-----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, LSTRgENPA54rJIwRoZW4aMa1400vlutCNFnj5lnQZaNpEW0XLfWMrFSg/Y9K0L9x DrBZw3aeGyciydmgbnWkbg== 0000883843-94-000008.txt : 19940725 0000883843-94-000008.hdr.sgml : 19940725 ACCESSION NUMBER: 0000883843-94-000008 CONFORMED SUBMISSION TYPE: 497 PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19940722 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: 497 SEC ACT: 1933 Act SEC FILE NUMBER: 033-46431 FILM NUMBER: 94539725 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 497 1 FORM DOCUMENT INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JULY 20, 1994 DG OPPORTUNITY FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Opportunity Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The investment objective of the Fund is to provide capital appreciation. The Fund pursues its investment objective by investing primarily in a portfolio of equity securities comprising the small capitalization sector of the United States equity market. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated July , 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 July , 1994 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ GENERAL INFORMATION 2 - ------------------------------------------------------ INVESTMENT INFORMATION 2 - ------------------------------------------------------ Investment Objective 2 Investment Policies 2 Acceptable Investments 2 Repurchase Agreements 3 Investing in Securities of Other Investment Companies 3 Securities of Foreign Issuers 3 Put and Call Options 4 Futures Contracts and Options on Futures 4 Risks 4 When-Issued and Delayed Delivery Transactions 5 Lending of Portfolio Securities 5 Temporary Investments 5 Investment Considerations 5 Portfolio Turnover 6 Investment Limitations 6 DG INVESTOR SERIES INFORMATION 6 - ------------------------------------------------------ Management of the Trust 6 Board of Trustees 6 Investment Adviser 6 Advisory Fees 7 Adviser's Background 7 Sub-Adviser 7 Sub-Advisory Fees 7 Sub-Adviser's Background 7 Distribution of Fund Shares 8 Distribution Plan 8 Shareholder Servicing Arrangements 9 ADMINISTRATION OF THE FUND 9 - ------------------------------------------------------ Administrative Services 9 Shareholder Services Plan 9 Custodian 9 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 10 Legal Counsel 10 Independent Auditors 10 Brokerage Transactions 10 Expenses of the Fund 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 SHAREHOLDER INFORMATION 16 - ------------------------------------------------------ Voting Rights 16 Massachusetts Partnership Law 17 EFFECT OF BANKING LAWS 17 - ------------------------------------------------------ TAX INFORMATION 18 - ------------------------------------------------------ Federal Income Tax 18 PERFORMANCE INFORMATION 18 - ------------------------------------------------------ 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 projected average net assets) Management Fee (after waiver)(1)................................................ 0.27% 12b-1 Fee(2).................................................................... 0.00% Total Other Expenses (after waiver)(3).......................................... 0.53% Shareholder Services Fee(2)................................................. 0.00% Total Fund Operating Expenses(4)............................................ 0.80%
(1) The estimated management fee has been reduced to reflect the anticipated voluntary waiver by the adviser. The adviser may terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.95%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees or shareholder services fees. The Fund will not accrue or pay 12b-1 fees or shareholder services fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee and up to 0.15% as a shareholder services fee. (3) Total Other Expenses are estimated to be 0.67% absent the anticipated voluntary waiver by the administrator. The administrator may terminate this voluntary waiver at any time at its sole discretion. (4) Total Fund Operating Expenses are anticipated to be 1.61% absent the voluntary waivers described above in notes 1 and 3. 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 - ----------------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and (2) redemption at the end of each time period. The Fund charges no redemption fees......................................... $ 28 $ 45
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. GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of equity securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide capital appreciation. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of equity securities comprising the small capitalization sector of the United States equity market. In the investment adviser's opinion, small capitalization stocks have special value in the marketplace and can provide greater growth of principal than large capitalization stocks. The Fund attempts to select companies with potential for above-average capital appreciation commensurate with increased risk. Under normal market conditions, the Fund intends to invest at least 65% of its total assets in equity securities of companies that have a market value capitalization of less than $1 billion. Unless indicated otherwise, the investment policies of the Fund may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. In pursuing its investment objective, the Fund will employ investment strategies that utilize a fundamental growth-oriented approach along with technical analysis and relative valuation to select the small capitalization stocks which will comprise the Fund's investment portfolio. Acceptable investments include, but are not limited to: - common stock of U.S. companies which are either listed on the New York or American Stock Exchange or traded in over-the-counter markets, preferred stock of such companies, warrants, and preferred stock convertible into common stock of such companies; - convertible bonds rated at least BBB by Standard & Poor's Corporation ("Standard & Poor's") or Fitch Investors Service, Inc. ("Fitch") or at least Baa by Moody's Investors Service, Inc. ("Moody's") or, if not rated, are determined by the adviser to be of comparable quality; - investments in American Depository Receipts ("ADRs") of foreign companies traded on the New York Stock Exchange or in the over-the-counter market; - money market instruments; - fixed rate notes, bonds and adjustable and variable rate notes of companies whose common stock it may acquire rated BBB or better by Standard & Poor's or Baa or better by Moody's; - zero coupon convertible securities; - securities of other investment companies; and - obligations, including certificates of deposit and bankers' acceptances, of banks or savings and loan associations having at least $1 billion in deposits as of the date of their most recently published financial statements and which are insured by the Bank Insurance Fund or the Savings Association Insurance Fund, both of which are administered by the Federal Deposit Insurance Corporation, including U.S. branches of foreign banks and foreign branches of U.S. banks. REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund will limit its investment in other investment companies to no more than 3% of the total outstanding voting stock of any investment company, will not invest more than 5% of its total assets in any one investment company, or invest more than 10% of its total assets in investment companies in general. The Fund will purchase securities of closed-end investment companies only in open-market transactions involving only customary broker's commissions. However, these limitations are not applicable if the securities are acquired in a merger, consolidation, or acquisition of assets. It should be noted that investment companies incur certain expenses, such as management fees, and, therefore, any investment by a fund in shares of another investment company would be subject to such duplicate expenses. The Fund will invest in other investment companies primarily for the purpose of investing its short-term cash on a temporary basis. The adviser will waive its investment advisory fee on assets invested in securities of open-end investment companies. SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities of foreign issuers traded on the New York or American Stock Exchange or in the over-the-counter market in the form of depositary receipts. Securities of a foreign issuer may present greater risks in the form of nationalization, confiscation, domestic marketability, or other national or international restrictions. As a matter of practice, the Fund will not invest in the securities of a foreign issuer if any such risk appears to the investment adviser to be substantial. PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio securities as a hedge to attempt to protect securities which the Fund holds, or will be purchasing, against decreases in value. The Fund may also write (sell) call options on all or any portion of its portfolio to generate income for the Fund. The Fund will write call options on securities either held in its portfolio or which it has the right to obtain without payment of further consideration or for which it has segregated cash or U.S. government securities in the amount of any additional consideration. The Fund may purchase and write over-the-counter options on portfolio securities in negotiated transactions with the buyers or writers of the options when options on the portfolio securities held by the Fund are not traded on an exchange. The Fund purchases and writes options only with investment dealers and other financial institutions (such as commercial banks or savings and loan associations) deemed creditworthy by the Fund's adviser. Over-the-counter options are two-party contracts with price and terms negotiated between buyer and seller. In contrast, exchange-traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange-traded options have a continuous liquid market, while over-the-counter options may not. FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may purchase and sell financial futures and stock index futures contracts to hedge all or a portion of its portfolio against changes in the price of its portfolio securities, but will not engage in futures transactions for speculative purposes. The Fund may also write call options and purchase put options on financial futures and stock index futures contracts as a hedge to attempt to protect securities in its portfolio against decreases in value. The Fund may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on the Fund's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Fund's total assets. RISKS. When the Fund writes a call option, the Fund risks not participating in any rise in the value of the underlying security. In addition, when the Fund uses futures and options on futures as hedging devices, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract and any related options to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors, such as interest rate and stock price movements. In these events, the Fund may lose money on the futures contract or option. It is not certain that a secondary market for positions in futures contracts or options will exist at all times. Although the investment adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market will exist for any particular futures contract or option at any particular time. The Fund's ability to establish and close out futures and options positions depends on this secondary market. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase 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 short-term obligations during times of unusual market conditions and to maintain liquidity. These investments may include obligations such as: - commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2 by Moody's, or F-1 or F-2 by Fitch; - obligations of the U.S. government or its agencies or instrumentalities; and - repurchase agreements. INVESTMENT CONSIDERATIONS As with other mutual funds that invest primarily in equity securities, the Fund is subject to market risks. That is, the possibility exists that common stocks will decline over short or even extended periods of time. The United States equity market tends to be cyclical, experiencing both periods when stock prices generally increase and periods when stock prices generally decrease. However, because the Fund invests primarily in small capitalization stocks, there are some additional risk factors associated with investments in the Fund. In particular, stocks in the small capitalization sector of the United States equity market have historically been more volatile in price than larger capitalization stocks, such as those included in the Standard & Poor's 500 Composite Stock Price Index ("Standard & Poor's 500 Index"). This is because, among other things, small companies have less certain growth prospects than larger companies; have a lower degree of liquidity in the equity market; and tend to have a greater sensitivity to changing economic conditions. Further, in addition to exhibiting greater volatility, the stocks of small companies may, to some degree, fluctuate independently of the stocks of large companies. That is, the stocks of small companies may decline in price as the prices of large company stocks rise or vice versa. Therefore, investors should expect that the Fund will be more volatile than, and may fluctuate independently of, broad stock market indices such as the Standard & Poor's 500 Index. Bonds rated "BBB" by Standard & Poor's or "Baa" by Moody's have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. 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 anticipates that the Fund's portfolio turnover rate will not exceed 200%. A high portfolio turnover rate may lead to increased costs and may also result in higher taxes paid by the Fund's shareholders. 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 0.95 of 1% of the Fund's average daily net assets. The fee paid by the Fund, while higher than the advisory fee paid by other mutual funds in general, is comparable to fees paid by other mutual funds with similar objective and policies. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public, including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 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. SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by the Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank will form an investment committee (the "DG Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction in the fee due from the Trust to the Adviser on behalf of the Fund. Notwithstanding any other provision in the sub-advisory agreement, the Sub-Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 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 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. It has served as sub-adviser to DG Municipal Income Fund since December 12, 1992, and to the Fund since May 25, 1994. All of these funds are portfolios of the Trust. William A. Womack is a Vice President and Trust Investment Officer, and has been with Deposit Guaranty National Bank for ten years. Mr. Womack spent eight years prior to joining Deposit Guaranty in the investment brokerage business. A graduate of Louisiana State University, he received a B.S. in Finance, with a minor in Economics. Mr. Womack is a member of the Mississippi Chapter of the Society of Financial Analysts. Mr. Womack has managed the Fund since July , 1994 (the inception of the Fund). He also manages the DG Municipal Income 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 Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of Shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
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 waive a portion of its fee at any time. SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan (the "Services Plan") with respect to the shares. Under the Services Plan, financial institutions will enter into shareholder service agreements with the Fund to provide administrative support services to their customers who from time to time may be owners of record or beneficial owners of the shares. In return for providing these support services, a financial institution may receive payments from the Fund at a rate not exceeding 0.15% of the average daily net assets of the shares beneficially owned by the financial institution's customers for whom it is holder of record or with whom it has a servicing relationship. These administrative services may include, but are not limited to, the provision of personal services and maintenance of shareholder accounts. The Fund will not accrue or pay shareholder services fees until a separate class of shares has been added for certain institutional investors. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. 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. EXPENSES OF THE FUND The Fund pays all of its own expenses and its allocable share of Trust expenses. The expenses borne by the Fund include, but are not limited to, the cost of: organizing the Trust and continuing its existence; Trustee fees; investment advisory and administrative services; printing prospectuses and other Fund documents for shareholders; registering the Trust, the Fund, and shares of the Fund with federal and state securities authorities; taxes and commissions; issuing, purchasing, repurchasing, and redeeming shares; fees for custodians, transfer agents, dividend disbursing agents, shareholder servicing agents, and registrars; printing, mailing, auditing, accounting, and legal expenses; reports to shareholders and governmental agencies; meetings of Trustees and shareholders and proxy solicitations therefor; insurance premiums; association membership dues; and such non-recurring and extraordinary items as may arise. However, the Adviser may voluntarily waive some expenses and has, in addition, undertaken to reimburse the Fund, up to the amount of the advisory fee, the amount by which operating expenses exceed limitations imposed by certain states. 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 ASSET VALUE - -------------------------------------------------------------------------- ----------------- 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. However, the distributor will, periodically, uniformly offer to pay additional amounts in the form of cash or promotional incentives consisting of trips to sales seminars at luxury resorts, tickets or other such items, to all dealers selling shares of the Fund. Such payments, all or a portion of which may be paid from the sales charge it normally retains or any other source available to it, will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or authorized dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through: - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchase still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 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 unless such securities are to be acquired in a bona fide reorganization, statutory merger, or similar transaction. Such securities must meet the investment objective and policies of the Fund, must be liquid and must not be subject to restrictions on resale. 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 by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. 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. ADDRESSES - -------------------------------------------------------------------------------- DG Opportunity Fund Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 23100 Jackson, Mississippi 39225-3100 - ------------------------------------------------------------------------------------------------ Sub-Adviser Commercial National Bank P.O. Box 21119 Shreveport, Louisiana 71152 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and P.O. Box 1713 Trust Company Boston, Massachusetts 02105 - ------------------------------------------------------------------------------------------------ Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent Federated Investors Tower Federated Services Company Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ 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 OPPORTUNITY FUND PROSPECTUS A Diversified Portfolio of DG Investor Series, An Open-End, Management Investment Company DEPOSIT GUARANTY NATIONAL BANK Jackson, Mississippi COMMERCIAL NATIONAL BANK Shreveport, Louisiana July , 1994 FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor A subsidiary of FEDERATED INVESTORS FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 G00499-01 (7/94) INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS STATEMENT OF ADDITIONAL INFORMATION SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED JULY 20, 1994 DG OPPORTUNITY FUND (A PORTFOLIO OF DG INVESTOR SERIES) STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information should be read with the prospectus for DG Opportunity Fund (the "Fund") dated July , 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 July , 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 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 4 When-Issued and Delayed Delivery Transactions 4 Lending of Portfolio Securities 4 Investment Limitations 4 DG INVESTOR SERIES MANAGEMENT 6 - ---------------------------------------------------------------- Officers and Trustees 6 The Funds 9 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 10 - ---------------------------------------------------------------- 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 OBJECTIVE AND POLICIES - -------------------------------------------------------------------------------- The Fund's investment objective is to provide capital appreciation. The investment objective cannot be changed without approval of shareholders. Unless otherwise indicated, the investment policies described below may be changed by the Board of Trustees (the "Trustees") without shareholder approval. Shareholders will be notified before any material change in these policies becomes effective. TYPES OF INVESTMENTS Acceptable investments include, among other investments, common stocks, preferred stocks, convertible securities, zero coupon convertible securities, money market instruments, corporate bonds, notes, and put options on stocks. CONVERTIBLE SECURITIES Convertible securities are fixed income securities which may be exchanged or converted into a predetermined number of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants, or a combination of the features of several of these securities. The investment characteristics of each convertible security vary widely, which allows convertible securities to be employed for different investment objectives. The Fund will exchange or convert the convertible securities held in its portfolio into shares of the underlying common stock in instances in which, in the investment adviser's opinion, the investment characteristics of the underlying common shares will assist the Fund in achieving its investment objective. Otherwise, the Fund may hold or trade convertible securities. In selecting convertible securities for the Fund, the Fund's adviser evaluates the investment characteristics of the convertible security as a fixed income instrument and the investment potential of the underlying equity security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the Fund's adviser considers numerous factors, including the economic and political outlook, the value of the security relative to other investment alternatives, trends in the determinants of the issuer's profits, and the issuer's management capability and practices. 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. 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. LENDING CASH OR SECURITIES The Fund will not lend any of its assets except portfolio securities and 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. 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. 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 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, or if it would own more than 10% of the outstanding voting securities of that 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 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. INVESTING TO EXERCISE CONTROL The Fund will not purchase securities for the purpose of exercising control over the issuer of securities. 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., and Federated Administrative Services and the Funds (as defined below).
POSITION WITH PRINCIPAL OCCUPATION NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - --------------------------------------------------------------------------------------------------------------- John F. Donahue+* Chairman and Chairman and Trustee, Federated Investors; Federated Investors Trustee Chairman and Trustee, Federated Advisers, Tower Federated Management, and Federated Research; Pittsburgh, PA Director, AEtna Life and Casualty 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. - ---------------------------------------------------------------------------------------------------------------
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POSITION WITH PRINCIPAL OCCUPATION NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - --------------------------------------------------------------------------------------------------------------- John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Wood/IPC Commercial Senior Vice President, John R. Wood and Department Associates, Inc., Realtors; President, John R. Wood and Northgate Village Development Corporation; Associates, Inc., General Partner or Trustee in private real Realtors estate ventures in Southwest Florida; Director, 3255 Tamiami Trail North Trustee, or Managing General Partner of the Naples, FL Funds; formerly, President Naples Property Management Inc. - --------------------------------------------------------------------------------------------------------------- William J. Copeland Trustee Director and Member of the Executive Committee, One PNC Plaza Michael Baker, Inc.; Director, Trustee, or 23rd Floor Managing General Partner of the Funds; Pittsburgh, PA formerly, Vice 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 571 Hayward Mill Road Fund, Inc.; Director, Trustee, or Managing Concord, MA General Partner of the Funds; formerly, Director, Blue Cross of Massachusetts, Inc. - --------------------------------------------------------------------------------------------------------------- Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, 3471 Fifth Avenue Presbyterian and Montefiore Hospitals; Clinical Suite 1111 Professor of Medicine and Trustee, University Pittsburgh, PA of Pittsburgh; Director, Trustee, or Managing General Partner of the Funds. - --------------------------------------------------------------------------------------------------------------- Edward L. Flaherty, Jr.+ Trustee Attorney-at-law; Partner, Meyer and Flaherty; 5916 Penn Mall Director, Eat 'N Park Restaurants, Inc., and Pittsburgh, PA Statewide Settlement Agency, Inc.; Director, Trustee, or Managing General Partner of the Funds; formerly, Counsel, Horizon Financial, F.A., Western Region. - --------------------------------------------------------------------------------------------------------------- Peter E. Madden Trustee Consultant; State Representative, Commonwealth 225 Franklin Street of Massachusetts; Director, Trustee, or Boston, MA Managing General 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; 5916 Penn Mall Chairman, Meritcare, Inc.; Director, Eat 'N Pittsburgh, PA Park Restaurants, Inc.; 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 1202 Cathedral of Consultant; Trustee, Carnegie Endowment for Learning International Peace, RAND Corporation, Online University of Pittsburgh Computer Library Center, Inc., and U.S. Space Pittsburgh, PA Foundation; Chairman, Czecho Slovak Management Center; Director, Trustee, or Managing General Partner of the Funds; President Emeritus, University of Pittsburgh; formerly Chairman, National Advisory Council for Environmental Policy and Technology. - ---------------------------------------------------------------------------------------------------------------
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POSITION WITH PRINCIPAL OCCUPATION NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS - --------------------------------------------------------------------------------------------------------------- Marjorie P. Smuts Trustee Public relations/marketing consultant; 4905 Bayard Street Director, Trustee, or Managing General Partner Pittsburgh, PA of the Funds. - --------------------------------------------------------------------------------------------------------------- Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors Treasurer, Federated Investors; Vice President and Tower and Trustee Treasurer, Federated Advisers, Federated Pittsburgh, PA Management, and Federated Research; Executive Vice President, Treasurer, and Director, Federated Securities Corp.; Chairman, Treasurer, and Trustee, Federated Administrative Services; Trustee or Director of some of the Funds; Vice President and Treasurer of the Funds. - --------------------------------------------------------------------------------------------------------------- J. Christopher Donahue Vice President President and Trustee, Federated Investors; Federated Investors Trustee, Federated Advisers, Federated Tower Management, and Federated Research; 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 Federated Investors Investors; Chairman and Director, Federated Tower Securities Corp.; President or Vice President Pittsburgh, PA of the Funds; Director or Trustee of some of the Funds. - --------------------------------------------------------------------------------------------------------------- John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Federated Investors and Secretary Trustee, Federated Investors; Vice President, Tower Secretary, and Trustee, Federated Advisers, Pittsburgh, PA Federated Management, and Federated Research; Executive Vice President, Secretary, and Trustee, Federated Administrative Services; Director and Executive Vice President, Federated Securities Corp.; Vice President and Secretary of the Funds. - --------------------------------------------------------------------------------------------------------------- Charles L. Davis, Jr. Vice President Vice President, Federated Administrative Federated Investors and Assistant Services; Vice President and Assistant Tower Treasurer Treasurer of some of the Funds; formerly, Vice Pittsburgh, PA President and Directors of Investor Relations, MNC Financial, Inc., and Vice President, Product Management, MNC Financial, Inc. - --------------------------------------------------------------------------------------------------------------- John A. Staley, IV Vice President Vice President and Trustee, Federated Federated Investors Investors; Executive Vice President, Federated Tower Securities Corp.; President and Trustee, Pittsburgh, PA Federated Advisers, Federated Management, and 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; 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 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 relationship with an issuer. ADVISORY FEES For its advisory services, the Adviser receives an annual investment advisory fee as described in the prospectus. 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. 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. 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. 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 and others for such services. - -------------------------------------------------------------------------------- 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. 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. Net asset value will not be calculated on Good Friday and on certain federal holidays as set forth 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 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. Cumulative total return reflects the Fund's total performance over a specific period of time. This total return assumes and is reduced by the payment of the maximum sales load. YIELD - -------------------------------------------------------------------------------- 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. - - MORNINGSTAR, INC., an independent rating service, is the publisher of the bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000 NASDAQ-listed mutual funds of all types, according to their risk-adjusted returns. The maximum rating is five stars, and ratings are effective for two weeks. - - NASDAQ OVER-THE-COUNTER COMPOSITE INDEX covers 4,500 stocks traded over the counter. It represents many small company stocks but is heavily influenced by about 100 of the largest NASDAQ stocks. It is a value-weighted index calculated on price change only and does not include income. 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 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. 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. AA--Bonds considered to be investment grade and of very high credit quality. The obligor's ability to pay interest and repay principal is very strong, although not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA categories are not significantly vulnerable to foreseeable future developments, short-term debt of these issuers is generally rated F-1+. A--Bonds considered to be investment grade and of high credit quality. The obligor's ability to pay interest and repay principal is considered to be strong, but may be more vulnerable to adverse changes in economic conditions and circumstances than bonds with higher ratings. BBB--Bonds considered to be investment grade and of satisfactory credit quality. The obligor's ability to pay interest and repay principal is considered to be adequate. Adverse changes in economic conditions and circumstances, however, are more likely to have adverse impact on these bonds, and therefore impair timely payment. The likelihood that the ratings of these bonds will fall below investment grade is higher than for bonds with higher ratings. NR--NR indicates that Fitch does not rate the specific issue. - -------------------------------------------------------------------------------- PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to indicate the relative position of a credit within the rating category. Plus and minus signs, however, are not used in the AAA category. STANDARD AND POOR'S CORPORATION COMMERCIAL PAPER RATINGS A-1--This designation indicates that the degree of safety regarding timely payment is either overwhelming or very strong. Those issues determined to possess overwhelming safety characteristics are denoted with a plus (+) sign designation. A-2--Capacity for timely payment on issues with this designation is strong. However, the relative degree of safety is not as high as for issues designated A-1. MOODY'S INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS PRIME-1--Issues 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 structures with moderate reliance on debt and ample asset protection; broad margins in earning coverage of fixed financial charges and high internal cash generation; and well-established access to a range of financial markets and assured sources of alternative liquidity. PRIME-2--Issues rated PRIME-2 (or related supporting institutions) have a strong capacity for repayment of short-term promissory obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, will be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. FITCH INVESTORS SERVICE, INC. COMMERCIAL PAPER RATINGS F-1+--(Exceptionally strong Credit Quality) Issues assigned this rating 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+. G00499-02 (7/94) -----END PRIVACY-ENHANCED MESSAGE-----