-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, qQww3L6b+RAQf4gmJZRzJyHtITY/BjFoHCXVLiNMwIuTWcnyPXlQ6udxazWSvcs7 didG3sQ1PQKnEhTYyFmaFQ== 0000883843-94-000003.txt : 19940428 0000883843-94-000003.hdr.sgml : 19940428 ACCESSION NUMBER: 0000883843-94-000003 CONFORMED SUBMISSION TYPE: 485BPOS PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19940427 EFFECTIVENESS DATE: 19940427 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DG INVESTOR SERIES CENTRAL INDEX KEY: 0000883843 STANDARD INDUSTRIAL CLASSIFICATION: 0000 IRS NUMBER: 251676752 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1933 Act SEC FILE NUMBER: 033-46431 FILM NUMBER: 94524629 FILING VALUES: FORM TYPE: 485BPOS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06607 FILM NUMBER: 94524630 BUSINESS ADDRESS: STREET 1: FEDERATED INVESTORS TOWER CITY: PITTSBURGH STATE: PA ZIP: 15222 BUSINESS PHONE: 4122881900 FORMER COMPANY: FORMER CONFORMED NAME: DG CITADEL FUNDS DATE OF NAME CHANGE: 19600201 485BPOS 1 FORM DOCUMENT 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. 5 X and/or REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X Amendment No. 8 X DG INVESTOR SERIES (Exact Name of Registrant as Specified in Charter) Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (Address of Principal Executive Offices) (412) 288-1900 (Registrant's Telephone Number) John W. McGonigle, Esquire, Federated Investors Tower, Pittsburgh, Pennsylvania 15222-3779 (Name and Address of Agent for Service) It is proposed that this filing will become effective: immediately upon filing pursuant to paragraph (b) X on April 30, 1994 pursuant to paragraph (b) 60 days after filing pursuant to paragraph (a) on pursuant to paragraph (a) of Rule 485. Registrant has filed with the Securities and Exchange Commission a declaration pursuant to Rule 24f-2 under the Investment Company Act of 1940, and: X filed the Notice required by that Rule on April 15, 1994; or intends to file the Notice required by that Rule on or about ____________; or during the most recent fiscal year did not sell any securities pursuant to Rule 24f-2 under the Investment Company Act of 1940, and, pursuant to Rule 24f-2(b)(2), need not file the Notice. Copies to: Thomas J. Donnelly, Esquire Charles H. Morin, Esquire Houston, Houston & Donnelly Dickstein, Shapiro & Morin 2510 Centre City Tower 2101 L Street, N.W. 650 Smithfield Street Washington, D.C. 20037 Pittsburgh, Pennsylvania 15222 CROSS-REFERENCE SHEET This Amendment to the Registration Statement of DG INVESTOR SERIES which is comprised of five portfolios: (1) DG U.S. Government Money Market Fund, (2) DG Limited Term Government Income Fund, (3) DG Government Income Fund, (4) DG Equity Fund, and (5) DG Municipal Income Fund, relates to all of the portfolios and is comprised of the following: PART A. INFORMATION REQUIRED IN A PROSPECTUS. Prospectus Heading (Rule 404(c) Cross Reference) Item 1. Cover Page (1-5) Cover Page. Item 2. Synopsis (1-5) Summary of Fund Expenses; Financial Highlights. Item 3. Condensed Financial Information. (1-5) Performance Information. Item 4. General Description of Registrant (1-5) General Information; (1-5) Investment Information; (1-5) Investment Objective; (1-5) Investment Policies; (1-5) Investment Limitations. Item 5. Management of the Fund (1-5) DG Investor Series Information; (1-5) Management of the Trust; (1-5) Distribution of Fund Shares; (1-5) Administration of the Fund; (2-5) Brokerage Transactions. Item 6. Capital Stock and Other Securities (1-5) Dividends; (1) Capital Gains; (1-5) Shareholder Information; (1-5) Voting Rights; (1-5) Massachusetts Partnership Law; (1-5) Tax Information; (1-5) Federal Income Tax; (1-5) Effect of Banking Laws. Item 7. Purchase of Securities Being Offered. (1-5) Net Asset Value; (1-5) Investing in the Fund; (1-5) Share Purchases; (2-5) Minimum Investment Required; (1-5) Distribution Plan; (1-5) What Shares Cost; (2-5) Reducing the Sales Charge; (1-5) Systematic Investment Program; (1-5) Certificates and Confirmations; (1-5) Exchanging Securities for Fund Shares; (1-5) Exchange Privilege; (1-5) DG Investor Series; (1-5) Exchanging Shares. Item 8. Redemption or Repurchase (1-5) Redeeming Shares; (1-5) Through the Banks; (1-5) Systematic Withdrawal Program; (1-5) Accounts With Low Balances; (1-5) Redemption in Kind. Item 9. Pending Legal Proceedings None. PART B. INFORMATION REQUIRED IN A STATEMENT OF ADDITIONAL IFORMATION. Item 10. Cover Page (1-5) Cover Page. Item 11. Table of Contents (1-5) Table of Contents. Item 12. General Information and History (1-5) General Information About the Fund. Item 13. Investment Objectives and Policies (1-5) Investment Objective(s) and Policies. Item 14. Management of the Fund (1-5) DG Investor Series Management. Item 15. Control Persons and Principal Holders of Securities (1-5) Fund Ownership. Item 16. Investment Advisory and Other Services (1-5) Investment Advisory Services; (1-5) Administrative Services. Item 17. Brokerage Allocation (1-5) Brokerage Transactions. Item 18. Capital Stock and Other Securities Not Applicable. Item 19. Purchase, Redemption and Pricing of Securities Being Offered (1-5) Purchasing Shares; (1-5) Exchange Privilege; (1-5) Determining Net Asset Value; (1-5) Redeeming Shares. Item 20. Tax Status (1-5) Tax Status. Item 21. Underwriters (1-5) Distribution Plan. Item 22. Calculation of Performance Data (1-5) Performance Comparisons; (1-5) Yield; (1) Effective Yield; (2-5) Total Return; (5) Tax-Equivalent Yield. Item 23. Financial Statements (1-5) Filed in Part A. DG U.S. GOVERNMENT MONEY MARKET FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG U.S. Government Money Market Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund), investing in short-term U.S. government securities to achieve current income consistent with stability of principal and liquidity. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1994, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing or calling the Fund. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Repurchase Agreements 4 Lending of Portfolio Securities 4 When-Issued and Delayed Delivery Transactions 4 Investment Limitations 4 Regulatory Compliance 5 DG INVESTOR SERIES INFORMATION 5 - ------------------------------------------------------ Management of the Trust 5 Board of Trustees 5 Investment Adviser 5 Advisory Fees 5 Adviser's Background 5 Distribution of Fund Shares 6 Distribution Plan 6 Shareholder Servicing Arrangements 7 ADMINISTRATION OF THE FUND 7 - ------------------------------------------------------ Administrative Services 7 Custodian 7 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 7 Legal Counsel 7 Independent Auditors 7 NET ASSET VALUE 8 - ------------------------------------------------------ INVESTING IN THE FUND 8 - ------------------------------------------------------ Share Purchases 8 Through the Banks 8 Minimum Investment Required 8 What Shares Cost 8 Systematic Investment Program 9 Certificates and Confirmations 9 Dividends 9 Capital Gains 9 Exchanging Securities for Fund Shares 9 EXCHANGE PRIVILEGE 9 - ------------------------------------------------------ DG Investor Series 9 Exchanging Shares 9 REDEEMING SHARES 10 - ------------------------------------------------------ Through the Banks 10 By Telephone 10 Checkwriting 11 Systematic Withdrawal Program 11 Accounts With Low Balances 11 Redemption in Kind 11 SHAREHOLDER INFORMATION 12 - ------------------------------------------------------ Voting Rights 12 Massachusetts Partnership Law 12 EFFECT OF BANKING LAWS 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 PERFORMANCE INFORMATION 14 - ------------------------------------------------------ FINANCIAL STATEMENTS 15 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 23 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......... None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................. None Redemption Fee (as a percentage of amount redeemed, if applicable).................. None Exchange Fee........................................................................ None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1).................................................... 0.30% 12b-1 Fees(2)....................................................................... 0.00% Total Other Expenses................................................................ 0.24% Total Fund Operating Expenses(3)............................................... 0.54%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.25% as a 12b-1 fee to the distributor. (3) The Total Fund Operating Expenses would have been 0.74% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE " DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - -------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period......... $6 $17 $30 $ 68
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. DG U.S. GOVERNMENT MONEY MARKET FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 23.
YEAR ENDED FEBRUARY 28, ------------------- 1994 1993* ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $ 1.00 - ------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------------- Net investment income 0.03 0.02 - ------------------------------------------------------------------- LESS DISTRIBUTIONS - ------------------------------------------------------------------- Dividends to shareholders from net investment income (0.03) (0.02) - ------------------------------------------------------------------- ------ ------ NET ASSET VALUE, END OF PERIOD $1.00 $ 1.00 - ------------------------------------------------------------------- ------ ------ TOTAL RETURN** 2.74% 1.97% - ------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------------- Expenses 0.54% 0.41%(a) - ------------------------------------------------------------------- Net investment income 2.70% 2.88%(a) - ------------------------------------------------------------------- Expense waiver/reimbursement(b) 0.20% 0.38%(a) - ------------------------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------------------------- Net assets, end of period (000 omitted) $189,315 $189,024 - -------------------------------------------------------------------
* Reflects operations for the period from July 1, 1992 (date of initial public investment) to February, 28, 1993. During the period from March 31, 1992 (start of business) to June 30, 1992, net investment income aggregating $0.0090 per share ($899) was distributed to Federated Administrative Services. ** Based on net asset value which does not reflect the sales load or contingent deferred sales charge, if applicable. (a) Computed on an annualized basis. (b) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank or Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio limited to short-term U.S. government securities. A minimum initial investment of $1,000 is required. The Fund attempts to stabilize the value of a share at $1.00. Fund shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income consistent with stability of principal and liquidity. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of short-term U.S. government securities. The average maturity of U.S. government securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less, and the Fund will invest only in securities with remaining maturities of 13 months or less at the time of purchase by the Fund. Unless indicated otherwise, the investment policies of the Fund may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund invests are either issued or guaranteed by the U.S. government, its agencies, or instrumentalities. These securities include, but are not limited to: - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds; and - notes, bonds, and discount notes of U.S. government agencies or instrumentalities, such as the Federal Farm Credit Banks, Federal Home Loan Banks, Government National Mortgage Association, Federal Home Loan Mortgage Corporation, and Student Loan Marketing Association. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government, such as Government National Mortgage Association participation certificates, are backed by the full faith and credit of the U.S. Treasury. No assurances can be given that the U.S. government will provide financial support to other agencies or instrumentalities, since it is not obligated to do so. These instrumentalities are supported by: - the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury; - the discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or - the credit of the agency or instrumentality. REPURCHASE AGREEMENTS. The U.S. government securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-term U.S. government securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. The above limitation cannot be changed without shareholder approval. The following limitation, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not: - invest more than 10% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice and certain restricted securities determined by the Trustees not to be liquid. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940, as amended. The Fund will invest more than 5% of its assets in any one issuer only under the circumstances permitted by Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1993, the Trust Division of Deposit Guaranty National Bank had approximately $9 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's Adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank may make loans to public companies. Thus, it may be possible from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank. The lending relationship will not be a factor in the selection of securities. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million on assets in excess of $750 .075 of 1% million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, DC. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick, Pittsburgh, Pennsylvania. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per share. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank, a subsidiary of DGC, and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800)748-8500 or Commercial National Bank at (800) 274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 11:00 a.m. (Eastern time). Payment is required before 3:00 p.m. (Eastern time) on the same business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) on the following federal holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Dividends will be reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund or the Banks as appropriate. Purchase orders must be received by the Banks before 11:00 a.m. (Eastern time). Payment is required before 3:00 p.m. (Eastern time) on the same business day in order to earn dividends for that day. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If for some extraordinary reason the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. EXCHANGING SECURITIES FOR FUND SHARES Investors may exchange certain securities or a combination of certain securities and cash for Fund shares. The Fund reserves the right to determine the acceptability of securities to be exchanged. On the day securities are accepted by the Fund, they are valued in the same manner as the Fund values its assets. Investors wishing to exchange securities should first contact the Banks. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- DG INVESTOR SERIES All shareholders of the Fund are shareholders of DG Investor Series. Shareholders in the Fund have easy access to the other portfolios of DG Investor Series. EXCHANGING SHARES Shareholders of the Fund may exchange shares of the Fund for shares of the other funds in DG Investor Series. In addition, shares of the Fund may also be exchanged for certain other funds distributed by Federated Securities Corp. that are not advised by the Banks ("Federated Funds"). For further information on the availability of Federated Funds for exchanges, please call Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Shares of funds with a sales charge may be exchanged at net asset value for shares of other funds with an equal sales charge or no sales charge. Shares of the funds with no sales charge acquired by direct purchase or reinvestment of dividends on such shares may be exchanged for shares of funds with a sales charge at net asset value plus the applicable sales charge. 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. 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. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instructions may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. Telephone exchange instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made in person or by telephone. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500. For orders received before 11:00 a.m. (Eastern time), proceeds will normally be wired the same day to the shareholder's account at the Banks or a check will be sent to the address of record. Those shares will not be entitled to the dividend declared on the day the redemption request was received. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Fund shares. A fee may be charged for this service. With a Fund checking account, shares may be redeemed simply by writing a check. With a Fund checking account, shares may be redeemed simply by writing a check for $100 or more. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem shares. For further information, contact the Fund. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments, and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that payments should be in kind. In such a case, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments, valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. As of April 7, 1994 Deposit Guaranty National Bank, Jackson, Mississippi, acting in various capacities for numerous accounts, was the owner of record of approximately 101,031,430.96 shares (60.31%), and Commercial National Bank, Shreveport, Louisiana, acting in various capacities for numerous accounts, was the owner of record of approximately 60,276,776.63 shares (35.98%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's investment adviser, Deposit Guaranty National Bank, is subject to such banking laws and regulations. Deposit Guaranty National Bank believes, based on the advice of its counsel, that it may perform the investment advisory services for the Fund contemplated by its advisory agreement with the Trust without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent Deposit Guaranty National Bank from continuing to perform all or a part of the above services for its customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by Deposit Guaranty National Bank, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser with equivalent abilities to Deposit Guaranty National Bank is found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios, if any, will not be combined for tax purposes with those realized by the Fund. Unless otherwise exempt, shareholders are required to pay federal income tax on any dividends and other distributions received. This applies whether dividends are received in cash or as additional shares. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their account under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its yield and effective yield. The yield of the Fund represents the annualized rate of income earned on an investment in the Fund over a seven-day period. It is the annualized dividends earned during the period on the investment, shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but, when annualized, the income earned by an investment in the Fund is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, the Fund may advertise its performance using certain financial publications and/or compare its performance to certain indices. DG U.S. GOVERNMENT MONEY MARKET FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1994 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--47.5% - ------------------------------------------------------------------------------------ U.S. TREASURY BILLS--18.8% ---------------------------------------------------------------- $ 5,000,000 3/10/94 $ 4,996,056 ---------------------------------------------------------------- 5,000,000 4/21/94 4,978,998 ---------------------------------------------------------------- 5,000,000 5/26/94 4,963,928 ---------------------------------------------------------------- 5,000,000 6/23/94 4,947,037 ---------------------------------------------------------------- 6,000,000 8/25/94 5,893,948 ---------------------------------------------------------------- 5,000,000 9/22/94 4,905,330 ---------------------------------------------------------------- 5,000,000 12/15/94 4,861,320 ---------------------------------------------------------------- ------------ Total 35,546,617 ---------------------------------------------------------------- ------------ U.S. TREASURY NOTES--28.7% ---------------------------------------------------------------- 5,000,000 8.62%, 8/15/94 5,115,922 ---------------------------------------------------------------- 3,500,000 8.50%, 6/30/94 3,559,460 ---------------------------------------------------------------- 5,000,000 8.25%, 11/15/94 5,159,462 ---------------------------------------------------------------- 5,000,000 8.00%, 7/15/94 5,085,358 ---------------------------------------------------------------- 4,000,000 7.62%, 12/31/94 4,127,919 ---------------------------------------------------------------- 3,000,000 5.75%, 3/31/94 3,005,666 ---------------------------------------------------------------- 11,000,000 5.37%, 4/30/94 11,034,460 ---------------------------------------------------------------- 4,000,000 5.12%, 5/31/94 4,017,607 ---------------------------------------------------------------- 3,000,000 4.62%, 11/30/94 3,023,224 ---------------------------------------------------------------- 2,300,000 4.25%, 7/31/94 2,308,311 ---------------------------------------------------------------- 4,000,000 4.25%, 10/31/94 4,017,927 ---------------------------------------------------------------- 4,000,000 3.87%, 2/28/95 4,000,000 ---------------------------------------------------------------- ------------ Total 54,455,316 ---------------------------------------------------------------- ------------ TOTAL U.S. TREASURY OBLIGATIONS 90,001,933 ---------------------------------------------------------------- ------------
DG U.S. GOVERNMENT MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ *REPURCHASE AGREEMENTS--52.3% - ------------------------------------------------------------------------------------ $ 8,000,000 Cantor, Fitzgerald Securities, Inc., 3.45%, dated 2/28/94, due 3/1/94 $ 8,000,000 ---------------------------------------------------------------- 2,949,422 Carroll McEntee & McGinley, Inc., 3.375%, dated 2/28/94, due 3/1/94 2,949,422 ---------------------------------------------------------------- 8,000,000 Daiwa Securities America, Inc., 3.40%, dated 2/28/94, due 3/1/94 8,000,000 ---------------------------------------------------------------- 40,000,000 ** Bankers Trust Company, 3.31%, dated 2/22/94, due 3/7/94 40,000,000 ---------------------------------------------------------------- 40,000,000 ** First Boston Corp., 3.35%, dated 2/28/94, due 3/14/94 40,000,000 ---------------------------------------------------------------- ------------ TOTAL REPURCHASE AGREEMENTS (NOTE 2B) 98,949,422 ---------------------------------------------------------------- ------------ TOTAL INVESTMENTS, AT AMORTIZED COST $188,951,355+ ---------------------------------------------------------------- ------------
* Repurchase agreements are fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. ** Although final maturity falls beyond seven days, a liquidity feature is included in each transaction to permit termination of the repurchase agreement. + Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($189,314,775) at February 28, 1994. (See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Investments in repurchase agreements $98,949,422 - ------------------------------------------------------------------ Investments in other securities 90,001,933 - ------------------------------------------------------------------ ----------- Total investments, at value (Notes 2A and 2B) $188,951,355 - -------------------------------------------------------------------------------- Interest receivable 738,991 - -------------------------------------------------------------------------------- Receivable for Fund shares sold 3,906 - -------------------------------------------------------------------------------- Prepaid/deferred expenses (Note 2F) 48,450 - -------------------------------------------------------------------------------- ------------ Total assets 189,742,702 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Dividends payable 385,778 - ------------------------------------------------------------------ Accrued expenses 42,149 - ------------------------------------------------------------------ ----------- Total liabilities 427,927 - -------------------------------------------------------------------------------- ------------ NET ASSETS for 189,314,775 shares of beneficial interest outstanding $189,314,775 - -------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price, and Redemption Price Per Share: (189,314,775 / 189,314,775 shares of beneficial interest outstanding) $1.00 - -------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------- Interest income (Note 2C) $5,214,612 - ---------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 805,013 - --------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 207,210 - --------------------------------------------------------------------- Trustees' fees 4,440 - --------------------------------------------------------------------- Custodian fees 34,336 - --------------------------------------------------------------------- Recordkeeper fees (Note 5) 46,628 - --------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses (Note 5) 19,303 - --------------------------------------------------------------------- Legal fees 3,846 - --------------------------------------------------------------------- Printing and postage 8,363 - --------------------------------------------------------------------- Auditing fees 13,032 - --------------------------------------------------------------------- Fund share registration fees 41,167 - --------------------------------------------------------------------- Insurance premiums 5,530 - --------------------------------------------------------------------- Miscellaneous 5,359 - --------------------------------------------------------------------- ---------- Total expenses 1,194,227 - --------------------------------------------------------------------- Deduct--Waiver of investment advisory fee (Note 5) 322,005 - --------------------------------------------------------------------- ---------- Net expenses 872,222 - ---------------------------------------------------------------------------------- ---------- Net investment income $4,342,390 - ---------------------------------------------------------------------------------- ----------
(See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28, ------------------------------ 1994 1993* ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 4,342,390 $ 1,971,889 - -------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - -------------------------------------------------------------- Dividends to shareholders from net investment income (4,342,390) (1,971,889) - -------------------------------------------------------------- ------------- ------------- FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - -------------------------------------------------------------- Proceeds from sale of shares 317,109,684 340,909,513 - -------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions in Fund shares 4,328 129,053 - -------------------------------------------------------------- Cost of shares redeemed (316,822,908) (152,114,895) - -------------------------------------------------------------- ------------- ------------- Change in net assets from Fund share transactions 291,104 188,923,671 - -------------------------------------------------------------- ------------- ------------- Change in net assets 291,104 188,923,671 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 189,023,671 100,000 - -------------------------------------------------------------- ------------- ------------- End of period $ 189,314,775 $ 189,023,671 - -------------------------------------------------------------- ------------- -------------
* For the period from March 31, 1992 (start of business) to February 28, 1993. (See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is an open-end, management investment company, established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Trust currently consists of five portfolios. The financial statements included herein present only those of the DG U.S. Government Money Market Fund (the "Fund"), one of the portfolios of the Trust. The financial statements of the other portfolios in the Trust are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--The Board of Trustees ("Trustees") has determined that the best method currently available for valuing portfolio securities is amortized cost. The Fund's use of the amortized cost method to value its portfolio securities is conditioned on its compliance with Rule 2a-7 under the Investment Company Act of 1940, as amended. B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's underlying securities to ensure the existence of a proper level of collateral. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Trust's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. C. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest and discount earned (net of premium), including original issue discount as required by the Internal Revenue Code, (the "Code"), plus realized net gains, if any, on portfolio securities. D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year all of its net taxable
DG U.S GOVERNMENT MONEY MARKET FUND - -------------------------------------------------------------------------------- income, including any net realized gain on investments. Accordingly, no provision for federal tax is necessary. E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. G. OTHER--Investment transactions are accounted for on the date of the transaction.
(3) DIVIDENDS AND DISTRIBUTIONS Dividends are declared daily and paid monthly to all shareholders invested in the Fund on the record date. Dividends are paid from the net investment income of the Fund. Net investment income consists of all interest received by the Fund less its expenses. (4) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At February 28, 1994, capital paid-in aggregated $189,314,775. Transactions in Fund shares were as follows:
YEAR ENDED FEBRUARY 28, ---------------------------- 1994 1993* - ---------------------------------------------------------------- ------------ ------------ Shares outstanding, beginning of period 189,023,671 100,000 - ---------------------------------------------------------------- Shares sold 317,109,684 340,909,513 - ---------------------------------------------------------------- Shares issued to shareholders electing to receive payment of distributions in Fund shares 4,328 129,053 - ---------------------------------------------------------------- Shares redeemed (316,822,908) (152,114,895) - ---------------------------------------------------------------- ------------ ------------ Shares outstanding, end of period 189,314,775 189,023,671 - ---------------------------------------------------------------- ------------ ------------
* For the period from March 31, 1992 (start of business) to February 28, 1993. DG U.S GOVERNMENT MONEY MARKET FUND - -------------------------------------------------------------------------------- (5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Deposit Guaranty National Bank, the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse certain operating expenses of the Fund in excess of limitations imposed by certain states. Federated Administrative Services ("FAS") provides the Trust certain administrative personnel and services. The fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. Organization expenses of $40,903 were initially borne by FAS. The Fund has agreed to reimburse FAS for the organization expenses initially borne by FAS during the five year period following the date the Fund became effective. For the period ended February 28, 1994, the Fund paid $3,334 pursuant to this agreement. Federated Services Company ("FSC") is the Fund's transfer agent and dividend disbursing agent. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio of investments. Certain Officers and Trustees of the Trust are Officers and Trustees of FAS and Federated Services Company. INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholder DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments, of the DG U.S. Government Money Market Fund (a portfolio within DG Investor Series) as of February 28, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights, which is presented on page 2 of this prospectus, for the year ended February 28, 1994 and the period from March 31, 1992 (start of business) to February 28, 1993. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the financial highlights. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers, and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of the DG U.S. Government Money Market Fund at February 28, 1994, and the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the year ended February 28, 1994 and the period from March 31, 1992 to February 28, 1993, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK Pittsburgh, Pennsylvania April 7, 1994 ADDRESSES - -------------------------------------------------------------------------------- DG U.S. Government Money Federated Investors Tower Market Fund Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 1200 Jackson, Mississippi 39215-1200 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and P.O. Box 1713 Trust Company Boston, Massachusetts 02105 - ------------------------------------------------------------------------------------------------ Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent Federated Investors Tower Federated Services Company Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------ Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, DC 20037 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG U.S. GOVERNMENT MONEY MARKET FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS APRIL 30, 1994 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2040203A (4/94) THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY FDIC NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT
GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. DG U.S. GOVERNMENT MONEY MARKET FUND (A PORTFOLIO OF DG INVESTOR SERIES) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for DG U.S. Government Money Market Fund (the "Fund") dated April 30, 1994. This Statement is not a prospectus itself. To receive a copy of the prospectus, write or call the Fund. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated April 30, 1994 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Types of Investments 1 Repurchase Agreements 1 Reverse Repurchase Agreements 1 When-Issued and Delayed Delivery Transactions 1 Lending of Portfolio Securities 2 Investment Limitations 2 DG INVESTOR SERIES MANAGEMENT 3 - --------------------------------------------------------------- Officers and Trustees 3 The Funds 5 Fund Ownership 5 Trustee Liability 5 INVESTMENT ADVISORY SERVICES 5 - --------------------------------------------------------------- Adviser to the Fund 5 Advisory Fees 6 ADMINISTRATIVE SERVICES 6 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 6 - --------------------------------------------------------------- PURCHASING SHARES 7 - --------------------------------------------------------------- Distribution Plan 7 Conversion to Federal Funds 7 DETERMINING NET ASSET VALUE 7 - --------------------------------------------------------------- Use of the Amortized Cost Method 7 EXCHANGE PRIVILEGE 8 - --------------------------------------------------------------- Requirements for Exchange 8 Making an Exchange 8 REDEEMING SHARES 8 - --------------------------------------------------------------- Redemption in Kind 8 TAX STATUS 8 - --------------------------------------------------------------- The Fund's Tax Status 8 Shareholders' Tax Status 9 YIELD 9 - --------------------------------------------------------------- EFFECTIVE YIELD 9 - --------------------------------------------------------------- PERFORMANCE COMPARISONS 10 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in DG Investor Series (the "Trust") which was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is current income consistent with stability of principal and liquidity. This investment objective cannot be changed without approval of shareholders. TYPES OF INVESTMENTS The Fund invests primarily in short-term U.S. government securities. VARIABLE RATE U.S. GOVERNMENT SECURITIES Some of the short-term U.S. government securities the Fund may purchase variable interest rates. These securities have a rate of interest subject to adjustment at least annually. This adjusted interest rate is ordinarily tied to some objective standard, such as the 91-day U.S. Treasury bill rate. Variable interest rates will reduce the changes in the market value of such securities from their original purchase prices. Accordingly, the potential for capital appreciation or capital depreciation should not be greater than the potential for capital appreciation or capital depreciation of fixed interest rate U.S. government securities having maturities equal to the interest rate adjustment dates of the variable rate U.S. government securities. The Fund may purchase variable rate U.S. government securities upon the determination by the Board of Trustees that the interest rate as adjusted will cause the instrument to have a current market value that approximates its par value on the adjustment date. REPURCHASE AGREEMENTS The Fund or its custodian will take possession of the securities subject to repurchase agreements and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are found by the Fund's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees"). REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, and not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of its assets. - -------------------------------------------------------------------------------- During the current year, the Fund does not anticipate investing more than 5% of its total assets in when-issued and delayed delivery transactions. LENDING OF PORTFOLIO SECURITIES The collateral received when the Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of purchases and sales of securities. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities, except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its total assets including the amount borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge or hypothecate any assets, except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets of the Fund at the time of the pledge. UNDERWRITING The Fund will not underwrite any issue of securities except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. INVESTING IN REAL ESTATE The Fund will not buy or sell real estate including limited partnership interests in real estate, although it may invest in securities secured by real estate or interests in real estate. INVESTING IN COMMODITIES The Fund will not buy or sell commodities, commodity contracts, or commodities futures contracts. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except portfolio securities. This shall not prevent the Fund from purchasing or holding bonds, debentures, notes, certificates of indebtedness or other debt securities, entering into repurchase agreements or engaging in other transactions where permitted by its investment objective, policies and limitations or its Declaration of Trust. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. RESTRICTED SECURITIES The Fund will not invest more than 5% of the value of its net assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet criteria for liquidity as established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 10% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice and certain restricted securities determined by the Trustees not to be liquid. - -------------------------------------------------------------------------------- DEALING IN PUTS AND CALLS The Fund will not buy or sell puts, calls, straddles, spreads, or any combination of these. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will limit its investment in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, invest more than 5% of its total assets in any one investment company, or invest more than 10% of its total assets in investment companies in general. The Fund will purchase securities of investment companies only in open-market transactions involving only customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation, or acquisition of assets. It should be noted that investment companies incur certain expenses such as management fees, and therefore any investment by a Fund in shares of another investment company would be subject to such duplicate expenses. INVESTING IN MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. DG INVESTOR SERIES MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Deposit Guaranty National Bank, Federated Investors, Federated Securities Corp., Federated Administrative Services, Federated Services Company, and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- John F. Donahue+* Chairman and Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Federated Investors Advisers, Federated Management, and Federated Research; Director, AEtna Life Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. - --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood/IPC Commercial Wood and Associates, Inc.; President, Northgate Village Development Department Corporation; General Partner and Trustee in private real estate ventures in John R. Wood Southeast Florida; Director, Trustee, or Managing General Partner of the and Associates, Inc., Fund; formerly, President, Naples Property Management, Inc. Realtors 3255 Tamiami Trail North Naples, FL - -------------------------------------------------------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza Director, Trustee, or Managing General Partner of the Funds; formerly, Vice 23rd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Pittsburgh, PA Homes, Inc. - -------------------------------------------------------------------------------------------------------------------------------- James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue Concord, MA Cross of Massachusetts, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA - --------------------------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - -------------------------------------------------------------------------------------------------------------------------------- Edward C. Gonzales* President, Vice President, Treasurer and Trustee, Federated Investors; Vice President Federated Investors Treasurer, and Treasurer, Federated Advisers, Federated Management, and Federated Tower and Trustee Research; Executive Vice President, Treasurer, and Director, Federated Pittsburgh, PA Securities Corp.; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee of some of the Funds; Vice President and Treasurer of the Funds. - -------------------------------------------------------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, 225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President, Boston, MA State Street Bank and Trust Company and State Street Boston Corporation; and Trustee, Lahey Clinic Foundation, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.; 5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. - -------------------------------------------------------------------------------------------------------------------------------- Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds; Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly Chairman, National Advisory Council for Environmental Policy & Technology. - -------------------------------------------------------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Investors Federated Management, and Federated Research; President and Trustee, Tower Federated Administrative Services; Trustee, Federated Services Company; Pittsburgh, PA President or Vice President of the Funds; Director, Trustee or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. - -------------------------------------------------------------------------------------------------------------------------------- Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Director, Federated Securities Corp.; President or Vice President of the Tower Funds; Director or Trustee of some of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors and Secretary Investors; Vice President, Secretary and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Trustee, Federated Services Pittsburgh, PA Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - --------------------------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- Ronald M. Petnuch Vice President Vice President Federated Administrative Services; Vice President and Federated Investors and Assistant Assistant Treasurer of some of the Funds; formerly, Associate Corporate Tower Treasurer Counsel of Federated Investors. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President, Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Vice President of the Funds; Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division. - --------------------------------------------------------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. + Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; California Municipal Cash Trust; Cash Trust Series; Cash Trust Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management Series, Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding shares. TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will only be liable for their own willful defaults. If reasonable care has been exercised in the selection of officers, agents, employees, or investment advisers, a Trustee shall not be liable for any neglect or wrong doing of any such person. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES - -------------------------------------------------------------------------------- ADVISER TO THE FUND The Fund's investment adviser is Deposit Guaranty National Bank (the "Adviser"), a subsidiary of Deposit Guaranty Corp. The Adviser shall not be liable to the Trust, the Fund or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security, or for anything done or omitted by it, except acts or - -------------------------------------------------------------------------------- omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. Because of the internal controls maintained by Deposit Guaranty National Bank to restrict the flow of non-public information, Fund investments are typically made without any knowledge of Deposit Guaranty National Bank's or affiliates' lending relationships with an issuer. ADVISORY FEES For its advisory services, the Adviser receives an annual investment advisory fee as described in the prospectus. For the year ended February 28, 1994, and for the period from March 31, 1992 (start of business) to February 28, 1993, the Fund's Adviser earned $805,013, and $342,115, respectively, of which $322,005, and $256,301, respectively, were voluntarily waived. STATE EXPENSE LIMITATIONS The Adviser has undertaken to comply with the expense limitation established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1 1/2% per year of the remaining average net assets, the Adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the Adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. For the year ended February 28, 1994, and for the period from March 31, 1992 (start of business) to February 28, 1993, the Fund incurred administrative service fees of $207,210, and $95,975, respectively, of which $0 and $6,691, respectively, were voluntarily waived. John A. Staley, IV, an officer of the Fund, holds approximately 15% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. For the fiscal years ended February 28, 1994, 1993, and 1992, Federated Administrative Services paid approximately $159,222, $179,920, and $202,532, respectively, for services provided by Commercial Data Services, Inc. BROKERAGE TRANSACTIONS - -------------------------------------------------------------------------------- When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. The Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the Adviser and may include: - - advice as to the advisability of investing in securities; - - security analysis and reports; - - economic studies; - - industry studies; - - receipt of quotations for portfolio evaluations; and - - similar services. The Adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Research services provided by brokers may be used by the Adviser in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are sold at their net asset value without a sales charge on days the New York Stock Exchange and Federal Reserve Wire System are open for business. The procedure for purchasing shares is explained in the prospectus under "Investing in the Fund." DISTRIBUTION PLAN With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's shares subject to the Plan. Such activities may include the advertising and marketing of shares of the Fund; preparing, printing, and distributing prospectuses and sales literature to prospective shareholders, brokers, or administrators; and implementing and operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay fees to brokers for distribution and administrative services and to administrators for administrative services provided to the Fund. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions, wiring funds and receiving funds for purchases and redemptions of Fund shares, confirming and reconciling all transactions, reviewing the activity in Fund accounts and providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Fund shares and prospective shareholders. The Trustees expect that the adoption of the Plan will result in the sale of a sufficient number of shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objective. For the year ended February 28, 1994 and for the period from March 31, 1992 (start of business) to February 28, 1993, brokers and administrators (financial institutions) received no fees pursuant to the Plan. CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. Deposit Guaranty National Bank and Commercial National Bank (the "Banks") as well as Federated Services Company act as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the value of a share at $1.00. The days on which net asset value is calculated by the Fund are described in the prospectus. USE OF THE AMORTIZED COST METHOD The Trustees have decided that the best method for determining the value of portfolio instruments is amortized cost. Under this method, portfolio instruments are valued at the acquisition cost as adjusted for amortization of premium or accumulation of discount rather than at current market value. The Fund's use of the amortized cost method of valuing portfolio instruments depends on its compliance with certain conditions contained in Rule 2a-7 (the "Rule") under the Investment Company Act of 1940. Under the Rule, the Trustees must establish procedures reasonably designed to stabilize the net asset value per share, as computed for purposes of distribution and redemption, at $1.00 per share, taking into account current market conditions and the Fund's investment objective. MONITORING PROCEDURES The Trustees' procedures include monitoring the relationship between the amortized cost value per share and the net asset value per share based upon available indications of market value. The Trustees will decide what, if any, steps should be taken if there is a difference of more than .5 of 1% between the two values. The Trustees will take any steps they consider appropriate (such as redemption in kind or shortening the average portfolio maturity) to minimize any material dilution or other unfair results arising from differences between the two methods of determining net asset value. INVESTMENT RESTRICTIONS The Rule requires that the Fund limit its investments to instruments that, in the opinion of the Trustees, present minimal credit risks. The Rule also requires the Fund to maintain a dollar-weighted average portfolio - -------------------------------------------------------------------------------- maturity (not more than 90 days) appropriate to the objective of maintaining a stable net asset value of $1.00 per share. In addition, no instrument with a remaining maturity of more than thirteen months can be purchased by the Fund. Should the disposition of a portfolio security result in a dollar-weighted average portfolio maturity of more than 90 days, the Fund will invest its available cash to reduce the average maturity to 90 days or less as soon as possible. The Fund may attempt to increase yield by trading portfolio securities to take advantage of short-term market variations. This policy may, from time to time, result in high portfolio turnover. Under the amortized cost method of valuation, neither the amount of daily income nor the net asset value is affected by any unrealized appreciation or depreciation of the portfolio. In periods of declining interest rates, the indicated daily yield on shares of the Fund computed by dividing the annualized daily income on the Fund's portfolio by the net asset value computed as above may tend to be higher than a similar computation made by using a method of valuation based upon market prices and estimates. In periods of rising interest rates, the indicated daily yield on shares of the Fund computed the same way may tend to be lower than a similar computation made by using a method of calculation based upon market prices and estimates. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- REQUIREMENTS FOR EXCHANGE Before the exchange, the shareholder must receive a prospectus of the fund for which the exchange is being made. This privilege is available to shareholders resident in any state in which the fund shares being acquired may be sold. Upon receipt of proper instructions and required supporting documents, shares submitted for exchange are redeemed and the proceeds invested in shares of the other fund. Further information on the exchange privilege and prospectuses may be obtained by calling the Fund. MAKING AN EXCHANGE Instructions for exchanges may be given in writing. Written instructions may require a signature guarantee. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are redeemed at the next computed net asset value after the Banks receive the redemption request. Redemption procedures are explained in the prospectus under "Redeeming Shares." Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on federal holidays when wire transfers are restricted. Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Fund intends to redeem shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the Fund's portfolio. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Fund is obligated to redeem shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day period. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, the Fund must, among other requirements: - - derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; - - derive less than 30% of its gross income from the sale of securities held less than three months; - -------------------------------------------------------------------------------- - - invest in securities within certain statutory limits; and - - distribute to its shareholders at least 90% of its net income earned during the year. SHAREHOLDERS' TAX STATUS Shareholders are subject to federal income tax on dividends received as cash or additional shares. No portion of any income dividend paid by the Fund is eligible for the dividends received deduction available to corporations. These dividends, and any short-term capital gains, are taxable as ordinary income. YIELD - -------------------------------------------------------------------------------- The Fund's yield for the seven-day period ended February 28, 1994, was 2.87%. The Fund calculates its yield daily, based upon the seven days ending on the day of the calculation, called the "base period." This yield is computed by: - - determining the net change in the value of a hypothetical account with a balance of one share at the beginning of the base period, with the net change excluding capital changes but including the value of any additional shares purchased with dividends earned from the original one share and all dividends declared on the original and any purchased shares; - - dividing the net change in the account's value by the value of the account at the beginning of the base period to determine the base period return; and - - multiplying the base period return by (365/7). To the extent that financial institutions and brokers/dealers charge fees in connection with services provided in conjunction with an investment in the Fund, the performance, will be reduced for those shareholders paying those fees. EFFECTIVE YIELD - -------------------------------------------------------------------------------- The Fund's effective yield for the seven-day period ended February 28, 1994, was 2.91%. The Fund's effective yield is computed by compounding the unannualized base period return by: - - adding 1 to the base period return; - - raising the sum to the (365/7)th power; and - - subtracting 1 from the result. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The Fund's performance depends upon such variables as: - - portfolio quality; - - average portfolio maturity; - - type of instruments in which the portfolio is invested; - - changes in interest rates on money market instruments; - - changes in the Fund's expenses; and - - the relative amount of Fund cash flow. Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: - - DISCOUNT CORPORATION OF NEW YORK 30-DAY FEDERAL AGENCIES, for example, is a weekly quote of the average daily offering price for selected federal agency issues maturing in 30 days. - - SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most representative yields for selected securities issued by the U.S. Treasury, maturing in 30 days. - - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "Short-term U.S. government funds" category in advertising and sales literature. Advertisements and other sales literature for the Fund may quote total returns which are calculated on non-standardized base periods. These total returns represent the change, over a specified period of time, in the value of an investment in the Fund based on monthly reinvestment of dividends and other investments. 2040203B (4/94) DG LIMITED TERM GOVERNMENT INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Limited Term Government Income Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The investment objective of the Fund is current income. The Fund pursues its investment objective by investing primarily in government securities to achieve current income. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1994, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing or calling the Fund. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 4 Average Portfolio Duration 4 Corporate Bonds 4 Mortgage-Backed Securities 4 Collateralized Mortgage Obligations 5 Asset-Backed Securities 5 Bank Instruments 5 Put and Call Options 5 Risks 6 Temporary Investments 6 Repurchase Agreements 6 Lending of Portfolio Securities 6 When-Issued and Delayed Delivery Transactions 7 Investment Limitations 7 DG INVESTOR SERIES INFORMATION 7 - ------------------------------------------------------ Management of the Trust 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 8 Adviser's Background 8 Sub-Adviser 8 Sub-Advisory Fees 8 Sub-Adviser's Background 9 Distribution of Fund Shares 9 Distribution Plan 9 Shareholder Servicing Arrangements 10 ADMINISTRATION OF THE FUND 10 - ------------------------------------------------------ Administrative Services 10 Custodian 10 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 10 Legal Counsel 10 Independent Auditors 10 Brokerage Transactions 10 NET ASSET VALUE 11 - ------------------------------------------------------ INVESTING IN THE FUND 11 - ------------------------------------------------------ Share Purchases 11 Through the Banks 11 Minimum Investment Required 11 What Shares Cost 12 Purchases at Net Asset Value 12 Sales Charge Reallowance 12 Reducing the Sales Charge 12 Quantity Discounts and Accumulated Purchases 13 Letter of Intent 13 Reinvestment Privilege 13 Concurrent Purchases 13 Systematic Investment Program 14 Certificates and Confirmations 14 Dividends and Distributions 14 Exchanging Securities for Fund Shares 14 EXCHANGE PRIVILEGE 14 - ------------------------------------------------------ DG Investor Series 14 Exchanging Shares 14 REDEEMING SHARES 15 - ------------------------------------------------------ Through the Banks 15 By Telephone 15 By Mail 16 Signatures 16 Systematic Withdrawal Plan 16 Accounts With Low Balances 16 Redemption in Kind 17 SHAREHOLDER INFORMATION 17 - ------------------------------------------------------ Voting Rights 17 Massachusetts Partnership Law 17 EFFECT OF BANKING LAWS 18 - ------------------------------------------------------ TAX INFORMATION 18 - ------------------------------------------------------ Federal Income Tax 18 PERFORMANCE INFORMATION 19 - ------------------------------------------------------ FINANCIAL STATEMENTS 20 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 30 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............. 2.00% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)....................... None Exchange Fee............................................................................. None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)......................................................... 0.31% 12b-1 Fees(2)............................................................................ 0.00% Total Other Expenses..................................................................... 0.28% Total Fund Operating Expenses(3)..................................................... 0.59%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.60%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee to the distributor. (3) The Total Fund Operating Expenses would have been 0.88% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ------------------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period........................................ $ 26 $39 $52 $ 92
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. DG LIMITED TERM GOVERNMENT INCOME FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 30.
YEAR ENDED FEBRUARY 28, ------------------ 1994 1993* ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $10.07 $10.00 - -------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------------------- Net investment income 0.52 0.36 - -------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.17) 0.07 - -------------------------------------------------------------------------- ------ ------ Total from investment operations 0.35 0.43 - -------------------------------------------------------------------------- ------ ------ LESS DISTRIBUTIONS - -------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.52) (0.36) - -------------------------------------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (0.03) -- - -------------------------------------------------------------------------- ------ ------ Total distributions (0.55) (0.36) - -------------------------------------------------------------------------- ------ ------ NET ASSET VALUE, END OF PERIOD $9.87 $10.07 - -------------------------------------------------------------------------- ------ ------ TOTAL RETURN** 3.52% 4.43% - -------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------------- Expenses 0.59% 0.50%(a) - -------------------------------------------------------------------------- Net investment income 5.21% 6.25%(a) - -------------------------------------------------------------------------- Expense waiver/reimbursement(b) 0.29% 0.42%(a) - -------------------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------------------- Net assets, end of period (000 omitted) $116,660 $99,921 - -------------------------------------------------------------------------- Portfolio turnover rate 76% 18% - --------------------------------------------------------------------------
* Reflects operations for the period from August 3, 1992 (date of initial public investment) to February 28, 1993. ** Based on net asset value which does not reflect the sales load or contingent deferred sales charge, if applicable. (a) Computed on an annualized basis. (b) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). Further information about the Fund's performance is contained in the Fund's Annual Report dated April 30, 1994, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and its affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of government securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income, the weighted-average duration of which will at all times be limited to between one and six years. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in securities which are guaranteed as to payment of principal and interest by the U.S. government or U.S. government agencies or instrumentalities. The Fund may also invest in corporate bonds, asset-backed securities and bank instruments. Under normal circumstances, the Fund will invest at least 65% of the value of its total assets in U.S. government securities. The net asset value of the Fund is expected to fluctuate with changes in interest rates and bond market conditions, although this fluctuation should be more moderate than that of a fund with a longer average portfolio maturity. The adviser, however, will attempt to minimize principal fluctuation through, among other things, diversification, careful credit analysis and security selection, and adjustments of the Fund's average portfolio maturity. In periods of rising interest rates and falling bond prices, the adviser may shorten the Fund's average duration to minimize the effect of declining bond values on the Fund's net asset value. Conversely, during times of falling interest rates and rising prices a longer average maturity to seven years may be sought. Unless indicated otherwise, the investment policies may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these investment policies becomes effective. ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund will invest include: - direct obligations of the U.S. Treasury such as bills, notes, and bonds; and - notes, bonds, and discount notes issued by the Federal Home Loan Banks, Government National Mortgage Association, Federal Farm Credit Banks, Tennessee Valley Authority, Export-Import Bank of the United States, Commodity Credit Corporation, Federal Financing Bank, Student Loan Marketing Association, Federal Home Loan Mortgage Corporation, or National Credit Union Administration. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government, such as Government National Mortgage Association participation certificates, are backed by the full faith and credit of the U.S. Treasury. No assurance can be given that the U.S. government will provide financial support to other agencies or instrumentalities, since it is not obligated to do so. These instrumentalities are supported by: - the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury; - discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or - the credit of the agency or instrumentality. AVERAGE PORTFOLIO DURATION. Although the Fund will not maintain a stable net asset value, the adviser will seek to limit, to the extent consistent with the Fund's investment objective of current income, the magnitude of fluctuations in the Fund's net asset value by limiting the dollar-weighted average duration of the Fund's portfolio. Although the Fund's dollar-weighted average duration will not exceed six years, the weighted average maturity of the Fund's portfolio could be longer than six years. Generally, the duration of a security is shorter than the maturity of a security. A typical security makes coupon payments prior to its maturity date and duration takes into account the timing of a security's cash flow. Duration is a commonly used measure of the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity. Securities with shorter durations generally have less volatile prices than securities of comparable quality with longer durations. The Fund should be expected to maintain a higher average duration during periods of falling interest rates, and a lower average duration during periods of rising interest rates. CORPORATE BONDS. The Fund may invest in issues of corporate debt obligations which are rated in one of the three highest categories by a nationally recognized statistical rating organization (rated Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's"); AAA, AA, or A by Standard & Poor's Corporation ("Standard & Poor's") or by Fitch Investors Service, Inc. ("Fitch"), or which are of comparable quality in the judgment of the adviser). MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. There are currently three basic types of mortgage-backed securities: (i) those issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"); (ii) those issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; and (iii) those issued by private issuers that represent an interest in or are collateralized by whole loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations ("CMOs") are debt obligations collateralized by mortgage loans or mortgage pass-through securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole loans or private pass-through securities. The Fund will only invest in CMOs which are rated AAA by a nationally recognized rating agency, and which may be: (a) collateralized by pools of mortgages in which each mortgage is guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. government; (b) collateralized by pools of mortgages in which payment of principal and interest is guaranteed by the issuer and such guarantee is collateralized by U.S. government securities; or (c) securities in which the proceeds of the issuance are invested in mortgage securities and payment of the principal and interest are supported by the credit of an agency or instrumentality of the U.S. government. ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics similar to mortgage-backed securities but have underlying assets that are not mortgage loans or interests in mortgage loans. The Fund may invest in asset-backed securities rated A or higher by a nationally recognized rating agency. The collateral for such securities will consist of motor vehicle installment purchase obligations and credit card receivables. These securities may be in the form of pass-through instruments or asset-backed bonds. The securities are issued by non-governmental entities and carry no direct or indirect government guarantee. BANK INSTRUMENTS. The Fund only invests in bank instruments issued by an institution having capital, surplus and undivided profits over $100 million, or insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"). PUT AND CALL OPTIONS. The Fund may purchase put options on financial futures contracts and put options on portfolio securities. Financial futures may include index futures. These options will be used as a hedge to attempt to protect securities which the Fund holds against decreases in value. For the immediate future, the Fund will enter into futures contracts directly only when it desires to exercise a financial futures put option in its portfolio rather than either closing out the option or allowing it to expire. The Fund will only purchase puts on financial futures contracts which are traded on a recognized exchange. The Fund will generally purchase over-the-counter put options on portfolio securities in negotiated transactions with the writers of the options on the portfolio securities held by the Fund which are typically not traded on an exchange. The Fund purchases options only from investment dealers and other financial associations (such as commercial banks or savings and loan institutions) deemed creditworthy by the Fund's adviser. Over-the-counter put options are two party contracts with price and terms negotiated between buyer and seller. In contrast, exchange traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange traded options have a continuous liquid market, while over-the-counter options may not. The Fund may also write call options on all or any portion of its portfolio to generate income for the Fund. The Fund will write call options on securities either held in its portfolio or which it has the right to obtain without payment of further consideration or for which it has segregated cash in the amount of any additional consideration. The call options which the Fund writes and sells must be listed on a recognized options exchange. Although the Fund reserves the right to write covered call options on its entire portfolio, it will not write such options on more than 25% of its total assets unless a higher limit is authorized by its Trustees. The Fund may attempt to hedge the portfolio by entering into financial futures contracts and to write calls on financial futures contracts. The Fund will notify shareholders before it begins engaging in these transactions. RISKS. When the Fund writes a call option, the Fund risks not participating in any rise in the value of the underlying security. In addition, when the Fund purchases puts on financial futures contracts to protect against declines in prices of portfolio securities, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract and its corresponding put to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors such as interest rate movements. In such an event, the Fund may lose the purchase price of the put option. Finally, it is not certain that a secondary market for options will exist at all times. Although the investment adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular option at any particular time. The Fund's ability to establish and close out option positions depends on this secondary market. TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may invest temporarily in cash and cash items during times of unusual market conditions and to maintain liquidity. Cash items may include short-term obligations such as: - obligations of the U.S. government or its agencies or instrumentalities; - repurchase agreements; and - commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2 by Moody's or F-1 or F-2 by Fitch. REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks, broker/ dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase portfolio securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an arrangement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may, borrow up to one-third of the value of its total assets and pledge up to 15% of the value of those assets to secure such borrowings. The above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this investment limitation becomes effective. The Fund will not: - invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice, over-the-counter options and certain restricted securities not determined by the Trustees to be liquid. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser, in consultation with the sub-adviser, continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1993, the Trust Division of Deposit Guaranty National Bank had approximately $9 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank or Commercial National Bank. The lending relationships will not be a factor in the selection of securities. John Mark McKenzie has been with Deposit Guaranty National Bank for ten years and is a Vice President and Trust Investment Officer. Previously, Mr. McKenzie was associated with a Jackson bank as a trust officer. He received a B.B.A. in Banking and Finance from the University of Mississippi. He is a member of the Mississippi Chapter of the Memphis Society of Financial Analysts, and is a member of the Mississippi State and Hinds County Bar Association. Mr. McKenzie has managed the DG Limited Term Government Income Fund since August 1, 1992 (the inception of the Fund). SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank will form an investment committee (the "DG Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction in the fee due from the Trust to the Adviser on behalf of the Fund. Notwithstanding any other provision in the sub-advisory agreement, the Sub-Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 1993, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, of which it had investment discretion over $1.02 billion. Commercial National Bank has served as sub-adviser to DG Equity Fund, DG Government Income Fund, and the Fund since July 20, 1992, and DG Municipal Income Fund since December 12, 1992, each a portfolio of the Trust. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund pays the distributor the fee described above as opposed to reimbursing the distributor for actual expenses incurred. Therefore, the Fund does not pay for amounts expended by the distributor in excess of amounts received by it from the Fund, which may include interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below: MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - ------------------------ ------------------------------------ .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million .075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank, and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800)748-8500 or Commercial National Bank at (800)274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. on the next business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED - ---------------------------------------------- ---------------------- ------------------- 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%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset value, without a sales charge by: the Trust Division of Banks for funds which are held in a fiduciary, agency, custodial or similar capacity; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; or any bank or investment dealer who has a sales agreement with Federated Securities Corp. with regard to the Fund. SALES CHARGE REALLOWANCE. For sales of shares of the Fund, the Banks or any authorized dealer will normally receive up to 85% of the applicable sales charge. Any portion of the sales charge which is not paid to the Banks or authorized dealers will be retained by the distributor. The distributor will, periodically, uniformly offer to pay cash or promotional incentives in the form of trips to sales seminars at luxury resorts, tickets or other items to all dealers selling shares of the Fund. Such payments will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or registered broker/dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through; - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchases still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 1.75%, not 2.00%. To receive the sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the purchase is made that Fund shares are already owned or that purchases are being combined. The Fund will reduce the sales charge after it confirms the purchases. LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of shares in the funds in the Trust over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the custodian to hold 2.00% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 2.00% held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. This letter may be dated as of a prior date to include any purchases made within the past 90 days. REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the shareholder has a one-time right, within 30 days, to reinvest the redemption proceeds at the next-determined net asset value without any sales charge. Federated Securities Corp. must be notified by the shareholder in writing or by the Banks of the reinvestment in order to eliminate a sales charge. If the shareholder redeems his shares in the Fund, there may be tax consequences. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in this Fund, the sales charge would be reduced. To receive this sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the concurrent purchases are made. The Fund will reduce the sales charge after it confirms the purchases. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Detailed confirmations of each purchase or redemption are sent to each shareholder. Monthly confirmations are sent to report dividends paid during the month. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly. Distribution of any realized long-term capital gains will be made at least once every twelve months. Dividends are automatically reinvested in additional shares of the Fund on payment dates at the ex-dividend date net asset value without a sales charge, unless cash payments are requested by writing to the Fund or the Banks as appropriate. EXCHANGING SECURITIES FOR FUND SHARES Investors may exchange certain securities or a combination of certain securities and cash for Fund shares. The Fund reserves the right to determine the acceptability of securities to be exchanged. On the day securities are accepted by the Fund, they are valued in the same manner as the Fund values its assets. Investors wishing to exchange securities should first contact the Banks. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- DG INVESTOR SERIES All shareholders of the Fund are shareholders of DG Investor Series. Shareholders in the Fund have easy access to the other portfolios of DG Investor Series. EXCHANGING SHARES Shareholders of the Fund may exchange shares of the Fund for shares of the other funds in DG Investor Series. In addition, shares of the Fund may also be exchanged for certain other funds distributed by Federated Securities Corp. that are not advised by the Banks ("Federated Funds"). For further information on the availability of Federated Funds for exchanges, please call Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Shares of funds with a sales charge may be exchanged at net asset value for shares of other funds with an equal sales charge or no sales charge. Shares of the funds with no sales charge acquired by direct purchase or reinvestment of dividends on such shares may be exchanged for shares of funds with a sales charge at net asset value plus the applicable sales charge. 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. 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. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instruction may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by BIF, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by SAIF, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments, and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that payments should be in kind. In such case, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments, valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. As of April 7, 1994, Deposit Guaranty National Bank, Jackson, Mississippi, owned approximately 7,464,049 shares (62.64%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's Adviser and Sub-Adviser, Deposit Guaranty National Bank and Commercial National Bank, respectively, are subject to such banking laws and regulations. The Banks believe, based on the advice of counsel, that they may perform the investment advisory services for the Fund contemplated by the advisory agreement with the Trust and the sub-advisory agreement between the Banks without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent the Banks from continuing to perform all or a part of the above services for their customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by the Banks, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser and/or sub-adviser with equivalent abilities to Deposit Guaranty National Bank and Commercial National Bank are found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios, if any, will not be combined for tax purposes with those realized by the Fund. Unless otherwise exempt, shareholders are required to pay federal income tax on any dividends and other distributions received. This applies whether dividends are received in cash or as additional shares. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their account under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return and yield. Total return represents the change over a specified period of time, in the value of an investment in the Fund after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the maximum offering price per share of the Fund on the last day of the period. This number is then annualized using semi-annual compounding. The yield does not necessarily reflect income actually earned by the Fund and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load which, if excluded, would increase the total return and yield. From time to time, the Fund may advertise its performance using certain financial publications and/or compare its performance to certain indices. DG LIMITED TERM GOVERNMENT INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1994 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ CORPORATE BONDS--16.3% - ------------------------------------------------------------------------------------- BANKING--1.0% ----------------------------------------------------------------- $ 1,200,000 Bankers Trust New York Corp., 4.70%, 7/1/96 $ 1,192,164 ----------------------------------------------------------------- ------------ BUSINESS EQUIPMENT & SERVICE--1.5% ----------------------------------------------------------------- 1,000,000 International Business Machines Corp., 6.375%, 11/1/97 1,025,250 ----------------------------------------------------------------- 723,000 Waste Management Inc., 6.375%, 7/1/97 743,808 ----------------------------------------------------------------- ------------ Total 1,769,058 ----------------------------------------------------------------- ------------
CAPITAL GOODS--1.3% ----------------------------------------------------------------- 1,500,000 General Electric Capital Corp., 5.25%, 11/15/95 1,514,775 ----------------------------------------------------------------- ------------ CONSUMER DURABLES--0.5% ----------------------------------------------------------------- 545,000 Eastman Kodak Co., 9.20%, 1/15/95 566,642 ----------------------------------------------------------------- ------------ CONSUMER NON-DURABLES--2.6% ----------------------------------------------------------------- 1,447,000 Kellogg Co., 5.90%, 7/15/97 1,478,096 ----------------------------------------------------------------- 723,000 PepsiCo Inc., 5.625%, 7/1/95 730,490 ----------------------------------------------------------------- 725,000 Philip Morris Cos. Inc., 7.50%, 3/15/97 768,333 ----------------------------------------------------------------- ------------ Total 2,976,919 ----------------------------------------------------------------- ------------ FINANCIAL-AUTOMOTIVE--1.1% ----------------------------------------------------------------- 545,000 Ford Motor Credit Co., 8.75%, 1/15/95 563,950 ----------------------------------------------------------------- 723,000 Toyota Motor Credit Corp., 5.75%, 6/15/95 735,913 ----------------------------------------------------------------- ------------ Total 1,299,863 ----------------------------------------------------------------- ------------ FINANCIAL SERVICES--1.6% ----------------------------------------------------------------- 905,000 American General Finance Corp., 7.15%, 5/15/97 952,648 ----------------------------------------------------------------- 306,000 ITT Financial Corp., 7.25%, 5/15/97 317,842 ----------------------------------------------------------------- 545,000 Merrill Lynch & Co. Inc., 8.50%, 8/15/94 555,409 ----------------------------------------------------------------- ------------ Total 1,825,899 ----------------------------------------------------------------- ------------
DG LIMITED TERM GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ CORPORATE BONDS--CONTINUED - ------------------------------------------------------------------------------------- HEALTH CARE--1.1% ----------------------------------------------------------------- $ 1,250,000 Upjohn Co., 5.875%, 4/15/2000 $ 1,242,750 ----------------------------------------------------------------- ------------ OIL--0.6% ----------------------------------------------------------------- 725,000 Shell Oil Co., 6.125%, 11/15/94 731,133 ----------------------------------------------------------------- ------------ RETAIL--1.6% ----------------------------------------------------------------- 725,000 Sears Roebuck & Co., 7.00%, 11/1/94 734,715 ----------------------------------------------------------------- 1,136,000 Wal-Mart Stores Inc., 5.50%, 9/15/97 1,137,943 ----------------------------------------------------------------- ------------ Total 1,872,658 ----------------------------------------------------------------- ------------ UTILITIES--3.4% ----------------------------------------------------------------- 1,000,000 GTE California Inc., 6.25%, 1/15/98 1,015,590 ----------------------------------------------------------------- 1,000,000 New England Telephone & Telegraph Co., 6.25%, 12/15/97 1,032,580 ----------------------------------------------------------------- 1,000,000 Pacific Gas & Electric Co., 5.375%, 8/1/98 978,260 ----------------------------------------------------------------- 1,000,000 Southern California Edison Co., 5.60%, 12/15/98 985,610 ----------------------------------------------------------------- ------------ Total 4,012,040 ----------------------------------------------------------------- ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST, $18,854,993) 19,003,901 ----------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--73.9% - ------------------------------------------------------------------------------------- U.S. TREASURY NOTES--65.4% ----------------------------------------------------------------- 3,183,000 9.50%, 5/15/94 3,221,769 ----------------------------------------------------------------- 2,538,000 9.50%, 10/15/94 2,623,632 ----------------------------------------------------------------- 11,000,000 8.00%, 10/15/96 11,811,140 ----------------------------------------------------------------- 11,725,000 6.25%, 1/31/97 12,105,946 ----------------------------------------------------------------- 4,000,000 6.00%, 12/31/97 4,092,480 ----------------------------------------------------------------- 4,000,000 5.75%, 10/31/97 4,061,240 ----------------------------------------------------------------- 9,000,000 5.125%, 3/31/98 8,907,120 ----------------------------------------------------------------- 1,500,000 4.75%, 9/30/98 1,454,520 ----------------------------------------------------------------- 4,000,000 4.25%, 8/31/94 4,007,480 -----------------------------------------------------------------
DG LIMITED TERM GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--CONTINUED - ------------------------------------------------------------------------------------- U.S. TREASURY NOTES--CONTINUED ----------------------------------------------------------------- $ 7,000,000 4.25%, 10/31/94 $ 7,013,090 ----------------------------------------------------------------- 5,000,000 4.125%, 6/30/95 4,985,900 ----------------------------------------------------------------- 9,000,000 3.875%, 3/31/95 8,969,040 ----------------------------------------------------------------- 3,000,000 3.875%, 4/30/95 2,985,930 ----------------------------------------------------------------- ------------ Total 76,239,287 ----------------------------------------------------------------- ------------ U.S. TREASURY BILLS--8.5% ----------------------------------------------------------------- 10,000,000 4/7/94 9,959,700 ----------------------------------------------------------------- ------------ TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST $87,006,936) 86,198,987 ----------------------------------------------------------------- ------------ *REPURCHASE AGREEMENT--8.5% - ------------------------------------------------------------------------------------- 9,910,500 Cantor Fitzgerald Securities, 3.40%, dated 2/28/94, due 3/1/94 (at amortized cost) (Note 2B) 9,910,500 ----------------------------------------------------------------- ------------ TOTAL INVESTMENTS (IDENTIFIED COST $115,772,429) $115,113,388+ ----------------------------------------------------------------- ------------
* The repurchase agreement is fully collateralized by U.S. government and/or agency obligations based on market prices at the date of the portfolio. + The cost for federal tax purposes amounts to $115,772,429. The net unrealized depreciation of investments on a federal tax basis amounts to $659,041, which is comprised of $454,172 appreciation and $1,113,213 depreciation at February 28, 1994. Note: The categories of investments are shown as a percentage of net assets ($116,660,428) at February 28, 1994. (See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at value (Notes 2A and 2B) (identified and tax cost $115,772,429) $115,113,388 - ------------------------------------------------------------------------------- Interest receivable 1,514,180 - ------------------------------------------------------------------------------- Receivable for Fund shares sold 400,842 - ------------------------------------------------------------------------------- Deferred expenses (Note 2F) 23,478 - ------------------------------------------------------------------------------- ------------ Total assets 117,051,888 - ------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------- Payable for Fund shares redeemed $349,616 - -------------------------------------------------------------------- Accrued expenses 41,844 - -------------------------------------------------------------------- -------- Total liabilities 391,460 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 11,816,436 shares of beneficial interest outstanding $116,660,428 - ------------------------------------------------------------------------------- ------------ NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------- Paid-in capital $118,082,656 - ------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investments (659,041) - ------------------------------------------------------------------------------- Accumulated net realized gain (loss) on investments (775,474) - ------------------------------------------------------------------------------- Undistributed net investment income 12,287 - ------------------------------------------------------------------------------- ------------ Total Net Assets $116,660,428 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE and Redemption Price Per Share: ($116,660,428 / 11,816,436 shares of beneficial interest outstanding) $9.87 - ------------------------------------------------------------------------------- ------------ COMPUTATION OF OFFERING PRICE: Offering Price Per Share (100/98 of $9.87)* $10.07 - ------------------------------------------------------------------------------- ------------
* See "What Shares Cost" in the prospectus. (See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Interest income (Note 2C) $ 6,708,951 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee (Note 5) $ 693,635 - -------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 148,906 - -------------------------------------------------------------------- Trustees' fees 1,551 - -------------------------------------------------------------------- Custodian fees 31,580 - -------------------------------------------------------------------- Recordkeeper fees (Note 5) 57,085 - -------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses (Note 5) 21,313 - -------------------------------------------------------------------- Legal fees 6,237 - -------------------------------------------------------------------- Printing and postage 10,758 - -------------------------------------------------------------------- Auditing fees 10,532 - -------------------------------------------------------------------- Fund share registration fees 31,009 - -------------------------------------------------------------------- Insurance premiums 6,888 - -------------------------------------------------------------------- Miscellaneous 4,026 - -------------------------------------------------------------------- ---------- Total expenses 1,023,520 - -------------------------------------------------------------------- Deduct--Waiver of investment advisory fee (Note 5) 338,182 - -------------------------------------------------------------------- ---------- Net expenses 685,338 - --------------------------------------------------------------------------------- ----------- Net investment income 6,023,613 - --------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - --------------------------------------------------------------------------------- Net realized gain (loss) on investments (identified cost basis)-- (367,399) - --------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on investments (1,681,025) - --------------------------------------------------------------------------------- ----------- Net realized and unrealized gain (loss) on investments (2,048,424) - --------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $ 3,975,189 - --------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28, ---------------------------- 1994 1993* ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------- Net investment income $ 6,023,613 $ 1,996,098 - ----------------------------------------------------------------- Net realized gain (loss) on investment transactions ($347,369 net gain and $61,130 net loss, respectively as computed for federal tax purposes) (Note 2D) (367,399) (63,481) - ----------------------------------------------------------------- Change in unrealized appreciation (depreciation) of investments (1,681,025) 1,021,984 - ----------------------------------------------------------------- ------------ ------------ Change in net assets resulting from operations 3,975,189 2,954,601 - ----------------------------------------------------------------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------- Dividends to shareholders from net investment income (6,011,126) (1,996,098) - ----------------------------------------------------------------- Distributions to shareholders from net realized gains on investment transactions (344,594) -- - ----------------------------------------------------------------- Distributions in excess of net investment income -- (200) - ----------------------------------------------------------------- ------------ ------------ Change in net assets from distributions to shareholders (6,355,720) (1,996,298) - ----------------------------------------------------------------- ------------ ------------ FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------- Proceeds from sale of shares 70,831,278 119,508,508 - ----------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions in Fund shares 2,764,678 236,858 - ----------------------------------------------------------------- Cost of shares redeemed (54,475,647) (20,783,019) - ----------------------------------------------------------------- ------------ ------------ Change in net assets from Fund share transactions 19,120,309 98,962,347 - ----------------------------------------------------------------- ------------ ------------ Change in net assets 16,739,778 99,920,650 - ----------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------- Beginning of period 99,920,650 -- - ----------------------------------------------------------------- ------------ ------------ End of period (including undistributed net investment income of $12,287 and $0, respectively) $116,660,428 $ 99,920,650 - ----------------------------------------------------------------- ------------ ------------
* For the period from August 3, 1992 (date of initial public investment) to February 28, 1994. (See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is an open-end, management investment company, established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Trust currently consists of five portfolios. The financial statements included herein present only those of the DG Limited Term Government Income Fund (the "Fund"), one of the portfolios of the Trust. The financial statements of the other portfolios in the Trust are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--U.S. government obligations and corporate bonds are valued at the mean between the over-the-counter bid and asked prices as furnished by an independent pricing service. Short-term obligations are valued at the mean between bid and asked prices as furnished by an independent pricing service; however, such issues with maturities of sixty days or less are valued at amortized cost, which approximates market value. B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's underlying securities to ensure the existence of a proper level of collateral. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Trust's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities.
DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- C. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest and discount earned (net of premium) on short-term obligations, and interest earned on all other debt securities including original issue discount as required by the Internal Revenue Code (the "Code"). Dividends to shareholders and capital gain distributions, if any, are recorded on the ex-dividend date. D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year all of its net taxable income, including any net realized gain on investments. Accordingly, no provision for federal tax is necessary. Net capital losses of $775,898 attributable to security transactions incurred after October 31, 1993, are treated as arising on March 1, 1994 the first day of the Fund's next taxable year. E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. G. OTHER--Investment transactions are accounted for on the date of the transaction.
(3) DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly to all shareholders invested in the Fund on the record date. Dividends are paid from the net investment income of the Fund. Net investment income consists of all interest received by the Fund less its expenses. Capital gains realized by the Fund, if any, are distributed at least once every twelve months. The amounts in the financial statements for net investment income for the period ended February 28, 1993, differ from those determined for tax purposes because of certain timing differences. This resulted in distributions to shareholders in excess of net investment income. These distributions do not represent a return of capital for federal income tax purposes. DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
YEAR ENDED FEBRUARY 28, ------------------------- 1994 1993* ---------- ---------- - ------------------------------------------------------------------- Shares outstanding, beginning of period 9,922,767 -- - ------------------------------------------------------------------- Shares sold 7,051,287 11,978,828 - ------------------------------------------------------------------- Shares issued to shareholders in payment of distributions in Fund shares 276,031 23,577 - ------------------------------------------------------------------- Shares redeemed (5,433,649) (2,079,638) - ------------------------------------------------------------------- ---------- ---------- Shares outstanding, end of period 11,816,436 9,922,767 - ------------------------------------------------------------------- ---------- ----------
* For the period from August 3, 1992 (date of initial public investment) to February 28, 1993. (5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Deposit Guaranty National Bank, the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse certain operating expenses of the Fund in excess of limitations imposed by certain states. Under the terms of a sub- advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser equal to 0.25 of 1% of the Fund's average daily net assets. In addition, Commercial National Bank may voluntarily choose to reduce its compensation. For the year ended February 28, 1994, Commercial National Bank earned a sub-advisory fee of $289,015, all of which was voluntarily waived. Federated Administrative Services ("FAS") provides the Trust certain administrative personnel and services. The fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. Organization expenses of $24,074 were initially borne by FAS. The Fund has agreed to reimburse FAS for the organization expenses initially borne by FAS during the five year period following the date the Fund became effective. For the year ended February 28, 1994, the Fund paid $1,535 pursuant to this agreement. Federated Services Company ("FSC") is the Fund's transfer and dividend disbursing agent. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio of investments. Certain Officers and Trustees of the Trust are Officers and Trustees of FAS and Federated Services Company. DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- (6) INVESTMENT TRANSACTIONS Purchases and sales of investments (excluding short-term investments) for the year ended February 28, 1994, were as follows: - ------------------------------------------------------------------------------- PURCHASES-- $96,799,265 - ------------------------------------------------------------------------------- ----------- SALES-- $78,474,523 - ------------------------------------------------------------------------------- -----------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments, of the DG Limited Term Government Income Fund (a portfolio within DG Investor Series) as of February 28, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights, which is presented on page 2 of this prospectus, for the year ended February 28, 1994 and the period from August 3, 1992 (date of initial public investment) to February 28, 1993. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the financial highlights. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers, and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of the DG Limited Term Government Income Fund at February 28, 1994, and the results of its operations for the year then ended, the changes in its net assets and financial highlights for the year ended February 28, 1994 and the period from August 3, 1992 to February 28, 1993, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK Pittsburgh, Pennsylvania April 7, 1994 ADDRESSES - -------------------------------------------------------------------------------- DG Limited Term Government Federated Investors Tower Income Fund Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 1200 Jackson, Mississippi 39215-1200 - ------------------------------------------------------------------------------------------------ Sub-Adviser Commercial National Bank P.O. Box 21119 Shreveport, Louisiana 71152 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and P.O. Box 1713 Trust Company Boston, Massachusetts 02105 - ------------------------------------------------------------------------------------------------ Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------ Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Commercial National Bank Shreveport, LA APRIL 30, 1994 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2061003A (4/94) THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY FDIC NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT
GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks including the possible loss of principal. DG LIMITED TERM GOVERNMENT INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for DG Limited Term Government Income Fund (the "Fund") dated April 30, 1994. This Statement is not a prospectus itself. To receive a copy of the prospectus, write or call the Fund. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated April 30, 1994 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Types of Investments 1 Weighted Average Portfolio Duration 1 Mortgage-Backed and Asset-Backed Securities Risks 1 Option Transactions 2 Repurchase Agreements 2 Reverse Repurchase Agreements 3 When-Issued and Delayed Delivery Transactions 3 Lending of Portfolio Securities 3 Portfolio Turnover 3 Investment Limitations 3 DG INVESTOR SERIES MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 7 Trustee Liability 8 INVESTMENT ADVISORY SERVICES 8 - --------------------------------------------------------------- Adviser to the Fund 8 Advisory Fees 8 Sub-Adviser to the Fund 8 Sub-Advisory Fees 8 ADMINISTRATIVE SERVICES 9 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 9 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Distribution Plan 9 Conversion to Federal Funds 10 DETERMINING NET ASSET VALUE 10 - --------------------------------------------------------------- Determining Market Value of Securities 10 EXCHANGE PRIVILEGE 10 - --------------------------------------------------------------- Requirements for Exchange 10 Making an Exchange 10 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 Shareholders' Tax Status 11 TOTAL RETURN 11 - --------------------------------------------------------------- YIELD 11 - --------------------------------------------------------------- PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- APPENDIX 13 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in DG Investor Series (the "Trust") which was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is current income, the weighted-average duration of which will at all times be limited to between one and six years. This investment objective cannot be changed without approval of shareholders. TYPES OF INVESTMENTS The Fund invests primarily in a portfolio of government securities and corporate securities. The investment portfolio includes the following securities: - - U.S. government securities, including Treasury bills, notes, bonds, and securities issued by agencies and instrumentalities of the U.S. government; - - mortgage-backed securities; - - corporate debt securities rated within the three highest categories by a nationally recognized statistical rating organization, including bonds, notes, and debentures; - - asset-backed securities; and - - bank instruments. WEIGHTED AVERAGE PORTFOLIO DURATION Duration is a commonly used measure of the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity. Duration measures the magnitude of the change in the price of a debt security relative to a given change in the market rate of interest. The duration of a debt security depends upon three primary variables: the security's coupon rate, maturity date and the level of market interest rates for similar debt securities. Generally, debt securities with lower coupons or longer maturities will have a longer duration than securities with higher coupons or shorter maturities. Duration is calculated by dividing the sum of the time-weighted values of cash flows of a security or portfolio of securities, including principal and interest payments, by the sum of the present values of the cash flows. Certain debt securities, such as asset-backed securities, may be subject to prepayment at irregular intervals. The duration of these instruments will be calculated based upon assumptions established by the investment adviser as to the probable amount and sequence of principal prepayments. MORTGAGE-BACKED AND ASSET-BACKED SECURITIES RISKS Mortgage-backed and asset-backed securities generally pay back principal and interest over the life of the security. At the time the Fund reinvests the payments and any unscheduled prepayments of principal received, the Fund may receive a rate of interest which is actually lower than the rate of interest paid on these securities ("prepayment risks"). Mortgage-backed and asset-backed securities are subject to higher prepayment risks than most other types of debt instruments with prepayment risks because the underlying mortgage loans or the collateral supporting asset-backed securities may be prepaid without penalty or premium. Prepayment risks on mortgaged-backed securities tend to increase during periods of declining mortgage interest rates because many borrowers refinance their mortgages to take advantage of the more favorable rates. Prepayments on mortgage-backed securities are also affected by other factors, such as the frequency with which people sell their homes or elect to make unscheduled payments on their mortgages. Although asset-backed securities generally are less likely to experience substantial prepayments than are mortgage-backed securities, certain of the factors that affect the rate of prepayments on mortgage-backed securities also affect the rate of prepayments on asset-backed securities. Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities do not have the benefit of the same security interest in the related collateral. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of asset-backed securities backed by motor vehicle installment purchase obligations permit the servicer of such receivables to retain possession of the underlying obligations. If the servicer sells these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related asset-backed securities. Further, if a vehicle is registered in one state and is then reregistered because the owner and obligor moves to another state, such reregistration could defeat the original security interest in the vehicle in certain cases. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of asset-backed securities backed by automobile receivables may not have a proper security interest in all of the obligations backing such - -------------------------------------------------------------------------------- receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. OPTION TRANSACTIONS As a means of reducing fluctuations in the net asset value of shares of the Fund, the Fund may attempt to hedge all or a portion of its portfolio through the purchase of put options on portfolio securities and listed put options on financial futures contracts for portfolio securities. The Fund may also write covered call options on its portfolio securities to attempt to increase its current income. The Fund will maintain its positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed, or have expired. An option position may be closed out only on an exchange which provides a secondary market for an option of the same series. PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS The Fund may purchase listed put options on financial futures contracts. These options will be used only to protect portfolio securities against decreases in value resulting from market factors such as an anticipated increase in interest rates. A futures contract is a firm commitment by two parties: the seller who agrees to make delivery of the specific type of instrument called for in the contract ("going short") and the buyer who agrees to take delivery of the instrument ("going long") at a certain time in the future. Financial futures contracts call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of the U.S. government. If the Fund could enter into financial futures contracts directly to hedge its holdings of fixed income securities, it would enter into contracts to deliver securities at a predetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. Unlike entering directly into a futures contract, which requires the purchaser to buy a financial instrument on a set date at a specified price, the purchase of a put option on a futures contract entitles (but does not obligate) its purchaser to decide on or before a future date whether to assume a short position at the specified price. Generally, if the hedged portfolio securities decrease in value during the term of an option, the related futures contracts will also decrease in value and the option will increase in value. In such an event, the Fund will normally close out its option by selling an identical option. If the hedge is successful, the proceeds received by the Fund upon the sale of the second option will be large enough to offset both the premium paid by the Fund for the original option plus the realized decrease in value of the hedged securities. Alternately, the Fund may exercise its put option to close out the position. To do so, it would simultaneously enter into a futures contract of the type underlying the option (for a price less than the strike price of the option) and exercise the option. The Fund would then deliver the futures contract in return for payment of the strike price. Currently, the Fund will only enter into futures contracts in order to exercise put options in its portfolio. If the Fund neither closes out nor exercises an option, the option will expire on the date provided in the option contract, and only the premium paid for the contract will be lost. PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES The Fund may purchase put options on portfolio securities to protect against price movements in particular securities in its portfolio. A put option gives the Fund, in return for a premium, the right to sell the underlying security to the writer (seller) at a specified price during the term of the option. WRITING COVERED CALL OPTIONS The Fund may also write covered call options to generate income. As writer of a call option, the Fund has the obligation upon exercise of the option during the option period to deliver the underlying security upon payment of the exercise price. The Fund may only sell listed call options either on securities held in its portfolio or on securities which it has the right to obtain without payment of further consideration (or has segregated cash in the amount of any such additional consideration). REPURCHASE AGREEMENTS The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the - -------------------------------------------------------------------------------- Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are found by the Fund's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees"). REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the value of it's assets. During the current year, the Fund does not anticipate investing more than 10% of its total assets in when-issued and delayed delivery transactions. LENDING OF PORTFOLIO SECURITIES The collateral received when the Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. PORTFOLIO TURNOVER Although the Fund does not intend to invest for the purpose of short-term profits, securities in the portfolio will be sold whenever the investment adviser believes it is appropriate to do so in light of the Fund's investment objective without regard to the length of time a particular security may have been held. The investment adviser does not anticipate that the Fund's portfolio turnover rate will exceed 100%. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund's portfolio turnover rates were 76% and 18%, respectively. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of purchases and sales of securities. - -------------------------------------------------------------------------------- ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities, except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its total assets including the amount borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge or hypothecate any assets, except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets of the Fund at the time of the pledge. DIVERSIFICATION OF INVESTMENTS With respect to 75% of the value of its assets, the Fund will not purchase the securities of any issuer (other than cash, cash items, or securities issued or guaranteed by the U.S. government, its agencies or instrumentalities) if, as a result, more than 5% of the value of its total assets would be invested in the securities of that issuer. Also, the Fund will not purchase more than 10% of the outstanding voting securities of any one issuer. UNDERWRITING The Fund will not underwrite any issue of securities except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. INVESTING IN REAL ESTATE The Fund will not buy or sell real estate including limited partnership interests in real estate, although it may invest in securities secured by real estate or interests in real estate. INVESTING IN COMMODITIES The Fund will not buy or sell commodities. However, the Fund may purchase put options on portfolio securities and on financial futures contracts. In addition, the Fund reserves the right to hedge the portfolio by entering into financial futures contracts and to sell calls on financial futures contracts. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may purchase or hold corporate or government bonds, debentures, notes, certificates of indebtedness or other debt securities of an issuer, repurchase agreements, or other transactions which are permitted by the Fund's investment objective and policies or the Trust's Declaration of Trust, or lend portfolio securities valued at not more than 5% of its total assets to broker/dealers. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. RESTRICTED SECURITIES The Fund will not invest more than 5% of the value of its total assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet criteria for liquidity as established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice and certain restricted securities not determined by the Trustees to be liquid. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser owning individually more than 1/2 of 1% of the issuer's securities together own more than 5% of the issuer's securities. - -------------------------------------------------------------------------------- INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers which have records of less than three years of continuous operations, including the operation of any predecessor. WRITING COVERED PUT AND CALL OPTIONS AND PURCHASING PUT OPTIONS The Fund will not write call options on securities unless the securities are held in the Fund's portfolio or unless the Fund is entitled to them in deliverable form without further payment or after segregating cash in the amount of any further payment. When writing put options, the Fund will segregate cash or U.S. Treasury obligations with a value equal to or greater than the exercise price of the underlying securities. The Fund will not purchase put options on securities unless the securities are held in the Fund's portfolio. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will limit its investment in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, will not invest more than 5% of its total assets in any one investment company, or invest more than 10% of its total assets in investment companies in general. The Fund will purchase securities of investment companies only in open-market transactions involving only customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation, or acquisition of assets. It should be noted that investment companies incur certain expenses such as management fees, and therefore, any investment by a Fund in shares of another investment company would be subject to such duplicate expenses. The Fund will invest in other investment companies primarily for the purpose of investing its short-term cash on a temporary basis. The adviser will waive its investment advisory fee on assets invested in securities of open-end investment companies. INVESTING IN MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. For purposes of its policies and limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." DG INVESTOR SERIES MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Deposit Guaranty National Bank and Commercial National Bank, Federated Investors, Federated Securities Corp., and Federated Administrative Services, Federated Services Company and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- John F. Donahue+* Chairman and Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Federated Investors Advisers, Federated Management, and Federated Research; Director, AEtna Life Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. - -------------------------------------------------------------------------------------------------------------------------------- John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village Department Development Corporation; General Partner or Trustee in private real estate John R. Wood and ventures in Southwest Florida; Director, Trustee, or Managing General Associates, Inc., Realtors Partner of the Funds; formerly, President, Naples Property Management, Inc.. 3255 Tamiami Trail North Naples, FL - --------------------------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza Director, Trustee, or Managing General Partner of the Funds; formerly, Vice 23rd Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Pittsburgh, PA Homes, Inc. - -------------------------------------------------------------------------------------------------------------------------------- James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue Concord, MA Cross of Massachusetts, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director Eat 'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - -------------------------------------------------------------------------------------------------------------------------------- Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice President Federated Investors Treasurer, and Treasurer, Federated Advisers, Federated Management, and Federated Tower and Trustee Research; Executive Vice President, Treasurer, and Director, Federated Pittsburgh, PA Securities Corp.; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee of some of the Funds; Vice President and Treasurer of the Funds. - -------------------------------------------------------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, 225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President, Boston, MA State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.; 5916 Penn Mall Director, Eat 'N Park Restaurants, Inc.; Director, Trustee, or Managing Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. - -------------------------------------------------------------------------------------------------------------------------------- Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds; Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy & Technology. - -------------------------------------------------------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Investors Federated Management, and Federated Research; President and Trustee, Tower Federated Administrative Services; Trustee, Federated Services Company; Pittsburgh, PA President or Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. - --------------------------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Director, Federated Securities Corp.; President or Vice President of the Tower Funds; Director or Trustee of some of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Trustee, Federated Services Pittsburgh, PA Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - -------------------------------------------------------------------------------------------------------------------------------- Ronald M. Petnuch Vice President Vice President, Federated Administrative Services; Vice President and Federated Investors and Assistant Assistant Treasurer of some of the Funds; formerly Associate Corporate Tower Treasurer Counsel of Federated Investors. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President, Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Vice President of the Funds; Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division. - --------------------------------------------------------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. + Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal Trust; International Series, Inc,; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc.-1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; World Investment Series, Inc. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding shares. - -------------------------------------------------------------------------------- As of April 7, 1994, the following shareholders of record owned 5% or more of the outstanding shares of the Fund: Commercial National Bank, Shreveport, Louisiana, owned approximately 1,968,759 shares (16.52%); and Deposit Guaranty National Bank, Jackson, Mississippi, owned approximately 1,243,175 shares (10.43%). TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will only be liable for their own willful defaults. If reasonable care has been exercised in the selection of officers, agents, employees, or investment advisers, a Trustee shall not be liable for any neglect or wrong doing of any such person. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES - -------------------------------------------------------------------------------- ADVISER TO THE FUND The Fund's investment adviser is Deposit Guaranty National Bank (the "Adviser"), a subsidiary of Deposit Guaranty Corp. The Adviser shall not be liable to the Trust, the Fund or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security, or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. Because of the internal controls maintained by Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, to restrict the flow of non-public information, Fund investments are typically made without any knowledge of Deposit Guaranty National Bank's or its affiliates' lending relationships with an issuer. ADVISORY FEES For its advisory services, the Adviser receives an annual investment advisory fee as described in the prospectus. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund's Adviser earned advisory fees of $693,635 and $191,747, respectively, of which $338,182 and $131,121, respectively, were voluntarily waived. SUB-ADVISER TO THE FUND The Fund's sub-adviser is Commercial National Bank (the "Sub-Adviser"), a subsidiary of Deposit Guaranty Corp. SUB-ADVISORY FEES For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory fee as described in the prospectus. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment,) to February 28, 1993, the Fund's Sub-Adviser earned sub-advisory fees of $289,015 and $79,895, respectively, all of which were voluntarily waived. STATE EXPENSE LIMITATIONS The Adviser has undertaken to comply with the expense limitation established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1 1/2% per year of the remaining average net assets, the Adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the Adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund incurred costs for administrative services of $148,906 and $44,080, respectively, of which $0 and $3,347, respectively, were voluntarily waived. John A. Staley, IV, an officer of the Fund, holds approximately 15% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. For the fiscal years ended February 28, 1994, 1993, and 1992, Federated Administrative Services paid approximately $159,222, $179,920, and $202,532, respectively, for services provided by Commercial Data Services, Inc. BROKERAGE TRANSACTIONS - -------------------------------------------------------------------------------- When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. The Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the Adviser and may include: - - advice as to the advisability of investing in securities; - - security analysis and reports; - - economic studies; - - industry studies; - - receipt of quotations for portfolio evaluations; and - - similar services. The Adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Research services provided by brokers may be used by the Adviser in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales charge, on days the New York Stock Exchange and Federal Reserve Wire System are open for business. The procedure for purchasing shares is explained in the prospectus under "Investing in the Fund." DISTRIBUTION PLAN With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's shares subject to the Plan. Such activities may include the advertising and marketing of shares of the Fund; preparing, printing, and distributing prospectuses and sales literature to prospective shareholders, brokers, or administrators; and implementing and operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay fees to brokers for distribution and administrative services and to administrators for administrative services provided to the Fund. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions, wiring funds and receiving funds for purchases and redemptions of Fund shares, confirming and reconciling all transactions, reviewing the activity in Fund accounts and providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Fund shares and prospective shareholders. - -------------------------------------------------------------------------------- The Trustees expect that the adoption of the Plan will result in the sale of a sufficient number of shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objective. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, brokers and administrators (financial institutions) received no fees pursuant to the Plan. CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. Deposit Guaranty National Bank and Commercial National Bank (the "Banks") as well as Federated Services Company act as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The net asset value generally changes each day. The days on which net asset value is calculated by the Fund are described in the prospectus. DETERMINING MARKET VALUE OF SECURITIES Market value of the Fund's portfolio securities are determined as follows: - - for equity securities and bonds and other fixed income securities, according to the last sale price on a national securities exchange, if available; - - in the absence of recorded sales of equity securities, according to the mean between the last closing bid and asked prices, and for bonds and other fixed income securities as determined by an independent pricing service; - - for unlisted equity securities, the latest bid prices; - - for short-term obligations, according to the mean between bid and asked prices as furnished by an independent pricing service or for short-term obligations with remaining maturities of 60 days or less at the time of purchase, at amortized cost; or - - for all other securities, at fair value as determined in good faith by the Trustees. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- REQUIREMENTS FOR EXCHANGE Before the exchange, the shareholder must receive a prospectus of the fund for which the exchange is being made. This privilege is available to shareholders resident in any state in which the fund shares being acquired may be sold. Upon receipt of proper instructions and required supporting documents, shares submitted for exchange are redeemed and the proceeds invested in shares of the other fund. Further information on the exchange privilege and prospectuses may be obtained by calling the Fund. MAKING AN EXCHANGE Instructions for exchanges may be given in writing. Written instructions may require a signature guarantee. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are redeemed at the next computed net asset value after the Banks receive the redemption request. Redemption procedures are explained in the prospectus under "Redeeming Shares." Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on federal holidays when wire transfers are restricted. Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Fund intends to redeem shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the Fund's portfolio. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. - -------------------------------------------------------------------------------- The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Fund is obligated to redeem shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day period. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, the Fund must, among other requirements: - - derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; - - derive less than 30% of its gross income from the sale of securities held less than three months; - - invest in securities within certain statutory limits; and - - distribute to its shareholders at least 90% of its net income earned during the year. SHAREHOLDERS' TAX STATUS Shareholders are subject to federal income tax on dividends received as cash or additional shares. No portion of any income dividend paid by the Fund is eligible for the dividends received deduction available to corporations. These dividends, and any short-term capital gains, are taxable as ordinary income. TOTAL RETURN - -------------------------------------------------------------------------------- The Fund's average annual total returns for the fiscal year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1994, were 1.41% and 3.75%, respectively. The average annual total return for the Fund is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the maximum offering price per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, less any applicable sales load, adjusted over the period by any additional shares, assuming the quarterly reinvestment of all dividends and distributions. YIELD - -------------------------------------------------------------------------------- The Fund's yield for the thirty-day period ended February 28, 1994 was 3.21%. The yield for the Fund is determined by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the net asset value per share of the Fund on the last day of the period. This value is then annualized using semi-annual compounding. This means that the amount of income generated during the thirty-day period is assumed to be generated each month over a 12-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by the Fund because of certain adjustments required by the Securities and Exchange Commission and, therefore, may not correlate to the dividends or other distributions paid to shareholders. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in the Fund, performance will be reduced for those shareholders paying those fees. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The Fund's performance depends upon such variables as: - - portfolio quality; - - average portfolio maturity; - - type of instruments in which the portfolio is invested; - - changes in interest rates and market value of portfolio securities; - - changes in the Fund's expenses; and - - various other factors. The Fund's performance fluctuates on a daily basis largely because net earnings and net asset value per share fluctuate daily. Both net earnings and net asset value per share are factors in the computation of yield and total return. Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: - - MERRILL LYNCH 1-3 YEAR TREASURY INDEX is an unmanaged index tracking short-term U.S. government securities with maturities between 1 and 2.99 years. The index is produced by Merrill Lynch, Pierce, Fenner & Smith, Inc. - - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "Short-term U.S. government funds" category in advertising and sales literature. Advertisements may quote performance information which does not reflect the effect of the sales load. APPENDIX - -------------------------------------------------------------------------------- STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. NR--NR indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. PLUS (+) OR MINUS (-): The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS AAA--Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA--Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR--Not rated by Moody's. Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from "Aa" through "B" in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. NR--NR indicates that Fitch does not rate the specific issue. PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category. STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS A-1--This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus (+) sign designation. A-2--Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: - - Leading market positions in well established industries. - -------------------------------------------------------------------------------- - - High rates of return on funds employed. - - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - - Broad margins in earning coverage of fixed financial charges and high internal cash generation. - - Well-established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as having the strongest degree of assurance for timely payment. FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issues. 2061003B (4/94) DG GOVERNMENT INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Government Income Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The investment objective of the Fund is current income. The Fund pursues its investment objective by investing primarily in government securities to achieve current income. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1994, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing or calling the Fund. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Corporate Bonds 4 Mortgage-Backed Securities 4 Collateralized Mortgage Obligations 4 Asset-Backed Securities 4 Bank Instruments 5 Put and Call Options 5 Risks 5 Temporary Investments 6 Repurchase Agreements 6 Lending of Portfolio Securities 6 When-Issued and Delayed Delivery Transactions 6 Investment Limitations 6 DG INVESTOR SERIES INFORMATION 7 - ------------------------------------------------------ Management of the Trust 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 7 Adviser's Background 7 Sub-Adviser 8 Sub-Advisory Fees 8 Sub-Adviser's Background 8 Distribution of Fund Shares 8 Distribution Plan 8 Shareholder Servicing Arrangements 9 ADMINISTRATION OF THE FUND 9 - ------------------------------------------------------ Administrative Services 9 Custodian 10 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 10 Legal Counsel 10 Independent Auditors 10 Brokerage Transactions 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN THE FUND 11 - ------------------------------------------------------ Share Purchases 11 Through the Banks 11 Minimum Investment Required 11 What Shares Cost 11 Purchases at Net Asset Value 12 Sales Charge Reallowance 12 Reducing the Sales Charge 12 Quantity Discounts and Accumulated Purchases 12 Letter of Intent 13 Reinvestment Privilege 13 Concurrent Purchases 13 Systematic Investment Program 13 Certificates and Confirmations 13 Dividends and Distributions 13 Exchanging Securities for Fund Shares 14 EXCHANGE PRIVILEGE 14 - ------------------------------------------------------ DG Investor Series 14 Exchanging Shares 14 REDEEMING SHARES 15 - ------------------------------------------------------ Through the Banks 15 By Telephone 15 By Mail 15 Signatures 15 Systematic Withdrawal Program 16 Accounts With Low Balances 16 Redemption in Kind 16 SHAREHOLDER INFORMATION 17 - ------------------------------------------------------ Voting Rights 17 Massachusetts Partnership Law 17 EFFECT OF BANKING LAWS 17 - ------------------------------------------------------ TAX INFORMATION 18 - ------------------------------------------------------ Federal Income Tax 18 PERFORMANCE INFORMATION 18 - ------------------------------------------------------ FINANCIAL STATEMENTS 20 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 30 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)...... 2.00% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................................ None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).......................... None Redemption Fee (as a percentage of amount redeemed, if applicable)............... None Exchange Fee..................................................................... None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)................................................. 0.41% 12b-1 Fees(2).................................................................... 0.00% Total Other Expenses............................................................. 0.29% Total Fund Operating Expenses(3)............................................ 0.70%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.60%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee to the distributor. (3) The Total Fund Operating Expenses would have been 0.89% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period. .................................. $ 27 $42 $58 $105
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. DG GOVERNMENT INCOME FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 30.
YEAR ENDED FEBRUARY 28, ------------------- 1994 1993* ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $10.25 $10.00 - ----------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------- Net investment income 0.55 0.37 - ----------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.09) 0.25 - ----------------------------------------------------------------------------- ------ ------ Total from investment operations 0.46 0.62 - ----------------------------------------------------------------------------- ------ ------ LESS DISTRIBUTIONS - ----------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.55) (0.37) - ----------------------------------------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (0.25) -- - ----------------------------------------------------------------------------- Distributions to shareholders in excess of net realized gain on investment transactions(c) (0.01) -- - ----------------------------------------------------------------------------- ------ ------ Total distributions (0.81) (0.37) - ----------------------------------------------------------------------------- ------ ------ NET ASSET VALUE, END OF PERIOD $9.90 $10.25 - ----------------------------------------------------------------------------- ------ ------ TOTAL RETURN** 4.55% 6.40% - ----------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------- Expenses 0.70% 0.50%(a) - ----------------------------------------------------------------------------- Net investment income 5.34% 6.45%(a) - ----------------------------------------------------------------------------- Expense waiver/reimbursement(b) 0.19% 0.41%(a) - ----------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------- Net assets, end of period (000 omitted) $118,695 $111,435 - ----------------------------------------------------------------------------- Portfolio turnover rate 49% 78% - -----------------------------------------------------------------------------
* Reflects operations for the period from August 3, 1992 (date of initial public investment) to February 28, 1993. ** Based on net asset value which does not reflect the sales load or contingent deferred sales charge, if applicable. (a) Computed on an annualized basis. (b) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). (c) These distributions do not represent a return of capital for federal tax purposes (Note 3). Further information about the Fund's performance is contained in the Fund's annual report for the fiscal year ended February 28, 1994, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of government securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in securities which are guaranteed as to payment of principal and interest by the U.S. government or U.S. government agencies or instrumentalities. The Fund may also invest in corporate bonds, asset-backed securities and bank instruments. Under normal circumstances, the Fund will invest at least 65% of the value of its total assets in U.S. government securities. Unless indicated otherwise, the investment policies may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund will invest include: - direct obligations of the U.S. Treasury such as bills, notes, and bonds; and - notes, bonds, and discount notes issued by the Federal Home Loan Banks, Government National Mortgage Association, Federal Farm Credit Banks, Tennessee Valley Authority, Export-Import Bank of the United States, Commodity Credit Corporation, Federal Financing Bank, Student Loan Marketing Association, Federal Home Loan Mortgage Corporation, or National Credit Union Administration. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government, such as Government National Mortgage Association participation certificates, are backed by the full faith and credit of the U.S. Treasury. No assurance can be given that the U.S. government will provide financial support to other agencies or instrumentalities, since it is not obligated to do so. These instrumentalities are supported by: - the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury; - discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or - the credit of the agency or instrumentality. CORPORATE BONDS. The Fund may invest in issues of corporate debt obligations which are rated in one of the three highest categories by a nationally recognized statistical rating organization (rated Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's"); AAA, AA, or A by Standard & Poor's Corporation ("Standard & Poor's") or by Fitch Investors Service, Inc. ("Fitch"), or which are of comparable quality in the judgment of the adviser). MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. There are currently three basic types of mortgage-backed securities: (i) those issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"); (ii) those issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; and (iii) those issued by private issuers that represent an interest in or are collateralized by whole loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations ("CMOs") are debt obligations collateralized by mortgage loans or mortgage pass-through securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole loans or private pass-through securities. The Fund will only invest in CMOs which are rated AAA by a nationally recognized rating agency, and which may be: (a) collateralized by pools of mortgages in which each mortgage is guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. government; (b) collateralized by pools of mortgages in which payment of principal and interest is guaranteed by the issuer and such guarantee is collateralized by U.S. government securities; or (c) securities in which the proceeds of the issuance are invested in mortgage securities and payment of the principal and interest are supported by the credit of an agency or instrumentality of the U.S. government. ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics similar to mortgage-backed securities but have underlying assets that are not mortgage loans or interests in mortgage loans. The Fund may invest in asset-backed securities rated A or higher by a nationally recognized rating agency. The collateral for such securities will consist of motor vehicle installment purchase obligations and credit card receivables. These securities may be in the form of pass-through instruments or asset- backed bonds. The securities are issued by non-governmental entities and carry no direct or indirect government guarantee. BANK INSTRUMENTS. The Fund only invests in bank instruments issued by an institution having capital, surplus and undivided profits over $100 million, or insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"). PUT AND CALL OPTIONS. The Fund may purchase put options on financial futures contracts and put options on portfolio securities. Financial futures may include index futures. These options will be used as a hedge to attempt to protect securities which the Fund holds against decreases in value. For the immediate future, the Fund will enter into futures contracts directly only when it desires to exercise a financial futures put option in its portfolio rather than either closing out the option or allowing it to expire. The Fund will only purchase puts on financial futures contracts which are traded on a recognized exchange. The Fund will generally purchase over-the-counter put options on portfolio securities in negotiated transactions with the writers of the options on the portfolio securities held by the Fund which are typically not traded on an exchange. The Fund purchases options only from investment dealers and other financial associations (such as commercial banks or savings and loan institutions) deemed creditworthy by the Fund's adviser. Over-the-counter put options are two party contracts with price and terms negotiated between buyer and seller. In contrast, exchange traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange traded options have a continuous liquid market, while over-the-counter options may not. The Fund may also write call options on all or any portion of its portfolio to generate income for the Fund. The Fund will write call options on securities either held in its portfolio or which it has the right to obtain without payment of further consideration or for which it has segregated cash in the amount of any additional consideration. The call options which the Fund writes and sells must be listed on a recognized options exchange. Although the Fund reserves the right to write covered call options on its entire portfolio, it will not write such options on more than 25% of its total assets unless a higher limit is authorized by its Trustees. The Fund may attempt to hedge the portfolio by entering into financial futures contracts and to write calls on financial futures contracts. The Fund will notify shareholders before it begins engaging in these transactions. RISKS. When the Fund writes a call option, the Fund risks not participating in any rise in the value of the underlying security. In addition, when the Fund purchases puts on financial futures contracts to protect against declines in prices of portfolio securities, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract and its corresponding put to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors such as interest rate movements. In such an event, the Fund may lose the purchase price of the put option. Finally, it is not certain that a secondary market for options will exist at all times. Although the investment adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular option at any particular time. The Fund's ability to establish and close out option positions depends on this secondary market. TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may invest temporarily in cash and cash items during times of unusual market conditions and to maintain liquidity. Cash items may include short-term obligations such as: - obligations of the U.S. government or its agencies or instrumentalities; - repurchase agreements; and - commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2 by Moody's or F-1 or F-2 by Fitch. REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase portfolio securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an arrangement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may, borrow up to one-third of the value of its total assets and pledge up to 15% of the value of those assets to secure such borrowings. The above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this investment limitation becomes effective. The Fund will not: - invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice, over-the-counter options and certain restricted securities not determined by the Trustees to be liquid. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser, in consultation with the sub-adviser, continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1993, the Trust Division of Deposit Guaranty National Bank had approximately $9 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's Adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank or Commercial National Bank. The lending relationships will not be a factor in the selection of securities. John Mark McKenzie has been with Deposit Guaranty National Bank for ten years and is a Vice President and Trust Investment Officer. Previously, Mr. McKenzie was associated with a Jackson bank as a trust officer. He received a B.B.A. in Banking and Finance from the University of Mississippi. He is a member of the Mississippi Chapter of the Memphis Society of Financial Analysts, and is a member of the Mississippi State and Hinds County Bar Association. Mr. McKenzie has managed the DG Government Income Fund since August 1, 1992 (the inception of the Fund). SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank will form an investment committee (the "DG Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction in the fee due from the Trust to the Adviser on behalf of the Fund. Notwithstanding any other provision in the sub-advisory agreement, the Sub-Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 1993, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, of which it had investment discretion over $1.02 billion. Commercial National Bank has served as sub-adviser to DG Equity Fund, DG Limited Term Government Income Fund, and the Fund since July 20, 1992, and DG Municipal Income Fund since December 12, 1992, each a portfolio of the Trust. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million on assets in excess of $750 .075 of 1% million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. on the next business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED - ---------------------------------------------- ---------------------- ------------------- 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%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset value, without a sales charge by: the Trust Division of the Banks for funds which are held in a fiduciary, agency, custodial, or similar capacity; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; or any bank or investment dealer who has a sales agreement with Federated Securities Corp. with regard to the Fund. SALES CHARGE REALLOWANCE. For sales of shares of the Fund, the Banks or any authorized dealer will normally receive up to 85% of the applicable sales charge. Any portion of the sales charge which is not paid to the Banks or authorized dealers will be retained by the distributor. The distributor will, periodically, uniformly offer to pay cash or promotional incentives in the form of trips to sales seminars at luxury resorts, tickets or other items to all dealers selling shares of the Fund. Such payments will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or registered broker/dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through: - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchases still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 1.75%, not 2.00%. To receive the sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the purchase is made that Fund shares are already owned or that purchases are being combined. The Fund will reduce the sales charge after it confirms the purchases. LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of shares in the funds in the Trust over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the custodian to hold 2.00% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 2.00% held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. This letter may be dated as of a prior date to include any purchases made within the past 90 days. REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the shareholder has a one-time right, within 30 days, to reinvest the redemption proceeds at the next-determined net asset value without any sales charge. Federated Securities Corp. must be notified by the shareholder in writing or by the Banks of the reinvestment in order to eliminate a sales charge. If the shareholder redeems his shares in the Fund, there may be tax consequences. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in this Fund, the sales charge would be reduced. To receive this sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the concurrent purchases are made. The Fund will reduce the sales charge after it confirms the purchases. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Detailed confirmations of each purchase or redemption are sent to each shareholder. Monthly confirmations are sent to report dividends paid during the month. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly. Distribution of any realized long-term capital gains will be made at least once every twelve months. Dividends are automatically reinvested in additional shares of the Fund on payment dates at the ex-dividend date net asset value without a sales charge, unless cash payments are requested by writing to the Fund or the Banks as appropriate. EXCHANGING SECURITIES FOR FUND SHARES Investors may exchange certain securities or a combination of certain securities and cash for Fund shares. The Fund reserves the right to determine the acceptability of securities to be exchanged. On the day securities are accepted by the Fund, they are valued in the same manner as the Fund values its assets. Investors wishing to exchange securities should first contact the Banks. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- DG INVESTOR SERIES All shareholders of the Fund are shareholders of DG Investor Series. Shareholders in the Fund have easy access to the other portfolios of DG Investor Series. EXCHANGING SHARES Shareholders of the Fund may exchange shares of the Fund for shares of the other funds in DG Investor Series. In addition, shares of the Fund may also be exchanged for certain other funds distributed by Federated Securities Corp. that are not advised by the Banks ("Federated Funds"). For further information on the availability of Federated Funds for exchanges, please call Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Shares of funds with a sales charge may be exchanged at net asset value for shares of other funds with an equal sales charge or no sales charge. Shares of the funds with no sales charge acquired by direct purchase or reinvestment of dividends on such shares may be exchanged for shares of funds with a sales charge at net asset value plus the applicable sales charge. 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. 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. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instruction may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the BIF, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by SAIF, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments, and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that payments should be in kind. In such case, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments, valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. As of April 7, 1994, Commercial National Bank, Shreveport, Louisiana, owned approximately 3,513,501 shares (25.41%); and Deposit Guaranty National Bank, Jackson, Mississippi, owned approximately 7,979,279 shares (57.7%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's Adviser and Sub-Adviser, Deposit Guaranty National Bank and Commercial National Bank, respectively, are subject to such banking laws and regulations. The Banks believe, based on the advice of counsel, that they may perform the investment advisory services for the Fund contemplated by the advisory agreement with the Trust and the sub-advisory agreement between the Banks without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent the Banks from continuing to perform all or a part of the above services for their customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by the Banks, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser and/or sub-adviser with equivalent abilities to Deposit Guaranty National Bank and Commercial National Bank are found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios, if any, will not be combined for tax purposes with those realized by the Fund. Unless otherwise exempt, shareholders are required to pay federal income tax on any dividends and other distributions received. This applies whether dividends are received in cash or as additional shares. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their account under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return and yield. Total return represents the change over a specified period of time, in the value of an investment in the Fund after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the maximum offering price per share of the Fund on the last day of the period. This number is then annualized using semiannual compounding. The yield does not necessarily reflect income actually earned by the Fund and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load which, if excluded, would increase the total return and yield. From time to time, the Fund may advertise its performance using certain financial publications and/or compare its performance to certain indices. DG GOVERNMENT INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1994 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ CORPORATE BONDS--17.4% - ------------------------------------------------------------------------------------- BANKING--1.5% ----------------------------------------------------------------- $ 800,000 Bankers Trust New York, 4.70%, 7/1/96 $ 794,776 ----------------------------------------------------------------- 1,000,000 Nationsbank Corp., 5.375%, 4/15/2000 951,970 ----------------------------------------------------------------- ------------ Total 1,746,746 ----------------------------------------------------------------- ------------ BUSINESS EQUIPMENT & SERVICE--1.3% ----------------------------------------------------------------- 1,500,000 International Business Machines Corp., 6.375%, 11/1/97 1,537,875 ----------------------------------------------------------------- ------------ CONSUMER DURABLES--0.4% ----------------------------------------------------------------- 437,000 Eastman Kodak Co., 9.125%, (Callable 3/1/95 @ 100), 3/1/98 455,524 ----------------------------------------------------------------- ------------
CONSUMER NON-DURABLES--1.8% ----------------------------------------------------------------- 889,000 Anheuser-Busch Cos., 6.90%, 10/1/2002 897,561 ----------------------------------------------------------------- 1,000,000 H.J. Heinz, 6.75%, 10/15/99 1,039,590 ----------------------------------------------------------------- 219,000 PepsiCo, Inc., 5.625%, 7/1/95 221,269 ----------------------------------------------------------------- ------------ Total 2,158,420 ----------------------------------------------------------------- ------------ FINANCIAL SERVICES--1.5% ----------------------------------------------------------------- 437,000 General Motors Acceptance Corp., 9.75%, (Callable 5/15/96 @ 100), 5/15/99 476,846 ----------------------------------------------------------------- 437,000 Merrill Lynch & Co., Inc., 8.50%, 8/15/94 445,347 ----------------------------------------------------------------- 437,000 Security Pacific Corp., 8.75%, 9/15/94 445,591 ----------------------------------------------------------------- 437,000 TNE Funding, 9.00%, 5/1/95 458,736 ----------------------------------------------------------------- ------------ Total 1,826,520 ----------------------------------------------------------------- ------------ HEALTH CARE--0.8% ----------------------------------------------------------------- 1,000,000 Upjohn Co., 5.875%, 4/15/2000 994,200 ----------------------------------------------------------------- ------------ RAW MATERIALS--1.2% ----------------------------------------------------------------- 889,000 DuPont (E.I.) de Nemours & Co., 6.75%, 10/15/2002 912,470 ----------------------------------------------------------------- 437,000 DuPont (E.I.) de Nemours & Co., 9.15%, 4/15/2000 501,847 ----------------------------------------------------------------- ------------ Total 1,414,317 ----------------------------------------------------------------- ------------
DG GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ CORPORATE BONDS--CONTINUED - ------------------------------------------------------------------------------------- RETAIL--2.2% ----------------------------------------------------------------- $ 437,000 Sears, Roebuck & Co., 9.00%, 9/15/96 $ 471,357 ----------------------------------------------------------------- 437,000 The Limited, 7.80%, 5/15/2002 473,153 ----------------------------------------------------------------- 437,000 Wal-Mart, Inc., 10.875%, (Callable 8/15/95 @ 102.51), 8/15/2000 477,785 ----------------------------------------------------------------- 1,200,000 Wal-Mart, Inc., 5.50%, 9/15/97 1,202,052 ----------------------------------------------------------------- ------------ Total 2,624,347 ----------------------------------------------------------------- ------------ SHELTER--0.4% ----------------------------------------------------------------- 437,000 Kimberly Clark Corp., 9.125%, 6/1/97 483,165 ----------------------------------------------------------------- ------------ TECHNOLOGY--0.8% ----------------------------------------------------------------- 437,000 Boeing Co., 8.375%, 3/1/96 463,552 ----------------------------------------------------------------- 437,000 Texas Instruments, 9.25%, 6/15/2003 506,920 ----------------------------------------------------------------- ------------ Total 970,472 ----------------------------------------------------------------- ------------ UTILITIES--5.5% ----------------------------------------------------------------- 1,000,000 Alabama Power Co., 6.75%, (Callable 2/1/98 @ 101.60), 2/1/2003 1,000,410 ----------------------------------------------------------------- 437,000 ALLTEL Corp., 10.375%, (Callable 4/1/94 @ 106.50), 4/1/2009 467,341 ----------------------------------------------------------------- 1,500,000 GTE California, 6.25%, 1/15/98 1,523,385 ----------------------------------------------------------------- 1,500,000 New England Telephone & Telegraph Co., 6.25%, 12/15/97 1,548,870 ----------------------------------------------------------------- 1,000,000 Pacific Gas and Electric Co., 6.25%, 3/1/2004 966,050 ----------------------------------------------------------------- 1,000,000 Southern California Edison Co., 5.625%, 10/1/2002 948,450 ----------------------------------------------------------------- ------------ Total 6,454,506 ----------------------------------------------------------------- ------------ TOTAL CORPORATE BONDS, (IDENTIFIED COST, $20,556,022) 20,666,092 ----------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--72.1% - ------------------------------------------------------------------------------------- U.S. TREASURY BONDS--16.0% ----------------------------------------------------------------- 5,250,000 7.625%, 11/15/2022 5,796,315 ----------------------------------------------------------------- 9,000,000 7.125%, 2/15/2023 9,396,540 ----------------------------------------------------------------- 4,000,000 6.25%, 8/15/2023 3,784,960 ----------------------------------------------------------------- ------------ Total 18,977,815 ----------------------------------------------------------------- ------------
DG GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--CONTINUED - ------------------------------------------------------------------------------------- U.S. TREASURY NOTES--56.1% ----------------------------------------------------------------- $ 2,000,000 9.375%, 4/15/96 $ 2,184,360 ----------------------------------------------------------------- 5,000,000 8.50%, 11/15/2000 5,714,050 ----------------------------------------------------------------- 13,000,000 8.00%, 1/15/97 14,015,560 ----------------------------------------------------------------- 8,000,000 6.375%, 8/15/2002 8,122,480 ----------------------------------------------------------------- 7,000,000 5.75%, 8/15/2003 6,783,420 ----------------------------------------------------------------- 4,000,000 5.00%, 1/31/99 3,897,480 ----------------------------------------------------------------- 3,000,000 4.75%, 8/31/98 2,909,970 ----------------------------------------------------------------- 10,000,000 4.625%, 12/31/94 10,043,700 ----------------------------------------------------------------- 3,000,000 4.25%, 12/31/95 2,980,290 ----------------------------------------------------------------- 3,000,000 4.25%, 10/31/94 3,005,610 ----------------------------------------------------------------- 7,000,000 4.00%, 1/31/96 6,912,430 ----------------------------------------------------------------- ------------ Total 66,569,350 ----------------------------------------------------------------- ------------ TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $85,775,731) 85,547,165 ----------------------------------------------------------------- ------------ GOVERNMENT AGENCIES--2.1% - ------------------------------------------------------------------------------------- 2,000,000 Federal Farm Credit Bank, 3.64%, 8/1/94 1,997,220 ----------------------------------------------------------------- 437,000 Tennessee Valley Authority, 8.25%, 10/1/94 445,801 ----------------------------------------------------------------- ------------ TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST, $2,468,780) 2,443,021 ----------------------------------------------------------------- ------------ *REPURCHASE AGREEMENT--7.6% - ------------------------------------------------------------------------------------- 9,059,900 Cantor Fitzgerald Securities Corp., 3.40%, dated 2/28/94, due 3/1/94 (at amortized cost) (Note 2B) 9,059,900 ----------------------------------------------------------------- ------------ TOTAL INVESTMENTS (IDENTIFIED COST, $117,860,433) $117,716,178+ ----------------------------------------------------------------- ------------
* The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. + The cost of investments for federal tax purposes amounts to $117,860,433. The net unrealized depreciation of investments on a federal cost basis amounts to $144,255 which is comprised of $1,192,458 appreciation and $1,336,713 depreciation at February 28, 1994. Note: The categories of investments are shown as a percentage of net assets ($118,695,123) at February 28, 1994. (See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at value (Notes 2A and 2B) (identified and tax cost, $117,860,433) $117,716,178 - ------------------------------------------------------------------------------- Interest receivable 1,141,809 - ------------------------------------------------------------------------------- Receivable for Fund shares sold 430,263 - ------------------------------------------------------------------------------- Deferred expenses (Note 2F) 25,773 - ------------------------------------------------------------------------------- ------------ Total assets 119,314,023 - ------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------- Payable for Fund shares redeemed $576,040 - -------------------------------------------------------------------- Accrued expenses 42,860 - -------------------------------------------------------------------- -------- Total liabilities 618,900 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 11,993,971 shares of beneficial interest outstanding $118,695,123 - ------------------------------------------------------------------------------- ------------ NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------- Paid-in capital $118,896,410 - ------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investments (144,255) - ------------------------------------------------------------------------------- Accumulated distributions in excess of realized gain on investments (Note 3) (61,491) - ------------------------------------------------------------------------------- Undistributed net investment income 4,459 - ------------------------------------------------------------------------------- ------------ Total Net Assets $118,695,123 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE and Redemption Price Per Share: ($118,695,123 / 11,993,971 shares of beneficial interest outstanding) $9.90 - ------------------------------------------------------------------------------- ------------ Computation of Offering Price: Offering Price Per Share (100/98 of $9.90)* $10.10 - ------------------------------------------------------------------------------- ------------
* See "What Shares Cost" in the prospectus. (See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Interest income (Note 2C) $5,799,282 - --------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------- Investment advisory fee (Note 5) $575,982 - ---------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 123,503 - ---------------------------------------------------------------------- Trustees' fees 2,318 - ---------------------------------------------------------------------- Custodian fees 26,491 - ---------------------------------------------------------------------- Recordkeeper fees (Note 5) 51,582 - ---------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses (Note 5) 22,231 - ---------------------------------------------------------------------- Legal fees 4,094 - ---------------------------------------------------------------------- Printing and postage 6,609 - ---------------------------------------------------------------------- Auditing fees 10,532 - ---------------------------------------------------------------------- Fund share registration fees 26,531 - ---------------------------------------------------------------------- Insurance premiums 6,406 - ---------------------------------------------------------------------- Miscellaneous 4,122 - ---------------------------------------------------------------------- -------- Total expenses 860,401 - ---------------------------------------------------------------------- Deduct-- - ---------------------------------------------------------------------- Waiver of investment advisory fee (Note 5) 184,327 - ---------------------------------------------------------------------- -------- Net expenses 676,074 - --------------------------------------------------------------------------------- ---------- Net investment income 5,123,208 - --------------------------------------------------------------------------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - --------------------------------------------------------------------------------- Net realized gain (loss) on investments (identified cost basis)-- 863,884 - --------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on investments (2,189,669) - --------------------------------------------------------------------------------- ---------- Net realized and unrealized gain (loss) on investments (1,325,785) - --------------------------------------------------------------------------------- ---------- Change in net assets resulting from operations $3,797,423 - --------------------------------------------------------------------------------- ----------
(See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28, ---------------------------- 1994 1993* ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------------------- OPERATIONS-- - ----------------------------------------------------------------- Net investment income $ 5,123,208 $ 3,053,315 - ----------------------------------------------------------------- Net realized gain (loss) on investment transactions ($924,978 and $1,460,734 net gain, respectively as computed for federal tax purposes) (Note 2D) 863,884 1,460,734 - ----------------------------------------------------------------- Change in unrealized appreciation (depreciation) of investments (2,189,669) 2,045,414 - ----------------------------------------------------------------- ------------ ------------ Change in net assets resulting from operations 3,797,423 6,559,463 - ----------------------------------------------------------------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ----------------------------------------------------------------- Dividends to shareholders from net investment income (5,120,294) (3,051,770) - ----------------------------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (2,324,618) -- - ----------------------------------------------------------------- Distributions to shareholders in excess of net realized gain on investment transactions (61,491) -- - ----------------------------------------------------------------- ------------ ------------ Change in net assets from distributions to shareholders (7,506,403) (3,051,770) - ----------------------------------------------------------------- ------------ ------------ FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ----------------------------------------------------------------- Proceeds from sale of shares 78,872,953 190,634,746 - ----------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions in Fund shares 3,614,024 333,829 - ----------------------------------------------------------------- Cost of shares redeemed (71,518,109) (83,041,033) - ----------------------------------------------------------------- ------------ ------------ Change in net assets from Fund share transactions 10,968,868 107,927,542 - ----------------------------------------------------------------- ------------ ------------ Change in net assets 7,259,888 111,435,235 - ----------------------------------------------------------------- NET ASSETS: - ----------------------------------------------------------------- Beginning of period 111,435,235 -- - ----------------------------------------------------------------- ------------ ------------ End of period (including undistributed net investment income of $4,459 and $1,545, respectively) $118,695,123 $111,435,235 - ----------------------------------------------------------------- ------------ ------------
* For the period from August 3, 1992 (date of initial public investment) to February 28, 1993. (See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is an open-end, management investment company, established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Trust currently consists of five portfolios. The financial statements included herein present only those of the DG Government Income Fund (the "Fund"), one of the portfolios of the Trust. The financial statements of the other portfolios in the Trust are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--Bonds and other fixed income securities are valued at the last sale price on a national securities exchange, if available. Otherwise, they are valued on the basis of prices furnished by independent pricing services. Short-term obligations are ordinarily valued at the mean between bid and asked prices as furnished by an independent pricing service. However, short-term obligations with maturities of sixty days or less are valued at amortized cost, which approximates value. All other securities are appraised at fair value as determined in good faith by the Board of Trustees. B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's underlying securities to ensure the existence of a proper level of collateral. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Trust's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities.
DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- C. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest and discount earned (net of premium) on short-term obligations, and interest earned on all other debt securities including original issue discount as required by the Internal Revenue Code (the "Code"). Dividends to shareholders and capital gain distributions, if any, are recorded on the ex-dividend date. D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year all of its net taxable income, including any net realized gain on investments. Accordingly, no provision for federal tax is necessary. Additionally, net capital losses of $61,094 attributable to security transactions incurred after October 31, 1993, are treated as arising on March 1, 1994, the first day of the Fund's next taxable year. E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to the registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. G. OTHER--Investment transactions are accounted for on the date of the transaction.
(3) DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly to all shareholders invested in the Fund on the record date. Dividends are paid from the net investment income of the Fund. Net investment income consists of all interest received by the Fund less its expenses. Capital gains realized by the Fund, if any, are distributed at least once every twelve months. The amounts shown in the financial statements for net realized gain on investment transactions for the fiscal year ended February 28, 1994, differ from those determined for tax purposes because of certain timing differences. This resulted in distributions to shareholders in excess of net realized gain on investment transactions. These distributions do not represent a return of capital for federal income tax purposes. DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
YEAR ENDED FEBRUARY 28, ------------------------- 1994 1993* ---------- ---------- - ------------------------------------------------------------------- Shares outstanding, beginning of period 10,868,075 -- - ------------------------------------------------------------------- Shares sold 7,738,340 19,116,439 - ------------------------------------------------------------------- Shares issued to shareholders in payment of distributions in Fund shares 355,836 32,772 - ------------------------------------------------------------------- Shares redeemed (6,968,280) (8,281,136) - ------------------------------------------------------------------- ---------- ---------- Shares outstanding, end of period 11,993,971 10,868,075 - ------------------------------------------------------------------- ---------- ----------
* For the period from August 3, 1992 (date of initial public investment) to February 28, 1993. (5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Deposit Guaranty National Bank, the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse certain operating expenses of the Fund in excess of limitations imposed by certain states. Under the terms of a sub- advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser equal to 0.25 of 1% of the Fund's average daily net assets. In addition, Commercial National Bank may voluntarily choose to reduce its compensation. For the year ended February 28, 1994, Commercial National Bank earned a sub-advisory fee of $239,992, all of which was voluntarily waived. Federated Administrative Services ("FAS") provides the Trust certain administrative personnel and services. The fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. Organization expenses of $21,681 were initially borne by FAS. The Fund has agreed to reimburse FAS for the organization expenses initially borne by FAS during the five year period following the date the Fund became effective. For the period ended February 28, 1994, the Fund paid $1,197 pursuant to this agreement. Federated Services Company ("FSC") is the Fund's transfer agent and dividend disbursing agent. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio of investments. Certain Officers and Trustees of the Trust are Officers and Trustees of FAS and Federated Services Company. DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- (6) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the year ended February 28, 1994, were as follows: - ------------------------------------------------------------------------------ PURCHASES $ 52,464,514 - ------------------------------------------------------------------------------ ------------ SALES $ 44,653,629 - ------------------------------------------------------------------------------ ------------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments, of the DG Government Income Fund (a portfolio within DG Investor Series) as of February 28, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights, which is presented on page 2 of this prospectus, for the year ended February 28, 1994 and period from August 3, 1992 (date of initial public investment) to February 28, 1993. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the financial highlights. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers, and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of the DG Government Income Fund at February 28, 1994, and the results of its operations for the year then ended, the changes in its net assets and the financial highlights for the year ended February 28, 1994 and the period from August 3, 1992 to February 28, 1993, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK Pittsburgh, Pennsylvania April 7, 1994 ADDRESSES - -------------------------------------------------------------------------------- DG Government Federated Investors Tower Income Fund Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 1200 Jackson, Mississippi 39215-1200 - ------------------------------------------------------------------------------------------------ Sub-Adviser Commercial National Bank P.O. Box 21119 Shreveport, Louisiana 71152 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and P.O. Box 1713 Trust Company Boston, Massachusetts 02105 - ------------------------------------------------------------------------------------------------ Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------ Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, DC 20037 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Commercial National Bank Shreveport, LA APRIL 30, 1994 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2061002A (4/94) The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks including the possible loss of principal. DG GOVERNMENT INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for DG Government Income Fund (the "Fund") dated April 30, 1994. This Statement is not a prospectus itself. To receive a copy of the prospectus, write or call the Fund. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated April 30, 1994 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Types of Investments 1 Mortgage-Backed and Asset-Backed Securities Risks 1 Option Transactions 1 Repurchase Agreements 2 Reverse Repurchase Agreements 2 When-Issued and Delayed Delivery Transactions 3 Lending of Portfolio Securities 3 Portfolio Turnover 3 Investment Limitations 3 DG INVESTOR SERIES MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 8 - --------------------------------------------------------------- Adviser to the Fund 8 Advisory Fees 8 Sub-Adviser to the Fund 8 Sub-Advisory Fees 8 ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 9 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Distribution Plan 9 Conversion to Federal Funds 10 DETERMINING NET ASSET VALUE 10 - --------------------------------------------------------------- Determining Market Value of Securities 10 EXCHANGE PRIVILEGE 10 - --------------------------------------------------------------- Requirements for Exchange 10 Making an Exchange 10 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 TAX STATUS 11 - --------------------------------------------------------------- The Fund's Tax Status 11 Shareholders' Tax Status 11 TOTAL RETURN 11 - --------------------------------------------------------------- YIELD 11 - --------------------------------------------------------------- PERFORMANCE COMPARISONS 11 - --------------------------------------------------------------- APPENDIX 13 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in DG Investor Series (the "Trust") which was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is current income. This investment objective cannot be changed without approval of shareholders. TYPES OF INVESTMENTS The Fund invests primarily in a portfolio of government securities. The investment portfolio includes the following securities: - - U.S. government securities, including Treasury bills, notes, bonds, and securities issued by agencies and instrumentalities of the U.S. government; - - mortgage-backed securities; - - corporate debt securities rated within the three highest categories by a nationally recognized statistical rating organization, including bonds, notes and debentures; - - asset-backed securities; and - - bank instruments. MORTGAGE-BACKED AND ASSET-BACKED SECURITIES RISKS Mortgage-backed and asset-backed securities generally pay back principal and interest over the life of the security. At the time the Fund reinvests the payments and any unscheduled prepayments of principal received, the Fund may receive a rate of interest which is actually lower than the rate of interest paid on these securities ("prepayment risks"). Mortgage-backed and asset-backed securities are subject to higher prepayment risks than most other types of debt instruments with prepayment risks because the underlying mortgage loans or the collateral supporting asset- backed securities may be prepaid without penalty or premium. Prepayment risks on mortgaged-backed securities tend to increase during periods of declining mortgage interest rates because many borrowers refinance their mortgages to take advantage of the more favorable rates. Prepayments on mortgage-backed securities are also affected by other factors, such as the frequency with which people sell their homes or elect to make unscheduled payments on their mortgages. Although asset-backed securities generally are less likely to experience substantial prepayments than are mortgage-backed securities, certain of the factors that affect the rate of prepayments on mortgage-backed securities also affect the rate of prepayments on asset-backed securities. Asset-backed securities present certain risks that are not presented by mortgage-backed securities. Primarily, these securities do not have the benefit of the same security interest in the related collateral. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. Most issuers of asset-backed securities backed by motor vehicle installment purchase obligations permit the servicer of such receivables to retain possession of the underlying obligations. If the servicer sells these obligations to another party, there is a risk that the purchaser would acquire an interest superior to that of the holders of the related asset-backed securities. Further, if a vehicle is registered in one state and is then reregistered because the owner and obligor moves to another state, such reregistration could defeat the original security interest in the vehicle in certain cases. In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under state laws, the trustee for the holders of asset-backed securities backed by automobile receivables may not have a proper security interest in all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. OPTION TRANSACTIONS As a means of reducing fluctuations in the net asset value of shares of the Fund, the Fund may attempt to hedge all or a portion of its portfolio through the purchase of put options on portfolio securities and listed put options on financial futures contracts for portfolio securities. The Fund may also write covered call options on its portfolio securities to attempt to increase its current income. The Fund will maintain its positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed, or have expired. An option position may be closed out only on an exchange which provides a secondary market for an option of the same series. - -------------------------------------------------------------------------------- PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS The Fund may purchase listed put options on financial futures contracts. These options will be used only to protect portfolio securities against decreases in value resulting from market factors such as an anticipated increase in interest rates. A futures contract is a firm commitment by two parties: the seller who agrees to make delivery of the specific type of instrument called for in the contract ("going short") and the buyer who agrees to take delivery of the instrument ("going long") at a certain time in the future. Financial futures contracts call for the delivery of particular debt instruments issued or guaranteed by the U.S. Treasury or by specified agencies or instrumentalities of the U.S. government. If the Fund could enter into financial futures contracts directly to hedge its holdings of fixed income securities, it would enter into contracts to deliver securities at a predetermined price (i.e., "go short") to protect itself against the possibility that the prices of its fixed income securities may decline during the Fund's anticipated holding period. Unlike entering directly into a futures contract, which requires the purchaser to buy a financial instrument on a set date at a specified price, the purchase of a put option on a futures contract entitles (but does not obligate) its purchaser to decide on or before a future date whether to assume a short position at the specified price. Generally, if the hedged portfolio securities decrease in value during the term of an option, the related futures contracts will also decrease in value and the option will increase in value. In such an event, the Fund will normally close out its option by selling an identical option. If the hedge is successful, the proceeds received by the Fund upon the sale of the second option will be large enough to offset both the premium paid by the Fund for the original option plus the realized decrease in value of the hedged securities. Alternately, the Fund may exercise its put option to close out the position. To do so, it would simultaneously enter into a futures contract of the type underlying the option (for a price less than the strike price of the option) and exercise the option. The Fund would then deliver the futures contract in return for payment of the strike price. Currently, the Fund will only enter into futures contracts in order to exercise put options in its portfolio. If the Fund neither closes out nor exercises an option, the option will expire on the date provided in the option contract, and only the premium paid for the contract will be lost. PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES The Fund may purchase put options on portfolio securities to protect against price movements in particular securities in its portfolio. A put option gives the Fund, in return for a premium, the right to sell the underlying security to the writer (seller) at a specified price during the term of the option. WRITING COVERED CALL OPTIONS The Fund may also write covered call options to generate income. As writer of a call option, the Fund has the obligation upon exercise of the option during the option period to deliver the underlying security upon payment of the exercise price. The Fund may only sell listed call options either on securities held in its portfolio or on securities which it has the right to obtain without payment of further consideration (or has segregated cash in the amount of any such additional consideration). REPURCHASE AGREEMENTS The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are found by the Fund's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees"). REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees - -------------------------------------------------------------------------------- that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the value of its total assets. During the current year, the Fund does not anticipate investing more than 10% of its total assets in when-issued and delayed delivery transactions. LENDING OF PORTFOLIO SECURITIES The collateral received when the Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. PORTFOLIO TURNOVER Although the Fund does not intend to invest for the purpose of short-term profits, securities in the portfolio will be sold whenever the investment adviser believes it is appropriate to do so in light of the Fund's investment objective without regard to the length of time a particular security may have been held. The investment adviser does not anticipate that the Fund's portfolio turnover rate will exceed 100%. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund's portfolio turnover rates were 49% and 78%, respectively. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin but may obtain such short-term credits as may be necessary for clearance of purchases and sales of securities. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities, except that the Fund may borrow money directly or through reverse repurchase agreements in amounts up to one-third of the value of its total assets including the amount borrowed. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage, but rather as a temporary, extraordinary, or emergency measure or to facilitate management of the portfolio by enabling the Fund to meet redemption requests when the liquidation of portfolio securities is deemed to be inconvenient or disadvantageous. The Fund will not purchase any securities while borrowings in excess of 5% of the value of its total assets are outstanding. PLEDGING ASSETS The Fund will not mortgage, pledge or hypothecate any assets, except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets of the Fund at the time of the pledge. - -------------------------------------------------------------------------------- DIVERSIFICATION OF INVESTMENTS With respect to 75% of the value of its assets, the Fund will not purchase the securities of any issuer (other than cash, cash items, or securities issued or guaranteed by the U.S. government, its agencies or instrumentalities) if, as a result, more than 5% of the value of its total assets would be invested in the securities of that issuer. Also, the Fund will not purchase more than 10% of the outstanding voting securities of any one issuer. UNDERWRITING The Fund will not underwrite any issue of securities except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. INVESTING IN REAL ESTATE The Fund will not buy or sell real estate including limited partnership interests in real estate, although it may invest in securities secured by real estate or interests in real estate. INVESTING IN COMMODITIES The Fund will not buy or sell commodities. However, the Fund may purchase put options on portfolio securities and on financial futures contracts. In addition, the Fund reserves the right to hedge the portfolio by entering into financial futures contracts and to sell calls on financial futures contracts. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may purchase or hold corporate or government bonds, debentures, notes, certificates of indebtedness or other debt securities of an issuer, repurchase agreements, or other transactions which are permitted by the Fund's investment objective and policies or the Trust's Declaration of Trust, or lend portfolio securities valued at not more than 5% of its total assets to broker/dealers. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. RESTRICTED SECURITIES The Fund will not invest more than 5% of the value of its total assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet criteria for liquidity as established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice and certain restricted securities not determined by the Trustees to be liquid. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser owning individually more than 1/2 of 1% of the issuer's securities together own more than 5% of the issuer's securities. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers which have records of less than three years of continuous operations, including the operation of any predecessor. WRITING COVERED PUT AND CALL OPTIONS AND PURCHASING PUT OPTIONS The Fund will not write call options on securities unless the securities are held in the Fund's portfolio or unless the Fund is entitled to them in deliverable form without further payment or after segregating cash in the amount of any further payment. When writing put options, the Fund will segregate cash or U.S. Treasury obligations with a value equal to or greater than the exercise price of the underlying securities. The Fund will not purchase put options on securities unless the securities are held in the Fund's portfolio. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will limit its investment in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, will not invest more than 5% of its total assets in any - -------------------------------------------------------------------------------- one investment company, or invest more than 10% of its total assets in investment companies in general. The Fund will purchase securities of investment companies only in open-market transactions involving only customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation, or acquisition of assets. It should be noted that investment companies incur certain expenses such as management fees, and therefore, any investment by a Fund in shares of another investment company would be subject to such duplicate expenses. The Fund will invest in other investment companies primarily for the purpose of investing its short-term cash on a temporary basis. The adviser will waive its investment advisory fee on assets invested in securities of open-end investment companies. INVESTING IN MINERALS The Fund will not purchase or sell oil, gas, or other mineral exploration or development programs, or leases. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. For purposes of its policies and limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." DG INVESTOR SERIES MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Deposit Guaranty National Bank and Commercial National Bank, Federated Investors, Federated Securities Corp., and Federated Administrative Services, Federated Services Company and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- John F. Donahue+* Chairman and Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Federated Investors Advisers, Federated Management, and Federated Research; Director, AEtna Life Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. - --------------------------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood/PC Commercial Wood and Associates, Inc., Realtors; Northgate Village Development Department Corporation; General Partner President, or Trustee in private real estate John R. Wood and Associates, ventures in Southwest Florida; Director, Trustee, or Managing General Inc., Partner of the Funds; formerly, President Naples Property Management, Inc.;. Realtors 3255 Tamiami Trail North Naples, FL - -------------------------------------------------------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza-23rd Floor Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Pittsburgh, PA Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. - -------------------------------------------------------------------------------------------------------------------------------- James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue Concord, MA Cross of Massachusetts, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA - --------------------------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat 'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - -------------------------------------------------------------------------------------------------------------------------------- Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice President Federated Investors Treasurer, and Treasurer, Federated Advisers, Federated Management, and Federated Tower and Trustee Research; Executive Vice President, Treasurer, and Director, Federated Pittsburgh, PA Securities Corp.; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee of some of the Funds; Vice President and Treasurer of the Funds. - -------------------------------------------------------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, 225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President, Boston, MA State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.; 5916 Penn Mall Director, Eat 'N Park Restaurants, Inc.; Director, Trustee, or Managing Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. - -------------------------------------------------------------------------------------------------------------------------------- Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds; Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy & Technology. - -------------------------------------------------------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Investors Federated Management, and Federated Research; President and Trustee, Tower Federated Administrative Services; Trustee, Federated Services Company; Pittsburgh, PA President or Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. - -------------------------------------------------------------------------------------------------------------------------------- Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Director, Federated Securities Corp.; President or Vice President of the Tower Funds; Director or Trustee of some of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Trustee, Federated Services Pittsburgh, PA Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - --------------------------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- Ronald M. Petnuch Vice President Vice President, Federated Administrative Services; Vice President and Federated Investors and Assistant Assistant Treasurer of some of the Funds; formerly Associate Corporate Tower Treasurer Counsel of Federated Investors. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President, Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Vice President of the Funds; Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division. - --------------------------------------------------------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. + Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc.-1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; World Investment Series, Inc. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding shares. As of April 7, 1994, the following shareholder of record owned 5% or more of the outstanding shares of the Fund: Deposit Guaranty National Bank, Jackson, Mississippi, owned approximately 1,678,959 shares (12.14%). TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will only be liable for their own willful defaults. If reasonable care has been exercised in the selection of officers, agents, employees, or investment advisers, a Trustee shall not be liable for any neglect or wrong doing of any such person. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES - -------------------------------------------------------------------------------- ADVISER TO THE FUND The Fund's investment adviser is Deposit Guaranty National Bank (the "Adviser"), a subsidiary of Deposit Guaranty Corp. The Adviser shall not be liable to the Trust, the Fund or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security, or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. Because of the internal controls maintained by Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, to restrict the flow of non-public information, Fund investments are typically made without any knowledge of Deposit Guaranty National Bank's or its affiliates' lending relationships with an issuer. ADVISORY FEES For its advisory services, the Adviser receives an annual investment advisory fee as described in the prospectus. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund's Adviser earned $575,982 and $283,853, respectively, of which $184,327 and $186,193, respectively, were voluntarily waived. SUB-ADVISER TO THE FUND The Fund's sub-adviser is Commercial National Bank (the "Sub-Adviser"), a subsidiary of Deposit Guaranty Corp. SUB-ADVISORY FEES For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory fee as described in the prospectus. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment), to February 28, 1993, the Sub-Adviser earned sub-advisory fees of $239,992 and $118,272, respectively, all of which were voluntarily waived. STATE EXPENSE LIMITATIONS The Adviser has undertaken to comply with the expense limitation established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1 1/2% per year of the remaining average net assets, the Adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the Adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund incurred administrative services fees of $123,503 and $65,895, respectively, of which $0 and $9,137, respectively, were voluntarily waived. John A. Staley, IV, an officer of the Fund, holds approximately 15% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. For the fiscal years ended February 28, 1994, 1993, and 1992, Federated Administrative Services paid approximately $159,222, $179,920 and $202,532, respectively, for services provided by Commercial Data Services, Inc. BROKERAGE TRANSACTIONS - -------------------------------------------------------------------------------- When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. The Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the Adviser and may include: - - advice as to the advisability of investing in securities; - - security analysis and reports; - - economic studies; - - industry studies; - - receipt of quotations for portfolio evaluations; and - - similar services. The Adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Research services provided by brokers may be used by the Adviser in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales charge, on days the New York Stock Exchange and Federal Reserve Wire System are open for business. The procedure for purchasing shares is explained in the prospectus under "Investing in the Fund." DISTRIBUTION PLAN With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's shares subject to the Plan. Such activities may include the advertising and marketing of shares of the Fund; preparing, printing, and distributing prospectuses and sales literature to prospective shareholders, brokers, or administrators; and implementing and operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay fees to brokers for distribution and administrative services and to administrators for administrative services provided to the Fund. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions, wiring funds and receiving funds for purchases and redemptions of Fund shares, confirming and reconciling all transactions, reviewing the activity in Fund accounts and providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Fund shares and prospective shareholders. The Trustees expect that the adoption of the Plan will result in the sale of a sufficient number of shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objective. For the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment), to February 28, 1993, brokers and administrators (financial institutions) received no fees pursuant to the Plan. - -------------------------------------------------------------------------------- CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. Deposit Guaranty National Bank and Commercial National Bank (the "Banks") as well as Federated Services Company act as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The net asset value generally changes each day. The days on which net asset value is calculated by the Fund are described in the prospectus. DETERMINING MARKET VALUE OF SECURITIES Market value of the Fund's portfolio securities are determined as follows: - - for equity securities and bonds and other fixed income securities, according to the last sale price on a national securities exchange, if available; - - in the absence of recorded sales of equity securities, according to the mean between the last closing bid and asked prices, and for bonds and other fixed income securities as determined by an independent pricing service; - - for unlisted equity securities, the latest bid prices; - - for short-term obligations, according to the mean between bid and asked prices as furnished by an independent pricing service or for short-term obligations with remaining maturities of 60 days or less at the time of purchase, at amortized cost; or - - for all other securities, at fair value as determined in good faith by the Trustees. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- REQUIREMENTS FOR EXCHANGE Before the exchange, the shareholder must receive a prospectus of the fund for which the exchange is being made. This privilege is available to shareholders resident in any state in which the fund shares being acquired may be sold. Upon receipt of proper instructions and required supporting documents, shares submitted for exchange are redeemed and the proceeds invested in shares of the other fund. Further information on the exchange privilege and prospectuses may be obtained by calling the Fund. MAKING AN EXCHANGE Instructions for exchanges may be given in writing. Written instructions may require a signature guarantee. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are redeemed at the next computed net asset value after the Banks receive the redemption request. Redemption procedures are explained in the prospectus under "Redeeming Shares." Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on federal holidays when wire transfers are restricted. Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Fund intends to redeem shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the Fund's portfolio. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Fund is obligated to redeem shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day period. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, the Fund must, among other requirements: - - derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; - - derive less than 30% of its gross income from the sale of securities held less than three months; - - invest in securities within certain statutory limits; and - - distribute to its shareholders at least 90% of its net income earned during the year. SHAREHOLDERS' TAX STATUS Shareholders are subject to federal income tax on dividends received as cash or additional shares. No portion of any income dividend paid by the Fund is eligible for the dividends received deduction available to corporations. These dividends, and any short-term capital gains, are taxable as ordinary income. TOTAL RETURN - -------------------------------------------------------------------------------- The Fund's average annual total return for the year ended February 28, 1994 and for the period from August 3, 1992 (date of initial public investment) to February 28, 1994 were 2.45% and 5.64% respectively. The average annual total return for the Fund is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the maximum offering price per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, less any applicable sales load, adjusted over the period by any additional shares, assuming the quarterly reinvestment of all dividends and distributions. YIELD - -------------------------------------------------------------------------------- The Fund's yield for the thirty-day period ended February 28, 1994 was 4.36%. The yield for the Fund is determined by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the net asset value per share of the Fund on the last day of the period. This value is then annualized using semi-annual compounding. This means that the amount of income generated during the thirty-day period is assumed to be generated each month over a 12-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by the Fund because of certain adjustments required by the Securities and Exchange Commission and, therefore, may not correlate to the dividends or other distributions paid to shareholders. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in the Fund, performance will be reduced for those shareholders paying those fees. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The Fund's performance depends upon such variables as: - - portfolio quality; - - average portfolio maturity; - - type of instruments in which the portfolio is invested; - - changes in interest rates and market value of portfolio securities; - - changes in the Fund's expenses; and - - various other factors. The Fund's performance fluctuates on a daily basis largely because net earnings and net asset value per share fluctuate daily. Both net earnings and net asset value per share are factors in the computation of yield and total return. Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: - -------------------------------------------------------------------------------- - - LEHMAN BROTHERS GOVERNMENT/CORPORATE (TOTAL) index is comprised of approximately 5,000 issues which include: non-convertible bonds publicly issued by the U.S. government or its agencies; corporate bonds guaranteed by the U.S. government and quasi-federal corporations; and publicly issued, fixed rate, non-convertible domestic bonds of companies in industry, public utilities, and finance. The average maturity of these bonds approximates nine years. Tracked by Shearson Lehman Brothers, Inc., the index calculates total returns for one month, three month, twelve month, and ten year periods and year-to-date. - - LIPPER ANALYTICAL SERVICES, INC. ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "Short-term U.S. government funds" category in advertising and sales literature. Advertisements may quote performance information which does not reflect its effect of the sales load. APPENDIX - -------------------------------------------------------------------------------- STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's Corporation. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated AA has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. NR--NR indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS AAA--Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA--Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. NR--Not rated by Moody's. Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. NR--NR indicates that Fitch does not rate the specific issue. PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the AAA category. STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS A-1--This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus (+) sign designation. A-2--Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. - -------------------------------------------------------------------------------- MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS PRIME-1--Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: - - Leading market positions in well established industries. - - High rates of return on funds employed. - - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - - Broad margins in earning coverage of fixed financial charges and high internal cash generation. - - Well-established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2--Issuers rated Prime-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATING FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as having the strongest degree of assurance for timely payment. FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than the strongest issues. 2061002B (4/94) DG EQUITY FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Equity Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The primary investment objective of the Fund is to provide long-term capital appreciation. Current income is a secondary objective. The Fund pursues its investment objectives by investing primarily in a professionally managed, diversified portfolio of equity securities. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1994, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing or calling the Fund. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Repurchase Agreements 4 Securities of Foreign Issuers 4 Put and Call Options 4 Futures Contracts and Options on Futures 5 Risks 5 When-Issued and Delayed Delivery Transactions 5 Lending of Portfolio Securities 5 Temporary Investments 5 Investment Limitations 6 DG INVESTOR SERIES INFORMATION 6 - ------------------------------------------------------ Management of the Trust 6 Board of Trustees 6 Investment Adviser 6 Advisory Fees 6 Adviser's Background 7 Sub-Adviser 7 Sub-Advisory Fees 7 Sub-Adviser's Background 7 Distribution of Fund Shares 8 Distribution Plan 8 Shareholder Servicing Arrangements 9 ADMINISTRATION OF THE FUND 9 - ------------------------------------------------------ Administrative Services 9 Custodian 9 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 9 Legal Counsel 9 Independent Auditors 9 Brokerage Transactions 9 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN THE FUND 10 - ------------------------------------------------------ Share Purchases 10 Through the Banks 10 Minimum Investment Required 10 What Shares Cost 11 Purchases at Net Asset Value 11 Sales Charge Reallowance 11 Reducing the Sales Charge 11 Quantity Discounts and Accumulated Purchases 12 Letter of Intent 12 Reinvestment Privilege 12 Concurrent Purchases 12 Systematic Investment Program 13 Certificates and Confirmations 13 Dividends and Distributions 13 Exchanging Securities For Fund Shares 13 EXCHANGE PRIVILEGE 13 - ------------------------------------------------------ DG Investor Series 13 Exchanging Shares 13 REDEEMING SHARES 14 - ------------------------------------------------------ Through the Banks 14 By Telephone 14 By Mail 15 Signatures 15 Systematic Withdrawal Program 15 Accounts With Low Balances 15 Redemption in Kind 16 SHAREHOLDER INFORMATION 16 - ------------------------------------------------------ Voting Rights 16 Massachusetts Partnership Law 16 EFFECT OF BANKING LAWS 17 - ------------------------------------------------------ TAX INFORMATION 17 - ------------------------------------------------------ Federal Income Tax 17 PERFORMANCE INFORMATION 18 - ------------------------------------------------------ FINANCIAL STATEMENTS 19 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 30 - ------------------------------------------------------ ADDRESSES Inside Back Cover - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... 2.00% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)...................................................... 0.74% 12b-1 Fees(2)......................................................................... 0.00% Total Other Expenses.................................................................. 0.22% Total Fund Operating Expenses(3)................................................. 0.96%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.75%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee to the distributor. (3) The Total Fund Operating Expenses would have been 0.97% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period......... $ 30 $50 $72 $135
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. DG EQUITY FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 30.
YEAR ENDED FEBRUARY 28, ------------------- 1994 1993* ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $10.54 $10.00 - --------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------------- Net investment income 0.14 0.12 - --------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.38 0.52 - --------------------------------------------------------------------- ------ ------ Total from investment operations 0.52 0.64 - --------------------------------------------------------------------- ------ ------ LESS DISTRIBUTIONS - --------------------------------------------------------------------- Dividends to shareholders from net investment income (0.14) (0.10) - --------------------------------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (0.05) -- - --------------------------------------------------------------------- ------ ------ Total distributions (0.19) (0.10) - --------------------------------------------------------------------- ------ ------ NET ASSET VALUE, END OF PERIOD $10.87 $10.54 - --------------------------------------------------------------------- ------ ------ TOTAL RETURN** 4.99% 6.40% - --------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------------- Expenses 0.96% 0.51%(a) - --------------------------------------------------------------------- Net investment income 1.38% 2.15%(a) - --------------------------------------------------------------------- Expense waiver/reimbursement(b) 0.01% 0.53%(a) - --------------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------------- Net assets, end of period (000 omitted) $284,203 $181,239 - --------------------------------------------------------------------- Portfolio turnover rate 7% 28% - ---------------------------------------------------------------------
* Reflects operations for the period from August 3, 1992 (date of initial public investment) to February 28, 1993. ** Based on net asset value which does not reflect the sales load or contingent deferred sales charge, if applicable. (a) Computed on an annualized basis. (b) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5). Further information about the Fund's performance is contained in the Fund's annual report for the fiscal year ended February 28, 1994, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of equity securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES The primary investment objective of the Fund is to provide long-term capital appreciation. Current income is a secondary objective. The investment objectives cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objectives, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objectives by investing at least 70% of its assets in equity securities. The equity securities in which the Fund may invest include, but are not limited to, large capitalization stocks which, in the opinion of the Fund's investment adviser, have potential to provide for capital appreciation and current income. Issuers of large capitalization stocks have equity market valuation in excess of $1 billion. Unless indicated otherwise, the investment policies of the Fund may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund invests primarily in: - common stock of U.S. companies which are either listed on the New York or American Stock Exchange or traded in over-the-counter markets, preferred stock of such companies, warrants, and preferred stock convertible into common stock of such companies; - investments in American Depositary Receipts ("ADRs") of foreign companies traded on the New York Stock Exchange or in the over-the-counter market; - convertible bonds rated at least BBB by Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc., or at least Baa by Moody's Investors Service, Inc. ("Moody's"), or, if not rated, are determined by the adviser to be of comparable quality. Bonds rated BBB by 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. - money market instruments; - fixed rate notes and bonds and adjustable and variable rate notes of companies whose common stock it may acquire; - zero coupon convertible securities; and - obligations, including certificates of deposit and bankers' acceptances, of banks or savings and loan associations having at least $1 billion in deposits as of the date of their most recently published financial statements and which are insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"), both of which are administered by the Federal Deposit Insurance Corporation ("FDIC"), including U.S. branches of foreign banks and foreign branches of U.S. banks. REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities of foreign issuers traded on the New York or American Stock Exchange or in the over-the-counter market in the form of depositary receipts. Securities of a foreign issuer may present greater risks in the form of nationalization, confiscation, domestic marketability, or other national or international restrictions. As a matter of practice, the Fund will not invest in the securities of a foreign issuer if any such risk appears to the investment adviser to be substantial. PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio securities as a hedge to attempt to protect securities which the Fund holds, or will be purchasing, against decreases in value. The Fund may also write (sell) call options on all or any portion of its portfolio to generate income for the Fund. The Fund will write call options on securities either held in its portfolio or which it has the right to obtain without payment of further consideration or for which it has segregated cash or U.S. government securities in the amount of any additional consideration. The Fund may purchase and write over-the-counter options on portfolio securities in negotiated transactions with the buyers or writers of the options when options on the portfolio securities held by the Fund are not traded on an exchange. The Fund purchases and writes options only with investment dealers and other financial institutions (such as commercial banks or savings and loan associations) deemed creditworthy by the Fund's adviser. Over-the-counter options are two-party contracts with price and terms negotiated between buyer and seller. In contrast, exchange-traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange-traded options have a continuous liquid market, while over-the-counter options may not. The Fund will not buy call options or write put options without further notification to shareholders. FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may purchase and sell financial futures and stock index futures contracts to hedge all or a portion of its portfolio against changes in the price of its portfolio securities, but will not engage in futures transactions for speculative purposes. The Fund may also write call options and purchase put options on financial futures and stock index futures contracts as a hedge to attempt to protect securities in its portfolio against decreases in value. The Fund may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on the Fund's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Fund's total assets. RISKS. When the Fund writes a call option, the Fund risks not participating in any rise in the value of the underlying security. In addition, when the Fund uses futures and options on futures as hedging devices, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract and any related options to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors, such as interest rate and stock price movements. In these events, the Fund may lose money on the futures contract or option. It is not certain that a secondary market for positions in futures contracts or options will exist at all times. Although the investment adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market will exist for any particular futures contract or option at any particular time. The Fund's ability to establish and close out futures and options positions depends on this secondary market. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase portfolio securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest temporarily in cash and cash items during times of unusual market conditions and to maintain liquidity. Cash items may include short-term obligations such as: - commercial paper rated A-1 or A-2 by Standard & Poor's Corporation, Prime-1 or Prime-2 by Moody's Investors Service, Inc., or F-1 or F-2 by Fitch Investors Service, Inc.; - obligations of the U.S. government or its agencies or instrumentalities; and - repurchase agreements. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. The above limitation cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. The Fund will not: - invest more than 15% of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice, over-the-counter options and certain restricted securities not determined by the Trustees to be liquid; or - invest more than 5% of the Fund's net assets in warrants; however, no more than 2% of this 5% may be warrants which are not listed on the New York or American Stock Exchange. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser, in consultation with the sub-adviser, continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to 0.75 of 1% of the Fund's average daily net assets. The fee paid by the Fund, while higher than the advisory fee paid by other mutual funds in general, is comparable to fees paid by other mutual funds with similar objectives and policies. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public, including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1993, the Trust Division of Deposit Guaranty National Bank had approximately $9 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank or Commercial National Bank. The lending relationships will not be a factor in the selection of securities. SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by the Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank (collectively, the "Banks") will form an investment committee (the "DG Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction in the fee due from the Trust to the Adviser on behalf of the Fund. Notwithstanding any other provision in the sub-advisory agreement, the Sub-Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 1993, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, for which it had investment discretion over $1.02 billion. Commercial National Bank has served as sub-adviser to DG Government Income Fund, DG Limited Term Government Income Fund and the Fund since July 20, 1992, and DG Municipal Income Fund since December 12, 1992, each a portfolio of the Trust. Ronald E. Lindquist, Senior Vice President and Trust Investment Officer, has served as manager of Commercial National Bank's Trust Investment Department for more than ten years. Mr. Lindquist's primary area of responsibility is the management of the Equity Fund. He received his B.S. in Finance from Florida State University and a M.S.M. in Finance from Florida International University. Mr. Lindquist has managed the DG Equity Fund since August 1, 1992 (the inception of the Fund). DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of 0.35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million on assets in excess of $750 .075 of 1% million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. (Eastern time) on the next business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED - ---------------------------------------------- ---------------------- ------------------- 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%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset value, without a sales charge by: the Trust Division of the Banks for funds which are held in a fiduciary, agency, custodial or similar capacity; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; or any bank or investment dealer who has a sales agreement with Federated Securities Corp. with regard to the Fund. SALES CHARGE REALLOWANCE. For sales of shares of the Fund, the Banks or any authorized dealer will normally receive up to 85% of the applicable sales charge. Any portion of the sales charge which is not paid to the Banks or authorized dealers will be retained by the distributor. The distributor will, periodically, uniformly offer to pay cash or promotional incentives in the form of trips to sales seminars at luxury resorts, tickets or other items, to all dealers selling shares of the Fund. Such payments will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or registered broker/dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through: - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchase still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 1.75%, not 2.00%. To receive the sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the purchase is made that Fund shares are already owned or that purchases are being combined. The Fund will reduce the sales charge after it confirms the purchases. LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of shares in the funds in the Trust over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the custodian to hold 2.00% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 2.00% held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. This letter may be dated as of a prior date to include any purchases made within the past 90 days. REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the shareholder has a one-time right, within 30 days, to reinvest the redemption proceeds at the next-determined net asset value without any sales charge. Federated Securities Corp. must be notified by the shareholder in writing or by the Banks of the reinvestment in order to eliminate a sales charge. If the shareholder redeems his shares in the Fund, there may be tax consequences. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in this Fund, the sales charge would be reduced. To receive this sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the concurrent purchases are made. The Fund will reduce the sales charge after it confirms the purchases. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Detailed confirmations of each purchase or redemption are sent to each shareholder. Quarterly confirmations are sent to report dividends paid during the quarter. DIVIDENDS AND DISTRIBUTIONS Dividends are declared quarterly and paid quarterly. Distribution of any realized long-term capital gains will be made at least once every twelve months. Dividends are automatically reinvested in additional shares of the Fund on payment dates at the ex-dividend date's net asset value without a sales charge, unless cash payments are requested by writing to the Fund or the Banks, as appropriate. EXCHANGING SECURITIES FOR FUND SHARES Investors may exchange certain securities or a combination of certain securities and cash for Fund shares. The Fund reserves the right to determine the acceptability of securities to be exchanged. On the day securities are accepted by the Fund, they are valued in the same manner as the Fund values its assets. Investors wishing to exchange securities should first contact the Banks. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- DG INVESTOR SERIES All shareholders of the Fund are shareholders of DG Investor Series. Shareholders in the Fund have easy access to the other portfolios of DG Investor Series. EXCHANGING SHARES Shareholders of the Fund may exchange shares of the Fund for shares of the other funds in DG Investor Series. In addition, shares of the Fund may also be exchanged for certain other funds distributed by Federated Securities Corp. that are not advised by the Banks ("Federated Funds"). For further information on the availability of Federated Funds for exchanges, please call Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Shares of funds with a sales charge may be exchanged at net asset value for shares of other funds with an equal sales charge or no sales charge. Shares of the funds with no sales charge acquired by direct purchase or reinvestment of dividends on such shares may be exchanged for shares of funds with a sales charge at net asset value plus the applicable sales charge. 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. 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. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instruction may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. Telephone exchange instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the BIF, which is administered by the FDIC; - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by the SAIF, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. REDEMPTION IN KIND The Fund is obligated to redeem shares solely in cash up to $250,000 or 1% of the Fund's net asset value, whichever is less, for any one shareholder within a 90-day period. Any redemption beyond this amount will also be in cash unless the Trustees determine that payments should be in kind. In such case, the Fund will pay all or a portion of the remainder of the redemption in portfolio instruments, valued in the same way as the Fund determines net asset value. The portfolio instruments will be selected in a manner that the Trustees deem fair and equitable. Redemption in kind is not as liquid as a cash redemption. If redemption is made in kind, shareholders receiving their securities and selling them before their maturity could receive less than the redemption value of their securities and could incur certain transaction costs. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. As of April 7, 1994, Deposit Guaranty National Bank, Jackson, Mississippi, acting in various capacities for numerous accounts, was the owner of record of 18,623,844.25 shares (71.94%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's Adviser and Sub-Adviser, Deposit Guaranty National Bank and Commercial National Bank, respectively, are subject to such banking laws and regulations. The Banks believe, based on the advice of counsel, that they may perform the investment advisory services for the Fund contemplated by the advisory agreement with the Trust and the sub-advisory agreement between the Banks without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent the Banks from continuing to perform all or a part of the above services for their customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by the Banks, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser and/or sub-adviser with equivalent abilities to Deposit Guaranty National Bank and/or Commercial National Bank are found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios, if any, will not be combined for tax purposes with those realized by the Fund. Unless otherwise exempt, shareholders are required to pay federal income tax on any dividends and other distributions received. This applies whether dividends are received in cash or as additional shares. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their account under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return and yield. Total return represents the change over a specified period of time in the value of an investment in the Fund after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the maximum offering price per share of the Fund on the last day of the period. This number is then annualized using semi-annual compounding. The yield does not necessarily reflect income actually earned by the Fund and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load which, if excluded, would increase the total return and yield. From time to time, the Fund may advertise its performance using certain financial publications and/or compare its performance to certain indices. DG EQUITY FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1994 - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------ ------------ COMMON STOCKS--92.3% - ------------------------------------------------------------------------------------- BUSINESS EQUIPMENT AND SERVICES--10.5% ------------------------------------------------------------------ 170,000 Automatic Data Processing, Inc. $ 8,691,250 ------------------------------------------------------------------ 180,000 Donnelley (R.R.) & Sons Co. 5,580,000 ------------------------------------------------------------------ 110,000 Dun & Bradstreet Corp. 6,696,250 ------------------------------------------------------------------ 200,000 Pitney Bowes, Inc. 8,775,000 ------------------------------------------------------------------ ------------ Total 29,742,500 ------------------------------------------------------------------ ------------
CAPITAL GOODS--9.0% ------------------------------------------------------------------ 130,000 Dover Corp. 7,962,500 ------------------------------------------------------------------ 35,400 Emerson Electric Co. 2,278,875 ------------------------------------------------------------------ 80,000 General Electric Co. 8,430,000 ------------------------------------------------------------------ 80,000 PPG Industries, Inc. 6,140,000 ------------------------------------------------------------------ 16,900 Tyco International, LTD 883,025 ------------------------------------------------------------------ ------------ Total 25,694,400 ------------------------------------------------------------------ ------------ CONSUMER DURABLES--1.7% ------------------------------------------------------------------ 70,000 Whirlpool Corp. 4,742,500 ------------------------------------------------------------------ ------------ CONSUMER NON-DURABLES--19.6% ------------------------------------------------------------------ 100,000 Coca-Cola Co. 4,262,500 ------------------------------------------------------------------ 110,000 Heinz (H.J.) Co. 3,588,750 ------------------------------------------------------------------ 60,000 Eastman Kodak Co. 2,580,000 ------------------------------------------------------------------ 240,000 International Flavors & Fragrances 8,910,000 ------------------------------------------------------------------ 185,000 PepsiCo., Inc. 7,238,125 ------------------------------------------------------------------ 80,000 Philip Morris Cos., Inc. 4,480,000 ------------------------------------------------------------------ 130,000 Proctor & Gamble Co. 7,458,750 ------------------------------------------------------------------ 70,000 Quaker Oats 4,445,000 ------------------------------------------------------------------ 180,000 Sara Lee Corp. 4,027,500 ------------------------------------------------------------------
DG EQUITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------ ------------ COMMON STOCKS--CONTINUED - ------------------------------------------------------------------------------------- CONSUMER NON-DURABLES--CONTINUED ------------------------------------------------------------------ 160,000 Sysco Corp. $ 4,340,000 ------------------------------------------------------------------ 80,000 Tambrands 3,420,000 ------------------------------------------------------------------ 45,000 Tyson Foods, Inc., Cl. A 967,500 ------------------------------------------------------------------ ------------ Total 55,718,125 ------------------------------------------------------------------ ------------ CONSUMER SERVICES--4.3% ------------------------------------------------------------------ 100,000 Blockbuster Entertainment Corp. 2,637,500 ------------------------------------------------------------------ 200,000 Disney (Walt) Co. 9,625,000 ------------------------------------------------------------------ ------------ Total 12,262,500 ------------------------------------------------------------------ ------------ ENERGY--4.4% ------------------------------------------------------------------ 60,000 Amoco Corp. 3,135,000 ------------------------------------------------------------------ 43,000 Anadarko Petroleum Corp. 1,913,500 ------------------------------------------------------------------ 15,000 Atlantic Richfield Co. 1,511,250 ------------------------------------------------------------------ 45,000 Chevron Corp. 3,903,750 ------------------------------------------------------------------ 35,400 Schlumberger, Ltd. 2,013,375 ------------------------------------------------------------------ ------------ Total 12,476,875 ------------------------------------------------------------------ ------------ FINANCIAL SERVICES--1.1% ------------------------------------------------------------------ 70,000 American General Corp. 1,881,250 ------------------------------------------------------------------ 33,700 Sunamerica, Inc. 1,196,350 ------------------------------------------------------------------ ------------ Total 3,077,600 ------------------------------------------------------------------ ------------ HEALTH CARE--8.7% ------------------------------------------------------------------ 100,000 Abbott Laboratories 2,762,500 ------------------------------------------------------------------ 19,800 American Home Products Corp. 1,185,525 ------------------------------------------------------------------ 51,900 Baxter International, Inc. 1,180,725 ------------------------------------------------------------------ 120,000 Bristol-Myers Squibb Co. 6,630,000 ------------------------------------------------------------------ 50,000 Eli Lilly & Co. 2,756,250 ------------------------------------------------------------------ 85,000 Hillenbrand Industry, Inc. 3,516,875 ------------------------------------------------------------------ 58,800 Merck and Co., Inc. 1,903,650 ------------------------------------------------------------------ 85,000 Pfizer, Inc. 4,930,000 ------------------------------------------------------------------ ------------ Total 24,865,525 ------------------------------------------------------------------ ------------
DG EQUITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------ ------------ COMMON STOCKS--CONTINUED - ------------------------------------------------------------------------------------- MULTI-INDUSTRY--0.7% ------------------------------------------------------------------ 20,700 ITT Corp. $ 1,997,550 ------------------------------------------------------------------ ------------ RAW MATERIALS--5.3% ------------------------------------------------------------------ 12,400 American Cyanamid Company 550,250 ------------------------------------------------------------------ 95,000 Great Lakes Chemical Corp. 7,433,750 ------------------------------------------------------------------ 90,000 Lubrizol Corp. 3,386,250 ------------------------------------------------------------------ 35,000 Morton International Inc. 3,653,125 ------------------------------------------------------------------ ------------ Total 15,023,375 ------------------------------------------------------------------ ------------ RETAIL--10.4% ------------------------------------------------------------------ 175,000 McDonald's Corp. 10,609,375 ------------------------------------------------------------------ 70,000 Melville Corp. 2,712,500 ------------------------------------------------------------------ 40,000 Sears, Roebuck & Co. 1,825,000 ------------------------------------------------------------------ 175,000 Walgreen Company 7,109,375 ------------------------------------------------------------------ 260,000 Wal-Mart Stores, Inc. 7,377,500 ------------------------------------------------------------------ ------------ Total 29,633,750 ------------------------------------------------------------------ ------------ TECHNOLOGY--11.3% ------------------------------------------------------------------ 30,000 AMP Inc. 1,905,000 ------------------------------------------------------------------ 85,000 Boeing Co. 3,973,750 ------------------------------------------------------------------ 85,000 * Compaq Computer Corp. 8,393,750 ------------------------------------------------------------------ 120,000 * Digital Equipment Corp. 3,495,000 ------------------------------------------------------------------ 100,000 Hewlett-Packard Co. 9,062,500 ------------------------------------------------------------------ 40,000 International Business Machines Corp. 2,115,000 ------------------------------------------------------------------ 50,000 Raytheon Co. 3,100,000 ------------------------------------------------------------------ ------------ Total 32,045,000 ------------------------------------------------------------------ ------------
DG EQUITY FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR SHARES VALUE - ----------- ----------------------------------------------------------------- ------------ UTILITIES--5.3% ----------------------------------------------------------------- 130,000 American Telephone & Telegraph Co. $ 6,825,000 ----------------------------------------------------------------- 35,000 BellSouth Corp. 1,951,250 ----------------------------------------------------------------- 80,000 Central & Southwest Corp. 2,190,000 ----------------------------------------------------------------- 29,000 GTE Corp. 946,125 ----------------------------------------------------------------- 31,200 Pacific Telesis Group 1,700,400 ----------------------------------------------------------------- 40,000 Southwestern Bell Corp. 1,565,000 ----------------------------------------------------------------- ------------ Total 15,177,775 ----------------------------------------------------------------- ------------ TOTAL COMMON STOCKS (IDENTIFIED COST $247,783,630) 262,457,475 ----------------------------------------------------------------- ------------ **REPURCHASE AGREEMENT--6.7% - ------------------------------------------------------------------------------------- $18,970,197 Cantor Fitzgerald Securities Corp., 3.40%, dated 2/28/94, due 3/1/94 (at amortized cost) (Note 2B) 18,970,197 ----------------------------------------------------------------- ------------ TOTAL INVESTMENTS (IDENTIFIED COST, $266,753,827) $281,427,672+ ----------------------------------------------------------------- ------------
* Non-income producing securities. ** The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. + The cost of investments for federal tax purposes amounts to $266,753,827. The net unrealized appreciation of investments on a federal tax cost basis amounts to $14,673,845 which is comprised of $28,437,707 appreciation and $13,763,862 depreciation at February 28, 1994. Note: The categories of investments are shown as a percentage of net assets ($284,202,520) at February 28, 1994. (See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at value (Notes 2A and 2B) (identified and tax cost $266,753,827) $281,427,672 - ------------------------------------------------------------------------------- Receivable for investments sold 2,633,806 - ------------------------------------------------------------------------------- Dividends and interest receivable 760,763 - ------------------------------------------------------------------------------- Receivable for Fund shares sold 391,053 - ------------------------------------------------------------------------------- Deferred expenses (Note 2F) 44,043 - ------------------------------------------------------------------------------- ------------ Total assets 285,257,337 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for Fund shares redeemed $977,837 - -------------------------------------------------------------------- Accrued expenses 76,980 - -------------------------------------------------------------------- -------- Total liabilities 1,054,817 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 26,134,342 shares of beneficial interest outstanding $284,202,520 - ------------------------------------------------------------------------------- ------------ NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------- Paid-in capital $267,692,811 - ------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investments 14,673,845 - ------------------------------------------------------------------------------- Accumulated net realized gain (loss) on investments 1,215,396 - ------------------------------------------------------------------------------- Undistributed net investment income 620,468 - ------------------------------------------------------------------------------- ------------ Total Net Assets $284,202,520 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE and Redemption Price Per Share: ($284,202,520 / 26,134,342 shares of beneficial interest outstanding) $10.87 - ------------------------------------------------------------------------------- ------------ Computation of Offering Price: Offering Price Per Share (100/98 of $10.87)* $11.09 - ------------------------------------------------------------------------------- ------------
* See "What Shares Cost" in the prospectus. (See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Dividends $ 5,146,905 - --------------------------------------------------------------------------------- Interest 832,571 - --------------------------------------------------------------------------------- ----------- Total investment income (Note 2C) 5,979,476 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee (Note 5) $1,915,318 - -------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 328,534 - -------------------------------------------------------------------- Trustees' fees 2,475 - -------------------------------------------------------------------- Custodian fees 41,470 - -------------------------------------------------------------------- Recordkeeper fees (Note 5) 69,817 - -------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses (Note 5) 22,533 - -------------------------------------------------------------------- Legal fees 4,169 - -------------------------------------------------------------------- Printing and postage 7,504 - -------------------------------------------------------------------- Auditing fees 10,500 - -------------------------------------------------------------------- Fund share registration fees 65,046 - -------------------------------------------------------------------- Insurance premiums 8,808 - -------------------------------------------------------------------- Miscellaneous 5,634 - -------------------------------------------------------------------- ---------- Total expenses 2,481,808 - -------------------------------------------------------------------- Deduct--Waiver of investment advisory fee (Note 5) 27,126 - -------------------------------------------------------------------- ---------- Net expenses 2,454,682 - --------------------------------------------------------------------------------- ----------- Net investment income 3,524,794 - --------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - --------------------------------------------------------------------------------- Net realized gain (loss) on investments (identified cost basis)-- 3,099,223 - --------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on investments 7,867,219 - --------------------------------------------------------------------------------- ----------- Net realized and unrealized gain (loss) on investments 10,966,442 - --------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $14,491,236 - --------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28, ----------------------------- 1994 1993* ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------------------- OPERATIONS-- - --------------------------------------------------------------- Net investment income $ 3,524,794 $ 1,328,736 - --------------------------------------------------------------- Net realized gain (loss) on investment transactions ($2,837,598 net gain and $239,426 net loss, respectively, as computed for federal tax purposes) (Note 2D) 3,099,223 (501,050) - --------------------------------------------------------------- Change in unrealized appreciation (depreciation) of investments 7,867,219 6,806,626 - --------------------------------------------------------------- ------------ ------------ Change in net assets resulting from operations 14,491,236 7,634,312 - --------------------------------------------------------------- ------------ ------------ DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - --------------------------------------------------------------- Dividends to shareholders from net investment income (3,253,053) (980,009) - --------------------------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (1,382,777) -- - --------------------------------------------------------------- ------------ ------------ Change in net assets from distributions to shareholders (4,635,830) (980,009) - --------------------------------------------------------------- ------------ ------------ FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - --------------------------------------------------------------- Proceeds from sale of shares 134,529,308 229,543,261 - --------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions in Fund shares 3,351,297 2,880 - --------------------------------------------------------------- Cost of shares redeemed (44,772,757) (54,961,178) - --------------------------------------------------------------- ------------ ------------ Change in net assets from Fund share transactions 93,107,848 174,584,963 - --------------------------------------------------------------- ------------ ------------ Change in net assets 102,963,254 181,239,266 - --------------------------------------------------------------- NET ASSETS: - --------------------------------------------------------------- Beginning of period 181,239,266 -- - --------------------------------------------------------------- ------------ ------------ End of period (including undistributed net investment income of $620,468 and $348,727, respectively) $284,202,520 $181,239,266 - --------------------------------------------------------------- ------------ ------------
* For the period from August 3, 1992 (date of initial public investment) to February 28, 1993. (See Notes which are an integral part of the Financial Statements) DG EQUITY FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is an open-end, management investment company, established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Trust currently consists of five portfolios. The financial statements included herein present only those of the DG Equity Fund (the "Fund"), one of the portfolios of the Trust. The financial statements of the other portfolios in the Trust are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale price reported on national securities exchanges. Unlisted securities, or listed securities in which there were no sales, and private placement securities are valued at the mean between bid and asked prices. Bonds and other fixed income securities are valued at the last sale price on a national securities exchange, if available. Otherwise, they are valued on the basis of prices furnished by independent pricing services. Short-term obligations are ordinarily valued at the mean between bid and asked prices as furnished by an independent pricing service. However, short-term obligations with maturities of sixty days or less are valued at amortized cost, which approximates value. All other securities are appraised at fair value as determined in good faith by the Board of Trustees. B. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System or to have segregated within the custodian bank's vault, all securities held as collateral in support of repurchase agreement investments. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's underlying securities to ensure the existence of a proper level of collateral. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Trust's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities.
DG EQUITY FUND - -------------------------------------------------------------------------------- C. INCOME--Dividend income is recorded on the ex-dividend date. Interest income is recorded on the accrual basis. Interest income includes interest and discount earned (net of premium) on short-term obligations, and interest earned on all other debt securities including original issue discount as required by the Internal Revenue Code (the "Code"). Dividends to Shareholders and capital gain distributions, if any, are recorded on the ex-dividend date. D. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year all of its net income, including any net realized gain on investments. Accordingly, no provision for federal tax is necessary. E. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objectives and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. F. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. G. OTHER--Investment transactions are accounted for on the date of the transaction.
(3) DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid quarterly to all shareholders invested in the Fund on the record date. Dividends are paid from the net investment income of the Fund. Net investment income consists of all dividends or interest received by the Fund less its expenses. Capital gains realized by the Fund, if any, are distributed at least once every twelve months. DG EQUITY FUND - -------------------------------------------------------------------------------- (4) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
YEAR ENDED FEBRUARY 28, ------------------------- 1994 1993* ---------- ---------- - ------------------------------------------------------------------- Shares outstanding, beginning of period 17,199,369 -- - ------------------------------------------------------------------- Shares sold 12,800,127 22,509,005 - ------------------------------------------------------------------- Shares issued to shareholders in payment of distributions in Fund shares 315,593 276 - ------------------------------------------------------------------- Shares redeemed (4,180,747) (5,309,912) - ------------------------------------------------------------------- ---------- ---------- Shares outstanding, end of period 26,134,342 17,199,369 - ------------------------------------------------------------------- ---------- ----------
* For the period from August 3, 1992 (date of initial public investment) to February 28, 1993. (5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Deposit Guaranty National Bank, the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.75 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse certain operating expenses of the Fund in excess of limitations imposed by certain states. Under the terms of a sub- advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser, equal to 0.25 of 1% of the Fund's average daily net assets. In addition, Commercial National Bank may voluntarily choose to reduce its compensation. For the year ended February 28, 1994, Commercial National Bank earned a sub-advisory fee of $638,439, all of which was voluntarily waived. Federated Administrative Services ("FAS") provides the Trust certain administrative personnel and services. The fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. Organization expenses of $23,061 were initially borne by FAS. The Fund has agreed to reimburse FAS for the organization expenses initially borne by FAS during the five year period following the date the Fund became effective. For the year ended February 28, 1994, the Fund paid $1,242 pursuant to this agreement. Federated Services Company ("FSC") is the Fund's transfer agent and dividend disbursing agent. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio of investments. DG EQUITY FUND - -------------------------------------------------------------------------------- Certain Officers and Trustees of the Trust are Officers and Trustees of FAS and Federated Services Company. (6) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities for the year ended February 28, 1994 were as follows: - ------------------------------------------------------------------------------ PURCHASES $102,800,017 - ------------------------------------------------------------------------------ ------------ SALES $ 16,662,959 - ------------------------------------------------------------------------------ ------------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholder DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments, of the DG Equity Fund (a portfolio within DG Investor Series) as of February 28, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets and financial highlights, which is presented on page 2 of this prospectus, for the year ended February 28, 1994 and the period from August 3, 1992 (date of initial public investment) to February 28, 1993. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the financial highlights. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers, and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of the DG Equity Fund at February 28, 1994 and the results of its operations for the year then ended, the changes in net assets and financial highlights for the year ended February 28, 1994 and the period from August 3, 1992 to February 28, 1993, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK Pittsburgh, Pennsylvania April 7, 1994 [THIS PAGE INTENTIONALLY LEFT BLANK] [THIS PAGE INTENTIONALLY LEFT BLANK] ADDRESSES - -------------------------------------------------------------------------------- DG Equity Fund Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 1200 Jackson, Mississippi 39215-1200 - ------------------------------------------------------------------------------------------------ Sub-Adviser Commercial National Bank P.O. Box 21119 Shreveport, Louisiana 71152 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and P.O. Box 1713 Trust Company Boston, Massachusetts 02105 - ------------------------------------------------------------------------------------------------ Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------ Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, DC 20037 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG EQUITY FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Commercial National Bank Shreveport, LA APRIL 30, 1994 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2061001A (4/94) DG EQUITY FUND (A PORTFOLIO OF DG INVESTOR SERIES) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for DG Equity Fund (the "Fund") dated April 30, 1994. This Statement is not a prospectus itself. To receive a copy of the prospectus, write or call the Fund. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated April 30, 1994 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVES AND POLICIES 1 - --------------------------------------------------------------- Types of Investments 1 Futures and Options Transactions 2 Futures Contracts 2 Put Options on Financial Futures Contracts 2 Call Options on Financial Futures Contracts 2 "Margin" in Futures Transactions 3 Purchasing Put Options on Portfolio Securities 3 Writing Covered Call Options on Portfolio Securities 3 Corporate Debt Securities 3 Repurchase Agreements 3 Reverse Repurchase Agreements 3 When-Issued and Delayed Delivery Transactions 4 Lending of Portfolio Securities 4 Portfolio Turnover 4 Investment Limitations 4 DG INVESTOR SERIES MANAGEMENT 6 - --------------------------------------------------------------- Officers and Trustees 6 The Funds 8 Fund Ownership 9 Trustee Liability 9 INVESTMENT ADVISORY SERVICES 9 - --------------------------------------------------------------- Adviser to the Fund 9 Advisory Fees 9 Sub-Adviser to the Fund 9 Sub-Advisory Fees 9 ADMINISTRATIVE SERVICES 9 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 10 - --------------------------------------------------------------- PURCHASING SHARES 10 - --------------------------------------------------------------- Distribution Plan 10 Conversion to Federal Funds 11 DETERMINING NET ASSET VALUE 11 - --------------------------------------------------------------- Determining Market Value of Securities 11 EXCHANGE PRIVILEGE 11 - --------------------------------------------------------------- Requirements for Exchange 11 Making an Exchange 11 REDEEMING SHARES 11 - --------------------------------------------------------------- Redemption in Kind 11 TAX STATUS 12 - --------------------------------------------------------------- The Fund's Tax Status 12 Shareholders' Tax Status 12 TOTAL RETURN 12 - --------------------------------------------------------------- YIELD 12 - --------------------------------------------------------------- PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- APPENDIX 14 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND - -------------------------------------------------------------------------------- The Fund is a portfolio in DG Investor Series (the "Trust") which was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. INVESTMENT OBJECTIVES AND POLICIES - -------------------------------------------------------------------------------- The Fund's primary investment objective is to provide long-term capital appreciation. Current income is a secondary objective. The investment objectives cannot be changed without approval of shareholders. TYPES OF INVESTMENTS The Fund may invest in convertible securities, zero coupon convertible securities, money market instruments, common stocks, preferred stocks, corporate bonds, notes, and put options on stocks. The following are also permitted investments of the Fund: CONVERTIBLE SECURITIES Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants, or a combination of the features of several of these securities. The investment characteristics of each convertible security vary widely, which allows convertible securities to be employed for different investment objectives. The Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the investment adviser's opinion, the investment characteristics of the underlying common shares will assist the Fund in achieving its investment objectives. Otherwise, the Fund may hold or trade convertible securities. In selecting convertible securities for the Fund, the Fund's adviser evaluates the investment characteristics of the convertible security as a fixed income instrument and the investment potential of the underlying equity security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the Fund's adviser considers numerous factors, including the economic and political outlook, the value of the security relative to other investment alternatives, trends in the determinants of the issuer's profits, and the issuer's management capability and practices. ZERO COUPON CONVERTIBLE SECURITIES Zero coupon convertible securities are debt securities which are issued at a discount to their face amount and do not entitle the holder to any periodic payments of interest prior to maturity. Rather, interest earned on zero coupon convertible securities accretes at a stated yield until the security reaches its face amount at maturity. Zero coupon convertible securities are convertible into a specific number of shares of the issuer's common stock. In addition, zero coupon convertible securities usually have put features that provide the holder with the opportunity to put the bonds back to the issuer at a stated price before maturity. Generally, the prices of zero coupon convertible securities may be more sensitive to market interest rate fluctuations than conventional convertible securities. Federal income tax law requires the holder of a zero coupon convertible security to recognize income with respect to the security prior to the receipt of cash payments. To maintain its qualification as a regulated investment company and avoid liability of federal income taxes, the Fund will be required to distribute income accrued with respect to zero coupon convertible securities which it owns, and may have to sell portfolio securities (perhaps at disadvantageous times) in order to generate cash to satisfy these distribution requirements. MONEY MARKET INSTRUMENTS The Fund may invest in money market instruments of domestic and foreign banks and savings and loans if they have capital, surplus, and undivided profits of over $100,000,000, or if the principal amount of the instrument is insured in full by the Bank Insurance Fund or the Savings Association Insurance Fund, both of which are administered by the Federal Deposit Insurance Corporation. WARRANTS Warrants are basically options to purchase common stock at a specific price (usually at a premium above the market value of the optioned common stock at issuance) valid for a specific period of time. Warrants may have a life ranging from less than a year to twenty years or may be perpetual. However, most warrants have expiration dates after which they are worthless. In addition, if the market price of the common stock does not exceed the warrant's exercise price during the life of the warrant, the warrant will expire as worthless. Warrants have no voting rights, pay no dividends, and have no rights with respect to the assets of the - -------------------------------------------------------------------------------- corporation issuing them. The percentage increase or decrease in the market price of the warrant may tend to be greater than the percentage increase or decrease in the market price of the optioned common stock. FUTURES AND OPTIONS TRANSACTIONS As a means of reducing fluctuations in the net asset value of shares of the Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying and selling financial futures and stock index futures contracts, buying put options on portfolio securities and listed put options on futures contracts, and writing call options on futures contracts. The Fund may also write covered call options on portfolio securities to attempt to increase its current income. The Fund will maintain its positions in securities, option rights, and segregated cash subject to puts and calls until the options are exercised, closed, or have expired. An option position on financial futures contracts may be closed out only on an exchange which provides a secondary market from options of the same series. FUTURES CONTRACTS A futures contract is a firm commitment between the seller, who agrees to make delivery of the specific type of security called for in the contract ("going short"), and the buyer, who agrees to take delivery of the security ("going long") at a certain time in the future. When the Fund purchases futures contracts, an amount of cash and cash equivalents, equal to the underlying commodity value of the futures contracts (less any related margin deposits), will be deposited in a segregated account with the Fund's custodian (or the broker, if legally permitted) to collateralize the position and thereby insure that the use of such futures contract is unleveraged. Financial futures contracts call for the delivery of particular debt instruments at a certain time in the future. The seller of the contract agrees to make delivery of the type of instrument called for in the contract and the buyer agrees to take delivery of the instrument at the specified future time. Stock index futures contracts are based on indexes that reflect the market value of common stock of the firms included in the indexes. An index futures contract is an agreement pursuant to which two parties agree to take or make delivery of an amount of cash equal to the differences between the value of the index at the close of the last trading day of the contract and the price at which the index contract was originally written. PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS The Fund may purchase listed put options on financial futures contracts. Unlike entering directly into a futures contract, which requires the purchaser to buy a financial instrument on a set date at a specified price, the purchase of a put option on a futures contract entitles (but does not obligate) its purchaser to decide on or before a future date whether to assume a short position at the specified price. Generally, if the hedged portfolio securities decrease in value during the term of an option, the related futures contracts will also decrease in value and the option will increase in value. In such an event, the Fund will normally close out its option by selling an identical option. If the hedge is successful, the proceeds received by the Fund upon the sale of the second option will be large enough to offset both the premium paid by the Fund for the original option plus the decrease in value of the hedged securities. Alternatively, the Fund may exercise its put option to close out the position. To do so, it would simultaneously enter into a futures contract of the type underlying the option (for a price less than the strike price of the option) and exercise the option. The Fund would then deliver the futures contract in return for payment of the strike price. If the Fund neither closes out nor exercises an option, the option will expire on the date provided in the option contract, and only the premium paid for the contract will be lost. CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS In addition to purchasing put options on futures, the Fund may write listed call options on futures contracts to hedge its portfolio. When the Fund writes a call option on a futures contract, it is undertaking the obligation of assuming a short futures position (selling a futures contract) at the fixed strike price at any time during the life of the option if the option is exercised. As stock prices fall, causing the prices of futures to go down, the Fund's obligation under a call option on a future (to sell a futures contract) costs less to fulfill, causing the value of the Fund's call option position to increase. In other words, as the underlying futures price goes down below the strike price, the buyer of the option has no reason to exercise the call, so that the Fund keeps the premium received for the option. This premium can substantially offset the drop in value of the Fund's fixed income or indexed portfolio which is occurring as interest rates rise. Prior to the expiration of a call written by the Fund, or exercise of it by the buyer, the Fund may close out the option by buying an identical option. If the hedge is successful, the cost of the second option will be less than the premium - -------------------------------------------------------------------------------- received by the Fund for the initial option. The net premium income of the Fund will then substantially offset the decrease in value of the hedged securities. The Fund will not maintain open positions in futures contracts it has sold or call options it has written on futures contracts if, in the aggregate, the value of the open positions (marked to market) exceeds the current market value of its securities portfolio plus or minus the unrealized gain or loss on those open positions, adjusted for the correlation of volatility between the hedged securities and the futures contracts. If this limitation is exceeded at any time, the Fund will take prompt action to close out a sufficient number of open contracts to bring its open futures and options positions within this limitation. "MARGIN" IN FUTURES TRANSACTIONS Unlike the purchase or sale of a security, the Fund does not pay or receive money upon the purchase or sale of a futures contract. Rather, the Fund is required to deposit an amount of "initial margin" in cash or U.S. Treasury bills with its custodian (or the broker, if legally permitted). The nature of initial margin in futures transactions is different from that of margin in securities transactions in that initial margin in futures transactions does not involve the borrowing of funds by the Fund to finance the transactions. Initial margin is in the nature of a performance bond or good faith deposit on the contract which is returned to the Fund upon termination of the futures contract, assuming all contractual obligations have been satisfied. A futures contract held by the Fund is valued daily at the official settlement price of the exchange on which it is traded. Each day the Fund pays or receives cash, called "variation margin," equal to the daily change in value of the futures contract. This process is known as "marking to market." Variation margin does not represent a borrowing or loan by the Fund but is instead settlement between the Fund and the broker of the amount one would owe the other if the futures contract expired. In computing its daily net asset value, the Fund will mark to market its open futures positions. The Fund is also required to deposit and maintain margin when it writes call options on futures contracts. PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES The Fund may purchase put options on portfolio securities to protect against price movements in particular securities in its portfolio. A put option gives the Fund, in return for a premium, the right to sell the underlying security to the writer (seller) at a specified price during the term of the option. WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES The Fund may also write covered call options to generate income. As writer of a call option, the Fund has the obligation upon exercise of the option during the option period to deliver the underlying security upon payment of the exercise price. The Fund may only sell call options either on securities held in its portfolio or on securities which it has the right to obtain without payment of further consideration (or has segregated cash in the amount of any additional consideration). CORPORATE DEBT SECURITIES Corporate debt securities may bear fixed, fixed and contingent, or variable rates of interest. They may involve equity features such as conversion or exchange rights, warrants for the acquisition of common stock of the same or different issuer, participations based on revenues, sales, or profits, or the purchase of common stock in a unit transaction (where corporate debt securities and common stock are offered as a unit). REPURCHASE AGREEMENTS The Fund or its custodian will take possession of the securities subject to repurchase agreements and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are found by the Fund's adviser to be creditworthy pursuant to guidelines established by the Board of Trustees ("Trustees"). REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement, the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees - -------------------------------------------------------------------------------- that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objectives and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of the total value of the assets. During the current year, the Fund does not anticipate investing more than 10% of its total assets in when-issued and delayed delivery transactions. LENDING OF PORTFOLIO SECURITIES The collateral received when the Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. PORTFOLIO TURNOVER Although the Fund does not intend to invest for the purpose of seeking short-term profits, securities in the portfolio will be sold whenever the investment adviser believes it is appropriate to do so in light of the Fund's investment objectives, without regard to the length of time a particular security may have been held. The investment adviser does not anticipate that the Fund's portfolio turnover rate will exceed 100%. For the year ended February 28, 1994, and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the portfolio turnover rates were 7% and 28%, respectively. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin, but may obtain such short-term credits as may be necessary for clearance of purchases and sales of portfolio securities. The deposit or payment by the Fund of initial or variation margin in connection with financial futures contracts or related options transactions is not considered the purchase of a security on margin. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements as a temporary measure for extraordinary or emergency purposes and then only in amounts not in excess of one-third of the value of its total assets; provided that, while borrowings exceed 5% of the Fund's total assets, any such borrowings will be repaid before additional investments are made. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage purposes. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of the value of its total assets would be invested in any one industry. However, the Fund may at times invest 25% or more of the value of its total assets in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. - -------------------------------------------------------------------------------- INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts except that the Fund may purchase and sell financial futures and stock index futures contracts and related options. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, including limited partnership interests in real estate, although it may invest in securities secured by real estate or interests in real estate. INVESTING TO EXERCISE CONTROL The Fund will not purchase securities for the purpose of exercising control over the issuer of securities. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except that it may purchase or hold corporate or government bonds, debentures, notes, certificates of indebtedness or other debt securities of an issuer, repurchase agreements, or other transactions which are permitted by the Fund's investment objectives and policies or the Trust's Declaration of Trust, or lend portfolio securities valued at not more than 5% of its total assets to broker/dealers. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objectives, policies, and limitations. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of the value of total assets at the time of the pledge. For purposes of this limitation, the following are not deemed to be pledges: margin deposits for the purchase and sale of financial futures contracts and related options, and segregation or collateral arrangements made in connection with options activities or the purchase of securities on a when-issued basis. DIVERSIFICATION OF INVESTMENTS With respect to 75% of the value of its assets, the Fund will not purchase the securities of any issuer (other than cash, cash items, or securities issued or guaranteed by U.S. government, its agencies or instrumentalities) if, as a result, more than 5% of the value of its total assets would be invested in the securities of that issuer. Also, the Fund will not purchase more than 10% of the outstanding voting securities of any one issuer. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material changes in these limitations become effective. RESTRICTED SECURITIES The Fund will not invest more than 5% of the value of its total assets in securities subject to restrictions on resale under the Securities Act of 1933, except for certain restricted securities which meet the criteria for liquidity as established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice, over-the-counter options, and certain restricted securities not determined by the Trustees to be liquid. INVESTING IN MINERALS The Fund will not purchase interests in oil, gas, other mineral exploration or development programs, or leases, although it may purchase the publicly traded securities of companies engaging in such activities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will limit its investment in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, will not invest more than 5% of its total assets in any one investment company, or invest more than 10% of its total assets in investment companies in general. The Fund will purchase securities of investment companies only in open-market transactions involving only customary broker's commissions. However, these limitations are not applicable if the securities are acquired - -------------------------------------------------------------------------------- in a merger, consolidation, or acquisition of assets. It should be noted that investment companies incur certain expenses, such as management fees, and, therefore, any investment by a fund in shares of another investment company would be subject to such duplicate expenses. The Fund will invest in other investment companies primarily for the purpose of investing its short-term cash on a temporary basis. The adviser will waive its investment advisory fee on assets invested in securities of open-end investment companies. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser owning individually more than 1/2 of 1% of the issuer's securities together own more than 5% of the issuer's securities. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of the value of its total assets in securities of issuers which have records of less than three years of continuous operations, including the operation of any predecessor. INVESTING IN WARRANTS The Fund will not invest more than 5% of its net assets in warrants, including those acquired in units or attached to other securities. To comply with certain state restrictions, the Fund will limit its investment in such warrants not listed on the New York or American Stock Exchange to 2% of its net assets. (If state restrictions change, this latter restriction may be revised without notice to shareholders.) For purposes of this investment restriction, warrants acquired by the Fund in units or attached to securities may be deemed to be without value. ARBITRAGE TRANSACTIONS The Fund will not enter into transactions for the purpose of engaging in arbitrage. INVESTING IN PUT OPTIONS The Fund will not purchase put options on securities, unless the securities are held in the Fund's portfolio and not more than 5% of the value of the Fund's total assets would be invested in premiums on open put option positions. WRITING COVERED CALL OPTIONS The Fund will not write call options on securities unless the securities are held in the Fund's portfolio or unless the Fund is entitled to them in deliverable form without further payment or after segregating cash in the amount of any further payment. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value or net assets will not result in a violation of such restriction. For the purposes of its policies and limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." DG INVESTOR SERIES MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Deposit Guaranty National Bank and Commercial National Bank, Federated Investors, Federated Securities Corp., Federated Administrative Services, Federated Services Company and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- John F. Donahue+* Chairman and Trustee Chairman and Trustee, Federated Investors; Chairman and Trustee, Federated Federated Investors Advisers, Federated Management, and Federated Research; Director, AEtna Life Tower and Casualty Company; Chief Executive Officer and Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. - --------------------------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President, John R. Wood/IPC Commercial Wood and Associates, Inc., Realtors; President, Northgate Village Department Development Corporation; General Partner & Trustee in private real estate John R. Wood and ventures in Southwest Florida; Director, Trustee, or Managing General Associates, Inc., Partner of the Funds; formerly, President Naples Property Management, Inc. Realtors 3255 Tamiami Trail North Naples, FL - -------------------------------------------------------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.; One PNC Plaza-23rd Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Floor Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and Director, Ryan Pittsburgh, PA Homes, Inc. - -------------------------------------------------------------------------------------------------------------------------------- James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director, 571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director, Blue Concord, MA Cross of Massachusetts, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore 3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat 'N Park 5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director, Trustee, Pittsburgh, PA or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - -------------------------------------------------------------------------------------------------------------------------------- Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice President Federated Investors Treasurer, and Treasurer, Federated Advisers, Federated Management, and Federated Tower and Trustee Research; Executive Vice President, Treasurer, and Director, Federated Pittsburgh, PA Securities Corp.; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee of some of the Funds; Vice President and Treasurer of the Funds. - -------------------------------------------------------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts; Director, 225 Franklin Street Trustee, or Managing General Partner of the Funds; formerly, President, Boston, MA State Street Bank and Trust Company and State Street Boston Corporation and Trustee, Lahey Clinic Foundation, Inc. - -------------------------------------------------------------------------------------------------------------------------------- Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Trustee, or Managing 5916 Penn Mall General Partner of the Funds; Chairman, Meritcare, Inc.; Director, Eat 'N Pittsburgh, PA Park Restaurants, Inc.; formerly, Vice Chairman, Horizon Financial, F.A. - -------------------------------------------------------------------------------------------------------------------------------- Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie 1202 Cathedral of Endowment for International Peace, RAND Corporation, Online Computer Library Learning Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak Management University of Pittsburgh Center; Director, Trustee, or Managing General Partner of the Funds; Pittsburgh, PA President Emeritus, University of Pittsburgh; formerly Chairman, National Advisory Council for Environmental Policy & Technology. - -------------------------------------------------------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing 4905 Bayard Street General Partner of the Funds. Pittsburgh, PA - --------------------------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - -------------------------------------------------------------------------------------------------------------------------------- J. Christopher Donahue* Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers, Federated Investors Federated Management, and Federated Research; President and Trustee, Tower Federated Administrative Services; Trustee, Federated Services Company; Pittsburgh, PA President or Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. - -------------------------------------------------------------------------------------------------------------------------------- Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and Federated Investors Director, Federated Securities Corp.; President or Vice President of the Tower Funds; Director or Trustee of some of the Funds. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Federated Investors and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Trustee, Federated Services Pittsburgh, PA Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - -------------------------------------------------------------------------------------------------------------------------------- Ronald M. Petnuch Vice President Vice President, Federated Administrative Services; Vice President and Federated Investors and Assistant Assistant Treasurer of some of the Funds; formerly, Associate Corporate Tower Treasurer Counsel of Federated Investors. Pittsburgh, PA - -------------------------------------------------------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice President, Federated Investors Federated Securities Corp.; President and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Vice President of the Funds; Pittsburgh, PA Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division. - --------------------------------------------------------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. + Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; California Municipal Cash Trust; Cash Trust Series; Cash Trust Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal Trust; International Series, Inc; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free - -------------------------------------------------------------------------------- Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; and World Investment Series, Inc. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding shares. As of April 7, 1994, the following shareholder of record owned 5% or more of the outstanding shares of the Fund: Commercial National Bank, Shreveport, Louisianna, owned approximately 5,276,272 shares (20.38%). TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will only be liable for their own willful defaults. If reasonable care has been exercised in the selection of officers, agents, employees, or investment advisers, a Trustee shall not be liable for any neglect or wrong doing of any such person. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES - -------------------------------------------------------------------------------- ADVISER TO THE FUND The Fund's investment adviser is Deposit Guaranty National Bank (the "Adviser"), a subsidiary of Deposit Guaranty Corp. The Adviser shall not be liable to the Trust, the Fund or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security, or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. Because of the internal controls maintained by Deposit Guaranty National Bank to restrict the flow of non-public information, Fund investments are typically made without any knowledge of Deposit Guaranty National Bank's or affiliates' lending relationships with an issuer. ADVISORY FEES For its advisory services, the Adviser receives an annual investment advisory fee as described in the prospectus. For the year ended February 28, 1994, and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund's Adviser earned $1,915,318, and $463,189, respectively, of which $27,126, and $310,735, respectively, were voluntarily waived. SUB-ADVISER TO THE FUND The Fund's sub-adviser is Commercial National Bank (the "Sub-Adviser"), a subsidiary of Deposit Guaranty Corp. SUB-ADVISORY FEES For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory fee as described in the prospectus. For the year ended February 28, 1994, and for the period from August 3, 1992 (date of initial public investment), to February 28, 1993, the Fund's Sub-Adviser earned sub-advisory fees of $638,439, and $154,396, respectively, all of which was voluntarily waived. STATE EXPENSE LIMITATIONS The Adviser has undertaken to comply with the expense limitations established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1 1/2% per year of the remaining average net assets, the Adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the Adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for the fees set forth in the prospectus. For the year ended February 28, 1994, and for the period from - -------------------------------------------------------------------------------- August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund incurred administrative services fees of $328,534, and $86,303, respectively, of which $0 and $15,266, respectively, were voluntarily waived. John A. Staley, IV, an officer of the Fund, holds approximately 15% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. For the fiscal years ended February 28, 1994, 1993, and 1992, Federated Administrative Services paid approximately $159,222, $179,920, and $202,532, respectively, for services provided by Commercial Data Services, Inc. BROKERAGE TRANSACTIONS - -------------------------------------------------------------------------------- When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. The Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the Adviser and may include: - - advice as to the advisability of investing in securities; - - security analysis and reports; - - economic studies; - - industry studies; - - receipt of quotations for portfolio evaluations; and - - similar services. The Adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Research services provided by brokers may be used by the Adviser in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. For the year ended February 28, 1994, and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, the Fund paid total commissions of $159,709 and $278,238, respectively, on brokerage transactions. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales charge, on days the New York Stock Exchange and Federal Reserve Wire System are open for business. The procedure for purchasing shares is explained in the prospectus under "Investing in the Fund." DISTRIBUTION PLAN With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's shares subject to the Plan. Such activities may include the advertising and marketing of shares of the Fund; preparing, printing, and distributing prospectuses and sales literature to prospective shareholders, brokers, or administrators; and implementing and operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay fees to brokers for distribution and administrative services and to administrators for administrative services provided to the Fund. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions, wiring funds and receiving funds for purchases and redemptions of Fund shares, confirming and reconciling all transactions, reviewing the activity in Fund accounts and providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Fund shares and prospective shareholders. - -------------------------------------------------------------------------------- The Trustees expect that the adoption of the Plan will result in the sale of a sufficient number of shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objectives. For the year ended February 28, 1994, and for the period from August 3, 1992 (date of initial public investment) to February 28, 1993, brokers and administrators (financial institutions) received no fees pursuant to the Plan. CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. Deposit Guaranty National Bank and Commercial National Bank (the "Banks"), as well as Federated Services Company, act as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The net asset value generally changes each day. The days on which the net asset value is calculated by the Fund are described in the prospectus. DETERMINING MARKET VALUE OF SECURITIES Market value of the Fund's portfolio securities are determined as follows: - - for equity securities and bonds and other fixed income securities, according to the last sale price on a national securities exchange, if available; - - in the absence of recorded sales of equity securities, according to the mean between the last closing bid and asked prices, and for bonds and other fixed income securities as determined by an independent pricing service; - - for unlisted equity securities, the latest bid prices; - - for short-term obligations, according to the mean between bid and asked prices as furnished by an independent pricing service or for short-term obligations with remaining maturities of 60 days or less at the time of purchase, at amortized cost; or - - for all other securities, at fair value as determined in good faith by the Trustees. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- REQUIREMENTS FOR EXCHANGE Before the exchange, the shareholder must receive a prospectus of the fund for which the exchange is being made. This privilege is available to shareholders resident in any state in which the fund shares being acquired may be sold. Upon receipt of proper instructions and required supporting documents, shares submitted for exchange are redeemed and the proceeds invested in shares of the other fund. Further information on the exchange privilege and prospectuses may be obtained by calling the Fund. MAKING AN EXCHANGE Instructions for exchanges may be given in writing. Written instructions may require a signature guarantee. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are redeemed at the next computed net asset value after the Banks receive the redemption request. Redemption procedures are explained in the prospectus under "Redeeming Shares." Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on federal holidays when wire transfers are restricted. Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Fund intends to redeem shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the Fund's portfolio. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. - -------------------------------------------------------------------------------- The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Fund is obligated to redeem shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day period. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, the Fund must, among other requirements: - - derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; - - derive less than 30% of its gross income from the sale of securities held less than three months; - - invest in securities within certain statutory limits; and - - distribute to its shareholders at least 90% of its net income earned during the year. SHAREHOLDERS' TAX STATUS Shareholders are subject to federal income tax on dividends received as cash or additional shares. These dividends, and any short-term capital gains, are taxable as ordinary income. TOTAL RETURN - -------------------------------------------------------------------------------- The Fund's average annual total returns for the year ended February 28, 1994, and for the period from August 3, 1992 (date of initial public investment) to February 28, 1994, were 2.84% and 5.93%, respectively. The average annual total return for the Fund is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the maximum offering price per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, less any applicable sales load, adjusted over the period by any additional shares, assuming the quarterly reinvestment of all dividends and distributions. YIELD - -------------------------------------------------------------------------------- The Fund's yield for the thirty-day period ended February 28, 1994, was 1.28%. The yield for the Fund is determined by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the offering price per share of the Fund on the last day of the period. This value is then annualized using semi-annual compounding. This means that the amount of income generated during the thirty-day period is assumed to be generated each month over a 12-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by the Fund because of certain adjustments required by the Securities and Exchange Commission and, therefore, may not correlate to the dividends or other distributions paid to shareholders. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in the Fund, performance will be reduced for those shareholders paying those fees. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The Fund's performance depends upon such variables as: - - portfolio quality; - - average portfolio maturity; - - type of instruments in which the portfolio is invested; - - changes in interest rates and market value of portfolio securities; - - changes in the Fund's expenses; and - - various other factors. The Fund's performance fluctuates on a daily basis largely because net earnings and offering price per share fluctuate daily. Both net earnings and offering price per share are factors in the computation of yield and total return. Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index - -------------------------------------------------------------------------------- used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: - - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any. From time to time, the Fund will quote its Lipper ranking in the "equity, growth and income" category in advertising and sales literature. - - DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected blue-chip industrial corporations as well as public utility and transportation companies. The DJIA indicates daily changes in the average price of stocks in any of its categories. It also reports total sales for each group of industries. Because it represents the top corporations of America, the DJIA's index movements are leading economic indicators for the stock market as a whole. - - STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite index of common stocks in industry, transportation, and financial and public utility companies can be used to compare to the total returns of funds whose portfolios are invested primarily in common stocks. In addition, the Standard & Poor's index assumes reinvestments of all dividends paid by stocks listed on its index. Taxes due on any of these distributions are not included, nor are brokerage or other fees calculated, in Standard & Poor's figures. Advertisements and other sales literature for the Fund may quote total returns which are calculated on non-standardized base periods. These total returns represent the change, over a specified period of time, in the value of an investment in the Fund based on monthly reinvestment of dividends and other investments. Advertisements may quote performance information which does not reflect the effect of the sales load. APPENDIX - -------------------------------------------------------------------------------- STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effect of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. NR--NR indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC. CORPORATE BOND RATINGS AAA--Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged". Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA--Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA--Bonds which are rated BAA are considered as medium-grade obligations, (i.e., they are neither highly protected nor poorly secured). Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. NR--Not rated by Moody's. Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from Aa through B in its corporate bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. FITCH INVESTORS SERVICE, INC. LONG-TERM DEBT RATINGS AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. A--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+". A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. - -------------------------------------------------------------------------------- NR--NR indicates that Fitch does not rate the specific issue. PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" category. STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS A-1--This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus (+) sign designation. A-2--Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: leading market positions in well established industries; high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection; broad margins in earning coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternative liquidity. PRIME-2--Issuersrated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS F-1+(Exceptionally Strong Credit Quality)Issues assigned this rating is regarded as having the strongest degree of assurance for timely payment. F-1--(Very Strong Credit Quality) Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+. (4/94) DG MUNICIPAL INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Municipal Income Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The investment objective of the Fund is to provide dividend income that is exempt from federal regular income tax. The Fund pursues its investment objective by investing in municipal securities. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1994, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference into this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing or calling the Fund. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - --------------------------------------------------------- FINANCIAL HIGHLIGHTS 2 - --------------------------------------------------------- GENERAL INFORMATION 3 - --------------------------------------------------------- INVESTMENT INFORMATION 3 - --------------------------------------------------------- Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Characteristics 4 Participation Interests 4 Variable Rate Municipal Securities 4 Municipal Leases 4 When-Issued and Delayed Delivery Transactions 5 Lending of Portfolio Securities 5 Temporary Investments 5 Other Investment Techniques 5 Municipal Securities 5 Investment Risks 6 Investment Limitations 6 DG INVESTOR SERIES INFORMATION 6 - --------------------------------------------------------- Management of the Trust 6 Board of Trustees 6 Investment Adviser 7 Advisory Fees 7 Adviser's Background 7 Sub-Adviser 7 Sub-Advisory Fees 7 Sub-Adviser's Background 8 Distribution of Fund Shares 8 Distribution Plan 8 Shareholder Servicing Arrangements 9 ADMINISTRATION OF THE FUND 9 - --------------------------------------------------------- Administrative Services 9 Custodian 9 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 9 Legal Counsel 9 Independent Auditors 10 Brokerage Transactions 10 NET ASSET VALUE 10 - --------------------------------------------------------- INVESTING IN THE FUND 10 - --------------------------------------------------------- Share Purchases 10 Through the Banks 10 Minimum Investment Required 11 What Shares Cost 11 Purchases at Net Asset Value 11 Sales Charge Reallowance 11 Reducing the Sales Charge 12 Quantity Discounts and Accumulated Purchases 12 Letter of Intent 12 Reinvestment Privilege 12 Concurrent Purchases 13 Exchanging Securities for Fund Shares 13 Systematic Investment Program 13 Certificates and Confirmations 13 Dividends and Distributions 13 EXCHANGE PRIVILEGE 13 - --------------------------------------------------------- DG Investor Series 13 Exchanging Shares 13 REDEEMING SHARES 14 - --------------------------------------------------------- Through the Banks 14 By Telephone 14 By Mail 15 Signatures 15 Systematic Withdrawal Program 15 Accounts With Low Balances 16 SHAREHOLDER INFORMATION 16 - --------------------------------------------------------- Voting Rights 16 Massachusetts Partnership Law 16 EFFECT OF BANKING LAWS 17 - --------------------------------------------------------- TAX INFORMATION 17 - --------------------------------------------------------- Federal Income Tax 17 Other State and Local Taxes 18 PERFORMANCE INFORMATION 18 - --------------------------------------------------------- FINANCIAL STATEMENTS 19 - --------------------------------------------------------- INDEPENDENT AUDITORS' REPORT 31 - --------------------------------------------------------- ADDRESSES Inside Back Cover - --------------------------------------------------------- SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......... 2.00% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds as applicable).............................. None Redemption Fee (as a percentage of amount redeemed, if applicable).................. None Exchange Fee........................................................................ None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1).................................................... 0.19% 12b-1 Fees(2)....................................................................... 0.00% Total Other Expenses................................................................ 0.55% Total Fund Operating Expenses(3)................................................ 0.74%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.60%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee to the distributor. (3) The Annual Fund Operating Expenses were 0.74% for the fiscal year ended February 28, 1994. The Annual Fund Operating Expenses in the above table reflect a reduction in the voluntary waiver of the investment advisory fee and administrative fee for the fiscal year ending February 28, 1995. The Total Fund Operating Expenses are anticipated to be 1.15% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ---------------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period........................................ $ 27 $ 43 $ 60 $ 110
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING FEBRUARY 28, 1995. DG MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Independent Auditors' Report on page 31.
YEAR ENDED FEBRUARY 28, ------------------- 1994 1993* ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD $10.51 $10.00 - ----------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------------- Net investment income 0.48 0.07 - ----------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.08 0.49 - ----------------------------------------------------------------------------------- ------- ------- Total from investment operations 0.56 0.56 - ----------------------------------------------------------------------------------- ------- ------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------------------- Dividends to shareholders from net investment income (0.49) (0.05) - ----------------------------------------------------------------------------------- Distributions to shareholders from net realized gain on investment transactions (0.01) -- - ----------------------------------------------------------------------------------- ------- ------- Total Distributions (0.50) (0.05) - ----------------------------------------------------------------------------------- ------- ------- NET ASSET VALUE, END OF PERIOD $10.57 $10.51 - ----------------------------------------------------------------------------------- ------- ------- TOTAL RETURN** 5.34% 5.65% - ----------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------------- Expenses 0.74% 0.48%(a) - ----------------------------------------------------------------------------------- Net investment income 4.60% 4.11%(a) - ----------------------------------------------------------------------------------- Expense waiver/reimbursement (b) 0.67% 1.02%(a) - ----------------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------------- Net assets, end of period (000 omitted) $34,435 $15,644 - ----------------------------------------------------------------------------------- Portfolio turnover rate 9% 93% - -----------------------------------------------------------------------------------
* Reflects operations for the period from December 21, 1992 (date of initial public investment) to February 28, 1993. ** Based on net asset value which does not reflect the sales load or contingent deferred sales charge, if applicable. (a) Computed on an annualized basis. (b) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above (Note 5).
Further information about the Fund's performance is contained in the Fund's annual report for the fiscal year ended February 28, 1994, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of government securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide dividend income that is exempt from federal regular income tax. Interest income of the Fund that is exempt from federal regular income tax retains its tax-free status when distributed to the Fund's shareholders. This investment objective cannot be changed without the approval of the Fund's shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in municipal securities. As a matter of investment policy, which may not be changed without shareholder approval, under normal circumstances, the Fund will be invested so that at least 80% of the income from investments will be exempt from federal regular income tax or that at least 80% of its net assets are invested in obligations, the interest from which is exempt from federal regular income tax. Unless indicated otherwise, the investment policies of the Fund may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are: - debt obligations and municipal leases issued by or on behalf of any state, territory, or possession of the United States, including the District of Columbia, or any political subdivision of any of them; and - participation interests, as described below, in any of the above obligations, the interest from which is, in the opinion of bond counsel for the issuers or in the opinion of officers of the Fund and/or the investment adviser to the Fund, exempt from federal regular income tax. CHARACTERISTICS. The municipal securities in which the Fund invests are: - rated "investment grade," i.e., Baa or better by Moody's Investors Service, Inc. ("Moody's"), or BBB or better by Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc. ("Fitch"); - guaranteed at the time of purchase by the U.S. government, its agencies or instrumentalities, as to the payment of principal and interest; - fully collateralized by an escrow of U.S. government or other securities acceptable to the Fund's investment adviser; - rated at the time of purchase within Moody's highest short-term municipal obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial paper rating (P-1) or S&P's highest short-term municipal commercial paper rating (SP-1) or Fitch's highest tax-exempt municipal obligation rating (FIN-1); - unrated if, at the time of purchase, longer term municipal securities of the issuer are rated Baa or better by Moody's or BBB or better by S&P or Fitch (however, investments in unrated securities will not exceed 20% of the Fund's total assets); or - determined by the Fund's investment adviser to be equivalent to municipal securities which are rated Baa or better by Moody's or BBB or better by S&P or Fitch. It should be noted that securities rated BBB by S&P or Baa by Moody's are considered to have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. A description of the rating categories is contained in the Appendix to the Statement of Additional Information. PARTICIPATION INTERESTS. The Fund may purchase participation interests from financial institutions such as commercial banks, savings and loan associations, and insurance companies. These participation interests give the Fund an undivided interest in municipal securities. The financial institutions from which the Fund purchases participation interests frequently provide or secure irrevocable letters of credit or guarantees to assure that the participation interests are of high quality. The Trustees will determine that participation interests meet the prescribed quality standards for the Fund. VARIABLE RATE MUNICIPAL SECURITIES. The Fund may purchase municipal securities that have variable interest rates. Variable interest rates are ordinarily stated as a percentage of a published interest rate, interest rate index, or some similar standard, such as the 91-day U.S. Treasury bill rate. Many variable rate municipal securities are subject to payment of principal on demand by the Fund, usually in not more than seven days. All variable rate municipal securities will meet the quality standards for the Fund. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, or a conditional sales contract. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase portfolio securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. In when-issued and delayed delivery transactions, the Fund relies on the seller to complete the transaction. The seller's failure to complete the transaction may cause the Fund to miss a price or yield considered to be advantageous. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the portfolio securities loaned at all times. TEMPORARY INVESTMENTS. From time to time, on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term tax-exempt or taxable temporary investments. These temporary investments include: fixed or variable rate notes issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; securities of other investment companies; commercial paper; certificates of deposit, demand and time deposits, bankers' acceptances, deposit notes, and other instruments of domestic and foreign banks and other deposit institutions ("Bank Instruments"); and repurchase agreements (arrangements in which the institution selling the Fund a bond or temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). There are no rating requirements applicable to temporary investments. Although the Fund is permitted to make taxable, temporary investments, there is no current intention of generating income subject to federal regular income tax. OTHER INVESTMENT TECHNIQUES. The Fund may purchase a right to sell a security held by it back to the issuer or to another party at an agreed upon price at any time during a stated period or on a certain date. These rights may be referred to as "liquidity puts" or "standby commitments." MUNICIPAL SECURITIES Municipal securities are generally issued to finance public works such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Municipal securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of municipal securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on municipal securities depend on a variety of factors, including: the general conditions of the money market and the taxable and municipal bond markets; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of municipal securities and participation interests, or the guarantors of either, to meet their obligations for the payment of interest and principal when due. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets and pledge up to 15% of its total assets to secure such borrowings. The above investment limitation cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. The Fund will not: - invest more than 15% of its total assets in securities subject to restrictions on resale under the Securities Act of 1933, except for commercial paper issued under Section 4(2) of the Securities Act of 1933 and certain other restricted securities which meet the criteria for liquidity as established by the Trustees; or - invest more than 15% of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice and certain restricted securities not determined by the Trustees to be liquid. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser, in consultation with the sub-adviser, continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The investment advisory contract provides for the voluntary waiver of expenses by the adviser from time to time. The adviser has undertaken to waive up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser may voluntarily choose to waive a portion of its fees or reimburse the Fund for certain other expenses, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As of December 31, 1993, the Trust Division of Deposit Guaranty National Bank had approximately $9 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank and Commercial National Bank. The lending relationships will not be a factor in the selection of securities. William A. Womack is a Vice President and Trust Investment Officer, and has been with Deposit Guaranty National Bank for ten years. Mr. Womack spent eight years prior to joining Deposit Guaranty in the investment brokerage business. A graduate of Louisiana State University, he received a B.S. in Finance, with a minor in Economics. Mr. Womack is a member of the Mississippi Chapter of the Memphis Society of Financial Analysts. Mr. Womack has managed the DG Municipal Income Fund since December 21, 1992 (the inception of the Fund). SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank will form an investment committee (the "Deposit Guaranty Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction. Notwithstanding any other provision in the sub-advisory agreement, the Sub-Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 1993, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, of which it had investment discretion over $1.02 billion. Commercial National Bank has served as sub-adviser to DG Government Income Fund, DG Limited Term Government Income Fund, and DG Equity Fund since July 20, 1992, and to the Fund since December 12, 1992, each a portfolio of the Trust. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of 0.35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may, from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit form future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- ------------------------------------ .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million .075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. LEGAL COUNSEL. Legal counsel for the Fund is provided by Houston, Houston & Donnelly, Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, D.C. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800)748-8500 or Commercial National Bank at (800)274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. (Eastern time) on the next business day in order to earn dividends for that day. Payment is considered received after payment by check is converted into federal funds and received by the Banks, normally the next business day. When payment is made with federal funds, the payment is considered received when federal funds are received by the Banks or available in the customer's account. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED --------------------------------- ----------------------- -------------------------- 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%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) on the following federal holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. In addition, the net asset value will not be calculated on Good Friday. PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset value, without a sales charge by: the Trust Division of the Banks for funds which are held in a fiduciary, agency, custodial, or similar capacity; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; or any bank or investment dealer who has a sales agreement with Federated Securities Corp. with regard to the Fund. SALES CHARGE REALLOWANCE. For sales of shares of the Fund, the Banks or any authorized dealer will normally receive up to 85% of the applicable sales charge. Any portion of the sales charge which is not paid to the Banks or authorized dealers will be retained by the distributor. The distributor will, periodically, uniformly offer to pay cash or promotional incentives in the form of trips to sales seminars at luxury resorts, tickets or other items to all dealers selling shares of the Fund. Such payments will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or registered broker/dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through: - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchases still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 1.75%, not 2.00%. To receive the sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the purchase is made that Fund shares are already owned or that purchases are being combined. The Fund will reduce the sales charge after it confirms the purchases. LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of shares in the funds in the Trust over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the custodian to hold 2.00% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 2.00% held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. This letter may be dated as of a prior date to include any purchases made within the past 90 days. REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the shareholder has a one-time right, within 30 days, to reinvest the redemption proceeds at the next-determined net asset value without any sales charge. Federated Securities Corp. must be notified by the shareholder in writing or by the Banks of the reinvestment in order to eliminate a sales charge. If the shareholder redeems his shares in the Fund, there may be tax consequences. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in this Fund, the sales charge would be reduced. To receive this sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the concurrent purchases are made. The Fund will reduce the sales charge after it confirms the purchases. EXCHANGING SECURITIES FOR FUND SHARES Investors may exchange certain securities or a combination of certain securities and cash for Fund shares. The Fund reserves the right to determine the acceptability of securities to be exchanged. On the day securities are accepted by the Fund, they are valued in the same manner as the Fund values its assets. Investors wishing to exchange securities should first contact the Banks. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Detailed confirmations of each purchase or redemption are sent to each shareholder. Monthly confirmations are sent to report dividends paid during the month. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly. Distribution of any realized long-term capital gains will be made at least once every twelve months. Dividends are automatically reinvested in additional shares of the Fund on payment dates at the ex-dividend date net asset value without a sales charge, unless cash payments are requested by writing to the Fund or the Banks as appropriate. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- DG INVESTOR SERIES All shareholders of the Fund are shareholders of DG Investor Series. Shareholders in the Fund have easy access to the other portfolios of DG Investor Series. EXCHANGING SHARES Shareholders of the Fund may exchange shares of the Fund for shares of the other Funds in DG Investor Series. In addition, shares of the Fund may also be exchanged for certain other funds distributed by Federated Securities Corp. that are not advised by the Banks ("Federated Funds"). For further information on the availability of Federated Funds for exchanges, please call Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Shares of funds with a sales charge may be exchanged at net asset value for shares of other funds with an equal sales charge or no sales charge. Shares of the funds with no sales charge acquired by direct purchase or reinvestment of dividends on such shares may be exchanged for shares of funds with a sales charge at net asset value plus the applicable sales charge. When an exchange is made from a fund with a sales charge to a fund with no sales charge, the shares exchanged and additional shares which have been purchased by reinvesting dividends on such shares retain the character of the exchanged shares for purposes of exercising further exchange privileges; thus an exchange of such shares for shares of a fund with an equal sales charge would be at net asset value. 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. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instruction may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments, and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. As of April 7, 1994, Deposit Guaranty National Bank, Jackson, Mississippi, owned approximately 2,715,825 shares (81.64%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's Adviser and Sub-Adviser, Deposit Guaranty National Bank and Commercial National Bank, respectively, are subject to such banking laws and regulations. The Banks believe, based on the advice of counsel, that they may perform the investment advisory services for the Fund contemplated by the advisory agreement with the Trust and the sub-advisory agreement between the Banks without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent the Banks from continuing to perform all or a part of the above services for their customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser and/or sub-adviser with equivalent abilities to Deposit Guaranty National Bank and Commercial National Bank are found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other funds will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal securities. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Shareholders should consult with their tax adviser to determine whether they are subject to the alternative minimum tax or the corporate alternative minimum tax and, if so, the tax treatment of dividends paid by the Fund. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. Distributions representing net long-term capital gains realized by the Fund, if any, will be taxable as long-term capital gains regardless of the length of time shareholders have held their shares. These tax consequences apply whether dividends are received in cash or as additional shares. Information on the tax status of dividends and distributions is provided annually. OTHER STATE AND LOCAL TAXES Distributions representing net interest received on tax-exempt municipal securities are not necessarily free from income taxes of any state or local taxing authority. State laws differ on this issue and shareholders are urged to consult their own tax adviser regarding the status of their accounts under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return, yield, and tax-equivalent yield. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the maximum offering price per share of the Fund on the last day of the period. This number is then annualized using semi-annual compounding. The tax-equivalent yield of the Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a specific tax rate. The yield and the tax-equivalent yield do not necessarily reflect income actually earned by the Fund and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load which, if reduced or excluded, would increase the total return, yield, and tax-equivalent yield. From time to time, the Fund may advertise its performance using certain financial publications and/or compare its performance to certain indices. DG MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1994 - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S PRINCIPAL OR S&P* AMOUNT (UNAUDITED) VALUE LONG-TERM MUNICIPAL SECURITIES--95.2% - ----------------------------------------------------------------- ALABAMA--1.5% --------------------------------------------------- $ 500,000 Huntsville, AL, 6.00% GO Bonds, 11/1/2012 (Callable 11/1/2002 @ 102) AA $ 519,934 --------------------------------------------------- -----------
ARIZONA--2.8% --------------------------------------------------- 1,000,000 Phoenix, AZ, 4.90% GO Bonds, 7/1/2008 AA 958,160 --------------------------------------------------- ----------- FLORIDA--8.8% --------------------------------------------------- 1,000,000 Broward County, FL, School District, 5.60% UT Bonds, 2/15/2007 (Callable 2/15/2003 @ 102) AA 1,029,710 --------------------------------------------------- 1,000,000 Jacksonville, FL, Electric Authority, 5.50% Refunding Revenue Bonds, 10/1/2013 AA 994,010 --------------------------------------------------- 1,000,000 St. Petersburg, FL, Public Utilities, 5.50%, 10/1/2009 AA 1,008,470 --------------------------------------------------- ----------- Total 3,032,190 --------------------------------------------------- ----------- GEORGIA--1.6% --------------------------------------------------- 500,000 Albany, GA, Sewer System, 6.625% Revenue Bonds, 7/1/2017 (Callable 7/1/2002 @ 102) AAA 549,545 --------------------------------------------------- ----------- HAWAII--1.5% --------------------------------------------------- 500,000 State of Hawaii, 5.75% GO Bonds, 1/1/2008 AA 521,830 --------------------------------------------------- ----------- ILLINOIS--4.4% --------------------------------------------------- 500,000 Chicago, IL, Pier and Expo Authority, 6.00% Revenue Bonds, 6/1/2014, (MBIA Insured) AAA 507,840 --------------------------------------------------- 500,000 Du Page County, IL, 5.40% GO Bonds, 1/1/2007 AAA 503,225 --------------------------------------------------- 500,000 State of Illinois, 5.875% GO Bonds, 6/1/2011 (Callable 6/1/2002 @ 102) AA 511,745 --------------------------------------------------- ----------- Total 1,522,810 --------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S PRINCIPAL OR S&P* AMOUNT (UNAUDITED) VALUE LONG-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- INDIANA--1.5% --------------------------------------------------- $ 500,000 Indianapolis, IN, 6.00% Local Public Improvement, GO Bonds, 7/1/2010 (Callable 7/1/2003 @ 102) AA $ 514,460 --------------------------------------------------- ----------- KENTUCKY--2.8% --------------------------------------------------- 1,000,000 State of Kentucky, Property & Building Commission, 5.00% (Project No. 55), 9/1/2009 A 953,280 --------------------------------------------------- ----------- LOUISIANA--1.6% --------------------------------------------------- 500,000 Louisiana Public Facilities Authority, 6.05% Hospital Refunding Revenue Bonds, 12/1/2008, (MBIA Insured) AAA 538,500 --------------------------------------------------- ----------- MASSACHUSETTS--1.4% --------------------------------------------------- 450,000 State of Massachusetts, 6.00% GO Bonds, (Consolidated Loan Series A), 6/1/2011, (Capital Guaranty Insured) AAA 465,718 --------------------------------------------------- ----------- MISSISSIPPI--18.2% --------------------------------------------------- 300,000 Hinds County, MS, 5.40% Hospital Revenue Bonds, 5/1/2006, (AMBAC Insured) NR 306,543 --------------------------------------------------- 400,000 Jackson County, MS, 5.60%, GO Bonds, 5/1/2008 A 407,024 --------------------------------------------------- 400,000 Jackson County, MS, 5.70%, GO Bonds, 5/1/2009 A 408,124 --------------------------------------------------- 1,125,000 Jackson, MS, 5.85% GO Bonds, 5/1/2006 (Callable 5/1/2002 @ 100)/(MBIA Insured) AAA 1,169,302 --------------------------------------------------- 500,000 Jackson, MS, Redevelopment Urban Renewal, 5.75%, 7/1/2008 A 510,750 --------------------------------------------------- 700,000 Lamar County, MS, Pollution Control Revenue, 4.85%, 12/1/2006, (Callable 12/1/2003 @ Par) AA3 686,245 --------------------------------------------------- 1,000,000 Madison County, MS, 5.10% Refunding School GO Bonds, 6/1/2008, (AMBAC Insured) AAA 978,120 ---------------------------------------------------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S PRINCIPAL OR S&P* AMOUNT (UNAUDITED) VALUE LONG-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- MISSISSIPPI--CONTINUED --------------------------------------------------- 900,000 Mississippi Hospital Equipment & Facilities, 5.50%, 5/15/2009, (AMBAC Insured) AAA 905,157 ---------------------------------------------------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S PRINCIPAL OR S&P* AMOUNT (UNAUDITED) VALUE LONG-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- MISSISSIPPI--CONTINUED --------------------------------------------------- $ 900,000 Mississippi Hospital Equipment & Facilities, 5.55%, 3/1/2014 A $ 880,848 --------------------------------------------------- ----------- Total 6,252,113 --------------------------------------------------- ----------- MISSOURI--1.4% --------------------------------------------------- 500,000 State of Missouri Water Pollution Control, 5.25% GO Bonds, (Series B) 8/1/2008 (Callable 8/1/2008 @ Par) AAA 501,325 --------------------------------------------------- ----------- MONTANA--2.8% --------------------------------------------------- 1,000,000 State of Montana, 4.875% GO Bonds, 8/1/2009 AA 960,660 --------------------------------------------------- ----------- NEVADA--4.3% --------------------------------------------------- 500,000 Las Vegas Valley, NV, 5.75% Water District, 9/1/2008, (MBIA Insured) AAA 514,555 --------------------------------------------------- 1,000,000 State of Nevada, 4.90% Municipal Bonds, (Project R--5)/(Series A), 11/1/2007 AA 958,540 --------------------------------------------------- ----------- Total 1,473,095 --------------------------------------------------- ----------- NEW JERSEY--1.5% --------------------------------------------------- 500,000 State of New Jersey, 5.90% GO Bonds, 2/15/2008 AA+ 530,675 --------------------------------------------------- ----------- NORTH CAROLINA--7.3% --------------------------------------------------- 500,000 North Carolina Eastern Municipal Power, 6.125% Revenue Bonds (Series A), 1/1/2009 NR 524,885 --------------------------------------------------- 1,000,000 North Carolina Eastern Municipal Power, 5.50% Revenue Bonds, 1/1/2008 A 1,004,490 --------------------------------------------------- 1,000,000 North Carolina Municipal Power Agency, 5.75% #1 Catawba Electric Revenue Bonds, 1/1/2015 (Callable 1/1/2015 @ 100) A 996,300 --------------------------------------------------- ----------- Total 2,525,675 --------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S PRINCIPAL OR S&P* AMOUNT (UNAUDITED) VALUE LONG-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- NORTH DAKOTA--1.5% --------------------------------------------------- $ 500,000 North Dakota Building Authority, 6.00% Revenue Bonds, (Series A), 6/1/2010, (MBIA Insured) AAA $ 526,505 --------------------------------------------------- ----------- OREGON--2.8% --------------------------------------------------- 1,000,000 Portland, OR, 4.90% GO Bonds, 10/1/2007 AAA 970,970 --------------------------------------------------- ----------- PENNSYLVANIA--1.4% --------------------------------------------------- 450,000 State of Pennsylvania, 5.875% GO Bonds, 12/1/2006 AA 476,394 --------------------------------------------------- ----------- RHODE ISLAND--1.5% --------------------------------------------------- 500,000 Providence, RI, 590% GO Bonds, 1/15/2009 (Callable 1/15/2002 @ 102) AA+ 522,120 --------------------------------------------------- ----------- TENNESSEE--2.8% --------------------------------------------------- 1,000,000 Memphis, TN, 4.90% GO Bonds, 8/1/2006 (Callable 8/1/2002 @ 101) AA 976,320 --------------------------------------------------- ----------- TEXAS--10.6% --------------------------------------------------- 500,000 Corpus Christi, TX, 6.00% GO Bonds, (Series 1993), 3/1/2010 (Callable 3/1/2003 @ 100) AAA 518,645 --------------------------------------------------- 500,000 El Paso, TX, 5.75% Refunding Bonds, (Series A), 7/1/2007 (Callable 7/1/2007 @ 100) AAA 516,330 --------------------------------------------------- 500,000 Harris County, TX, 6.25% Flood Control Bonds, (Series B), 10/1/2011 (Callable 10/1/2002 @ Par) AA+ 551,000 --------------------------------------------------- 1,000,000 Houston, TX, School District, 5.50%, 8/15/2008 AAA 1,014,710 --------------------------------------------------- 500,000 Houston, TX, 5.90% Water and Sewer Revenue Bonds, 12/1/2005 (Callable 12/1/2002 @ 102) AAA 533,615 --------------------------------------------------- 500,000 San Antonio, TX, 6.00% Electric and Gas Revenue Bonds, 2/1/2008 (Callable 2/1/2002 @ 101)/ (MBIA Insured) AA 527,880 --------------------------------------------------- ----------- Total 3,662,180 --------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S PRINCIPAL OR S&P* AMOUNT (UNAUDITED) VALUE LONG-TERM MUNICIPAL SECURITIES--CONTINUED - ----------------------------------------------------------------- VIRGINIA--1.5% --------------------------------------------------- $ 500,000 State of Virginia, Transportation Board, 6.00% Revenue Bonds, 4/1/2010 (Callable 4/1/2002 @ 102) AA $ 517,955 --------------------------------------------------- ----------- WASHINGTON--6.6% --------------------------------------------------- 500,000 King County, WA, 6.00% GO Bonds 12/1/2010 (Callable 12/1/2003 @ 100) AA+ 517,485 --------------------------------------------------- 500,000 Port of Seattle, WA, 6.25% GO Bonds (Series A), 11/1/2010 (Callable 11/1/2002 @ 102) AA 527,035 --------------------------------------------------- 500,000 State of Washington, 6.25% GO Bonds, 9/1/2009 (Callable 9/1/2001 @ 100) AA 528,470 --------------------------------------------------- 650,000 Tacoma, WA, 6.25% Electric Revenue Bonds, 1/1/2011 (Callable 1/1/2002 @ 102)/ (AMBAC Insured) AAA 696,306 --------------------------------------------------- ----------- Total 2,269,296 --------------------------------------------------- ----------- WISCONSIN--3.1% --------------------------------------------------- 500,000 Green Bay, WI, 6.00% GO Bonds, 4/1/2010 AA 516,560 --------------------------------------------------- 500,000 State of Wisconsin, WI, 6.30% GO Bonds, (Series A), 5/1/2012 (Callable 5/1/2002 @ Par) AA 553,385 --------------------------------------------------- ----------- Total 1,069,945 --------------------------------------------------- ----------- TOTAL LONG-TERM MUNICIPAL SECURITIES (IDENTIFIED COST, $32,098,022) 32,811,655 --------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
CREDIT RATING: MOODY'S OR S&P* SHARES (UNAUDITED) VALUE MUTUAL FUND SHARES--8.2% - ----------------------------------------------------------------- 1,324,258 Dreyfus Tax Exempt Cash Management Fund AAA $ 1,324,258 --------------------------------------------------- 1,497,150 Master Reserves Tax Free Fund AAA 1,497,150 --------------------------------------------------- ----------- TOTAL MUTUAL FUND SHARES (AT NET ASSET VALUE) 2,821,408 --------------------------------------------------- ----------- TOTAL INVESTMENTS (IDENTIFIED COST $34,919,430) $35,633,063+ --------------------------------------------------- -----------
* Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. + The cost of investments for federal tax purposes amounts to $34,919,430. The net unrealized appreciation of investments on a federal tax basis amounts to $713,633 which is comprised of $908,710 appreciation and $195,077, depreciation at February 28, 1994. Note: The categories of investments are shown as a percentage of net assets ($34,435,102) at February 28, 1994. The following abbreviations are used in this portfolio: AMBAC -- American Municipal Bond Assurance Corporation GO -- General Obligation MBIA -- Municipal Bond Investors Assurance UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- ASSETS: - --------------------------------------------------------------------------------- Investments in securities, at value (Note 2A) (identified and tax cost, $34,919,430) $35,633,063 - --------------------------------------------------------------------------------- Interest receivable 455,154 - --------------------------------------------------------------------------------- Receivable for Fund shares sold 391,251 - --------------------------------------------------------------------------------- Prepaid/deferred expenses (Note 2E) 4,350 - --------------------------------------------------------------------------------- ----------- Total assets 36,483,818 - --------------------------------------------------------------------------------- LIABILITIES: - --------------------------------------------------------------------------------- Payable for investments purchased $1,965,216 - -------------------------------------------------------------------- Payable for Fund shares redeemed 44,850 - -------------------------------------------------------------------- Accrued expenses 38,650 - -------------------------------------------------------------------- ---------- Total liabilities 2,048,716 - --------------------------------------------------------------------------------- ----------- NET ASSETS for 3,257,815 shares of beneficial interest outstanding $34,435,102 - --------------------------------------------------------------------------------- ----------- NET ASSETS CONSISTS OF: - --------------------------------------------------------------------------------- Paid-in capital $33,710,694 - --------------------------------------------------------------------------------- Unrealized appreciation (depreciation) of investments 713,633 - --------------------------------------------------------------------------------- Undistributed net investment income 10,775 - --------------------------------------------------------------------------------- ----------- Total Net Assets $34,435,102 - --------------------------------------------------------------------------------- ----------- NET ASSET VALUE and Redemption Price Per Share: ($34,435,102 / 3,257,815 shares of beneficial shares outstanding) $10.57 - --------------------------------------------------------------------------------- ----------- Computation of Offering Price: Offering Price Per Share (100/98 of $10.57)* $10.79 - --------------------------------------------------------------------------------- -----------
* See "What Shares Cost" in the prospectus. (See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ----------------------------------------------------------------------------------- Interest income (Note 2B) $1,374,875 - ----------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------------------------- Investment advisory fee (Note 5) $154,612 - ----------------------------------------------------------------------- Administrative personnel and services fees (Note 5) 50,000 - ----------------------------------------------------------------------- Trustees' fees 118 - ----------------------------------------------------------------------- Custodian fees 26,029 - ----------------------------------------------------------------------- Recordkeeper fees (Note 5) 50,091 - ----------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses (Note 5) 22,234 - ----------------------------------------------------------------------- Legal fees 2,694 - ----------------------------------------------------------------------- Printing and postage 14,228 - ----------------------------------------------------------------------- Auditing fees 10,000 - ----------------------------------------------------------------------- Fund share registration fees 23,692 - ----------------------------------------------------------------------- Insurance premiums 5,392 - ----------------------------------------------------------------------- Miscellaneous 3,024 - ----------------------------------------------------------------------- -------- Total expenses 362,114 - ----------------------------------------------------------------------- Deduct-- - ------------------------------------------------------------ Waiver of investment advisory fee (Note 5) $154,612 - ------------------------------------------------------------ Waiver of administrative personnel and services Fees (Note 5) 16,903 171,515 - ------------------------------------------------------------ -------- -------- Net expenses 190,599 - ----------------------------------------------------------------------------------- ---------- Net investment income 1,184,276 - ----------------------------------------------------------------------------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - ----------------------------------------------------------------------------------- Net realized gain (loss) on investments (identified cost basis)-- 20,558 - ----------------------------------------------------------------------------------- Net change in unrealized appreciation (depreciation) on investments 52,310 - ----------------------------------------------------------------------------------- ---------- Net realized and unrealized gain (loss) on investments 72,868 - ----------------------------------------------------------------------------------- ---------- Change in net assets resulting from operations $1,257,144 - ----------------------------------------------------------------------------------- ----------
(See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 28, -------------------------- 1994 1993* ----------- ----------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------------ OPERATIONS-- - ------------------------------------------------------------------ Net investment income $ 1,184,276 $ 93,501 - ------------------------------------------------------------------ Net realized gain (loss) on investment transactions ($20,558 and $0, net gain respectively, as computed for federal tax purposes) (Note 2C) 20,558 -- - ------------------------------------------------------------------ Change in unrealized appreciation (depreciation) of investments 52,310 661,323 - ------------------------------------------------------------------ ----------- ---------- Change in net assets resulting from operations 1,257,144 754,824 - ------------------------------------------------------------------ ----------- ---------- DISTRIBUTIONS TO SHAREHOLDERS (NOTE 3)-- - ------------------------------------------------------------------ Dividends to shareholders from net investment income (1,193,319) (73,683 ) - ------------------------------------------------------------------ Distributions to shareholders from net realized gain on investment transactions (20,558) -- - ------------------------------------------------------------------ ----------- ---------- Change in net assets resulting from distributions to shareholders (1,213,877) (73,683 ) - ------------------------------------------------------------------ FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)-- - ------------------------------------------------------------------ Proceeds from sale of shares 25,360,605 15,640,615 - ------------------------------------------------------------------ Net asset value of shares issued to shareholders in payment of distributions in Fund shares 9,035 -- - ------------------------------------------------------------------ Cost of shares redeemed (6,622,204) (677,357 ) - ------------------------------------------------------------------ ----------- ---------- Change in net assets from Fund share transactions 18,747,436 14,963,258 - ------------------------------------------------------------------ ----------- ---------- Change in net assets 18,790,703 15,644,399 - ------------------------------------------------------------------ NET ASSETS: - ------------------------------------------------------------------ Beginning of period 15,644,399 -- - ------------------------------------------------------------------ ----------- ---------- End of period (including undistributed net investment income of $10,775 and $19,818, respectively) $34,435,102 $15,644,399 - ------------------------------------------------------------------ ----------- ----------
* For the period from December 21, 1992 (date of initial public investment) to February 28, 1993. (See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1994 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is an open-end, management investment company, established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Trust currently consists of five portfolios. The financial statements included herein present only those of the DG Municipal Income Fund (the "Fund"), one of the portfolios of the Trust. The financial statements of the other portfolios in the Trust are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. A. INVESTMENT VALUATIONS--Municipal bonds are valued at fair value. An independent pricing service values the Fund's municipal bonds taking into consideration yield, stability, risk, quality, coupon, maturity, type of issue, trading characteristics, special circumstances of a security or trading market, and any other factors or market data it deems relevant in determining valuations for normal institutional size trading units of debt securities and does not rely exclusively on quoted prices. The Executive Committee continuously reviews these valuation methods to determine that they reflect fair value and to recommend changes to the Trustees which may be necessary from time to time after considering relevant factors which may affect the value of portfolio securities. The Trustees have determined that the fair value of debt securities authorized to be purchased by the Fund with remaining maturities of 60 days or less shall be their amortized cost value unless the particular circumstances of the security indicate otherwise. Investments in other regulated investment companies are valued at net asset value. B. INCOME--Interest income is recorded on the accrual basis. Interest income includes interest and discount earned (net of premium) on short-term obligations, and interest earned on all other debt securities including original issue discount as required by the Internal Revenue Code (the "Code"). Dividends to shareholders and capital gain distributions, if any, are recorded on the ex-dividend date. C. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year all of its net taxable income, including any net realized gain on investments. Accordingly, no provision for federal tax is necessary. Dividends paid by the Fund from net interest earned on tax-exempt municipal bonds are
DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- not includable by shareholders as gross income for federal income tax purposes, because the Fund intends to meet certain requirements of the Code applicable to regulated investment companies which will enable the Fund to pay tax-exempt interest dividends. D. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. To the extent the Fund engages in such transactions, it will do so for the purpose of acquiring portfolio securities consistent with its investment objective and policies and not for the purpose of investment leverage. The Fund will record a when-issued security and the related liability on the trade date. Until the securities are received and paid for, the Fund will maintain security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. E. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. F. OTHER--Investment transactions are accounted for on the date of the transaction.
(3) DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly to all shareholders invested in the Fund on the record date. Dividends are paid from the net investment income of the Fund. Net investment income consists of all interest received by the Fund less its expenses. Capital gains realized by the Fund, if any, are distributed at least once every twelve months. (4) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in Fund shares were as follows:
YEAR ENDED FEBRUARY 28, --------------------------- 1994 1993* - ----------------------------------------------------------------- --------- --------- Shares outstanding, beginning of period 1,489,056 -- - ----------------------------------------------------------------- Shares sold 2,391,912 1,555,185 - ----------------------------------------------------------------- Shares issued to shareholders in payment of distributions in Fund shares 844 -- - ----------------------------------------------------------------- Shares redeemed (623,997) (66,129) - ----------------------------------------------------------------- --------- --------- Shares outstanding, end of period 3,257,815 1,489,056 - ----------------------------------------------------------------- --------- ---------
* For the period from December 21, 1992 (date of initial public investment) to February 28, 1993. DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- (5) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES Deposit Guaranty National Bank, the Trust's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to 0.60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee or reimburse certain operating expenses of the Fund in excess of limitations imposed by certain states. Under the terms of a sub- advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser, equal to 0.25 of 1% of the Fund's average daily net assets. In addition, Commercial National Bank may voluntarily choose to reduce its compensation. For the year ended February 28, 1994, Commercial National Bank earned a sub-advisory fee of $64,421, all of which was voluntarily waived. Federated Administrative Services ("FAS") provides the Trust certain administrative personnel and services. The fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of it's fee. Organization expenses of $25,535 were initially borne by FAS. The Fund has agreed to reimburse FAS for the organization expenses initially borne by FAS during the five year period following the date the Fund became effective. For the year ended February 28, 1994, the Fund paid $966 pursuant to this agreement. Federated Services Company ("FSC") is the Fund's transfer agent and dividend disbursing agent. It also provides certain accounting and recordkeeping services with respect to the Fund's portfolio of investments. Certain Officers and Trustees of the Trust are Officers and Trustees of FAS and Federated Services Company. (6) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the year ended February 28, 1994, were as follows: - ------------------------------------------------------------------------------- PURCHASES $19,008,233 - ------------------------------------------------------------------------------- ----------- SALES $ 2,320,440 - ------------------------------------------------------------------------------- -----------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments, of the DG Municipal Income Fund (a portfolio within DG Investor Series) as of February 28, 1994, and the related statement of operations for the year then ended, the statements of changes in net assets and the financial highlights, which is presented on page 2 of this prospectus, for the year ended February 28, 1994, and period from December 21, 1992 (date of initial public investment) to February 28, 1993. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the financial highlights. Investment securities held in custody are confirmed to us by the custodian. As to securities purchased and sold but not received or delivered, we request confirmations from brokers, and where replies are not received, we carry out other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of the DG Municipal Income Fund at February 28, 1994 and the results of its operations for the year ended, the changes in its net assets and financial highlights for the year ended February 28, 1994, and the period from December 21, 1992 to February 28, 1993 in conformity with generally accepted accounting principles. KPMG PEAT MARWICK Pittsburgh, Pennsylvania April 7, 1994 ADDRESSES - -------------------------------------------------------------------------------- DG Municipal Income Fund Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 1200 Jackson, Mississippi 39215-1200 - ------------------------------------------------------------------------------------------------ Sub-Adviser Commercial National Bank P.O. Box 21119 Shreveport, Louisiana 71152 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and Trust Company P.O. Box 1713 Boston, Massachusetts 02105 - ------------------------------------------------------------------------------------------------ Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Legal Counsel Houston, Houston & Donnelly 2510 Centre City Tower Pittsburgh, Pennsylvania 15222 - ------------------------------------------------------------------------------------------------ Legal Counsel Dickstein, Shapiro & Morin 2101 L Street, N.W. Washington, D.C. 20037 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Commercial National Bank Shreveport, LA APRIL 30, 1994 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2112511A (4/94) The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks including the possible loss of principal. DG MUNICIPAL INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for DG Municipal Income Fund (the "Fund") dated April 30, 1994. This Statement is not a prospectus itself. To receive a copy of the prospectus, write or call the Fund. FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 Statement dated April 30, 1994 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS TABLE OF CONTENTS - -------------------------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND 1 - --------------------------------------------------------------- INVESTMENT OBJECTIVE AND POLICIES 1 - --------------------------------------------------------------- Types of Investments 1 When-Issued and Delayed Delivery Transactions 2 Temporary Investments 2 Other Investment Techniques 2 Repurchase Agreements 2 Reverse Repurchase Agreements 3 Portfolio Turnover 3 Investment Limitations 3 DG INVESTOR SERIES MANAGEMENT 5 - --------------------------------------------------------------- Officers and Trustees 5 The Funds 7 Fund Ownership 7 Trustee Liability 7 INVESTMENT ADVISORY SERVICES 8 - --------------------------------------------------------------- Adviser to the Fund 8 Advisory Fees 8 Sub-Adviser to the Fund 8 Sub-Advisory Fees 8 ADMINISTRATIVE SERVICES 8 - --------------------------------------------------------------- BROKERAGE TRANSACTIONS 9 - --------------------------------------------------------------- PURCHASING SHARES 9 - --------------------------------------------------------------- Distribution Plan 9 Conversion to Federal Funds 10 DETERMINING NET ASSET VALUE 10 - --------------------------------------------------------------- Valuing Municipal Securities 10 EXCHANGE PRIVILEGE 10 - --------------------------------------------------------------- Requirements for Exchange 10 Making an Exchange 10 REDEEMING SHARES 10 - --------------------------------------------------------------- Redemption in Kind 10 TAX STATUS 10 - --------------------------------------------------------------- The Fund's Tax Status 10 TOTAL RETURN 11 - --------------------------------------------------------------- YIELD 11 - --------------------------------------------------------------- TAX-EQUIVALENT YIELD 11 - --------------------------------------------------------------- PERFORMANCE COMPARISONS 12 - --------------------------------------------------------------- APPENDIX 13 - --------------------------------------------------------------- GENERAL INFORMATION ABOUT THE FUND --------------------------------------------------------------------------- The Fund is a portfolio in DG Investor Series (the "Trust") which was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. INVESTMENT OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide dividend income that is exempt from federal regular income tax. The investment objective cannot be changed without approval of shareholders. TYPES OF INVESTMENTS The Fund will invest in a diversified portfolio of municipal securities. Unless indicated otherwise, the investment policies of the Fund may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. CHARACTERISTICS The municipal securities in which the Fund invests have the characteristics set forth in the prospectus. The Fund may use similar services or ratings other than Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's Corporation ("S&P"), or Fitch Investors Service, Inc. ("Fitch"). If a security's rating is reduced below the required minimum after the Fund has purchased it, the Fund is not required to sell the security, but may consider doing so. If ratings made by Moody's, S&P, or Fitch change because of changes in those organizations or in their rating systems, the Fund will try to use comparable ratings as standards in accordance with the investment policies described in the Fund's prospectus. PARTICIPATION INTERESTS The financial institutions from which the Fund purchases participation interests frequently provide or secure from another financial institution irrevocable letters of credit or guarantees and give the Fund the right to demand payment of the principal amounts of the participation interests, plus accrued interest, on short notice (usually within seven days). These financial institutions may charge certain fees in connection with their repurchase commitments, including a fee equal to the excess of the interest paid on the municipal securities over the negotiated yield at which the participation interests were purchased by the Fund. By purchasing participation interests having a seven-day demand feature, the Fund is buying a security meeting the maturity and quality requirements of the Fund and also is receiving the tax-free benefits of the underlying securities. VARIABLE RATE MUNICIPAL SECURITIES Variable interest rates generally reduce changes in the market value of municipal securities from their original purchase prices. Accordingly, as interest rates decrease or increase, the potential for capital appreciation or depreciation is less for variable rate municipal securities than for fixed income obligations. Many municipal securities with variable interest rates purchased by the Fund are subject to repayment of principal (usually within seven days) on the Fund's demand. The terms of these variable rate demand instruments require payment of principal and accrued interest from the issuer of the municipal obligations, the issuer of the participation interests, or a guarantor of either issuer. MUNICIPAL LEASES The Fund may purchase municipal securities in the form of participation interests that represent an undivided proportional interest in lease payments by a governmental or non-profit entity. The lease payments and other rights under the lease provide for and secure payments on the certificates. Lease obligations may be limited by municipal charter or the nature of the appropriation for the lease. In particular, lease obligations may be subject to periodic appropriation. If the entity does not appropriate funds for future lease payments, the entity cannot be compelled to make such payments. Furthermore, a lease may provide that the participants cannot accelerate lease obligations upon default. The participants would only be able to enforce lease payments as they became due. In the event of a default or failure of appropriation, unless the participation interests are credit enhanced, it is unlikely that the participants would be able to obtain an acceptable substitute source of payment. In determining the liquidity of municipal lease securities, the Adviser, under the authority delegated by the Board of Trustees, will base its determination on the following factors: - whether the lease can be terminated by the lessee; - the potential recovery, if any, from a sale of the leased property upon termination of the lease; - -------------------------------------------------------------------------------- - the lessee's general credit strength (e.g., its debt, administrative, economic and financial characteristics and prospects); - the likelihood that the lessee will discontinue appropriating funding for the leased property because the property is no longer deemed essential to its operations (e.g., the potential for an "event of non- appropriation"); - any credit enhancement or legal recourse provided upon an event of non-appropriation or other termination of the lease. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The Fund engages in when-issued and delayed delivery transactions only for the purpose of acquiring portfolio securities consistent with the Fund's investment objective and policies, not for investment leverage. These transactions are made to secure what is considered to be an advantageous price and yield for the Fund. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. No fees or other expenses, other than normal transaction costs, are incurred. However, liquid assets of the Fund sufficient to make payment for the securities to be purchased are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The Fund may engage in these transactions to an extent that would cause the segregation of an amount up to 20% of its total assets. LENDING OF PORTFOLIO SECURITIES The collateral received when the Fund lends portfolio securities must be valued daily and, should the market value of the loaned securities increase, the borrower must furnish additional collateral to the Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination at the option of the Fund or the borrower. The Fund may pay reasonable administrative and custodial fees in connection with a loan and may pay a negotiated portion of the interest earned on the cash or equivalent collateral to the borrower or placing broker. TEMPORARY INVESTMENTS The Fund may also invest in temporary investments from time to time for defensive purposes. BANK INSTRUMENTS The Fund only invests in Bank Instruments (as defined in the prospectus) either issued by an institution having capital, surplus, and undivided profits over $100 million or insured by the Bank Insurance Fund or the Savings Association Insurance Fund, both of which are administered by the Federal Deposit Insurance Corporation. OTHER INVESTMENT TECHNIQUES The Fund may acquire securities that are subject to puts and standby commitments ("demand features") to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The demand feature may be issued by the issuer of the underlying securities, a dealer in the securities or by another third party, and may not be transferred separately from the underlying security. The Fund uses these arrangements to provide the Fund with liquidity and not to protect against changes in the market value of the underlying securities. The bankruptcy, receivership or default by the issuer of the demand feature, or a default on the underlying security or other event that terminates the demand feature before its exercise, will adversely affect the liquidity of the underlying security. REPURCHASE AGREEMENTS The Fund or its custodian will take possession of the securities subject to repurchase agreements, and these securities will be marked to market daily. To the extent that the original seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. In the event that such a defaulting seller filed for bankruptcy or became insolvent, disposition of such securities by the Fund might be delayed pending court action. The Fund believes that under the regular procedures normally in effect for custody of the Fund's portfolio securities subject to repurchase agreements, a court of competent jurisdiction would rule in favor of the Fund and allow retention or disposition of such securities. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are found by the Fund's adviser to be creditworthy pursuant to guidelines established by the Trustees. - -------------------------------------------------------------------------------- REVERSE REPURCHASE AGREEMENTS The Fund may also enter into reverse repurchase agreements. These transactions are similar to borrowing cash. In a reverse repurchase agreement the Fund transfers possession of a portfolio instrument to another person, such as a financial institution, broker, or dealer, in return for a percentage of the instrument's market value in cash, and agrees that on a stipulated date in the future the Fund will repurchase the portfolio instrument by remitting the original consideration plus interest at an agreed upon rate. When effecting reverse repurchase agreements, liquid assets of the Fund, in a dollar amount sufficient to make payment for the obligations to be purchased, are segregated at the trade date. These securities are marked to market daily and maintained until the transaction is settled. The use of reverse repurchase agreements may enable the Fund to avoid selling portfolio instruments at a time when a sale may be deemed to be disadvantageous, but the ability to enter into reverse repurchase agreements does not ensure that the Fund will be able to avoid selling portfolio instruments at a disadvantageous time. PORTFOLIO TURNOVER Although the Fund does not intend to invest for the purpose of seeking short-term profits, securities in its portfolio will be sold whenever the Fund's investment adviser believes it is appropriate to do so in light of the Fund's investment objective, without regard to the length of time a particular security may have been held. It is not anticipated that the portfolio trading engaged in by the Fund will result in its annual rate of portfolio turnover exceeding 100%. For the year ended February 28, 1994 and for the period from December 21, 1992 (date of initial public investment) to February 28, 1993, the portfolio turnover rates were 9% and 93%, respectively. INVESTMENT LIMITATIONS SELLING SHORT AND BUYING ON MARGIN The Fund will not sell any securities short or purchase any securities on margin, but may obtain such short-term credits as may be necessary for clearance of purchases and sales of portfolio securities. ISSUING SENIOR SECURITIES AND BORROWING MONEY The Fund will not issue senior securities except that the Fund may borrow money directly or through reverse repurchase agreements as a temporary measure for extraordinary or emergency purposes and then only in amounts not in excess of one-third of the value of its total assets; provided that, while borrowings exceed 5% of the Fund's total assets, any such borrowings will be repaid before additional investments are made. The Fund will not borrow money or engage in reverse repurchase agreements for investment leverage purposes. PLEDGING ASSETS The Fund will not mortgage, pledge, or hypothecate any assets except to secure permitted borrowings. In those cases, it may pledge assets having a market value not exceeding the lesser of the dollar amounts borrowed or 15% of its total assets at the time of the pledge. DIVERSIFICATION OF INVESTMENTS With respect to 75% of its assets, the Fund will not invest more than 5% of its total assets in any one issuer (except cash and cash items, repurchase agreements, and U.S. government obligations). Also, the Fund will not purchase more than 10% of the outstanding voting securities of any one issuer. For these purposes, the Fund considers common stock and all preferred stock of an issuer each as a single class, regardless of priorities, series, designations, or other differences. Under this limitation, each governmental subdivision, including states and the District of Columbia, territories and possessions of the United States or their political subdivisions, agencies, authorities, instrumentalities, or similar entities, will be considered a separate issuer if its assets and revenues are separate from those of the governmental body creating it and the security is backed only by its own assets and revenues. Private activity bonds backed only by the assets and revenues of a non-governmental user are considered to be issued solely by that user. If, in the case of a private activity bond or government-issued security, a governmental or other entity guarantees the security, such guarantee would be considered a separate security issued by the guarantor as well as the other issuer, subject to limited exclusions allowed by the Investment Company Act of 1940. CONCENTRATION OF INVESTMENTS The Fund will not purchase securities if, as a result of such purchase, 25% or more of its total assets would be invested in any one industry or in industrial development bonds or other securities, the interest upon which is paid from revenues of similar type projects. - -------------------------------------------------------------------------------- The Fund may invest, as temporary investments, 25% or more of its total assets in cash or cash items, securities issued and/or guaranteed by the U.S. government, its agencies or instrumentalities, or instruments secured by these money market instruments, such as repurchase agreements. The Fund does not intend to purchase securities that would increase the percentage of its total assets invested in the securities of governmental subdivisions located in any one state, territory, or U.S. possession to 25% or more. However, the Fund may invest 25% or more of its assets in tax-exempt project notes guaranteed by the U.S. government, regardless of the location of the issuing municipality. If the value of Fund assets invested in the securities of a governmental subdivision changes because of changing values, the Fund will not be required to make any reduction in its holdings. INVESTING IN COMMODITIES The Fund will not purchase or sell commodities, commodity contracts, or commodity futures contracts. INVESTING IN REAL ESTATE The Fund will not purchase or sell real estate, including limited partnership interests in real estate, although it may invest in securities of companies whose business involves the purchase or sale of real estate or in securities secured by real estate or interests in real estate. LENDING CASH OR SECURITIES The Fund will not lend any of its assets, except portfolio securities up to one-third of the value of its total assets. This shall not prevent the Fund from purchasing or holding corporate or government bonds, debentures, notes, certificates of indebtedness or other debt securities of an issuer, entering into repurchase agreements, or engaging in other transactions which are permitted by the Fund's investment objective and policies or the Trust's Declaration of Trust. UNDERWRITING The Fund will not underwrite any issue of securities, except as it may be deemed to be an underwriter under the Securities Act of 1933 in connection with the sale of securities in accordance with its investment objective, policies, and limitations. The above investment limitations cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. RESTRICTED SECURITIES The Fund will not invest more than 5% of its total assets in securities subject to restrictions on resale under the Securities Act of 1933, except for commercial paper issued under Section 4(2) of the Securities Act of 1933 and certain other restricted securities which meet the criteria for liquidity as established by the Trustees. INVESTING IN ILLIQUID SECURITIES The Fund will not invest more than 15% of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice and certain restricted securities not determined by the Trustees to be liquid. To comply with certain state restrictions, the Fund will limit these transactions to 10% of its net assets. (If state restrictions change, this latter restriction may be revised without shareholder approval or notification.) INVESTING IN MINERALS The Fund will not purchase or sell oil, gas, other mineral exploration or development programs, or mineral leases, although it may purchase the securities of issuers that invest in or sponsor such programs. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES The Fund will limit its investment in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, will not invest more than 5% of its total assets in any one investment company, or invest more than 10% of its total assets in investment companies in general. The Fund will purchase securities of other investment companies only in open-market transactions involving only customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation, or acquisition of assets. It should be noted that investment companies incur certain expenses, such as management fees, and, therefore, any investment by a fund in shares of another investment company would be subject to such duplicate expenses. The Fund will invest in other investment - -------------------------------------------------------------------------------- companies primarily for the purpose of investing its short-term cash on a temporary basis. The adviser will waive its investment advisory fee on assets invested in securities of open-end investment companies. INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF THE TRUST The Fund will not purchase or retain the securities of any issuer if the officers and Trustees of the Trust or its investment adviser owning individually more than 1/2 of 1% of the issuer's securities together own more than 5% of the issuer's securities. INVESTING IN NEW ISSUERS The Fund will not invest more than 5% of its total assets in industrial development bonds where the payment of principal and interest is the responsibility of companies, including their predecessors, with less than three years of operating history. ARBITRAGE TRANSACTIONS The Fund will not enter into transactions for the purpose of engaging in arbitrage. Except with respect to borrowing money, if a percentage limitation is adhered to at the time of investment, a later increase or decrease in percentage resulting from any change in value of total or net assets will not result in a violation of such restriction. For purposes of its policies and limitations, the Fund considers certificates of deposit and demand and time deposits issued by a U.S. branch of a domestic bank or savings and loan having capital, surplus, and undivided profits in excess of $100,000,000 at the time of investment to be "cash items." DG INVESTOR SERIES MANAGEMENT - -------------------------------------------------------------------------------- OFFICERS AND TRUSTEES Officers and Trustees are listed with their addresses, principal occupations, and present positions, including any affiliation with Deposit Guaranty National Bank and Commercial National Bank, Federated Investors, Federated Securities Corp., and Federated Administrative Services, Federated Services Company and the Funds (as defined below).
POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - ----------------------------------------------------------------------------------------------------------------- John F. Donahue+* Chairman Chairman and Trustee, Federated Investors; Chairman and Federated Investors and Trustee Trustee, Federated Advisers, Federated Management, and Tower Federated Research; Director, AEtna Life and Casualty Pittsburgh, PA Company; Chief Executive Officer and Director, Trustee, or Managing General Partner of the Funds; formerly, Director, The Standard Fire Insurance Company. Mr. Donahue is the father of J. Christopher Donahue, Vice President of the Trust. - -----------------------------------------------------------------------------------------------------------------
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice Wood/IPC Commercial President, John R. Wood and Associates, Inc., Realtors; Department President Northgate Village Development Corporation; John R. Wood and General Partner or Trustee in private real estate ventures Associates, Inc., in Southwest Florida; Director, Trustee, or Managing Realtors General Partner of the Funds; formerly, President Naples 3255 Tamiami Trail, North Property, Management Inc.. Naples, FL - ----------------------------------------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the Executive Committee, Michael One PNC Plaza-23rd Baker, Inc.; Director, Trustee, or Managing General Partner Floor of the Funds; formerly, Vice Chairman and Director, PNC Pittsburgh, PA Bank, N.A., and PNC Bank Corp. and Director, Ryan Homes, Inc. - ----------------------------------------------------------------------------------------------------------------- James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; 571 Hayward Mill Road Director, Trustee, or Managing General Partner of the Concord, MA Funds; formerly, Director, Blue Cross of Massachusetts, Inc. - -----------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - ----------------------------------------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and 3471 Fifth Avenue Montefiore Hospitals; Clinical Professor of Medicine and Suite 1111 Trustee, University of Pittsburgh; Director, Trustee, or Pittsburgh, PA Managing General Partner of the Funds. - ----------------------------------------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat 5916 Penn Mall 'N Park Restaurants, Inc.; and Statewide Settlement Agency, Pittsburgh, PA Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - ----------------------------------------------------------------------------------------------------------------- Edward C. Gonzales* President, Vice President, Treasurer and Trustee, Federated Investors; Federated Investors Treasurer, Vice President and Treasurer, Federated Advisers, Federated Tower and Trustee Management, and Federated Research; Trustee, Federated Pittsburgh, PA Services Company; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee of some of the Funds; Vice President and Treasurer of the Funds. - ----------------------------------------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State Representative, Commonwealth of 225 Franklin Street Massachusetts; Director, Trustee, or Managing General Boston, MA Partner of the Funds; formerly, President, State Street Bank and Trust Company and State Street Boston Corporation and Trustee Lahey Clinic Foundation, Inc. - ----------------------------------------------------------------------------------------------------------------- Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, 5916 Penn Mall Meritcare, Inc.; Director, Eat 'N Park Restaurants, Inc.; Pittsburgh, PA Director, Trustee, or Managing General Partner of the Funds; formerly, Vice Chairman, Horizon Financial, F.A. - ----------------------------------------------------------------------------------------------------------------- Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; 1202 Cathedral of Trustee, Carnegie Endowment for International Peace, RAND Learning Corporation, Online Computer Library Center, Inc., and U.S. University of Pittsburgh Space Foundation; Chairman, Czecho Slovak Management Pittsburgh, PA Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; formerly, Chairman, National Advisory Council for Environmental Policy & Technology. - ----------------------------------------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, 4905 Bayard Street or Managing General Partner of the Funds. Pittsburgh, PA - ----------------------------------------------------------------------------------------------------------------- J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Investors Federated Advisers, Federated Management, and Federated Tower Research; Trustee, Federated Services Company; President Pittsburgh, PA and Trustee, Federated Administrative Services; President or Vice President of the Funds; Director, Trustee or Managing General Partner of some of the Funds. Mr. Donahue is the son of John F. Donahue, Chairman and Trustee of the Trust. - ----------------------------------------------------------------------------------------------------------------- Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Federated Investors Chairman and Director, Federated Securities Corp.; Tower President or Vice President of the Funds; Director or Pittsburgh, PA Trustee of some of the Funds. - -----------------------------------------------------------------------------------------------------------------
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POSITIONS WITH PRINCIPAL OCCUPATIONS NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - ----------------------------------------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated Investors and Secretary Federated Investors; Vice President, Secretary and Trustee, Tower Federated Advisers, Federated Management, and Federated Pittsburgh, PA Research; Trustee, Federated Services Company; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - ----------------------------------------------------------------------------------------------------------------- Ronald M. Petnuch Vice President Vice President, Federated Administrative Services; Vice Federated Investors and Assistant President and Assistant Treasurer of some of the Funds; Tower Treasurer formerly, Associate Corporate Counsel of Federated Pittsburgh, PA Investors. - ----------------------------------------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Federated Investors Vice President, Federated Securities Corp.; President and Tower Trustee, Federated Advisers, Federated Management, and Pittsburgh, PA Federated Research; Vice President of the Funds; Director, Trustee, or Managing General Partner of some of the Funds; formerly, Vice President, The Standard Fire Insurance Company and President of its Federated Research Division. - -----------------------------------------------------------------------------------------------------------------
* This Trustee is deemed to be an "interested person" of the Trust as defined in the Investment Company Act of 1940. + Member of the Trust's Executive Committee. The Executive Committee of the Board of Trustees handles the responsibilities of the Board of Trustees between meetings of the Board. THE FUNDS "The Funds" and "Funds" mean the following investment companies: American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; California Municipal Cash Trust; Cash Trust Series II; Cash Trust Series, Inc.; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insight Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal Trust; International Series, Inc.; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Term Trust, Inc.-1999; Liberty Utility Fund, Inc.; Liquid Cash Trust; Managed Series Trust; Mark Twain Funds; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; Peachtree Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Trademark Funds; Trust for Financial Institutions; Trust For Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; World Investment Series, Inc. FUND OWNERSHIP Officers and Trustees own less than 1% of the Fund's outstanding shares. As of April 7, 1994, the following shareholder of record owned 5% or more of the outstanding shares of the Fund: Deposit Guaranty Trust Division, Jackson, Mississippi, owned approximately 345,104 shares (10.37%). TRUSTEE LIABILITY The Trust's Declaration of Trust provides that the Trustees will only be liable for their own willful defaults. If reasonable care has been exercised in the selection of officers, agents, employees, or investment advisers, a Trustee - -------------------------------------------------------------------------------- shall not be liable for any neglect or wrong doing of any such person. However, they are not protected against any liability to which they would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties involved in the conduct of their office. INVESTMENT ADVISORY SERVICES - -------------------------------------------------------------------------------- ADVISER TO THE FUND The Fund's investment adviser is Deposit Guaranty National Bank (the "Adviser"), a subsidiary of Deposit Guaranty Corp. The Adviser shall not be liable to the Trust, the Fund or any shareholder of the Fund for any losses that may be sustained in the purchase, holding, or sale of any security, or for anything done or omitted by it, except acts or omissions involving willful misfeasance, bad faith, gross negligence, or reckless disregard of the duties imposed upon it by its contract with the Trust. Because of the internal controls maintained by Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, to restrict the flow of non-public information, Fund investments are typically made without any knowledge of Deposit Guaranty National Bank's or its affiliates' lending relationships with an issuer. ADVISORY FEES For its advisory services, the Adviser receives an annual investment advisory fee as described in the prospectus. For the year ended February 28, 1994 and for the period from December 21, 1992 (date of initial public investment) to February 28, 1993, the Adviser earned advisory fees of $154,612 and $13,652, respectively, all of which were voluntarily waived. SUB-ADVISER TO THE FUND The Fund's sub-adviser is Commercial National Bank (the "Sub-Adviser"), a subsidiary of Deposit Guaranty Corp. SUB-ADVISORY FEES For its sub-advisory services, the Sub-Adviser receives an annual sub-advisory fee as described in the prospectus. For the year ended February 28, 1994 and for the period from December 21, 1992 (date of initial public investment) to February 28, 1993, the Sub-Adviser earned sub-advisory fees of $64,421 and $5,688, respectively, all of which were voluntarily waived. STATE EXPENSE LIMITATIONS The Adviser has undertaken to comply with the expense limitation established by certain states for investment companies whose shares are registered for sale in those states. If the Fund's normal operating expenses (including the investment advisory fee, but not including brokerage commissions, interest, taxes, and extraordinary expenses) exceed 2 1/2% per year of the first $30 million of average net assets, 2% per year of the next $70 million of average net assets, and 1 1/2% per year of the remaining average net assets, the Adviser will reimburse the Fund for its expenses over the limitation. If the Fund's monthly projected operating expenses exceed this expense limitation, the investment advisory fee paid will be reduced by the amount of the excess, subject to an annual adjustment. If the expense limitation is exceeded, the amount to be reimbursed by the Adviser will be limited, in any single fiscal year, by the amount of the investment advisory fee. This arrangement is not part of the advisory contract and may be amended or rescinded in the future. ADMINISTRATIVE SERVICES - -------------------------------------------------------------------------------- Federated Administrative Services, a subsidiary of Federated Investors, provides administrative personnel and services to the Fund for a fee as described in the prospectus. For the year ended February 28, 1994 and for the period from December 21, 1992 (date of initial public investment) to February 28, 1993, the Fund incurred administrative service fees of $50,000, and $9,452, respectively, of which $16,903 and $0 were voluntarily waived respectively. John A. Staley, IV, an officer of the Trust, holds approximately 15% of the outstanding common stock and serves as a director of Commercial Data Services, Inc., a company which provides computer processing services to Federated Administrative Services. For the fiscal years ended February 28, 1994, 1993, and 1992, Federated Administrative Services paid approximately $159,222, $179,920, and $202,532, respectively, for services provided by Commercial Data Services, Inc. BROKERAGE TRANSACTIONS - -------------------------------------------------------------------------------- When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally use those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. The Adviser may select brokers and dealers who offer brokerage and research services. These services may be furnished directly to the Fund or to the Adviser and may include: - - advice as to the advisability of investing in securities; - - security analysis and reports; - - economic studies; - - industry studies; - - receipt of quotations for portfolio evaluations; and - - similar services. The Adviser and its affiliates exercise reasonable business judgment in selecting brokers who offer brokerage and research services to execute securities transactions. They determine in good faith that commissions charged by such persons are reasonable in relationship to the value of the brokerage and research services provided. Research services provided by brokers may be used by the Adviser in advising the Fund and other accounts. To the extent that receipt of these services may supplant services for which the Adviser or its affiliates might otherwise have paid, it would tend to reduce their expenses. Although investment decisions for the Fund are made independently from those of the other accounts managed by the Adviser, investments of the type the Fund may make may also be made by those other accounts. When the Fund and one or more other accounts managed by the Adviser are prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for sales will be allocated in a manner believed by the Adviser to be equitable to each. In some cases, this procedure may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund. In other cases, however, it is believed that coordination and the ability to participate in volume transactions will be to the benefit of the Fund. PURCHASING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are sold at their net asset value next determined after an order is received, plus a sales charge, on days the New York Stock Exchange and Federal Reserve Wire System are open for business. The procedure for purchasing shares is explained in the prospectus under 'Investing in the Fund.' DISTRIBUTION PLAN With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1 which was promulgated by the Securities and Exchange Commission pursuant to the Investment Company Act of 1940. The Plan provides for payment of fees to Federated Securities Corp. to finance any activity which is principally intended to result in the sale of the Fund's shares subject to the Plan. Such activities may include the advertising and marketing of shares of the Fund; preparing, printing, and distributing prospectuses and sales literature to prospective shareholders, brokers, or administrators; and implementing and operating the Plan. Pursuant to the Plan, Federated Securities Corp. may pay fees to brokers for distribution and administrative services and to administrators for administrative services provided to the Fund. The administrative services are provided by a representative who has knowledge of the shareholder's particular circumstances and goals, and include, but are not limited to: communicating account openings; communicating account closings; entering purchase transactions; entering redemption transactions; providing or arranging to provide accounting support for all transactions; wiring funds and receiving funds for purchases and redemptions of Fund shares; confirming and reconciling all transactions; reviewing the activity in Fund accounts; providing training and supervision of broker personnel; posting and reinvesting dividends to Fund accounts or arranging for this service to be performed by the Fund's transfer agent; and maintaining and distributing current copies of prospectuses and shareholder reports to the beneficial owners of Fund shares and prospective shareholders. The Trustees expect that the adoption of the Plan will result in the sale of a sufficient number of shares so as to allow the Fund to achieve economic viability. It is also anticipated that an increase in the size of the Fund will facilitate more efficient portfolio management and assist the Fund in seeking to achieve its investment objective. For the year ended February 28, 1994 and for the period from December 21, 1992 (date of initial public investment) to February 28, 1993, brokers and administrators (financial institutions) received no fees pursuant to the Plan. - -------------------------------------------------------------------------------- CONVERSION TO FEDERAL FUNDS It is the Fund's policy to be as fully invested as possible so that maximum interest may be earned. To this end, all payments from shareholders must be in federal funds or be converted into federal funds. Deposit Guaranty National Bank and Commercial National Bank (the "Banks") as well as Federated Services Company act as the shareholder's agent in depositing checks and converting them to federal funds. DETERMINING NET ASSET VALUE - -------------------------------------------------------------------------------- The net asset value generally changes each day and is based on market value of the securities and other assets held by the Fund. The days on which the net asset value is calculated by the Fund are described in the prospectus. VALUING MUNICIPAL SECURITIES The Trustees use an independent pricing service to value municipal securities. The independent pricing service takes into consideration: yield; stability; risk; quality; coupon rate; maturity; type of issue; trading characteristics; special circumstances of a security or trading market; and any other factors or market data it considers relevant in determining valuations for normal institutional size trading units of debt securities and does not rely exclusively on quoted prices. EXCHANGE PRIVILEGE - -------------------------------------------------------------------------------- REQUIREMENTS FOR EXCHANGE Before the exchange, the shareholder must receive a prospectus of the fund for which the exchange is being made. This privilege is available to shareholders resident in any state in which the fund shares being acquired may be sold. Upon receipt of proper instructions and required supporting documents, shares submitted for exchange are redeemed and the proceeds invested in shares of the other fund. Further information on the exchange privilege and prospectuses may be obtained by calling the Fund. MAKING AN EXCHANGE Instructions for exchanges may be given in writing. Written instructions may require a signature guarantee. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares of the Fund are redeemed at the next computed net asset value after the Banks receive the redemption request. Redemption procedures are explained in the prospectus under 'Redeeming Shares.' Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on federal holidays when wire transfers are restricted. Although State Street Bank does not charge for telephone redemptions, it reserves the right to charge a fee for the cost of wire-transferred redemptions of less than $5,000. REDEMPTION IN KIND Although the Fund intends to redeem shares in cash, it reserves the right under certain circumstances to pay the redemption price in whole or in part by a distribution of securities from the Fund's portfolio. Redemption in kind will be made in conformity with applicable Securities and Exchange Commission rules, taking such securities at the same value employed in determining net asset value and selecting the securities in a manner the Trustees determine to be fair and equitable. The Fund has elected to be governed by Rule 18f-1 of the Investment Company Act of 1940 under which the Fund is obligated to redeem shares for any one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day period. TAX STATUS - -------------------------------------------------------------------------------- THE FUND'S TAX STATUS The Fund will pay no federal income tax because it expects to meet the requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. To qualify for this treatment, the Fund must, among other requirements: - - derive at least 90% of its gross income from dividends, interest, and gains from the sale of securities; - - derive less than 30% of its gross income from the sale of securities held less than three months; - - invest in securities within certain statutory limits; and - - distribute to its shareholders at least 90% of its net income earned during the year. TOTAL RETURN - -------------------------------------------------------------------------------- The Fund's average annual total returns for the fiscal year ended February 28, 1994, and for the period from December 21, 1992 (date of initial public investment), to February 28, 1994, were 3.28% and 7.57%, respectively. The average annual total return for the Fund is the average compounded rate of return for a given period that would equate a $1,000 initial investment to the ending redeemable value of that investment. The ending redeemable value is computed by multiplying the number of shares owned at the end of the period by the maximum offering price per share at the end of the period. The number of shares owned at the end of the period is based on the number of shares purchased at the beginning of the period with $1,000, less any applicable sales load, adjusted over the period by any additional shares, assuming the quarterly reinvestment of all dividends and distributions. YIELD - -------------------------------------------------------------------------------- The Fund's yield for the 30-day period ended February 28, 1994 was 4.18% The yield for the Fund is determined by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the maximum offering price per share of the Fund on the last day of the period. This value is then annualized using semi-annual compounding. This means that the amount of income generated during the thirty-day period is assumed to be generated each month over a 12-month period and is reinvested every six months. The yield does not necessarily reflect income actually earned by the Fund because of certain adjustments required by the Securities and Exchange Commission and, therefore, may not correlate to the dividends or other distributions paid to shareholders. To the extent that financial institutions and broker/dealers charge fees in connection with services provided in conjunction with an investment in the Fund, performance will be reduced for those shareholders paying those fees. TAX-EQUIVALENT YIELD - -------------------------------------------------------------------------------- The tax-equivalent yield for the thirty-day period ended February 28, 1994 was 6.06%. The tax-equivalent yield of the Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a 31% tax rate (the maximum effective federal rate for individuals) and assuming that the income of the Fund is 100% tax-exempt. TAX-EQUIVALENCY TABLE The Fund may also use a tax-equivalency table in advertising and sales literature. The interest earned by the municipal securities in the Fund's portfolio generally remains free from federal regular income tax,* and is often free from state and local taxes as well. As the table below indicates, a "tax-free" investment is an attractive choice for investors, particularly in times of narrow spreads between tax-free and taxable yields. TAXABLE YIELD EQUIVALENT FOR 1994 MUNICIPAL FUND - --------------------------------------------------------------------------------------------------------------------- FEDERAL INCOME TAX BRACKET: 15.00% 28.00% 31.00% 36.00% 39.60% - --------------------------------------------------------------------------------------------------------------------- JOINT RETURN: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 OVER $250,000 SINGLE RETURN: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 OVER $250,000 - --------------------------------------------------------------------------------------------------------------------- TAX-EXEMPT YIELD TAXABLE YIELD EQUIVALENT - --------------------------------------------------------------------------------------------------------------------- 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%
The chart above is for illustrative purposes only. It is not an indicator of past or future performance of the Fund. * Some portion of the Fund's income may be subject to the federal alternative minimum tax and state and local taxes. PERFORMANCE COMPARISONS - -------------------------------------------------------------------------------- The Fund's performance depends upon such variables as: - - portfolio quality; - - average portfolio maturity; - - type of instruments in which the portfolio is invested; - - changes in interest rates and market value of portfolio securities; - - changes in the Fund's expenses; and - - various other factors. The Fund's performance fluctuates on a daily basis largely because net earnings and net asset value per share fluctuate daily. Both net earnings and net asset value per share are factors in the computation of yield and total return. Investors may use financial publications and/or indices to obtain a more complete view of the Fund's performance. When comparing performance, investors should consider all relevant factors such as the composition of any index used, prevailing market conditions, portfolio compositions of other funds, and methods used to value portfolio securities and compute offering price. The financial publications and/or indices which the Fund uses in advertising may include: - - LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by making comparative calculations using total return. Total return assumes the reinvestment of all income dividends and capital gains distributions, if any, and takes into account any change in net asset value over a specified period of time. From time to time, the Fund will quote its Lipper ranking in the "municipal funds" categories in advertising and sales literature. Advertisements and other sales literature for the Fund may quote total returns which are calculated on non-standardized base periods. These total returns represent the change, over a specified period of time, in the value of an investment in the Fund based on monthly reinvestment of dividends and other investments. Advertisements may quote performance information which does not reflect the effect of the sales load. APPENDIX - -------------------------------------------------------------------------------- STANDARD AND POOR'S CORPORATION MUNICIPAL BOND RATINGS AAA--Debt rated "AAA" has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. AA--Debt rated "AA" has a very strong capacity to pay interest and repay principal and differs from the higher rated issues only in small degree. A--Debt rated "A" has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB--Debt rated "BBB" is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories. NR--NR indicates that no public rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. PLUS (+) OR MINUS (-)--The ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. MOODY'S INVESTORS SERVICE, INC., MUNICIPAL BOND RATINGS AAA--Bonds which are rated AAA are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. AA--Bonds which are rated AA are judged to be of high quality by all standards. Together with the AAA group, they comprise what are generally known as high-grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in AAA securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A--Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. BAA--Bonds which are rated BAA are considered as medium-grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present, but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and, in fact, have speculative characteristics as well. NR--Not rated by Moody's. Moody's applies numerical modifiers 1, 2, and 3 in each generic rating classification from AA through B in its corporate or municipal bond rating system. The modifier 1 indicates that the security ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category. FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS AAA--Bonds considered to be investment grade and of the highest credit quality. The obligor has an exceptionally strong ability to pay interest and repay principal, which is unlikely to be affected by reasonably foreseeable events. AA--Bonds considered to be of investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated "AAA". Because bonds rated in the "AAA" and "AA" categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated "F-1+." A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds and, therefore, impair timely payment. NR--NR indicates that Fitch does not rate the specific issue. PLUS (+) OR MINUS (-)--Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the "AAA" or "D" categories. - -------------------------------------------------------------------------------- STANDARD & POOR'S CORPORATION MUNICIPAL NOTE RATINGS SP-1--Very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+) designation. SP-2--Satisfactory capacity to pay principal and interest. MOODY'S INVESTORS SERVICE, INC., SHORT-TERM MUNICIPAL OBLIGATIONS RATINGS MIG1/VMIG1--This designation denotes best quality. There is a present strong protection by established cash flows, superior liquidity support or demonstrated broadbased access to the market for refinancing. MIG2/VMIG2--This designation denotes high quality. Margins of protection are ample although not so large as in the preceding group. STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS A-1--This highest category indicates that the degree of safety regarding timely payment is strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus (+) sign designation. A-2--Capacity for timely payment on issues with this designation is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATINGS PRIME-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. PRIME-1 repayment capacity will normally be evidenced by the following characteristics: - Leading market positions in well established industries. - High rates of return on funds employed. - Conservative capitalization structure with moderate reliance on debt and ample asset protection. - Broad margins in earning coverage of fixed financial charges and high internal cash generation. - Well-established access to a range of financial markets and assured sources of alternate liquidity. PRIME-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above, but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATINGS F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are regarded as having the strongest degree of assurance for timely payment. F-1--Very Strong Credit Quality. Issues assigned this rating reflect an assurance of timely payment only slightly less in degree than issues rated F-1+. F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree of assurance for timely payment, but the margin of safety is not as great as the F-1+ and F-1 categories. 2112511B (4/94) PART C. OTHER INFORMATION. Item 24. Financial Statements and Exhibits: (a) Financial Statements (filed in part A) (b) Exhibits: (1) Copy of Declaration of Trust of the Registrant (1.); (i) Amendment of Declaration of Trust of the Registrant (2.); (ii) Amendment of Declaration of Trust of the Registrant; (4.) (2) Copy of By-Laws of the Registrant (1.); (3) Not applicable; (4) (i) Copy of Specimen Certificate for Shares of Beneficial Interest of DG U.S. Government Money Market Fund (3.); (ii) Copy of Specimen Certificate for Shares of Beneficial Interest of DG Limited Term Government Income Fund (3.); (iii) Copy of Specimen Certificate for Shares of Beneficial Interest of DG Government Income Fund (3.); (iv) Copy of Specimen Certificate for Shares of Beneficial Interest of DG Equity Fund (3.); (v) Copy of Specimen Certificate for Shares of Beneficial Interest of DG Municipal Income Fund (6); (5) (i) Copy of Investment Advisory Contract of Registrant (6.); (a) Conformed copy of Exhibit A for DG U.S. Government Money Market Fund to add DG U.S. Government Money Market Fund to the present Investment Advisory Contract;+ (b) Copy of Exhibit B for DG Limtied Term Government Income Fund (6.); (c) Copy of Exhibit C for DG Government Income Fund (6.); (d) Copy of Exhibit D for DG Equity Fund (6.); (e) Copy of Exhibit E for DG Municipal Income Fund (6.); + 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 No. 33-46431 and File 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 No. 33-46431 and File No. 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 No. 33-46431 and File 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 No. 33-46431 and File 811-6607) 5. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 3 on Form N-1A filed October 28, 1992. (File No. 33-46431 and File 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 No. 33-46431 and File 811-6607) (ii) Copy of Sub-Advisory Agreement between Deposit Guaranty National Bank and Commercial National Bank (6.); (a) Copy of Exhibit A for DG Equity Fund (6.); (b) Copy of Exhibit B for DG Government Income Fund (6.); (c) Copy of Exhibit C for DG Limtied Term Government Income Fund (6.); (d) Copy of Exhibit D for DG Municipal Income Fund (6.); (6) Copy of Distributor's Contract of the Registrant (3.); (i) Copy of Exhibit B for DG Limited Term Government Income Fund (3.); (ii) Copy of Exhibit C for DG Government Income Fund (3.); (iii) Copy of Exhibit E for DG Municipal Income Fund (6.); (7) Not applicable (8) Copy of Custodian Agreement of the Registrant (6.); (9) (i) Copy of Transfer Agency and Service Agreement of Registrant (6); (ii) Conformed copy of Administrative Services Agreement;+ (10) Copy of Opinion and Consent of Counsel as to legality of shares being registered (2.); (11) Copy of Consent of Independent Auditors;+ (12) Not applicable; (13) Copy of Initial Capital Understanding (2.); (14) Not applicable; (15) (i) Copy of Distribution Plan of the Registrant (2.); (a) Copy of Exhibit B for DG Limited Term Government Income Fund (2.); (b) Copy of Exhibit C for DG Government Income Fund (3.); (c) Copy of Exhibit D for DG Equity Fund (3.); (d) Copy of Exhibit E for DG Municipal Income Fund (6.); + 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 No. 33-46431 and File No. 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 No. 33-46431 and File No. 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 No. 33-46431 and File No. 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 No. 33-46431 and File No. 811-6607) 5. Response is incorporated by reference to Registrant's Post-Effective Amendment No. 3 on Form N-1A filed October 28, 1992. (File No. 33-46431 and File No. 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 No. 33-46431 and File 811-6607) (ii) Rule 12b-1 Agreement of the Registrant (3.); (16) Schedule for Computation of Fund Performance Data (5.); (i) DG Equity Fund(5.); (ii) DG Government Income Fund(5.); (iii) DG Limited Term Government Income Fund(5.); (iv) DG U.S. Government Money Market Fund(5.); (v) DG Municipal Income Fund (6.); (17) Power of Attorney (5.); (18) Opinion and Consent of Counsel as to availability of Rule 485(b);+ + All exhibits have been filed electronically. Item 25. Persons Controlled by or Under Common Control with Registrant: None Item 26. Number of Holders of Securities: Number of Record Holders Title of Class as of April 7, 1994 Shares of beneficial interest (no par value) DG U.S. Government Money Market Fund 34 DG Limited Term Government Income Fund 192 DG Government Income Fund 115 DG Equity Fund 393 DG Municipal Income Fund 42 Item 27. Indemnification: (4) Item 28. Business and Other Connections of Investment Adviser: (a) Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public, including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1993, the Trust Division of Deposit Guaranty National Bank had approximately $9 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. The principal executive officers of the Fund's Investment Adviser, and the Directors of the Fund's Adviser, are set forth in the following tables. Unless otherwise noted, the position listed under Other Substantial Business, Profession, Vocation or Employment is with Deposit Guaranty National Bank. Other Substantial Position With Business, Profession, Name the Adviser Vocation or Employment E.B. Robinson, Jr. Chairman of the Board and Chief Executive Howard L. McMillan, Jr. President and Chief Operating Officer Robert G. Barnett General Counsel and Secretary to the Board William R. Boone Executive Vice President Thomas M. Hontzas Executive Vice President W. Parks Johnson Executive Vice President James S. Lenoir Executive Vice President W. Murray Pate Executive Vice President W. Stanley Pratt Executive Vice President Arlen L. McDonald Treasurer and Chief Financial Officer DIRECTORS Haley R. Barbour Warren A. Hood, Jr. W.R. Newman, III Michael B. Bemis Charles L. Irby. John N. Palmer B.L. Chain W. Randolp James E.B. Robinson, Jr. Sharon S. Greener Booker T. Jones Robert D. Robinson Charles G. Hathaway Jean C. Lindsey Robert L.T. Smith, Jr. Harris B. Henley Howard L. McMillan, Jr. Victor P. Smith Douglas A. Herring Richard D. McRae, Jr. J. Kelley Williams W. Henry Holman, Jr. (b) Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC and serves as Investment Sub-Adviser to DG Limited Term Government Income Fund, DG Government Income Fund, DG Equity Fund and DG Municipal Income Fund. As of December 31, 1993, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, of which it had investment discretion over $1.02 billion. Commercial National Bank has served as sub-adviser to DG Limited Term Government Income Fund, DG Government Income Fund, and DG Equity Fund since July 20, 1992 and DG Municipal Income Fund since December 12, 1992. The principal executive officers of the Investment Sub-Adviser, and the Directors of the Investment Sub-Adviser, are set forth in the following tables. Unless otherwise noted, the position listed under Other Substantial Business, Profession, Vocation or Employment is with Commercial National Bank. Other Substantial Position With Business, Profession, Name the Sub-Adviser Vocation or Employment Steven C. Walker President and Chief Executive Officer P. Michael Adkins Executive Vice President C. David Barrentine, Jr. Executive Vice President David H. Nordyke Executive Vice President Robert H. Boehmler, Jr. Senior Vice President V. Odell Mimms Senior Vice President Richard H. Sale Senior Vice President DIRECTORS Willis L. Meadows Dewey W. Corley C. W. Holtsclaw, Jr. Gordon A. Marsalis Howard L. McMillan, Jr. William C. Peatross W. C. Rasberry E. B. Robinson, Jr. Steven C. Walker Donald W. Weir N. H. Wheless, Jr. Fred Wilson George D. Wray, Jr. Richard H. Bremer Item 29. Principal Underwriters: (a) Federated Securities Corp., the Distributor for shares of the Registrant, also acts as principal underwriter for the following open-end investment companies: A.T. Ohio Tax-Free Money Fund; Alexander Hamilton Funds; American Leaders Fund, Inc.; Annuity Management Series; Automated Cash Management Trust; Automated Government Money Trust; BayFunds; The Biltmore Funds; The Biltmore Municipal Funds; The Boulevard Funds; California Municipal Cash Trust; Cambridge Series Trust; Cash Trust Series, Inc.; Cash Trust Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust; FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High Yield Trust; Federated Income Securities Trust; Federated Income Trust; Federated Index Trust; Federated Intermediate Government Trust; Federated Master Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust; Federated Short-Term U.S. Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated U.S. Government Bond Fund; Financial Reserves Fund; First Priority Funds; First Union Funds; Fixed Income Securities, Inc.; Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income Fund,Inc.; Fortress Utility Fund, Inc.; Fountain Square Funds; Fund for U.S. Government Securities, Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Independence One Mutual Funds; Insight Institutional Series, Inc.; Insurance Management Series; Intermediate Municipal Trust; Investment Series Funds, Inc.; Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty U.S. Government Money Market Trust; Liberty Utility Fund, Inc.; Liquid Cash Trust; Mark Twain Funds; Marshall Funds, Inc.; Money Market Management, Inc.; Money Market Obligations Trust; Money Market Trust; The Monitor Funds; Municipal Securities Income Trust; New York Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage Funds; RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet Select Funds; SouthTrust Vulcan Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments Trust; Tower Mutual Funds; Trademark Funds; Trust for Financial Institutions; Trust for Government Cash Reserves; Trust for Short-Term U.S. Government Securities; Trust for U.S. Treasury Obligations; Vision Fiduciary Funds, Inc.; Vision Group of Funds, Inc.; and World Investment Series, Inc. Federated Securities Corp. also acts as principal underwriter for the following closed-end investment company: Liberty Term Trust, Inc.- 1999. (b) (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Underwriter With Registrant Richard B. Fisher Director, Chairman, Chief Vice President Federated Investors Tower Executive Officer, Chief Pittsburgh, PA 15222-3779 Operating Officer, and Asst. Treasurer, Federated Securities Corp. Edward C. Gonzales Director, Executive Vice President Federated Investors Tower President, and Treasurer, Pittsburgh, PA 15222-3779 Federated Securities Corp. John W. McGonigle Director, Executive Vice Vice President Federeated Investors Tower and Pittsburgh, PA 15222-3779 President, and Assistant Secretary Secretary, Federated Securities Corp. John A. Staley, IV Executive Vice President Vice President Federated Investors Tower and Assistant Secretary, Pittsburgh, PA 15222-3779 Federated Securities Corp. (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Underwriter With Registrant John B. Fisher President-Institutional Sales, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 James F. Getz President-Broker/Dealer, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Mark R. Gensheimer Executive Vice President of -- Federated Investors Tower Bank/Trust Pittsburgh, PA 15222-3779 Federated Securities Corp. Mark W. Bloss Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Theodore Fadool, Jr. Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Bryant R. Fisher Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Christopher T. Fives Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 James S. Hamilton Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 James M. Heaton Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 H. Joseph Kennedy Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Keith Nixon Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Timothy C. Pillion Senior Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 James R. Ball Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Richard W. Boyd Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Underwriter With Registrant 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 Laura M. Deger 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 David C. Glabicki Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Richard C. Gonzales Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Scott A. Hutton Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 William J. Kerns Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 William E. Kugler Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Dennis M. Laffey Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Francis J. Matten, Jr. Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 (1) (2) (3) Name and Principal Positions and Offices Positions and Offices Business Address With Underwriter With Registrant Mark J. Miehl Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 J. Michael Miller Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 R. Jeffrey Niss Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Michael P. O'Brien Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Solon A. Person, IV Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Robert F. Phillips Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Eugene B. Reed Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Paul V. Riordan Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Charles A. Robison Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 David W. Spears 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 Thomas E. Territ Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 William C. Tustin Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Richard B. Watts Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Philip C. Hetzel Assistant Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 Ernest L. Linane Assistant Vice President, -- Federated Investors Tower Federated Securities Corp. Pittsburgh, PA 15222-3779 S. Elliott Cohan Secretary, Federated Assistant Federated Investors Tower Securities Corp. Secretary Pittsburgh, PA 15222-3779 (c) Not applicable. Item 30. Location of Accounts and Records: All accounts and records required to be maintained by Section 31(a) of the Investment Company Act of 1940 and Rules 31a-1 through 31a-3 promulgated thereunder are maintained at one of the following locations: DG Investor Series Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Services Company Federated Investors Tower Transfer Agent, Dividend Pittsburgh, PA 15222-3779 Disbursing Agent and Shareholder Servicing Agent Federated Administrative Services Federated Investors Tower Administrator Pittsburgh, PA 15222-3779 Deposit Guaranty National Bank P.O.Box 1200 Adviser Jackson, Mississippi 39215-1200 Commercial National Bank P.O. Box 21119 Sub-Adviser Shreveport, Louisiana 71152 (except DG U.S. Government Money Market Fund) State Street Bank and Trust Company P.O. Box 1713 Custodian Boston, Massachusetts 021205 Item 31. Management Services: Not applicable. Item 32. Undertakings: Registrant hereby undertakes to comply with the provisions of Section 16(c) of the 1940 Act with respect to the removal of Trustees and the calling of special shareholder meetings by shareholders. Registrant hereby undertakes to furnish each person to whom a prospectus for DG Limited Term Government Income Fund, DG Government Income Fund, DG Equity Fund and DG Municipal Income Fund is delivered with a copy of the Registrant's latest annual report to shareholders, upon request and without charge. SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, DG INVESTOR SERIES, certifies that it meets all of the requirements for effectiveness of this Amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Pittsburgh and Commonwealth of Pennsylvania, on the 26th day of April, 1994. DG INVESTOR SERIES BY: /s/Karen M. Brownlee Karen M. Brownlee, Assistant Secretary Attorney in Fact for John F. Donahue April 26, 1994 Pursuant to the requirements of the Securities Act of 1933, this Amendment to its Registration Statement has been signed below by the following person in the capacity and on the date indicated: NAME TITLE DATE By: /s/Karen M. Brownlee Karen M. Brownlee Attorney In Fact April 26, 1994 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) John T. Conroy, Jr.* Trustee William J. Copeland* Trustee James E. Dowd* Trustee Lawrence D. Ellis, M.D.* Trustee Edward L. Flaherty, Jr.* Trustee Peter E. Madden* Trustee Gregor F. Meyer* Trustee Wesley W. Posvar* Trustee Marjorie P. Smuts* Trustee * By Power of Attorney EX-99.AUDITORCONSENT 2 AUDITOR'S CONSENT Exhibit 11 under N-1A Exhibit 23 under Item 601/Reg SK INDEPENDENT AUDITORS' CONSENT The Board of Trustees DG Investor Series: With respect to this Post Effective Amendment No. 5 to the Registration Statement on Form N-1A of the DG Investor Series, we consent to the use of our reports included herein and to the references to our Firm under the headings "Financial Highlights" and "Administration of the Fund - Independent Auditors" in Part A of the Registration Statement. . DG U.S. Government Money Market Fund; . DG Equity Fund; . DG Government Income Fund; . DG Limited Term Government Income Fund; and . DG Municipal Income Fund By:KPMG Peat Marwick KPMG Peat Marwick Pittsburgh, Pennsylvania April 21, 1994 EX-99.OPINIONLETTER 3 DONNELLY'S OPINION LETTER HOUSTON, HOUSTON & DONNELLY ATTORNEYS AT LAW 2510 CENTRE CITY TOWER WILLIAM McC. HOUSTON PITTSBURGH, PA. 15222 FRED CHALMERS HOUSTON, JR. __________ THOMAS J. DONNELLY JOHN F. MECK (412) 471-5828 FRED CHALMERS HOUSTON FAX (412) 471-0736 (1914 - 1971) MARIO SANTILLI, JR. THEODORE M. HAMMER April 22, 1994 DG Investor Series Federated Investors Tower Pittsburgh, PA 15222-3779 Gentlemen: As counsel to DG Investor Series ("Trust") we have reviewed Post-effective Amendment No. 5 to the Trust's Registration Statement to be filed with the Securities and Exchange Commission under the Securities Act of 1933 (File No. 33-46431). The subject Post-effective Amendment will be filed pursuant to Paragraph (b) of Rule 485 and become effective pursuant to said Rule on April 30. 1994. Our review also included an examination of other relevant portions of the amended 1933 Act Registration Statement of the Trust and such other documents and records deemed appropriate. On the basis of this review we are of the opinion that Post-effective Amendment No. 5 does not contain disclosures which would render it ineligible to become effective pursuant to Paragraph (b) of Rule 485. We hereby consent to the filing of this representation letter as a part of the Trust's Registration Statement filed with the Securities and Exchange Commission under the Securities Act of 1933 and as part of any application or registration statement filed under the Securities Laws of the States of the United States. Very truly yours, Houston, Houston & Donnelly By: /s/Thomas J. Donnelly TJD:smg EX-99.ADMIN.SERV.AGT 4 ADMINISTRATIVE SERVICES AGREEMENT Exhibit 9(ii) under Form N-1A Exhibit 10 under Item 601/Reg. S-K DG Investor Series ADMINISTRATIVE SERVICES AGREEMENT This Administrative Services Agreement is made as of this 5th day of May, 1992, 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 Massachusetts business 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 4 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. 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. 4. 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: Maximum Administrative Average Daily Net Assets Fee of the Fund .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. 5. 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 5 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. 6. Duration and Termination. (a) The initial term of this Agreement shall commence on the date hereof, and extend for a period of five years following the first date upon which each of the Fund's Existing Portfolios has sufficient average daily net assets, in each case, such that FAS will begin to earn a sum not less than its minimum ("annualized") administrative fee per Existing Portfolio, pursuant to Section 4(a) of this Agreement ("Initial Term"). (b) During any term of this Agreement, each time the Fund adds a 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 4(b) of this Agreement ("Additional Term"). Such Additional Term shall extend to the later to occur of (i) the third anniversary of the commencement of the Additional Term, or (ii) the expiration of the Initial Term. (c) During any term of this Agreement, each time the Fund adds a class of shares to any portfolio, an additional term shall commence on the later to occur of (i) the first date upon which the relevant 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 the case of an Existing Portfolio pursuant to Section 4(a) of this Agreement and in the case of a New Portfolio pursuant to Section 4(b) of this Agreement), or (ii) the effective date of the registration statement or post-effective amendment registering the new class of shares ("Class Term"). Such Class Term shall extend to the later to occur of (i) the third anniversary of the commencement of the Class Term, or (ii) the expiration of the Initial Term. (d) 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. 7. 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. 8. 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. 9. 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. 10. 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 to its investment adviser at the following address: Deposit Guaranty National Bank, P.O. Box 1200, Jackson, Mississippi 39215-1200 Attention: Ted Gibson and if delivered to FAS at Federated Investors Tower, Pittsburgh, PA 15222-3779, Attention: President. 11. 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 5, 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. 12. 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. 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/ E.C. Gonzales Attest: /s/ John W. McGonigle Secretary Federated Administrative Services By: /s/ J. C. Donahue Attest:/s/ John W. McGonigle Secretary EX-99.INV.ADV.CONTRT 5 INVESTMENT ADVISORY CONTRACT Exhibit 5(i)(a) under Form N-1A Exhibit 10 under Item 60/Reg. S-K EXHIBIT A to the Investment Advisory Contract DG U.S. Government Money Market Fund For all services rendered by Adviser hereunder, the above-named Fund of the Trust shall pay to Adviser and Adviser agrees to accept as full compensation for all services rendered hereunder, an annual investment advisory fee equal to .50 of 1% of the average daily net assets of the Fund. The portion of the fee based upon the average daily net assets of the Fund shall be accrued daily at the rate of 1/365th of .50 of 1% applied to the daily net assets of the Fund. The advisory fee so accrued shall be paid to Adviser daily. Witness the due execution hereof this 18th day of June, 1993. Attest: Deposit Guaranty National Bank /s/ C. Edward Gibson By:/s/ W. Murry Pate Secretary Executive Vice President Attest: DG Investor Series /s/ John W. McGonigle By:/s/ J. Christopher Donahue Secretary Vice President -----END PRIVACY-ENHANCED MESSAGE-----