors
Service, Inc. ("Moody's"), Standard & Poor's Ratings Group ("S&P"), or
Fitch Investors Service, Inc. ("Fitch"). If a security's rating is
reduced below the required minimum after the Fund has purchased it, the
Fund is not required to sell the security, but may consider doing so.
If ratings made by Moody's, S&P, or Fitch change because of changes in
those organizations or in their rating systems, the Fund will try to
use comparable ratings as standards in accordance with the investment
policies described in the Fund's prospectus.
Participation Interests
The financial institutions from which the Fund purchases participation
interests frequently provide or secure from another financial
institution irrevocable letters of credit or guarantees and give the
Fund the right to demand payment of the principal amounts of the
participation interests, plus accrued interest, on short notice
(usually within seven days). These financial institutions may charge
certain fees in connection with their repurchase commitments, including
a fee equal to the excess of the interest paid on the municipal
securities over the negotiated yield at which the participation
interests were purchased by the Fund. By purchasing participation
interests having a seven-day demand feature, the Fund is buying a
security meeting the maturity and quality requirements of the Fund and
also is receiving the tax-free benefits of the underlying securities.
Variable Rate Municipal Securities
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly,
as interest rates decrease or increase, the potential for capital
appreciation or depreciation is less for variable rate municipal
securities than for fixed income obligations. Many municipal securities
with variable interest rates purchased by the Fund are subject to
repayment of principal (usually within seven days) on the Fund's
demand. The terms of these variable rate demand instruments require
payment of principal and accrued interest from the issuer of the
municipal obligations, the issuer of the participation interests, or a
guarantor of either issuer.
Municipal Leases
The Fund may purchase municipal securities in the form of participation
interests that represent an undivided proportional interest in lease
payments by a governmental or non-profit entity. The lease payments and
other rights under the lease provide for and secure payments on the
certificates. Lease obligations may be limited by municipal charter or
the nature of the appropriation for the lease. In particular, lease
obligations may be subject to periodic appropriation. If the entity
does not appropriate funds for future lease payments, the entity cannot
be compelled to make such payments. Furthermore, a lease may provide
that the participants cannot accelerate lease obligations upon default.
The participants would only be able to enforce lease payments as they
became due. In the event of a default or failure of appropriation,
unless the participation interests are credit enhanced, it is unlikely
that the participants would be able to obtain an acceptable substitute
source of payment.
In determining the liquidity of municipal lease securities, the
Adviser, under the authority delegated by the Trustees, will base its
determination on the following factors:
o whether the lease can be terminated by the lessee; o the potential
recovery, if any, from a sale of the leased property; o upon
termination of the lease; o the lessee's general credit strength (e.g.,
its debt, administrative, economic and financial characteristics and
prospects); o the likelihood that the lessee will discontinue
appropriating funding for the leased property because the property is
no longer deemed essential to its operations (e.g., the potential for
an "event of
non-appropriation");
o any credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
Temporary Investments
The Fund may also invest in temporary investments from time to time for
defensive purposes.
Bank Instruments
The Fund only invests in Bank Instruments (as defined in the
prospectus) either issued by an institution having capital, surplus,
and undivided profits over $100 million or insured by the Bank
Insurance Fund or the Savings Association Insurance Fund, both of which
are administered by the Federal Deposit Insurance Corporation.
Other Investment Techniques
The Fund may acquire securities that are subject to puts and standby commitments
("demand features") to purchase the securities at their principal amount
(usually with accrued interest) within a fixed period (usually seven days)
following a demand by the Fund. The demand feature may be issued by the issuer
of the underlying securities, a dealer in the securities or by another third
party, and may not be transferred separately from the underlying security. The
Fund uses these arrangements to provide the Fund with liquidity and not to
protect against changes in the market value of the underlying securities. The
bankruptcy, receivership or default by the issuer of the demand feature, or a
default on the underlying security or other event that terminates the demand
feature before its exercise, will adversely affect the liquidity of the
underlying security.
Investment Policies and Strategies
Futures and Options Transactions
As a means of reducing fluctuations in the net asset value of shares of the
Funds by hedging all or a portion of their portfolios, and in the case of put
and call options on portfolio securities, to increase their current income,
Equity Fund, Opportunity Fund, International Equity Fund, Limited Term Fund and
Government Income 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 Funds will maintain their positions in
securities, option rights, and segregated cash subject to puts and calls until
the options are exercised, closed, or have expired. An option position on
financial futures contracts may be closed out only on an exchange which provides
a secondary market from options of the same series.
Futures Contracts
A futures contract is a firm commitment between the seller, who agrees
to make delivery of the specific type of security called for in the
contract ("going short"), and the buyer, who agrees to take delivery of
the security ("going long") at a certain time in the future.
When the Funds purchase 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 Funds' 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 Funds 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
Funds will normally close out their options by selling identical
options. If the hedge is successful, the proceeds received by the Funds
upon the sale of the second option will be large enough to offset both
the premiums paid by the Funds for the original option plus the
decrease in value of the hedged securities.
Alternatively, the Funds may exercise their 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 Funds would
then deliver the futures contract in return for payment of the strike
price. If the Funds neither close 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 Funds write 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 Funds'
obligations under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Funds' 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 Funds keep the premiums received for the options.
This premium can substantially offset the drop in value of the Funds'
fixed income or indexed portfolios which are occurring as interest
rates rise.
Prior to the expiration of a call written by the Funds, or exercise of
it by the buyer, the Funds 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 Funds for the
initial option. The net premium income of the Funds 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 Funds will not maintain open positions in futures contracts they
have 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 their 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
Funds 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 Funds do not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Funds are 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 Funds 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 a Funds upon termination of the futures contract,
assuming all contractual obligations have been satisfied.
A futures contract held by the Funds is valued daily at the official
settlement price of the exchange on which it is traded. Each day the
Funds pay or receive 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 Funds but is instead settlement between the Funds and the
broker of the amount one would owe the other if the futures contract
expired. In computing their respective daily net asset value, the Funds
will mark to market their open futures positions.
The Funds are also required to deposit and maintain margin when they
write call options on futures contracts.
<PAGE>
Purchasing and Writing Put Options on Portfolio Securities
The Funds may purchase and write put options on portfolio securities.
The purchase of a put option gives the Funds, 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 Funds write a
put, they receive a premium and give the purchaser of the put the right
to sell the underlying security to the Funds at the exercise price at
any time during the option period.
Writing and Purchasing Covered Call Options on Portfolio Securities
The Funds may write and purchase call options. As writer of a call
option, the Funds have the obligation upon exercise of the option
during the option period to deliver the underlying security upon
payment of the exercise price. The Funds may only sell call options
either on securities held in their portfolios 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 Funds have 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 Funds or their 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
Funds, the Funds 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 Funds might be
delayed pending court action. The Funds believe that under the regular
procedures normally in effect for custody of the Funds' portfolio securities
subject to repurchase agreements, a court of competent jurisdiction would rule
in favor of the Funds and allow retention or disposition of such securities. The
Funds 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 (with respect to International Equity Fund) to be creditworthy
pursuant to guidelines established by the Trustees.
Reverse Repurchase Agreements
The Funds may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash. In reverse repurchase agreements, the Funds
transfer 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 Funds 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 Funds, 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 Funds 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 Funds 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 Funds. No fees or other expenses, other than normal
transaction costs, are incurred. However, liquid assets of the Funds sufficient
to make payment for the securities to be purchased are segregated on the Funds'
records at the trade date. These assets are marked to market daily and are
maintained until the transaction has been settled. The Funds do 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.
With the exception of Municipal Income Fund and International Equity Fund,
during the current year, the Funds do not anticipate investing more than 10% of
their respective total assets in when-issued and delayed delivery transactions.
<PAGE>
Lending of Portfolio Securities
The collateral received when the Funds 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 Funds. During the time
portfolio securities are on loan, the borrower pays the Funds any dividends or
interest paid on such securities. Loans are subject to termination at the option
of the Funds or the borrower. The Funds 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 Funds do not intend to invest for the purpose of seeking short-term profits.
Securities in the portfolio will be sold whenever the Adviser believes it is
appropriate to do so in light of each Fund's investment objective, without
regard to the length of time a particular security may have been held. The
Adviser does not anticipate that any Fund's portfolio turnover rate will exceed
100%. For the fiscal year ended February 28, 1997, the portfolio turnover rates
for Equity Fund, Limited Term Fund, Government Income Fund and Municipal Income
Fund were 7%, 28%, 7% and 9%, respectively. For the fiscal year ended February
29, 1996, the portfolio turnover rate for Equity Fund, Limited Term Fund,
Government Income Fund and Municipal Income Fund were 15%, 56%, 87% and 20%,
respectively.
Investment Limitations
Acquiring Securities
International Equity Fund will not acquire more than 10% of the
outstanding voting securities of any one issuer, or acquire any securities of
Deposit Guaranty Corp. or its affiliates.
Selling Short and Buying on Margin
The Funds will not sell any securities short (except as noted below
with respect to International Equity Fund) 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 Funds 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.
International Equity Fund will not sell securities short unless (1) it
owns, or has a right to acquire, an equal amount of such securities, or
(2) it has segregated an amount of its other assets equal to the lesser
of the market value of the securities sold short or the amount required
to acquire such securities. The segregated amount will not exceed 10%
of the International Equity Fund's net assets. While in a short
position, the International Equity Fund will retain the securities,
rights, or segregated assets.
Issuing Senior Securities and Borrowing Money
Equity Fund, Opportunity Fund and Municipal Income Fund will not issue
senior securities except that they 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 their respective total assets; provided that,
while borrowings exceed 5% of each Fund's total assets, any such
borrowings will be repaid before additional investments are made. The
Funds will not borrow money or engage in reverse repurchase agreements
for investment leverage purposes.
Limited Term Fund and Government Income Fund will not issue senior
securities, except that they may borrow money directly or through
reverse repurchase agreements in amounts up to one-third of the value
of their respective total assets including the amount borrowed. The
Funds will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolios by
enabling the Funds to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.
The Funds will not purchase any securities while borrowings in excess
of 5% of their respective total assets are outstanding.
International Equity Fund will not issue senior securities except in
connection with transactions described in other investment limitations
or as required by forward commitments to purchase securities or
currencies.
International Equity Fund will not borrow money except as a temporary
measure for extraordinary or emergency purposes and then only in
amounts up to one-third of the value of its total assets, including the
amount borrowed. International Equity Fund will not purchase securities
while outstanding borrowings exceed 5% of the value of its total
assets. (This borrowing provision is not for investment leverage but
solely to facilitate management of the portfolio by enabling
International Equity Fund to meet redemption requests when the
liquidation of portfolio securities would be inconvenient or
disadvantageous. )
Concentration of Investments
Equity Fund, Opportunity Fund and Municipal Income Fund will not
purchase securities if, as a result of such purchase, 25% or more of
the value of their respective total assets would be invested in any one
industry. However, Equity Fund, Opportunity Fund and Municipal Income
may at times invest 25% or more of the value of their respective total
assets in securities issued or guaranteed by the U.S. government, its
agencies or instrumentalities.
Municipal Income Fund will not purchase securities if, as a result of
such purchase, 25% or more of its total assets would be invested in any
one industry or in industrial development bonds or other securities,
the interest upon which is paid from revenues of similar type projects.
Municipal Income Fund may invest, as temporary investments, 25% or more
of its total assets in cash or cash items, securities issued and/or
guaranteed by the U.S. government, its agencies or instrumentalities,
or instruments secured by these money market instruments, such as
repurchase agreements.
Municipal Income Fund does not intend to purchase securities that would
increase the percentage of its total assets invested in the securities
of governmental subdivisions located in any one state, territory, or
U.S. possession to 25% or more. However, it may invest 25% or more of
its assets in tax-exempt project notes guaranteed by the U.S.
government, regardless of the location of the issuing municipality. If
the value of Municipal Income Fund assets invested in the securities of
a governmental subdivision changes because of changing values, the Fund
will not be required to make any reduction in its holdings.
International Equity Fund will not invest more than 25% of its total
assets in securities of issuers having their principal business activities in
the same industry.
Investing in Commodities
Equity Fund and Opportunity Fund will not purchase or sell commodity
contracts, or commodity futures contracts except that they may purchase
and sell financial futures and stock index futures contracts and
related options.
Limited Term Fund and Government Income Fund will not buy or sell
commodities. However, these Funds may purchase put options on portfolio
securities and on financial futures contracts. In addition, Limited
Term Fund and Government Income Fund reserve the right to hedge their
portfolios by entering into financial futures contracts and selling
calls on financial futures contracts.
Municipal Income Fund will not purchase or sell commodity contracts or
commodity futures contracts.
International Equity Fund will not purchase or sell commodities or
commodity contracts, except that the International Equity Fund may
purchase and sell financial futures contracts and options on financial
futures contracts, provided that the sum of its initial margin deposits
for financial futures contracts held by the International Equity Fund,
plus premiums paid by it for open options on financial futures
contracts may not exceed 5% of the fair market value of the
International Equity Fund's total assets, after taking into account the
unrealized profits and losses on those contracts. Further, the
International Equity Fund may engage in foreign currency transactions
and purchase or sell forward contracts with respect to foreign
currencies and related options.
Investing in Real Estate
Equity Fund, Opportunity Fund, Limited Term Fund and Government Income
Fund will not purchase or sell real estate, including limited
partnership interests in real estate, although they may invest in
securities secured by real estate or interests in real estate.
Municipal Income Fund will not purchase or sell real estate, including
limited partnership interests in real estate, although it may invest in
securities of companies whose business involves the purchase or sale of
real estate or in securities secured by real estate or interests in
real estate.
International Equity Fund will not invest in real estate, although it
may invest in securities secured by real estate or interests in real
estate or issued by companies, including real estate investment trusts,
which invest in real estate or interests therein.
Investing to Exercise Control
Equity Fund will not purchase securities for the purpose of exercising
control over the issuer of securities.
Investing in Minerals
International Equity Fund will not invest in interests in oil, gas, or
other mineral exploration or development programs, other than debentures or
equity stock interests.
Lending Cash or Securities
Equity Fund, Limited Term Fund and Government Income Fund will not lend
any of their respective assets, except that they 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 Funds'
investment objectives and policies or the Trust's Declaration of Trust,
or lend portfolio securities valued at not more than 5% of their
respective total assets to brokers/dealers.
Opportunity Fund and International Equity Fund will not lend any of
their respective assets except portfolio securities except that they
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
each Fund's investment objectives and policies or the Trust's
Declaration of Trust.
Municipal Income Fund will not lend any of its assets, except portfolio
securities up to one-third of the value of its total assets. This shall
not prevent Municipal Income Fund from purchasing or holding corporate
or government bonds, debentures, notes, certificates of indebtedness or
other debt securities of an issuer, entering into repurchase agreements
or engaging in other transactions which are permitted by Municipal
Income Fund's investment objective and policies or the Trust's
Declaration of Trust.
Underwriting
The Funds will not underwrite any issue of securities or participate in
the marketing of securities of other issuers (with respect to the
International Equity Fund), except as a Fund may be deemed to be an
underwriter under the Securities Act of 1933 in connection with the
sale of securities in accordance with a Fund's investment objectives,
policies, and limitations.
Pledging Assets
The Funds will not mortgage, pledge, or hypothecate any assets except
to secure permitted borrowings. In those cases, the Funds 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.
International Equity Fund will not mortgage, pledge, or hypothecate
assets, except when necessary for permissible borrowings. In those
cases, it may pledge assets having a value of 15% of its assets taken
at cost. Neither the deposit of underlying securities or other assets
in escrow in connection with the writing of put or call options or the
purchase of securities on a when-issued basis, nor margin deposits for
the purchase and sale of financial futures contracts and related
options are deemed to be a pledge.
Diversification of Investments
With respect to 75% of the value of their respective assets, Equity
Fund, Opportunity Fund, Limited Term Fund and Government Income 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, and with respect to Municipal Income
Fund, repurchase agreements) if, as a result, more than 5% of the value
of the Funds' respective total assets would be invested in the
securities of that issuer. Also, the Funds will not purchase more than
10% of the outstanding voting securities of any one issuer.
With respect to 75% of its assets, Municipal Income Fund will not
invest more than 5% of its total assets in any one issuer (except cash
and cash items, repurchase agreements, and U.S. government
obligations). Also, Municipal Income Fund will not purchase more than
10% of the outstanding voting securities of any one issuer.
Municipal Income Fund considers common stock and all preferred stock of
an issuer each as a single class, regardless of priorities, series,
designations, or other differences. Under this limitation, each
governmental subdivision, including states and the District of
Columbia, territories and possessions of the United States or their
political subdivisions, agencies, authorities, instrumentalities, or
similar entities, will be considered a separate issuer if its assets
and revenues are separate from those of the governmental body creating
it and the security is backed only by its own assets and revenues.
Private activity bonds backed only by the assets and revenues of a
non-governmental user are considered to be issued solely by that user.
If, in the case of a private activity bond or government-issued
security, a governmental or other entity guarantees the security, such
guarantee would be considered a separate security issued by the
guarantor as well as the other issuer, subject to limited exclusions
allowed by the Investment Company Act of 1940.
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 Funds will not invest more than 15% of the value of their
respective net assets in illiquid securities, including repurchase
agreements providing for settlement more than seven days after notice;
over-the-counter options (for those Funds which are permitted to invest
in options); and certain restricted securities not determined by the
Trustees to be liquid.
Investing in Securities of Other Investment Companies
The Funds will limit their 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 their respective total assets
in any one investment company, or invest more than 10% of their
respective total assets in investment companies in general. The Funds
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
Funds will invest in other investment companies primarily for the
purpose of investing their short-term cash on a temporary basis.
Arbitrage Transactions
Equity Fund, Opportunity Fund and Municipal Income Fund will not enter
into transactions for the purpose of engaging in arbitrage.
Investing to Exercise Control
Opportunity Fund and International Equity Fund will not purchase
securities for the purpose of exercising control over the issuer of securities.
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.
Opportunity Fund and International Equity 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 their policies and limitations, the Funds consider
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."
<PAGE>
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.Mr. Donahue is the
father of J. Christopher Donahue, Executive Vice President of the Company.
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.
<PAGE>
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director
or Trustee 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.
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.
<PAGE>
Gregor F. Meyer
203 Kensington Ct.
Pittsburgh, PA
Birthdate: October 6, 1926
Trustee
Former Attorney, Member of Miller, Ament, Henny & Kochuba; Chairman, Meritcare,
Inc.; Director, Eat'N Park Restaurants, Inc.; 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 &
Murray; Director or Trustee of the Funds.
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 Company.
<PAGE>
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
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.
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 Trust; Municipal Securities
Income Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds; Targeted
Duration Trust; Tax-Free Instruments Trust; The Planters Funds; The Starburst
Funds; The Starburst Funds II; 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 own less than 1% of the Fund's outstanding shares.
As of June 9, 1997, the following shareholders of record owned 5% or more of the
outstanding shares of Equity Fund: Deposit Guaranty National Bank, acting in
various capacities for numerous accounts was the owner of record of
approximately 19,039,344 shares (64.43%) and Commercial National Bank, acting in
various capacities for numerous accounts, was the owner of record of
approximately 6,975,159 shares (23.60%).
As of June 9, 1997, the following shareholders of record owned 5% or more of the
outstanding shares of Opportunity Fund: Deposit Guaranty National Bank, acting
in various capacities for numerous accounts was the owner of record of
approximately 4,533,888 shares (74.24%) and Commercial National Bank, acting in
various capacities for numerous accounts, was the owner of record of
approximately 410,729 shares (6.73%).
As of June 9, 1997, the following shareholder of record owned 5% or more of the
outstanding shares of International Equity Fund: Federated ADM Services was the
owner of record of approximately 10 shares (100%).
As of June 9, 1997, the following shareholders of record owned 5% or more of the
outstanding shares of Limited Term Fund: Deposit Guaranty National Bank, acting
in various capacities for numerous accounts was the owner of record of
approximately 6,923,745 shares (80.31%) and Commercial National Bank, acting in
various capacities for numerous accounts, was the owner of record of
approximately 1,046,262 shares (12.14%).
As of June 9, 1996, the following shareholders of record owned 5% or more of the
outstanding shares of Government Income Fund: Deposit Guaranty National Bank,
acting in various capacities for numerous accounts was the owner of record of
approximately 18,948,257 shares (70.26%) and Commercial National Bank, acting in
various capacities for numerous accounts, was the owner of record of
approximately 6,637,093 shares (24.61%).
As of June 9, 1997, the following shareholders of record owned 5% or more of the
outstanding shares of Municipal Income Fund: Deposit Guaranty National Bank,
acting in various capacities for numerous accounts was the owner of record of
approximately 4,146,486 shares (91.02%) and Commercial National Bank, acting in
various capacities for numerous accounts, was the owner of record of
approximately 250,837 shares (5.51%).
<PAGE>
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
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
Adviser to the Funds
The Funds' 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 Funds or any shareholder of any of
the Funds 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.
For the fiscal year ended February 28, 1997, February 29, 1996, and February 28,
1995, the Adviser earned fees from: Equity Fund of $3,213,522, $2,568,435 and
$1,907,646, respectively, none of which were waived; Limited Term Fund of
$527,974, $572,084 and $642,168, respectively, of which $175,992, $190,371, and
$267,570, respectively, were voluntarily waived; Government Income Fund of
$1,369,096, $892,734 and $926,421, respectively, of which $228,183, $148,789 and
$231,605, respectively, were voluntarily waived; and Municipal Income Fund of
$279,232, $262,552 and $225,528, respectively, of which $162,886, $155,258 and
$154,111, respectively, were voluntarily waived. For the fiscal years ended
February 28, 1997, February 29, 1996 and the period from August 1, 1994 (date of
initial public investment) to February 28, 1995, the Adviser earned fees from
Opportunity Fund of $684,142, $441,513 and $131,668, respectively, of which
$115,580, $162,538 and $105,660, respectively, were voluntarily waived.
Sub-Adviser to the International Equity Fund
The International Equity Fund's sub-adviser is Lazard Freres Asset Management
(the "Sub-Adviser"), a division of Lazard Freres & Co. LLC.
Prior to March 1, 1997, the Funds (with the exception of International Equity
Fund) were sub-advised by Commercial National Bank, a subsidiary of Deposit
Guaranty Corp.
Sub-Advisory Fees
For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory
fee as described in the prospectus.
For its sub-advisory services, Commercial National Bank, the Funds former
sub-adviser received annual sub-advisory fees as follows: For the fiscal year
ended February 28, 1997, the previous sub-adviser collected fees net of any
waivers from: Equity Fund of $779,409; Limited Term Fund of $41,294; Government
Income Fund of $310,466; Opportunity Fund of 29,876; and Municipal Income Fund
of $5,098.
For the fiscal years ended February 29, 1996 and February 28, 1995, the previous
sub-adviser earned fees from: Equity Fund of $856,145 and $635,882,
respectively, none of which were waived; Limited Term Fund of $238,368 and
$267,570, all of which were voluntarily waived; Government Income Fund of
$371,923 and $386,009, respectively, all of which were voluntarily waived; and
Municipal Income Fund of $109,397 and $93,970, respectively, all of which were
voluntarily waived. For the fiscal years ended February 29, 1996 and the period
from August 1, 1994 (date of initial public investment) to February 28, 1995,
the previous sub-adviser earned fees from Opportunity Fund of $116,188 and
$34,649, respectively, all of which was voluntarily waived.
Brokerage Transactions
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees. The Adviser may select brokers and dealers who offer
brokerage and research services. These services may be furnished directly to the
Funds or to the Adviser and may include: advice as to the advisability of
investing in securities; security analysis and reports; economic studies;
industry studies; receipt of quotations for portfolio evaluations; and similar
services. Research services provided by brokers may be used by the Adviser in
advising the Funds and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser or its affiliates might
otherwise have paid, it would tend to reduce their expenses. The Adviser and its
affiliates exercise reasonable business judgment in selecting brokers who offer
brokerage and research services to execute securities transactions. They
determine in good faith that commissions charged by such persons are reasonable
in relationship to the value of the brokerage and research services provided.
For the fiscal years ended February 28, 1997, February 29, 1996, and February
28, 1995, Equity Fund paid $75,624, $158,777, and $65,931, respectively, in
brokerage commissions on brokerage transactions. For the fiscal years ended
February 28, 1997, February 29, 1996, and the period from August 1, 1994 to
February 28, 1995, Opportunity Fund paid $315,139, $161,370 and $36,029,
respectively, in brokerage commissions on brokerage transactions. For the fiscal
years ended February 28, 1997, February 29, 1996, and February 28, 1995, Limited
Term Fund, Government Income Fund and Municipal Income Fund paid no brokerage
commissions on brokerage transactions.
Although investment decisions for the Funds are made independently from those of
the other accounts managed by the Adviser, investments of the type the Funds may
make may also be made by those other accounts. When the Funds and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Funds or the size of the position obtained or disposed of by the Funds. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Funds.
Other Services
Administration of the Trust
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Funds for a fee as set forth in the
prospectus. For the fiscal years ended February 28, 1997, February 29, 1996, and
February 28, 1995, administrative services fees were incurred on behalf of
Equity Fund of $467,226, $401,890, and $319,181, none of which were voluntarily
waived; Limited Term Fund of $96,156, $112,018, and $134,312, none of which were
voluntarily waived; Government Income Fund of $248,963, $174,394, and $193,697,
none of which were voluntarily waived; and Municipal Income Fund of $100,000,
$100,000, and $47,162, of which $49,179, $48,579, and $0, respectively, were
voluntarily waived. For the fiscal years ended February 28, 1997, February 29,
1996, and the period from August 1, 1994 (date of initial public investment) to
February 28, 1995, administrative services fees of $100,000, $100,000 and
$100,000 respectively, were incurred on behalf of Opportunity Fund, of which $0,
$0 and $80,736, respectively, were voluntarily waived.
Custodian
State Street Bank and Trust Company, Boston, Massachusetts, is custodian for the
securities and cash of the Funds.
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 Funds,
dividend disbursing agent for the Funds, and shareholder servicing agent for the
Funds.
Independent Auditors
The independent auditors for the Funds are KPMG Peat Marwick LLP, Pittsburgh,
Pennsylvania.
Purchasing Shares
Shares of the Funds are sold at their net asset value next determined after an
order is received, plus any applicable sales charge on days the New York Stock
Exchange and Federal Reserve Wire System are open for business. The procedure
for purchasing shares is explained in the prospectus under "Investing in the
Funds."
Distribution and Shareholder Services Plans
These arrangements permit the payment of fees to financial institutions to
stimulate distribution activities and services to shareholders provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the Trustees expect that the Funds 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 Funds in pursuing their investment objectives. By identifying
potential investors whose needs are served by the Funds' objectives, and
properly servicing these accounts, it may be possible to curb sharp fluctuations
in rates of redemptions and sales.
Other benefits, which may be realized under either arrangement, may include: (1)
providing personal services to shareholders; (2) investing shareholder assets
with a minimum of delay and administrative detail; and (3) enhancing shareholder
recordkeeping systems; and (4) responding promptly to shareholders' requests and
inquiries concerning their accounts.
For the fiscal year ended February 28, 1997, the Funds made no payments pursuant
to the Distribution Plan. In addition, for the fiscal year ended February 28,
1997, Opportunity Fund made no payments pursuant to the Shareholder Services
Plan.
Conversion to Federal Funds
It is each 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
The Funds net asset value generally changes each day and with respect to
Municipal Income Fund is based on market value of securities and other assets
held by Municipal Income Fund. The days on which the net asset value is
calculated by the Funds are described in the prospectus.
With respect to International Equity Fund, dividend income is recorded on the
ex-dividend date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the Fund is informed
of the ex-dividend date.
Determining Market Value of Securities
Market value of the portfolio securities for Equity Fund, Opportunity Fund,
International Equity Fund, Limited Term Fund and Government Income Fund are
determined as follows:
o for equity securities and bonds and other fixed income securities,
according to the last sale price in the market in which they are
primarily traded (either national securities exchange or the OTC),
if available;
o in the absence of recorded sales of equity securities, according to
the mean between the last closing bid and asked prices, and for
bonds and other fixed income securities as determined by an
independent pricing service;
o for unlisted equity securities, the latest bid prices;
o for short-term obligations, according to the mean between bid and
asked prices as furnished by an independent pricing service or for
short-term obligations with remaining maturities of 60 days or less
at the time of purchase, at amortized cost, unless the Trustees
determine that particular circumstances of the security indicate
otherwise; or
o for all other securities, at fair value as determined in good faith
by the Trustees.
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. The International Equity
Fund will value futures contracts and options at their market values established
by the exchanges on which they are traded at the close of trading on such
exchanges unless the Trustees determine in good faith that another method of
valuing such investments is necessary. Trading in Foreign Securities
With respect to International Equity Fund, trading in foreign securities may be
completed at times which vary from the closing of the New York Stock Exchange.
In computing the net asset value, International Equity Fund values foreign
securities at the latest closing price on the exchange on which they are traded
immediately prior to the closing of the New York Stock Exchange. Foreign
securities quoted in foreign currencies are translated into U.S. dollars at
current rates. Occasionally, events that affect these values and exchange rates
may occur between the times at which they are determined and the closing of the
New York Stock Exchange. If such events materially affect the value of portfolio
securities, these securities may be valued at their fair value as determined in
good faith by the Trustees, although the actual calculation may be done by
others.
Valuing Municipal Securities
With respect to Municipal Income Fund, the Trustees use an independent pricing
service to value municipal securities. The independent pricing service takes
into consideration: yield; stability; risk; quality; coupon rate; maturity; type
of issue; trading characteristics; special circumstances of a security or
trading market; and any other factors or market data it considers relevant in
determining valuations for normal institutional size trading units of debt
securities and does not rely exclusively on quoted prices.
Exchange Privilege
Requirements for Exchange
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made. This privilege is available to shareholders
resident in any state in which the fund shares being acquired may be sold. Upon
receipt of proper instructions and required supporting documents, shares
submitted for exchange are redeemed and the proceeds invested in shares of the
other fund.
Further information on the exchange privilege may be obtained by calling the
Funds.
Making an Exchange
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
Redeeming Shares
Shares of the Funds are redeemed at the next computed net asset value after the
Bank receives 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 Funds intend to redeem shares in cash, they reserve the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from each 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 Funds have elected to be governed by Rule 18f-1 of the Investment Company
Act of 1940 under which each Fund is obligated to redeem shares for any one
shareholder in cash only up to the lesser of $250,000 or 1% of each 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 acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them from its assets.
<PAGE>
Tax Status
The Funds' Tax Status
The Funds will pay no federal income tax because they expect 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, each 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.
Foreign Taxes
With respect to the International Equity Fund, investment income on certain
foreign securities in which the Fund may invest may be subject to foreign
withholding or other taxes that could reduce the return on these securities. Tax
treaties between the United States and foreign countries, however, may reduce or
eliminate the amount of foreign taxes to which the Fund would be subject.
Shareholders' Tax Status
Shareholders of Equity Fund, Opportunity Fund, International Equity Fund,
Limited Term Fund and Government Income 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. With respect to
International Equity Fund, Limited Term Fund and Government Income Fund, no
portion of any income dividend paid by one of these Funds is eligible for the
dividends received deduction available to corporations.
Total Return
The average annual total returns for the fiscal year ended February 28, 1997,
for Equity Fund, Opportunity Fund, Limited Term Fund, Government Income Fund and
Municipal Income Fund were 14.60%, 8.19%, 2.56%, 2.00%, and 2.01%, respectively.
For the period from August 3, 1992 (date of initial public investment) to
February 28, 1997, the average annual total returns for Equity Fund, Limited
Term Fund and Government Income Fund were 14.44%, 4.49% and 5.38%, respectively.
For the period from December 21, 1992 (date of initial public investment) to
February 28, 1997, the average annual total return for Municipal Income Fund was
5.65%. For the period from August 1, 1994 (date of initial public investment) to
February 28, 1997, the average annual total return for Opportunity Fund was
19.70%. International Equity Fund had not commenced operations at February 28,
1997.
The average annual total return for the Funds is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales charge,
adjusted over the period by any additional shares, assuming the quarterly
reinvestment of all dividends and distributions.
Yield
The yields for the thirty-day period ended February 28, 1997, for Equity Fund,
Opportunity Fund, Limited Term Fund, Government Income Fund and Municipal Income
Fund were 0.74%, 0.00%, 4.92%, 5.28% and 4.37%, respectively. International
Equity Fund had not commenced operations at February 28, 1997.
The yield for the Funds is determined by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by each Fund
over a thirty-day period by the offering price per share of each Fund on the
last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a 12-month period
and is reinvested every six months. The yield does not necessarily reflect
income actually earned by the Funds because of certain adjustments required by
the Securities and Exchange Commission and, therefore, may not correlate to the
dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with investments in the Funds,
performance will be reduced for those shareholders paying those fees.
Tax-Equivalent Yield
Municipal Income Fund's tax-equivalent yield for the thirty-day period ended
February 28, 1997 was 6.33%.
The tax-equivalent yield of Municipal Income Fund is calculated similarly to the
yield, but is adjusted to reflect the taxable yield that Municipal Income Fund
would have had to earn to equal its actual yield, assuming a 31% tax rate (the
maximum effective federal rate for individuals) and assuming that the income of
Municipal Income Fund is 100% tax-exempt.
<PAGE>
Tax-Equivalency Table
Municipal Income Fund may also use a tax-equivalency table in advertising and
sales literature. The interest earned by the municipal securities in Municipal
Income Fund's portfolio generally remains free from federal regular income tax,*
and is often free from state and local taxes as well. As the table below
indicates, a "tax-free" investment is an attractive choice for investors,
particularly in times of narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1997
MULTISTATE MUNICIPAL FUNDS
FEDERAL INCOME TAX BRACKET:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $41,201- $99,601- $151,751- OVER
RETURN 41,200 99,600 151,750 271,050 $271,050
SINGLE $1- $24,651- $59,751- $124,651- OVER
RETURN 24,650 59,750 124,650 271,050 $271,050
</TABLE>
Tax-Exempt
<TABLE>
<CAPTION>
Yield Taxable Yield Equivalent
<S> <C> <C> <C> <C> <C>
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an
indicator of past or future performance of Fund shares. * Some portion
of the Fund's income may be subject to the federal alternative minimum
tax and state and local income taxes.
Performance Comparisons
The Funds' performance depends upon such variables as:
o portfolio quality;
o average portfolio maturity;
o type of instruments in which the portfolio is invested;
o changes in interest rates and market value of portfolio securities;
o changes in the Funds' expenses; and
o various other factors.
The performance of Equity Fund, Opportunity Fund, International Equity Fund,
Limited Term Fund, Government Income Fund and Municipal Income Fund fluctuates
on a daily basis largely because net earnings and offering price per share
fluctuate daily. Both net earnings and offering price per share are factors in
the computation of yield and total return.
Investors may use financial publications and/or indices to obtain a more
complete view of the Funds' 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 Funds use in advertising may include but
are not limited to:
o Lipper Analytical Services, Inc.(Equity Fund, Opportunity Fund,
International Equity Fund, Limited Term Fund and Government Income
Fund), ranks funds in various fund categories by making comparative
calculations for one-month, three-month, one-year, and five-year
periods using total return, and assumes the reinvestment of all
capital gains distributions and income dividends. Total return
assumes the reinvestment of all income dividends and capital gains
distributions, if any. From time to time, the Equity Fund,
International Equity Fund and Opportunity Fund will quote its Lipper
ranking in the "equity, growth and income, equity, growth equity,
international equity and small company" category in advertising and
sales literature.
o Europe, Australia, and Far East (EAFE) Index (International Equity
Fund) is a market capitalization weighted foreign securities index,
which is widely used to measure the performance of European,
Australian, New Zealand and Far Eastern stock markets. The index
covers approximately 1,020 companies drawn from 18 countries in the
above regions. The index values its securities daily in both U.S.
dollars and local currency and calculates total returns monthly.
EAFE U.S. dollar total return is a net dividend figure less
Luxembourg withholding tax. The EAFE is monitored by Capital
International, S.A., Geneva, Switzerland.
o Dow Jones Industrial Average ("DJIA")(Equity Fund and Opportunity
Fund) represents share prices of selected blue-chip industrial
corporations as well as public utility and transportation companies.
The DJIA indicates daily changes in the average price of stocks in
any of its categories. It also reports total sales for each group of
industries. Because it represents the top corporations of America,
the DJIA's index movements are leading economic indicators for the
stock market as a whole.
o Standard & Poor's Daily Stock Price Index of 500 Common Stocks
(Equity Fund and Opportunity Fund), a composite index of common
stocks in industry, transportation, and financial and public utility
companies can be used to compare to the total returns of funds whose
portfolios are invested primarily in common stocks. In addition, the
Standard & Poor's index assumes reinvestments of all dividends paid
by stocks listed on its index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees
calculated, in Standard & Poor's figures.
o Russell 2000 Small Stock Index (Opportunity Fund) is
a broadly diversified index consisting of approximately
2,000 small capitalization common stocks that can be used to
compare to the total returns of funds whose portfolios are
invested primarily in small capitalization common stocks.
o Morningstar, Inc. (Equity Fund and Opportunity Fund), an independent
rating service, is the publisher of the bi-weekly Mutual Fund
Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed
mutual funds of all types, according to their risk-adjusted returns.
The maximum rating is five stars, and ratings are effective for two
weeks.
o NASDAQ Over-the-Counter Composite Index (Opportunity
Fund) covers 4,500 stocks traded over the counter. It
represents many small company stocks but is heavily
influenced by about 100 of the largest NASDAQ stocks. It is
a value-weighted index calculated on price change only and
does not include income.
o Merrill Lynch 1-3 Year Treasury Index (Limited Term Fund) is an
unmanaged index tracking short-term U.S. government securities with
maturities between 1 and 2.99 years. The index is produced by
Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Lehman Brothers Government/Corporate (Total) Index (Government
Income Fund) is comprised of approximately 5,000 issues which
include: non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S.
government and quasi-federal corporations; and publicly issued,
fixed rate, non-convertible domestic bonds of companies in industry,
public utilities, and finance. The average maturity of these bonds
approximates nine years. Tracked by Lehman Brothers, Inc., the index
calculates total returns for one month, three month, twelve month,
and ten year periods and year-to-date.
o Lehman Brothers Municipal Bond Index (Municipal Income Fund) is a
total return performance benchmark for the long-term, investment
grade, tax-exempt bond market. Returns and attributes for this index
are calculated semi-monthly using municipal bonds classified as
General Obligation Bonds (state and local), Revenue Bonds (excluding
insured revenue bonds), Insured Bonds (includes all bond insurers
with Aaa/AAA ratings), and Prerefunded Bonds.
Advertisements and other sales literature for the Funds may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the change, over a specified period of time, in the value of an
investment in the Funds based on monthly reinvestment of dividends and other
investments.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' returns, or returns in general, that
demonstrate basic investment concepts such as tax-deferred compounding,
dollar-cost averaging and systematic investment. In addition, the Funds can
compare their 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 Funds 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 Funds. 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 trillion to the more than 6,000 funds available.
Financial Statements
The financial statements for the fiscal year ended February 28, 1997, are
incorporated herein by reference to the Annual Reports of the Funds dated
February 28, 1997 (File Nos. 33-46431 and 811-6607). A copy of the Funds' Annual
Report may be obtained without charge by contacting the Trust.
<PAGE>
Appendix
Standard and Poor's Corporate/Municipal Bond Ratings
AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay
interest and repay principal is extremely strong.
AA--Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A--Debt rated "A" has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
Standard and Poor's Commercial Paper Rating Definitions
A-1-This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
Moody's Investors Service, Inc. Corporate/Municipal Bond Ratings
Aaa--Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edged". Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa--Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, they comprise what are generally known as
high-grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long-term risks appear somewhat larger than in Aaa securities.
A--Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa--Bonds which are rated Baa are considered as medium-grade obligations,
(i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
NR--Not rated by Moody's.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
Fitch Investors Service, Inc. Long-Term Debt Ratings
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and
"AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+".
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the "AAA" category.
Standard and Poor's Ratings Group Commercial Paper Ratings
A-1--This highest category indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong safety
characteristics are denoted with a plus (+) sign designation.
A-2--Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as for
issues designated A-1.
Standard & Poor's Ratings Group Municipal Note Ratings
SP-1--Very strong or strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics will be given a plus
(+) designation.
SP-2--Satisfactory capacity to pay principal and interest.
Moody's Investors Service, Inc., Short-Term Municipal Obligations Ratings
MIG1/VMIG1--This designation denotes best quality. There is a present strong
protection by established cash flows, superior liquidity support or demonstrated
broadbased access to the market for refinancing.
MIG2/VMIG2--This designation denotes high quality. Margins of protection are
ample although not so large as in the preceding group.
Moody's Investors Service, Inc., Commercial Paper Ratings
Prime-1--Issuers rated PRIME-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. PRIME-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well established industries; high rates of return on
funds employed; conservative capitalization structure with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternative liquidity.
Prime-2--Issuers rated PRIME-2 (or related supporting institutions) have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above, but to a
lesser degree. Earnings trends and coverage ratios, while sound, will be more
subject to variation. Capitalization characteristics, while still appropriate,
may be more affected by external conditions. Ample alternate liquidity is
maintained.
Fitch Investors Service, Inc. Commercial Paper Ratings
F-1+(Exceptionally Strong Credit Quality)Issues assigned this rating is regarded
as having the strongest degree of assurance for timely payment.
F-1--(Very Strong Credit Quality) Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--(Very Good Grade) Issued assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: (1-6) Incorporated herein by reference to the
Trust's Annual Report dated February 28, 1997 (File Nos. 33-46431 and
811-6607); (7,8,9) To be filed by amendment.
(b) Exhibits:
(1) Conformed copy of Declaration of Trust of the Registrant (1.);
(i) Conformed copy of Amendment No. 1 of Declaration of
Trust of the Registrant (2.);
(ii) Conformed copy of Amendment No. 3 of Declaration of
Trust of the Registrant (4.);
(iii) Conformed copy of Amendment to the Declaration of
Trust of the Registrant dated May 17, 1994 (8.);
(2) Copy of By-Laws of the Registrant (1.);
(3) Not applicable;
(4) (i) Copy of Specimen Certificate for Shares of Beneficial
Interest of DG U.S. Government Money Market Fund (3.);
(ii) Copy of Specimen Certificate for
Shares of Beneficial Interest of DG Limited
Term Government Income Fund (3.); (iii) Copy
of Specimen Certificate for Shares of
Beneficial Interest of DG Government Income
Fund (3.);
(iv) Copy of Specimen Certificate for Shares of Beneficial
Interest of DG Equity Fund (3.);
(v) Copy of Specimen Certificate for Shares of Beneficial
Interest of DG Municipal Income (6.);
(vi) Copy of Specimen Certificate for Shares of Beneficial
Interest of DG Opportunity Fund (8.);
(vii) Copy of Specimen Certificate for Shares of Beneficial
Interest of DG Prime Money Market Fund (12.);
+ All exhibits have been filed electronically.
1. Response is incorporated by reference to Registrant's Initial
Registration Statement on Form N-1A filed March 18, 1992. (File Nos.
33-46431 and 811-6607)
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed April 29, 1992. (File Nos. 33-46431
and 811-6607)
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 22, 1992. (File Nos. 33-46431
and 811-6607)
4. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.2 on Form N-1A filed October 14, 1992. (File Nos.
33-46431 and 811-6607)
6. Response is incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed April 23, 1993. (File Nos. 33-46431
and 811-6607)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed May 26, 1994. (File Nos. 33-46431
and 811-6607)
12. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 11 on Form N-1A filed November 15, 1996. (File Nos.
33-46431 and 811-6607)
<PAGE>
(viii) Copy of Specimen Certificate for Shares of Beneficial Interest
of DG Mid Cap Fund (13.);
(ix) Copy of Specimen Certificate for Shares of Beneficial Interest
of DG International Equity Fund (13.);
(5) Conformed copy of Investment Advisory Contract of Registrant (13.);
(i) Conformed copy of Exhibit I to the
Investment Advisory Contract of Registrant
to add DG Mid Cap Fund; + (ii) Conformed
copy of Sub-Advisory Agreement between
Deposit Guaranty National Bank and
Commercial National Bank (6.);
(a) Conformed copy of Exhibit A for
DG Equity Fund (8.); (b) Conformed
copy of Exhibit B for DG Government
Income Fund (8.); (c) Conformed
copy of Exhibit C for DG Limited
Term Government Income Fund (8.);
(d) Conformed copy of Exhibit D for
DG Municipal Income Fund (8.); (e)
Conformed copy of Exhibit E for DG
Opportunity Fund; (9.)
(iii) Conformed copy of Sub-Advisory Agreement between ParkSouth
Corporation and Lazard Frere Asset Management (13.);
(iv) Form of Sub-Advisory Agreement between ParkSouth Corporation
and Bennett Lawrence Management, Inc. (13.);
(6) Conformed copy of Distributor's Contract of the Registrant (3.);
(i) Conformed copy of Exhibit A for DG vs
Government Money Market Fund (8.); (ii)
Copy of Exhibit B for DG Limited Term
Government Income Fund (8.);
(iii) Conformed copy of Exhibit C for DG
Government Income Fund (8.); (iv) Conformed
copy of Exhibit D for DG Equity Income Fund
(8.);
(v) Conformed copy of Exhibit E for DG
Municipal Income Fund (8.); (vi) Conformed
copy of Exhibit F for DG Opportunity Fund
(9.);
+ All exhibits have been filed electronically.
3. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 1 on Form N-1A filed May 22, 1992. (File Nos. 33-46431
and 811-6607)
6. Response is incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed April 23, 1993. (File Nos. 33-46431
and 811-6607)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed May 26, 1994. (File Nos. 33-46431
and 811-6607)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed February 10, 1995. (File Nos.
33-46431 and 811-6607)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed June 20, 1997. (File Nos. 33-46431
and 811-6607)
<PAGE>
(vii) Conformed copy of Exhibit G for DG
Prime Money Market Fund (13.); (viii)
Conformed copy of Exhibit H for DG
International Equity Fund (13.); (ix)
Conformed copy of Exhibit I for DG Mid Cap
Fund (14);
(7) Not applicable
(8) Conformed copy of Custodian Agreement of the Registrant (6.);
(9) (i) Conformed copy of Transfer Agency and Service Agreement of
Registrant (6.);
(ii)...Conformed copy of Administrative Services
Agreement (7.);
(iii) Conformed copy of Shareholder Services
Agreement (13.); (iv) Conformed copy of
Shareholder Services Plan (9.);
(v) Conformed copy of Exhibit A to Shareholder Services Plan (9.);
(vi) Conformed copy of Exhibits B, C, D, E, F, G, H, and I to
Shareholder Services Plan (13.);
(10) Conformed copy of Opinion and Consent of Counsel as to legality of
shares being registered (11.);
(11) Conformed copy of consent of Independent Auditors; +
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding (2.);.
(14) Not applicable;
(15) (i) Copy of Distribution Plan of the Registrant (2.);
(a) Conformed copy of Exhibit A for
D.G. U.S. Government Money Market
Fund (8.); (b) Conformed copy of
Exhibit B for DG Limited Term
Government Income Fund (8.); (c)
Conformed copy of Exhibit C for DG
Government Income Fund (8.); (d)
Conformed copy of Exhibit D for DG
Equity Fund (8.);
+ All exhibits have been filed electronically.
2. Response is incorporated by reference to Registrant's Pre-Effective
Amendment No. 1 on Form N-1A filed April 29, 1992. (File Nos. 33-46431
and 811-6607)
6. Response is incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed April 23, 1993. (File Nos. 33-46431
and 811-6607)
7. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 5 on Form N-1A filed April 27, 1994. (File Nos. 33-46431
and 811-6607)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed May 26, 1994. (File Nos. 33-46431
and 811-6607)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed February 10, 1995. (File Nos.
33-46431 and 811-6607);
11. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 10 on Form N-1A filed June 24, 1996. (File Nos. 33-46431
and 811-6607)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed June 20, 1997. (File Nos. 33-46431
and 811-6607)
14. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 14 on Form N-1A filed June 26, 1997. (File Nos. 33-46431
and 811-6607)
(e) Conformed copy of Exhibit E for
DG Municipal Income Fund (8.); (f)
Conformed copy of Exhibit F for DG
Opportunity Fund (9.); (g)
Conformed copy of Exhibit G for DG
Prime Money Market Fund (13.); (h)
Conformed copy of Exhibit H for DG
International Equity Fund (13.);
(i) Conformed copy of Exhibit I for
DG Mid Cap Fund (13.);
(ii) Copy of Rule 12b-1 Agreement of the Registrant (8.);
(16) Schedule for Computation of Fund Performance Data;
(i) DG Equity Fund (5.);
(ii) DG Government Income Fund (5.);
(iii) DG Limited Term Government Income Fund (5.);
(iv) DG U.S. Government Money Market Fund (5.);
(v) DG Municipal Income Fund (6.);
(vi) DG Opportunity Fund (9.);
(17) Copy of Financial Data Schedules; +
(18) Conformed copy of Power of Attorney (10.).
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
+ All exhibits have been filed electronically.
5. Response is incorporated by reference to Registrant's Post-Effective
Amendment No.3 on Form N-1A filed October 28, 1992. (File Nos.
33-46431 and 811-6607)
6. Response is incorporated by Reference to Registrant's Post-Effective
Amendment No. 4 on Form N-1A filed April 23, 1993. (File Nos. 33-46431
and 811-6607)
8. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 6 on Form N-1A filed May 26, 1994. (File Nos. 33-46431
and 811-6607)
9. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 8 on Form N-1A filed February 10, 1995. (File Nos.
33-46431 and 811-6607);
10. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 9 on Form N-1A filed April 25, 1995. (File Nos. 33-46431
and 811-6607)
13. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 13 on Form N-1A filed June 20, 1997. (File Nos. 33-46431
and 811-6607)
<PAGE>
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of August 1, 1997
-------------- ---------------------
Shares of beneficial interest
(no par value)
DG U.S. Government Money
Market Fund 97
DG Limited Term Government
Income Fund 169
DG Government Income Fund 190
DG Equity Fund 1,679
DG Municipal Income Fund 97
DG Opportunity Fund 711
DG Prime Money Market Fund 9
DG International Equity Fund 6
DG Mid Cap Fund....................... Not currently effective
Item 27. Indemnification: (4)
Item 28. Business and Other Connections of Investment Adviser:
(a) 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, a national banking association formed 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.
ParkSouth Corporation manages, in addition to the Funds
in the DG Investor Series, $630 million in common trust
fund assets as of December 31, 1996. ParkSouth
Corporation (which suceeded to the investment advisory
business of Deposit Guaranty National Bank in 1997) or
Deposit Guaranty National Bank have served as the
Trust's investment adviser since May 5, 1992.
<PAGE>
The principal executive officers of the Fund's
Investment Adviser, and the Directors of the Fund's
Adviser, are set forth in the following tables. Unless
otherwise noted, the position listed under Other
Substantial Business, Profession, Vocation or
Employment is with Deposit Guaranty National Bank.
<TABLE>
<CAPTION>
<S> <C> <C>
Other Substantial
Position With Business,Profession,
Name the Adviser Vocation or Employment
E.B. Robinson, Jr. Chairman of the Board
and Chief Executive
Howard L. McMillan, Jr. President and Chief
Operating Officer
William R. Boone Executive Vice President
Thomas M. Hontzas Executive Vice President
W. Parks Johnson Executive Vice President
James S. Lenoir Executive Vice President
W. Stanley Pratt Executive Vice President
Arlen L. McDonald Executive Vice President
and Chief Financial Officer
</TABLE>
DIRECTORS
<TABLE>
<CAPTION>
<S> <C> <C>
Haley R. Barbour Warren A. Hood, Jr. W.R. Newman, III
Michael B. Bemis Charles L. Irby John N. Palmer
W. Randolph James E.B. Robinson, Jr. Sharon S. Greener
Booker T. Jones Robert D. Robinson Robert L.T. Smith, Jr.
Howard L. McMillan, Jr. Douglas A. Herring Richard McRae,Jr.
J. Kelley Williams
</TABLE>
(b) Lazard Freres Asset Management, a division of Lazard
Freres & Co. LLC, a New York limited liability company,
which is registered as an investment adviser with the
Securities and Exchange Commission and is a member of the
New York, American and Midwest Stock Exchanges. Lazard
Freres Asset Management provides investment management
services to client discretionary accounts with assets
totalling approximately $38.1 billion as of December 31,
1996. Lazard Freres Asset Management serves as Sub-Adviser
to DG International Equity Fund.
Lazard Freres Asset Management is managed by members who are referred to as
Managing Directors and are as follows: Norman Eig; Herbert W. Gullquist; Thomas
F. Dunn; Robert P. Morgenthau; John R. Reese; John R. Reinsberg; Michael S.
Rome; Alexander E. Zagoreos; Larry Kohn; and Eileen Alexanderson.
<PAGE>
(c) Bennett Lawrence Management, LLC, a New York limited
liability company, which is registered as an investment
adviser with the Securities and Exchange Commission.
Bennett Lawrence Management, LLC provides investment
management services to client discretionary accounts with
assets totalling approximately $634 million as of December
31, 1996. Bennett Lawrence Management, LLC serves as
Sub-Adviser to DG Mid Cap Fund.
Bennett Lawrence Management, LLC is managed by S. Van Zandt Schreiber,
Managing Member and Chief Portfolio Manager, Robert W. Deaton, Member and
Associate Portfolio Manager, Brendan J. Contant, Member and Marketing Director
and Jane H. Fisher, Member and Operations Director.
Item 29. Principal Underwriters:
(a) 111 Corcoran Funds; Arrow Funds; Automated Government Money Trust;
BayFunds; 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;
Independence One Mutual Funds; Intermediate Municipal Trust;
International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty U.S. Government Money Market Trust; Liquid Cash
Trust; Managed Series Trust; Marshall Funds, Inc.; Money Market
Management, Inc.; Money Market Obligations Trust; Money Market
Obligations Trust II; Money Market Trust; Municipal Securities Income
Trust; Newpoint Funds; Peachtree Funds; RIMCO Monument Funds;
SouthTrust Vulcan Funds; Star Funds; Targeted Duration Trust; Tax-Free
Instruments Trust; The Biltmore Funds; The Biltmore Municipal Funds;
The Monitor Funds; The Planters Funds; The Starburst Funds; The
Starburst Funds II; The Virtus Funds; Tower Mutual Funds; Trust for
Financial Institutions; Trust for Government Cash Reserves; Trust for
Short-Term U.S. Government Securities; Trust for U.S. Treasury
Obligations; Vision Group of Funds, Inc.; Wesmark Funds; and World
Investment Series, Inc.
Federated Securities Corp. also acts as principal underwriter for the
following closed-end investment company: Liberty Term Trust, Inc.- 1999.
<PAGE>
<TABLE>
<CAPTION>
(b)
<S> <C> <C>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard B. Fisher Director, Chairman, Chief Vice President
Federated Investors Tower Executive Officer, Chief
Pittsburgh, PA 15222-3779 Operating Officer, Asst.
Secretary, and Asst.
Treasurer, Federated
Securities Corp.
Edward C. Gonzales Director, Executive Vice President, Treasurer
Federated Investors Tower President, Federated, and Trustee
Pittsburgh, PA 15222-3779 Securities Corp.
Thomas R. Donahue Director, Assistant Secretary,
Federated Investors Tower Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark R. Gensheimer Executive Vice President of --
Federated Investors Tower Bank/Trust, Federated
Pittsburgh, PA 15222-3779 Securities Corp.
David M. Taylor Executive Vice President --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark W. Bloss Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard W. Boyd Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Laura M. Deger Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Theodore Fadool, Jr. Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bryant R. Fisher Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Christopher T. Fives Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James S. Hamilton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
James M. Heaton Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Keith Nixon Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Solon A. Person, IV Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Timothy C. Pillion Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas E. Territ Senior Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Teresa M. Antoszyk Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Bohnet Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Byron F. Bowman Vice President, Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jane E. Broeren-Lambesis Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Dale R. Browne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mary J. Combs Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Edmond Connell, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
R. Leonard Corton, Jr. Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Kevin J. Crenny Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Daniel T. Culbertson Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
G. Michael Cullen Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Doyle Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jill Ehrenfeld Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark D. Fisher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Joseph D. Gibbons Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John K. Goettlicher Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Craig S. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Gonzales Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Bruce E. Hastings Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Beth A. Hetzel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
James E. Hickey Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian G. Kelly Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
H. Joseph Kennedy Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Mark J. Miehl Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard C. Mihm Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
J. Michael Miller Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert D. Oehlschlager Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas A. Peters III Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Robert F. Phillips Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard A. Recker Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Eugene B. Reed Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
George D. Riedel Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul V. Riordan Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John Rogers Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Brian S. Ronayne Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Thomas S. Schinabeck Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward L. Smith Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
David W. Spears Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John A. Staley Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Jeffrey A. Stewart Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Underwriter With Registrant
Richard Suder Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
William C. Tustin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Paul A. Uhlman Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Miles J. Wallace Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John F. Wallin Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Richard B. Watts Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward J. Wojnarowski Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Michael P. Wolff Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Edward R. Bozek Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Terri E. Bush Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Charlene H. Jennings Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Matthew S. Propelka Assistant Vice President, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Denis McAuley Treasurer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
Leslie K. Platt Assistant Secretary, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
</TABLE>
(c) Not applicable.
<PAGE>
Item 30. Location of Accounts and Records:
All accounts and records required to be maintained by Section
31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3
promulgated thereunder are maintained at one of the following locations:
<TABLE>
<CAPTION>
<S> <C>
DG Investor Series Federated Investors Tower
Pittsburgh, PA 15222-3779
Federated Shareholder Services Company P.O. Box 8600
Transfer Agent, Dividend Boston, MA 02266-8600
Disbursing Agent and
Shareholder Servicing Agent
Federated Administrative Services Federated Investors Tower
Administrator Pittsburgh, PA 15222-3779
ParkSouth Corporation P.O. Box 1200
Adviser Jackson,MS 39215-1200
Lazard Freres Asset Management 30 Rockefeller Plaza
Sub-Adviser to DG International New York, NY 10020
Equity Fund only
Bennett Lawrence Management, LLC 757 Third Avenue, 19th Floor
Sub-Adviser to DG Mid Cap New York, NY 10017
Fund only
State Street Bank and Trust Company P.O. Box 8600
Custodian Boston, MA 02266-8600
</TABLE>
Item 31. Management Services: Not applicable.
Item 32. Undertakings:
Registrant hereby undertakes to comply with the provisions of
Section 16(c) of the 1940 Act with respect to the removal of Trustees and the
calling of special shareholder meetings by shareholders.
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest annual report to
shareholders, upon request and without charge.
Registrant hereby undertakes to file a post-effective
amendment on behalf of DG Prime Money Market Fund, using
financial statments for DG Prime Money Market Fund, which need
not be certified, within four to six months from the effective
date of Post-Effective Amendment No. 11.
Registrant hereby undertakes to file a post-effective
amendment on behalf of DG International Equity Fund, using
financial statments for DG International Equity Fund, which
need not be certified, within four to six months from the
effective date of Post-Effective Amendment No. 12.
Registrant hereby undertakes to file a post-effective
amendment on behalf of DG Mid Cap Fund, using financial
statments for DG Mid Cap Fund, which need not be certified,
within four to six months from the effective date of
Post-Effective Amendment No. 13.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, DG INVESTOR SERIES, has duly
caused this Amendment to its Registration Statement to be signed on its behalf
by the undersigned, thereto duly authorized, in the City of Pittsburgh and
Commonwealth of Pennsylvania, on the 22nd day of August, 1997.
DG INVESTOR SERIES
BY: /s/C. Grant Anderson
C. Grant Anderson, Assistant Secretary
Attorney in Fact for John F. Donahue
August 22, 1997
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to its Registration Statement has been signed below by the following person in
the capacity and on the date indicated:
NAME TITLE DATE
By: /s/C. Grant Anderson
C. Grant Anderson Attorney In Fact August 22, 1997
ASSISTANT SECRETARY For the Persons
Listed Below
NAME TITLE
John F. Donahue* Chairman and Trustee
(Chief Executive Officer)
Edward C. Gonzales* President, Treasurer and Trustee
(Principal Financial and
Accounting Officer)
Thomas G. Bigley* Trustee
John T. Conroy, Jr.* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
Gregor F. Meyer* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Page 1
DG Investor Series 6/1/97
Exhibit 5(i) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
EXHIBIT I
to the
Investment Advisory Contract
DG INVESTOR SERIES
DG Mid Cap Fund
For all services rendered by Adviser hereunder, the above-named Fund of
the DG Investor Series shall pay to Adviser and Adviser agrees to accept as full
compensation for all services rendered hereunder, an annual investment advisory
fee equal to 1% of the average daily net assets of the Fund.
The portion of the fee based upon the average daily net assets of the
Fund shall be accrued daily at the rate of 1/365th of 1% applied to the daily
net assets of the Fund.
The advisory fee so accrued shall be paid to Adviser daily.
Witness the due execution hereof this June 1, 1997.
Attest: ParkSouth Corporation
/s/ J. Clifford Harrison By: /s/Raymond F. Thompson, Jr.
Secretary President
Attest: DG Investor Series
/s/ John W. McGonigle By: /s/ J. Christopher Donahue
Secretary Executive Vice President
Exhibit 11 under Form N-1A
Exhibit 23 under Item 601/Reg. S-K
INDEPENDENT AUDITORS' CONSENT
The Board of Trustees DG INVESTOR SERIES:
With respect to this Post Effective Amendment No. 15 to the Registration
Statement (No. 33-46431) on Form N-1A of the DG Investor Series, we consent to
the use of our report dated April 11, 1997, on the financial statements of the
funds listed below, incorporated by reference, and to the references to our Firm
under the headings "Financial Highlights" in Part A of the Registration
Statement and "Other Services-Independent Auditors" in Part B of the
Registration Statement.
o DG Equity Fund
o DG Opportunity Fund
o DG Limited Term Government Income Fund
o DG Government Income Fund
o DG Municipal Income Fund
o DG U.S. Government Money Market Fund
By: KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania
August 21, 1997
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> DG Investor Series
DG U.S. Government Money Market Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 273,622,132
<INVESTMENTS-AT-VALUE> 273,622,132
<RECEIVABLES> 765,275
<ASSETS-OTHER> 2,418
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 274,389,825
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 936,899
<TOTAL-LIABILITIES> 936,899
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 273,452,926
<SHARES-COMMON-STOCK> 273,452,926
<SHARES-COMMON-PRIOR> 245,647,230
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 273,452,926
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 11,924,422
<OTHER-INCOME> 0
<EXPENSES-NET> 1,141,023
<NET-INVESTMENT-INCOME> 10,783,399
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 10,783,399
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10,783,399
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 550,619,637
<NUMBER-OF-SHARES-REDEEMED> 522,981,171
<SHARES-REINVESTED> 167,230
<NET-CHANGE-IN-ASSETS> 27,805,696
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,138,567
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,596,450
<AVERAGE-NET-ASSETS> 227,713,430
<PER-SHARE-NAV-BEGIN> 1.000
<PER-SHARE-NII> 0.050
<PER-SHARE-GAIN-APPREC> 0.000
<PER-SHARE-DIVIDEND> 0.050
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 1.000
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> DG Investor Series
DG Limited Term Government Income Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 83,281,477
<INVESTMENTS-AT-VALUE> 83,351,823
<RECEIVABLES> 1,070,531
<ASSETS-OTHER> 473
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 84,422,827
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 37,400
<TOTAL-LIABILITIES> 37,400
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 87,809,218
<SHARES-COMMON-STOCK> 8,689,448
<SHARES-COMMON-PRIOR> 9,513,347
<ACCUMULATED-NII-CURRENT> 35,553
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,529,690)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 70,346
<NET-ASSETS> 84,385,427
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 5,339,716
<OTHER-INCOME> 0
<EXPENSES-NET> 597,447
<NET-INVESTMENT-INCOME> 4,742,269
<REALIZED-GAINS-CURRENT> (1,008,150)
<APPREC-INCREASE-CURRENT> 293,452
<NET-CHANGE-FROM-OPS> 4,027,571
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,818,533
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,953,124
<NUMBER-OF-SHARES-REDEEMED> 3,986,837
<SHARES-REINVESTED> 209,814
<NET-CHANGE-IN-ASSETS> (8,890,184)
<ACCUMULATED-NII-PRIOR> 56,525
<ACCUMULATED-GAINS-PRIOR> (2,466,248)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 527,974
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 773,439
<AVERAGE-NET-ASSETS> 87,995,684
<PER-SHARE-NAV-BEGIN> 9.800
<PER-SHARE-NII> 0.520
<PER-SHARE-GAIN-APPREC> (0.080)
<PER-SHARE-DIVIDEND> 0.530
<PER-SHARE-DISTRIBUTIONS> 0.000
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<PER-SHARE-NAV-END> 9.710
<EXPENSE-RATIO> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> DG Investor Series
DG Government Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 248,234,740
<INVESTMENTS-AT-VALUE> 246,891,671
<RECEIVABLES> 2,806,284
<ASSETS-OTHER> 3,766
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 249,701,721
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 83,279
<TOTAL-LIABILITIES> 83,279
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 252,978,362
<SHARES-COMMON-STOCK> 25,761,234
<SHARES-COMMON-PRIOR> 18,659,694
<ACCUMULATED-NII-CURRENT> 45,794
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (2,062,645)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (1,343,069)
<NET-ASSETS> 249,618,442
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 14,877,668
<OTHER-INCOME> 0
<EXPENSES-NET> 1,606,237
<NET-INVESTMENT-INCOME> 13,271,431
<REALIZED-GAINS-CURRENT> (1,412,964)
<APPREC-INCREASE-CURRENT> (2,801,515)
<NET-CHANGE-FROM-OPS> 9,056,952
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,349,136
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 11,623,519
<NUMBER-OF-SHARES-REDEEMED> 5,043,232
<SHARES-REINVESTED> 521,253
<NET-CHANGE-IN-ASSETS> 65,392,336
<ACCUMULATED-NII-PRIOR> 62,896
<ACCUMULATED-GAINS-PRIOR> (589,078)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,369,096
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,834,420
<AVERAGE-NET-ASSETS> 226,453,311
<PER-SHARE-NAV-BEGIN> 9.870
<PER-SHARE-NII> 0.570
<PER-SHARE-GAIN-APPREC> (0.180)
<PER-SHARE-DIVIDEND> 0.570
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.690
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> DG Investor Series
DG Equity Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 318,427,891
<INVESTMENTS-AT-VALUE> 489,693,047
<RECEIVABLES> 838,410
<ASSETS-OTHER> 5,706
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 490,537,163
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 145,262
<TOTAL-LIABILITIES> 145,262
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 318,556,876
<SHARES-COMMON-STOCK> 29,394,313
<SHARES-COMMON-PRIOR> 26,583,091
<ACCUMULATED-NII-CURRENT> 553,985
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 15,884
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 171,265,156
<NET-ASSETS> 490,391,901
<DIVIDEND-INCOME> 6,283,804
<INTEREST-INCOME> 1,755,374
<OTHER-INCOME> 0
<EXPENSES-NET> 3,956,052
<NET-INVESTMENT-INCOME> 4,083,126
<REALIZED-GAINS-CURRENT> 10,108,185
<APPREC-INCREASE-CURRENT> 63,747,215
<NET-CHANGE-FROM-OPS> 77,938,526
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,964,723
<DISTRIBUTIONS-OF-GAINS> 10,093,485
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 6,852,631
<NUMBER-OF-SHARES-REDEEMED> 4,578,933
<SHARES-REINVESTED> 537,524
<NET-CHANGE-IN-ASSETS> 105,246,864
<ACCUMULATED-NII-PRIOR> 435,582
<ACCUMULATED-GAINS-PRIOR> 1,184
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,213,522
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,956,052
<AVERAGE-NET-ASSETS> 428,699,511
<PER-SHARE-NAV-BEGIN> 14.490
<PER-SHARE-NII> 0.140
<PER-SHARE-GAIN-APPREC> 2.540
<PER-SHARE-DIVIDEND> 0.140
<PER-SHARE-DISTRIBUTIONS> 0.350
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 16.680
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> DG Investor Series
DG Municipal Income Fund
<PERIOD-TYPE> 12-Mos
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 44,233,362
<INVESTMENTS-AT-VALUE> 45,420,088
<RECEIVABLES> 1,653,371
<ASSETS-OTHER> 435
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 47,073,894
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 145,968
<TOTAL-LIABILITIES> 145,968
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,525,103
<SHARES-COMMON-STOCK> 4,433,345
<SHARES-COMMON-PRIOR> 4,182,389
<ACCUMULATED-NII-CURRENT> 111,120
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 104,977
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,186,726
<NET-ASSETS> 46,927,926
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,508,540
<OTHER-INCOME> 0
<EXPENSES-NET> 325,414
<NET-INVESTMENT-INCOME> 2,183,126
<REALIZED-GAINS-CURRENT> 116,120
<APPREC-INCREASE-CURRENT> (430,640)
<NET-CHANGE-FROM-OPS> 1,868,597
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,140,424
<DISTRIBUTIONS-OF-GAINS> 47,122
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,331,086
<NUMBER-OF-SHARES-REDEEMED> 1,083,418
<SHARES-REINVESTED> 3,288
<NET-CHANGE-IN-ASSETS> 2,349,602
<ACCUMULATED-NII-PRIOR> 68,418
<ACCUMULATED-GAINS-PRIOR> 35,979
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 279,232
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 537,479
<AVERAGE-NET-ASSETS> 46,538,898
<PER-SHARE-NAV-BEGIN> 10.660
<PER-SHARE-NII> 0.490
<PER-SHARE-GAIN-APPREC> (0.070)
<PER-SHARE-DIVIDEND> 0.480
<PER-SHARE-DISTRIBUTIONS> 0.010
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.590
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 06
<NAME> DG Investor Series
DG Opportunity Fund
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Feb-28-1997
<PERIOD-END> Feb-28-1997
<INVESTMENTS-AT-COST> 70,805,933
<INVESTMENTS-AT-VALUE> 80,520,538
<RECEIVABLES> 42,145
<ASSETS-OTHER> 1,271
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 80,563,954
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 36,806
<TOTAL-LIABILITIES> 36,806
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 71,063,479
<SHARES-COMMON-STOCK> 5,951,609
<SHARES-COMMON-PRIOR> 4,181,974
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (250,936)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 9,714,605
<NET-ASSETS> 80,527,148
<DIVIDEND-INCOME> 234,802
<INTEREST-INCOME> 418,540
<OTHER-INCOME> 0
<EXPENSES-NET> 822,736
<NET-INVESTMENT-INCOME> (169,394)
<REALIZED-GAINS-CURRENT> 5,530,831
<APPREC-INCREASE-CURRENT> 1,007,879
<NET-CHANGE-FROM-OPS> 6,369,316
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,464,715
<NUMBER-OF-SHARES-REDEEMED> 929,615
<SHARES-REINVESTED> 234,535
<NET-CHANGE-IN-ASSETS> 27,049,823
<ACCUMULATED-NII-PRIOR> 239
<ACCUMULATED-GAINS-PRIOR> (1,058,345)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 684,142
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 938,316
<AVERAGE-NET-ASSETS> 72,014,945
<PER-SHARE-NAV-BEGIN> 12.790
<PER-SHARE-NII> (0.040)
<PER-SHARE-GAIN-APPREC> 1.610
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.830
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 13.530
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
