1933 Act File No. 33-46431
1940 Act File No. 811-6607
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
Pre-Effective Amendment No. .....................
Post-Effective Amendment No. 20 ....................... X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 23 ..................................... X
DG INVESTOR SERIES
(Exact Name of Registrant as Specified in Charter)
5800 Corporate Drive
Pittsburgh, Pennsylvania 15237-7010
(Address of Principal Executive Offices)
(412) 288-1900
(Registrant's Telephone Number)
John W. McGonigle, Esquire,
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
immediately upon filing pursuant to paragraph (b)
_X on June 30, 1998, pursuant to paragraph (b)
_ 60 days after filing pursuant to paragraph (a) (i) on pursuant to paragraph
(a) (i) 75 days after filing pursuant to paragraph (a)(ii) on
_________________ pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
This post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
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 Treasury Money Market Fund (formerly, 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, relates to all portfolios except DG Mid Cap
Fund, and is comprised of the following:
PART A. INFORMATION REQUIRED IN A PROSPECTUS.
Prospectus Heading
(Rule 404(c) Cross Reference)
Item 1. Cover Page....................(1-9) Cover Page.
Item 2. Synopsis......................(1-8) Synopsis; (1-8) Year 2000
Statement; (2,3,4,5,6,8) Risk
Factors; (9) General Information;(1-9)
Summary of Fund Expenses; (1-8)
Financial Highlights.
Item 3. Condensed Financial
Information (1-9) Performance Information.
Item 4. General Description of
Registrant....................(1-8) Objectives and Policies of Each
Fund; (9) Investment Information; (9)
Investment Objective; (9) Investment
Policies; (1-9) Investment
Limitations; (1) Treasury Money Market
Fund; (2) Limited Term Fund;
(3)Government Income Fund; (4) Equity
Fund; (5) Municipal Income Fund; (6)
Opportunity Fund; (7) Prime Money
Market Fund; (7) Investment Risks; (8)
International Equity Fund; (1-8)
Portfolio Investments and Strategies;
(2,3,4,5,6,8) Put and Call Options;
(2,3,4,5,6,8) Futures Contracts and
Options on Futures; (1-8) Repurchase
Agreements; (1-8) When-Issued and
Delayed Delivery Transactions; (1-8)
Lending of Portfolio Securities;
(2,3,4,5,6,8) Temporary Investments;
(1-8) Investing in Securities of Other
Investment Companies; (2,3,4,5,6,8)
Restricted and Illiquid Securities;
(2,3,4,5,6,8) Fixed Income Securities.
Item 5. Management of the Fund........(2,3,4,5,6,8,9) DG Investor Series
Information;(1,7) Trust Information;
(1-9) Management of the Trust;
(1-9) Distribution of Fund Shares;
(1-9) Administration of the Fund(s);
(7,8,9) Administration of the Fund;
(2,3,4,5,6,8,9) Brokerage
Transactions; (1-9) Expenses of the
Fund(s).
Item 6. Capital Stock and Other
Securities....................(2,3,4,5,6,8,9) Dividends and
Distributions; (1,7) Account and Share
Information; (2,3,4,5,6,8,9)
Shareholder Information;
(2,3,4,5,6,8,9) Voting Rights; (1-9)
Tax Information; (1-9) Federal Income
Tax; (5) Additional Tax Information
for Municipal Income Fund;
(2,3,4,5,6,8) Other State and Local
Taxes; (1,7,9) State and Local Taxes;
(1-9) Effect of Banking Laws.
Item 7. Purchase of Securities Being
Offered.......................(1-9) Net Asset Value; (1-9) Investing
in the Fund(s); (1-9) Share Purchases;
(1-9) Minimum Investment Required;
(2,3,4,5,6,8) What Shares Cost;
(2,3,4,5,6,8) Reducing the Sales
Charge; (1-9) Systematic Investment
Program; (2,3,4,5,6,8) Certificates
and Confirmations; (9) Confirmations
and Account Statements; (1-9) Exchange
Privilege; (1-9) Exchanging Shares.
Item 8. Redemption or Repurchase......(1-9) Redeeming Shares; (1-9) Through
the Bank; (1-9) Systematic Withdrawal
Program; (2,3,4,5,6,8,9)
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 (2,3,4,5,6,8,9) General Information
About the Fund(s).
Item 13. Investment Objectives and
Policies (1-9) Investment Objective(s) and
Policies; (1) Treasury Money Market
Fund; (2,3) Limited Term and
Government Income Fund; (4,6) Equity
Fund and Opportunity Fund; (5)
Municipal Income Fund; (7) Prime Money
Market Fund; (8) International Equity
Fund; (1-8) Investment Policies and
Strategies; (1-9) Investment
Limitations.
Item 14. Management of the Fund (1-9) DG Investor Series Management.
Item 15. Control Persons and Principal
Holders of Securities (1-9) Trust Ownership; (1-9)
Trustees' Compensation; (1-9) Trustee
Liability.
Item 16. Investment Advisory and Other
Services (1-9) Investment Advisory Services;
(1-9) Other Services.
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)
Determining Net Asset Value; (1-9)
Exchange Privilege; (1-9) Redeeming
Shares; (1-9) Massachusetts
Partnership Law.
Item 20. Tax Status (1-9) Tax Status.
Item 21. Underwriters Not Applicable.
Item 22. Calculation of Performance
Data (2,3,4,5,6,8,9) Performance
Comparisons; (1,7) Performance
Information; (2,3,4,5,6,8,9) Yield;
(2,3,4,5,6,8,9) Total Return; (5)
Tax-Equivalent Yield.
Item 23. Financial Statements..........(1-8) Incorporated by reference to
the Registrant's Annual Reports dated
February 28, 1998 (File Nos.
33-46431 and 811-6607); (9) To be
filed by amendment.
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,
1998 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 Investor 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, 1998
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
Year 2000 Statement 2
Risk Factors 2
SUMMARY OF FUND EXPENSES 3
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 6
- ------------------------------------------------------
Equity Fund 6
Opportunity Fund 7
International Equity Fund 8
Limited Term Fund 15
Government Income Fund 17
Municipal Income Fund 17
PORTFOLIO INVESTMENTS AND STRATEGIES 20
- ------------------------------------------------------
Put and Call Options 20
Futures Contracts and Options
on Futures 20
Repurchase Agreements 21
When-Issued and Delayed
Delivery Transactions 22
Lending of Portfolio Securities 22
Temporary Investments 22
Investing in Securities of
Other Investment Companies 22
Restricted and Illiquid Securities 22
Fixed Income Securities 23
INVESTMENT LIMITATIONS 23
- ------------------------------------------------------
DG INVESTOR SERIES INFORMATION 23
- ------------------------------------------------------
Management of the Trust 23
Distribution of Fund Shares 26
ADMINISTRATION OF THE FUNDS 27
- ------------------------------------------------------
Brokerage Transactions 27
Expenses of the Funds 27
NET ASSET VALUE 28
- ------------------------------------------------------
INVESTING IN THE FUNDS 28
- ------------------------------------------------------
Share Purchases 28
Minimum Investment Required 28
What Shares Cost 29
Reducing the Sales Charge 30
Systematic Investment Program 31
Certificates and Confirmations 31
Dividends and Distributions 32
EXCHANGE PRIVILEGE 32
- ------------------------------------------------------
Exchanging Shares 32
REDEEMING SHARES 33
- ------------------------------------------------------
Through the Bank 33
Systematic Withdrawal Program 34
Accounts With Low Balances 34
SHAREHOLDER INFORMATION 35
- ------------------------------------------------------
Voting Rights 35
EFFECT OF BANKING LAWS 36
- ------------------------------------------------------
TAX INFORMATION 36
- ------------------------------------------------------
Federal Income Tax 36
Additional Tax Information for
Municipal Income Fund 37
Other State and Local Taxes 37
PERFORMANCE INFORMATION 37
- ------------------------------------------------------
ADDRESSES 39
- ------------------------------------------------------
<PAGE>
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 nine 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 companies in economically developed countries that Lazard
Asset Management ("Lazard" or the "Sub-Adviser") considers inexpensively
priced relative to the return on total capital or equity;
- DG Limited Term Government Income Fund ("Limited Term Fund")--seeks to
provide current income, while maintaining a weighted-average duration
which will at all times be limited to between one and three years;
- 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"). International Equity Fund is sub-advised by Lazard and Opportunity
Fund is sub-advised by Womack Asset Management, Inc. ("Womack" or the
"Sub-Adviser").
<PAGE>
YEAR 2000 STATEMENT
Like other mutual funds and business organizations worldwide, the Funds' service
providers (among them, the Adviser, Sub-Adviser, distributor, administrator and
transfer agent) must ensure that their computer systems are adjusted to properly
process and calculate date-related information from and after January 1, 2000.
Many software programs and, to the lesser extent, the computer hardware in use
today cannot distinguish the year 2000 from the year 1900. Such a design flaw
could have a negative impact in the handling of securities trades, pricing and
accounting services. The Funds and their service providers are actively working
on necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on the Funds' operations.
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 and
Policies of Each Fund" and "Portfolio Investments and Strategies."
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
DG DG DG
DG DG DG LIMITED TERM GOVERNMENT MUNICIPAL
EQUITY INTERNATIONAL OPPORTUNITY GOVERNMENT INCOME INCOME INCOME
FUND EQUITY FUND 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% None 3.50% 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% 0.50% 0.84% 0.44% 0.54% 0.29%
12b-1 Fees(2)..................... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
Total Other Expenses (after
waiver)(3)...................... 0.24% 1.27% 0.36% 0.36% 0.26% 0.47%
Shareholder Services Fees....... 0.15% 0.15% 0.15% 0.15% 0.15% 0.15%
Total Fund Operating
Expenses(4)................. 0.99% 1.77% 1.20% 0.80% 0.80% 0.76%
</TABLE>
(1) The management fees of DG International Equity Fund, DG Opportunity Fund, DG
Limited Term Government Income Fund, DG Government Income Fund, and DG 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 1.00%, 0.95%, 0.60%,
0.60%, and 0.60%.
(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. DG Equity Fund,
DG Opportunity Fund, DG Limited Term Government Income Fund, DG Government
Income Fund, and DG Municipal Income Fund could each pay 0.35% as a 12b-1 fee to
the distributor. DG International Equity Fund could pay 0.25% as a 12b-1 fee to
the distributor.
(3) Other expenses for DG Municipal Income Fund have been reduced to reflect the
voluntary waiver of a portion of the administration fee. The administrator can
terminate this voluntary waiver at any time at its sole discretion. The maximum
Total Other Expenses for DG Municipal Income Fund was 0.54%.
(4) Total Fund Operating Expenses above for the DG International Equity Fund, DG
Opportunity Fund, DG Limited Term Government Income Fund, and DG Government
Income Fund would have been 2.27%, 1.31%, 0.96%, and 0.86%, respectively absent
the voluntary waiver described in note (1) above. Total Fund Operating Expenses
above for DG Municipal Income Fund would have been 1.14% absent the voluntary
waivers described in note (1) and note (3) above.
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.
<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.
DG Equity Fund............................................ $45 $65 $88 $152
DG International Equity Fund.............................. $18 $56 $96 $208
DG Opportunity Fund....................................... $47 $72 $99 $175
DG Limited Term Government Income Fund.................... $28 $45 $64 $117
DG Government Income Fund................................. $28 $45 $64 $117
DG Municipal Income Fund.................................. $28 $44 $61 $112
</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.
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD.
The following table has been audited by KPMG Peat Marwick LLP, the Funds'
independent auditors. Their report dated April 10, 1998 on the Funds' financial
statements and financial highlights is included in the Annual Report dated
February 28, 1998. This table should be read in conjunction with the Funds'
financial statements and notes thereto, which may be obtained from the Funds.
<TABLE>
<CAPTION>
NET REALIZED
AND UNREALIZED DISTRIBUTIONS
NET ASSET NET GAIN/(LOSS) TOTAL TO SHAREHOLDERS DISTRIBUTIONS
VALUE, INVESTMENT ON INVESTMENTS FROM FROM NET TO SHAREHOLDERS
YEAR ENDED BEGINNING INCOME AND FOREIGN INVESTMENT INVESTMENT IN EXCESS OF NET
FEBRUARY 28 OR 29, OF PERIOD (LOSS) CURRENCIES OPERATIONS INCOME INVESTMENT LOSS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
DG 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) --
1995 $10.87 0.16 0.71 0.87 (0.16) --
1996 $11.41 0.16 3.63 3.79 (0.17) --
1997 $14.49 0.14 2.54 2.68 (0.14) --
1998 $16.68 0.11 6.48 6.59 (0.11) --
DG INTERNATIONAL EQUITY FUND
1998(c) $10.00 (0.02)* 0.49 0.47 -- (0.01)
DG OPPORTUNITY FUND
1995(b) $10.00 0.02 1.17 1.19 (0.02) --
1996 $11.15 -- 3.30 3.30 -- --
1997 $12.79 (0.03) 1.60 1.57 -- --
1998 $13.53 (0.05) 4.90 4.85 -- --
DG LIMITED TERM GOVERNMENT INCOME
FUND
1993(a) $10.00 0.36 0.07 0.43 (0.36) --
1994 $10.07 0.52 (0.17) 0.35 (0.52) --
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) --
1998 $ 9.71 0.51 0.07 0.58 (0.51) --
DG 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) --
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) --
1998 $ 9.69 0.55 0.38 0.93 (0.55) --
DG MUNICIPAL INCOME FUND
1993(d) $10.00 0.07 0.49 0.56 (0.05) --
1994 $10.51 0.48 0.08 0.56 (0.49) --
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) --
1998 $10.59 0.47 0.32 0.79 (0.47) --
- ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
DISTRIBUTIONS
TO SHAREHOLDERS
FROM NET
REALIZED GAIN
ON INVESTMENT
TRANSACTIONS
YEAR ENDED AND FOREIGN
FEBRUARY 28 OR 29, CURRENCIES
- -------------------------- ---------------
<S> <C>
DG EQUITY FUND
1993(a) --
1994 (0.05)
1995 (0.17)
1996 (0.54)
1997 (0.35)
1998 (0.15)
DG INTERNATIONAL EQUITY FU
1998(c) --
DG OPPORTUNITY FUND
1995(b) (0.02)
1996 (1.66)
1997 (0.83)
1998 (2.54)
DG LIMITED TERM GOVERNMENT
FUND
1993(a) --
1994 (0.03)
1995 --
1996 --
1997 --
1998 --
DG GOVERNMENT INCOME FUND
1993(a) --
1994 (0.25)
1995 --
1996 --
1997 --
1998 --
DG MUNICIPAL INCOME FUND
1993(d) --
1994 (0.01)
1995 --
1996 --
1997 (0.01)
1998 (0.02)
- --------------------------
</TABLE>
* Per share information presented is based upon the monthly average number of
shares outstanding.
(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 August 15, 1997 (date of initial
public investment) to February 28, 1998.
(d) Reflects operations for the period from December 29, 1992 (date of initial
public investment) to February 28, 1993.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DISTRIBUTIONS
TO SHAREHOLDERS RATIOS TO AVERAGE NET ASSETS
IN EXCESS -----------------------------------------------------
OF NET NET ASSET NET NET ASSETS, PORTFOLIO
REALIZED GAIN TOTAL VALUE, END TOTAL INVESTMENT EXPENSE END OF PERIOD TURNOVER
ON INVESTMENTS DISTRIBUTIONS OF PERIOD RETURN(e) EXPENSES INCOME/(LOSS) WAIVER(g) (000 OMITTED) RATE
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-- (0.10) $10.54 6.40% 0.51%(f) 2.15%(f) 0.53%(f) $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%
-- (0.26) $23.01 39.74% 0.99% 0.54% -- $715,631 6%
-- (0.01) $10.46 4.71% 1.77%(f) (0.48)%(f) 0.50%(f) $ 26,533 21%
-- (0.04) $11.15 11.84% 0.79%(f) 0.06%(f) 1.34%(f) $ 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%
-- (2.54) $15.84 37.81% 1.20% (0.39)% 0.11% $122,872 180%
-- (0.36) $10.07 4.43% 0.50%(f) 6.25%(f) 0.42%(f) $ 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%
-- (0.51) $ 9.78 6.16% 0.80% 5.21% 0.16% $ 59,137 42%
-- (0.37) $10.25 6.40% 0.50%(f) 6.45%(f) 0.41%(f) $111,435 78%
(0.01)(h) (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%
-- (0.55) $10.07 9.90% 0.80% 5.62% 0.06% $270,404 25%
-- (0.05) $10.51 5.65% 0.48%(f) 4.11%(f) 1.02%(f) $ 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%
-- (0.49) $10.89 7.70% 0.76% 4.40% 0.38% $ 48,579 6%
<CAPTION>
DISTRIBUTIONS
TO SHAREHOLDERS
IN EXCESS
OF NET AVERAGE
REALIZED GAIN COMMISSION
ON INVESTMENTS PAID(I)
--------------- ----------
<S> <C>
-- --
-- --
-- $0.0653
-- $0.0761
-- $0.0627
-- $0.0273
-- --
-- $0.0098
-- $0.0568
-- $0.0630
-- --
-- --
-- --
(0.01)(h) --
-- --
-- --
-- --
-- --
-- --
</TABLE>
- --------------------------------------------------------------------------------
(e) Based on net asset value, which does not reflect the sales charge or
contingent deferred sales charge, if applicable.
(f) Computed on an annualized basis.
(g) This voluntary expense decrease is reflected in both the expense and net
investment income ratios shown above.
(h) This distribution does not represent a return of capital for federal tax
purposes.
(i) 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.
<PAGE>
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 Companies.");
- convertible bonds rated at least BBB by Standard & Poor's ("S&P") or
Fitch IBCA, 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
<PAGE>
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-
<PAGE>
Acceptable Investments." (For a description of certain risks associated with
investing in foreign companies, see "International Equity Fund-Risks Associated
with Investing in Foreign Companies.")
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 or Sub-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, 1998 and
February 28, 1997, Opportunity Fund's portfolio turnover rates were 180% and
116%, 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 companies in economically developed countries that Lazard
considers inexpensively priced relative to the return on total capital or
equity.
ACCEPTABLE INVESTMENTS. The International Equity Fund will normally 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 ADRs, Global Depositary
Receipts ("GDRs"), and European Depositary Receipts ("EDRs"). In addition,
International Equity Fund may invest up to 40% of its total assets in equity
securities of companies located in countries having emerging markets.
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
<PAGE>
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 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 & 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 <PAGE>
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 <PAGE>
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.
EMERGING MARKET SECURITIES. International Equity Fund may invest up to 40% of
its total assets in equity securities of 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 have
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. <PAGE>
Furthermore, International Equity Fund may not pursue investment in such
countries if, in the opinion of the Sub-Adviser, any of the following conditions
prevail: 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.
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 among foreign countries. At least three
different countries will always be represented.
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 emerging market 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
<PAGE>
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.
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.
<PAGE>
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.
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-
<PAGE>
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, while
maintaining a weighted-average duration which will at all times be limited to
between one and three 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).
<PAGE>
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 three years, the weighted average maturity of Limited Term Fund's
portfolio could be longer than three 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.
<PAGE>
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.
<PAGE>
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
<PAGE>
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."
<PAGE>
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
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
<PAGE>
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. <PAGE>
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 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 their assets in securities of other investment companies as
an efficient means of carrying out their investment policies. It should be noted
that investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Funds in shares of other investment companies
may be subject to such duplicate expenses.
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
<PAGE>
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
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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.
<PAGE>
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 Asset Management, the Sub-Adviser with respect to
International Equity Fund and Womack Asset Management, Inc., the Sub-Adviser
with respect to Opportunity 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.
On or about May 1, 1998, DGC merged with First American Corporation, another
bank holding company. Under the Investment Company Act of 1940 (the "Act"), this
merger resulted in the assignment and termination of the Funds' investment
advisory contract with ParkSouth and each of the sub-advisory agreements
described below. Pursuant to an exemptive order granted to the Funds by the SEC,
the Funds entered into a new investment advisory contract with ParkSouth and
sub-advisory agreements with each of the Sub-Advisers, without the approval of
shareholders. The new contracts are substantially identical to the old
investment advisory and sub-advisory contracts. The Funds have undertaken to
seek shareholder approval of the new contracts prior to September 30, 1998.
The Adviser manages, in addition to the Funds in the DG Investor Series, $320
million in common trust fund assets as of December 31, 1997. 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.
<PAGE>
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.
LAZARD. With respect to International Equity Fund, under the terms of a
sub-advisory agreement between the Adviser and Lazard, Lazard will make all
determinations with respect to the investment of assets of International Equity
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 International
Equity Fund.
LAZARD FEES. For its services under the sub-advisory agreement, Lazard receives
an annual fee from the Adviser equal to 0.50% of the average daily net assets of
International Equity Fund. The sub-advisory fee is accrued daily and paid
monthly.
LAZARD'S BACKGROUND. Lazard Asset Management is a division of Lazard & 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 $60 billion as of
December 31, 1997. 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.
WOMACK. With respect to Opportunity Fund, under the terms of a Sub-Advisory
Agreement between the Adviser and Womack, Womack 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.
WOMACK FEES. For its services under the Sub-Advisory Agreement, Womack 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 Womack 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'S BACKGROUND. Womack Asset Management, Inc., 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. Mr. Womack, until February 1997, had been Senior Vice President and Trust
Investment Officer of the Bank, 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, <PAGE>
Mr. Womack served as portfolio manager of Opportunity Fund's predecessor, a
common trust fund, formerly managed by the Bank. Mr. Womack was Opportunity
Fund's portfolio manager from 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 the Bank in order to establish and operate the
Sub-Adviser.
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, Inc.
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,
with the exception of International Equity Fund, will not accrue or pay 12b-1
fees until a separate class of shares has been created for certain institutional
investors.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense 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.
<PAGE>
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.
ADMINISTRATIVE 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
- --------------------------------------------------------------------------------
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>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% 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, if applicable, Sub-Adviser 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,
<PAGE>
printing and mailing documents to shareholders such as financial statements,
prospectuses and proxies; taxes and commissions; insurance premiums; association
membership dues; and such non-recurring and extraordinary items as may arise.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The 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, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day,
Thanksgiving Day and Christmas Day.
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
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.
<PAGE>
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.
<PAGE>
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;
- purchases with proceeds from redemptions of unaffiliated investment
companies; or
- concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the previous table,
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 Bank 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
<PAGE>
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.
<PAGE>
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
- --------------------------------------------------------------------------------
All shareholders of the Funds are shareholders of DG Investor Series, which, in
addition to the Funds, is composed of the following portfolios: DG Mid Cap Fund,
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.
EXCHANGING SHARES
Shareholders of any Fund in DG Investor Series may exchange shares for the
shares of any other Fund in DG Investor Series. Prior to any exchange, the
shareholder must receive a copy of the current prospectus of the fund into which
an exchange is to be effected. Shares may be exchanged at net asset value, plus
the difference between the sales charge (if any) already paid and any sales
charge of the Fund into which shares are to be exchanged, if higher.
When an exchange is made from a Fund with a sales charge to a Fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a Fund with a sales charge would be at net asset
value.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange will be redeemed at the next-determined net asset
value. Written exchange instructions may require a signature guarantee. Exercise
of this privilege is treated as a sale for federal income tax
<PAGE>
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
- --------------------------------------------------------------------------------
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.
<PAGE>
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 BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The 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.
<PAGE>
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 1, 1998, Deposit Guaranty National Bank, Jackson, MS, acting in
various capacities for numerous accounts, was the owner of record of
approximately 20,088,725 shares (62.71%) 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 1, 1998, Deposit Guaranty National Bank, Jackson, MS, acting in
various capacities for numerous accounts, was the owner of record of
approximately 6,014,608 shares (74.64%) 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 1, 1998, Deposit Guaranty National Bank, Jackson, MS, acting in
various capacities for numerous accounts, was the owner of record of
approximately 2,499,678 shares (86.58%) 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 1, 1998, Deposit Guaranty National Bank, Jackson, MS, acting in
various capacities for numerous accounts, was the owner of record of
approximately 3,363,751 shares (75.64%) 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 1, 1998, Deposit Guaranty National Bank, Jackson, MS, acting in
various capacities for numerous accounts, was the owner of record of
approximately 18,121,490 shares (64.36%) 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 1, 1998, Deposit Guaranty National Bank, Jackson, MS, acting in
various capacities for numerous accounts, was the owner of record of
approximately 4,632,278 shares (92.72%) 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.
<PAGE>
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.
<PAGE>
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, because 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.
<PAGE>
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, 1998, and since inception (January
1, 1982), on a loaded basis, were 32.99%, 19.87%, 19.76%, and 15.13%,
respectively. The Opportunity Fund's average annual compounded total returns for
the one-, five- and ten-year periods ended February 28, 1998, and since
inception, on a no-load basis, were 37.81%, 20.72%, 20.19%, and 15.39%,
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 past
performance data shown above is not necessarily indicative of the Opportunity
Fund's future performance. The collective trust fund was not registered under
the Act, and therefore was not subject to certain investment restrictions that
are imposed by the Act. If the collective trust fund had been registered under
the Act, the performance may have been adversely affected.
<PAGE>
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Investor Series
DG Equity Fund 5800 Corporate Drive
DG Opportunity Fund Pittsburgh, PA 15237-7010
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
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
- -------------------------------------------------------------------------------------------------------------------
Investment Adviser
ParkSouth Corporation P.O. Box 1200
Jackson, MS 39215-1200
- -------------------------------------------------------------------------------------------------------------------
Sub-Adviser for DG International Equity Fund
Lazard Asset Management 30 Rockefeller Plaza
New York, NY 10020
- -------------------------------------------------------------------------------------------------------------------
Sub-Adviser for DG Opportunity Fund
Womack Asset Management, Inc. 2120 Deposit Guaranty Plaza
Jackson, MS 39201
- -------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 1713
Boston, MA 02105
- -------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
1001 Liberty Avenue
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
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, 1998. 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 Investor Series' Internet site on the World Wide Web at
(www.dgb.com).
DG INVESTOR SERIES
DG EQUITY FUND
DG OPPORTUNITY FUND
DG INTERNATIONAL EQUITY FUND
DG LIMITED TERM GOVERNMENT INCOME FUND
DG GOVERNMENT INCOME FUND
DG MUNICIPAL INCOME FUND
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7010
Statement dated June 30, 1998
[GRAPHIC OMITTED]
Cusip 23321N301 Cusip 23321N400 Cusip 23321N806 Cusip 23321N103 Cusip
23321N509 Cusip 23321N202 G00499-13 (6/98)
<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 2
Warrants 3
Special Considerations Affecting
Emerging Markets 3
Portfolio Turnover 4
LIMITED TERM FUND AND GOVERNMENT INCOME FUND 4
Types of Investments 4
Weighted Average Portfolio Duration 4
Mortgage-Backed and Asset-Backed Securities
Risks 4
MUNICIPAL INCOME FUND 5
Types of Investments 5
Temporary Investments 6
Other Investment Techniques 6
INVESTMENT POLICIES AND STRATEGIES 6
Futures and Options Transactions 6
Repurchase Agreements 8
Reverse Repurchase Agreements 9
When-Issued and Delayed
Delivery Transactions 9
Lending of Portfolio Securities 9
Investing in Securities of Other
Investment Companies 9
Portfolio Turnover 9
INVESTMENT LIMITATIONS 9
DG INVESTOR SERIES MANAGEMENT 14
Trust Ownership 18
Trustees' Compensation 19
Trustee Liability 19
INVESTMENT ADVISORY SERVICES 19
Adviser to the Funds 19
Advisory Fees 20
Sub-Adviser to the International Equity Fund 20
Sub-Advisory Fees 20
BROKERAGE TRANSACTIONS 20
OTHER SERVICES 21
Administration of the Trust 21
Custodian 21
Transfer Agent, Dividend Disbursing
Agent, and Shareholder Servicing Agent 21
Independent Auditors 21
PURCHASING SHARES 21
Distribution and Shareholder Services Plans 21
Conversion to Federal Funds 22
DETERMINING NET ASSET VALUE 22
Determining Market Value of Securities22
Trading in Foreign Securities 23
Valuing Municipal Securities 23
EXCHANGE PRIVILEGE 23
Requirements for Exchange 23
Making an Exchange 23
REDEEMING SHARES 23
Redemption in Kind 23
Massachusetts Partnership Law 24
TAX STATUS 24
The Funds' Tax Status 24
Foreign Taxes 24
Shareholders' Tax Status 24
TOTAL RETURN 24
YIELD 25
TAX-EQUIVALENT YIELD 25
Tax-Equivalency Table 26
PERFORMANCE COMPARISONS 27
Economic and Market Information 28
FINANCIAL STATEMENTS 28
APPENDIX 29
<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 Asset
Management (the "Sub-Adviser") and (with respect to Opportunity Fund) by Womack
Asset Management, Inc. (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.
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 ("BIF") or the
Savings Association Insurance Fund ("SAIF"), both of which are administered by
the Federal Deposit Insurance Corporation ("FDIC").
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 companies in economically developed countries that
the Sub-Adviser considers inexpensively priced relative to the return on total
capital or equity. 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 , Global Depositary
Receipts , and European Depositary Receipts , collectively, "Depositary
Receipts." International Equity 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.
RESTRICTED AND ILLIQUID SECURITIES
International Equity Fund expects that any restricted securities would be
acquired either from institutional investors who originally 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.
<PAGE>
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."
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.
In the absence of willful misfeasance, bad faith or gross negligence on the part
of the Adviser or Sub-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 Sub-Adviser's appraisal of the risks will always be
correct or that such exchange control restrictions or political acts of foreign
governments might not occur.
<PAGE>
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%. For the
period from August 15, 1997 (date of initial public investment) to February 28,
1998, International Equity Fund's portfolio turnover rate was 21%.
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.
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 ("S&P"), or Fitch IBCA, 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 BIF or the SAIF,
both of which are administered by the FDIC.
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.
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 to be creditworthy pursuant to guidelines established by the
Trustees.
<PAGE>
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.
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.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds may invest in the securities of affiliated money market funds as an
efficient means of managing the Funds' uninvested cash.
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, 1998, the portfolio turnover rates
for Equity Fund, Limited Term Fund, Government Income Fund and Municipal Income
Fund were 6%, 42%, 25%, and 6%, respectively. For the fiscal year ended February
29, 1997, the portfolio turnover rate for Equity Fund, Limited Term Fund,
Government Income Fund and Municipal Income Fund were 7%, 28%, 7% and 9%
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.
<PAGE>
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.
<PAGE>
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.
ARBITRAGE TRANSACTIONS
Equity Fund, Opportunity Fund and Municipal Income Fund will not enter
into transactions for the purpose of engaging in arbitrage.
<PAGE>
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
Chief Executive Officer and Director or Trustee of the Funds; Chairman and
Director, Federated Investors, Inc.; Chairman and Trustee, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport Research,
Ltd.; 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
Director or Trustee of the Funds; Director, Member of the Executive Committee,
Children's Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP;
Director, MED 3000 Group, Inc.; Director, Member of Executive Committee,
University of Pittsburgh.
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
Director or Trustee of the Funds; 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.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director or Trustee of the Funds; formerly, Partner, Andersen Worldwide SC.
<PAGE>
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director or Trustee of the Funds; 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, United Refinery;
Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman, Pittsburgh
Civic Light Opera.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director or Trustee of the Funds; Attorney-at-law; Director, The Emerging
Germany Fund, Inc.; formerly, President, Boston Stock Exchange, Inc.; Regional
Administrator, United States Securities and Exchange Commission.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director or Trustee of the Funds; Professor of Medicine, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; formerly, Member, National Board of Trustees, Leukemia Society of
America.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director or Trustee of the Funds; Attorney Of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer and Trustee
Trustee or Director of some of the Funds; President, Executive Vice President
and Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.;
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.
<PAGE>
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director or Trustee of the Funds; formerly, Representative, Commonwealth of
Massachusetts General Court; President, State Street Bank and Trust Company and
State Street Corporation; Director, VISA USA and VISA International; Chairman
and Director, Massachusetts Banker Association; Director, Depository Trust
Corporation.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director or Trustee of the Funds; President, Law Professor, Duquesne University;
Consulting Partner, Mollica & Murray; formerly, Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and Professor of Law, Villanova
University School of Law.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director or Trustee of the Funds; President, World Society for Ekistics, Athens;
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; formerly, Professor, United States
Military Academy; Professor, United States Air Force Academy.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director or Trustee of the Funds; Public relations/Marketing/Conference
Planning; formerly, National Spokesperson, Aluminum Company of America; business
owner.
<PAGE>
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Funds; President and Director,
Federated Investors, Inc. President and Trustee, 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; Director or Trustee of some of
the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of
the Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President and Secretary of the Funds; Treasurer of some of the
Funds; Executive Vice President, Secretary, and Director, Federated Investors,
Inc.; 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.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds; Director or Trustee of some of
the Funds; Executive Vice President, Federated Investors, Inc.; Chairman and
Director, Federated Securities Corp.
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; 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 Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated High
Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
TRUST OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
As of June 1, 1998, the following shareholders of record owned 5% or more of
the outstanding shares of Equity Fund: Deposit Guaranty National Bank, Jackson,
MS, acting in various capacities for numerous accounts was the owner of record
of approximately 20,088,725 shares (62.71%); and Commercial National Bank,
Jackson, MS, acting in various capacities for numerous accounts, was the owner
of record of approximately 6,259,217 shares (19.54%).
As of June 1, 1998, the following shareholders of record owned 5% or more of the
outstanding shares of Opportunity Fund: Deposit Guaranty National Bank, Jackson,
MS, acting in various capacities for numerous accounts was the owner of record
of approximately 6,014,608 shares (74.64%); and Commercial National Bank,
Jackson, MS, acting in various capacities for numerous accounts, was the owner
of record of approximately 593,512 shares (7.36%).
As of June 1, 1998, the following shareholder of record owned 5% or more of the
outstanding shares of International Equity Fund: Deposit Guaranty National Bank,
Jackson, MS, acting in various capacities for numerous accounts, was the owner
of record of approximately 2,499,678 shares (86.58).
As of June 1, 1998, the following shareholders of record owned 5% or more of the
outstanding shares of Limited Term Fund: Deposit Guaranty National Bank,
Jackson, MS, acting in various capacities for numerous accounts was the owner of
record of approximately 3,363,751 shares (75.64%); and Commercial National Bank,
Jackson, MS, acting in various capacities for numerous accounts, was the owner
of record of approximately 742,821 shares (16.70%).
As of June 1, 1998, the following shareholders of record owned 5% or more of the
outstanding shares of Government Income Fund: Deposit Guaranty National Bank,
Jackson, MS, acting in various capacities for numerous accounts was the owner of
record of approximately 18,121,490 shares (64.36%); and Commercial National
Bank, Jackson, MS, acting in various capacities for numerous accounts, was the
owner of record of approximately 6,624,432 shares (23.53%).
As of June 1, 1998, the following shareholders of record owned 5% or more of the
outstanding shares of Municipal Income Fund: Deposit Guaranty National Bank,
Jackson, MS, acting in various capacities for numerous accounts was the owner of
record of approximately 4,632,278 shares (92.72%).
<PAGE>
TRUSTEES' COMPENSATION
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $0
Chairman and Trustee
Thomas G. Bigley, $402.17
Trustee
John T. Conroy, Jr., $442.46
Trustee
Nicholas P. Constantakis++, $140.71
Trustee
William J. Copeland, $442.46
Trustee
James E. Dowd, $442.46
Trustee
Lawrence D. Ellis, M.D., $402.17
Trustee
Edward L. Flaherty, Jr., $442.46
Trustee
Edward C. Gonzales, $0
President, Treasurer and Trustee
Peter E. Madden, $402.17
Trustee
John E. Murray, Jr., $402.17
Trustee
Wesley W. Posvar, $402.17
Trustee
Marjorie P. Smuts, $402.17
Trustee
+The aggregate compensation is provided for the Trust which is currently
comprised of nine portfolios. Information is furnished for the fiscal year ended
February 28, 1998.
++Mr. Constantakis became a member of the Board of Trustees on
February 23, 1998.
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.
<PAGE>
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 years ended February 28, 1998, February 28, 1997, and February
29, 1996, the Adviser earned fees from: Equity Fund of $4,445,559, $3,213,522,
and $2,568,435, respectively, none of which were waived; Limited Term Fund of
$482,331, $527,974, and $572,084, respectively, of which $131,070, $175,992, and
$190,371, respectively, were voluntarily waived; Government Income Fund of
$1,580,350, $1,369,096, and $892,734, respectively, of which $163,534, $228,183,
and $148,789, respectively, were voluntarily waived; and Municipal Income Fund
of $289,417, $279,232, and $262,552, respectively, of which $150,568, $162,886
and $155,258, respectively, were voluntarily waived. For the period from
February 28, 1997 to July 20, 1997, the Adviser earned fees from Opportunity
Fund of $319,968, of which $44,051 were voluntarily waived. For the fiscal years
ended February 28, 1997 and February 29, 1996, the Adviser earned fees from
Opportunity Fund of $684,142 and $441,513, respectively, of which $115,580 and
$162,538, respectively, were voluntarily waived.
SUB-ADVISER TO THE INTERNATIONAL EQUITY FUND AND THE OPPORTUNITY FUND
The International Equity Fund's Sub-Adviser is Lazard Asset Management,
a division of Lazard & Co. LLC.
The Opportunity Fund's Sub-Adviser is Womack Asset Management, Inc.
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 the period from August 15, 1997 (start of business) to February 28,
1998, the Sub-Adviser earned fees from International Equity Fund of $95,011, of
which $47,505 were voluntarily waived.
For the period from July 21, 1997 to February 28, 1998, the Sub-Adviser earned
fees from Opportunity Fund of $170,212, none of which were voluntarily waived.
For its sub-advisory services, Commercial National Bank, the Fund's 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 year 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, 1998, February 28, 1997, and
February 29, 1996, Equity Fund paid $74,672, $75,624, and $158,777,
respectively, in brokerage commissions on brokerage transactions. For the fiscal
years ended February 28, 1998, February 28, 1997, and February 29, 1996,
Opportunity Fund paid $498,832, $315,139 and $161,370, respectively, in
brokerage commissions on brokerage transactions. For the period from August 15,
1997 (start of business) to February 28, 1998, the International Equity Fund
paid $67,394 in brokerage commissions on brokerage transactions. For the fiscal
years ended February 28, 1998, February 28, 1997, and February 29, 1996, 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, Inc.,
provides administrative personnel and services to the Funds for a fee as set
forth in the prospectus. For the fiscal years ended February 28, 1998, February
28, 1997, and February 29, 1996, administrative services fees were incurred on
behalf of Equity Fund of $587,750 , $467,226, and $401,890, respectively, none
of which were voluntarily waived; Limited Term Fund of $100,000, $96,156, and
$112,018, respectively, none of which were voluntarily waived; Government Income
Fund of $261,726, $248,963, and $174,394, respectively, none of which were
voluntarily waived; Municipal Income Fund of $100,000, $100,000, and $100,000,
respectively, of which $34,479, $49,179, and $48,579, respectively, were
voluntarily waived; and Opportunity Fund of $105,468, $100,000, and $100,000,
respectively, none of which were voluntarily waived. For the period from August
15, 1997 (start of business) to February 28, 1998, administrative services fees
of $9,237 were incurred on behalf of International Equity Fund, none of which
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, Inc., 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, 1998, the Funds made no payments
pursuant to the Distribution Plan. For the period from August 15, 1997 (start of
business) to February 28, 1998, International Equity Fund made no payments
pursuant to the Distribution Plan. In addition, for the fiscal year ended
February 28, 1998, the Funds' made payments pursuant to the Shareholder Services
Plan as follows: Equity Fund paid $554,868; Opportunity Fund paid $97,554;
Limited Term Fund paid $68,469; Government Income Fund paid $232,460; and
Municipal Income Fund paid $42,564. For the period from August 15, 1997 (start
of business) to February 28, 1998, International Equity Fund made payments
pursuant to the Shareholder Services Plan of $14,252.
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.
<PAGE>
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 ("SEC") 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.
<PAGE>
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.
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 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 one-year and five-year average annual total returns for the fiscal year
ended February 28, 1998, and for the period from August 3, 1992 (date of initial
public investment) to February 28, 1998 for Equity Fund, Limited Term Fund, and
Government Income Fund were 39.74%, 20.33% and 19.36%, 6.16%, 4.87% and 5.16%,
and 9.90%, 6.02% and 6.55%, respectively. The average annual total returns for
the fiscal year ended February 28, 1998 and for the period from December 21,
1992 (date of initial public investment) to February 28, 1998 for Municipal Fund
were 7.70% and 6.45%, respectively, The average annual total returns for the
fiscal year ended February 28, 1998 and for the period from August 1, 1994 (date
of initial public investment) to February 28, 1998 for Opportunity Fund were
37.81% and 25.74%, respectively.
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.
International Equity Fund's cumulative total return for the period from
August 15, 1997 (date of initial public investment) to February 28, 1998, was
4.71%. Cumulative total return reflects International Equity Fund's total
performance over a specific period of time. International Equity Fund's
cumulative total return is representative of approximately 6 months of
investment activity since International Equity Fund's effective date.
YIELD
The yields for the thirty-day period ended February 28, 1998, for Equity
Fund, Opportunity Fund, Limited Term Fund, Government Income Fund, Municipal
Income Fund, and International Equity Fund were 0.26%, 0.00%, 4.69%, 4.73%,
3.59%, and 0.00%, respectively.
The yield for the Funds is determined by dividing the net investment income per
share (as defined by the SEC) 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 SEC 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, 1998 was 5.20%.
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 1998
MULTISTATE MUNICIPAL FUND
FEDERAL INCOME TAX BRACKET:
15.00% 28.00% 31.00% 36.00% 39.60%
JOINT $1- $42,351- $102,301- $155,951- OVER
RETURN 42,350 102,300 155,950 278,450 $278,450
SINGLE $1- $25,351- $61,401- $128,101- OVER
RETURN 25,350 61,400 128,100 278,450 $278,450
Tax-Exempt
Yield Taxable Yield Equivalent
1.00% 1.18% 1.39% 1.45% 1.56% 1.66%
1.50% 1.76% 2.08% 2.17% 2.34% 2.48%
2.00% 2.35% 2.78% 2.90% 3.13% 3.31%
2.50% 2.94% 3.47% 3.62% 3.91% 4.14%
3.00% 3.53% 4.17% 4.35% 4.69% 4.97%
3.50% 4.12% 4.86% 5.07% 5.47% 5.79%
4.00% 4.71% 5.56% 5.80% 6.25% 6.62%
4.50% 5.29% 6.25% 6.52% 7.03% 7.45%
5.00% 5.88% 6.94% 7.25% 7.81% 8.28%
5.50% 6.47% 7.64% 7.97% 8.59% 9.11%
6.00% 7.06% 8.33% 8.70% 9.38% 9.93%
6.50% 7.65% 9.03% 9.42% 10.16% 10.76%
7.00% 8.24% 9.72% 10.14% 10.94% 11.59%
7.50% 8.82% 10.42% 10.87% 11.72% 12.42%
8.00% 9.41% 11.11% 11.59% 12.50% 13.25%
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. 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.
<PAGE>
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.
<PAGE>
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 $3.5 trillion to the more than 6,000 funds available.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended February 28, 1998, are
incorporated herein by reference to the Annual Report of the Funds dated
February 28, 1998 (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 IBCA, 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+".
<PAGE>
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 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 IBCA, 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.
DG INVESTOR SERIES
MONEY MARKET 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 two 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 Prime Money Market Fund; and
- DG Treasury Money Market Fund (formerly, DG U.S. Government Money Market
Fund).
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 POSSIBLE LOSS OF PRINCIPAL. THE
FUNDS ATTEMPT TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN
BE NO ASSURANCE THAT THE FUNDS WILL BE ABLE TO DO SO.
This prospectus contains the information you should read and know before you
invest in the Funds. Keep this prospectus for future reference.
The Funds have also filed a Statement of Additional Information dated June 30,
1998 with the Securities and Exchange Commission ("SEC"). The information
contained in the Statement of Additional Information is incorporated by
reference into this prospectus. You may request a copy of the Statement of
Additional Information or a paper copy of this prospectus, if you have received
your prospectus electronically, free of charge by calling 1-800-530-7377. To
obtain other information, or make inquiries about the Funds, contact the Trust
at the address listed in the back of this prospectus, or you can visit the DG
Investor 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, 1998
<PAGE>
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SYNOPSIS 1
- ------------------------------------------------------
Year 2000 Statement 1
SUMMARY OF FUND EXPENSES 2
- ------------------------------------------------------
FINANCIAL HIGHLIGHTS 4
- ------------------------------------------------------
OBJECTIVE AND POLICIES OF EACH FUND 6
- ------------------------------------------------------
Prime Money Market Fund 6
Investment Risks 8
Treasury Money Market Fund 9
PORTFOLIO INVESTMENT AND STRATEGIES 9
- ------------------------------------------------------
Repurchase Agreements 9
When-Issued and Delayed
Delivery Transactions 9
Lending of Portfolio Securities 10
Investing in Securities of Other Investment Companies 10
INVESTMENT LIMITATIONS 10
- ------------------------------------------------------
TRUST INFORMATION 11
- ------------------------------------------------------
Management of the Trust 11
Distribution of Fund Shares 11
ADMINISTRATION OF THE FUNDS 13
- ------------------------------------------------------
Expenses of the Funds 13
NET ASSET VALUE 13
- ------------------------------------------------------
INVESTING IN THE FUNDS 14
- ------------------------------------------------------
Share Purchases 14
Minimum Investment Required 14
Systematic Investment Program 14
EXCHANGE PRIVILEGE 14
- ------------------------------------------------------
Exchanging Shares 15
REDEEMING SHARES 15
- ------------------------------------------------------
Through the Bank 15
Systematic Withdrawal Program 16
ACCOUNT AND SHARE INFORMATION 17
- ------------------------------------------------------
EFFECT OF BANKING LAWS 18
- ------------------------------------------------------
TAX INFORMATION 18
- ------------------------------------------------------
Federal Income Tax 18
State and Local Taxes 18
PERFORMANCE INFORMATION 19
- ------------------------------------------------------
ADDRESSES 20
- ------------------------------------------------------
<PAGE>
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 portfolios.
As of the date of this prospectus, the Trust is composed of nine portfolios. The
following two portfolios are offered in this prospectus:
- DG Prime Money Market Fund ("Prime Money Market Fund")--seeks to provide
current income consistent with stability of principal; and
- DG Treasury Money Market Fund ("Treasury Money Market Fund")--seeks to
provide current income consistent with stability of principal and
liquidity by investing only in a portfolio of short-term U.S. government
securities.
For information on how to purchase shares of either 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 $50 with
regard to Prime Money Market Fund, and $100 with regard to Treasury Money Market
Fund.
The Funds attempt to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
YEAR 2000 STATEMENT
Like other mutual funds and business organizations worldwide, the Funds' service
providers (among them, the adviser, distributor, administrator and transfer
agent) must ensure that their computer systems are adjusted to properly process
and calculate date-related information from and after January 1, 2000. Many
software programs and, to a lesser extent, the computer hardware in use today
cannot distinguish the year 2000 from the year 1900. Such a design flaw could
have a negative impact in the handling of securities trades, pricing and
accounting services. The Funds and their service providers are actively working
on necessary changes to computer systems to deal with the year 2000 issue and
believe that systems will be year 2000 compliant when required. Analysis
continues regarding the financial impact of instituting a year 2000 compliant
program on the Funds' operations.
<PAGE>
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
DG TREASURY
MONEY MARKET FUND
(FORMERLY, DG U.S.
DG PRIME MONEY GOVERNMENT
MARKET FUND MONEY MARKET FUND)
-------------- ------------------
<S> <C> <C>
Maximum Sales Charge Imposed on Purchases (as a percentage
of offering price)........................................ None None
Maximum Sales Charge Imposed on Reinvested Dividends (as a
percentage of offering price)............................. None None
Contingent Deferred Sales Charge (as a percentage of
original purchase price or redemption proceeds, as
applicable)............................................... None None
Redemption Fee (as a percentage of amount redeemed, if
applicable)............................................... None None
Exchange Fee................................................ None None
ANNUAL OPERATING EXPENSES
(As a percentage of average net assets)
Management Fee (after waiver)(1)............................ 0.30% 0.30%
12b-1 Fee(2)................................................ 0.25% 0.00%
Total Other Expenses (after waiver)(3)...................... 0.13% 0.27%
Shareholder Services Fee(4)............................... 0.00% 0.15%
Total Fund Operating Expenses(5)........................ 0.68% 0.57%
</TABLE>
(1) The management fees of DG Prime Money Market Fund and DG Treasury Money
Market 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 fee for these Funds is 0.50%.
(2) As of the date of this prospectus DG Treasury Money Market Fund is not
paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until
a separate class of shares has been created for certain institutional investors.
DG Treasury Money Market Fund could pay 0.25% as a 12b-1 fee to the distributor.
(3) Other expenses for DG Prime Money Market Fund have been reduced to reflect
the voluntary waiver of a portion of the administration fee. The administrator
can terminate this voluntary waiver at any time at it sole discretion. The
maximum Total Other Expenses for DG Prime Money Market Fund was 0.19%.
(4) As of the date of this prospectus, DG Prime Money Market Fund is not paying
or accruing a shareholder services fee. If the Fund were paying or accruing the
shareholder services fee, the Fund would be able to pay up to 0.15% of its
average daily net assets for the shareholder services fee.
(5) Total Fund Operating Expenses would have been 0.94% for the DG Prime Money
Market Fund and 0.77% for the DG Treasury Money Market Fund absent the voluntary
waivers described above in note (1) and note (3) above.
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 "TRUST INFORMATION" AND "INVESTING IN THE FUNDS." Wire-transferred
redemptions of less than $5,000 may be subject to additional fees.
<TABLE>
<CAPTION>
EXAMPLE 1 Year 3 Years 5 Years 10 Years
------- -------- --------- --------- ---------
<S> <C> <C> <C> <C>
You would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return, (2) redemption at the end
of each time period, and (3) payment of the maximum sales
charge. The Funds charge no contingent deferred sales
charges.
DG Prime Money Market Fund................................ $ 7 $22 $38 $85
DG Treasury Money Market Fund............................. $ 6 $18 $32 $71
</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.
<PAGE>
NOTES
- --------------------------------------------------------------------------------
<PAGE>
DG INVESTOR SERIES MONEY MARKET FUNDS
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD
The following table has been audited by KPMG Peat Marwick LLP, the Funds'
independent auditors. Their report dated April 10, 1998 on the Funds' financial
statements and financial highlights is included in the Annual Report dated
February 28, 1998. This table should be read in conjunction with the Funds'
financial statements and notes thereto, which may be obtained from the Funds.
<TABLE>
<CAPTION>
NET ASSET DISTRIBUTIONS
VALUE, NET FROM NET
BEGINNING INVESTMENT INVESTMENT
YEAR ENDED FEBRUARY 28 OR 29, OF PERIOD INCOME INCOME
----------------------------- --------- ------ ------
<S> <C> <C> <C>
DG PRIME MONEY MARKET FUND
1998(a)............................................... $1.00 0.05 (0.05)
DG TREASURY MONEY MARKET FUND
(FORMERLY, DG U.S. GOVERNMENT
MONEY MARKET FUND)
1993(b)............................................... $1.00 0.02 (0.02)
1994.................................................. $1.00 0.03 (0.03)
1995.................................................. $1.00 0.04 (0.04)
1996.................................................. $1.00 0.05 (0.05)
1997.................................................. $1.00 0.05 (0.05)
1998.................................................. $1.00 0.05 (0.05)
</TABLE>
(a) For the period from March 10, 1997 (date of initial public investment), to
February 28, 1998.
(b) Reflects operations for the period from July 1, 1992 (date of initial public
investment) to February 28, 1993. For the period from March 31, 1992 (start
of business) to June 30, 1992, all income was distributed to the
administrator.
(c) Based on net asset value, which does not reflect the sales load or
contingent deferred sales charge, if applicable.
(d) Computed on an annualized basis.
(e) This voluntary expense decrease is reflected in both the expense and net
investment income ratios.
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RETURN TO AVERAGE NET ASSETS
--------------------------------- NET ASSETS,
NET ASSET NET END OF
VALUE, END TOTAL INVESTMENT EXPENSE PERIOD
OF PERIOD RETURN(C) EXPENSES INCOME WAIVER(E) (000 OMITTED)
- --------- --------- -------- ------ --------- -------------
<S> <C> <C> <C> <C> <C>
$1.00 4.93% 0.68%(d) 4.98%(d) 0.26%(d) $195,041
$1.00 1.97% 0.41%(d) 2.88%(d) 0.38%(d) $189,024
$1.00 2.74% 0.54% 2.70% 0.20% $189,315
$1.00 4.06% 0.53% 3.96% 0.20% $162,515
$1.00 5.48% 0.51% 5.33% 0.20% $245,647
$1.00 4.83% 0.50% 4.74% 0.20% $273,453
$1.00 4.90% 0.57% 4.81% 0.20% $349,051
</TABLE>
<PAGE>
OBJECTIVE AND POLICIES OF EACH FUND
- --------------------------------------------------------------------------------
PRIME MONEY MARKET FUND
The investment objective of Prime Money Market Fund is current income consistent
with stability of principal. This investment objective cannot be changed without
shareholder approval. While there is no assurance that Prime Money Market Fund
will achieve its investment objective, it endeavors to do so by complying with
the diversification and other requirements of Rule 2a-7 under the Investment
Company Act of 1940 which regulates money market mutual funds and by following
the investment policies described in this prospectus.
Prime Money Market Fund pursues its investment objective by investing in a
portfolio of money market securities maturing in 13 months or less. The average
maturity of the securities in Prime Money Market Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies 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.
ACCEPTABLE INVESTMENTS. Prime Money Market Fund invests in high quality money
market instruments that are either rated in the highest short-term rating
category by one or more nationally recognized statistical rating organizations
("NRSROs") or are of comparable quality to securities having such ratings.
Examples of these instruments include, but are not limited to:
- domestic issues of corporate debt obligations, including variable rate
demand notes;
- commercial paper (including Canadian Commercial Paper and Europaper);
- certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other deposit
institutions ("Bank Instruments");
- short-term credit facilities;
- asset-backed securities;
- obligations issued or guaranteed as to payment of principal and interest
by the U.S. government or one of its agencies or instrumentalities; and
- other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are long-term debt
instruments that have variable or floating interest rates and provide Prime
Money Market Fund with the right to tender the security for repurchase at
its stated principal amount plus accrued interest. Such securities
typically bear interest at a rate that is intended to cause the securities
to trade at par. The interest rate may float or be adjusted at regular
intervals (ranging from daily to annually), and is normally based on a
published interest rate or interest rate index. Most variable rate demand
notes allow Prime Money Market Fund to demand the repurchase of the
security on not more than seven days prior notice. Other notes only permit
Prime Money Market Fund to tender the security at the time of each interest
rate adjustment or at other fixed intervals. See "Demand Features." Prime
Money Market Fund treats variable rate demand notes as maturing on the
later of the date
<PAGE>
of the next interest rate adjustment or the date on which the Fund may next
tender the security for repurchase.
BANK INSTRUMENTS. Prime Money Market Fund only invests in Bank Instruments
either issued by an institution having capital, surplus and undivided
profits over $100 million, or insured by the Bank Insurance Fund ("BIF") or
the Savings Association Insurance Fund ("SAIF"). Bank Instruments may
include Eurodollar Certificates of Deposit ("ECDs"), Yankee Certificates of
Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs"). Prime Money
Market Fund will treat securities credit-enhanced with a bank's letter of
credit as Bank Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued by
special purpose entities whose primary assets consist of a pool of loans or
accounts receivable. The securities may take the form of beneficial
interests in special purpose trusts, limited partnership interests, or
commercial paper or other debt securities issued by a special purpose
corporation. Although the securities often have some form of credit or
liquidity enhancement, payments on the securities depend predominantly upon
collections of the loans and receivables held by the issuer.
SHORT-TERM CREDIT FACILITIES. Prime Money Market Fund may enter into, or
acquire participations in, short-term borrowing arrangements with
corporations, consisting of either a short-term revolving credit facility
or a master note agreement payable upon demand. Under these arrangements,
the borrower may reborrow funds during the term of the facility. Prime
Money Market Fund treats any commitments to provide such advances as a
standby commitment to purchase the borrower's notes.
CREDIT ENHANCEMENT. Certain of Prime Money Market Fund's acceptable investments
may be credit-enhanced by a guaranty, letter of credit, or insurance. Any
bankruptcy, receivership, default, or change in the credit quality of the party
providing the credit enhancement will adversely affect the quality and
marketability of the underlying security and could cause losses to Prime Money
Market Fund and affect its share price.
DEMAND FEATURES. Prime Money Market 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 Prime Money Market 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. Prime Money Market Fund uses these arrangements to
provide Prime Money Market 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.
Demand features that are exercisable even after a payment default on the
underlying security may be treated as a form of credit enhancement.
RESTRICTED AND ILLIQUID SECURITIES. Prime Money Market Fund may invest in
restricted securities. Restricted securities are any securities in which Prime
Money Market Fund may invest pursuant to its investment objective and policies
but which are subject to restrictions on resale under federal securities law.
Under criteria established by the Trustees, certain restricted securities are
determined to be liquid. To the extent that restricted securities are not
determined to be liquid, Prime Money Market Fund will
<PAGE>
limit their purchase, together with other illiquid securities including
non-negotiable time deposits, and repurchase agreements providing for settlement
in more than seven days after notice, to 10% of its net assets.
Prime Money Market Fund may invest in commercial paper issued in reliance on the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. Section 4(2) commercial paper is restricted as to disposition under
federal securities law, and is generally sold to institutional investors, such
as Prime Money Market Fund, who agree that they are purchasing the paper for
investment purposes and not with a view to public distribution. Any resale by
the purchaser must be in an exempt transaction. Section 4(2) commercial paper is
normally resold to other institutional investors like Prime Money Market Fund
through or with the assistance of the issuer or investment dealers who make a
market in Section 4(2) commercial paper, thus providing liquidity. Prime Money
Market Fund believes that Section 4(2) commercial paper and possibly certain
other restricted securities which meet the criteria for liquidity established by
the Trustees of Prime Money Market Fund are quite liquid. Prime Money Market
Fund intends, therefore, to treat the restricted securities which meet the
criteria for liquidity established by the Trustees, including Section 4(2)
commercial paper, as determined by Prime Money Market Fund's adviser, as liquid
and not subject to the investment limitation applicable to illiquid securities.
CONCENTRATION OF INVESTMENTS. As a matter of policy which cannot be changed
without shareholder approval, Prime Money Market Fund may invest 25% or more of
its total assets in commercial paper issued by finance companies. The finance
companies in which Prime Money Market Fund intends to invest can be divided into
two categories, commercial finance companies and consumer finance companies.
Commercial finance companies are principally engaged in lending to corporations
or other businesses. Consumer finance companies are primarily engaged in lending
to individuals. Captive finance companies or finance subsidiaries which exist to
facilitate the marketing and financial activities of their parent will, for
purposes of industry concentration, be classified in the industry of their
parent's corporation. In addition, Prime Money Market Fund may invest 25% or
more of the value of its total assets in instruments 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. Concentrating
investments in one industry may subject Prime Money Market Fund to more risk
than if it did not concentrate.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, Canadian Commercial Paper, and Europaper are subject to
different risks than domestic obligations of domestic banks or corporations.
Examples of these risks include international economic and political
developments, foreign governmental restrictions that may adversely affect the
payment of principal or interest, foreign withholding or other taxes on interest
income, difficulties in obtaining or enforcing a judgment against the issuing
entity, and the possible impact of interruptions in the flow of international
currency transactions. Risks may also exist for ECDs, ETDs, and Yankee CDs
because the banks issuing these instruments, or their domestic or foreign
branches, are not necessarily subject to the same regulatory requirements that
apply to domestic banks, such as reserve requirements, loan limitations,
examinations, accounting, auditing, recordkeeping, and the public availability
of information. These factors will be carefully considered by Prime Money Market
Fund's adviser in selecting investments for the Fund.
<PAGE>
CERTAIN OTHER PORTFOLIO STRATEGIES. Prime Money Market Fund may also invest or
engage in repurchase agreements, lending of portfolio securities and when-issued
and delayed delivery transactions. See "Portfolio Investments and Strategies."
TREASURY MONEY MARKET FUND
The investment objective of Treasury Money Market Fund is current income
consistent with stability of principal and liquidity. This investment objective
cannot be changed without shareholder approval. While there is no assurance that
Treasury Money Market Fund will achieve its investment objective, it endeavors
to do so by complying with the diversification and other requirements of Rule
2a-7 under the Investment Company Act of 1940 (the "Act") which regulates money
market mutual funds and by following the investment policies described in this
prospectus.
Treasury Money Market Fund pursues its investment objective by investing only in
a portfolio of short-term U.S. Treasury securities. The average maturity of U.S.
Treasury securities in its portfolio, computed on a dollar-weighted basis, will
be 90 days or less, and the Treasury Money Market Fund will invest only in
securities with remaining maturities of 13 months or less at the time of
purchase. Unless indicated otherwise, the investment policies may be changed by
the Trustees without shareholder approval. Shareholders will be notified before
any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. Treasury Money Market Fund invests only in short-term
U.S. Treasury securities which are issued by the U.S. government and are fully
guaranteed as to principal and interest by the United States.
CERTAIN OTHER PORTFOLIO STRATEGIES. Treasury Money Market Fund may also invest
or engage in repurchase agreements, lending of portfolio securities and
when-issued and delayed delivery transactions. See "Portfolio Investments and
Strategies."
PORTFOLIO INVESTMENTS AND STRATEGIES
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS
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 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. Accordingly, the Funds may pay more
or less than the market value of the securities on the settlement date.
<PAGE>
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
has determined are creditworthy under guidelines established by the Trustees,
and will receive collateral at all times equal to at least 100% of the value of
the securities loaned.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds may invest their assets in securities of other investment companies as
an efficient means of carrying out their investment policies. It should be noted
that investment companies incur certain expenses, such as management fees, and,
therefore, any investment by the Funds in shares of other investment companies
may be subject to such duplicate expenses.
INVESTMENT LIMITATIONS
- --------------------------------------------------------------------------------
The Funds 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 the following certain
circumstances: Treasury Money Market Fund may borrow money and engage in
reverse repurchase agreements in amounts up to one-third of the value of
its total assets and pledge up to 15% of the value of its total assets to
secure such borrowings; and Prime Money Market Fund may borrow up to
one-third of the value of its total assets and pledge assets to secure
such borrowings.
The above limitation cannot be changed without shareholder approval. The
following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
Treasury Money Market Fund will not:
- invest more than 10% of its respective net assets in illiquid securities,
including repurchase agreements providing for settlement more than seven
days after notice and certain restricted securities not determined by the
Trustees to be liquid.
<PAGE>
TRUST INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are
responsible for managing the Funds' business affairs and for exercising all the
Trust's powers except those reserved for the shareholders. An Executive
Committee of the Board of Trustees handles the Board's responsibilities between
meetings of the Board.
INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust,
investment decisions for the Funds are made by ParkSouth Corporation, (the
"Adviser"), subject to direction by the Trustees. The Adviser continually
conducts investment research and supervision for the Funds and is responsible
for the purchase and sale of portfolio instruments.
ADVISORY FEES. The Adviser receives an annual investment advisory fee equal to
0.50% of the Funds' average daily net assets. 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 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.
On or about May 1, 1998, DGC merged with First American Corporation, another
bank holding company. Under the Act, this merger resulted in the assignment and
termination of the Funds' investment advisory contract with ParkSouth. Pursuant
to an exemptive order granted to the Funds by the SEC, the Funds entered into a
new investment advisory contract with ParkSouth without the approval of
shareholders. The new contract is substantially identical to the old investment
advisory contract. The Funds have undertaken to seek shareholder approval of the
new contract prior to September 30, 1998.
ParkSouth manages, in addition to the Funds in the DG Investor Series, $320
million in common trust fund assets as of December 31, 1997. ParkSouth (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.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. is the principal distributor for 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, Inc.
<PAGE>
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 0.25% 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. Treasury Money Market Fund will not accrue or pay 12b-1
fees until a separate class of shares has been created for certain institutional
investors.
The distributor may from time to time and for such periods as it deems
appropriate, voluntarily reduce its compensation under the Plan to the extent
the expenses attributable to the shares exceed such lower expense 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 and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the administrative capacities described
above or should Congress relax current restrictions on depository institutions,
the Trustees will consider appropriate changes in the services.
ADMINISTRATIVE 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.
<PAGE>
ADMINISTRATION OF THE FUNDS
- --------------------------------------------------------------------------------
ADMINISTRATIVE SERVICES. Federated Administrative Services, a subsidiary of
Federated Investors, provides administrative personnel and services (including
certain legal and financial reporting 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
ADMINISTRATIVE FEE DAILY NET ASSETS OF THE TRUST
- ------------------ -----------------------------------
<S> <C>
0.15% on the first $250 million
0.125% on the next $250 million
0.10% on the next $250 million
0.075% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$100,000 per portfolio. Federated Administrative Services may choose voluntarily
to waive a portion of its fee at any time.
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 Fund and its shares; Trustees
fees; meetings of Trustees and shareholders and proxy solicitations therefor;
auditing, accounting, and legal services; investment advisory and administrative
services; custodians, transfer agents, dividend disbursing agents, shareholder
servicing agents, and registrars; issuing, purchasing, repurchasing, and
redeeming shares; reports to government agencies; preparing, printing and
mailing documents to shareholders such as financial statements, prospectuses and
proxies; taxes and commissions; insurance premiums; association membership dues;
and such non-recurring and extraordinary items as may arise.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Funds attempt to stabilize the net asset value of shares at $1.00 by valuing
their portfolio securities using the amortized cost method. The net asset value
per share is determined by subtracting total liabilities from total assets and
dividing the remainder by the number of shares outstanding. The Funds cannot
guarantee that its net asset value will always remain at $1.00 per share.
The net asset value is determined at 12:00 noon, 3:00 p.m. (Eastern time), and
as of the close of trading (normally 4:00 p.m., Eastern time) on the New York
Stock Exchange, Monday through Friday, except on New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
<PAGE>
INVESTING IN THE FUNDS
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Fund shares may be ordered by
telephone through procedures established with the Bank in connection with
qualified account relationships. Such procedures may include arrangements under
which certain accounts are swept periodically and amounts exceeding an agreed
upon minimum are invested automatically in Fund shares. The Fund reserves the
right to reject any purchase request.
THROUGH THE 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 Banks.
Purchase orders must be received by 11:00 a.m. (Eastern time). Payment is
required before 3:00 p.m. (Eastern time) on the same business day in order to
earn dividends for that day.
CASH SWEEP PROGRAM. Shareholders of the Funds can have cash accumulations in
demand deposit accounts with subsidiaries or affiliates of the Bank
automatically invested in Prime Money Market Fund or Treasury Money Market Fund
on a day selected by the institution and its customer or when the demand deposit
account reaches a predetermined dollar amount. Participating financial
institutions are responsible for prompt transmission of orders relating to the
program, and they may charge for their services. Investors should read this
prospectus along with the financial institution's agreement or literature
describing these services and fees.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Funds is $1,000. Subsequent investments
may be in amounts of $50 or more with regard to the Prime Money Market Fund, and
$100 or more with regard to the Treasury Money Market Fund. The Funds may waive
the initial minimum investment for employees of Deposit Guaranty Corp. and its
affiliates from time to time.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $50. 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.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
All shareholders of the Funds are shareholders of DG Investor Series, which, in
addition to the Funds, is composed of the following seven portfolios: DG Equity
Fund, DG Opportunity Fund, DG Interna-
<PAGE>
tional Equity Fund, DG Mid Cap Fund, DG Limited Term Government Income Fund, DG
Government Income Fund, and DG Municipal Income Fund.
Shareholders in any of the Funds have easy access to all of the other Funds.
EXCHANGING SHARES
Shareholders of any Fund in DG Investor Series may exchange shares for the
shares of any other Fund in DG Investor Series. Prior to any exchange, the
shareholder must receive a copy of the current prospectus of the Fund into which
an exchange is to be effected. Shares may be exchanged at net asset value, plus
the difference between the sales charge (if any) already paid and any sales
charge of the Fund into which shares are to be exchanged, if higher.
When an exchange is made from a Fund with a sales charge to a Fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends on such shares retain the character of the exchanged
shares for purposes of exercising further exchange privileges; thus, an exchange
of such shares for shares of a Fund with a sales charge would be at net asset
value.
Upon receipt of proper instructions and all necessary supporting documents,
shares submitted for exchange will be redeemed at the next-determined net asset
value. Written exchange instructions may require a signature guarantee. Exercise
of this privilege is treated as a sale for federal income tax purposes and,
depending on the circumstances, a short or long-term capital gain or loss may be
realized. The exchange privilege may be terminated at any time. Shareholders
will be notified of the termination of the exchange privilege. A shareholder may
obtain further information on the exchange privilege by calling the Bank.
Telephone exchange instructions may be recorded. If reasonable procedures are
not followed by the Funds, they may be liable for losses due to unauthorized or
fraudulent telephone instructions.
REDEEMING SHARES
- --------------------------------------------------------------------------------
Shares are redeemed at their net asset value next determined after the Bank
receives the redemption request. Redemptions will be made on days on which the
Funds computes 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 11:00 a.m. (Eastern time), proceeds will normally be
wired the same day to the shareholder's account at the Bank or a check will be
sent to the address of record. Those shares will not be entitled to the dividend
declared on the day the redemption request was received.
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
<PAGE>
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 should be sent unendorsed with the written request by registered or
certified mail. Shareholders should call the Bank for assistance in redeeming by
mail.
SIGNATURES. Shareholders requesting a redemption of any amount to be sent to an
address other than on record with the 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 BIF,
which is administered by the Federal Deposit Insurance Corporation
("FDIC");
- a member of the New York, American, Boston, Midwest, or Pacific Stock
Exchange;
- a savings bank or savings association whose deposits are insured by the
SAIF, which is administered by the FDIC; or
- any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The 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 Fund. For this
<PAGE>
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. To be eligible to participate in
this program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through the Bank.
ACCOUNT AND SHARE INFORMATION
- --------------------------------------------------------------------------------
DIVIDENDS. Dividends are declared daily and paid monthly. Dividends are
automatically reinvested on payment dates in additional shares of the Funds
unless cash payments are requested by writing to the Funds or the Bank as
appropriate. Purchase orders must be received by the Bank before 11:00 a.m.
(Eastern time). Payment is required before 3:00 p.m. (Eastern time) on the same
business day in order to earn dividends for that day.
CAPITAL GAINS. The Funds do not expect to realize any capital gains or losses.
If capital gains or losses were to occur, they could result in an increase or
decrease in dividends. The Funds will distribute in cash or additional shares
any realized net long-term capital gains at least once every 12 months.
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. Monthly confirmations are sent to report all
transactions as well as dividends paid during the month.
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.
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.
VOTING RIGHTS. Each share of each Fund gives that shareholder one vote in
Trustee elections and other matters submitted to shareholders for vote. All
shares of each portfolio in the Trust have equal voting rights, except that in
matters affecting only a particular portfolio, only shareholders of that
portfolio are entitled to vote. The Trust is not required to hold annual
shareholder meetings. Shareholder approval will be sought only for certain
changes in the Trust's or the Funds' operation and for election of Trustees
under certain circumstances.
Trustees may be removed by the Trustees or by shareholders at a special meeting.
A special meeting shall be called by the Trustees upon the written request of
shareholders owning at least 10% of the outstanding shares of the Trust entitled
to vote.
As of June 1, 1998, National Financial Services Corp., New York, NY, for the
exclusive benefit of its customers, was the owner of record of approximately
213,481,023 shares (99.59%) of Prime Money Market 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 1, 1998, Deposit Guaranty National Bank, Jackson, MS, acting in
various capacities for numerous accounts, was the owner of record of
approximately 197,002,462 shares (65.04%) of Treasury
<PAGE>
Money Market 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
Each Fund will pay no federal income tax because it expects to meet requirements
of Subchapter M of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
Each Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios 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
and distributions are received in cash or as additional shares. The Funds will
provide detailed tax information for reporting purposes.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
<PAGE>
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time, the Funds advertise their yield, effective yield and total
return.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and sales literature may also refer to total return. Total return
represents the change, over a specified period of time, in the value of an
investment in the shares after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, advertisements for the Funds may refer to ratings, rankings,
and other information in certain financial publications and/or compare the
Funds' performance to certain indices.
<PAGE>
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DG Investor Series
DG Prime Money Market Fund 5800 Corporate Drive
DG Treasury Money Market Fund Pittsburgh, PA 15237-7010
(formerly, DG U.S. Government
Money Market Fund)
- -------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
- -------------------------------------------------------------------------------------------------------------------
Investment Adviser
ParkSouth Corporation P.O. Box 1200
Jackson, MS 39215-1200
- -------------------------------------------------------------------------------------------------------------------
Custodian
State Street Bank and Trust Company P.O. Box 1713
Boston, MA 02266-8600
- -------------------------------------------------------------------------------------------------------------------
Transfer Agent and Dividend Disbursing Agent
Federated Shareholder Services Company Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
- -------------------------------------------------------------------------------------------------------------------
Independent 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
MONEY MARKET FUNDS
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information relates to the following two
portfolios (individually or collectively referred to as the "Fund" or
"Funds" as the context requires) of DG Investor Series (the "Trust"):
DG Prime Money Market Fund ("Prime Money Market Fund"); and
DG Treasury Money Market Fund ("Treasury Money Market Fund")
(formerly, DG U.S. Government Money Market Fund).
This Statement of Additional Information should be read with the prospectus
of the Funds dated June 30, 1998. 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 Investor Series' Internet site on
the World Wide Web at (www.dgb.com).
DG INVESTOR SERIES
DG PRIME MONEY MARKET FUND
DG TREASURY MONEY MARKET FUND
5800 CORPORATE DRIVE
PITTSBURGH, PENNSYLVANIA 15237-7010
Statement dated June 30, 1998
[GRAPHIC OMITTED]
Cusip 23321N707
Cusip 23321N608
G00499-12 (6/98)
<PAGE>
TABLE OF CONTENTS
I
INVESTMENT OBJECTIVES AND POLICIES 1
PRIME MONEY MARKET FUND 1
Acceptable Investments 1
U.S. Government Securities 1
Bank Instruments 1
Ratings 1
TREASURY MONEY MARKET FUND 1
Types of Investments 1
INVESTMENT POLICIES AND STRATEGIES 2
Repurchase Agreements 2
Reverse Repurchase Agreements 2
Credit Enhancement 2
When-Issued and Delayed
Delivery Transactions 2
Investing in Securities of Other
Investment Companies 3
Lending of Portfolio Securities 3
INVESTMENT LIMITATIONS 3
Regulatory Compliance 4
DG INVESTOR SERIES MANAGEMENT 5
Trust Ownership 9
Trustees' Compensation 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
Investment Adviser 10
Advisory Fees 11
BROKERAGE TRANSACTIONS 11
OTHER SERVICES 11
Fund Administration 11
Custodian 11
Transfer Agent, Dividend Disbursing
Agent, and Shareholder Servicing Agent 11
Independent Auditors 12
PURCHASING SHARES 12
Distribution and Shareholder Services Plans 12
Conversion to Federal Funds 12
DETERMINING NET ASSET VALUE 12
EXCHANGE PRIVILEGE 13
Requirements for Exchange 13
Making an Exchange 13
REDEEMING SHARES 13
Redemption in Kind 13
MASSACHUSETTS PARTNERSHIP LAW 13
TAX STATUS 13
The Funds' Tax Status 13
Shareholders' Tax Status 14
PERFORMANCE INFORMATION 14
Yield 14
Effective Yield 14
Total Return 14
Performance Comparisons 14
Economic and Market Information 15
FINANCIAL STATEMENTS 15
<PAGE>
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
indicated otherwise, the 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. On
August 20, 1997, the Trustees of DG Investor Series approved changing the name
of the fund from DG U.S. Government Money Market Fund to DG Treasury Money
Market Fund. This change became effective October 1, 1997. PRIME MONEY MARKET
FUND
ACCEPTABLE INVESTMENTS
When determining whether a security presents minimal credit risks, the
investment adviser will consider the creditworthiness of: the issuer of the
security; the issuer of any demand feature applicable to the security; or any
guarantor of either the security or any demand feature.
U.S. GOVERNMENT SECURITIES
The types of U.S. government securities in which the Prime Money Market
Fund may invest generally include direct obligations of the U.S. Treasury (such
as U.S. Treasury bills, notes, and bonds) and obligations issued or guaranteed
by U.S. government agencies or instrumentalities. These securities are backed
by:
o the full faith and credit of the U.S. Treasury;
o the issuer's right to borrow from the U.S. Treasury;
o the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
o the credit of the agency or instrumentality issuing the obligations.
BANK INSTRUMENTS
The instruments of banks and savings associations whose deposits are insured
by the Bank Insurance Fund or the Savings Association Insurance Fund, such as
certificates of deposit, demand and time deposits, savings shares, and bankers'
acceptances, are not necessarily guaranteed by those organizations. In addition
to domestic bank instruments, the Prime Money Market Fund may invest in:
Eurodollar Certificates of Deposit issued by foreign branches of U.S. or foreign
banks; Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in
foreign branches of U.S. or foreign banks; Canadian Time Deposits, which are
U.S. dollar-denominated deposits issued by branches of major Canadian banks
located in the United States; and Yankee Certificates of Deposit, which are U.S.
dollar-denominated certificates of deposit issued by U.S. branches of foreign
banks and held in the United States.
RATINGS
An NRSRO's highest rating category is determined without regard for
sub-categories and gradations. For example, securities rated A-1 or A-1+ by
Standard & Poor's ("S&P"), Prime-1 by Moody's Investors Service, Inc.
("Moody's"), or F-1 (+ or -) by Fitch IBCA, Inc. ("Fitch") are all considered
rated in the highest short-term rating category. The Prime Money Market Fund
will follow applicable regulations in determining whether a security rated by
more than one NRSRO can be treated as being in the highest short-term rating
category; currently, such securities must be rated by two NRSROs in their
highest rating category. See "Regulatory Compliance."
TREASURY MONEY MARKET FUND
TYPES OF INVESTMENTS
Treasury Money Market Fund invests only in short-term U.S. Treasury securities
which are issued by the U.S. government and are fully guaranteed as to principal
and interest by the United States.
<PAGE>
VARIABLE RATE U.S. TREASURY SECURITIES
Some of the short-term U.S. Treasury securities Treasury Money Market
Fund may purchase have variable interest rates. These securities have a
rate of interest subject to adjustment at least annually. This adjusted
interest rate is ordinarily tied to some objective standard, such as
the 91-day U.S. Treasury bill rate.
Variable interest rates will reduce the changes in the market value of
such securities from their original purchase prices. Accordingly, the
potential for capital appreciation or capital depreciation should not
be greater than the potential for capital appreciation or capital
depreciation of fixed interest rate U.S. Treasury securities having
maturities equal to the interest rate adjustment dates of the variable
rate U.S. Treasury securities.
Treasury Money Market Fund may purchase variable rate U.S. Treasury securities
upon the determination by the Fund that the interest rate as adjusted will cause
the instrument to have a current market value that approximates its par value on
the adjustment date.
INVESTMENT POLICIES AND STRATEGIES
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 Funds'
adviser 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.
CREDIT ENHANCEMENT
The Prime Money Market Fund typically evaluates the credit quality and ratings
of credit-enhanced securities based upon the financial condition and ratings of
the party providing the credit enhancement (the "credit enhancer"), rather than
the issuer. Generally, the Fund will not treat credit-enhanced securities as
being issued by the credit enhancer for diversification purposes. However, under
certain circumstances applicable regulations may require the Fund to treat
securities as having been issued by both the issuer and the credit enhancer.
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. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the 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.
The Treasury Money Market Fund does not anticipate investing more than 5%
of its respective total assets in when-issued and delayed delivery transactions.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Funds may invest in the securities of affiliated money market funds as an
efficient means of managing the Funds' uninvested cash.
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.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Funds will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Funds will not issue senior securities except that the Funds may
borrow money directly or through reverse repurchase agreements in amounts
up to one-third of the value of their total assets, including the amounts
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 portfolio 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 the value
of its total assets are outstanding.
PLEDGING ASSETS
The Funds will not mortgage, pledge, or hypothecate any assets except as
necessary to secure permitted borrowings.
LENDING CASH OR SECURITIES
The Funds will not lend any assets, except portfolio securities and except
that the Funds 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 permitted by
their investment objective, policies, and limitations or the Trust's
Declaration of Trust.
INVESTING IN COMMODITIES
The Funds will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
Treasury Money Market Fund will not purchase or sell real estate,
including limited partnership interests in real estate, although it may
invest in securities secured by real estate or interests in real estate.
UNDERWRITING
The Funds will not underwrite any issue of securities, 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 objective, policies, and limitations.
<PAGE>
CONCENTRATION OF INVESTMENTS
Prime Money Market Fund will not invest 25% or more of the value of its
total assets in any one industry except that the Fund will invest 25% or
more of the value of its total assets in commercial paper issued by
finance companies. The Fund may invest 25% or more of the value of its
total assets in cash, cash items, or securities issued or guaranteed by
the government of the United States or its agencies, or instrumentalities
and repurchase agreements collateralized by such U.S. government
securities. The U.S. government is not considered to be an industry.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Prime Money Market Fund will not purchase securities of any
one issuer (other than cash, cash items, or securities issued or
guaranteed by the government of the United States or its agencies or
instrumentalities and repurchase agreements collateralized by such U.S.
government securities) if as a result more than 5% of the value of its
total assets would be invested in the securities of that issuer, or if it
would own more than 10% of the outstanding voting securities of that
issuer.
The above limitations cannot be changed without shareholder approval. The
following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in these limitations becomes effective.
INVESTING IN ILLIQUID SECURITIES
The Funds will not invest more than 10% of the value of their net assets
in illiquid securities, including securities not determined by the Trustee
to be liquid and repurchase agreements providing for settlement in more
than seven days after notice, and with respect to the Prime Money Market
Fund, non-negotiable time deposits.
INVESTING FOR CONTROL
Prime Money Market Fund will not invest in securities of a company for the
purpose of exercising control or management.
INVESTING IN OPTIONS
The Funds will not invest in puts, calls, straddles, spreads, or any
combination of them.
For purposes of the above 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." 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 limitation.
Prime Money Market Fund has no present intent to borrow money or pledge
securities in excess of 5% of the value of its net assets during the coming
fiscal year.
REGULATORY COMPLIANCE
The Funds may follow non-fundamental operational policies that are more
restrictive than their fundamental investment limitations, as set forth in the
prospectus and this Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940. In particular, the Funds will comply
with the various requirements of Rule 2a-7, which regulates money market mutual
funds. For example, with limited exceptions, Rule 2a-7 prohibits the investment
of more than 5% of its assets in the securities of any one issuer, although
Treasury Money Market Fund's investment limitation only requires such 5%
diversification with respect to 75% of its assets. Treasury Money Market Fund
will invest more than 5% of its assets in any one issuer only under the
circumstances permitted by Rule 2a-7. The Funds will also determine the
effective maturity of their investments , as well as their ability to consider a
security as having received the requisite short-term ratings by NRSROs,
according to Rule 2a-7. The Funds may change these operational policies to
reflect changes in the laws and regulations without the approval of their
shareholders.
<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
Chief Executive Officer and Director or Trustee of the Funds; Chairman and
Director, Federated Investors, Inc., Chairman and Trustee, Federated Advisers,
Federated Management, and Federated Research; Chairman and Director, Federated
Research Corp. and Federated Global Research Corp.; Chairman, Passport Research,
Ltd. 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
Director or Trustee of the Funds; Member of the Executive Committee, Children's
Hospital of Pittsburgh; formerly, Senior Partner, Ernst & Young LLP; Director,
MED 3000 Group, Inc.; Director, Member of Executive Committee, University of
Pittsburgh.
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
Director of Trustee of the Funds; 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.
Nicholas P. Constantakis
175 Woodshire Drive
Pittsburgh, PA
Birthdate: September 3, 1939
Trustee
Director of Trustee of the Funds; formerly, Partner, Andersen Worldwide SC.
<PAGE>
William J. Copeland
One PNC Plaza - 23rd Floor
Pittsburgh, PA
Birthdate: July 4, 1918
Trustee
Director of Trustee of the Funds; 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, United Refinery;
Chairman, Pittsburgh Foundation; Director, Forbes Fund; Chairman, Pittsburgh
Civic Light Opera.
James E. Dowd
571 Hayward Mill Road
Concord, MA
Birthdate: May 18, 1922
Trustee
Director of Trustee of the Funds; Attorney-at-law; Director, The Emerging
Germany Fund, Inc.; formerly, President, Boston Stock Exchange, Inc.; Regional
Administrator, United States Securities and Exchange Commission.
Lawrence D. Ellis, M.D.*
3471 Fifth Avenue, Suite 1111
Pittsburgh, PA
Birthdate: October 11, 1932
Trustee
Director of Trustee of the Funds; Professor of Medicine, University of
Pittsburgh; Medical Director, University of Pittsburgh Medical Center -
Downtown; Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
Hospitals; formerly, Member, National Board of Trustees, Leukemia Society of
America.
Edward L. Flaherty, Jr.@
Miller, Ament, Henny & Kochuba
205 Ross Street
Pittsburgh, PA
Birthdate: June 18, 1924
Trustee
Director of Trustee of the Funds; Attorney Of Counsel, Miller, Ament, Henny &
Kochuba; Director, Eat'N Park Restaurants, Inc.; formerly, Counsel, Horizon
Financial, F.A., Western Region; Partner, Meyer and Flaherty.
Edward C. Gonzales *
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 22, 1930
President, Treasurer and Trustee
Director of Trustee of the Funds; President, Executive Vice President and
Treasurer of some of the Funds; Vice Chairman, Federated Investors, Inc.; 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.
<PAGE>
Peter E. Madden
One Royal Palm Way
100 Royal Palm Way
Palm Beach, FL
Birthdate: March 16, 1942
Trustee
Director of Trustee of the Funds; formerly, Representative, Commonwealth of
Massachusetts General Court; President, State Street Bank and Trust Company and
State Street Corporation; Director, VISA USA and VISA International; Chairman
and Director, Massachusetts Banker Association; Director, Depository Trust
Corporation.
John E. Murray, Jr., J.D., S.J.D.
President, Duquesne University
Pittsburgh, PA
Birthdate: December 20, 1932
Trustee
Director of Trustee of the Funds; President, Law Professor, Duquesne University;
Consulting Partner, Mollica & Murray; formerly, Dean and Professor of Law,
University of Pittsburgh School of Law; Dean and Professor of Law, Villanova
University School of Law.
Wesley W. Posvar
1202 Cathedral of Learning
University of Pittsburgh
Pittsburgh, PA
Birthdate: September 14, 1925
Trustee
Director of Trustee of the Funds; President, World Society for Ekistics, Athens;
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; formerly, Professor, United States
Military Academy; Professor, United States Air Force Academy.
Marjorie P. Smuts
4905 Bayard Street
Pittsburgh, PA
Birthdate: June 21, 1935
Trustee
Director of Trustee of the Funds; Public relations/Marketing/Conference
Planning; formerly, National Spokesperson, Aluminum Company of America; business
owner.
<PAGE>
J. Christopher Donahue
Federated Investors Tower
Pittsburgh, PA
Birthdate: April 11, 1949
Executive Vice President
President or Executive Vice President of the Funds; President and Director,
Federated Investors, Inc.; President and Trustee, 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; Director or Trustee of some of
the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of
the Company.
John W. McGonigle
Federated Investors Tower
Pittsburgh, PA
Birthdate: October 26, 1938
Executive Vice President and Secretary
Executive Vice President and Secretary of the Funds; Treasurer of some of the
Funds; Executive Vice President, Secretary, and Director, Federated Investors,
Inc.; 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.
Richard B. Fisher
Federated Investors Tower
Pittsburgh, PA
Birthdate: May 17, 1923
Vice President
President or Vice President of some of the Funds; Director of Trustee of some of
the Funds; Executive Vice President, Federated Investors, Inc.; Chairman and
Director, Federated Securities Corp.
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; 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 Core
Trust; Federated Equity Funds; Federated Equity Income Fund, Inc.; Federated
Fund for U.S. Government Securities, Inc.; Federated GNMA Trust; Federated
Government Income Securities, Inc.; Federated Government Trust; Federated High
Income Bond Fund, Inc.; Federated High Yield Trust; Federated Income Securities
Trust; Federated Income Trust; Federated Index Trust; Federated Institutional
Trust; Federated Insurance Series; Federated Investment Portfolios; Federated
Investment Trust; Federated Master Trust; Federated Municipal Opportunities
Fund, Inc.; Federated Municipal Securities Fund, Inc.; Federated Municipal
Trust; Federated Short-Term Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock and Bond Fund, Inc.; Federated Stock Trust;
Federated Tax-Free Trust; Federated Total Return Series, Inc.; Federated U.S.
Government Bond Fund; Federated U.S. Government Securities Fund: 1-3 Years;
Federated U.S. Government Securities Fund: 2-5 Years; Federated U.S. Government
Securities Fund: 5-10 Years; Federated Utility Fund, Inc.; First Priority Funds;
Fixed Income Securities, Inc.; High Yield Cash Trust; Intermediate Municipal
Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment
Series Trust; Liberty Term Trust, Inc. - 1999; Liberty U.S. Government Money
Market Trust; Liquid Cash Trust; Managed Series Trust; Money Market Management,
Inc.; Money Market Obligations Trust; Money Market Obligations Trust II; Money
Market Trust; Municipal Securities Income Trust; Newpoint Funds; RIMCO Monument
Funds; Targeted Duration Trust; Tax-Free Instruments Trust; The Planters Funds;
The Virtus Funds; Trust for Financial Institutions; Trust for Government Cash
Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S.
Treasury Obligations; Wesmark Funds; WCT Funds; and World Investment Series,
Inc.
TRUST OWNERSHIP
Officers and Trustees as a group own less than 1% of the Fund`s outstanding
shares.
As of June 1, 1998, the following shareholders of record owned 5% or more of
the outstanding shares of Treasury Money Market Fund: Deposit Guaranty National
Bank, Jackson, MS, acting in various capacities for numerous accounts was the
owner of record of approximately 197,002,462 shares (65.04%); RELICO Reliance
Trust Company, Atlanta, GA, acting in various capacities for numerous accounts,
was the owner of record of approximately 18,712,360 shares (6.18%);.and
Commercial National Bank, Jackson, MS, acting in various capacities for numerous
accounts, was the owner of record of approximately 58,848,328 shares (19.43%).
As of June 1, 1998, the following shareholder of record owned 5% or more of the
outstanding shares of Prime Money Market Fund: National Financial Services
Corp., New York, NY, for the exclusive benefit of its customers, was the owner
of record of approximately 212,614 shares (99.59%).
<PAGE>
TRUSTEES' COMPENSATION
Name , Aggregate
Position With Compensation From
Trust Trust+
John F. Donahue, $0
Chairman and Trustee
Thomas G. Bigley, $402.17
Trustee
John T. Conroy, Jr., $442.46
Trustee
Nicholas P. Constantakis++, $140.71
Trustee
William J. Copeland, $442.46
Trustee
James E. Dowd, $442.46
Trustee
Lawrence D. Ellis, M.D., $402.17
Trustee
Edward L. Flaherty, Jr., $442.46
Trustee
Edward C. Gonzales, $0
President, Treasurer and Trustee
Peter E. Madden, $402.17
Trustee
John E. Murray, Jr., $402.17
Trustee
Wesley W. Posvar, $402.17
Trustee
Marjorie P. Smuts, $402.17
Trustee
+The aggregate compensation is provided for the Trust which is currently
comprised of nine portfolios. Information is furnished for the fiscal year ended
February 28, 1998.
++Mr. Constantakis became a member of the Board of Trustees on
February 23, 1998.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees will only be liable
for their own willful defaults. If reasonable care has been exercised in the
selection of officers, agents, employees, or investment advisers, a Trustee
shall not be liable for any neglect or wrong doing of any such person. However,
they are not protected against any liability to which they would otherwise be
subject by reason of willful misfeasance, bad faith, gross negligence, or
reckless disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
INVESTMENT ADVISER
The 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 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.
<PAGE>
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 years ended February 28,
1998, February 28, 1997, and February 29, 1996, the Adviser earned fees from
Treasury Money Market Fund of $1,407,882, $1,138,567, and $1,044,577,
respectively, of which $563,153, $455,427, and $417,831, respectively, were
voluntarily waived. For the period from March 10, 1997 (start of business) to
February 28, 1998, the Adviser earned advisory fees from Prime Money Market Fund
of $810,951, of which $324,380 were voluntarily waived.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally use those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
guidelines established by the Trustees. The Adviser may select brokers and
dealers who offer brokerage and research services. These services may be
furnished directly to the Fund or to the Adviser and may include: advice as to
the advisability of investing in securities; security analysis and reports;
economic studies; industry studies; receipt of quotations for portfolio
evaluations; and similar services. Research services provided by brokers and
dealers may be used by the Adviser or its affiliates in advising the Fund and
other accounts. To the extent that receipt of these services may supplant
services for which the 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, 1998, February 28, 1997, and February 29, 1996, Treasury
Money Market Fund paid no brokerage commissions on brokerage transactions. For
the period from March 10, 1997 (start of business) to February 28, 1998, Prime
Money Market Fund paid no brokerage commissions on brokerage transactions.
Although investment decisions for the Fund are made independently from those of
the other accounts managed by the Adviser, investments of the type the Fund may
make may also be made by those other accounts. When the Fund and one or more
other accounts managed by the Adviser are prepared to invest in, or desire to
dispose of, the same security, available investments or opportunities for sales
will be allocated in a manner believed by the Adviser to be equitable to each.
In some cases, this procedure may adversely affect the price paid or received by
the Fund or the size of the position obtained or disposed of by the Fund. In
other cases, however, it is believed that coordination and the ability to
participate in volume transactions will be to the benefit of the Fund.
OTHER SERVICES
FUND ADMINISTRATION
Federated Administrative Services, a subsidiary of Federated Investors, Inc.,
provides administrative personnel and services to the Funds for a fee as
described in the prospectus. For the fiscal years ended February 28, 1998,
February 28, 1997, and February 29, 1996, the administrator earned $278,821,
$248,304, and $244,926, respectively, on behalf of Treasury Money Market Fund,
none of which was waived. For the period from March 10, 1997 (start of business)
to February 28, 1998, the administrator earned $160,588 on behalf of Prime Money
Market Fund, $95,518 of which were 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, Inc., serves as transfer agent for the shares
of the Funds, dividend disbursing agent for the Funds, and shareholder servicing
agent for the Funds.
<PAGE>
INDEPENDENT AUDITORS
The independent auditors for the Fund 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 on days the New York Stock Exchange and Federal Reserve Wire
System are open for business. The procedure for purchasing shares is explained
in the prospectus under "Investing in the Fund." DISTRIBUTION AND SHAREHOLDER
SERVICES PLANS
These arrangements permit the payment of fees to financial institutions to
stimulate distribution activities and services to shareholders provided by a
representative who has knowledge of the shareholder's particular circumstances
and goals. These activities and services may include, but are not limited to,
marketing efforts; providing office space, equipment, telephone facilities, and
various clerical, supervisory, computer, and other personnel as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries; and assisting
clients in changing dividend options, account designations, and addresses.
By adopting the Distribution Plan, the 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, 1998, Treasury Money Market Fund made
no payments pursuant to the Distribution Plan. For the period from March 10,
1997 (start of business) to February 28, 1998, Prime Money Market Fund made
payments pursuant to the Distribution Plan of $405,475. In addition, for the
fiscal year ended February 28, 1998, Treasury Money Market Fund, made payments
pursuant to the Shareholder Services Plan of $275,682. For the period from March
10, 1997 (start of business) to February 28, 1998, Prime Money Market Fund made
no payments pursuant to the Shareholder Services Plan.
CONVERSION TO FEDERAL FUNDS
It is the Funds' 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 Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
Accordingly, neither the amount of daily income nor the net asset value is
affected by any unrealized appreciation or depreciation of the portfolio. In
periods of declining interest rates, the indicated daily yield on shares of the
Funds computed by dividing the annualized daily income on the Funds' portfolio
by the net asset value computed as above may tend to be higher than a similar
computation made by using a method of valuation based upon market prices and
estimates. In periods of rising interest rates, the opposite may be true.
The Funds' use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions in Rule 2a-7 (the "Rule")
promulgated by the Securities and Exchange Commission under the Investment
Company Act of 1940. Under the Rule, the Trustees must establish procedures
reasonably designed to stabilize the net asset value per share, as computed for
purposes of distribution and redemption, at $1.00 per share, taking into account
current market conditions and the Funds' investment objective. The procedures
include monitoring the relationship between the amortized cost value per share
and the net asset value per share based upon available indications of market
value. The Trustees will decide what, if any, steps should be taken if there is
a difference of more than 0.5% between the two values. The Trustees will take
any steps they consider appropriate (such as redemption in kind or shortening
the average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of determining
net asset value.
EXCHANGE PRIVILEGE
REQUIREMENTS FOR EXCHANGE
Before the exchange, the shareholder must receive a prospectus of the fund for
which the exchange is being made. 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 the Funds' 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 obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of its shareholders for acts or obligations of
the Trust. These documents require notice of this disclaimer to be given in each
agreement, obligation, or instrument the Trust or its Trustees enter into or
sign.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to protect or compensate the shareholder. On request, the Trust will
defend any claim made and pay any judgment against a shareholder for any act or
obligation of the Trust. Therefore, financial loss resulting from liability as a
shareholder will occur only if the Trust itself cannot meet its obligations to
indemnify shareholders and pay judgments against them.
TAX STATUS
THE 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 invest in securities within certain
statutory limits; and o distribute to its shareholders at least 90% of its
net income earned during the year.
SHAREHOLDERS' TAX STATUS
Shareholders of the Funds are subject to federal income tax on dividends
received as cash or additional shares. These dividends, and any short-term
capital gains, are taxable as ordinary income. No portion of any income dividend
paid by the Funds is eligible for the dividends received deduction available to
corporations.
PERFORMANCE INFORMATION
Performance depends upon such variables as: portfolio quality; average portfolio
maturity; type of instruments in which the portfolio is invested; changes in
interest rates; changes in expenses; and the relative amount of cash flow. To
the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in shares of
the Funds, the performance will be reduced for those shareholders paying those
fees.
YIELD
The yield is calculated based upon the seven days ending on the day of the
calculation, called the "base period." This yield is computed by: determining
the net change in the value of a hypothetical account with a balance of one
share at the beginning of the base period, with the net change excluding capital
changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares; dividing the net change in the account's
value by the value of the account at the beginning of the base period to
determine the base period return; and multiplying the base period return by
365/7.
Treasury Money Market Fund's and Prime Money Market Fund's yields for the
seven-day period ended February 28, 1998 were 4.73% and 4.93%, respectively.
EFFECTIVE YIELD
The effective yield is calculated by compounding the unannualized base
period return by: adding 1 to the base period return; raising the sum to the
365/7th power; and subtracting 1 from the result.
Treasury Money Market Fund's and Prime Money Market Fund's effective yields
for the seven-day period ended February 28, 1998 were 4.85% and 5.05%,
respectively.
TOTAL RETURN
Average annual total return is the average compounded rate of return for a given
period that would equate a $1,000 initial investment to the ending redeemable
value of that investment. The ending redeemable value is computed by multiplying
the number of shares owned at the end of the period by the net asset value per
share at the end of the period. The number of shares owned at the end of the
period is based on the number of shares purchased at the beginning of the period
with $1,000, adjusted over the period by any additional shares, assuming the
monthly reinvestment of all dividends and distributions.
The Treasury Money Market Fund's average annual total returns for the
one-year and five-year periods ended February 28, 1998, and for the period from
March 31, 1992 (date of initial public investment) to February 28, 1998, were
4.90%, 4.40% and 4.23%, respectively.
Prime Money Market Fund's cumulative total return for the period from March 10,
1997 (date of initial public investment) to February 28, 1998, was 4.93%.
Cumulative total return reflects Prime Money Market Fund's total performance
over a specific period of time. Prime Money Market Fund's cumulative total
return is representative of approximately 11 months of investment activity since
Prime Money Market Fund's effective date.
PERFORMANCE COMPARISONS
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:
O LIPPER ANALYTICAL SERVICES, INC. , ranks funds in various fund
categories based on total return, which assumes the reinvestment of
all income dividends and capital gains distributions, if any.
o DONOGHUE'S MONEY FUND REPORT publishes annualized yields of money
market funds weekly. Donoghue's MONEY MARKET INSIGHT publication
reports monthly and 12-month-to-date investment results for the same
money funds.
o MONEY , a monthly magazine, regularly ranks money market funds in
various categories based on the latest available seven-day effective yield.
O BANK RATE MONITOR(C) NATIONAL INDEX , Miami Beach, Florida, published
weekly, is an average of the interest rates of personal money market
deposit accounts at ten of the largest banks and thrifts in each of the
five largest Standard Metropolitan Statistical Areas. If more than one
rate is offered, the lowest rate is used. Account minimums and
compounding methods may vary.
O DISCOUNT CORPORATION OF NEW YORK 30-DAY FEDERAL AGENCIES (TREASURY
MONEY MARKET FUND), for example, is a weekly quote of the average daily
offering price for selected federal agency issues maturing in 30 days.
O SALOMON 30-DAY TREASURY BILL INDEX (TREASURY MONEY MARKET FUND)
is a weekly quote of the most representative yields for selected
securities issued by the U.S. Treasury, maturing in 30 days.
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 historic change in the value of an investment in the Funds based
on monthly reinvestment of dividends over a specified period of time.
Advertising and other promotional literature may include charts, graphs and
other illustrations using the Funds' 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 its performance, or
performance for the types of securities in which it invests, to a variety of
other investments, such as bank savings accounts, certificates of deposit, and
Treasury bills. ECONOMIC AND MARKET INFORMATION
Advertising and sales literature for the 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 $4.4 trillion to the more than 6,700 funds available.
FINANCIAL STATEMENTS
The financial statements for the fiscal year ended February 28, 1998, are
incorporated herein by reference to the Annual Report of the Funds dated
February 28, 1998 (File Nos. 33-46431 and 811-6607). A copy of the Funds' Annual
Report may be obtained without charge by contacting the Trust.
PART C. OTHER INFORMATION.
Item 24. Financial Statements and Exhibits:
(a) Financial Statements: (1-8) Incorporated by reference to the
Registrant's Annual Reports dated February 28, 1998
(File Nos. 33-46431 and 811-6607); (9) To be filed by
amendment.
(b) Exhibits:
(1) (i) Conformed copy of Declaration of Trust of the
Registrant; (1)
(ii) Conformed copy of Amendment No. 1 of Declaration
of Trust of the Registrant; (2)
(iii) Conformed copy of Amendment No. 3 of Declaration
of Trust of the Registrant; (4)
(iv) Conformed copy of Amendment to the Declaration
of Trust of the Registrant dated May 17, 1994;(8)
(2) (i) Copy of By-Laws of the Registrant; (1)
(ii) Copy of Amendment No. 3 to the By-Laws of the
Registrant; +
(iii) Copy of Amendment No. 4 to the By-Laws of the
Registrant; +
(iv) Copy of Amendment No. 5 to the By-Laws of the
Registrant; +
(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)
+ 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)
<PAGE>
(vii) Copy of Specimen Certificate for Shares of
Beneficial Interest of DG Prime Money Market Fund; (12)
(viii) Copy of Specimen Certificate for Shares of
Beneficial Interest of DG Mid Cap Fund; (17) (ix) Copy
of Specimen Certificate for Shares of Beneficial
Interest of DG International Equity Fund; (13)
(5) (i) Conformed copy of Investment Advisory
Contract of Registrant; (13)
(ii) Conformed copy of Exhibit I to the Investment
Advisory Contract of Registrant; (15);
(iii) 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)
(iv) Conformed copy of Sub-Advisory Agreement between
ParkSouth Corporation and Lazard Asset Management; (13)
(v) Conformed copy of Sub-Advisory Agreement between
ParkSouth Corporation and Bennett Lawrence Management,
LLC; (17)
(6) (i) Conformed copy of Distributor's Contract of the
Registrant; (3) (ii) Copy of Exhibit B for DG Limited
Term Government Income Fund; (8)
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)
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)
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)
15. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 15 on Form N-1A filed August 22, 1997. (File Nos. 33-46431
and 811-6607)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed October 29, 1997. (File Nos. 33-46431
and 811-6607)
<PAGE>
(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) (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) (x) Conformed copy of Exhibit J for
DG U.S. Government Money Market Fund; +
(7) Not applicable
(8) Conformed copy of Custodian Agreement of the
Registrant; (6)
(i) Conformed copy of Domestic Custody Fee
Schedule; (17)
(9) (i) Conformed copy of Transfer Agency and Service
Agreement of Registrant; (6)
(ii) Conformed copy of Administrative Services
Agreement; +
(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 Exhibit B, to Shareholder
Services Plan; (13)
(vii) Conformed copy of Exhibit C to Shareholder
Services Plan; (13)
(viii)Conformed copy of Exhibit D to Shareholder
Services Plan; (13)
(ix) Conformed copy of Exhibit E to Shareholder
Services Plan; (13)
(x) Conformed copy of Exhibit F to Shareholder
Services Plan; (13)
(xi) Conformed copy of Exhibit G to Shareholder
Services Plan; (13)
+ All exhibits have been filed electronically.
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)
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)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed October 29, 1997. (File Nos. 33-46431
and 811-6607)
<PAGE>
(xii) Conformed copy of Exhibit H to Shareholder
Services Plan; (13) (xiii) Conformed copy of Exhibit I
to Shareholder Services Plan; (13) (xiv) Conformed copy
of Exhibit J to Shareholder Services Plan; +
(10) Conformed copy of Opinion and Consent of Counsel as to
legality of shares being registered; (11)
(11) Conformed copy of Consent of Independent Public
Accountants; +
(12) Not applicable;
(13) Conformed copy of Initial Capital Understanding; (2)
(14) Not applicable;
(15) (i) Copy of Distribution Plan of the Registrant; (2)
(ii) Conformed 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 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) (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;
(13) (x) Conformed copy of Exhibit J for DG U.S.
Government Money Market Fund; + (xi) Copy of Rule 12b-1
Agreement of the Registrant; (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)
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)
<PAGE>
(16) (i) Schedule for Computation of Fund Performance
Data for DG Equity Fund; (5)
(ii) Schedule for Computation of Fund Performance
Data for DG Government Income Fund; (5)
(iii) Schedule for Computation of Fund Performance
Data for DG Limited Term Government Income
Fund; (5)
(iv) Schedule for Computation of Fund Performance
Data for DG U.S. Government Money Market
Fund; (5)
(v) Schedule for Computation of Fund Performance
Data for DG Municipal Income Fund; (6)
(vi) Schedule for Computation of Fund Performance
Data for DG Opportunity Fund; (9)
(vii) Schedule for Computation of Fund Performance
Data for DG Prime Money Market Fund; (16)
(viii) Schedule for Computation of Fund Performance
Data for DG International Equity Fund; (17)
(17) Copy of Financial Data Schedules; +
(18) Not applicable.
(19) Conformed copy of Power of Attorney; +
Item 25. Persons Controlled by or Under Common Control with Registrant:
None
Item 26. Number of Holders of Securities:
Number of Record Holders
Title of Class as of June 1, 1998
Shares of beneficial interest
(no par value)
DG Treasury Money Market Fund (formerly,
DG U.S. Government Money Market Fund) 101
DG Limited Term Government
Income Fund 152
DG Government Income Fund 190
DG Equity Fund 2,951
DG Municipal Income Fund 114
+ 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)
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)
16. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 16 on Form N-1A filed August 25, 1997. (File Nos. 33-46431
and 811-6607)
17. Response is incorporated by reference to Registrant's Post-Effective
Amendment No. 18 on Form N-1A filed October 29, 1997. (File Nos. 33-46431
and 811-6607)
<PAGE>
DG Opportunity Fund 1,003
DG Prime Money Market Fund 10
DG International Equity Fund 45
DG Mid Cap Fund............... 2
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, $320 million in common trust fund assets as
of December 31, 1997. 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.
The principal executive officers of the funds' investment
adviser, and the Directors of the funds' investment adviser,
are set forth in the following tables. Unless otherwise noted,
the position listed under Other Substantial Business,
Profession, Vocation or Employment is with Deposit Guaranty
National Bank.
Other Substantial
Position With Business,Profession,
Name the Adviser Vocation or Employment
E.B. Robinson, Jr. Chairman of the Board
and Chief Executive
Howard L. McMillan, Jr. President and Chief
Operating Officer
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
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)
<PAGE>
DIRECTORS
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
(b) Lazard Asset Management, a division of Lazard & 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 Asset
Management provides investment management services to client
discretionary accounts with assets totalling approximately $60 billion
as of December 31, 1997. Lazard Asset Management serves as Sub-Adviser
to DG International Equity Fund.
Lazard 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; Ira O. Handler,
Michael P. Triguboff, John R. Reinsberg, Michael S. Rome; Alexander E.
Zagoreos; Larry Kohn; and Eileen Alexanderson.
(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 $910 million as of
December 31, 1997. 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.
(d) Womack Asset Management, Inc. is registered as an investment adviser
with the Securities and Exchange Commission. Womack Asset Management,
Inc. provides investment management services to client discretionary
accounts with assets totaling approximately $150 million as of
February 28, 1998. Womack Asset Management, Inc. serves as Sub-Adviser
to DG Opportunity Fund.
Womack Asset Management, Inc. is managed by William A. Womack,
President and Director.
<PAGE>
Item 29. Principal Underwriters:
(a) Federated Securities Corp. the Distributor for shares of the
Registrant, acts as principal underwriter for the following
open-end investment companies, including the Registrant:
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;
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 Planters Funds; The
Virtus Funds; The Wachovia Funds; The Wachovia Municipal 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.; 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>
(b)
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor 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,
Federated Investors Tower President, Federated, Treasurer, and
Pittsburgh, PA 15222-3779 Securities Corp. Trustee
Thomas R. Donahue Director, Assistant Secretary --
Federated Investors Tower and Assistant Treasurer
Pittsburgh, PA 15222-3779 Federated Securities Corp
James F. Getz President-Broker/Dealer, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
John B. Fisher President-Institutional Sales, --
Federated Investors Tower Federated Securities Corp.
Pittsburgh, PA 15222-3779
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
<PAGE>
(1) (2) (3)
Name and Principal Positions and Offices Positions and Offices
Business Address With Distributor 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
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
G. Michael Cullen 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 Distributor With Registrant
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
J. Michael Miller 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 Distributor With Registrant
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
Richard Suder 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 Distributor With Registrant
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
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
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:
Registrant Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, PA 15222-3779
<PAGE>
Federated Shareholder Services Company Federated Investors Tower
("Transfer Agent, Dividend 1001 Liberty Avenue
Disbursing Agent and Pittsburgh, PA 15222-3779
Shareholder Servicing Agent")
Federated Administrative Services Federated Investors Tower
("Administrator") 1001 Liberty Avenue
Pittsburgh, PA 15222-3779
ParkSouth Corporation P.O. Box 1200
("Adviser") Jackson,MS 39215-1200
Lazard Asset Management 30 Rockefeller Plaza
("Sub-Adviser to DG International New York, NY 10020
Equity Fund")
Bennett Lawrence Management, LLC 757 Third Avenue, 19th Floor
("Sub-Adviser to DG Mid Cap New York, NY 10017
Fund")
Womack Asset Management, Inc. 2120 Deposit Guaranty Plaza
("Sub-Adviser to DG Opportunity Jackson, MS 39201
Fund")
State Street Bank and Trust Company P.O. Box 8600
("Custodian") Boston, MA 02266-8600
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.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, DG INVESTOR SERIES, certifies
that it meets all of the requirements for effectiveness of this Amendment to its
Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933
and has duly caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereto duly authorized, in the City of
Pittsburgh and Commonwealth of Pennsylvania, on the 29th day of June, 1998.
DG INVESTOR SERIES
BY: /s/Gail Cagney
Gail Cagney, Assistant Secretary
Attorney in Fact for John F. Donahue
June 29, 1998
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/Gail Cagney
Gail Cagney Attorney In Fact June 29, 1998
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
Nicholas P. Constantakis* Trustee
William J. Copeland* Trustee
James E. Dowd* Trustee
Lawrence D. Ellis, M.D.* Trustee
Edward L. Flaherty, Jr.* Trustee
Peter E. Madden* Trustee
John E. Murray, Jr.* Trustee
Wesley W. Posvar* Trustee
Marjorie P. Smuts* Trustee
* By Power of Attorney
Exhibit 2(ii) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K
DG INVESTOR SERIES
AMENDMENT #3
TO THE BY-LAWS
(EFFECTIVE FEBRUARY 23, 1998)
Delete Sections 1, 2 and 3 of Article I, OFFICERS AND THEIR ELECTION, and
replace with:
Section 1. Officers. The Officers of the Trust shall be a President, one
or more Vice Presidents, a Treasurer, and a Secretary. The Board of
Trustees, in its discretion, may also elect or appoint a Chairman of the
Board of Trustees (who must be a Trustee) and other Officers or agents,
including one or more Assistant Vice Presidents, one or more Assistant
Secretaries, and one or more Assistant Treasurers. A Vice President, the
Secretary or the Treasurer may appoint an Assistant Vice President, an
Assistant Secretary or an Assistant Treasurer, respectively, to serve
until the next election of Officers. Two or more offices may be held by a
single person except the offices of President and Vice President may not
be held by the same person concurrently. It shall not be necessary for any
Trustee or any Officer to be a holder of shares in any Series or Class of
the Trust.
Section 2. Election of Officers. The Officers shall be elected annually by
the Trustees. Each Officer shall hold office for one year and until the
election and qualification of his successor, or until earlier resignation
or removal. The Chairman of the Board of Trustees, if there is one, shall
be elected annually by and from the Trustees, and serve until a successor
is so elected and qualified, or until earlier resignation or removal.
Section 3. Resignations and Removals and Vacancies. Any Officer of the
Trust may resign at any time by filing a written resignation with the
Board of Trustees (or Chairman of the Trustees, if there is one), with the
President, or with the Secretary. Any such resignation shall take effect
at the time specified therein or, if no time is specified, at the time of
receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any Officer
elected by the Board of Trustees or whose appointment has been ratified by
the Board of Trustees may be removed with or without cause at any time by
a majority vote of all of the Trustees. Any other employee of the Trust
may be removed or dismissed at any time by the President. Any vacancy in
any of the offices, whether by resignation, removal or otherwise, may be
filled for the unexpired portion of the term by the President. A vacancy
in the office of Assistant Vice President may be filled by a Vice
President; in the office of Assistant Secretary by the Secretary; or in
the office of Assistant Treasurer by the Treasurer. Any appointment to
fill any vacancy shall serve subject to ratification by the Board of
Trustees at its next regular meeting.
Exhibit 2(iii) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K
DG INVESTOR SERIES
AMENDMENT #4
TO THE BY-LAWS
(EFFECTIVE FEBRUARY 27, 1998)
Delete Section 5 Proxies of Article IV Shareholders' Meetings, and replace with
the following:
Section 5. Proxies. Any shareholder entitled to vote at any meeting of
shareholders may vote either in person, by telephone, by electronic means
including facsimile, or by proxy, but no proxy which is dated more than
six months before the meeting named therein shall be accepted unless
otherwise provided in the proxy. Every proxy shall be in writing,
subscribed by the shareholder or his duly authorized agent or be in such
other form as may be permitted by law, including documents conveyed by
electronic transmission. Every proxy shall be dated, but need not be
sealed, witnessed or acknowledged. The placing of a shareholder's name on
a proxy or authorizing another to act as the shareholder's agent, pursuant
to telephone or electronically transmitted instructions obtained in
accordance with procedures reasonably designed to verify that such
instructions have been authorized by such shareholder, shall constitute
execution of a proxy by or on behalf of such shareholder. Where Shares are
held of record by more than one person, any co-owner or co-fiduciary may
execute the proxy or give authority to an agent, unless the Secretary of
the Trust is notified in writing by any co-owner or co-fiduciary that the
joinder of more than one is to be required. All proxies shall be filed
with and verified by the Secretary or an Assistant Secretary of the Trust,
or the person acting as Secretary of the Meeting. Unless otherwise
specifically limited by their term, all proxies shall entitle the holders
thereof to vote at any adjournment of such meeting but shall not be valid
after the final adjournment of such meeting.
Exhibit 2(iv) under Form N-1A
Exhibit 3(ii) under Item 601/Reg. S-K
DG INVESTOR SERIES
AMENDMENT #5
TO THE BY-LAWS
(EFFECTIVE MAY 12, 1998)
Strike Section 3 - Place of Meeting of Article IV - Shareholders' Meetings and
replace it with the following:
Section 3. Place of Meeting. Meetings of the shareholders of the Trust or
a particular Series or Class shall be held at such place within or without
The Commonwealth of Massachusetts as may be fixed from time to time by
resolution of the Trustees.
Strike Section 6 - Place of Meeting of Article V - Trustees' Meetings and
replace it with the following:
Section 6. Place of Meeting. Meetings of the Trustees shall be held at
such place within or without The Commonwealth of Massachusetts as fixed
from time to time by resolution of the Trustees, or as the person or
persons requesting said meeting to be called may designate, but any
meeting may adjourn to any other place.
Exhibit 6(x) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
Exhibit J
to the
Distributor's Contract
DG INVESTOR SERIES
DG U.S. GOVERNMENT MONEY MARKET FUND
The following provisions are hereby incorporated and made part of the
Distributor's Contract dated July 20, 1992, between DG Investor Series and
Federated Securities Corp. with respect to the Class of shares set forth above.
1. The Trust hereby appoints FSC to engage in activities principally intended
to result in the sale of shares of the above-listed Class ("Shares").
Pursuant to this appointment, FSC is authorized to select a group of
financial institutions ("Financial Institutions") to sell Shares at the
current offering price thereof as described and set forth in the
respective prospectuses of the Trust.
2. During the term of this Agreement, the Trust will pay FSC for services
pursuant to this Agreement, a monthly fee computed at the annual rate of
.25% of the average aggregate net asset value of the Shares held during
the month. For the month in which this Agreement becomes effective or
terminates, there shall be an appropriate proration of any fee payable on
the basis of the number of days that the Agreement is in effect during the
month.
3. FSC may from time-to-time and for such periods as it deems appropriate
reduce its compensation to the extent any Class' expenses exceed such
lower expense limitation as FSC may, by notice to the Trust, voluntarily
declare to be effective.
4. FSC will enter into separate written agreements with various firms to
provide certain of the services set forth in Paragraph 1 herein. FSC, in
its sole discretion, may pay Financial Institutions a periodic fee in
respect of Shares owned from time to time by their clients or customers.
The schedules of such fees and the basis upon which such fees will be paid
shall be determined from time to time by FSC in its sole discretion.
5. FSC will prepare reports to the Board of Trustees of the Trust on a quarterly
basis showing amounts expended hereunder including amounts paid to Financial
Institutions and the purpose for such expenditures.
In consideration of the mutual covenants set forth in the Distributor's
Contract dated July 20, 1992 between DG Investor Series and Federated Securities
Corp., DG Investor Series executes and delivers this Exhibit on behalf of DG
U.S. Government Money Market Fund, first set forth in this Exhibit.
Witness the due execution hereof this 1st day of September, 1997.
DG Investor Series
By:/s/ Edward C. Gonzales
President
FEDERATED SECURITIES CORP.
By:/s/ Edward C. Gonzales
Executive Vice President
Exhibit 9(ii) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
ADMINISTRATIVE SERVICES AGREEMENT
This Administrative Services Agreement is made as of this 1st day of
September, 1997, between DG Investor Series, a Massachusetts business
trust (herein called the "Fund"), and Federated Administrative Services, a
Delaware business trust (herein called "FAS").
WHEREAS, the Fund is a Trust consisting of one or more portfolios,
which operates as an open-end management investment company and will so
register under the Investment Company Act of 1940; and
WHEREAS, the Fund desires to retain FAS as its Administrator to provide
it with Administrative Services (as herein defined), and FAS is willing to
render such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
set forth herein, the parties hereto agree as follows:
1. Appointment of Administrator. The Fund hereby appoints FAS as
Administrator of the Fund on the terms and conditions set forth in this
Agreement; and FAS hereby accepts such appointment and agrees to perform
the services and duties set forth in Section 2 of this Agreement in
consideration of the compensation provided for in Section 5 hereof.
2. Services and Duties. As Administrator, and subject to the supervision
and control of the Fund's Board of Trustees, FAS will provide
facilities, equipment, and personnel to carry out the following
administrative services for operation of the business and affairs of the
Fund and each of its portfolios:
(a) prepare, file, and maintain the Fund's governing documents and any
amendments thereto, including the Declaration of Trust (which has
already been prepared and filed), the By-laws and minutes of
meetings of Trustees and shareholders;
(b) prepare and file with the Securities and Exchange Commission and
the appropriate state securities authorities the registration
statements for the Fund and the Fund's shares and all amendments
thereto, reports to regulatory authorities and shareholders,
prospectuses, proxy statements, and such other documents all as
may be necessary to enable the Fund to make a continuous offering
of its shares;
(c) prepare, negotiate, and administer contracts on behalf of the Fund
with, among others, the Fund's investment adviser, distributor,
custodian, and transfer agent;
(d) supervise the Fund's custodian in the maintenance of the Fund's
general ledger and in the preparation of the Fund's financial
statements, including oversight of expense accruals and payments,
of the determination of the net asset value of the Fund and of the
declaration and payment of dividends and other distributions to
shareholders;
(e) calculate performance data of the Fund for dissemination to
information services covering the investment company industry;
(f) prepare and file the Fund's tax returns;
(g) examine and review the operations of the Fund's custodian and
transfer agent;
(h) coordinate the layout and printing of publicly disseminated
prospectuses and reports;
(i) perform internal audit examinations in accordance with a charter to
be adopted by FAS and the Fund;
(j) assist with the design, development, and operation of the Fund;
(k) provide individuals reasonably acceptable to the Fund's Board of
Trustees for nomination, appointment, or election as officers of
the Fund, who will be responsible for the management of certain of
the Fund's affairs as determined by the Fund's Board of Trustees;
and
(l) consult with the Fund and its Board of Trustees on matters
concerning the Fund and its affairs.
The foregoing, along with any additional services that FAS shall agree
in writing to perform for the Fund hereunder, shall hereafter be
referred to as "Administrative Services." Administrative Services shall
not include any duties, functions, or services to be performed for the
Fund by the Fund's investment adviser, distributor, custodian, or
transfer agent pursuant to their respective agreements with the Fund.
3. Records. FAS shall create and maintain all necessary books and records
in accordance with all applicable laws, rules and regulations,
including but not limited to records required by Section 31(a) of the
Investment Company act of 1940 and the rules thereunder, as the same
may be amended from time to time, pertaining to the Administrative
Services performed by it and not otherwise created and maintained by
another party pursuant to contract with the Fund. Where applicable,
such records shall be maintained by FAS for the periods and in the
places required by Rule 31a-2 under the 1940 Act. The books and
records pertaining to the Trust which are in the possession of FAS
shall be the property of the Fund. The Fund, or the Fund's authorized
representatives, shall have access to such books and records at all
times during FAS's normal business hours. Upon the reasonable request
of the Fund, copies of any such books and records shall be provided
promptly by FAS to the Fund or the Fund's authorized representatives.
4. Expenses. FAS shall be responsible for expenses incurred in providing
office space, equipment, and personnel as may be necessary or
convenient to provide the Administrative Services to the Fund,
including the compensation of FAS employees who serve as Trustees or
officers of the Fund. The Fund shall be responsible for all other
expenses incurred by FAS on behalf of the Fund, including without
limitation postage and courier expenses, printing expenses, travel
expenses, registration fees, filing fees, fees of outside counsel and
independent auditors, insurance premiums, fees payable to Trustees who
are not FAS employees, and trade association dues.
5. Compensation. For the Administrative Services provided, the Fund
hereby agrees to pay and FAS hereby agrees to accept as full
compensation for its services rendered hereunder an administrative fee
at an annual rate per portfolio of the Fund's shares, payable daily,
as specified below:
Max. Admin. Average Aggregate Daily Net Assets
Fee of DG Investor Series
.15% on the first $250 million
.125% on the next $250 million
.100% on the next $250 million
.075% on assets in excess of $750 million
However, in no event shall the administrative fee received during any
year of this Agreement be less than, or be paid at a rate less than
would aggregate, $100,000 per portfolio.
6. Responsibility of Administrator.
(a) FAS shall not be liable for any error of judgment or mistake of
law or for any loss suffered by the Fund in connection with the
matters to which this Agreement relates, except a loss resulting
from willful misfeasance, bad faith or gross negligence on its
part in the performance of its duties or from reckless disregard
by it of its obligations and duties under this Agreement. FAS
shall be entitled to rely on and may act upon advice of counsel
(who may be counsel for the Fund) on all matters, and shall be
without liability for any action reasonably taken or omitted
pursuant to such advice. Any person, even though also an officer,
trustee, partner, employee or agent of FAS, who may be or become
an officer, Trustee, employee or agent of the Fund, shall be
deemed, when rendering services to the Fund or acting on any
business of the Fund (other than services or business in
connection with the duties of FAS hereunder) to be rendering such
services to or acting solely for the Fund and not as an officer,
trustee, partner, employee or agent or one under the control or
direction of FAS even though paid by FAS.
(b) FAS shall be kept indemnified by the Fund and be without
liability for any action taken or thing done by it in performing
the Administrative Services in accordance with the above
standards. In order that the indemnification provisions contained
in this Section 6 shall apply, however, it is understood that if
in any case the Fund may be asked to indemnify or save FAS
harmless, the Fund shall be fully and promptly advised of all
pertinent facts concerning the situation in question, and it is
further understood that FAS will use all reasonable care to
identify and notify the Fund promptly concerning any situation
which presents or appears likely to present the probability of
such a claim for indemnification against the Fund. The Fund shall
have the option to defend FAS against any claim which may be the
subject of this indemnification. In the event that the Fund so
elects, it will so notify FAS and thereupon the Fund shall take
over complete defense of the claim, and FAS shall in such
situation initiate no further legal or other expenses for which
it shall seek indemnification under this Section. FAS shall in no
case confess any claim or make any compromise in any case in
which the Fund will be asked to indemnify FAS except with the
Fund's written consent.
7. Duration and Termination.
(a) The initial term of this Agreement shall commence on the date
hereof, and extend to April 1, 2000.
(b) During any term of this Agreement, each time the Fund adds a new
portfolio ("New Portfolio"), an additional term shall commence on
the first date upon which the New Portfolio has sufficient average
daily net assets such that FAS will begin to earn a sum not less
than its minimum ("annualized") administrative fee in connection
with the New Portfolio pursuant to Section 5 of this Agreement
("Additional Term"). Such Additional Term shall extend to the
later to occur of (i) the second anniversary of the commencement
of the Additional Term, or (ii) the expiration of the Initial
Term.
(c) Upon the expiration of any term, this Agreement shall be
automatically renewed each year for an additional term of one
year, unless notice of termination has been delivered by either
party to the other no less than one year before the beginning of
any such additional term.
8. Amendment. No provision of this Agreement may be changed, waived,
discharged or terminated orally, but only by an instrument in writing
signed by the party against which an enforcement of the change, waiver,
discharge or termination is sought.
9. Limitations of Liability of Trustees or Officers, Employees, Agents and
Shareholders of the Fund. FAS is expressly put on notice of the
limitation of liability as set forth in the Fund's Declaration of Trust
and agrees that the obligations assumed by the Fund pursuant to this
Agreement shall be limited in any case to the Fund and its assets and
that FAS shall not seek satisfaction of any such obligations from the
shareholders of the Fund, the Trustees, Officers, Employees or Agents of
the Fund, or any of them.
10. Limitations of Liability of Trustees and Shareholders of FAS. The
execution and delivery of this Agreement have been authorized by the
Trustees of FAS and signed by an authorized officer of FAS, acting as
such, and neither such authorization by such Trustees nor such execution
and delivery by such officer shall be deemed to have been made by any of
them individually or to impose any liability on any of them personally,
and the obligations of this Agreement are not binding upon any of the
Trustees or shareholders of FAS, but bind only the trust property of FAS
as provided in the Declaration of Trust of FAS.
11. Notices. Notices of any kind to be given hereunder shall be in writing
(including facsimile communication) and shall be duly given if delivered
to the Fund and its investment adviser at the following address:
ParkSouth Corporation, P.O. Box 1200, Jackson, MI 39215-1200, Attention:
Tim Murphy; and if delivered to FAS, at Federated Investors Tower,
Pittsburgh, PA 15222-3779, Attention: President.
12. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. If
any provision of this Agreement shall be held or made invalid by a court
or regulatory agency decision, statute, rule or otherwise, the remainder
of this Agreement shall not be affected thereby. Subject to the
provisions of Section 6, hereof, this Agreement shall be binding upon
and shall inure to the benefit of the parties hereto and their
respective successors and shall be governed by Pennsylvania law;
provided, however, that nothing herein shall be construed in a manner
inconsistent with the Investment Company Act of 1940 or any rule or
regulation promulgated by the Securities and Exchange Commission
thereunder.
13. Counterparts. This Agreement may be executed by different parties on
separate counterparts, each of which, when so executed and delivered,
shall be an original, and all such counterparts shall together
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of the day and year
first above written.
DG Investor Series
By: /s/ J. Christopher Donahue
Name: J. Christopher Donahue
Title: Executive Vice President
Federated Administrative Services
By: /s/ Arthur L. Cherry
Name: Arthur L. Cherry
Title: President
Exhibit 9(xiv) under Form N-1A
Exhibit 10 under Item 601/Reg. S-K
Exhibit J
to the Shareholder Services Plan of
DG INVESTOR SERIES
DG U.S. Government Money Market Fund
This Plan is adopted by DG Investor Series with respect to the Class of Shares
of the Portfolio of the Trust as set forth above.
In compensation for the services provided pursuant to this Plan, Providers
will be paid a monthly fee computed at the annual rate of 0.15 of 1% of the
average aggregate net asset value of the Class of Shares of the Portfolio of the
Trust held during the month.
Witness the due execution hereof this 1st day of September, 1997.
DG INVESTOR SERIES
By:/s/ Edward C. Gonzales
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. 20 to the Registration
Statement (No. 33-46431) on Form N-1A of the DG Investor Series, we consent to
the use of our reports dated April 10, 1998, 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.
DG Equity Fund; DG International Equity Fund; DG
Opportunity Fund; DG Limited Term Government Income
Fund; DG Government Income Fund; DG Municipal Income
Fund; DG Prime Money Market Fund; and DG Treasury Money
Market Fund
KPMG Peat Marwick LLP
Pittsburgh, Pennsylvania,
June 25, 1998
Exhibit 15(x) under Form N-1A
Exhibit 1 under Item 601/Reg. S-K
EXHIBIT J
to the
Distribution Plan
DG INVESTOR SERIES
DG U.S. GOVERNMENT MONEY MARKET FUND
This Distribution Plan is adopted by between DG Investor Series with
respect to the Shares of the DG U.S. Government Money Market Fund set
forth above.
In compensation for the services provided pursuant to this Plan, FSC
will be paid a monthly fee computed at the annual rate of .25% of the
average aggregate net asset value of the DG U.S. Government Money Market
Fund held during the month.
Witness the due execution hereof this 1st day of September, 1997.
DG Investor Series
By:/s/ Edward C. Gonzales
President
Exhibit 19 under Form N-1A
Exhibit 24 under Item 601/Reg. S-K
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
the Secretary and Assistant Secretary of DG INVESTOR SERIES and the Deputy
General Counsel of Federated Services Company, and each of them, their true and
lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution for them and in their names, place and stead, in any and all
capacities, to sign any and all documents to be filed with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, the Securities
Exchange Act of 1934 and the Investment Company Act of 1940, by means of the
Securities and Exchange Commission's electronic disclosure system known as
EDGAR; and to file the same, with all exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
sign and perform each and every act and thing requisite and necessary to be done
in connection therewith, as fully to all intents and purposes as each of them
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES TITLE DATE
/s/John F. Donahue Chairman and Trustee June 2, 1998
John F. Donahue (Chief Executive Officer)
/s/Edward C. Gonzales President, Treasurer June 2, 1998
Edward C. Gonzales and Trustee
(Principal Financial and
Accounting Officer)
/s/Thomas G. Bigley Trustee June 2, 1998
Thomas G. Bigley
/s/John T. Conroy, Jr. Trustee June 2, 1998
John T. Conroy, Jr.
/s/William J. Copeland Trustee June 2, 1998
William J. Copeland
<PAGE>
SIGNATURES TITLE DATE
/s/James E. Dowd Trustee June 2, 1998
James E. Dowd
/s/Lawrence D. Ellis, M.D. Trustee June 2, 1998
Lawrence D. Ellis, M.D.
/s/Edward L. Flaherty, Jr. Trustee June 2, 1998
Edward L. Flaherty, Jr.
/s/Peter E. Madden Trustee June 2, 1998
Peter E. Madden
/s/John E. Murray, Jr. Trustee June 2, 1998
John E. Murray, Jr.
/s/Wesley W. Posvar Trustee June 2, 1998
Wesley W. Posvar
/s/Marjorie P. Smuts Trustee June 2, 1998
Marjorie P. Smuts
Sworn to and subscribed before me this 2nd day of June, 1998
/s/Cheri S. Good
Notarial Seal
Cheri S. Good, Notary Public
Pittsburgh, Allegheny County
My Commission Expires Nov. 19, 2001
Member, Pennsylvania Association of Notaries
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 05
<NAME> DG Investor Series
DG Treasury Money Market Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-END> Feb-28-1998
<INVESTMENTS-AT-COST> 348,326,265
<INVESTMENTS-AT-VALUE> 348,326,265
<RECEIVABLES> 1,960,655
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 350,286,920
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,236,211
<TOTAL-LIABILITIES> 1,236,211
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 349,050,709
<SHARES-COMMON-STOCK> 349,050,709
<SHARES-COMMON-PRIOR> 273,452,926
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 349,050,709
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,090,078
<OTHER-INCOME> 0
<EXPENSES-NET> 1,599,322
<NET-INVESTMENT-INCOME> 13,490,756
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 13,490,756
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 13,490,756
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 789,333,839
<NUMBER-OF-SHARES-REDEEMED> 714,193,778
<SHARES-REINVESTED> 457,722
<NET-CHANGE-IN-ASSETS> 75,597,783
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,407,882
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,162,475
<AVERAGE-NET-ASSETS> 276,083,424
<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> 0.57
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 03
<NAME> DG Investors Series
DG Limited Term Government Income
Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-END> Feb-28-1998
<INVESTMENTS-AT-COST> 58,497,179
<INVESTMENTS-AT-VALUE> 59,187,058
<RECEIVABLES> 1,013,104
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 60,200,162
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,063,236
<TOTAL-LIABILITIES> 1,063,236
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 61,986,667
<SHARES-COMMON-STOCK> 6,048,049
<SHARES-COMMON-PRIOR> 8,689,448
<ACCUMULATED-NII-CURRENT> 11,475
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (3,551,095)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 689,879
<NET-ASSETS> 59,136,926
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,832,371
<OTHER-INCOME> 0
<EXPENSES-NET> 640,132
<NET-INVESTMENT-INCOME> 4,192,239
<REALIZED-GAINS-CURRENT> (21,405)
<APPREC-INCREASE-CURRENT> 619,533
<NET-CHANGE-FROM-OPS> 4,790,367
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,216,317
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,021,729
<NUMBER-OF-SHARES-REDEEMED> 3,839,432
<SHARES-REINVESTED> 176,304
<NET-CHANGE-IN-ASSETS> (25,248,501)
<ACCUMULATED-NII-PRIOR> 35,553
<ACCUMULATED-GAINS-PRIOR> (3,529,690)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 482,331
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 771,202
<AVERAGE-NET-ASSETS> 79,285,810
<PER-SHARE-NAV-BEGIN> 9.710
<PER-SHARE-NII> 0.510
<PER-SHARE-GAIN-APPREC> 0.070
<PER-SHARE-DIVIDEND> 0.510
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 9.780
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 02
<NAME> DG Investors Series
DG Government Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-END> Feb-28-1998
<INVESTMENTS-AT-COST> 263,071,834
<INVESTMENTS-AT-VALUE> 271,652,940
<RECEIVABLES> 2,829,167
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 274,482,107
<PAYABLE-FOR-SECURITIES> 4,000,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 78,543
<TOTAL-LIABILITIES> 4,078,543
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 263,639,496
<SHARES-COMMON-STOCK> 26,865,406
<SHARES-COMMON-PRIOR> 25,761,234
<ACCUMULATED-NII-CURRENT> 94,331
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,911,369)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,581,106
<NET-ASSETS> 270,403,564
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16,893,631
<OTHER-INCOME> 0
<EXPENSES-NET> 2,102,516
<NET-INVESTMENT-INCOME> 14,791,115
<REALIZED-GAINS-CURRENT> 151,276
<APPREC-INCREASE-CURRENT> 9,924,175
<NET-CHANGE-FROM-OPS> 24,866,566
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,742,578
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,911,035
<NUMBER-OF-SHARES-REDEEMED> 9,367,967
<SHARES-REINVESTED> 561,104
<NET-CHANGE-IN-ASSETS> 20,785,122
<ACCUMULATED-NII-PRIOR> 45,794
<ACCUMULATED-GAINS-PRIOR> (2,062,645)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1,580,350
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2,266,050
<AVERAGE-NET-ASSETS> 262,859,260
<PER-SHARE-NAV-BEGIN> 9.690
<PER-SHARE-NII> 0.550
<PER-SHARE-GAIN-APPREC> 0.380
<PER-SHARE-DIVIDEND> 0.550
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.070
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 01
<NAME> DG Investors Series
DG Equity Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-END> Feb-28-1998
<INVESTMENTS-AT-COST> 349,670,239
<INVESTMENTS-AT-VALUE> 714,925,489
<RECEIVABLES> 1,027,714
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 715,953,203
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 322,536
<TOTAL-LIABILITIES> 322,536
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 344,394,053
<SHARES-COMMON-STOCK> 31,104,390
<SHARES-COMMON-PRIOR> 29,394,313
<ACCUMULATED-NII-CURRENT> 438,114
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 5,543,250
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 365,255,250
<NET-ASSETS> 715,630,667
<DIVIDEND-INCOME> 7,026,887
<INTEREST-INCOME> 2,036,113
<OTHER-INCOME> 0
<EXPENSES-NET> 5,883,387
<NET-INVESTMENT-INCOME> 3,179,613
<REALIZED-GAINS-CURRENT> 9,991,335
<APPREC-INCREASE-CURRENT> 193,990,094
<NET-CHANGE-FROM-OPS> 207,161,042
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,295,484
<DISTRIBUTIONS-OF-GAINS> 4,463,969
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7,924,532
<NUMBER-OF-SHARES-REDEEMED> 6,448,544
<SHARES-REINVESTED> 234,089
<NET-CHANGE-IN-ASSETS> 225,238,766
<ACCUMULATED-NII-PRIOR> 553,985
<ACCUMULATED-GAINS-PRIOR> 15,884
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 4,445,559
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 5,883,387
<AVERAGE-NET-ASSETS> 591,333,380
<PER-SHARE-NAV-BEGIN> 16.680
<PER-SHARE-NII> 0.110
<PER-SHARE-GAIN-APPREC> 6.480
<PER-SHARE-DIVIDEND> 0.110
<PER-SHARE-DISTRIBUTIONS> 0.150
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 23.010
<EXPENSE-RATIO> 0.99
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 04
<NAME> DG Investors Series
DG Municipal Income Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-END> Feb-28-1998
<INVESTMENTS-AT-COST> 45,115,914
<INVESTMENTS-AT-VALUE> 47,715,213
<RECEIVABLES> 967,084
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,682,297
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 103,690
<TOTAL-LIABILITIES> 103,690
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 45,793,969
<SHARES-COMMON-STOCK> 4,461,934
<SHARES-COMMON-PRIOR> 4,182,389
<ACCUMULATED-NII-CURRENT> 112,815
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 72,524
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,599,299
<NET-ASSETS> 48,578,607
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,492,223
<OTHER-INCOME> 0
<EXPENSES-NET> 368,107
<NET-INVESTMENT-INCOME> 2,124,116
<REALIZED-GAINS-CURRENT> 72,332
<APPREC-INCREASE-CURRENT> 1,412,573
<NET-CHANGE-FROM-OPS> 3,609,021
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,122,421
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,162,205
<NUMBER-OF-SHARES-REDEEMED> 1,136,101
<SHARES-REINVESTED> 2,485
<NET-CHANGE-IN-ASSETS> 1,650,681
<ACCUMULATED-NII-PRIOR> 68,418
<ACCUMULATED-GAINS-PRIOR> 35,979
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 289,417
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 553,154
<AVERAGE-NET-ASSETS> 48,177,150
<PER-SHARE-NAV-BEGIN> 10.590
<PER-SHARE-NII> 0.470
<PER-SHARE-GAIN-APPREC> 0.320
<PER-SHARE-DIVIDEND> 0.470
<PER-SHARE-DISTRIBUTIONS> 0.020
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 10.890
<EXPENSE-RATIO> 0.76
<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-28-1998
<PERIOD-END> Feb-28-1998
<INVESTMENTS-AT-COST> 109,308,784
<INVESTMENTS-AT-VALUE> 127,375,273
<RECEIVABLES> 2,067,892
<ASSETS-OTHER> 7,522
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 129,450,687
<PAYABLE-FOR-SECURITIES> 6,514,035
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 65,142
<TOTAL-LIABILITIES> 6,579,177
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 97,575,114
<SHARES-COMMON-STOCK> 7,758,133
<SHARES-COMMON-PRIOR> 5,951,609
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,229,907
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 18,066,489
<NET-ASSETS> 122,871,510
<DIVIDEND-INCOME> 180,173
<INTEREST-INCOME> 638,380
<OTHER-INCOME> 0
<EXPENSES-NET> 1,217,487
<NET-INVESTMENT-INCOME> (398,934)
<REALIZED-GAINS-CURRENT> 24,232,586
<APPREC-INCREASE-CURRENT> 8,351,884
<NET-CHANGE-FROM-OPS> 32,185,536
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 16,352,806
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,050,510
<NUMBER-OF-SHARES-REDEEMED> 2,003,613
<SHARES-REINVESTED> 759,627
<NET-CHANGE-IN-ASSETS> 42,344,362
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (250,936)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 966,775
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,329,623
<AVERAGE-NET-ASSETS> 101,722,125
<PER-SHARE-NAV-BEGIN> 13.530
<PER-SHARE-NII> (0.050)
<PER-SHARE-GAIN-APPREC> 4.900
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 2.540
<RETURNS-OF-CAPITAL> 0.000
<PER-SHARE-NAV-END> 15.840
<EXPENSE-RATIO> 1.20
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 07
<NAME> DG Investor Series
DG Prime Money Market Fund
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-END> Feb-28-1998
<INVESTMENTS-AT-COST> 194,970,923
<INVESTMENTS-AT-VALUE> 194,970,923
<RECEIVABLES> 140,974
<ASSETS-OTHER> 15,142
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 195,127,039
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 86,105
<TOTAL-LIABILITIES> 86,105
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 195,040,934
<SHARES-COMMON-STOCK> 195,040,934
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 195,040,934
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9,175,799
<OTHER-INCOME> 0
<EXPENSES-NET> 1,098,262
<NET-INVESTMENT-INCOME> 8,077,537
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 8,077,537
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 8,077,537
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 528,390,173
<NUMBER-OF-SHARES-REDEEMED> 341,415,796
<SHARES-REINVESTED> 8,066,557
<NET-CHANGE-IN-ASSETS> 195,040,934
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 810,951
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,518,160
<AVERAGE-NET-ASSETS> 166,758,871
<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> 0.68
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
<TABLE> <S> <C>
<S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 08
<NAME> DG Investor Series
DG International Equity Fund
<PERIOD-TYPE> 7-mos
<FISCAL-YEAR-END> Feb-28-1998
<PERIOD-END> Feb-28-1998
<INVESTMENTS-AT-COST> 24,863,045
<INVESTMENTS-AT-VALUE> 26,285,648
<RECEIVABLES> 566,225
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,851,873
<PAYABLE-FOR-SECURITIES> 243,665
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,997
<TOTAL-LIABILITIES> 318,662
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 25,371,801
<SHARES-COMMON-STOCK> 2,537,448
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (23,169)
<ACCUMULATED-NET-GAINS> (237,273)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,421,852
<NET-ASSETS> 26,533,211
<DIVIDEND-INCOME> 51,524
<INTEREST-INCOME> 71,091
<OTHER-INCOME> 0
<EXPENSES-NET> 168,334
<NET-INVESTMENT-INCOME> (45,719)
<REALIZED-GAINS-CURRENT> (240,297)
<APPREC-INCREASE-CURRENT> 1,421,852
<NET-CHANGE-FROM-OPS> 1,135,836
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 20,145
<NUMBER-OF-SHARES-SOLD> 2,623,705
<NUMBER-OF-SHARES-REDEEMED> 88,124
<SHARES-REINVESTED> 1,867
<NET-CHANGE-IN-ASSETS> 26,533,211
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 95,011
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 215,839
<AVERAGE-NET-ASSETS> 17,497,566
<PER-SHARE-NAV-BEGIN> 10.000
<PER-SHARE-NII> (0.020)
<PER-SHARE-GAIN-APPREC> 0.490
<PER-SHARE-DIVIDEND> 0.000
<PER-SHARE-DISTRIBUTIONS> 0.000
<RETURNS-OF-CAPITAL> 0.010
<PER-SHARE-NAV-END> 10.460
<EXPENSE-RATIO> 1.77
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.000
</TABLE>
