-----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, Q4IYsYAHuKWkx9r1U7LTf57HUXAOP10hFHg+/k08oJ8TptyCfFyMUI9shXfyvbvn mZLeVLbVNZdBtH+l8y5AFQ== 0000883843-95-000009.txt : 19950502 0000883843-95-000009.hdr.sgml : 19950502 ACCESSION NUMBER: 0000883843-95-000009 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950501 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: DG INVESTOR SERIES CENTRAL INDEX KEY: 0000883843 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 251676752 STATE OF INCORPORATION: MA FISCAL YEAR END: 0228 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-06607 FILM NUMBER: 95533219 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 N-30D 1 DG U.S. GOVERNMENT MONEY MARKET FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG U.S. Government Money Market Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund), investing in short-term U.S. government securities to achieve current income consistent with stability of principal and liquidity. AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S. GOVERNMENT. THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing to the Fund or calling 1-800-530-7377. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Repurchase Agreements 4 Lending of Portfolio Securities 4 When-Issued and Delayed Delivery Transactions 4 Investment Limitations 4 Regulatory Compliance 5 DG INVESTOR SERIES INFORMATION 5 - ------------------------------------------------------ Management of the Trust 5 Board of Trustees 5 Investment Adviser 5 Advisory Fees 5 Adviser's Background 6 Distribution of Fund Shares 6 Distribution Plan 6 Shareholder Servicing Arrangements 7 ADMINISTRATION OF THE FUND 7 - ------------------------------------------------------ Administrative Services 7 Custodian 7 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 7 Independent Auditors 7 NET ASSET VALUE 8 - ------------------------------------------------------ INVESTING IN THE FUND 8 - ------------------------------------------------------ Share Purchases 8 Through the Banks 8 Minimum Investment Required 8 What Shares Cost 8 Systematic Investment Program 9 Certificates and Confirmations 9 Dividends 9 Capital Gains 9 EXCHANGE PRIVILEGE 9 - ------------------------------------------------------ DG Investor Series 9 Exchanging Shares 9 REDEEMING SHARES 10 - ------------------------------------------------------ Through the Banks 10 By Telephone 10 Checkwriting 10 Systematic Withdrawal Program 11 Accounts With Low Balances 11 SHAREHOLDER INFORMATION 11 - ------------------------------------------------------ Voting Rights 11 Massachusetts Partnership Law 12 EFFECT OF BANKING LAWS 12 - ------------------------------------------------------ TAX INFORMATION 13 - ------------------------------------------------------ Federal Income Tax 13 PERFORMANCE INFORMATION 13 - ------------------------------------------------------ FINANCIAL STATEMENTS 14 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 22 - ------------------------------------------------------ ADDRESSES 23 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......... None Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................. None Redemption Fee (as a percentage of amount redeemed, if applicable).................. None Exchange Fee........................................................................ None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1).................................................... 0.30% 12b-1 Fees(2)....................................................................... 0.00% Total Other Expenses................................................................ 0.23% Total Fund Operating Expenses(3)............................................... 0.53%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.50%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.25% as a 12b-1 fee to the distributor. (3) The Total Fund Operating Expenses would have been 0.73% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE " DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - -------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return and (2) redemption at the end of each time period....... $5 $17 $30 $ 66
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. DG U.S. GOVERNMENT MONEY MARKET FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors, on page 22.
YEAR ENDED FEBRUARY 28, --------------------------- 1995 1994 1993(A) ----- ----- ------- NET ASSET VALUE, BEGINNING OF PERIOD $1.00 $1.00 $1.00 - -------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------- Net investment income 0.04 0.03 0.02 - -------------------------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------------------------- Distributions from net investment income (0.04) (0.03) (0.02) - -------------------------------------------------------------- ----- ----- ------- NET ASSET VALUE, END OF PERIOD $1.00 $1.00 $1.00 - -------------------------------------------------------------- ----- ----- ------- TOTAL RETURN(B) 4.06% 2.74% 1.97% - -------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------- Expenses 0.53% 0.54% 0.41%(c) - -------------------------------------------------------------- Net investment income 3.96% 2.70% 2.88%(c) - -------------------------------------------------------------- Expense waiver/reimbursement(d) 0.20% 0.20% 0.38%(c) - -------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------- Net assets, end of period (000 omitted) $162,515 $189,315 $189,024 - --------------------------------------------------------------
(a) Reflects operations for the period from July 1, 1992 (date of initial public investment) to February, 28, 1993. For the period from March 31, 1992 (start of business) to June 30, 1992, all income was distributed to the administrator. (b) Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if applicable. (c) Computed on an annualized basis. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank or Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio limited to short-term U.S. government securities. A minimum initial investment of $1,000 is required. The Fund attempts to stabilize the value of a share at $1.00. Fund shares are currently sold and redeemed at that price. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income consistent with stability of principal and liquidity. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in a portfolio of short-term U.S. government securities. The average maturity of U.S. government securities in the Fund's portfolio, computed on a dollar-weighted basis, will be 90 days or less, and the Fund will invest only in securities with remaining maturities of 13 months or less at the time of purchase by the Fund. Unless indicated otherwise, the investment policies of the Fund may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund invests are either issued or guaranteed by the U.S. government, its agencies, or instrumentalities. These securities include, but are not limited to: - direct obligations of the U.S. Treasury, such as U.S. Treasury bills, notes, and bonds; and - notes, bonds, and discount notes of U.S. government agencies or instrumentalities, such as the Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Federal Home Loan Banks; Government National Mortgage Association; Federal Home Loan Mortgage Corporation; and Student Loan Marketing Association. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government, such as Government National Mortgage Association participation certificates, are backed by the full faith and credit of the U.S. Treasury. No assurances can be given that the U.S. government will provide financial support to other agencies or instrumentalities, since it is not obligated to do so. These instrumentalities are supported by: - the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury; - the discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or - the credit of the agency or instrumentality. REPURCHASE AGREEMENTS. The U.S. government securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. The above limitation cannot be changed without shareholder approval. The following limitation, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not: - invest more than 10% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice and certain restricted securities determined by the Trustees not to be liquid. REGULATORY COMPLIANCE The Fund may follow non-fundamental operational policies that are more restrictive than its fundamental investment limitations, as set forth in this prospectus and its Statement of Additional Information, in order to comply with applicable laws and regulations, including the provisions of and regulations under the Investment Company Act of 1940, as amended. The Fund will invest more than 5% of its assets in any one issuer only under the circumstances permitted by Rule 2a-7. The Fund may change these operational policies to reflect changes in the laws and regulations without the approval of its shareholders. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1994, the Trust Division of Deposit Guaranty National Bank had approximately $9.1 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's Adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank may make loans to public companies. Thus, it may be possible from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank. The lending relationship will not be a factor in the selection of securities. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .25 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- --------------------------------- .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million .075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick LLP, Pittsburgh, Pennsylvania. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund attempts to stabilize the net asset value of shares at $1.00 by valuing the portfolio securities using the amortized cost method. The net asset value per share is determined by subtracting total liabilities from total assets and dividing the remainder by the number of shares outstanding. The Fund, of course, cannot guarantee that its net asset value will always remain at $1.00 per share. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank, a subsidiary of DGC, and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800)748-8500 or Commercial National Bank at (800) 274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 11:00 a.m. (Eastern time). Payment is required before 3:00 p.m. (Eastern time) on the same business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Shares are sold at their net asset value next determined after an order is received. There is no sales charge imposed by the Fund. The net asset value is determined at 12:00 noon (Eastern time), 3:00 p.m. (Eastern time), and 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) on the following federal holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Monthly confirmations are sent to report transactions such as purchases and redemptions as well as dividends paid during the month. DIVIDENDS Dividends are declared daily and paid monthly. Dividends will be reinvested on payment dates in additional shares of the Fund unless cash payments are requested by writing to the Fund or the Banks as appropriate. Purchase orders must be received by the Banks before 11:00 a.m. (Eastern time). Payment is required before 3:00 p.m. (Eastern time) on the same business day in order to earn dividends for that day. CAPITAL GAINS Capital gains, if any, could result in an increase in dividends. Capital losses, if any, could result in a decrease in dividends. If for some extraordinary reason the Fund realizes net long-term or short-term capital gains, it will distribute them at least once every 12 months. 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. Prior to any exchange, the shareholder must receive a copy of the current prospectus of the fund into which an exchange is to be effected. Shares may be exchanged at net asset value, plus the difference between the Funds' sales charge (if any) already paid and any sales charge of the fund into which shares are to be exchanged, if higher. When an exchange is made from a fund with a sales charge to a fund with no sales charge, the shares exchanged and additional shares which have been purchased by reinvesting dividends on such shares retain the character of the exchanged shares for purposes of exercising further exchange privileges; thus an exchange of such shares for shares of a fund with a sales charge would be at net asset value. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instructions may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. Telephone exchange instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made in person or by telephone. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500. For orders received before 11:00 a.m. (Eastern time), proceeds will normally be wired the same day to the shareholder's account at the Banks or a check will be sent to the address of record. Those shares will not be entitled to the dividend declared on the day the redemption request was received. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. CHECKWRITING. At the shareholder's request, State Street Bank will establish a checking account for redeeming Fund shares. A fee may be charged for this service. With a Fund checking account, shares may be redeemed simply by writing a check. With a Fund checking account, shares may be redeemed simply by writing a check for $100 or more. The redemption will be made at the net asset value on the date that State Street Bank presents the check to the Fund. A check may not be written to close an account. If a shareholder wishes to redeem shares and have the proceeds available, a check may be written and negotiated through the shareholder's bank. Checks should never be sent to State Street Bank to redeem shares. For further information, contact the Fund. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments, and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. As of April 17, 1995 Deposit Guaranty National Bank, Jackson, Mississippi, acting in various capacities for numerous accounts, was the owner of record of approximately 110,548,007 shares (66.8%), and Commercial National Bank, Shreveport, Louisiana, acting in various capacities for numerous accounts, was the owner of record of approximately 48,729,409 shares (29.5%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's investment adviser, Deposit Guaranty National Bank, is subject to such banking laws and regulations. Deposit Guaranty National Bank believes, based on the advice of its counsel, that it may perform the investment advisory services for the Fund contemplated by its advisory agreement with the Trust without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent Deposit Guaranty National Bank from continuing to perform all or a part of the above services for its customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by Deposit Guaranty National Bank, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser with equivalent abilities to Deposit Guaranty National Bank is found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios, if any, will not be combined for tax purposes with those realized by the Fund. Unless otherwise exempt, shareholders are required to pay federal income tax on any dividends and other distributions received. This applies whether dividends are received in cash or as additional shares. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their account under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its yield and effective yield. The yield of the Fund represents the annualized rate of income earned on an investment in the Fund over a seven-day period. It is the annualized dividends earned during the period on the investment, shown as a percentage of the investment. The effective yield is calculated similarly to the yield, but, when annualized, the income earned by an investment in the Fund is assumed to be reinvested daily. The effective yield will be slightly higher than the yield because of the compounding effect of this assumed reinvestment. Advertisements and other sales literature may also refer to total return. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. DG U.S. GOVERNMENT MONEY MARKET FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1995 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--49.1% - ------------------------------------------------------------------------------------ U.S. TREASURY BILLS--38.0% ---------------------------------------------------------------- $ 4,000,000 3/16/1995 $ 3,991,333 ---------------------------------------------------------------- 4,000,000 3/30/1995 3,982,906 ---------------------------------------------------------------- 4,000,000 4/06/1995 3,977,710 ---------------------------------------------------------------- 4,000,000 4/27/1995 3,963,963 ---------------------------------------------------------------- 4,000,000 5/04/1995 3,958,436 ---------------------------------------------------------------- 3,000,000 5/18/1995 2,962,170 ---------------------------------------------------------------- 4,000,000 5/25/1995 3,944,939 ---------------------------------------------------------------- 4,000,000 6/08/1995 3,936,750 ---------------------------------------------------------------- 4,000,000 7/06/1995 3,911,312 ---------------------------------------------------------------- 4,000,000 7/13/1995 3,908,136 ---------------------------------------------------------------- 4,000,000 7/20/1995 3,903,493 ---------------------------------------------------------------- 4,000,000 8/10/1995 3,891,010 ---------------------------------------------------------------- 4,000,000 8/17/1995 3,889,681 ---------------------------------------------------------------- 4,000,000 8/24/1995 3,880,809 ---------------------------------------------------------------- 4,000,000 10/19/1995 3,840,693 ---------------------------------------------------------------- 4,000,000 11/16/1995 3,819,444 ---------------------------------------------------------------- ------------ Total 61,762,785 ---------------------------------------------------------------- ------------ U.S. TREASURY NOTES--11.1% ---------------------------------------------------------------- 4,000,000 3.875%, 4/30/1995 3,984,318 ---------------------------------------------------------------- 3,000,000 8.50%, 5/15/1995 3,016,345 ----------------------------------------------------------------
DG U.S. GOVERNMENT MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--CONTINUED - ------------------------------------------------------------------------------------ U.S. TREASURY NOTES--CONTINUED ---------------------------------------------------------------- $ 4,000,000 4.125%, 5/31/1995 $ 3,981,145 ---------------------------------------------------------------- 3,000,000 4.625%, 2/15/1996 2,940,498 ---------------------------------------------------------------- 4,000,000 7.875%, 2/15/1996 4,037,057 ---------------------------------------------------------------- ------------ Total 17,959,363 ---------------------------------------------------------------- ------------ TOTAL U.S. TREASURY OBLIGATIONS 79,722,148 ---------------------------------------------------------------- ------------ *REPURCHASE AGREEMENTS--51.2% - ------------------------------------------------------------------------------------ 6,000,000 Cantor, Fitzgerald Securities Corp., 6.05%, dated 2/28/1995, due 3/01/1995 6,000,000 ---------------------------------------------------------------- 6,500,000 Daiwa Securities America, Inc., 6.05%, dated 2/28/1995, due 3/01/1995 6,500,000 ---------------------------------------------------------------- 6,684,506 Eastbridge Capital, Inc., 6.05%, dated 2/28/1995, due 3/01/1995 6,684,506 ---------------------------------------------------------------- 24,000,000 ** First Union Corp., 5.92%, dated 2/21/1995, due 3/6/1995 24,000,000 ---------------------------------------------------------------- 40,000,000 ** Smith Barney, Inc., 5.93%, dated 2/27/1995, due 3/13/1995 40,000,000 ---------------------------------------------------------------- ------------ TOTAL REPURCHASE AGREEMENTS 83,184,506 ---------------------------------------------------------------- ------------ TOTAL INVESTMENTS, AT AMORTIZED COST $162,906,654+ ---------------------------------------------------------------- ------------
* The repurchase agreements are fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. ** Although final maturity falls beyond seven days, a liquidity feature is included in each transaction to permit termination of the repurchase agreement. + Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($162,514,706) at February 28, 1995. (See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Investments in repurchase agreements $83,184,506 - ------------------------------------------------------------------ Investments in securities 79,722,148 - ------------------------------------------------------------------ ----------- Total investments in securities, at amortized cost and value $162,906,654 - -------------------------------------------------------------------------------- Income receivable 233,252 - -------------------------------------------------------------------------------- Receivable for shares sold 365 - -------------------------------------------------------------------------------- Deferred expenses 33,063 - -------------------------------------------------------------------------------- ------------ Total assets 163,173,334 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Income distribution payable 619,456 - ------------------------------------------------------------------ Payable for shares redeemed 99 - ------------------------------------------------------------------ Accrued expenses 39,073 - ------------------------------------------------------------------ ----------- Total liabilities 658,628 - -------------------------------------------------------------------------------- ------------ Net Assets for 162,514,706 shares outstanding $162,514,706 - -------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share: Net Asset Value Per Share ($162,514,706 / 162,514,706 shares outstanding) $1.00 - -------------------------------------------------------------------------------- ------------
(See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ---------------------------------------------------------------------------------- Interest $7,526,835 - ---------------------------------------------------------------------------------- EXPENSES: - ---------------------------------------------------------------------------------- Investment advisory fee $ 837,617 - --------------------------------------------------------------------- Administrative personnel and services fee 210,182 - --------------------------------------------------------------------- Custodian fees 20,026 - --------------------------------------------------------------------- Transfer agent and dividend disbursing agent fees and expenses 31,825 - --------------------------------------------------------------------- Directors'/Trustees' fees 3,510 - --------------------------------------------------------------------- Auditing fees 12,002 - --------------------------------------------------------------------- Legal fees 4,625 - --------------------------------------------------------------------- Portfolio accounting fees 43,263 - --------------------------------------------------------------------- Share registration costs 38,518 - --------------------------------------------------------------------- Printing and postage 8,101 - --------------------------------------------------------------------- Insurance premiums 7,346 - --------------------------------------------------------------------- Miscellaneous 8,485 - --------------------------------------------------------------------- ---------- Total expenses 1,225,500 - --------------------------------------------------------------------- Deduct--Waiver of investment advisory fee 335,047 - --------------------------------------------------------------------- ---------- Net expenses 890,453 - ---------------------------------------------------------------------------------- ---------- Net investment income $6,636,382 - ---------------------------------------------------------------------------------- ----------
(See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED ------------------------------- FEBRUARY 28, FEBRUARY 28, 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------------- Net investment income $ 6,636,382 $ 4,342,390 - ------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------------- Distributions from net investment income (6,636,382) (4,342,390) - ------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - ------------------------------------------------------------- Proceeds from sale of shares 394,768,127 317,109,684 - ------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 51,622 4,328 - ------------------------------------------------------------- Cost of shares redeemed (421,619,818) (316,822,908) - ------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions (26,800,069) 291,104 - ------------------------------------------------------------- ------------- ------------- Change in net assets (26,800,069) 291,104 - ------------------------------------------------------------- NET ASSETS: - ------------------------------------------------------------- Beginning of period 189,314,775 189,023,671 - ------------------------------------------------------------- ------------- ------------- End of period $ 162,514,706 $ 189,314,775 - ------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of six diversified portfolios. The financial statements included herein present only those of DG U.S. Government Money Market Fund (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--The Fund's use of the amortized cost method to value its portfolio securities is in accordance with Rule 2a-7 under the Act. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement transaction. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. DG U.S GOVERNMENT MONEY MARKET FUND - -------------------------------------------------------------------------------- WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method not to exceed a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). At February 28, 1995, capital paid-in aggregated $162,514,706. Transactions in shares were as follows:
YEAR ENDED -------------------------------------- FEBRUARY 28, 1995 FEBRUARY 28, 1994 - ------------------------------------------------------ ----------------- ----------------- Shares sold 394,768,127 317,109,684 - ------------------------------------------------------ Shares issued to shareholders in payment of distributions declared 51,622 4,328 - ------------------------------------------------------ Shares redeemed (421,619,818) (316,822,908) - ------------------------------------------------------ --------------- --------------- Net change resulting from share transactions (26,800,069) 291,104 - ------------------------------------------------------ --------------- ---------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Trust's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust with certain administrative personnel and services. The FAS fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. TRANSFER AGENT FEES AND PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. DG U.S GOVERNMENT MONEY MARKET FUND - -------------------------------------------------------------------------------- FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $40,903 were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following May 5, 1992 (the date the Fund became effective). For the year ended February 28, 1995, the Fund paid $4,992 pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies. INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholder DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments, of the DG U.S. Government Money Market Fund (a portfolio within DG Investor Series) as of February 28, 1995, and the related statement of operations for the year then ended, the statements of changes in net assets for the years ended February 28, 1995 and 1994, and the financial highlights, which is presented on page 2 of this prospectus, for the years or periods from March 31, 1992 (commencement of operations) to February 28, 1995. These financial statements and the financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the financial highlights. Investment securities held in custody are confirmed to us by the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and the financial highlights referred to above present fairly, in all material respects, the financial position of the DG U.S. Government Money Market Fund at February 28, 1995, and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the periods listed above in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 7, 1995 ADDRESSES - -------------------------------------------------------------------------------- DG U.S. Government Money Federated Investors Tower Market Fund Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 23100 Jackson, Mississippi 39225-3100 - ------------------------------------------------------------------------------------------------ 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 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick LLP One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG U.S. GOVERNMENT MONEY MARKET FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Investment Adviser APRIL 30, 1995 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2040203A (4/95) The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. DG LIMITED TERM GOVERNMENT INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Limited Term Government Income Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The investment objective of the Fund is current income. The Fund pursues its investment objective by investing primarily in government securities to achieve current income. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing to the Fund or calling 1-800-530-7377. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 4 Average Portfolio Duration 4 Corporate Bonds 4 Mortgage-Backed Securities 4 Collateralized Mortgage Obligations 5 Asset-Backed Securities 5 Bank Instruments 5 Put and Call Options 5 Risks 6 Temporary Investments 6 Repurchase Agreements 6 Lending of Portfolio Securities 7 When-Issued and Delayed Delivery Transactions 7 Investment Limitations 7 DG INVESTOR SERIES INFORMATION 8 - ------------------------------------------------------ Management of the Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 8 Sub-Adviser 9 Sub-Advisory Fees 9 Sub-Adviser's Background 9 Distribution of Fund Shares 9 Distribution Plan 9 Shareholder Servicing Arrangements 10 ADMINISTRATION OF THE FUND 10 - ------------------------------------------------------ Administrative Services 10 Custodian 11 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 11 Independent Auditors 11 Brokerage Transactions 11 NET ASSET VALUE 11 - ------------------------------------------------------ INVESTING IN THE FUND 11 - ------------------------------------------------------ Share Purchases 11 Through the Banks 11 Minimum Investment Required 12 What Shares Cost 12 Purchases at Net Asset Value 12 Sales Charge Reallowance 12 Reducing the Sales Charge 13 Quantity Discounts and Accumulated Purchases 13 Letter of Intent 13 Reinvestment Privilege 13 Purchases with Proceeds from Redemptions of Unaffiliated Investment Companies 14 Concurrent Purchases 14 Systematic Investment Program 14 Certificates and Confirmations 14 Dividends and Distributions 14 EXCHANGE PRIVILEGE 14 - ------------------------------------------------------ DG Investor Series 14 Exchanging Shares 15 REDEEMING SHARES 15 - ------------------------------------------------------ Through the Banks 15 By Telephone 15 By Mail 16 Signatures 16 Systematic Withdrawal Plan 16 Accounts With Low Balances 17 SHAREHOLDER INFORMATION 17 - ------------------------------------------------------ Voting Rights 17 Massachusetts Partnership Law 17 EFFECT OF BANKING LAWS 18 - ------------------------------------------------------ TAX INFORMATION 18 - ------------------------------------------------------ Federal Income Tax 18 PERFORMANCE INFORMATION 19 - ------------------------------------------------------ FINANCIAL STATEMENTS 20 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 29 - ------------------------------------------------------ ADDRESSES 30 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price).............. 2.00% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price).................................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable).................................................... None Redemption Fee (as a percentage of amount redeemed, if applicable)....................... None Exchange Fee............................................................................. None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)......................................................... 0.40% 12b-1 Fees(2)............................................................................ 0.00% Total Other Expenses..................................................................... 0.29% Total Fund Operating Expenses(3)..................................................... 0.69%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.60%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee to the distributor. (3) The Total Fund Operating Expenses were 0.63% for the fiscal year ended February 28, 1995. The Total Fund Operating Expenses in the above table reflect a reduction in the voluntary waiver of the investment advisory fee for the fiscal year ending February 29, 1996. The Total Fund Operating Expenses for the fiscal year ending February 29, 1996, are anticipated to be 0.89% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ------------------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return, (2) redemption at the end of each time period, and (3) payment of the maximum sales load....................................................... $ 27 $42 $58 $104
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 29, 1996. DG LIMITED TERM GOVERNMENT INCOME FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors, on page 29.
YEAR ENDED FEBRUARY 28, ------------------------------- 1995 1994 1993(A) ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.87 $10.07 $10.00 - -------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------------- Net investment income 0.49 0.52 0.36 - -------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.23) (0.17) 0.07 - -------------------------------------------------------------------- ------ ------ ----- Total from investment operations 0.26 0.35 0.43 - -------------------------------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------------------------------- Distributions from net investment income (0.48) (0.52) (0.36) - -------------------------------------------------------------------- Distributions from net realized gain on investment transactions -- (0.03) -- - -------------------------------------------------------------------- ------ ------ ------ Total distributions (0.48) (0.55) (0.36) - -------------------------------------------------------------------- ------ ------ ----- NET ASSET VALUE, END OF PERIOD $ 9.65 $ 9.87 $10.07 - -------------------------------------------------------------------- ------ ------ ----- TOTAL RETURN(B) 2.72% 3.52% 4.43% - -------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------- Expenses 0.63% 0.59% 0.50%(c) - -------------------------------------------------------------------- Net investment income 5.00% 5.21% 6.25%(c) - -------------------------------------------------------------------- Expense waiver/reimbursement(d) 0.25% 0.29% 0.42%(c) - -------------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------------- Net assets, end of period (000 omitted) $96,216 $116,660 $99,921 - -------------------------------------------------------------------- Portfolio turnover 14% 76% 18% - --------------------------------------------------------------------
(a) Reflects operations for the period from August 3, 1992 (date of initial public investment) to February 28, 1993. (b) Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if applicable. (c) Computed on an annualized basis. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. Further information about the Fund's performance is contained in the Fund's annual report for the fiscal year ended February 28, 1995, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and its affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of government securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income, the weighted-average duration of which will at all times be limited to between one and six years. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in securities which are guaranteed as to payment of principal and interest by the U.S. government or U.S. government agencies or instrumentalities. The Fund may also invest in corporate bonds, asset-backed securities and bank instruments. Under normal circumstances, the Fund will invest at least 65% of the value of its total assets in U.S. government securities. The net asset value of the Fund is expected to fluctuate with changes in interest rates and bond market conditions, although this fluctuation should be more moderate than that of a fund with a longer average portfolio maturity. The adviser, however, will attempt to minimize principal fluctuation through, among other things, diversification, careful credit analysis and security selection, and adjustments of the Fund's average portfolio maturity. In periods of rising interest rates and falling bond prices, the adviser may shorten the Fund's average duration to minimize the effect of declining bond values on the Fund's net asset value. Conversely, during times of falling interest rates and rising prices a longer average maturity to seven years may be sought. Unless indicated otherwise, the investment policies may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these investment policies becomes effective. ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund will invest include: - direct obligations of the U.S. Treasury such as bills, notes, and bonds; and - notes, bonds, and discount notes issued by the Federal Home Loan Banks; Government National Mortgage Association; Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Tennessee Valley Authority; Export-Import Bank of the United States; Commodity Credit Corporation; Federal Financing Bank; Student Loan Marketing Association; Federal Home Loan Mortgage Corporation; or National Credit Union Administration. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government, such as Government National Mortgage Association participation certificates, are backed by the full faith and credit of the U.S. Treasury. No assurance can be given that the U.S. government will provide financial support to other agencies or instrumentalities, since it is not obligated to do so. These instrumentalities are supported by: - the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury; - discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or - the credit of the agency or instrumentality. AVERAGE PORTFOLIO DURATION. Although the Fund will not maintain a stable net asset value, the adviser will seek to limit, to the extent consistent with the Fund's investment objective of current income, the magnitude of fluctuations in the Fund's net asset value by limiting the dollar-weighted average duration of the Fund's portfolio. Although the Fund's dollar-weighted average duration will not exceed six years, the weighted average maturity of the Fund's portfolio could be longer than six years. Generally, the duration of a security is shorter than the maturity of a security. A typical security makes coupon payments prior to its maturity date and duration takes into account the timing of a security's cash flow. Duration is a commonly used measure of the potential volatility of the price of a debt security, or the aggregate market value of a portfolio of debt securities, prior to maturity. Securities with shorter durations generally have less volatile prices than securities of comparable quality with longer durations. The Fund should be expected to maintain a higher average duration during periods of falling interest rates, and a lower average duration during periods of rising interest rates. The prices of fixed income securities fluctuate inversely to the direction of interest rates. CORPORATE BONDS. The Fund may invest in issues of corporate debt obligations which are rated in one of the three highest categories by a nationally recognized statistical rating organization (rated Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's"); AAA, AA, or A by Standard & Poor's Ratings Group ("Standard & Poor's") or by Fitch Investors Service, Inc. ("Fitch"), or which are of comparable quality in the judgment of the adviser). MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. There are currently three basic types of mortgage-backed securities: (i) those issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"); (ii) those issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; and (iii) those issued by private issuers that represent an interest in or are collateralized by whole loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations ("CMOs") are debt obligations collateralized by mortgage loans or mortgage pass-through securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole loans or private pass-through securities. The Fund will only invest in CMOs which are rated AAA by a nationally recognized rating agency, and which may be: (a) collateralized by pools of mortgages in which each mortgage is guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. government; (b) collateralized by pools of mortgages in which payment of principal and interest is guaranteed by the issuer and such guarantee is collateralized by U.S. government securities; or (c) securities in which the proceeds of the issuance are invested in mortgage securities and payment of the principal and interest are supported by the credit of an agency or instrumentality of the U.S. government. ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics similar to mortgage-backed securities but have underlying assets that are not mortgage loans or interests in mortgage loans. The Fund may invest in asset-backed securities rated A or higher by a nationally recognized rating agency. The collateral for such securities will consist of motor vehicle installment purchase obligations and credit card receivables. These securities may be in the form of pass-through instruments or asset-backed bonds. The securities are issued by non-governmental entities and carry no direct or indirect government guarantee. BANK INSTRUMENTS. The Fund only invests in bank instruments issued by an institution having capital, surplus and undivided profits over $100 million, or insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"). PUT AND CALL OPTIONS. The Fund may purchase put options on financial futures contracts and put options on portfolio securities. Financial futures may include index futures. These options will be used as a hedge to attempt to protect securities which the Fund holds against decreases in value. For the immediate future, the Fund will enter into futures contracts directly only when it desires to exercise a financial futures put option in its portfolio rather than either closing out the option or allowing it to expire. The Fund will only purchase puts on financial futures contracts which are traded on a recognized exchange. The Fund will generally purchase over-the-counter put options on portfolio securities in negotiated transactions with the writers of the options on the portfolio securities held by the Fund which are typically not traded on an exchange. The Fund purchases options only from investment dealers and other financial associations (such as commercial banks or savings and loan institutions) deemed creditworthy by the Fund's adviser. Over-the-counter put options are two party contracts with price and terms negotiated between buyer and seller. In contrast, exchange traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange traded options have a continuous liquid market, while over-the-counter options may not. The Fund may also write call options on all or any portion of its portfolio to generate income for the Fund. The Fund will write call options on securities either held in its portfolio or which it has the right to obtain without payment of further consideration or for which it has segregated cash in the amount of any additional consideration. The call options which the Fund writes and sells must be listed on a recognized options exchange. Although the Fund reserves the right to write covered call options on its entire portfolio, it will not write such options on more than 25% of its total assets unless a higher limit is authorized by its Trustees. The Fund may attempt to hedge the portfolio by entering into financial futures contracts and to write calls on financial futures contracts. The Fund will notify shareholders before it begins engaging in these transactions. RISKS. When the Fund writes a call option, the Fund risks not participating in any rise in the value of the underlying security. In addition, when the Fund purchases puts on financial futures contracts to protect against declines in prices of portfolio securities, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract and its corresponding put to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors such as interest rate movements. In such an event, the Fund may lose the purchase price of the put option. Finally, it is not certain that a secondary market for options will exist at all times. Although the investment adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular option at any particular time. The Fund's ability to establish and close out option positions depends on this secondary market. TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may invest temporarily in cash and cash items during times of unusual market conditions and to maintain liquidity. Cash items may include short-term obligations such as: - obligations of the U.S. government or its agencies or instrumentalities; - repurchase agreements; and - commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2 by Moody's or F-1 or F-2 by Fitch. REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks, broker/ dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an arrangement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may, borrow up to one-third of the value of its total assets and pledge up to 15% of the value of those assets to secure such borrowings. The above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this investment limitation becomes effective. The Fund will not: - invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice, over-the-counter options and certain restricted securities not determined by the Trustees to be liquid. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser, in consultation with the sub-adviser, continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1994, the Trust Division of Deposit Guaranty National Bank had approximately $9.1 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank or Commercial National Bank. The lending relationships will not be a factor in the selection of securities. John Mark McKenzie has been with Deposit Guaranty National Bank for ten years and is a Vice President and Trust Investment Officer. Previously, Mr. McKenzie was associated with a Jackson bank as a trust officer. He received a B.B.A. in Banking and Finance from the University of Mississippi. He is a member of the Mississippi Chapter of the Memphis Society of Financial Analysts, and is a member of the Mississippi State and Hinds County Bar Association. Mr. McKenzie has managed the DG Limited Term Government Income Fund since August 1, 1992 (the inception of the Fund). SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank will form an investment committee (the "DG Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction in the fee due from the Trust to the Adviser on behalf of the Fund. Notwithstanding any other provision in the sub-advisory agreement, the Sub-Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 1994, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, of which it had investment discretion over $856 million. Commercial National Bank has served as sub-adviser to DG Equity Fund, DG Government Income Fund, and the Fund since July 20, 1992, DG Municipal Income Fund since December 12, 1992, and DG Opportunity Fund since May 25, 1994 each a portfolio of the Trust. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund pays the distributor the fee described above as opposed to reimbursing the distributor for actual expenses incurred. Therefore, the Fund does not pay for amounts expended by the distributor in excess of amounts received by it from the Fund, which may include interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- --------------------------------- .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million on assets in excess of $750 .075 of 1% million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick LLP, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank, and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800)748-8500 or Commercial National Bank at (800)274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. on the next business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED - ---------------------------------------------- ---------------------- ------------------- Less than $100,000............................ 2.00% 2.04% $100,000 but less than $250,000............... 1.75% 1.78% $250,000 but less than $500,000............... 1.50% 1.52% $500,000 but less than $750,000............... 1.25% 1.27% $750,000 but less than $1 million............. 1.00% 1.01% $1 million but less than $2 million........... 0.50% 0.50% $2 million or more............................ 0.25% 0.25%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset value, without a sales charge by: the Trust Division of the Banks for funds which are held in a fiduciary, agency, custodial or similar capacity; non-trust customers of financial advisers; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; current and retired directors of the Banks; 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 100% of the applicable sales charge. Any portion of the sales charge which is not paid to the Banks or authorized dealers will be retained by the distributor. The distributor will, periodically, uniformly offer to pay cash or promotional incentives in the form of trips to sales seminars at luxury resorts, tickets or other items to all dealers selling shares of the Fund. Such payments will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or registered broker/dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through; - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchases still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 1.75%, not 2.00%. To receive the sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the purchase is made that Fund shares are already owned or that purchases are being combined. The Fund will reduce the sales charge after it confirms the purchases. LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of shares in the funds in the Trust over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the custodian to hold 2.00% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 2.00% held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. The current balance in the shareholder's account will provide a purchase credit towards fulfillment of the letter of intent. REINVESTMENT PRIVILEGE. If shares in 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. PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES. Investors may purchase Shares at net asset value, without a sales charge, with the proceeds from the redemption of shares of an investment company which was sold with a sales charge or commission and was not distributed by Federated Securities Corp. The purchase must be made within 60 days of the redemption, and Federated Securities Corp. must be notified by the investor in writing, or by his financial institution, at the time the purchase is made. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in this Fund, the sales charge would be reduced. To receive this sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the concurrent purchases are made. The Fund will reduce the sales charge after it confirms the purchases. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Detailed confirmations of each purchase or redemption are sent to each shareholder. Monthly confirmations are sent to report dividends paid during the month. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly. Distribution of any realized long-term capital gains will be made at least once every twelve months. Dividends are automatically reinvested in additional shares of the Fund on payment dates at the ex-dividend date net asset value without a sales charge, unless cash payments are requested by writing to the Fund or the Banks as appropriate. 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. Prior to any exchange, the shareholder must receive a copy of the current prospectus of the fund into which an exchange is to be effected. Shares may be exchanged at net asset value, plus the difference between the Funds' sales charge (if any) already paid and any sales charge of the fund into which shares are to be exchanged, if higher. When an exchange is made from a fund with a sales charge to a fund with 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. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instruction may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by BIF, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by SAIF, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments, and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. As of April 17, 1995, Deposit Guaranty National Bank, Jackson, Mississippi, acting in various capacities for numerous accounts, was the owner of record of approximately 7,583,682 shares (76.1%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's Adviser and Sub-Adviser, Deposit Guaranty National Bank and Commercial National Bank, respectively, are subject to such banking laws and regulations. The Banks believe, based on the advice of counsel, that they may perform the investment advisory services for the Fund contemplated by the advisory agreement with the Trust and the sub-advisory agreement between the Banks without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent the Banks from continuing to perform all or a part of the above services for their customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by the Banks, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser and/or sub-adviser with equivalent abilities to Deposit Guaranty National Bank and Commercial National Bank are found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios, if any, will not be combined for tax purposes with those realized by the Fund. Unless otherwise exempt, shareholders are required to pay federal income tax on any dividends and other distributions received. This applies whether dividends are received in cash or as additional shares. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their account under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return and yield. Total return represents the change over a specified period of time, in the value of an investment in the Fund after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the maximum offering price per share of the Fund on the last day of the period. This number is then annualized using semi-annual compounding. The yield does not necessarily reflect income actually earned by the Fund and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load which, if excluded, would increase the total return and yield. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. DG LIMITED TERM GOVERNMENT INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1995 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ------------------------------------------------------------------ ----------- CORPORATE BONDS--23.4% - -------------------------------------------------------------------------------------- BANKING--2.8% ------------------------------------------------------------------ $ 1,200,000 Bankers Trust New York Corp., 4.70%, 7/1/1996 $ 1,165,104 ------------------------------------------------------------------ 1,500,000 NationsBank Corp., 5.375%, 12/1/1995 1,486,815 ------------------------------------------------------------------ ----------- Total 2,651,919 ------------------------------------------------------------------ ----------- BUSINESS EQUIPMENT & SERVICES--1.0% ------------------------------------------------------------------ 1,000,000 International Business Machines Corp., 6.375%, 11/1/1997 977,500 ------------------------------------------------------------------ ----------- CAPITAL GOODS--1.6% ------------------------------------------------------------------ 1,500,000 General Electric Capital Corp., 5.25%, 11/15/1995 1,486,485 ------------------------------------------------------------------ ----------- CONSUMER NON-DURABLES--3.0% ------------------------------------------------------------------ 1,447,000 Kellogg Co., 5.90%, 7/15/1997 1,406,831 ------------------------------------------------------------------ 723,000 PepsiCo, Inc., 5.625%, 7/1/1995 722,046 ------------------------------------------------------------------ 725,000 Philip Morris Cos., Inc., 7.50%, 3/15/1997 726,921 ------------------------------------------------------------------ ----------- Total 2,855,798 ------------------------------------------------------------------ ----------- FINANCIAL SERVICES--4.5% ------------------------------------------------------------------ 905,000 American General Finance Corp., 7.15%, 5/15/1997 903,461 ------------------------------------------------------------------ 1,500,000 Ford Motor Credit Corp., 5.625%, 3/3/1997 1,455,660 ------------------------------------------------------------------ 306,000 ITT Financial Corp., 7.25%, 5/15/1997 303,962 ------------------------------------------------------------------ 1,000,000 Norwest Financial, Inc., 6.25%, 2/15/1997 984,280 ------------------------------------------------------------------ 723,000 Toyota Motor Credit Corp., 5.75%, 6/15/1995 721,822 ------------------------------------------------------------------ ----------- Total 4,369,185 ------------------------------------------------------------------ ----------- HEALTH CARE--1.2% ------------------------------------------------------------------ 1,250,000 Upjohn Co., 5.875%, 4/15/2000 1,159,250 ------------------------------------------------------------------ ----------- PHARMACEUTICALS--1.1% ------------------------------------------------------------------ 1,000,000 American Home Products, 7.70%, 2/15/2000 1,008,550 ------------------------------------------------------------------ -----------
DG LIMITED TERM GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ------------------------------------------------------------------ ----------- CORPORATE BONDS--CONTINUED - -------------------------------------------------------------------------------------- POLLUTION CONTROL--0.7% ------------------------------------------------------------------ $ 723,000 Waste Management, Inc., 6.375%, 7/1/1997 $ 710,456 ------------------------------------------------------------------ ----------- PUBLISHING--1.0% ------------------------------------------------------------------ 1,000,000 Gannett, Inc., 5.25%, 3/1/1998 945,850 ------------------------------------------------------------------ ----------- RETAIL--1.1% ------------------------------------------------------------------ 1,136,000 Wal-Mart Stores Inc., 5.50%, 9/15/1997 1,094,104 ------------------------------------------------------------------ ----------- UTILITIES--5.4% ------------------------------------------------------------------ 1,000,000 GTE California, Inc., 6.25%, 1/15/1998 971,600 ------------------------------------------------------------------ 1,000,000 New England Telephone & Telegraph Co., 6.25%, 12/15/1997 974,040 ------------------------------------------------------------------ 1,500,000 Northern States Power Co., 5.50%, 2/1/1999 1,403,145 ------------------------------------------------------------------ 1,000,000 Pacific Gas & Electric Co., 5.375%, 8/1/1998 938,350 ------------------------------------------------------------------ 1,000,000 Southern California Edison Co., 5.60%, 12/15/1998 937,690 ------------------------------------------------------------------ ----------- Total 5,224,825 ------------------------------------------------------------------ ----------- TOTAL CORPORATE BONDS (IDENTIFIED COST, $23,003,111) 22,483,922 ------------------------------------------------------------------ ----------- GOVERNMENT AGENCIES--1.6% - -------------------------------------------------------------------------------------- 1,500,000 Federal Home Loan Mortgage Corp., 6.50%, 6/15/1999 (IDENTIFIED COST, $1,511,250) 1,501,830 ------------------------------------------------------------------ ----------- U.S. TREASURY NOTES--63.9% - -------------------------------------------------------------------------------------- 9,000,000 3.875%, 3/31/1995 8,991,810 ------------------------------------------------------------------ 5,000,000 4.125%, 6/30/1995 4,971,850 ------------------------------------------------------------------ 3,000,000 4.25%, 7/31/1995 2,977,500 ------------------------------------------------------------------ 9,000,000 5.125%, 3/31/1998 8,554,860 ------------------------------------------------------------------ 4,000,000 5.75%, 10/31/1997 3,891,120 ------------------------------------------------------------------ 15,000,000 6.25%, 1/31/1997 14,866,800 ------------------------------------------------------------------ 4,000,000 6.75%, 6/30/1999 3,956,120 ------------------------------------------------------------------ 2,000,000 7.50%, 10/31/1999 2,034,220 ------------------------------------------------------------------ 11,000,000 8.00%, 10/15/1996 11,216,920 ------------------------------------------------------------------ ----------- TOTAL U.S. TREASURY NOTES (IDENTIFIED COST, $63,428,276) 61,461,200 ------------------------------------------------------------------ -----------
DG LIMITED TERM GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ------------------------------------------------------------------ ----------- *REPURCHASE AGREEMENT--9.5% - -------------------------------------------------------------------------------------- $ 9,103,300 Cantor, Fitzgerald Securities Corp., 6.05%, dated 2/28/1995, due 3/1/1995 (AT AMORTIZED COST) $ 9,103,300 ------------------------------------------------------------------ ----------- TOTAL INVESTMENTS (IDENTIFIED COST, $97,045,937) $94,550,252+ ------------------------------------------------------------------ -----------
* The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. + The cost of investments for federal tax purposes amounts to $97,045,937. The unrealized depreciation of investments on a federal tax basis amounts to $2,495,685, which is comprised of $110,754 appreciation and $2,606,439 depreciation at February 28, 1995. Note: The categories of investments are shown as a percentage of net assets ($96,216,434) at February 28, 1995. (See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at value (identified and tax cost $97,045,937) $ 94,550,252 - ------------------------------------------------------------------------------- Income receivable 1,325,711 - ------------------------------------------------------------------------------- Receivable for shares sold 390,346 - ------------------------------------------------------------------------------- Deferred expenses 15,810 - ------------------------------------------------------------------------------- ------------ Total assets 96,282,119 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $37,299 - --------------------------------------------------------------------- Accrued expenses 28,386 - --------------------------------------------------------------------- ------- Total liabilities 65,685 - ------------------------------------------------------------------------------- ------------ Net Assets for 9,975,150 shares outstanding $ 96,216,434 - ------------------------------------------------------------------------------- ------------ NET ASSETS CONSISTS OF: - ------------------------------------------------------------------------------- Paid in capital $100,461,727 - ------------------------------------------------------------------------------- Net unrealized depreciation of investments (2,495,685) - ------------------------------------------------------------------------------- Accumulated net realized loss on investments (1,843,544) - ------------------------------------------------------------------------------- Undistributed net investment income 93,936 - ------------------------------------------------------------------------------- ------------ Total Net Assets $ 96,216,434 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share: Net Asset Value Per Share ($96,216,434 / 9,975,150 shares outstanding) $9.65 - ------------------------------------------------------------------------------- ------------ Offering Price Per Share (100/98.00 of $9.65)* $9.85 - ------------------------------------------------------------------------------- ------------
* See "What Shares Cost." (See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------------------- Interest $ 6,020,395 - -------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------- Investment advisory fee $642,168 - --------------------------------------------------------------------- Administrative personnel and services fee 134,312 - --------------------------------------------------------------------- Custodian fees 14,870 - --------------------------------------------------------------------- Transfer agent and dividend disbursing agent fees and expenses 32,488 - --------------------------------------------------------------------- Directors'/Trustees' fees 2,785 - --------------------------------------------------------------------- Auditing fees 12,005 - --------------------------------------------------------------------- Legal fees 3,574 - --------------------------------------------------------------------- Portfolio accounting fees 48,810 - --------------------------------------------------------------------- Share registration costs 24,429 - --------------------------------------------------------------------- Printing and postage 10,406 - --------------------------------------------------------------------- Insurance premiums 6,890 - --------------------------------------------------------------------- Miscellaneous 7,306 - --------------------------------------------------------------------- -------- Total expenses 940,043 - --------------------------------------------------------------------- Deduct--Waiver of investment advisory fee 267,570 - --------------------------------------------------------------------- -------- Net expenses 672,473 - -------------------------------------------------------------------------------- ----------- Net investment income 5,347,922 - -------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - -------------------------------------------------------------------------------- Net realized loss on investments (1,068,070) - -------------------------------------------------------------------------------- Net change in unrealized depreciation of investments (1,836,643) - -------------------------------------------------------------------------------- ----------- Net realized and unrealized loss on investments (2,904,713) - -------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $ 2,443,209 - -------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED -------------------------------------- FEBRUARY 28, 1995 FEBRUARY 28, 1994 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: - ------------------------------------------------------- OPERATIONS-- - ------------------------------------------------------- Net investment income $ 5,347,922 $ 6,023,613 - ------------------------------------------------------- Net realized loss on investments ($1,406,691 net loss and $347,369 net gain, respectively, as computed for federal tax purposes) (1,068,070) (367,399) - ------------------------------------------------------- Net change in unrealized depreciation of investments (1,836,643) (1,681,025) - ------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from operations 2,443,209 3,975,189 - ------------------------------------------------------- ---------------- ---------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ------------------------------------------------------- Distributions from net investment income (5,266,273) (6,011,126) - ------------------------------------------------------- Distributions from net realized gains -- (344,594) - ------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from distributions to shareholders (5,266,273) (6,355,720) - ------------------------------------------------------- ---------------- ---------------- SHARE TRANSACTIONS-- - ------------------------------------------------------- Proceeds from sale of shares 43,863,105 70,831,278 - ------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,064,317 2,764,678 - ------------------------------------------------------- Cost of shares redeemed (63,548,352) (54,475,647) - ------------------------------------------------------- ---------------- ---------------- Change in net assets resulting from share transactions (17,620,930) 19,120,309 - ------------------------------------------------------- ---------------- ---------------- Change in net assets (20,443,994) 16,739,778 - ------------------------------------------------------- NET ASSETS: - ------------------------------------------------------- Beginning of period 116,660,428 99,920,650 - ------------------------------------------------------- ---------------- ---------------- End of period (including undistributed net investment income of $93,936 and $12,287, respectively) $ 96,216,434 $ 116,660,428 - ------------------------------------------------------- ---------------- ----------------
(See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of six diversified portfolios. The financial statements included herein present only those of DG Limited Term Government Income Fund (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--U.S. government securities are generally valued at the mean between the over-the-counter bid and asked prices as furnished by an independent pricing service. Listed corporate bonds, unlisted securities and short-term securities are valued at prices provided by an independent pricing service. Short-term securities with remaining maturities of sixty days or less may be valued at amortized cost, which approximates fair market value. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement transaction. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. At February 28, 1995, the Fund, for federal tax purposes, had a capital loss carryforward of $1,406,691, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as indicated below. Additionally, net capital losses of $437,277, attributable to security transactions incurred after October 31, 1994 are treated as arising on March 1, 1995, the first day of the Fund's next taxable year.
EXPIRATION YEAR EXPIRATION AMOUNT --------------------------------- --------------------------------- 2003 $1,406,691
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method not to exceed a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows:
YEAR ENDED ----------------------------------------- FEBRUARY 28, 1995 FEBRUARY 28, 1994 - --------------------------------------------------- ------------------ ------------------ Shares sold 4,548,639 7,051,287 - --------------------------------------------------- Shares issued to shareholders in payment of distributions declared 214,556 276,031 - --------------------------------------------------- Shares redeemed (6,604,481) (5,433,649) - --------------------------------------------------- --------------- ---------- Net change resulting from share transactions (1,841,286) 1,893,669 - --------------------------------------------------- --------------- ----------
DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. Under the terms of a sub-advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser equal to .25 of 1% of the Fund's average daily net assets. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services. The FAS fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses of $24,074 were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following July 20, 1992 (the date the Fund became effective). For the year ended February 28, 1995, the Fund paid $4,482 pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the year ended February 28, 1995, were as follows: - ------------------------------------------------------------------------------- PURCHASES $18,099,343 - ------------------------------------------------------------------------------- ----------- SALES $13,765,312 - ------------------------------------------------------------------------------- -----------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments of the DG Limited Term Government Income Fund (a portfolio within DG Investor Series) as of February 28, 1995, and the related statements of operations for the period then ended, the statement of changes in net assets and the financial highlights, which is presented on page 2 of this prospectus, for the periods from August 3, 1992 (commencement of operations) to February 28, 1995. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to gain reasonable assurance about whether the financial statements and the financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the DG Limited Term Government Income Fund at February 28, 1995, and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the periods listed above, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 7, 1995 ADDRESSES - -------------------------------------------------------------------------------- DG Limited Term Government Federated Investors Tower Income Fund Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 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 Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick LLP One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Investment Adviser Commercial National Bank Shreveport, LA Sub-Adviser APRIL 30, 1995 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2061003A (4/95) The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks including the possible loss of principal. DG GOVERNMENT INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Government Income Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The investment objective of the Fund is current income. The Fund pursues its investment objective by investing primarily in government securities to achieve current income. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing to the Fund or calling 1-800-530-7377. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Corporate Bonds 4 Mortgage-Backed Securities 4 Collateralized Mortgage Obligations 4 Asset-Backed Securities 4 Bank Instruments 5 Put and Call Options 5 Risks 5 Temporary Investments 6 Repurchase Agreements 6 Lending of Portfolio Securities 6 When-Issued and Delayed Delivery Transactions 6 Investment Limitations 7 DG INVESTOR SERIES INFORMATION 7 - ------------------------------------------------------ Management of the Trust 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 7 Adviser's Background 7 Sub-Adviser 8 Sub-Advisory Fees 8 Sub-Adviser's Background 8 Distribution of Fund Shares 9 Distribution Plan 9 Shareholder Servicing Arrangements 10 ADMINISTRATION OF THE FUND 10 - ------------------------------------------------------ Administrative Services 10 Custodian 10 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 10 Independent Auditors 10 Brokerage Transactions 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN THE FUND 11 - ------------------------------------------------------ Share Purchases 11 Through the Banks 11 Minimum Investment Required 11 What Shares Cost 11 Purchases at Net Asset Value 12 Sales Charge Reallowance 12 Reducing the Sales Charge 12 Quantity Discounts and Accumulated Purchases 12 Letter of Intent 13 Reinvestment Privilege 13 Purchases with Proceeds from Redemptions of Unaffiliated Investment Companies 13 Concurrent Purchases 13 Systematic Investment Program 13 Certificates and Confirmations 13 Dividends and Distributions 14 EXCHANGE PRIVILEGE 14 - ------------------------------------------------------ DG Investor Series 14 Exchanging Shares 14 REDEEMING SHARES 14 - ------------------------------------------------------ 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 16 EFFECT OF BANKING LAWS 17 - ------------------------------------------------------ TAX INFORMATION 17 - ------------------------------------------------------ Federal Income Tax 17 PERFORMANCE INFORMATION 18 - ------------------------------------------------------ FINANCIAL STATEMENTS 19 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 30 - ------------------------------------------------------ ADDRESSES 31 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......... 2.00% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................. None Redemption Fee (as a percentage of amount redeemed, if applicable).................. None Exchange Fee........................................................................ None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1).................................................... 0.50% 12b-1 Fees(2)....................................................................... 0.00% Total Other Expenses................................................................ 0.22% Total Fund Operating Expenses(3)................................................ 0.72%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.60%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee to the distributor. (3) The Total Fund Operating Expenses were 0.68% for the fiscal year ended February 28, 1995. The Total Fund Operating Expenses in the above table reflect a reduction in the voluntary waiver of the investment advisory fee for the fiscal year ending February 29, 1996. The Total Fund Operating Expenses for the fiscal year ending February 29, 1996, are anticipated to be 0.82% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return, (2) redemption at the end of each time period, and (3) payment of the maximum sales load............ $ 27 $43 $59 $108
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 29, 1996. DG GOVERNMENT INCOME FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors, on page 30.
YEAR ENDED FEBRUARY 28, -------------------------------- 1995 1994 1993(A) ------ ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $ 9.90 $10.25 $10.00 - --------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------------- Net investment income 0.54 0.55 0.37 - --------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.44) (0.09) 0.25 - --------------------------------------------------------------- ------ ------ ------ Total from investment operations 0.10 0.46 0.62 - --------------------------------------------------------------- ------ ------ ------ LESS DISTRIBUTIONS - --------------------------------------------------------------- Distributions from net investment income (0.53) (0.55) (0.37) - --------------------------------------------------------------- Distributions from net realized gain on investment transactions -- (0.25) -- - --------------------------------------------------------------- Distributions in excess of net realized gain on investments(e) -- (0.01) -- - --------------------------------------------------------------- ------ ------ ------ Total distributions (0.53) (0.81) (0.37) - --------------------------------------------------------------- ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 9.47 $ 9.90 $10.25 - --------------------------------------------------------------- ------ ------ ------ TOTAL RETURN(B) 1.20% 4.55% 6.40% - --------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------------- Expenses 0.68% 0.70% 0.50%(c) - --------------------------------------------------------------- Net investment income 5.79% 5.34% 6.45%(c) - --------------------------------------------------------------- Expense waiver/reimbursement(d) 0.15% 0.19% 0.41%(c) - --------------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------------- Net assets, end of period (000 omitted) $168,313 $118,695 $111,435 - --------------------------------------------------------------- Portfolio turnover 31% 49% 78% - ---------------------------------------------------------------
(a) Reflects operations for the period from August 3, 1992 (date of initial public investment) to February 28, 1993. (b) Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if applicable. (c) Computed on an annualized basis. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (e) This distribution does not represent a return of capital for federal tax purposes. Further information about the Fund's performance is contained in the Fund's annual report for the fiscal year ended February 28, 1995, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of government securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is current income. The investment objective cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing primarily in securities which are guaranteed as to payment of principal and interest by the U.S. government or U.S. government agencies or instrumentalities. The Fund may also invest in corporate bonds, asset-backed securities and bank instruments. Under normal circumstances, the Fund will invest at least 65% of the value of its total assets in U.S. government securities. Unless indicated otherwise, the investment policies may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund will invest include: - direct obligations of the U.S. Treasury such as bills, notes, and bonds; and - notes, bonds, and discount notes issued by the Federal Home Loan Banks; Government National Mortgage Association; Farm Credit System, including the National Bank for Cooperatives, Farm Credit Banks, and Banks for Cooperatives; Tennessee Valley Authority; Export-Import Bank of the United States; Commodity Credit Corporation; Federal Financing Bank; Student Loan Marketing Association; Federal Home Loan Mortgage Corporation; or National Credit Union Administration. Some obligations issued or guaranteed by agencies or instrumentalities of the U.S. government, such as Government National Mortgage Association participation certificates, are backed by the full faith and credit of the U.S. Treasury. No assurance can be given that the U.S. government will provide financial support to other agencies or instrumentalities, since it is not obligated to do so. These instrumentalities are supported by: - the issuer's right to borrow an amount limited to a specific line of credit from the U.S. Treasury; - discretionary authority of the U.S. government to purchase certain obligations of an agency or instrumentality; or - the credit of the agency or instrumentality. CORPORATE BONDS. The Fund may invest in issues of corporate debt obligations which are rated in one of the three highest categories by a nationally recognized statistical rating organization (rated Aaa, Aa, or A by Moody's Investors Service, Inc. ("Moody's"); AAA, AA, or A by Standard & Poor's Ratings Group ("Standard & Poor's") or by Fitch Investors Service, Inc. ("Fitch"), or which are of comparable quality in the judgment of the adviser). The prices of fixed income securities fluctuate inversely to the direction of interest rates. MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are securities that directly or indirectly represent a participation in, or are secured by and payable from, mortgage loans on real property. There are currently three basic types of mortgage-backed securities: (i) those issued or guaranteed by the U.S. government or one of its agencies or instrumentalities, such as the Government National Mortgage Association ("Ginnie Mae"), the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"); (ii) those issued by private issuers that represent an interest in or are collateralized by mortgage-backed securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities; and (iii) those issued by private issuers that represent an interest in or are collateralized by whole loans or mortgage-backed securities without a government guarantee but usually having some form of private credit enhancement. COLLATERALIZED MORTGAGE OBLIGATIONS. Collateralized mortgage obligations ("CMOs") are debt obligations collateralized by mortgage loans or mortgage pass-through securities. Typically, CMOs are collateralized by Ginnie Mae, Fannie Mae or Freddie Mac Certificates, but may be collateralized by whole loans or private pass-through securities. The Fund will only invest in CMOs which are rated AAA by a nationally recognized rating agency, and which may be: (a) collateralized by pools of mortgages in which each mortgage is guaranteed as to payment of principal and interest by an agency or instrumentality of the U.S. government; (b) collateralized by pools of mortgages in which payment of principal and interest is guaranteed by the issuer and such guarantee is collateralized by U.S. government securities; or (c) securities in which the proceeds of the issuance are invested in mortgage securities and payment of the principal and interest are supported by the credit of an agency or instrumentality of the U.S. government. ASSET-BACKED SECURITIES. Asset-backed securities have structural characteristics similar to mortgage-backed securities but have underlying assets that are not mortgage loans or interests in mortgage loans. The Fund may invest in asset-backed securities rated A or higher by a nationally recognized rating agency. The collateral for such securities will consist of motor vehicle installment purchase obligations and credit card receivables. These securities may be in the form of pass-through instruments or asset-backed bonds. The securities are issued by non-governmental entities and carry no direct or indirect government guarantee. BANK INSTRUMENTS. The Fund only invests in bank instruments issued by an institution having capital, surplus and undivided profits over $100 million, or insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"). PUT AND CALL OPTIONS. The Fund may purchase put options on financial futures contracts and put options on portfolio securities. Financial futures may include index futures. These options will be used as a hedge to attempt to protect securities which the Fund holds against decreases in value. For the immediate future, the Fund will enter into futures contracts directly only when it desires to exercise a financial futures put option in its portfolio rather than either closing out the option or allowing it to expire. The Fund will only purchase puts on financial futures contracts which are traded on a recognized exchange. The Fund will generally purchase over-the-counter put options on portfolio securities in negotiated transactions with the writers of the options on the portfolio securities held by the Fund which are typically not traded on an exchange. The Fund purchases options only from investment dealers and other financial associations (such as commercial banks or savings and loan institutions) deemed creditworthy by the Fund's adviser. Over-the-counter put options are two party contracts with price and terms negotiated between buyer and seller. In contrast, exchange traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange traded options have a continuous liquid market, while over-the-counter options may not. The Fund may also write call options on all or any portion of its portfolio to generate income for the Fund. The Fund will write call options on securities either held in its portfolio or which it has the right to obtain without payment of further consideration or for which it has segregated cash in the amount of any additional consideration. The call options which the Fund writes and sells must be listed on a recognized options exchange. Although the Fund reserves the right to write covered call options on its entire portfolio, it will not write such options on more than 25% of its total assets unless a higher limit is authorized by its Trustees. The Fund may attempt to hedge the portfolio by entering into financial futures contracts and to write calls on financial futures contracts. The Fund will notify shareholders before it begins engaging in these transactions. RISKS. When the Fund writes a call option, the Fund risks not participating in any rise in the value of the underlying security. In addition, when the Fund purchases puts on financial futures contracts to protect against declines in prices of portfolio securities, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract and its corresponding put to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors such as interest rate movements. In such an event, the Fund may lose the purchase price of the put option. Finally, it is not certain that a secondary market for options will exist at all times. Although the investment adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market on an exchange will exist for any particular option at any particular time. The Fund's ability to establish and close out option positions depends on this secondary market. TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may invest temporarily in cash and cash items during times of unusual market conditions and to maintain liquidity. Cash items may include short-term obligations such as: - obligations of the U.S. government or its agencies or instrumentalities; - repurchase agreements; and - commercial paper rated A-1 or A-2 by Standard & Poor's, Prime-1 or Prime-2 by Moody's or F-1 or F-2 by Fitch. REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an arrangement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may, borrow up to one-third of the value of its total assets and pledge up to 15% of the value of those assets to secure such borrowings. The above investment limitation cannot be changed without shareholder approval. The following investment limitation, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this investment limitation becomes effective. The Fund will not: - invest more than 15% of the value of its net assets in illiquid securities, including repurchase agreements providing for settlement in more than seven days after notice, over-the-counter options and certain restricted securities not determined by the Trustees to be liquid. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser, in consultation with the sub-adviser, continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1994, the Trust Division of Deposit Guaranty National Bank had approximately $9.1 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's Adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank or Commercial National Bank. The lending relationships will not be a factor in the selection of securities. John Mark McKenzie has been with Deposit Guaranty National Bank for ten years and is a Vice President and Trust Investment Officer. Previously, Mr. McKenzie was associated with a Jackson bank as a trust officer. He received a B.B.A. in Banking and Finance from the University of Mississippi. He is a member of the Mississippi Chapter of the Memphis Society of Financial Analysts, and is a member of the Mississippi State and Hinds County Bar Association. Mr. McKenzie has managed the DG Government Income Fund since August 1, 1992 (the inception of the Fund). SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank will form an investment committee (the "DG Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction in the fee due from the Trust to the Adviser on behalf of the Fund. Notwithstanding any other provision in the sub-advisory agreement, the Sub-Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 1994, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, of which it had investment discretion over $856 million. Commercial National Bank has served as sub-adviser to DG Equity Fund, DG Limited Term Government Income Fund, and the Fund since July 20, 1992, DG Municipal Income Fund since December 12, 1992, and DG Opportunity Fund since May 25, 1994 each a portfolio of the Trust. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of .35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- ------------------------------------ .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million .075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick LLP, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. on the next business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED - ---------------------------------------------- ---------------------- ------------------- Less than $100,000............................ 2.00% 2.04% $100,000 but less than $250,000............... 1.75% 1.78% $250,000 but less than $500,000............... 1.50% 1.52% $500,000 but less than $750,000............... 1.25% 1.27% $750,000 but less than $1 million............. 1.00% 1.01% $1 million but less than $2 million........... 0.50% 0.50% $2 million or more............................ 0.25% 0.25%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) the following holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset value, without a sales charge by: the Trust Division of the Banks for funds which are held in a fiduciary, agency, custodial, or similar capacity; non-trust customers of financial advisers; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; current and retired directors of the Banks; 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 100% of the applicable sales charge. Any portion of the sales charge which is not paid to the Banks or authorized dealers will be retained by the distributor. The distributor will, periodically, uniformly offer to pay cash or promotional incentives in the form of trips to sales seminars at luxury resorts, tickets or other items to all dealers selling shares of the Fund. Such payments will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or registered broker/dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through: - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchases still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 1.75%, not 2.00%. To receive the sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the purchase is made that Fund shares are already owned or that purchases are being combined. The Fund will reduce the sales charge after it confirms the purchases. LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of shares in the funds in the Trust over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the custodian to hold 2.00% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 2.00% held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. The current balance in the shareholder's account will provide a purchase credit towards fulfillment of the letter of intent. REINVESTMENT PRIVILEGE. If shares in 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. PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES. Investors may purchase shares at net asset value, without a sales charge, with the proceeds from the redemption of shares of an investment company which was sold with a sales charge or commission and was not distributed by Federated Securities Corp. The purchase must be made within 60 days of the redemption, and Federated Securities Corp. must be notified by the investor in writing, or by his financial institution, at the time the purchase is made. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in this Fund, the sales charge would be reduced. To receive this sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the concurrent purchases are made. The Fund will reduce the sales charge after it confirms the purchases. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Detailed confirmations of each purchase or redemption are sent to each shareholder. Monthly confirmations are sent to report dividends paid during the month. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly. Distribution of any realized long-term capital gains will be made at least once every twelve months. Dividends are automatically reinvested in additional shares of the Fund on payment dates at the ex-dividend date net asset value without a sales charge, unless cash payments are requested by writing to the Fund or the Banks as appropriate. 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. Prior to any exchange, the shareholder must receive a copy of the current prospectus of the fund into which an exchange is to be effected. Shares may be exchanged at net asset value, plus the difference between the Fund's sales charge (if any) already paid and any sales charge of the fund into which shares are to be exchanged, if higher. When an exchange is made from a fund with a sales charge to a fund with no sales charge, the shares exchanged and additional shares which have been purchased by reinvesting dividends on such shares retain the character of the exchanged shares for purposes of exercising further exchange privileges; thus an exchange of such shares for shares of a fund with a sales charge would be at net asset value. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instruction may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the BIF, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by SAIF, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments, and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. 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. As of April 17, 1995, Commercial National Bank, Shreveport, Louisiana, owned approximately 4,074,326 shares (27.4%); and Deposit Guaranty National Bank, Jackson, Mississippi, owned approximately 10,126,940 shares (68.1%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's Adviser and Sub-Adviser, Deposit Guaranty National Bank and Commercial National Bank, respectively, are subject to such banking laws and regulations. The Banks believe, based on the advice of counsel, that they may perform the investment advisory services for the Fund contemplated by the advisory agreement with the Trust and the sub-advisory agreement between the Banks without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent the Banks from continuing to perform all or a part of the above services for their customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided by the Banks, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser and/or sub-adviser with equivalent abilities to Deposit Guaranty National Bank and Commercial National Bank are found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other portfolios, if any, will not be combined for tax purposes with those realized by the Fund. Unless otherwise exempt, shareholders are required to pay federal income tax on any dividends and other distributions received. This applies whether dividends are received in cash or as additional shares. The Fund will provide detailed tax information for reporting purposes. Shareholders are urged to consult their own tax advisers regarding the status of their account under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return and yield. Total return represents the change over a specified period of time, in the value of an investment in the Fund after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the maximum offering price per share of the Fund on the last day of the period. This number is then annualized using semiannual compounding. The yield does not necessarily reflect income actually earned by the Fund and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load which, if excluded, would increase the total return and yield. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. DG GOVERNMENT INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1995 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ CORPORATE BONDS--15.2% - ------------------------------------------------------------------------------------- BANKING--1.0% ----------------------------------------------------------------- $ 800,000 Bankers Trust New York Corp., 4.70%, 7/1/1996 $ 776,736 ----------------------------------------------------------------- 1,000,000 NationsBank Corp., 5.375%, 4/15/2000 904,630 ----------------------------------------------------------------- ------------ Total 1,681,366 ----------------------------------------------------------------- ------------ BUSINESS EQUIPMENT & SERVICE--0.9% ----------------------------------------------------------------- 1,500,000 International Business Machines Corp., 6.375%, 11/1/1997 1,466,250 ----------------------------------------------------------------- ------------ CONSUMER NON-DURABLES--1.6% ----------------------------------------------------------------- 889,000 Anheuser-Busch Cos., 6.90%, 10/1/2002 846,924 ----------------------------------------------------------------- 1,000,000 H.J. Heinz Co., 6.75%, 10/15/1999 975,850 ----------------------------------------------------------------- 919,000 PepsiCo, Inc., 5.625%, 7/1/1995 917,787 ----------------------------------------------------------------- ------------ Total 2,740,561 ----------------------------------------------------------------- ------------ FINANCIAL SERVICES--2.0% ----------------------------------------------------------------- 1,500,000 Ford Motor Credit Corp., 5.625%, 3/3/1997 1,455,660 ----------------------------------------------------------------- 437,000 General Motors Acceptance Corp., 9.75% (Callable 5/15/1996 @ par), 5/15/1999 448,441 ----------------------------------------------------------------- 1,000,000 Norwest Financial, Inc., 6.25%, 2/15/1997 984,280 ----------------------------------------------------------------- 437,000 TNE Funding, 9.00%, 5/1/1995 438,744 ----------------------------------------------------------------- ------------ Total 3,327,125 ----------------------------------------------------------------- ------------ HEALTH CARE--0.6% ----------------------------------------------------------------- 1,000,000 Upjohn Co., 5.875%, 4/15/2000 927,400 ----------------------------------------------------------------- ------------ PHARMACEUTICAL-HEALTH CARE--0.8% ----------------------------------------------------------------- 1,400,000 American Home Products, 7.70%, 2/15/2000 1,411,970 ----------------------------------------------------------------- ------------ PUBLISHING-PRINTING--0.8% ----------------------------------------------------------------- 1,500,000 Gannett, Inc., 5.25%, 3/1/1998 1,418,775 ----------------------------------------------------------------- ------------
DG GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ CORPORATE BONDS--CONTINUED - ------------------------------------------------------------------------------------- RAW MATERIALS--0.8% ----------------------------------------------------------------- $ 889,000 DuPont (E.I.) de Nemours & Co., 6.75%, 10/15/2002 $ 845,474 ----------------------------------------------------------------- 437,000 DuPont (E.I.) de Nemours & Co., 9.15%, 4/15/2000 468,071 ----------------------------------------------------------------- ------------ Total 1,313,545 ----------------------------------------------------------------- ------------ RETAIL--1.5% ----------------------------------------------------------------- 437,000 Sears, Roebuck & Co., 9.00%, 9/15/1996 448,615 ----------------------------------------------------------------- 437,000 Limited, Inc. 7.80%, 5/15/2002 438,678 ----------------------------------------------------------------- 437,000 Wal-Mart, Inc., 10.875% (Callable 8/15/1995 @ 102.51), 8/15/2000 456,097 ----------------------------------------------------------------- 1,200,000 Wal-Mart, Inc., 5.50%, 9/15/1997 1,155,744 ----------------------------------------------------------------- ------------ Total 2,499,134 ----------------------------------------------------------------- ------------ SHELTER--0.3% ----------------------------------------------------------------- 437,000 Kimberly Clark Corp., 9.125%, 6/1/1997 454,580 ----------------------------------------------------------------- ------------ TECHNOLOGY--0.5% ----------------------------------------------------------------- 437,000 Boeing Co., 8.375%, 3/1/1996 443,756 ----------------------------------------------------------------- 437,000 Texas Instruments, Inc., 9.25%, 6/15/2003 474,770 ----------------------------------------------------------------- ------------ Total 918,526 ----------------------------------------------------------------- ------------ UTILITIES--4.4% ----------------------------------------------------------------- 1,000,000 Alabama Power Co., 6.75% (Callable 2/1/1998 @ 101.60), 2/1/2003 934,050 ----------------------------------------------------------------- 437,000 ALLTEL Corp., 10.375%, 4/1/2009 467,284 ----------------------------------------------------------------- 1,500,000 GTE California, 6.25%, 1/15/1998 1,457,400 ----------------------------------------------------------------- 1,500,000 New England Telephone & Telegraph Co., 6.25%, 12/15/1997 1,461,060 ----------------------------------------------------------------- 1,500,000 Northern States Power Co., 5.50%, 2/1/1999 1,403,145 -----------------------------------------------------------------
DG GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ CORPORATE BONDS--CONTINUED - ------------------------------------------------------------------------------------- UTILITIES--CONTINUED ----------------------------------------------------------------- $ 1,000,000 Pacific Gas and Electric Co., 6.25%, 3/1/2004 $ 898,670 ----------------------------------------------------------------- 1,000,000 Southern California Edison Co., 5.625%, 10/1/2002 881,260 ----------------------------------------------------------------- ------------ Total 7,502,869 ----------------------------------------------------------------- ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST, $26,590,326) 25,662,101 ----------------------------------------------------------------- ------------ GOVERNMENT AGENCIES--0.9% - ------------------------------------------------------------------------------------- 1,500,000 Federal Home Loan Mortgage Corp., 6.50% (Callable 6/15/1995 @ par), 6/15/1999 (IDENTIFIED COST, $1,511,250) 1,501,830 ----------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--75.0% - ------------------------------------------------------------------------------------- U.S. TREASURY BONDS--19.9% ----------------------------------------------------------------- 9,000,000 7.125%, 2/15/2023 8,573,310 ----------------------------------------------------------------- 3,000,000 7.25%, 8/15/2022 2,896,140 ----------------------------------------------------------------- 11,000,000 7.50%, 11/15/2016 10,903,310 ----------------------------------------------------------------- 11,000,000 7.625%, 11/15/2022 11,107,140 ----------------------------------------------------------------- ------------ Total 33,479,900 ----------------------------------------------------------------- ------------ U.S. TREASURY NOTES--55.1% ----------------------------------------------------------------- 10,000,000 4.00%, 1/31/1996 9,788,200 ----------------------------------------------------------------- 4,000,000 5.00%, 1/31/1999 3,727,760 ----------------------------------------------------------------- 3,000,000 5.875%, 3/31/1999 2,878,380 ----------------------------------------------------------------- 8,000,000 5.875%, 5/15/1995 8,000,880 ----------------------------------------------------------------- 8,000,000 6.375%, 8/15/2002 7,622,720 ----------------------------------------------------------------- 10,000,000 7.50%, 10/31/1999 10,171,100 ----------------------------------------------------------------- 15,000,000 7.50%, 2/15/2005 15,295,650 ----------------------------------------------------------------- 5,000,000 7.875%, 11/15/2004 5,226,450 ----------------------------------------------------------------- 7,000,000 7.875%, 8/15/2001 7,260,610 -----------------------------------------------------------------
DG GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--CONTINUED - ------------------------------------------------------------------------------------- U.S. TREASURY NOTES--CONTINUED ----------------------------------------------------------------- $13,000,000 8.00%, 1/15/1997 $ 13,285,480 ----------------------------------------------------------------- 5,000,000 8.50%, 11/15/2000 5,326,850 ----------------------------------------------------------------- 4,000,000 9.375%, 4/15/1996 4,121,880 ----------------------------------------------------------------- ------------ Total 92,705,960 ----------------------------------------------------------------- ------------ TOTAL U.S. TREASURY OBLIGATIONS (IDENTIFIED COST, $128,112,540) 126,185,860 ----------------------------------------------------------------- ------------ *REPURCHASE AGREEMENT--7.9% - ------------------------------------------------------------------------------------- 13,247,700 Cantor, Fitzgerald Securities Corp., 6.05%, dated 2/28/1995, due 3/1/1995 (AT AMORTIZED COST) 13,247,700 ----------------------------------------------------------------- ------------ TOTAL INVESTMENTS (IDENTIFIED COST, $169,461,816) $166,597,491+ ----------------------------------------------------------------- ------------
* The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. + The cost of investments for federal tax purposes amounts to $169,461,816. The unrealized depreciation of investments on a federal tax basis amounts to $2,864,325, which is comprised of $1,328,215 appreciation and $4,192,540 depreciation at February 28, 1995. Note: The categories of investments are shown as a percentage of net assets ($168,313,485) at February 28, 1995. (See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at value (identified cost and tax cost, $169,461,816) $166,597,491 - ------------------------------------------------------------------------------- Cash 51 - ------------------------------------------------------------------------------- Income receivable 2,140,047 - ------------------------------------------------------------------------------- Receivable for shares sold 20,511 - ------------------------------------------------------------------------------- Deferred expenses 18,042 - ------------------------------------------------------------------------------- ------------ Total assets 168,776,142 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $432,827 - -------------------------------------------------------------------- Accrued expenses 29,830 - -------------------------------------------------------------------- -------- Total liabilities 462,657 - ------------------------------------------------------------------------------- ------------ Net Assets for 17,772,717 shares outstanding $168,313,485 - ------------------------------------------------------------------------------- ------------ NET ASSETS CONSISTS OF: - ------------------------------------------------------------------------------- Paid in capital $173,367,892 - ------------------------------------------------------------------------------- Net unrealized depreciation of investments (2,864,325) - ------------------------------------------------------------------------------- Accumulated net realized loss on investments (2,363,158) - ------------------------------------------------------------------------------- Undistributed net investment income 173,076 - ------------------------------------------------------------------------------- ------------ Total Net Assets $168,313,485 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share: Net Asset Value Per Share ($168,313,485 / 17,772,717 shares outstanding) $9.47 - ------------------------------------------------------------------------------- ------------ Offering Price Per Share (100/98.00 of $9.47)* $9.66 - ------------------------------------------------------------------------------- ------------
* See "What Shares Cost." (See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Interest $ 9,997,796 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee $ 926,421 - -------------------------------------------------------------------- Administrative personnel and services fee 193,697 - -------------------------------------------------------------------- Custodian fees 12,394 - -------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 27,816 - -------------------------------------------------------------------- Directors'/Trustees' fees 2,296 - -------------------------------------------------------------------- Auditing fees 12,515 - -------------------------------------------------------------------- Legal fees 2,622 - -------------------------------------------------------------------- Portfolio accounting fees 45,130 - -------------------------------------------------------------------- Share registration costs 37,753 - -------------------------------------------------------------------- Printing and postage 12,238 - -------------------------------------------------------------------- Insurance premiums 6,396 - -------------------------------------------------------------------- Miscellaneous 5,926 - -------------------------------------------------------------------- ---------- Total expenses 1,285,204 - -------------------------------------------------------------------- Deduct--Waiver of investment advisory fee 231,605 - -------------------------------------------------------------------- ---------- Net expenses 1,053,599 - --------------------------------------------------------------------------------- ----------- Net investment income 8,944,197 - --------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - --------------------------------------------------------------------------------- Net realized loss on investments (2,301,667) - --------------------------------------------------------------------------------- Net change in unrealized depreciation of investments (2,720,070) - --------------------------------------------------------------------------------- ----------- Net realized and unrealized loss on investments (5,021,737) - --------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $ 3,922,460 - --------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED ---------------------------- FEBRUARY 28, FEBRUARY 28, 1995 1994 ------------ ------------ INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------------------- OPERATIONS-- - --------------------------------------------------------------- Net investment income $ 8,944,197 $ 5,123,208 - --------------------------------------------------------------- Net realized gain (loss) on investments ($181,520 net loss and $924,978 net gain, respectively, as computed for federal tax purposes) (2,301,667) 863,884 - --------------------------------------------------------------- Net change in unrealized depreciation of investments (2,720,070) (2,189,669) - --------------------------------------------------------------- ----------- ----------- Change in net assets resulting from operations 3,922,460 3,797,423 - --------------------------------------------------------------- ----------- ----------- DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------------------------- Distributions from net investment income (8,775,580) (5,120,294) - --------------------------------------------------------------- Distributions from net realized gains -- (2,324,618) - --------------------------------------------------------------- Distributions in excess of net realized gains -- (61,491) - --------------------------------------------------------------- ----------- ----------- Change in net assets resulting from distributions to shareholders (8,775,580) (7,506,403) - --------------------------------------------------------------- ----------- ----------- SHARE TRANSACTIONS-- - --------------------------------------------------------------- Proceeds from sale of shares 101,532,823 78,872,953 - --------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 3,719,989 3,614,024 - --------------------------------------------------------------- Cost of shares redeemed (50,781,330) (71,518,109) - --------------------------------------------------------------- ----------- ----------- Change in net assets resulting from share transactions 54,471,482 10,968,868 - --------------------------------------------------------------- ----------- ----------- Change in net assets 49,618,362 7,259,888 - --------------------------------------------------------------- NET ASSETS: - --------------------------------------------------------------- Beginning of period 118,695,123 111,435,235 - --------------------------------------------------------------- ----------- ----------- End of period (including undistributed net investment income of $173,076 and $4,459, respectively) $168,313,485 $118,695,123 - --------------------------------------------------------------- ----------- -----------
(See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of six diversified portfolios. The financial statements included herein present only those of DG Government Income Fund (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--U.S. government securities are generally valued at the mean between the over-the-counter bid and asked prices as furnished by an independent pricing service. Listed corporate bonds (and other fixed-income and asset-backed securities), unlisted securities (and other fixed-income and asset-backed securities and/or private placements), and short-term securities are valued at the prices provided by an independent pricing service. Short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement transaction. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. At February 28, 1995, the Fund, for federal tax purposes, had a capital loss carryforward of $181,520, which will reduce the Fund's taxable income arising from future net realized gain on investments, if any, to the extent permitted by the Code, and thus will reduce the amount of the distributions to shareholders which would otherwise be necessary to relieve the Fund of any liability for federal tax. Pursuant to the Code, such capital loss carryforward will expire as indicated below. Additionally, net capital losses of $2,181,240 attributable to security transactions incurred after October 31, 1994 are treated as arising on March 1, 1995, the first day of the Fund's next taxable year. Expiration Year Expiration Amount --------------- ----------------- 2003 $181,520 WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method not to exceed a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows:
YEAR ENDED ------------------------------- FEBRUARY 28, FEBRUARY 28, 1995 1994 ------------ ------------ - ------------------------------------------------------------ Shares sold 10,805,072 7,738,340 - ------------------------------------------------------------ Shares issued to shareholders in payment of distributions declared 397,343 355,836 - ------------------------------------------------------------ Shares redeemed (5,423,669) (6,968,280) - ------------------------------------------------------------ ------------ ------------ Net change resulting from share transactions 5,778,746 1,125,896 - ------------------------------------------------------------ ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee. The Adviser can modify or terminate this voluntarily waiver at any time at its sole discretion. Under the terms of a sub-advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser equal to .25 of 1% of the Fund's average daily net assets. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust with certain administrative personnel and services. The FAS fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses ($21,681) were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following July 20, 1992 (the date the Fund became effective). For the year ended February 28, 1995, the Fund paid $3,530 pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- (5) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the year ended February 28, 1995, were as follows: - ------------------------------------------------------------------------------- PURCHASES $91,962,430 - ------------------------------------------------------------------------------- ----------- SALES $43,239,680 - ------------------------------------------------------------------------------- -----------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments of the DG Government Income Fund (a portfolio within DG Investor Series) as of February 28, 1995, and the related statement of operations for the period then ended, the statements of changes in net assets for the years ended February 28, 1995 and 1994, and the financial highlights, which is presented on page 2 of this prospectus, for the periods from August 3, 1992 (commencement of operations) to February 28, 1995. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to gain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the DG Government Income Fund at February 28, 1995, and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the periods listed above, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 7, 1995 ADDRESSES - -------------------------------------------------------------------------------- DG Government Federated Investors Tower Income Fund Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 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 Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick LLP One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Investment Adviser Commercial National Bank Shreveport, LA Sub-Adviser APRIL 30, 1995 - -------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2061002A (4/95) The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks including the possible loss of principal. DG MUNICIPAL INCOME FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Municipal Income Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The investment objective of the Fund is to provide dividend income that is exempt from federal regular income tax. The Fund pursues its investment objective by investing in municipal securities. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1995, 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 to the Fund or calling 1-800-530-7377. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Characteristics 4 Participation Interests 4 Variable Rate Municipal Securities 4 Municipal Leases 4 When-Issued and Delayed Delivery Transactions 5 Lending of Portfolio Securities 5 Temporary Investments 5 Other Investment Techniques 5 Municipal Securities 5 Investment Risks 6 Investment Limitations 6 DG INVESTOR SERIES INFORMATION 7 - ------------------------------------------------------ Management of the Trust 7 Board of Trustees 7 Investment Adviser 7 Advisory Fees 7 Adviser's Background 7 Sub-Adviser 8 Sub-Advisory Fees 8 Sub-Adviser's Background 8 Distribution of Fund Shares 8 Distribution Plan 8 Shareholder Servicing Arrangements 9 ADMINISTRATION OF THE FUND 9 - ------------------------------------------------------ Administrative Services 9 Custodian 10 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 10 Independent Auditors 10 Brokerage Transactions 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN THE FUND 10 - ------------------------------------------------------ Share Purchases 10 Through the Banks 10 Minimum Investment Required 11 What Shares Cost 11 Purchases at Net Asset Value 11 Sales Charge Reallowance 11 Reducing the Sales Charge 12 Quantity Discounts and Accumulated Purchases 12 Letter of Intent 12 Reinvestment Privilege 12 Purchases with Proceeds from Redemptions of Unaffiliated Investment Companies 13 Concurrent Purchases 13 Systematic Investment Program 13 Certificates and Confirmations 13 Dividends and Distributions 13 EXCHANGE PRIVILEGE 13 - ------------------------------------------------------ DG Investor Series 13 Exchanging Shares 14 REDEEMING SHARES 14 - ------------------------------------------------------ Through the Banks 14 By Telephone 14 By Mail 15 Signatures 15 Systematic Withdrawal Program 15 Accounts With Low Balances 16 SHAREHOLDER INFORMATION 16 - ------------------------------------------------------ Voting Rights 16 Massachusetts Partnership Law 16 EFFECT OF BANKING LAWS 17 - ------------------------------------------------------ TAX INFORMATION 17 - ------------------------------------------------------ Federal Income Tax 17 Other State and Local Taxes 18 PERFORMANCE INFORMATION 18 - ------------------------------------------------------ FINANCIAL STATEMENTS 19 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 31 - ------------------------------------------------------ ADDRESSES 32 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)......... 2.00% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)............................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds as applicable).............................. None Redemption Fee (as a percentage of amount redeemed, if applicable).................. None Exchange Fee........................................................................ None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1).................................................... 0.25% 12b-1 Fees(2)....................................................................... 0.00% Total Other Expenses................................................................ 0.48% Total Fund Operating Expenses(3)................................................ 0.73%
(1) The management fee has been reduced to reflect the voluntary waiver of the investment advisory fee by the investment adviser. The adviser can terminate this voluntary waiver at any time at its sole discretion. The maximum management fee is 0.60%. (2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee to the distributor. (3) The Annual Fund Operating Expenses were 0.75% for the fiscal year ended February 28, 1995. The Annual Fund Operating Expenses in the above table reflect a reduction in the voluntary waiver of the investment advisory fee for the fiscal year ending February 29, 1996. The Total Fund Operating Expenses are anticipated to be 1.08% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ---------------------------------------------------------------------------------------------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return, (2) redemption at the end of each time period, and (3) payment of the maximum sales load..................................................... $ 27 $ 43 $ 60 $ 109
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 29, 1996. DG MUNICIPAL INCOME FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors, on page 31.
YEAR ENDED FEBRUARY 28, ----------------------------- 1995 1994 1993(A) ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $10.57 $10.51 $10.00 - -------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------------------- Net investment income 0.49 0.48 0.07 - -------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments (0.43) 0.08 0.49 - -------------------------------------------------------------------------- ------ ------ ----- Total from investment operations 0.06 0.56 0.56 - -------------------------------------------------------------------------- LESS DISTRIBUTIONS - -------------------------------------------------------------------------- Distributions from net investment income (0.48) (0.49) (0.05) - -------------------------------------------------------------------------- Distributions from net realized gain on investment transactions -- (0.01) -- - -------------------------------------------------------------------------- ------ ------ ----- Total distributions (0.48) (0.50) (0.05) - -------------------------------------------------------------------------- ------ ------ ----- NET ASSET VALUE, END OF PERIOD $10.15 $10.57 $10.51 - -------------------------------------------------------------------------- ------ ------ ----- TOTAL RETURN(B) 0.81% 5.34% 5.65% - -------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------------- Expenses 0.75% 0.74% 0.48%(c) - -------------------------------------------------------------------------- Net investment income 4.93% 4.60% 4.11%(c) - -------------------------------------------------------------------------- Expense waiver/reimbursement(d) 0.41% 0.67% 1.02%(c) - -------------------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------------------- Net assets end of period, (000 omitted) $41,542 $34,435 $15,644 - -------------------------------------------------------------------------- Portfolio turnover 9% 9% 93% - --------------------------------------------------------------------------
(a) Reflects operations for the period from December 21, 1992 (date of initial public investment) to February 28, 1993. (b) Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if applicable. (c) Computed on an annualized basis. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. Further information about the Fund's performance is contained in the Fund's annual report for the fiscal year ended February 28, 1995, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of government securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE The investment objective of the Fund is to provide dividend income that is exempt from federal regular income tax. Interest income of the Fund that is exempt from federal regular income tax retains its tax-free status when distributed to the Fund's shareholders. This investment objective cannot be changed without the approval of the Fund's shareholders. While there is no assurance that the Fund will achieve its investment objective, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objective by investing in municipal securities. As a matter of investment policy, which may not be changed without shareholder approval, under normal circumstances, the Fund will be invested so that at least 80% of the income from investments will be exempt from federal regular income tax or that at least 80% of its net assets are invested in obligations, the interest from which is exempt from federal regular income tax. Unless indicated otherwise, the investment policies of the Fund may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. The municipal securities in which the Fund invests are: - debt obligations and municipal leases issued by or on behalf of any state, territory, or possession of the United States, including the District of Columbia, or any political subdivision of any of them; and - participation interests, as described below, in any of the above obligations, the interest from which is, in the opinion of bond counsel for the issuers or in the opinion of officers of the Fund and/or the investment adviser to the Fund, exempt from federal regular income tax. CHARACTERISTICS. The municipal securities in which the Fund invests are: - rated "investment grade," i.e., Baa or better by Moody's Investors Service, Inc. ("Moody's"), or BBB or better by Standard & Poor's Ratings Group ("S&P") or Fitch Investors Service, Inc. ("Fitch"); - guaranteed at the time of purchase by the U.S. government, its agencies or instrumentalities, as to the payment of principal and interest; - fully collateralized by an escrow of U.S. government or other securities acceptable to the Fund's investment adviser; - rated at the time of purchase within Moody's highest short-term municipal obligation rating (MIG1/VMIG1) or Moody's highest municipal commercial paper rating (P-1) or S&P's highest short-term municipal commercial paper rating (SP-1) or Fitch's highest tax-exempt municipal obligation rating (FIN-1); - unrated if, at the time of purchase, longer term municipal securities of the issuer are rated Baa or better by Moody's or BBB or better by S&P or Fitch (however, investments in unrated securities will not exceed 20% of the Fund's total assets); or - determined by the Fund's investment adviser to be equivalent to municipal securities which are rated Baa or better by Moody's or BBB or better by S&P or Fitch. It should be noted that securities rated BBB by S&P or Baa by Moody's are considered to have speculative characteristics. Changes in economic conditions or other circumstances are more likely to lead to weakened capacity to make principal and interest payments than higher rated bonds. A description of the rating categories is contained in the Appendix to the Statement of Additional Information. The prices of fixed income securities fluctuate inversely to the direction of interest rates. PARTICIPATION INTERESTS. The Fund may purchase participation interests from financial institutions such as commercial banks, savings and loan associations, and insurance companies. These participation interests give the Fund an undivided interest in municipal securities. The financial institutions from which the Fund purchases participation interests frequently provide or secure irrevocable letters of credit or guarantees to assure that the participation interests are of high quality. The Trustees will determine that participation interests meet the prescribed quality standards for the Fund. VARIABLE RATE MUNICIPAL SECURITIES. The Fund may purchase municipal securities that have variable interest rates. Variable interest rates are ordinarily stated as a percentage of a published interest rate, interest rate index, or some similar standard, such as the 91-day U.S. Treasury bill rate. Many variable rate municipal securities are subject to payment of principal on demand by the Fund, usually in not more than seven days. All variable rate municipal securities will meet the quality standards for the Fund. MUNICIPAL LEASES. Municipal leases are obligations issued by state and local governments or authorities to finance the acquisition of equipment and facilities and may be considered to be illiquid. They may take the form of a lease, an installment purchase contract, or a conditional sales contract. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the portfolio securities loaned at all times. There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. TEMPORARY INVESTMENTS. From time to time, on a temporary basis, or when the investment adviser determines that market conditions call for a temporary defensive posture, the Fund may invest in short-term tax-exempt or taxable temporary investments. These temporary investments include: fixed or variable rate notes issued by or on behalf of municipal or corporate issuers; obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities; other debt securities; securities of other investment companies; commercial paper; certificates of deposit, demand and time deposits, bankers' acceptances, deposit notes, and other instruments of domestic and foreign banks and other deposit institutions ("Bank Instruments"); and repurchase agreements (arrangements in which the institution selling the Fund a bond or temporary investment agrees at the time of sale to repurchase it at a mutually agreed upon time and price). There are no rating requirements applicable to temporary investments. Although the Fund is permitted to make taxable, temporary investments, there is no current intention of generating income subject to federal regular income tax. OTHER INVESTMENT TECHNIQUES. The Fund may purchase a right to sell a security held by it back to the issuer or to another party at an agreed upon price at any time during a stated period or on a certain date. These rights may be referred to as "liquidity puts" or "standby commitments." MUNICIPAL SECURITIES Municipal securities are generally issued to finance public works such as airports, bridges, highways, housing, hospitals, mass transportation projects, schools, streets, and water and sewer works. They are also issued to repay outstanding obligations, to raise funds for general operating expenses, and to make loans to other public institutions and facilities. Municipal securities include industrial development bonds issued by or on behalf of public authorities to provide financing aid to acquire sites or construct and equip facilities for privately or publicly owned corporations. The availability of this financing encourages these corporations to locate within the sponsoring communities and thereby increases local employment. The two principal classifications of municipal securities are "general obligation" and "revenue" bonds. General obligation bonds are secured by the issuer's pledge of its full faith and credit and taxing power for the payment of principal and interest. Interest on and principal of revenue bonds, however, are payable only from the revenue generated by the facility financed by the bond or other specified sources of revenue. Revenue bonds do not represent a pledge of credit or create any debt of or charge against the general revenues of a municipality or public authority. Industrial development bonds are typically classified as revenue bonds. INVESTMENT RISKS Yields on municipal securities depend on a variety of factors, including: the general conditions of the money market and the taxable and municipal bond markets; the size of the particular offering; the maturity of the obligations; and the rating of the issue. The ability of the Fund to achieve its investment objective also depends on the continuing ability of the issuers of municipal securities and participation interests, or the guarantors of either, to meet their obligations for the payment of interest and principal when due. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets and pledge up to 15% of its total assets to secure such borrowings. The above investment limitation cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. The Fund will not: - invest more than 15% of its total assets in securities subject to restrictions on resale under the Securities Act of 1933, except for commercial paper issued under Section 4(2) of the Securities Act of 1933 and certain other restricted securities which meet the criteria for liquidity as established by the Trustees; or - invest more than 15% of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice and certain restricted securities not determined by the Trustees to be liquid. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser, in consultation with the sub-adviser, continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The investment advisory contract provides for the voluntary waiver of expenses by the adviser from time to time. The adviser has undertaken to waive up to the amount of the advisory fee for operating expenses in excess of limitations established by certain states. The adviser may voluntarily choose to waive a portion of its fees or reimburse the Fund for certain other expenses, but reserves the right to terminate such waiver or reimbursement at any time at its sole discretion. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As of December 31, 1994, the Trust Division of Deposit Guaranty National Bank had approximately $9.1 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank and Commercial National Bank. The lending relationships will not be a factor in the selection of securities. William A. Womack is a Vice President and Trust Investment Officer, and has been with Deposit Guaranty National Bank for ten years. Mr. Womack spent eight years prior to joining Deposit Guaranty in the investment brokerage business. A graduate of Louisiana State University, he received a B.S. in Finance, with a minor in Economics. Mr. Womack is a member of the Mississippi Chapter of the Memphis Society of Financial Analysts. Mr. Womack has managed the DG Municipal Income Fund since December 21, 1992 (the inception of the Fund). SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank will form an investment committee (the "Deposit Guaranty Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction. Notwithstanding any other provision in the sub-advisory agreement, the Sub- Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 1994, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, of which it had investment discretion over $856 million. 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, to the Fund since December 12, 1992, and DG Opportunity Fund since May 25, 1994, each a portfolio of the Trust. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of 0.35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may, from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit form future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- ------------------------------------ .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million .075 of 1% on assets in excess of $750 million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick LLP, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800)748-8500 or Commercial National Bank at (800)274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. (Eastern time) on the next business day in order to earn dividends for that day. Payment is considered received after payment by check is converted into federal funds and received by the Banks, normally the next business day. When payment is made with federal funds, the payment is considered received when federal funds are received by the Banks or available in the customer's account. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED ---------------------------------------- ----------------------- -------------------------- Less than $100,000...................... 2.00% 2.04% $100,000 but less than $250,000......... 1.75% 1.78% $250,000 but less than $500,000......... 1.50% 1.52% $500,000 but less than $750,000......... 1.25% 1.27% $750,000 but less than $ 1 million...... 1.00% 1.01% $1 million but less than $2 million..... 0.50% 0.50% $2 million or more...................... 0.25% 0.25%
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through Friday, except on: (i) days on which there are not sufficient changes in the value of the Fund's portfolio securities that its net asset value might be materially affected; (ii) days during which no shares are tendered for redemption and no orders to purchase shares are received; or (iii) on the following federal holidays: New Year's Day, Martin Luther King Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day. In addition, the net asset value will not be calculated on Good Friday. PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset value, without a sales charge by: the Trust Division of the Banks for funds which are held in a fiduciary, agency, custodial, or similar capacity; non-trust customers of financial advisers; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; current and retired directors of the Banks; 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 100% of the applicable sales charge. Any portion of the sales charge which is not paid to the Banks or authorized dealers will be retained by the distributor. The distributor will, periodically, uniformly offer to pay cash or promotional incentives in the form of trips to sales seminars at luxury resorts, tickets or other items to all dealers selling shares of the Fund. Such payments will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or registered broker/dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through: - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchases still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 1.75%, not 2.00%. To receive the sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the purchase is made that Fund shares are already owned or that purchases are being combined. The Fund will reduce the sales charge after it confirms the purchases. LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of shares in the funds in the Trust over the next 13 months, the sales charge may be reduced by signing a letter of intent to that effect. This letter includes a provision for a sales charge adjustment depending on the amount actually purchased within the 13-month period and a provision for the custodian to hold 2.00% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 2.00% held in escrow will be applied to the shareholder's account at the end of the 13-month period unless the amount specified in the letter of intent is not purchased. In this event, an appropriate number of escrowed shares may be redeemed in order to realize the difference in the sales charge. This letter of intent will not obligate the shareholder to purchase shares, but if he does, each purchase during the period will be at the sales charge applicable to the total amount intended to be purchased. The current balance in the shareholder's account will provide a purchase credit towards fulfillment of the letter of intent. REINVESTMENT PRIVILEGE. If shares in 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. PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES. Investors may purchase shares at net asset value, without a sales charge, with the proceeds from the redemption of shares of an investment company which was sold with a sales charge or commission and was not distributed by Federated Securities Corp. The purchase must be made within 60 days of the redemption, and Federated Securities Corp. must be notified by the investor in writing, or by his financial institution, at the time the purchase is made. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in this Fund, the sales charge would be reduced. To receive this sales charge reduction, Federated Securities Corp. must be notified by the shareholder in writing or by the Banks at the time the concurrent purchases are made. The Fund will reduce the sales charge after it confirms the purchases. SYSTEMATIC INVESTMENT PROGRAM Once an account has been opened, shareholders may add to their investment on a regular basis in a minimum amount of $100. Under this program, funds may be automatically withdrawn periodically from the shareholder's checking account and invested in Fund shares. A shareholder may apply for participation in this program through the Banks. CERTIFICATES AND CONFIRMATIONS As transfer agent for the Fund, Federated Services Company maintains a share account for each shareholder. Share certificates are not issued unless requested by contacting the Fund. Detailed confirmations of each purchase or redemption are sent to each shareholder. Monthly confirmations are sent to report dividends paid during the month. DIVIDENDS AND DISTRIBUTIONS Dividends are declared and paid monthly. Distribution of any realized long-term capital gains will be made at least once every twelve months. Dividends are automatically reinvested in additional shares of the Fund on payment dates at the ex-dividend date net asset value without a sales charge, unless cash payments are requested by writing to the Fund or the Banks as appropriate. 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. Prior to any exchange, the shareholder must receive a copy of the current prospectus of the fund into which an exchange is to be effected. Shares may be exchanged at net asset value, plus the difference between the Fund's sales charge (if any) already paid and any sales charge of the fund into which shares are to be exchanged, if higher. When an exchange is made from a fund with a sales charge to a fund with no sales charge, the shares exchanged and additional shares which have been purchased by reinvesting dividends on such shares retain the character of the exchanged shares for purposes of exercising further exchange privileges; thus an exchange of such shares for shares of a fund with an equal sales charge would be at net asset value. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instruction may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time, the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the Bank Insurance Fund, which is administered by the Federal Deposit Insurance Corporation ("FDIC"); - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by the Savings Association Insurance Fund, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments, and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. SHAREHOLDER INFORMATION - -------------------------------------------------------------------------------- VOTING RIGHTS Each share of the Fund gives the shareholder one vote in Trustee elections and other matters submitted to shareholders of the Fund for vote. All shares of all classes of each Fund in the Trust have equal voting rights, except that in matters affecting only a particular Fund or class, only shareholders of that Fund or class are entitled to vote. As a Massachusetts business trust, the Trust is not required to hold annual shareholder meetings. Shareholder approval will be sought only for certain changes in the Trust or Fund's operation and for the election of Trustees under certain circumstances. As of April 17, 1995, Deposit Guaranty National Bank, Jackson, Mississippi, acting in various capacities for numerous accounts, was the owner of record of approximately 3,648,424 shares (90.0%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. Trustees may be removed by the shareholders at a special meeting. A special meeting of the shareholders for this purpose shall be called by the Trustees upon the written request of shareholders owning at least 10% of all shares of the Trust entitled to vote. MASSACHUSETTS PARTNERSHIP LAW Under certain circumstances, shareholders may be held personally liable as partners under Massachusetts law for acts or obligations of the Trust. To protect shareholders, the Trust has filed legal documents with Massachusetts that expressly disclaim the liability of shareholders for such acts or obligations of the Trust. These documents require notice of this disclaimer to be given in each agreement, obligation, or instrument the Trust or its Trustees enter into or sign. In the unlikely event a shareholder is held personally liable for the Trust's obligations, the Trust is required by the Declaration of Trust to use its property to protect or compensate the shareholder. On request, the Trust will defend any claim made and pay any judgment against a shareholder for any act or obligation of the Trust. Therefore, financial loss resulting from liability as a shareholder will occur only if the Trust itself cannot meet its obligations to indemnify shareholders and pay judgments against them from its assets. EFFECT OF BANKING LAWS - -------------------------------------------------------------------------------- The Glass-Steagall Act and other banking laws and regulations presently prohibit a bank holding company registered under the Bank Holding Company Act of 1956 or any bank or non-bank affiliate thereof from sponsoring, organizing or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, and from issuing, underwriting, or distributing securities in general. Such laws and regulations do not prohibit such a holding company or bank or non-bank affiliate from acting as investment adviser, transfer agent or custodian to such an investment company or from purchasing shares of such a company as agent for and upon the order of their customer. The Fund's Adviser and Sub-Adviser, Deposit Guaranty National Bank and Commercial National Bank, respectively, are subject to such banking laws and regulations. The Banks believe, based on the advice of counsel, that they may perform the investment advisory services for the Fund contemplated by the advisory agreement with the Trust and the sub-advisory agreement between the Banks without violating the Glass-Steagall Act or other applicable banking laws or regulations. Such counsel has pointed out, however, that changes in either federal or state statutes and regulations relating to the permissible activities of banks and their subsidiaries or affiliates, as well as further judicial or administrative decisions or interpretations of present or future statutes and regulations, could prevent the Banks from continuing to perform all or a part of the above services for their customers and/or the Fund. In such event, changes in the operation of the Fund may occur, including the possible alteration or termination of any automatic or other Fund share investment and redemption services then being provided, and the Trustees would consider alternative investment advisers and other means of continuing available investment services. It is not expected that Fund shareholders would suffer any adverse financial consequences (if another adviser and/or sub-adviser with equivalent abilities to Deposit Guaranty National Bank and Commercial National Bank are found) as a result of any of these occurrences. TAX INFORMATION - -------------------------------------------------------------------------------- FEDERAL INCOME TAX The Fund will pay no federal income tax because it expects to meet requirements of Subchapter M of the Internal Revenue Code applicable to regulated investment companies and to receive the special tax treatment afforded to such companies. The Fund will be treated as a single, separate entity for federal income tax purposes so that income (including capital gains) and losses realized by the Trust's other funds will not be combined for tax purposes with those realized by the Fund. Shareholders are not required to pay the federal regular income tax on any dividends received from the Fund that represent net interest on tax-exempt municipal securities. However, under the Tax Reform Act of 1986, dividends representing net interest earned on certain "private activity" bonds issued after August 7, 1986, may be included in calculating the federal individual alternative minimum tax or the federal alternative minimum tax for corporations. The Fund may purchase all types of municipal bonds, including private activity bonds. The alternative minimum tax applies when it exceeds the regular tax for the taxable year. Alternative minimum taxable income is equal to the regular taxable income of the taxpayer increased by certain "tax preference" items not included in regular taxable income and reduced by only a portion of the deductions allowed in the calculation of the regular tax. Shareholders should consult with their tax adviser to determine whether they are subject to the alternative minimum tax or the corporate alternative minimum tax and, if so, the tax treatment of dividends paid by the Fund. Dividends of the Fund representing net interest income earned on some temporary investments and any realized net short-term gains are taxed as ordinary income. Distributions representing net long-term capital gains realized by the Fund, if any, will be taxable as long-term capital gains regardless of the length of time shareholders have held their shares. These tax consequences apply whether dividends are received in cash or as additional shares. Information on the tax status of dividends and distributions is provided annually. OTHER STATE AND LOCAL TAXES Distributions representing net interest received on tax-exempt municipal securities are not necessarily free from income taxes of any state or local taxing authority. State laws differ on this issue and shareholders are urged to consult their own tax adviser regarding the status of their accounts under state and local tax laws. PERFORMANCE INFORMATION - -------------------------------------------------------------------------------- From time to time the Fund advertises its total return, yield, and tax-equivalent yield. Total return represents the change, over a specified period of time, in the value of an investment in the Fund after reinvesting all income and capital gains distributions. It is calculated by dividing that change by the initial investment and is expressed as a percentage. The yield of the Fund is calculated by dividing the net investment income per share (as defined by the Securities and Exchange Commission) earned by the Fund over a thirty-day period by the maximum offering price per share of the Fund on the last day of the period. This number is then annualized using semi-annual compounding. The tax-equivalent yield of the Fund is calculated similarly to the yield, but is adjusted to reflect the taxable yield that the Fund would have had to earn to equal its actual yield, assuming a specific tax rate. The yield and the tax-equivalent yield do not necessarily reflect income actually earned by the Fund and, therefore, may not correlate to the dividends or other distributions paid to shareholders. The performance information reflects the effect of the maximum sales load which, if reduced or excluded, would increase the total return, yield, and tax-equivalent yield. From time to time, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. DG MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1995 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- MUNICIPAL SECURITIES--97.0% - ---------------------------------------------------------------------- ALABAMA--3.6% -------------------------------------------------------- $ 500,000 Huntsville, AL, 6.00% GO Bonds, 11/1/2012 (Callable 11/1/2002 @ 102) AA $ 503,960 -------------------------------------------------------- 1,000,000 Jefferson County, AL, 6.00% Sewer Revenue Bonds (Original Issue Discount: 6.30%), 9/1/2013 (Callable 9/1/2002 @ 102) A1 990,080 -------------------------------------------------------- ----------- Total 1,494,040 -------------------------------------------------------- ----------- ARIZONA--2.2% -------------------------------------------------------- 1,000,000 Phoenix, AZ, 4.90% GO Bonds (Series C), 7/1/2008 AA+ 925,880 -------------------------------------------------------- ----------- CALIFORNIA--2.4% -------------------------------------------------------- 1,000,000 State of California, 5.75% GO UT Bonds, 5/1/2007 (Callable 5/1/2005 @ 102) A1 999,900 -------------------------------------------------------- ----------- CONNECTICUT--2.5% -------------------------------------------------------- 1,000,000 State of Connecticut, 5.80% GO UT Bonds (Series C), 8/15/2008 (Callable 8/15/2004 @ 101) Aa 1,017,570 -------------------------------------------------------- ----------- FLORIDA--7.0% -------------------------------------------------------- 1,000,000 Broward County, FL, School District, 5.60% UT Bonds, 2/15/2007 (Callable 2/15/2003 @ 102) AA 1,003,000 -------------------------------------------------------- 1,000,000 Jacksonville, FL, Electric Authority, 5.50% Refunding Revenue Bonds, 10/1/2013 Aa1 954,050 -------------------------------------------------------- 1,000,000 St. Petersburg, FL, Public Utilities, 5.50% Revenue Bonds, 10/1/2009 Aa 969,710 -------------------------------------------------------- ----------- Total 2,926,760 -------------------------------------------------------- ----------- HAWAII--1.2% -------------------------------------------------------- 500,000 State of Hawaii, 5.75% GO Bonds, 1/1/2008 AA 507,215 -------------------------------------------------------- ----------- ILLINOIS--5.9% -------------------------------------------------------- 500,000 Metropolitan Fair and Expo Authority, 6.00% Revenue Bonds (MBIA Insured), 6/1/2014 AAA 490,440 -------------------------------------------------------- 500,000 Du Page County, IL, 5.40% GO Bonds, 1/1/2007 AAA 490,115 --------------------------------------------------------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------- ILLINOIS--CONTINUED -------------------------------------------------------- $ 1,000,000 State of Illinois, 5.60% GO UT Bonds, 4/1/2008 (Callable 4/1/2004 @ 102) Aa $ 972,840 -------------------------------------------------------- 500,000 State of Illinois, 5.875% GO Bonds, 6/1/2011 (Callable 6/1/2002 @ 102) Aa 490,970 -------------------------------------------------------- ----------- Total 2,444,365 -------------------------------------------------------- ----------- INDIANA--1.3% -------------------------------------------------------- 500,000 Indianapolis, IN, 6.00% Local Public Improvement GO Bonds, 7/1/2010 (Callable 7/1/2003 @ 102) Aa 511,550 -------------------------------------------------------- ----------- KENTUCKY--2.2% -------------------------------------------------------- 1,000,000 State of Kentucky, Property & Building Commission, 5.00% Revenue Refunding Bonds (Project No. 55), 9/1/2009 A 896,850 -------------------------------------------------------- ----------- LOUISIANA--1.2% -------------------------------------------------------- 500,000 Louisiana Public Facilities Authority, 6.05% Hospital Revenue Refunding Bonds (MBIA Insured), 12/1/2008 AAA 511,880 -------------------------------------------------------- ----------- MARYLAND--2.4% -------------------------------------------------------- 1,000,000 State of Maryland, 5.50% GO UT Bonds (Series BB), 6/1/2009 (Callable 6/1/2004 @ 102) AAA 989,200 -------------------------------------------------------- ----------- MASSACHUSETTS--1.1% -------------------------------------------------------- 450,000 State of Massachusetts, 6.00% GO Bonds (Consolidated Loan Series A)/(Capital Guaranty Insured), 6/1/2011 AAA 454,149 -------------------------------------------------------- ----------- MISSISSIPPI--19.4% -------------------------------------------------------- 300,000 Hinds County, MS, 5.40% Hospital Revenue Bonds (Mississippi Methodist Hospital & Rehabilitation)/(AMBAC Insured), 5/1/2006 AAA 295,596 -------------------------------------------------------- 1,000,000 Hinds County, MS, 5.50% GO UT Refunding Bonds (MBIA Insured), 3/1/2008 AAA 983,590 -------------------------------------------------------- 400,000 Jackson County, MS, 5.60% GO Bonds (Series B), 5/1/2008 A 393,024 -------------------------------------------------------- 400,000 Jackson County, MS, 5.70% GO Bonds (Series B), 5/1/2009 A 393,288 --------------------------------------------------------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------- MISSISSIPPI--CONTINUED -------------------------------------------------------- $ 1,125,000 Jackson, MS, 5.85% GO UT Bonds (MBIA Insured), 5/1/2006 (Callable 5/1/2002 @ Par) AAA $ 1,147,984 -------------------------------------------------------- 500,000 Jackson, MS, Redevelopment Authority Urban Renewal, 5.75%, 7/1/2008 A 488,585 -------------------------------------------------------- 700,000 Lamar County, MS, 4.85% Pollution Control Revenue Bonds, 12/1/2006 (Callable 12/1/2003 @ Par) Aa3 623,469 -------------------------------------------------------- 1,000,000 Madison County, MS, 5.10% Refunding School District GO Bonds (AMBAC Insured), 6/1/2008 AAA 942,830 -------------------------------------------------------- 1,000,000 Mississippi Hospital Equipment & Facilities Authority, 5.50% Revenue Refunding & Improvement Bonds (AMBAC Insured), 5/15/2009 AAA 965,500 -------------------------------------------------------- 900,000 Mississippi Hospital Equipment & Facilities, 5.55% Revenue Bonds (Rankin Medical Center), 3/1/2014 A 791,406 -------------------------------------------------------- 1,000,000 State of Mississippi, 5.90% Capital Improvement GO Bonds (Original Issue Discount: 5.95%), 12/15/2008 AAA 1,046,260 -------------------------------------------------------- ----------- Total 8,071,532 -------------------------------------------------------- ----------- MISSOURI--1.2% -------------------------------------------------------- 500,000 State of Missouri Water Pollution Control, 5.25% GO Bonds (Series B), 8/1/2008 (Callable 8/1/2008 @ Par) AAA 487,290 -------------------------------------------------------- ----------- MONTANA--2.2% -------------------------------------------------------- 1,000,000 State of Montana, 4.875% GO Bonds (Series A), 8/1/2009 Aa 916,790 -------------------------------------------------------- ----------- NEVADA--3.4% -------------------------------------------------------- 500,000 Las Vegas Valley, NV, 5.75% Water District (MBIA Insured), 9/1/2008 AAA 501,805 -------------------------------------------------------- 1,000,000 State of Nevada, 4.90% Refunding Bonds, (Project R-5)/(Series A), 11/1/2007 AA 926,700 -------------------------------------------------------- ----------- Total 1,428,505 -------------------------------------------------------- ----------- NEW JERSEY--1.2% -------------------------------------------------------- 500,000 State of New Jersey, 5.90% Refunding GO Bonds (Series B), 2/15/2008 AA+ 512,470 -------------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------- NORTH CAROLINA--5.6% -------------------------------------------------------- $ 1,000,000 North Carolina Eastern Municipal Power Agency, 5.50% Revenue Refunding Bonds (Series C)/(Original Issue Discount: 5.70%), 1/1/2007 A $ 916,640 -------------------------------------------------------- 500,000 North Carolina Eastern Municipal Power Agency, 6.125% Revenue Refunding Bonds (Series B)/(Original Issue Discount: 6.30%), 1/1/2009 A 491,040 -------------------------------------------------------- 1,000,000 North Carolina Municipal Power Agency, 5.75% #1 Catawba Electric Revenue Bonds, 1/1/2015 (Callable 1/1/2015 @ Par) A 917,980 -------------------------------------------------------- ----------- Total 2,325,660 -------------------------------------------------------- ----------- NORTH DAKOTA--1.2% -------------------------------------------------------- 500,000 North Dakota Building Authority, 6.00% Revenue Bonds (Series A)/(MBIA Insured), 6/1/2010 AAA 509,530 -------------------------------------------------------- ----------- OREGON--2.3% -------------------------------------------------------- 1,000,000 Portland, OR, 4.90% GO Bonds, 10/1/2007 AAA 939,880 -------------------------------------------------------- ----------- PENNSYLVANIA--1.1% -------------------------------------------------------- 450,000 State of Pennsylvania, 5.875% GO UT Bonds, 12/1/2006 AA 462,046 -------------------------------------------------------- ----------- RHODE ISLAND--1.2% -------------------------------------------------------- 500,000 Providence, RI, 5.90% GO Bonds, 1/15/2009 (Callable 1/15/2002 @ 101) AA+ 507,580 -------------------------------------------------------- ----------- TENNESSEE--4.7% -------------------------------------------------------- 1,000,000 Memphis, TN, 4.90% GO Bonds (Series A), 8/1/2006 (Callable 8/1/2002 @ 101) AA 947,930 -------------------------------------------------------- 1,000,000 Metropolitan Government Nashville & Davidson County, TN, 5.70% GO Bonds (Original Issue Discount: 5.80%), 5/15/2007 (Callable 5/15/2002 @ 102) AA 1,013,490 -------------------------------------------------------- ----------- Total 1,961,420 -------------------------------------------------------- ----------- TEXAS--9.1% -------------------------------------------------------- 500,000 Corpus Christi, TX, 6.00% GO Bonds (Series 1993), 3/1/2010 (Callable 3/1/2003 @ Par) AAA 508,570 --------------------------------------------------------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------- TEXAS--CONTINUED -------------------------------------------------------- $ 500,000 El Paso, TX, 5.75% Refunding Bonds (Series A), 7/1/2007 (Callable 7/1/2002 @ Par) AAA $ 504,120 -------------------------------------------------------- 500,000 Harris County, TX, 6.20% Flood Control Bonds (Series B), 10/1/2011 (Callable 10/1/2002 @ Par) AA+ 531,325 -------------------------------------------------------- 500,000 Houston, TX, 5.90% Water & Sewer Revenue Bonds, 12/1/2005 (Callable 2/1/2002 @ 102) AAA 517,950 -------------------------------------------------------- 1,000,000 Houston, TX, School District, 5.50% Refunding Bonds, 8/15/2008 AAA 989,670 -------------------------------------------------------- 205,000 San Antonio, TX, 6.00% Electric and Gas Revenue Refunding Bonds (MBIA Insured), 2/1/2008 (Callable 2/1/2002 @ 101) AA 215,861 -------------------------------------------------------- 500,000 State of Texas Public Finance Authority, 5.90% GO Bonds (Original Issue Discount: 6.00%), 10/1/2011 (Callable 4/1/2005 @ Par) AA 502,610 -------------------------------------------------------- ----------- Total 3,770,106 -------------------------------------------------------- ----------- VIRGINIA--3.6% -------------------------------------------------------- 1,000,000 Fairfax County, VA, 5.50% Public Improvement, GO UT Bonds (Series A), 6/1/2008 (Callable 6/1/2002 @ 102) AAA 998,040 -------------------------------------------------------- 500,000 State of Virginia, Transportation Board, 6.00% Revenue Bonds, 4/1/2010 (Callable 4/1/2002 @ 102) AA 507,660 -------------------------------------------------------- ----------- Total 1,505,700 -------------------------------------------------------- ----------- WASHINGTON--5.3% -------------------------------------------------------- 500,000 King County, WA, 6.00% GO Bonds (Series A), 12/1/2010 (Callable 12/1/2003 @ Par) AA+ 504,685 -------------------------------------------------------- 500,000 Port of Seattle, WA, 6.25% GO Bonds (Series A), 11/1/2010 (Callable 11/1/2002 @ 102) Aa 517,550 -------------------------------------------------------- 500,000 State of Washington, 6.25% GO Bonds, 9/1/2009 (Callable 9/1/2001 @ Par) AA 512,050 -------------------------------------------------------- 650,000 Tacoma, WA, 6.25% Electric Revenue Bonds (AMBAC Insured), 1/1/2011 (Callable 1/1/2002 @ 102) AAA 668,135 -------------------------------------------------------- ----------- Total 2,202,420 -------------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT CREDIT OR SHARES RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- MUNICIPAL SECURITIES--CONTINUED - ---------------------------------------------------------------------- WISCONSIN--2.5% -------------------------------------------------------- $ 500,000 Green Bay, WI, 6.00% GO Bonds, 4/1/2010 Aa $ 503,510 -------------------------------------------------------- 500,000 State of Wisconsin, 6.30% GO Bonds (Series A), 5/1/2012 (Callable 5/1/2002 @ Par) AA 533,465 -------------------------------------------------------- ----------- Total 1,036,975 -------------------------------------------------------- ----------- TOTAL MUNICIPAL SECURITIES (IDENTIFIED COST, $40,804,966) 40,317,263 -------------------------------------------------------- ----------- MUTUAL FUNDS--0.3% - ---------------------------------------------------------------------- 139,539 Lehman Municipal Money Market Fund (AT NET ASSET VALUE) 139,539 -------------------------------------------------------- ----------- TOTAL INVESTMENTS (IDENTIFIED COST, $40,944,505) $40,456,802+ -------------------------------------------------------- -----------
+ The cost of investments for federal tax purposes amounts to $40,944,505. The unrealized depreciation of investments on a federal tax basis amounts to $487,703, which is comprised of $909,804 appreciation and $1,397,507 depreciation at February 28, 1995. * Please refer to the Appendix of the Statement of Additional Information for an explanation of the credit ratings. Current credit ratings are unaudited. Note: The categories of investments are shown as a percentage of net assets ($41,542,143) at February 28, 1995. The following abbreviations are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation GO -- General Obligation MBIA -- Municipal Bond Investors Insurance UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Investments in securities, at value (identified cost and tax cost, $40,944,505) $40,456,802 - -------------------------------------------------------------------------------- Income receivable 642,032 - -------------------------------------------------------------------------------- Receivable for investments sold 1,018,011 - -------------------------------------------------------------------------------- Receivable for shares sold 10,000 - -------------------------------------------------------------------------------- Deferred expenses 3,045 - -------------------------------------------------------------------------------- ----------- Total assets 42,129,890 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for investments purchased $497,884 - --------------------------------------------------------------------- Payable for shares redeemed 61,475 - --------------------------------------------------------------------- Accrued expenses 18,075 - --------------------------------------------------------------------- Payable to transfer agent 3,720 - --------------------------------------------------------------------- Payable to portfolio accountant 6,593 - --------------------------------------------------------------------- -------- Total liabilities 587,747 - -------------------------------------------------------------------------------- ----------- Net Assets for 4,090,893 shares outstanding $41,542,143 - -------------------------------------------------------------------------------- ----------- NET ASSETS CONSISTS OF: - -------------------------------------------------------------------------------- Paid in capital $41,992,509 - -------------------------------------------------------------------------------- Net unrealized depreciation of investments (487,703) - -------------------------------------------------------------------------------- Accumulated net realized gain on investments 11,477 - -------------------------------------------------------------------------------- Undistributed net investment income 25,860 - -------------------------------------------------------------------------------- ----------- Total Net Assets $41,542,143 - -------------------------------------------------------------------------------- ----------- NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PROCEEDS PER SHARE: Net Asset Value Per Share ($41,542,143 / 4,090,893 shares outstanding) $10.15 - -------------------------------------------------------------------------------- ----------- Offering Price Per Share (100/98 of $10.15)* $10.36 - -------------------------------------------------------------------------------- -----------
* See "What Shares Cost." (See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------------------- Interest $ 2,134,466 - -------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------- Investment advisory fee $225,528 - --------------------------------------------------------------------- Administrative personnel and services fee 47,162 - --------------------------------------------------------------------- Custodian fees 19,251 - --------------------------------------------------------------------- Transfer agent and dividend disbursing agent fees and expenses 29,698 - --------------------------------------------------------------------- Directors'/Trustees' fees 2,274 - --------------------------------------------------------------------- Auditing fees 12,004 - --------------------------------------------------------------------- Legal fees 2,257 - --------------------------------------------------------------------- Portfolio accounting fees 53,864 - --------------------------------------------------------------------- Share registration costs 21,273 - --------------------------------------------------------------------- Printing and postage 10,770 - --------------------------------------------------------------------- Insurance premiums 5,702 - --------------------------------------------------------------------- Miscellaneous 5,409 - --------------------------------------------------------------------- -------- Total expenses 435,192 - --------------------------------------------------------------------- Deduct--Waiver of investment advisory fee 154,111 - --------------------------------------------------------------------- -------- Net expenses 281,081 - -------------------------------------------------------------------------------- ----------- Net investment income 1,853,385 - -------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - -------------------------------------------------------------------------------- Net realized gain on investments 11,477 - -------------------------------------------------------------------------------- Net change in unrealized depreciation of investments (1,201,336) - -------------------------------------------------------------------------------- ----------- Net realized and unrealized loss on investments (1,189,859) - -------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $ 663,526 - -------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED ------------------------------- FEBRUARY 28, FEBRUARY 28, 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 1,853,385 $ 1,184,276 - -------------------------------------------------------------- Net realized gain on investments ($11,477 and $20,558, respectively, as computed for federal tax purposes) 11,477 20,558 - -------------------------------------------------------------- Net change in unrealized appreciation (depreciation) of investments (1,201,336) 52,310 - -------------------------------------------------------------- ------------- ------------- Change in net assets resulting from operations 663,526 1,257,144 - -------------------------------------------------------------- ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------------- Distributions from net investment income (1,838,300) (1,193,319) - -------------------------------------------------------------- Distributions from net realized gains -- (20,558) - -------------------------------------------------------------- ------------- ------------- Change in net assets resulting from distributions to shareholders (1,838,300) (1,213,877) - -------------------------------------------------------------- ------------- ------------- SHARE TRANSACTIONS-- - -------------------------------------------------------------- Proceeds from sale of shares 17,562,723 25,360,605 - -------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 18,007 9,035 - -------------------------------------------------------------- Cost of shares redeemed (9,298,915) (6,622,204) - -------------------------------------------------------------- ------------- ------------- Change in net assets resulting from share transactions 8,281,815 18,747,436 - -------------------------------------------------------------- ------------- ------------- Change in net assets 7,107,041 18,790,703 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 34,435,102 15,644,399 - -------------------------------------------------------------- ------------- ------------- End of period (including undistributed net investment income of $25,860 and $10,775, respectively) $41,542,143 $34,435,102 - -------------------------------------------------------------- ------------- -------------
(See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investors Series (the "Fund") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of six diversified portfolios. The financial statements included herein present only those of DG Municipal Income Fund (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--Municipal bonds are valued by an independent pricing service, taking into consideration yield, liquidity, risk, credit quality, coupon, maturity, type of issue, and any other factors or market data the pricing service deems relevant in determining valuations for normal institutional size trading units of debt securities. The independent pricing service does not rely exclusively on quoted prices. Short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-end investment companies are valued at net asset value. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). Distributions to shareholders are recorded on the ex-dividend date. FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method not to exceed a period of five years from the Fund's commencement date. DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows:
YEAR ENDED FEBRUARY 28, ----------------------------- 1995 1994 - --------------------------------------------------------------- ---------- ---------- Shares sold 1,764,990 2,391,912 - --------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 1,825 844 - --------------------------------------------------------------- Shares redeemed (933,737) (623,977) - --------------------------------------------------------------- ---------- ---------- Net change resulting from share transactions 833,078 1,768,779 - --------------------------------------------------------------- ---------- ----------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .60 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. Under the terms of a sub-advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser equal to .25 of 1% of the Fund's average daily net assets. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services. The FAS fee is based on the level of average aggregate net assets of the Fund for the period. FAS may voluntarily choose to waive a portion of its fee. TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") serves as transfer agent and dividend disbursing agent for the Fund. The fee is based on the size, type, and number of accounts and transactions made by shareholders. FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses ($25,535) were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following December 2, 1992 (the date the Fund became effective). For the year ended February 28, 1995, the Fund paid $3,864 pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Fund are Officers and Directors or Trustees of the above companies. DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- (5) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the period ended February 28, 1995, were as follows: - ------------------------------------------------------------------------------- PURCHASES $12,020,016 - ------------------------------------------------------------------------------- ----------- SALES $ 3,315,383 - ------------------------------------------------------------------------------- -----------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments of the DG Municipal Income Fund (a portfolio within DG Investor Series) as of February 28, 1995, and the related statements of operations for the year then ended, the statement of changes in net assets for the years ended February 28, 1995 and 1994, and the financial highlights, which is presented on page 2 of this prospectus, for the periods from December 21, 1992 (commencement of operations) to February 28, 1995. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to gain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the DG Municipal Income Fund at February 28, 1995, and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the periods listed above in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 7, 1995 ADDRESSES - -------------------------------------------------------------------------------- DG Municipal Income Fund Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 23100 Jackson, Mississippi 39225-3100 - ------------------------------------------------------------------------------------------------ Sub-Adviser Commercial National Bank P.O. Box 21119 Shreveport, Louisiana 71152 - ------------------------------------------------------------------------------------------------ Custodian State Street Bank and Trust Company P.O. Box 1713 Boston, Massachusetts 02105 - ------------------------------------------------------------------------------------------------ Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent Federated Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick LLP One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Investment Adviser Commercial National Bank Shreveport, LA Sub-Adviser APRIL 30, 1995 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2112511A (4/95) The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks including the possible loss of principal. DG EQUITY FUND (A PORTFOLIO OF DG INVESTOR SERIES) PROSPECTUS The shares of DG Equity Fund (the "Fund") offered by this prospectus represent interests in a diversified portfolio of DG Investor Series (the "Trust"), an open-end, management investment company (a mutual fund). The primary investment objective of the Fund is to provide long-term capital appreciation. Current income is a secondary objective. The Fund pursues its investment objectives by investing primarily in a professionally managed, diversified portfolio of equity securities. THE SHARES OFFERED BY THIS PROSPECTUS ARE NOT DEPOSITS OR OBLIGATIONS OF DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, ARE NOT ENDORSED OR GUARANTEED BY DEPOSIT GUARANTY NATIONAL BANK OR COMMERCIAL NATIONAL BANK, AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENT AGENCY. INVESTMENT IN THESE SHARES INVOLVES INVESTMENT RISKS INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. This prospectus contains the information you should read and know before you invest in the Fund. Keep this prospectus for future reference. The Fund has also filed a Statement of Additional Information dated April 30, 1995, with the Securities and Exchange Commission. The information contained in the Statement of Additional Information is incorporated by reference in this prospectus. You may request a copy of the Statement of Additional Information free of charge, obtain other information, or make inquiries about the Fund by writing to the Fund or calling 1-800-530-7377. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Repurchase Agreements 4 Securities of Foreign Issuers 4 Put and Call Options 4 Futures Contracts and Options on Futures 5 Risks 5 When-Issued and Delayed Delivery Transactions 5 Lending of Portfolio Securities 5 Temporary Investments 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 8 Distribution of Fund Shares 8 Distribution Plan 8 Shareholder Servicing Arrangements 9 ADMINISTRATION OF THE FUND 9 - ------------------------------------------------------ Administrative Services 9 Custodian 9 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 9 Independent Auditors 9 Brokerage Transactions 10 NET ASSET VALUE 10 - ------------------------------------------------------ INVESTING IN THE FUND 10 - ------------------------------------------------------ Share Purchases 10 Through the Banks 10 Minimum Investment Required 10 What Shares Cost 11 Purchases at Net Asset Value 11 Sales Charge Reallowance 11 Reducing the Sales Charge 11 Quantity Discounts and Accumulated Purchases 12 Letter of Intent 12 Reinvestment Privilege 12 Purchases with Proceeds from Redemptions of Unaffiliated Investment Companies 12 Concurrent Purchases 13 Systematic Investment Program 13 Certificates and Confirmations 13 Dividends and Distributions 13 EXCHANGE PRIVILEGE 13 - ------------------------------------------------------ DG Investor Series 13 Exchanging Shares 13 REDEEMING SHARES 14 - ------------------------------------------------------ Through the Banks 14 By Telephone 14 By Mail 14 Signatures 15 Systematic Withdrawal Program 15 Accounts With Low Balances 15 SHAREHOLDER INFORMATION 16 - ------------------------------------------------------ Voting Rights 16 Massachusetts Partnership Law 16 EFFECT OF BANKING LAWS 16 - ------------------------------------------------------ TAX INFORMATION 17 - ------------------------------------------------------ Federal Income Tax 17 PERFORMANCE INFORMATION 17 - ------------------------------------------------------ FINANCIAL STATEMENTS 19 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 29 - ------------------------------------------------------ ADDRESSES 30 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)........... 3.50% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)................................................. None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)............................... None Redemption Fee (as a percentage of amount redeemed, if applicable).................... None Exchange Fee.......................................................................... None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee........................................................................ 0.75% 12b-1 Fees(1)......................................................................... 0.00% Total Other Expenses.................................................................. 0.20% Total Fund Operating Expenses.................................................... 0.95%
(1) As of the date of this prospectus, the Fund is not paying or accruing 12b-1 fees. The Fund will not accrue or pay 12b-1 fees until a separate class of shares has been created for certain institutional investors. The Fund can pay up to 0.35% as a 12b-1 fee to the distributor. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment, assuming (1) 5% annual return, (2) redemption at the end of each time period, and (3) payment of the maximum sales load......... $ 44 $64 $86 $148
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. DG EQUITY FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors, on page 29.
YEAR ENDED FEBRUARY 28, ------------------------------ 1995 1994 1993(A) ------ ------ ------ NET ASSET VALUE, BEGINNING OF PERIOD $10.87 $10.54 $10.00 - ---------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------- Net investment income 0.16 0.14 0.12 - ---------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.71 0.38 0.52 - ---------------------------------------------------------- ------ ------ ------ Total from investment operations 0.87 0.52 0.64 - ---------------------------------------------------------- ------ ------ ------ LESS DISTRIBUTIONS - ---------------------------------------------------------- Distributions from net investment income (0.16) (0.14) (0.10) - ---------------------------------------------------------- Distributions from net realized gain on investment transactions (0.17) (0.05) -- - ---------------------------------------------------------- ------ ------ ------ Total distributions (0.33) (0.19) (0.10) - ---------------------------------------------------------- ------ ------ ------ NET ASSET VALUE, END OF PERIOD $11.41 $10.87 $10.54 - ---------------------------------------------------------- ------ ------ ------ TOTAL RETURN(B) 8.23% 4.99% 6.40% - ---------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------- Expenses 0.95% 0.96% 0.51%(c) - ---------------------------------------------------------- Net investment income 1.54% 1.38% 2.15%(c) - ---------------------------------------------------------- Expense waiver/reimbursement(d) -- 0.01% 0.53%(c) - ---------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------- Net assets, end of period (000 omitted) $259,998 $284,203 $181,239 - ---------------------------------------------------------- Portfolio turnover 1% 7% 28% - ----------------------------------------------------------
(a) Reflects operations for the period from August 3, 1992 (date of initial public investment) to February 28, 1993. (b) Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if applicable. (c) Computed on an annualized basis. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. Further information about the Fund's performance is contained in the Fund's annual report for the fiscal year ended February 28, 1995, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of equity securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVES The primary investment objective of the Fund is to provide long-term capital appreciation. Current income is a secondary objective. The investment objectives cannot be changed without approval of shareholders. While there is no assurance that the Fund will achieve its investment objectives, it endeavors to do so by following the investment policies described in this prospectus. INVESTMENT POLICIES The Fund pursues its investment objectives by investing at least 70% of its assets in equity securities. The equity securities in which the Fund may invest include, but are not limited to, large capitalization stocks which, in the opinion of the Fund's investment adviser, have potential to provide for capital appreciation and current income. Issuers of large capitalization stocks have equity market valuation in excess of $1 billion. Unless indicated otherwise, the investment policies of the Fund may be changed by the Board of Trustees ("Trustees") without the approval of shareholders. Shareholders will be notified before any material change in these policies becomes effective. ACCEPTABLE INVESTMENTS. Consistent with the above, the Fund invests primarily in: - common stock of U.S. companies which are either listed on the New York or American Stock Exchange or traded in over-the-counter markets, preferred stock of such companies, warrants, and preferred stock convertible into common stock of such companies; - investments in American Depositary Receipts ("ADRs") of foreign companies traded on the New York Stock Exchange or in the over-the-counter market; - convertible bonds rated at least BBB by Standard & Poor's Ratings Group ("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. 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. The prices of fixed income securities fluctuate inversely to the direction of interest rates. - money market instruments; - fixed rate notes and bonds and adjustable and variable rate notes of companies whose common stock it may acquire; - zero coupon convertible securities; and - obligations, including certificates of deposit and bankers' acceptances, of banks or savings and loan associations having at least $1 billion in deposits as of the date of their most recently published financial statements and which are insured by the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund ("SAIF"), both of which are administered by the Federal Deposit Insurance Corporation ("FDIC"), including U.S. branches of foreign banks and foreign branches of U.S. banks. REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be purchased pursuant to repurchase agreements. Repurchase agreements are arrangements in which banks, broker/dealers, and other recognized financial institutions sell U.S. government securities to the Fund and agree at the time of sale to repurchase them at a mutually agreed upon time and price. To the extent that the seller does not repurchase the securities from the Fund, the Fund could receive less than the repurchase price on any sale of such securities. SECURITIES OF FOREIGN ISSUERS. The Fund may invest in securities of foreign issuers traded on the New York or American Stock Exchange or in the over-the-counter market in the form of depositary receipts. Securities of a foreign issuer may present greater risks in the form of nationalization, confiscation, domestic marketability, or other national or international restrictions. As a matter of practice, the Fund will not invest in the securities of a foreign issuer if any such risk appears to the investment adviser to be substantial. PUT AND CALL OPTIONS. The Fund may purchase put options on its portfolio securities as a hedge to attempt to protect securities which the Fund holds, or will be purchasing, against decreases in value. The Fund may also write (sell) call options on all or any portion of its portfolio to generate income for the Fund. The Fund will write call options on securities either held in its portfolio or which it has the right to obtain without payment of further consideration or for which it has segregated cash or U.S. government securities in the amount of any additional consideration. The Fund may purchase and write over-the-counter options on portfolio securities in negotiated transactions with the buyers or writers of the options when options on the portfolio securities held by the Fund are not traded on an exchange. The Fund purchases and writes options only with investment dealers and other financial institutions (such as commercial banks or savings and loan associations) deemed creditworthy by the Fund's adviser. Over-the-counter options are two-party contracts with price and terms negotiated between buyer and seller. In contrast, exchange-traded options are third-party contracts with standardized strike prices and expiration dates and are purchased from a clearing corporation. Exchange-traded options have a continuous liquid market, while over-the-counter options may not. The Fund will not buy call options or write put options without further notification to shareholders. FUTURES CONTRACTS AND OPTIONS ON FUTURES. The Fund may purchase and sell financial futures and stock index futures contracts to hedge all or a portion of its portfolio against changes in the price of its portfolio securities, but will not engage in futures transactions for speculative purposes. The Fund may also write call options and purchase put options on financial futures and stock index futures contracts as a hedge to attempt to protect securities in its portfolio against decreases in value. The Fund may not purchase or sell futures contracts or related options if immediately thereafter the sum of the amount of margin deposits on the Fund's existing futures positions and premiums paid for related options would exceed 5% of the market value of the Fund's total assets. RISKS. When the Fund writes a call option, the Fund risks not participating in any rise in the value of the underlying security. In addition, when the Fund uses futures and options on futures as hedging devices, there is a risk that the prices of the securities subject to the futures contracts may not correlate perfectly with the prices of the securities in the Fund's portfolio. This may cause the futures contract and any related options to react differently than the portfolio securities to market changes. In addition, the Fund's investment adviser could be incorrect in its expectations about the direction or extent of market factors, such as interest rate and stock price movements. In these events, the Fund may lose money on the futures contract or option. It is not certain that a secondary market for positions in futures contracts or options will exist at all times. Although the investment adviser will consider liquidity before entering into options transactions, there is no assurance that a liquid secondary market will exist for any particular futures contract or option at any particular time. The Fund's ability to establish and close out futures and options positions depends on this secondary market. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest temporarily in cash and cash items during times of unusual market conditions and to maintain liquidity. Cash items may include short-term obligations such as: - commercial paper rated A-1 or A-2 by Standard & Poor's, 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 LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. The above limitation cannot be changed without shareholder approval. The following limitations, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in these limitations becomes effective. The Fund will not: - invest more than 15% of its net assets in illiquid securities, including repurchase agreements providing for settlement more than seven days after notice, over-the-counter options and certain restricted securities not determined by the Trustees to be liquid; or - invest more than 5% of the Fund's net assets in warrants; however, no more than 2% of this 5% may be warrants which are not listed on the New York or American Stock Exchange. DG INVESTOR SERIES INFORMATION - -------------------------------------------------------------------------------- MANAGEMENT OF THE TRUST BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees. The Trustees are responsible for managing the Trust's business affairs and for exercising all of the powers of the Trust except those reserved for the shareholders. The Executive Committee of the Board of Trustees handles the Trustees' responsibilities between meetings of the Trustees. INVESTMENT ADVISER. Pursuant to an investment advisory contract with the Trust, investment decisions for the Fund are made by Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), subject to direction by the Trustees. The Adviser, in consultation with the sub-adviser, continually conducts investment research and supervision for the Fund and is responsible for the purchase and sale of portfolio instruments. ADVISORY FEES. The Fund's Adviser receives an annual investment advisory fee equal to 0.75 of 1% of the Fund's average daily net assets. The fee paid by the Fund, while higher than the advisory fee paid by other mutual funds in general, is comparable to fees paid by other mutual funds with similar objectives and policies. The investment advisory contract provides for the voluntary reimbursement of expenses by the Adviser to the extent any Fund expenses exceed such lower expense limitation as the Adviser may, by notice to the Fund, voluntarily declare to be effective. The Adviser can terminate this voluntary reimbursement of expenses at any time at its sole discretion. The Adviser has undertaken to reimburse the Fund for operating expenses in excess of limitations established by certain states. ADVISER'S BACKGROUND. Deposit Guaranty National Bank, a national banking association formed in 1925, is a subsidiary of Deposit Guaranty Corp ("DGC"). Through its subsidiaries and affiliates, DGC offers a full range of financial services to the public, including commercial lending, depository services, cash management, brokerage services, retail banking, mortgage banking, investment advisory services and trust services. As of December 31, 1994, the Trust Division of Deposit Guaranty National Bank had approximately $9.1 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank or Commercial National Bank. The lending relationships will not be a factor in the selection of securities. SUB-ADVISER. Under the terms of a sub-advisory agreement between Deposit Guaranty National Bank and Commercial National Bank (the "Sub-Adviser"), the Sub-Adviser will furnish to the Adviser such investment advice, statistical and other factual information as may be requested by the Adviser. The portfolio managers from the Trust Divisions of Deposit Guaranty National Bank and Commercial National Bank (collectively, the "Banks") will form an investment committee (the "DG Asset Management Group") to discuss investment strategies and evaluate securities and the economic outlook. SUB-ADVISORY FEES. For its services under the sub-advisory agreement, the Sub-Adviser receives an annual fee from the Adviser equal to 0.25 of 1% of the average daily net assets of the Fund. The sub-advisory fee is accrued daily and paid monthly. In the event that the fee due from the Trust to the Adviser on behalf of the Fund is reduced in order to meet expense limitations imposed on the Fund by state securities laws and regulations, the sub-advisory fee will be reduced by one-half of said reduction in the fee due from the Trust to the Adviser on behalf of the Fund. Notwithstanding any other provision in the sub-advisory agreement, the Sub-Adviser may, from time to time and for such periods as it deems appropriate, reduce its compensation (and, if appropriate, assume expenses of the Fund or class of the Fund) to the extent that the Fund's expenses exceed such lower expense limitation as the Sub-Adviser may, by notice to the Trust on behalf of the Fund, voluntarily declare to be effective. SUB-ADVISER'S BACKGROUND. Commercial National Bank, a national banking association which received its charter in 1886, is a subsidiary of DGC. As of December 31, 1994, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, for which it had investment discretion over $856 million. Commercial National Bank has served as sub-adviser to DG Government Income Fund, DG Limited Term Government Income Fund and the Fund since July 20, 1992, DG Municipal Income Fund since December 12, 1992, and DG Opportunity Fund since May 25, 1994 each a portfolio of the Trust. Ronald E. Lindquist, Senior Vice President and Trust Investment Officer, has served as manager of Commercial National Bank's Trust Investment Department for more than ten years. Mr. Lindquist's primary area of responsibility is the management of the Equity Fund. He received his B.S. in Finance from Florida State University and a M.S.M. in Finance from Florida International University. Mr. Lindquist has managed the DG Equity Fund since August 1, 1992 (the inception of the Fund). DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of 0.35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The distributor may from time to time and for such periods as it deems appropriate, voluntarily reduce its compensation under the Plan to the extent the expenses attributable to the shares exceed such lower expense limitation as the distributor may, by notice to the Trust, voluntarily declare to be effective. The distributor may select financial institutions such as banks, fiduciaries, custodians for public funds, investment advisers, and broker/dealers ("brokers") to provide distribution and/or administrative services as agents for their clients or customers. Administrative services may include, but are not limited to, the following functions: providing office space, equipment, telephone facilities, and various clerical, supervisory, computer, and other personnel as necessary or beneficial to establish and maintain shareholder accounts and records; processing purchase and redemption transactions and automatic investments of client account cash balances; answering routine client inquiries; assisting clients in changing dividend options, account designations, and addresses; and providing such other services as may reasonably be requested. The distributor will pay financial institutions a fee based upon shares subject to the Plan and owned by their clients or customers. The schedules of such fees and the basis upon which such fees will be paid will be determined from time to time by the distributor. The Fund's Plan is a compensation type plan. As such, the Fund makes no payments to the distributor except as described above. Therefore, the Fund does not pay for unreimbursed expenses of the distributor, including amounts expended by the distributor in excess of amounts received by it from the Fund, interest, carrying or other financing charges in connection with excess amounts expended, or the distributor's overhead expenses. However, the distributor may be able to recover such amounts or may earn a profit from future payments made by the Fund under the Plan. The Glass-Steagall Act prohibits a depository institution (such as a commercial bank or a savings and loan association) from being an underwriter or distributor of most securities. In the event the Glass-Steagall Act is deemed to prohibit depository institutions from acting in the administrative capacities described above or should Congress relax current restrictions on depository institutions, the Trustees will consider appropriate changes in the services. State securities laws governing the ability of depository institutions to act as underwriters or distributors of securities may differ from interpretations given to the Glass-Steagall Act and, therefore, banks and financial institutions may be required to register as dealers pursuant to state laws. SHAREHOLDER SERVICING ARRANGEMENTS. The distributor may pay financial institutions a fee with respect to the average net asset value of shares held by their customers for providing administrative services. This fee, if paid, will be reimbursed by the Adviser and not the Fund. ADMINISTRATION OF THE FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE SERVICES. Federated Administrative Services, which is a subsidiary of Federated Investors, provides the Fund with the administrative personnel and services necessary to operate the Fund. Such services include shareholder servicing and certain legal and accounting services. Federated Administrative Services provides these at an annual rate as specified below:
MAXIMUM AVERAGE AGGREGATE DAILY ADMINISTRATIVE FEE NET ASSETS OF THE TRUST - --------------------- .150 of 1% on the first $250 million .125 of 1% on the next $250 million .100 of 1% on the next $250 million on assets in excess of $750 .075 of 1% million
The administrative fee received during any fiscal year shall aggregate at least $100,000 per Fund. Federated Administrative Services may choose voluntarily to reimburse a portion of its fee at any time. CUSTODIAN. State Street Bank and Trust Company ("State Street Bank"), Boston, Massachusetts, is custodian for the securities and cash of the Fund. TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND SHAREHOLDER SERVICING AGENT. Federated Services Company, Pittsburgh, Pennsylvania, is transfer agent for the shares of the Fund, dividend disbursing agent for the Fund, and shareholder servicing agent for the Fund. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick LLP, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed-upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. (Eastern time) on the next business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET AMOUNT INVESTED - ---------------------------------------------- ---------------------- ------------------- Less than $100,000............................ 3.50% 3.63% $100,000 but less than $250,000............... 3.00% 3.09% $250,000 but less than $500,000............... 2.50% 2.56% $500,000 but less than $750,000............... 2.00% 2.04% $750,000 but less than $1 million............. 1.50% 1.52% $1 million but less than $2 million........... 0.50% 0.50% $2 million or more............................ 0.25% 0.25%
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; non-trust customers of financial advisers; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; current and retired directors of the Banks; 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 100% of the applicable sales charge. Any portion of the sales charge which is not paid to the Banks or authorized dealers will be retained by the distributor. The distributor will, periodically, uniformly offer to pay cash or promotional incentives in the form of trips to sales seminars at luxury resorts, tickets or other items, to all dealers selling shares of the Fund. Such payments will be predicated upon the amount of shares of the Fund that are sold by the dealer. The sales charge for shares sold other than through the Banks or registered broker/dealers will be retained by the distributor. The distributor may pay fees to the Banks out of the sales charge in exchange for sales and/or administrative services performed on behalf of the Banks' customers in connection with the initiation of customer accounts and purchases of Fund shares. REDUCING THE SALES CHARGE The sales charge can be reduced on the purchase of Fund shares through: - quantity discounts and accumulated purchases; - signing a 13-month letter of intent; - using the reinvestment privilege; or - concurrent purchases. QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table above, larger purchases reduce the sales charge paid. The Fund will combine purchases made on the same day by the investor, his spouse, and his children under age 21 when it calculates the sales charge. In addition, the sales charge, if applicable, is reduced for purchases made at one time by a trustee or fiduciary for a single trust estate or a single fiduciary account. If an additional purchase of Fund shares is made, the Fund will consider the previous purchase still invested in the Fund. For example, if a shareholder already owns shares having a current value at the public offering price of $90,000 and he purchases $10,000 more at the current public offering price, the sales charge on the additional purchase according to the schedule now in effect would be 3.00%, not 3.50%. 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 3.50% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 3.50% 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. The current balance in the shareholder's account will provide a purchase credit towards fulfillment of the letter of intent. REINVESTMENT PRIVILEGE. If shares in 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. PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES. Investors may purchase Shares at net asset value, without sales charge, with the proceeds from the redemption of shares of an investment company which was sold with a sales charge or commission and was not distributed by Federated Securities Corp. The purchase must be made within 60 days of the redemption, and Federated Securities Corp. must be notified by the investor in writing, or by his financial institution, at the time the purchase is made. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in 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. 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. Prior to any exchange, the shareholder must receive a copy of the current prospectus of the fund into which an exchange is to be effected. Shares may be exchanged at net asset value, plus the difference between the Funds' sales charge (if any) already paid and any sales charge of the fund into which shares are to be exchanged, if higher. When an exchange is made from a fund with a sales charge to a fund with no sales charge, the shares exchanged and additional shares which have been purchased by reinvesting dividends on such shares retain the character of the exchanged shares for purposes of exercising further exchange privileges; thus, an exchange of such shares for shares of a fund with a sales charge would be at net asset value. The exchange privilege is available to shareholders residing in any state in which the fund shares being acquired may legally be sold. Upon receipt of proper instructions and all necessary supporting documents, shares submitted for exchange will be redeemed at the next-determined net asset value. Written exchange instruction may require a signature guarantee. Exercise of this privilege is treated as a sale for federal income tax purposes and, depending on the circumstances, a short or long-term capital gain or loss may be realized. The exchange privilege may be terminated at any time. Shareholders will be notified of the termination of the exchange privilege. A shareholder may obtain further information on the exchange privilege by calling the Banks. Telephone exchange instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. REDEEMING SHARES - -------------------------------------------------------------------------------- Shares are redeemed at their net asset value next determined after the Banks receive the redemption request. Redemptions will be made on days on which the Fund computes its net asset value. Redemption requests cannot be executed on days on which the New York Stock Exchange is closed or on Federal holidays when wire transfers are restricted. Requests for redemption can be made by telephone or by mail. THROUGH THE BANKS BY TELEPHONE. A shareholder who is a customer of one of the Banks may redeem shares of the Fund by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. For orders received before 4:00 p.m. (Eastern time), proceeds will normally be wired the next day to the shareholder's account at the Banks or a check will be sent to the address of record. In no event will proceeds be sent more than seven days after a proper request for redemption has been received. An authorization form permitting the Fund to accept telephone requests must first be completed. Authorization forms and information on this service are available from the Banks. Telephone redemption instructions may be recorded. If reasonable procedures are not followed by the Fund, it may be liable for losses due to unauthorized or fraudulent telephone instructions. In the event of drastic economic or market changes, a shareholder may experience difficulty in redeeming by telephone. If such a case should occur, another method of redemption should be utilized, such as a written request to Federated Services Company or the Banks. If at any time the Fund shall determine it necessary to terminate or modify this method of redemption, shareholders would be promptly notified. BY MAIL. Any shareholder may redeem Fund shares by sending a written request to the Banks. The written request should include the shareholder's name, the Fund name, the account number, and the share or dollar amount requested, and should be signed exactly as the shares are registered. If share certificates have been issued, they must be properly endorsed and should be sent by registered or certified mail with the written request. Shareholders should call the Banks for assistance in redeeming by mail. SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a redemption of any amount to be sent to an address other than on record with the Fund, or a redemption payable other than to the shareholder of record must have signatures on written redemption requests guaranteed by: - a trust company or commercial bank whose deposits are insured by the BIF, which is administered by the FDIC; - a member of the New York, American, Boston, Midwest, or Pacific Stock Exchange; - a savings bank or savings and loan association whose deposits are insured by the SAIF, which is administered by the FDIC; or - any other "eligible guarantor institution," as defined in the Securities Exchange Act of 1934. The Fund does not accept signatures guaranteed by a notary public. The Fund and Federated Services Company have adopted standards for accepting signature guarantees from the above institutions. The Fund may elect in the future to limit eligible signature guarantors to institutions that are members of a signature guarantee program. The Fund and Federated Services Company reserve the right to amend these standards at any time without notice. Normally, a check for the proceeds is mailed within one business day, but in no event more than seven days, after receipt of a proper written redemption request. SYSTEMATIC WITHDRAWAL PROGRAM Shareholders who desire to receive payments of a predetermined amount may take advantage of the Systematic Withdrawal Program. Under this program, Fund shares are redeemed to provide for periodic withdrawal payments in an amount directed by the shareholder. Depending upon the amount of the withdrawal payments and the amount of dividends paid with respect to Fund shares, redemptions may reduce, and eventually deplete, the shareholder's investment in the Fund. For this reason, payments under this program should not be considered as yield or income on the shareholder's investment in the Fund. To be eligible to participate in this program, a shareholder must have an account value of at least $10,000. A shareholder may apply for participation in this program through the Banks. Due to the fact that shares are sold with a sales charge, it is not advisable for shareholders to be purchasing shares of the Fund while participating in this program. ACCOUNTS WITH LOW BALANCES Due to the high cost of maintaining accounts with low balances, the Fund may redeem shares in any account and pay the proceeds to the shareholder if the account balance falls below a required minimum value of $1,000 due to shareholder redemptions. This requirement does not apply, however, if the balance falls below $1,000 because of changes in the Fund's net asset value. Before shares are redeemed to close an account, the shareholder is notified in writing and allowed 30 days to purchase additional shares to meet the minimum requirement. 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. As of April 17, 1995, Deposit Guaranty National Bank, Jackson, Mississippi, acting in various capacities for numerous accounts, was the owner of record of approximately 17,315,998 shares (68.6%), and therefore, may, for certain purposes, be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. 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, advertisements for the Fund may refer to ratings, ranking, and other information in certain financial publications and/or compare the Fund's performance to certain indices. DG EQUITY FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1995 - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------ ------------ COMMON STOCKS--90.4% - ------------------------------------------------------------------------------------- BUSINESS EQUIPMENT AND SERVICES--10.0% ------------------------------------------------------------------ 150,000 Automatic Data Processing, Inc. $ 9,225,000 ------------------------------------------------------------------ 150,000 Donnelley (R.R.) & Sons Co. 5,137,500 ------------------------------------------------------------------ 100,000 Dun & Bradstreet Corp. 5,162,500 ------------------------------------------------------------------ 180,000 Pitney Bowes, Inc. 6,390,000 ------------------------------------------------------------------ ------------ Total 25,915,000 ------------------------------------------------------------------ ------------ CAPITAL GOODS--7.6% ------------------------------------------------------------------ 100,000 Dover Corp. 5,950,000 ------------------------------------------------------------------ 135,000 General Electric Co. 7,408,125 ------------------------------------------------------------------ 150,000 PPG Industries, Inc. 5,512,500 ------------------------------------------------------------------ 16,900 Tyco International, LTD 880,913 ------------------------------------------------------------------ ------------ Total 19,751,538 ------------------------------------------------------------------ ------------ CONSUMER DURABLES--1.0% ------------------------------------------------------------------ 50,000 Whirlpool Corp. 2,718,750 ------------------------------------------------------------------ ------------ CONSUMER NON-DURABLES--22.1% ------------------------------------------------------------------ 100,000 Coca-Cola Co. 5,500,000 ------------------------------------------------------------------ 60,000 Eastman Kodak Co. 3,060,000 ------------------------------------------------------------------ 110,000 Heinz (H.J.) Co. 4,331,250 ------------------------------------------------------------------ 200,000 International Flavors & Fragrances 9,625,000 ------------------------------------------------------------------ 160,000 PepsiCo, Inc. 6,260,000 ------------------------------------------------------------------ 80,000 Philip Morris Cos., Inc. 4,860,000 ------------------------------------------------------------------ 120,000 Proctor & Gamble Co. 7,980,000 ------------------------------------------------------------------ 140,000 Quaker Oats Co. 4,567,500 ------------------------------------------------------------------ 180,000 Sara Lee Corp. 4,725,000 ------------------------------------------------------------------
DG EQUITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------ ------------ COMMON STOCKS--CONTINUED - ------------------------------------------------------------------------------------- CONSUMER NON-DURABLES--CONTINUED ------------------------------------------------------------------ 140,000 Sysco Corp. $ 3,972,500 ------------------------------------------------------------------ 60,000 Tambrands, Inc. 2,595,000 ------------------------------------------------------------------ ------------ Total 57,476,250 ------------------------------------------------------------------ ------------ CONSUMER SERVICES--4.8% ------------------------------------------------------------------ 175,000 Disney (Walt) Co. 9,340,625 ------------------------------------------------------------------ 8,000 * Viacom, Inc.--Class A 370,000 ------------------------------------------------------------------ 60,615 * Viacom, Inc.--Class B 2,712,521 ------------------------------------------------------------------ 100,000 * Viacom, Inc.--Variable Common Rights 100,000 ------------------------------------------------------------------ ------------ Total 12,523,146 ------------------------------------------------------------------ ------------ ENERGY--4.5% ------------------------------------------------------------------ 60,000 Amoco Corp. 3,555,000 ------------------------------------------------------------------ 43,000 Anadarko Petroleum Corp. 1,886,625 ------------------------------------------------------------------ 90,000 Chevron Corp. 4,275,000 ------------------------------------------------------------------ 35,400 Schlumberger, Ltd. 2,013,375 ------------------------------------------------------------------ ------------ Total 11,730,000 ------------------------------------------------------------------ ------------ HEALTHCARE--9.9% ------------------------------------------------------------------ 100,000 Abbott Laboratories 3,550,000 ------------------------------------------------------------------ 120,000 Bristol-Myers Squibb Co. 7,440,000 ------------------------------------------------------------------ 50,000 Eli Lilly & Co. 3,350,000 ------------------------------------------------------------------ 70,000 Hillenbrand Industry, Inc. 1,968,750 ------------------------------------------------------------------ 58,800 Merck and Co., Inc. 2,491,650 ------------------------------------------------------------------ 85,000 Pfizer, Inc. 7,033,750 ------------------------------------------------------------------ ------------ Total 25,834,150 ------------------------------------------------------------------ ------------
DG EQUITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------ ------------ COMMON STOCKS--CONTINUED - ------------------------------------------------------------------------------------- RAW MATERIALS--3.9% ------------------------------------------------------------------ 75,000 Great Lakes Chemical Corp. $ 4,509,375 ------------------------------------------------------------------ 90,000 Lubrizol Corp. 3,015,000 ------------------------------------------------------------------ 90,000 Morton International, Inc. 2,632,500 ------------------------------------------------------------------ ------------ Total 10,156,875 ------------------------------------------------------------------ ------------ RETAIL--9.5% ------------------------------------------------------------------ 320,000 McDonald's Corp. 10,640,000 ------------------------------------------------------------------ 35,000 Melville Corp. 1,137,500 ------------------------------------------------------------------ 155,000 Walgreen Company 7,323,750 ------------------------------------------------------------------ 240,000 Wal-Mart Stores, Inc. 5,700,000 ------------------------------------------------------------------ ------------ Total 24,801,250 ------------------------------------------------------------------ ------------ TECHNOLOGY--12.9% ------------------------------------------------------------------ 30,000 AMP Inc. 2,250,000 ------------------------------------------------------------------ 85,000 Boeing Co. 3,920,625 ------------------------------------------------------------------ 170,000 * Compaq Computer Corp. 5,865,000 ------------------------------------------------------------------ 100,000 * Digital Equipment Corp. 3,350,000 ------------------------------------------------------------------ 100,000 Hewlett-Packard Co. 11,500,000 ------------------------------------------------------------------ 40,000 International Business Machines Corp. 3,010,000 ------------------------------------------------------------------ 50,000 Raytheon Co. 3,525,000 ------------------------------------------------------------------ ------------ Total 33,420,625 ------------------------------------------------------------------ ------------
DG EQUITY FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR SHARES VALUE - ----------- ----------------------------------------------------------------- ------------ COMMON STOCK--CONTINUED - ------------------------------------------------------------------------------------- UTILITIES--4.2% ----------------------------------------------------------------- 100,000 American Telephone & Telegraph Co. $ 5,175,000 ----------------------------------------------------------------- 35,000 BellSouth Corp. 2,065,000 ----------------------------------------------------------------- 80,000 Central & Southwest Corp. 1,970,000 ----------------------------------------------------------------- 40,000 Southwestern Bell Corp. 1,665,000 ----------------------------------------------------------------- ------------ Total 10,875,000 ----------------------------------------------------------------- ------------ TOTAL COMMON STOCKS (IDENTIFIED COST, $208,867,580) 235,202,584 ----------------------------------------------------------------- ------------ **REPURCHASE AGREEMENT--8.2% - ------------------------------------------------------------------------------------- $21,226,332 Cantor Fitzgerald Securities Corp., 6.05%, dated 2/28/1995, due 3/1/1995 (AT AMORTIZED COST) 21,226,332 ----------------------------------------------------------------- ------------ TOTAL INVESTMENTS (IDENTIFIED COST, $230,093,912) $256,428,916+ ----------------------------------------------------------------- ------------
* Non-income producing security. ** The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. + The cost of investments for federal tax purposes amounts to $230,093,912. The net unrealized appreciation of investments on a federal tax cost basis amounts to $26,335,004, which is comprised of $36,467,450 appreciation and $10,132,446 depreciation at February 28, 1995. Note: The categories of investments are shown as a percentage of net assets ($259,997,924) at February 28, 1995. (See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at value (identified and tax cost, $230,093,912) $256,428,916 - ------------------------------------------------------------------------------- Receivable for shares sold 1,788,688 - ------------------------------------------------------------------------------- Receivable for investments sold 1,139,460 - ------------------------------------------------------------------------------- Income receivable 638,237 - ------------------------------------------------------------------------------- Deferred expenses 30,830 - ------------------------------------------------------------------------------- ------------ Total assets 260,026,131 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable to portfolio accountant $ 5,707 - --------------------------------------------------------------------- Payable for shares redeemed 5,021 - --------------------------------------------------------------------- Payable to transfer and dividend disbursing agent 4,578 - --------------------------------------------------------------------- Accrued expenses 12,901 - --------------------------------------------------------------------- ------- Total liabilities 28,207 - ------------------------------------------------------------------------------- ------------ Net Assets for 22,777,372 shares outstanding $259,997,924 - ------------------------------------------------------------------------------- ------------ NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------- Paid in capital $233,132,212 - ------------------------------------------------------------------------------- Net unrealized appreciation of investments 26,335,004 - ------------------------------------------------------------------------------- Accumulated net realized loss on investments (87,030) - ------------------------------------------------------------------------------- Undistributed net investment income 617,738 - ------------------------------------------------------------------------------- ------------ Total Net Assets $259,997,924 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share: Net Asset Value Per Share ($259,997,924 / 22,777,372 shares outstanding) $11.41 - ------------------------------------------------------------------------------- ------------ Offering Price Per Share (100/98.00 of $11.41)* $11.64 - ------------------------------------------------------------------------------- ------------
* Effective May 1, 1995, the maximum sales load is 3.50%. See "What Shares Cost." (See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Interest $ 670,040 - --------------------------------------------------------------------------------- Dividends 5,673,263 - --------------------------------------------------------------------------------- ----------- Total income 6,343,303 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee $1,907,646 - -------------------------------------------------------------------- Administrative personnel and services fee 319,181 - -------------------------------------------------------------------- Custodian fees 29,500 - -------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 36,577 - -------------------------------------------------------------------- Directors'/Trustees' fees 4,732 - -------------------------------------------------------------------- Auditing fees 11,522 - -------------------------------------------------------------------- Legal fees 1,213 - -------------------------------------------------------------------- Portfolio accounting fees 65,281 - -------------------------------------------------------------------- Share registration costs 23,164 - -------------------------------------------------------------------- Printing and postage 9,808 - -------------------------------------------------------------------- Insurance premiums 8,826 - -------------------------------------------------------------------- Miscellaneous 5,394 - -------------------------------------------------------------------- ---------- Total expenses 2,422,844 - --------------------------------------------------------------------------------- ----------- Net investment income 3,920,459 - --------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - --------------------------------------------------------------------------------- Net realized gain on investments 2,434,655 - --------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 11,661,159 - --------------------------------------------------------------------------------- ----------- Net realized and unrealized gain on investments 14,095,814 - --------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $18,016,273 - --------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED ------------------------------- FEBRUARY 28, FEBRUARY 28, 1995 1994 ------------- ------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------------------- OPERATIONS-- - -------------------------------------------------------------- Net investment income $ 3,920,459 $ 3,524,794 - -------------------------------------------------------------- Net realized gain on investments ($2,523,351 and $2,837,598, respectively, as computed for federal tax purposes) 2,434,655 3,099,223 - -------------------------------------------------------------- Net change in unrealized appreciation of investments 11,661,159 7,867,219 - -------------------------------------------------------------- ------------- ------------ Change in net assets resulting from operations 18,016,273 14,491,236 - -------------------------------------------------------------- ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------------------- Distributions from net investment income (3,923,189) (3,253,053) - -------------------------------------------------------------- Distributions from net realized gains (3,737,081) (1,382,777) - -------------------------------------------------------------- ------------- ------------ Change in net assets resulting from distributions to shareholders (7,660,270) (4,635,830) - -------------------------------------------------------------- ------------- ------------ SHARE TRANSACTIONS-- - -------------------------------------------------------------- Proceeds from sale of shares 61,047,804 134,529,308 - -------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 4,839,980 3,351,297 - -------------------------------------------------------------- Cost of shares redeemed (100,448,383) (44,772,757) - -------------------------------------------------------------- ------------- ------------ Change in net assets resulting from share transactions (34,560,599) 93,107,848 - -------------------------------------------------------------- ------------- ------------ Change in net assets (24,204,596) 102,963,254 - -------------------------------------------------------------- NET ASSETS: - -------------------------------------------------------------- Beginning of period 284,202,520 181,239,266 - -------------------------------------------------------------- ------------- ------------ End of period (including undistributed net investment income of $617,738 and $620,468, respectively) $ 259,997,924 $284,202,520 - -------------------------------------------------------------- ------------- ------------
(See Notes which are an integral part of the Financial Statements) DG EQUITY FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of six diversified portfolios. The financial statements included herein present only those of DG Equity Fund (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. The policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale price reported on national securities exchanges. Unlisted securities and short-term securities are generally valued at the prices provided by an independent pricing service. Short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement transaction. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income and expenses are accrued daily. Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). DG EQUITY FUND - -------------------------------------------------------------------------------- FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year all of its income. Accordingly, no provisions for federal tax are necessary. Additionally, net capital losses of $88,697 attributable to security transactions incurred after October 31, 1994 are treated as arising on March 1, 1995, the first day of the Fund's next taxable year. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method not to exceed a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows:
YEAR ENDED ------------------------------- FEBRUARY 28, FEBRUARY 28, 1995 1994 ------------- ------------- Shares sold 5,663,505 12,800,127 - -------------------------------------------------------------- Shares issued to shareholders in payment of dividends declared 455,037 315,593 - -------------------------------------------------------------- Shares redeemed (9,475,512) (4,180,747) - -------------------------------------------------------------- ------------ ------------ Net change resulting from Fund share transactions (3,356,970) 8,934,973 - -------------------------------------------------------------- ------------ ------------
(4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment adviser (the "Adviser"), receives for its services an annual investment advisory fee equal to .75 of 1% of the Fund's average daily net assets. Under the terms of a sub-advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser equal to .25 of 1% of the Fund's average daily net assets. DG EQUITY FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust with certain administrative personnel and services. The FAS fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses ($23,061) were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following July 20, 1992 (the date the Fund became effective). For the year ended February 28, 1995, the Fund paid $3,806, pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the year ended February 28, 1995, were as follows: - ------------------------------------------------------------------------------- PURCHASES $ 1,417,175 - ------------------------------------------------------------------------------- ----------- SALES $42,767,879 - ------------------------------------------------------------------------------- -----------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholders DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments, of the DG Equity Fund (a portfolio within DG Investor Series) as of February 28, 1995, and the related statement of operations for the period then ended, the statements of changes in net assets for the years ended February 28, 1995 and 1994, and the financial highlights, which is presented on page 2 of this prospectus, for the periods from August 3, 1992 (commencement of operations) to February 28, 1995. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to gain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the DG Equity Fund at February 28, 1995 and the results of its operations for the year then ended, and the changes in its net assets and the financial highlights for each of the periods listed above, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 7, 1995 ADDRESSES - -------------------------------------------------------------------------------- DG Equity Fund Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Distributor Federated Securities Corp. Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Investment Adviser Deposit Guaranty National Bank P.O. Box 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 Services Company Federated Investors Tower Pittsburgh, Pennsylvania 15222-3779 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick LLP One Mellon Bank Center Pittsburgh, Pennsylvania 15219 - ------------------------------------------------------------------------------------------------
DG EQUITY FUND - -------------------------------------------------------------------------------- PROSPECTUS A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Investment Adviser Commercial National Bank Shreveport, LA Sub-Adviser APRIL 30, 1995 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 2061001A (4/95) The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks including the possible loss of principal. DG 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 April 30, 1995, 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 to the Fund or calling 1-800-530-7377. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. Prospectus dated April 30, 1995 TABLE OF CONTENTS - -------------------------------------------------------------------------------- SUMMARY OF FUND EXPENSES 1 - ------------------------------------------------------ FINANCIAL HIGHLIGHTS 2 - ------------------------------------------------------ GENERAL INFORMATION 3 - ------------------------------------------------------ INVESTMENT INFORMATION 3 - ------------------------------------------------------ Investment Objective 3 Investment Policies 3 Acceptable Investments 3 Convertible Securities 4 Repurchase Agreements 4 Investing in Securities of Other Investment Companies 5 Securities of Foreign Issuers 5 Put and Call Options 5 Futures Contracts and Options on Futures 5 Risks 6 When-Issued and Delayed Delivery Transactions 6 Lending of Portfolio Securities 6 Restricted and Illiquid Securities 7 Temporary Investments 7 Investment Risks 7 Portfolio Turnover 7 Investment Limitations 8 DG INVESTOR SERIES INFORMATION 8 - ------------------------------------------------------ Management of the Trust 8 Board of Trustees 8 Investment Adviser 8 Advisory Fees 8 Adviser's Background 9 Sub-Adviser 9 Sub-Advisory Fees 9 Sub-Adviser's Background 10 Distribution of Fund Shares 10 Distribution Plan 10 Shareholder Servicing Arrangements 11 ADMINISTRATION OF THE FUND 11 - ------------------------------------------------------ Administrative Services 11 Shareholder Services Plan 11 Custodian 11 Transfer Agent, Dividend Disbursing Agent, and Shareholder Servicing Agent 12 Independent Auditors 12 Brokerage Transactions 12 NET ASSET VALUE 12 - ------------------------------------------------------ INVESTING IN THE FUND 12 - ------------------------------------------------------ Share Purchases 12 Through the Banks 12 Minimum Investment Required 13 What Shares Cost 13 Purchases at Net Asset Value 13 Sales Charge Reallowance 13 Reducing the Sales Charge 14 Quantity Discounts and Accumulated Purchases 14 Letter of Intent 14 Reinvestment Privilege 14 Purchases with Proceeds from Redemptions of Unaffiliated Investment Companies 15 Concurrent Purchases 15 Systematic Investment Program 15 Certificates and Confirmations 15 Dividends and Distributions 15 EXCHANGE PRIVILEGE 15 - ------------------------------------------------------ DG Investor Series 15 EXCHANGING SHARES 16 - ------------------------------------------------------ REDEEMING SHARES 16 - ------------------------------------------------------ Through the Banks 16 By Telephone 16 By Mail 17 Signatures 17 Systematic Withdrawal Program 17 Accounts With Low Balances 18 SHAREHOLDER INFORMATION 18 - ------------------------------------------------------ Voting Rights 18 Massachusetts Partnership Law 18 EFFECT OF BANKING LAWS 19 - ------------------------------------------------------ TAX INFORMATION 19 - ------------------------------------------------------ Federal Income Tax 19 PERFORMANCE INFORMATION 20 - ------------------------------------------------------ FINANCIAL STATEMENTS 21 - ------------------------------------------------------ INDEPENDENT AUDITORS' REPORT 31 - ------------------------------------------------------ ADDRESSES 32 - ------------------------------------------------------ SUMMARY OF FUND EXPENSES - -------------------------------------------------------------------------------- SHAREHOLDER TRANSACTION EXPENSES Maximum Sales Load Imposed on Purchases (as a percentage of offering price)..... 3.50% Maximum Sales Load Imposed on Reinvested Dividends (as a percentage of offering price)........................................... None Contingent Deferred Sales Charge (as a percentage of original purchase price or redemption proceeds, as applicable)........................................... None Redemption Fee (as a percentage of amount redeemed, if applicable).............. None Exchange Fee.................................................................... None ANNUAL FUND OPERATING EXPENSES (As a percentage of average net assets) Management Fee (after waiver)(1)................................................ 0.50% 12b-1 Fee(2).................................................................... 0.00% Total Other Expenses............................................................ 0.71% Shareholder Services Fee(2)................................................. 0.00% Total Fund Operating Expenses(3)............................................ 1.21%
(1) The management fee has been reduced to reflect the 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) The Total Fund Operating Expenses were 0.79% for the fiscal year ended February 28, 1995. The Total Fund Operating Expenses in the table above reflect a reduction in the voluntary waiver of the investment advisory fee and administrative fee for the fiscal year ending February 29, 1996. The Total Fund Operating Expenses for the fiscal year ending February 29, 1996, are anticipated to be 1.66% absent the voluntary waiver of the investment advisory fee. THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND EXPENSES, SEE "DG INVESTOR SERIES INFORMATION" AND "INVESTING IN THE FUND." Wire-transferred redemptions of less than $5,000 may be subject to additional fees.
EXAMPLE 1 year 3 years 5 years 10 years - ----------------------------------------------------------- ------ ------- ------- -------- You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return, (2) redemption at the end of each time period, and (3) payment of the maximum sales load..................................................... $ 47 $72 $99 $176
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 29, 1996. DG OPPORTUNITY FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD) Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors, on page 31.
PERIOD ENDED FEBRUARY 28, 1995(A) ------------ NET ASSET VALUE, BEGINNING OF PERIOD $10.00 - ----------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ----------------------------------------------------------------------------- Net investment income 0.02 - ----------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 1.17 - ----------------------------------------------------------------------------- --------- Total from investment operations 1.19 - ----------------------------------------------------------------------------- LESS DISTRIBUTIONS - ----------------------------------------------------------------------------- Distributions from net investment income (0.02) - ----------------------------------------------------------------------------- Distributions from net realized gain on investment transactions (0.02) - ----------------------------------------------------------------------------- --------- Total distributions (0.04) - ----------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $11.15 - ----------------------------------------------------------------------------- --------- TOTAL RETURN(B) 11.84% - ----------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ----------------------------------------------------------------------------- Expenses 0.79%(c) - ----------------------------------------------------------------------------- Net investment income 0.06%(c) - ----------------------------------------------------------------------------- Expense waiver/reimbursement(d) 1.34%(c) - ----------------------------------------------------------------------------- SUPPLEMENTAL DATA - ----------------------------------------------------------------------------- Net assets, end of period (000 omitted) $36,664 - ----------------------------------------------------------------------------- Portfolio turnover 45% - -----------------------------------------------------------------------------
(a) Reflects operations for the period from August 1, 1994 (date of initial public investment) to February 28, 1995. (b) Based on net asset value, which does not reflect the sales load or contingent deferred sales charge, if applicable. (c) Computed on an annualized basis. (d) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. Further information about the Fund's performance is contained in the Fund's annual report for the fiscal year ended February 28, 1995, which can be obtained free of charge. (See Notes which are an integral part of the Financial Statements) GENERAL INFORMATION - -------------------------------------------------------------------------------- The Trust was established as a Massachusetts business trust under a Declaration of Trust dated February 7, 1992. The Declaration of Trust permits the Trust to offer separate series of shares of beneficial interest representing interests in separate portfolios of securities. The shares in any one portfolio may be offered in separate classes. Shares of the Fund are designed for retail and trust customers of Deposit Guaranty National Bank and Commercial National Bank and their affiliates as a convenient means of participating in a professionally managed, diversified portfolio consisting primarily of equity securities. A minimum initial investment of $1,000 is required. Fund shares are sold at net asset value plus an applicable sales charge and are redeemed at net asset value. INVESTMENT INFORMATION - -------------------------------------------------------------------------------- INVESTMENT 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, but will not necessarily do so. The Fund attempts to select companies whose potential for capital appreciation exceeds that of larger capitalization stocks commensurate with increased risk. Under normal market conditions, the Fund intends to invest at least 65% of its total assets in equity securities of companies that have a market value capitalization 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 valuation relative to the Standard & Poor's 500 and the stock market 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 Ratings Group ("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 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; - 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; - 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. CONVERTIBLE SECURITIES. The Fund may invest up to 10% of its total assets in 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. 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. While it is the Fund's policy to waive its investment advisory fees on assets invested in securities of other open-end investment companies, 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 up to 20% of its total assets 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 securities on a when-issued or delayed delivery basis. These transactions are arrangements in which the Fund purchases securities with payment and delivery scheduled for a future time. The seller's failure to complete these transactions may cause the Fund to miss a price or yield considered to be advantageous. Settlement dates may be a month or more after entering into these transactions, and the market values of the securities purchased may vary from the purchase prices. Accordingly, the Fund may pay more or less than the market value of the securities on the settlement date. The Fund may dispose of a commitment prior to settlement if the adviser deems it appropriate to do so. In addition, the Fund may enter into transactions to sell its purchase commitments to third parties at current market values and simultaneously acquire other commitments to purchase similar securities at later dates. The Fund may realize short-term profits or losses upon the sale of such commitments. LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the Fund may lend portfolio securities on a short-term or long-term basis, or both, to broker/dealers, banks, or other institutional borrowers of securities. The Fund will only enter into loan arrangements with broker/dealers, banks, or other institutions which the adviser has determined are creditworthy under guidelines established by the Trustees, and will receive collateral in the form of cash or U.S. government securities equal to at least 100% of the value of the securities loaned at all times. There is the risk that when lending portfolio securities, the securities may not be available to the Fund on a timely basis and the Fund may, therefore, lose the opportunity to sell the securities at a desirable price. In addition, in the event that a borrower of securities would file for bankruptcy or become insolvent, disposition of the securities may be delayed pending court action. RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted securities. Restricted securities are any securities in which the Fund may otherwise invest pursuant to its investment objective and policies but which are subject to restrictions on resale under federal securities law. However, the Fund will not invest more than 15% of its net assets in illiquid securities, including certain restricted securities not determined by the Trustees to be liquid, non-negotiable time deposits, over-the-counter options and repurchase agreements providing for settlement in more than seven days after notice. TEMPORARY INVESTMENTS. The Fund may also invest in cash and short-term obligations during times of unusual market conditions for defensive purposes. 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 RISKS As with other mutual funds that invest primarily in equity securities, the Fund is subject to market risks. That is, the possibility exists that common stocks will decline over short or even extended periods of time. The United States equity market tends to be cyclical, experiencing both periods when stock prices generally increase and periods when stock prices generally decrease. However, because the Fund invests primarily in 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. Downgraded securities will be evaluated on a case by case basis by the adviser. The adviser will determine whether or not the security continues to be an acceptable investment. If not, the security may be sold. The prices of fixed income securities fluctuate inversely to the direction of interest rates. 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. A high portfolio turnover rate may lead to increased costs and may also result in higher taxes paid by the Fund's shareholders. During the period from October 1, 1994 (date of initial public investment), through February 28, 1995, the Fund's portfolio turnover rate was 45%. INVESTMENT LIMITATIONS The Fund will not: - borrow money directly or through reverse repurchase agreements (arrangements in which the Fund sells a portfolio instrument for a percentage of its cash value with an agreement to buy it back on a set date) or pledge securities except, under certain circumstances, the Fund may borrow money and engage in reverse repurchase agreements in amounts up to one-third of the value of its total assets and pledge up to 15% of the value of its total assets to secure such borrowings. The above limitation cannot be changed without shareholder approval. The following limitation, however, may be changed by the Trustees without shareholder approval. Shareholders will be notified before any material change in this limitation becomes effective. The Fund will not: - invest more than 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, 1994, the Trust Division of Deposit Guaranty National Bank had approximately $9.1 billion under administration, of which it had investment discretion over $1.4 billion. Deposit Guaranty National Bank has served as the Trust's investment adviser since May 5, 1992. As part of their regular banking operations, Deposit Guaranty National Bank and Commercial National Bank, the Fund's sub-adviser, may make loans to public companies. Thus, it may be possible, from time to time, for the Fund to hold or acquire the securities of issuers which are also lending clients of Deposit Guaranty National Bank or Commercial National Bank. The lending relationships will not be a factor in the selection of securities. 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 26, 1994 (the inception of the Fund). He also manages the DG Municipal Income Fund. Mr. Womack is responsible for the day to day management of the Fund's portfolio. 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, 1994, the Trust Division at Commercial National Bank had approximately $1.2 billion in trust assets under administration, for which it had investment discretion over $856 million. 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 and DG Equity Fund since May 25, 1994. All of these funds are portfolios of the Trust. DISTRIBUTION OF FUND SHARES Federated Securities Corp. is the principal distributor for shares of the Fund. It is a Pennsylvania corporation organized on November 14, 1969, and is the principal distributor for a number of investment companies. Federated Securities Corp. is a subsidiary of Federated Investors. DISTRIBUTION PLAN. Under a distribution plan adopted in accordance with the Investment Company Act Rule 12b-1 (the "Plan"), the Fund will pay to the distributor an amount computed at an annual rate of 0.35 of 1% of the average daily net asset value of the Fund to finance any activity which is principally intended to result in the sale of shares subject to the Plan. The 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. INDEPENDENT AUDITORS. The independent auditors for the Fund are KPMG Peat Marwick LLP, Pittsburgh, Pennsylvania. BROKERAGE TRANSACTIONS When selecting brokers and dealers to handle the purchase and sale of portfolio instruments, the Adviser looks for prompt execution of the order at a favorable price. In working with dealers, the Adviser will generally utilize those who are recognized dealers in specific portfolio instruments, except when a better price and execution of the order can be obtained elsewhere. In selecting among firms believed to meet these criteria, the Adviser may give consideration to those firms which have sold or are selling shares of the Fund and other funds distributed by Federated Securities Corp. The Adviser makes decisions on portfolio transactions and selects brokers and dealers subject to review by the Trustees. NET ASSET VALUE - -------------------------------------------------------------------------------- The Fund's net asset value per share fluctuates. It is determined by dividing the sum of the market value of all securities and other assets, less liabilities, by the number of shares outstanding. INVESTING IN THE FUND - -------------------------------------------------------------------------------- SHARE PURCHASES Fund shares are sold on days on which the New York Stock Exchange and the Federal Reserve Wire System are open for business. Fund shares may be ordered by telephone through procedures established with Commercial National Bank and Deposit Guaranty National Bank (collectively, the "Banks") in connection with qualified account relationships. Such procedures may include arrangements under which certain accounts are swept periodically and amounts exceeding an agreed upon minimum are invested automatically in Fund shares. Texas residents must purchase shares of the Fund through Federated Securities Corp. at 1-800-356-2805. The Fund reserves the right to reject any purchase request. THROUGH THE BANKS. To place an order to purchase Fund shares, open an account by calling Deposit Guaranty National Bank at (800) 748-8500 or Commercial National Bank at (800) 274-1907. Information needed to establish the account will be taken over the telephone. Payment may be made by either check, federal funds or by debiting a customer's account at the Banks. Purchase orders must be received by 4:00 p.m. (Eastern time). Payment is required before 4:00 p.m. on the next business day in order to earn dividends for that day. MINIMUM INVESTMENT REQUIRED The minimum initial investment in the Fund is $1,000. Subsequent investments may be in any amounts of $100 or more. The Fund may waive the initial minimum investment for employees of DGC and its affiliates from time to time. WHAT SHARES COST Fund shares are sold at their net asset value next determined after an order is received, plus a sales charge as follows:
SALES CHARGE AS SALES CHARGE AS A PERCENTAGE OF A PERCENTAGE OF AMOUNT OF TRANSACTION PUBLIC OFFERING PRICE NET ASSET VALUE - -------------------------------------------------------------------------- ----------------- Less than $100,000................................. 3.50% 3.63% $100,000 but less than $250,000.................... 3.00% 3.09% $250,000 but less than $500,000.................... 2.50% 2.56% $500,000 but less than $750,000.................... 2.00% 2.04% $750,000 but less than $1 million.................. 1.50% 1.52% $1 million but less than $2 million................ 0.50% 0.50% $2 million or more................................. 0.25% 0.25%
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; non-trust customers of financial advisers; Trustees and employees of the Fund, the Banks or Federated Securities Corp. or their affiliates and their spouses and children under 21; current and retired directors of the Banks; 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 100% 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 3.00%, not 3.50%. 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 3.50% of the total amount intended to be purchased in escrow (in shares) until such purchase is completed. The 3.50% 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. The current balance in the shareholder's account will provide a purchase credit towards fulfillment of the letter of intent. REINVESTMENT PRIVILEGE. If shares in 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. PURCHASES WITH PROCEEDS FROM REDEMPTIONS OF UNAFFILIATED INVESTMENT COMPANIES. Investors may purchase shares at net asset value, without a sales charge, with the proceeds from the redemption of shares of an investment company which was sold with a sales charge or commission and was not distributed by Federated Securities Corp. The purchase must be made within 60 days of the redemption, and Federated Securities Corp. must be notified by the investor in writing, or by his financial institution, at the time the purchase is made. CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction, a shareholder has the privilege of combining concurrent purchases of two or more funds in the Trust, the purchase price of which includes a sales charge. For example, if a shareholder concurrently invested $30,000 in one of the other funds in the Trust with a sales charge and $70,000 in 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. 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. Prior to any exchange, the shareholder must receive a copy of the current prospectus of the fund into which an exchange is to be effected. Shares may be exchanged at net asset value, plus the difference between the Funds' sales charge (if any) already paid and any sales charge of the fund into which shares are to be exchanged, if higher. When an exchange is made from a fund with a sales charge to a fund with no sales charge, the shares exchanged and additional shares which have been purchased by reinvesting dividends on such shares retain the character of the exchanged shares for purposes of exercising further exchange privileges; thus, an exchange of such shares for shares of a fund with a sales charge would be at net asset value. 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. As of April 17, 1995, Deposit Guaranty National Bank, acting in various capacities for numerous accounts, was the owner of record of 3,326,877 shares (98.5%) of the Fund, and therefore, may for certain purposes be deemed to control the Fund and be able to affect the outcome of certain matters presented for a vote of shareholders. 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, advertisements for the Fund may refer to ratings, rankings, and other information in certain financial publications and/or compare the Fund's performance to certain indices. DG OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS FEBRUARY 28, 1995 - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------- ----------- COMMON STOCKS--97.5% - -------------------------------------------------------------------------------------- BROADCASTING--1.8% ------------------------------------------------------------------- 43,000 New World Communications $ 677,250 ------------------------------------------------------------------- ----------- COMMUNICATIONS EQUIPMENT--2.4% ------------------------------------------------------------------- 40,000 Mobile Telecommunications 885,000 ------------------------------------------------------------------- ----------- CONSUMER DURABLES--2.1% ------------------------------------------------------------------- 62,000 River Oaks Furniture, Inc. 790,500 ------------------------------------------------------------------- ----------- CONSUMER NON-DURABLES--2.0% ------------------------------------------------------------------- 30,000 Pan American Beverage 731,250 ------------------------------------------------------------------- ----------- ENERGY--8.0% ------------------------------------------------------------------- 38,500 Devon Energy Corp. 693,000 ------------------------------------------------------------------- 15,000 Oceaneering International, Inc. 131,250 ------------------------------------------------------------------- 30,500 Quaker State Corp. 442,250 ------------------------------------------------------------------- 54,700 Stone Energy Corp. 854,688 ------------------------------------------------------------------- 42,900 Union Texas Petroleum Holdings, Inc. 825,825 ------------------------------------------------------------------- ----------- Total 2,947,013 ------------------------------------------------------------------- ----------- FINANCIAL SERVICES--18.3% ------------------------------------------------------------------- 50,000 A.G. Edwards, Inc. 1,125,000 ------------------------------------------------------------------- 24,000 CCP Insurance, Inc. 510,000 ------------------------------------------------------------------- 40,000 Commercial Bankshares, Inc. 585,000 ------------------------------------------------------------------- 42,000 Coral Gables Federal Corp., Inc. 1,071,000 ------------------------------------------------------------------- 35,000 Life Bancorp, Inc. 398,125 ------------------------------------------------------------------- 39,500 Morgan Keegan, Inc. 592,500 ------------------------------------------------------------------- 33,000 Stewart Enterprises, Inc. 882,750 ------------------------------------------------------------------- 33,000 T. Rowe Price & Associates, Inc. 1,056,000 ------------------------------------------------------------------- 14,300 United Companies Financial Corp. 471,900 ------------------------------------------------------------------- ----------- Total 6,692,275 ------------------------------------------------------------------- -----------
DG OPPORTUNITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------- ----------- COMMON STOCKS--CONTINUED - -------------------------------------------------------------------------------------- HEALTH CARE--12.7% ------------------------------------------------------------------- 81,000 Clintrials Research, Inc. $ 961,875 ------------------------------------------------------------------- 100,000 Gensia, Inc. 337,500 ------------------------------------------------------------------- 12,000 Medaphis Corp. 678,000 ------------------------------------------------------------------- 64,000 Ornda Healthcorp 972,000 ------------------------------------------------------------------- 42,000 Ren Corp. USA 630,000 ------------------------------------------------------------------- 20,000 Renal Treatment Centers, Inc. 435,000 ------------------------------------------------------------------- 35,000 Res Care, Inc. 638,750 ------------------------------------------------------------------- ----------- Total 4,653,125 ------------------------------------------------------------------- ----------- HOTELS--3.0% ------------------------------------------------------------------- 78,000 Casino America, Inc. 809,250 ------------------------------------------------------------------- 51,000 Casino Magic Corp. 274,125 ------------------------------------------------------------------- ----------- Total 1,083,375 ------------------------------------------------------------------- ----------- RETAIL--18.5% ------------------------------------------------------------------- 54,000 Advanced Promotion 185,625 ------------------------------------------------------------------- 46,100 COMPUSA, Inc. 870,137 ------------------------------------------------------------------- 96,000 Cato Corp. 672,000 ------------------------------------------------------------------- 50,000 Checkers Drive-In Restaurants 148,437 ------------------------------------------------------------------- 67,000 Hechinger Co. 774,687 ------------------------------------------------------------------- 75,000 Longhorn Steaks, Inc. 703,125 ------------------------------------------------------------------- 31,700 Morrison Restaurants, Inc. 847,975 ------------------------------------------------------------------- 35,000 Outback Steakhouse, Inc. 914,375 ------------------------------------------------------------------- 29,000 Pollo Tropical, Inc. 213,875 ------------------------------------------------------------------- 60,000 Stein Mart, Inc. 667,500 ------------------------------------------------------------------- 65,000 The Good Guys, Inc. 771,875 ------------------------------------------------------------------- ----------- Total 6,769,611 ------------------------------------------------------------------- ----------- SHELTER--0.6% ------------------------------------------------------------------- 19,000 Southern Energy Homes, Inc. 213,750 ------------------------------------------------------------------- -----------
DG OPPORTUNITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------- ----------- COMMON STOCKS--CONTINUED - -------------------------------------------------------------------------------------- TECHNOLOGY--17.0% ------------------------------------------------------------------- 31,000 Altera Corp. $ 1,763,125 ------------------------------------------------------------------- 33,000 Emulux Corp. 478,500 ------------------------------------------------------------------- 40,000 Gateway 2000 Inc. 735,000 ------------------------------------------------------------------- 1,500 General Magic, Inc. 27,375 ------------------------------------------------------------------- 35,000 Landmark Graphics Corp. 726,250 ------------------------------------------------------------------- 5,000 Merix Corp. 121,875 ------------------------------------------------------------------- 27,000 Micro Warehouse, Inc. 776,250 ------------------------------------------------------------------- 28,125 Molex, Inc. 892,969 ------------------------------------------------------------------- 50,000 Quantum Corp. 737,500 ------------------------------------------------------------------- ----------- Total 6,258,844 ------------------------------------------------------------------- ----------- TRANSPORTATION--4.9% ------------------------------------------------------------------- 35,000 KLLM Transportation Services, Inc. 509,688 ------------------------------------------------------------------- 100,000 Mesa Airlines, Inc. 625,000 ------------------------------------------------------------------- 28,000 Swift Transportation, Inc. 651,000 ------------------------------------------------------------------- ----------- Total 1,785,688 ------------------------------------------------------------------- ----------- UTILITIES--6.2% ------------------------------------------------------------------- 26,500 ALC Communications Corp. 781,750 ------------------------------------------------------------------- 23,000 LDDS Communications, Inc. 539,063 ------------------------------------------------------------------- 27,000 MFS Communications, Inc. 938,250 ------------------------------------------------------------------- ----------- Total 2,259,063 ------------------------------------------------------------------- ----------- TOTAL COMMON STOCKS (IDENTIFIED COST, $35,011,669) 35,746,744 ------------------------------------------------------------------- -----------
DG OPPORTUNITY FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT OR SHARES VALUE - ---------- ------------------------------------------------------------------- ----------- MUTUAL FUNDS--1.0% - -------------------------------------------------------------------------------------- 365,910 Lehman Brothers Institutional Funds Group Trust (AT NET ASSET VALUE) $ 365,910 ------------------------------------------------------------------- -----------
*REPURCHASE AGREEMENT--8.2% - -------------------------------------------------------------------------------------- $3,000,000 Eastbridge Capital, Inc., 6.05%, dated 2/28/1995, due 3/1/1995 (AT AMORTIZED COST) 3,000,000 ------------------------------------------------------------------- ----------- TOTAL INVESTMENTS (IDENTIFIED COST, $38,377,579) $39,112,654+ ------------------------------------------------------------------- -----------
* The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. + The cost of investments for federal tax purposes amounts to $38,405,079. The unrealized appreciation of investments on a federal tax basis amounts to $707,575, which is comprised of $2,939,361 appreciation and $2,231,786 depreciation at February 28, 1995. Note: The categories of investments are shown as a percentage of net assets ($36,663,553) at February 28, 1995. (See Notes which are an integral part of the Financial Statements) DG OPPORTUNITY FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- ASSETS: - --------------------------------------------------------------------------------- Investments in securities, at value (identified cost $38,377,579; tax cost $38,405,079) $39,112,654 - --------------------------------------------------------------------------------- Receivable for investments sold 1,257,205 - --------------------------------------------------------------------------------- Income receivable 23,101 - --------------------------------------------------------------------------------- Receivable for shares sold 7,427 - --------------------------------------------------------------------------------- ----------- Total assets 40,400,387 - --------------------------------------------------------------------------------- LIABILITIES: - --------------------------------------------------------------------------------- Payable for investments purchased $3,700,748 - -------------------------------------------------------------------- Accrued expenses 36,086 - -------------------------------------------------------------------- ---------- Total liabilities 3,736,834 - --------------------------------------------------------------------------------- ----------- Net assets for 3,287,942 shares outstanding $36,663,553 - --------------------------------------------------------------------------------- ----------- NET ASSETS CONSIST OF: - --------------------------------------------------------------------------------- Paid in capital $35,474,555 - --------------------------------------------------------------------------------- Net unrealized appreciation of investments 735,075 - --------------------------------------------------------------------------------- Accumulated net realized gain on investments 453,825 - --------------------------------------------------------------------------------- Undistributed net investment income 98 - --------------------------------------------------------------------------------- ----------- Total Net Assets $36,663,553 - --------------------------------------------------------------------------------- ----------- NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share: Net Asset Value Per Share ($36,663,553 / 3,287,942 shares outstanding) $11.15 - --------------------------------------------------------------------------------- ------ Offering Price Per Share (100/98.00 of $11.15)* $11.38 - --------------------------------------------------------------------------------- ------
* Effective May 1, 1995, the maximum sales load is 3.50%. See "What Shares Cost." (See Notes which are an integral part of the Financial Statements) DG OPPORTUNITY FUND STATEMENT OF OPERATIONS PERIOD ENDED FEBRUARY 28, 1995* - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ------------------------------------------------------------------------------------- Interest $ 85,433 - ------------------------------------------------------------------------------------- Dividends 31,608 - ------------------------------------------------------------------------------------- ---------- Total income 117,041 - ------------------------------------------------------------------------------------- EXPENSES: - ------------------------------------------------------------------------------------- Investment advisory fee $131,668 - ------------------------------------------------------------------------- Administrative personnel and services fee 100,000 - ------------------------------------------------------------------------- Custodian fees 12,709 - ------------------------------------------------------------------------- Transfer agent and dividend disbursing agent fees and expenses 5,461 - ------------------------------------------------------------------------- Directors'/Trustees' fees 354 - ------------------------------------------------------------------------- Legal fees 1,315 - ------------------------------------------------------------------------- Portfolio accounting fees 29,769 - ------------------------------------------------------------------------- Printing and postage 3,846 - ------------------------------------------------------------------------- Insurance premiums 5,294 - ------------------------------------------------------------------------- Miscellaneous 5,100 - ------------------------------------------------------------------------- -------- Total expenses 295,516 - ------------------------------------------------------------------------- Deduct-- - ------------------------------------------------------------------------- Waiver of investment advisory fee $105,660 - -------------------------------------------------------------- Waiver of administrative personnel and services fee 80,736 - -------------------------------------------------------------- -------- Total waivers 186,396 - ------------------------------------------------------------------------- -------- Net expenses 109,120 - ------------------------------------------------------------------------------------- ---------- Net investment income 7,921 - ------------------------------------------------------------------------------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - ------------------------------------------------------------------------------------- Net realized gain on investments 501,584 - ------------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 735,075 - ------------------------------------------------------------------------------------- ---------- Net realized and unrealized gain on investments 1,236,659 - ------------------------------------------------------------------------------------- ---------- Change in net assets resulting from operations $1,244,580 - ------------------------------------------------------------------------------------- ----------
* For the period from July 21, 1994 (start of business) to February 28, 1995. (See Notes which are an integral part of the Financial Statements) DG OPPORTUNITY FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
PERIOD ENDED FEBRUARY 28, 1995* ------------ INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------------------------------- OPERATIONS-- - --------------------------------------------------------------------------- Net investment income $ 7,921 - --------------------------------------------------------------------------- Net realized gain on investments ($529,084 net gain as computed for federal tax purposes) 501,584 - --------------------------------------------------------------------------- Net change in unrealized appreciation of investments 735,075 - --------------------------------------------------------------------------- ----------- Change in net assets resulting from operations 1,244,580 - --------------------------------------------------------------------------- ----------- DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------------------------------------- Distributions from net investment income (7,823) - --------------------------------------------------------------------------- Distributions from net realized gains (47,759) - --------------------------------------------------------------------------- ----------- Change in net assets resulting from distributions to shareholders (55,582) - --------------------------------------------------------------------------- ----------- SHARE TRANSACTIONS-- - --------------------------------------------------------------------------- Proceeds from sale of shares 38,226,967 - --------------------------------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 37,506 - --------------------------------------------------------------------------- Cost of shares redeemed (2,789,918) - --------------------------------------------------------------------------- ----------- Change in net assets resulting from share transactions 35,474,555 - --------------------------------------------------------------------------- ----------- Change in net assets 36,663,553 - --------------------------------------------------------------------------- NET ASSETS: - --------------------------------------------------------------------------- Beginning of period -- - --------------------------------------------------------------------------- ----------- End of period (including undistributed net investment income of $98) $36,663,553 - --------------------------------------------------------------------------- -----------
* For the period from July 21, 1994 (start of business) to February 28, 1995. (See Notes which are an integral part of the Financial Statements) DG OPPORTUNITY FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 28, 1995 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investor Series (the "Trust") is registered under the Investment Company Act of 1940, as amended (the "Act"), as an open-end management investment company. The Trust consists of six diversified portfolios. The financial statements included herein present only those of DG Opportunity Fund (the "Fund"). The financial statements of the other portfolios are presented separately. The assets of each portfolio are segregated and a shareholder's interest is limited to the portfolio in which shares are held. (2) SIGNIFICANT ACCOUNTING POLICIES The following is a summary of significant accounting policies consistently followed by the Fund in the preparation of its financial statements. These policies are in conformity with generally accepted accounting principles. INVESTMENT VALUATIONS--Listed equity securities are valued at the last sale price reported on national securities exchanges. Unlisted securities and short-term securities are generally valued at the prices provided by an independent pricing service. Short-term securities with remaining maturities of sixty days or less at the time of purchase may be valued at amortized cost, which approximates fair market value. Investments in other open-end investment companies are valued at net asset value. REPURCHASE AGREEMENTS--It is the policy of the Fund to require the custodian bank to take possession, to have legally segregated in the Federal Reserve Book Entry System, or to have segregated within the custodian bank's vault, all securities held as collateral under repurchase agreement transactions. Additionally, procedures have been established by the Fund to monitor, on a daily basis, the market value of each repurchase agreement's collateral to ensure that the value of collateral at least equals the repurchase price to be paid under the repurchase agreement transaction. The Fund will only enter into repurchase agreements with banks and other recognized financial institutions, such as broker/dealers, which are deemed by the Fund's adviser to be creditworthy pursuant to the guidelines and/or standards reviewed or established by the Board of Trustees (the "Trustees"). Risks may arise from the potential inability of counterparties to honor the terms of the repurchase agreement. Accordingly, the Fund could receive less than the repurchase price on the sale of collateral securities. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--Dividend income and distributions to shareholders are recorded on the ex-dividend date. Interest income and expenses are accrued daily. DG OPPORTUNITY FUND - -------------------------------------------------------------------------------- Bond premium and discount, if applicable, are amortized as required by the Internal Revenue Code, as amended (the "Code"). FEDERAL TAXES--It is the Fund's policy to comply with the provisions of the Code applicable to regulated investment companies and to distribute to shareholders each year substantially all of its income. Accordingly, no provisions for federal tax are necessary. WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS--The Fund may engage in when-issued or delayed delivery transactions. The Fund records when-issued securities on the trade date and maintains security positions such that sufficient liquid assets will be available to make payment for the securities purchased. Securities purchased on a when-issued or delayed delivery basis are marked to market daily and begin earning interest on the settlement date. DEFERRED EXPENSES--The costs incurred by the Fund with respect to registration of its shares in its first fiscal year, excluding the initial expense of registering the shares, have been deferred and are being amortized using the straight-line method not to exceed a period of five years from the Fund's commencement date. OTHER--Investment transactions are accounted for on the trade date. (3) SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares of beneficial interest (without par value). Transactions in shares were as follows:
PERIOD ENDED FEBRUARY 28, 1995* ------------------ Shares sold 3,539,667 - ----------------------------------------------------------------------- Shares issued to shareholders in payment of distributions declared 3,640 - ----------------------------------------------------------------------- Shares redeemed (255,365) - ----------------------------------------------------------------------- --------------- Net change resulting from share transactions 3,287,942 - ----------------------------------------------------------------------- ---------------
* For the period from July 21, 1994 (start of business) to February 28, 1995. (4) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES INVESTMENT ADVISORY FEE--Deposit Guaranty National Bank, the Fund's investment adviser, (the "Adviser"), receives for its services an annual investment advisory fee equal to .95 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive a portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. Under the terms of a sub-advisory agreement between the Adviser and the Trust Division of Commercial National Bank, Commercial National Bank receives an annual fee from the Adviser equal to .25 of 1% of the Fund's average daily net assets. DG OPPORTUNITY FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services. The FAS fee is based on the level of average aggregate net assets of the Trust for the period. FAS may voluntarily choose to waive a portion of its fee. TRANSFER AGENT AND PORTFOLIO ACCOUNTING FEES--Federated Services Company ("FServ") serves as transfer and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. FServ also maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses incurred by the Fund were initially borne by FAS and are estimated at $30,000. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following July 25, 1994 (the date the Fund became effective). For the period ended February 28, 1995, the Fund paid $1,167 pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Trust are Officers and Directors or Trustees of the above companies. (5) INVESTMENT TRANSACTIONS Purchases and sales of investments, excluding short-term securities, for the period ended February 28, 1995, were as follows: - ------------------------------------------------------------------------------- PURCHASES $45,034,292 - ------------------------------------------------------------------------------- ----------- SALES $10,524,207 - ------------------------------------------------------------------------------- -----------
INDEPENDENT AUDITORS' REPORT - -------------------------------------------------------------------------------- The Board of Trustees and Shareholder DG INVESTOR SERIES: We have audited the statement of assets and liabilities, including the portfolio of investments of the DG Opportunity Fund (a portfolio within DG Investor Series) as of February 28, 1995, and the related statements of operations for the period then ended, the statements of changes in net assets and the financial highlights, which is presented on page 2 of this prospectus, for the period from July 21, 1994 (commencement of operations) to February 28, 1995. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and the financial highlights based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to gain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Investment securities held in custody are confirmed to us by the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the DG Opportunity Fund at February 28, 1995, and the results of its operations for the period then ended, and the changes in its net assets and the financial highlights for the period listed above, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 7, 1995 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 - ------------------------------------------------------------------------------------------------ Independent Auditors KPMG Peat Marwick LLP 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, MS Investment Adviser Commercial National Bank Shreveport, LA Sub-Adviser APRIL 30, 1995 - -------------------------------------------------------------------------------- FEDERATED SECURITIES CORP. (LOGO) - --------------------------------------------- Distributor FEDERATED INVESTORS TOWER PITTSBURGH, PA 15222-3779 G00499-01 (4/95) The shares offered by this prospectus are not deposits or obligations of Deposit Guaranty National Bank or Commercial National Bank, are not endorsed or guaranteed by Deposit Guaranty National Bank or Commercial National Bank, and are not insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in these shares involves investment risks including the possible loss of principal. DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995 MANAGEMENT DISCUSSION AND ANALYSIS: --------------------------------------------------------------------------- Short and intermediate term bond yields rose for the six-month period ended February 28, 1995. The declining market value of these bonds associated with this rate increase continued to disappoint investors. Longer term bonds (bonds with maturities ranging from 10 to 30 years) held their value and collected coupon income. The rate increase was primarily attributed to evidence of a strengthening economy and the possibility that inflation might accompany it. A strong fourth quarter gross domestic product report and a tightening of the Federal Funds rate added to the rate pressure in the short end of the market. For the fiscal year ended February 28, 1995, the DG Limited Term Government Income Fund's total rate of return was 2.72%* based on net asset value (0.68% taking into account the sales charge) compared to the Merrill Lynch 1-3 Year Treasury Index** total return of 3.37%. The Fund's duration and average maturity were reduced during the period. U.S. Treasury securities continue to hold a majority position in the Fund. Corporate securities may be utilized more in the future as spreads to Treasuries have widened, providing a more adequate return for the additional risk. * Performance quoted represents past performance. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. ** This index is unmanaged. DG LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- GROWTH OF $10,000 INVESTED IN DG LIMITED TERM GOVERNMENT INCOME FUND The graph below illustrates the hypothetical investment of $10,000 in the DG Limited Term Government Income Fund (the "Fund") from August 1, 1992 (start of performance) to February 28, 1995 compared to the Merrill Lynch 1-3 Year Treasury Index (ML1-3).+ Graphic presentation. See Appendix A.
DG Limited Merrill- Lynch Term Gov- 1-3 Year Measurement Period ernment In- Treasury (Fiscal Year Covered) come Fund Index 8/1/92 9800 10000 2/28/93 10234 10396 2/28/94 10594 10755 2/28/95 10882 11117 AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED FEBRUARY 28, 1995 1 Year.............................................................. 0.68% Start of Performance (August 1, 1992)............................... 3.35%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. * Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge = $9,800). The Fund's performance assumes the reinvestment of all dividends and distributions. The ML1-3 has been adjusted to reflect reinvestment of dividends on securities in the index. ** Total return quoted reflects all applicable sales charges and contingent deferred sales charges. + The ML1-3 is not adjusted to reflect sales loads, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. FEDERATED SECURITIES CORP. (LOGO) - -------------------------------------------------------------------------------- Distributor 23321N400 2061003ARS (4/95) DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995 MANAGEMENT DISCUSSION AND ANALYSIS: --------------------------------------------------------------------------- Short and intermediate term bond yields rose for the six-month period ended February 28, 1995. The declining market value of these bonds associated with this rate increase continued to disappoint investors. Longer term bonds (bonds with maturities ranging from 10 to 30 years) held their value and collected coupon income. The rate increase was primarily attributed to evidence of a strengthening economy and the possibility that inflation might accompany it. A strong fourth quarter gross domestic product report and a tightening of the Federal Funds rate added to the rate pressure in the short end of the market. For the fiscal year ended February 28, 1995, DG Government Income Fund's total return was 1.20% (-0.80% taking into account the sales load)* compared to the Lehman Brothers Government/Corporate Total Index** return of 1.34%. We continued to utilize a barbell strategy during this period. Our duration and average maturity continue to be shorter than the benchmark. * Performance quoted represents past performance. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. ** This index is unmanaged. DG GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- GROWTH OF $10,000 INVESTED IN DG GOVERNMENT INCOME FUND The graph below illustrates the hypothetical investment of $10,000 in the DG Government Income Fund (the "Fund") from August 1, 1992 (start of performance) to February 28, 1995 compared to the Lehman Brothers Government/Corporate Total Index ("LBGCT").+ Graphic presentation. See Appendix B.
DG Govern- Measurement Period ment Income (Fiscal Year Covered) Fund LBGCT 8/1/92 9800 10000 2/28/93 10427 10674 2/28/94 10901 11285 2/28/95 11032 11437 AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED FEBRUARY 28, 1995 1 Year............................................................. (0.80%) Start of Performance (August 1, 1992).............................. 3.90%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. * Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge = $9,800). The Fund's performance assumes the reinvestment of all dividends and distributions. The LBGCT has been adjusted to reflect reinvestment of dividends on securities in the index. ** Total return quoted reflects all applicable sales charges and contingent deferred sales charges. + The LBGCT is not adjusted to reflect sales loads, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. This index is unmanaged. FEDERATED SECURITIES CORP. (LOGO) - -------------------------------------------------------------------------------- Distributor 23321N301 2061002ARS (4/95) DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995 MANAGEMENT DISCUSSION AND ANALYSIS: --------------------------------------------------------------------------- DG Municipal Income Fund (the "Fund") was established in December 1992 to provide investors with the ability to invest in a diversified portfolio of quality longer term municipal issues. The investment objective of the Fund is to provide dividend income that is exempt from federal regular income tax.* Issues purchased by the Fund during the last twelve months consisted largely of general obligations of states, cities, and counties. The Fund is currently managed with a twelve and a half year average maturity. This is a change from our last reporting period. We have taken advantage of the latest rally in municipal bond prices and shortened the portfolio's average weighted maturity. The investment adviser believes that the value in the market is in higher quality municipal issues and continues to reflect this strategy in the Fund's portfolio. The total rate of return (income plus capital appreciation) for the past twelve months was 0.81% based on net asset value (-1.24% taking into account the sales charge).** The Fund's 30-day distribution rate as of February 28, 1995 was 4.90% for shares based on net asset value (and 4.80% taking into account the sales charge).*** The Fund's net assets increased from $34.4 million on February 28, 1994 to $41.6 million as of February 28, 1995. * Income may be subject to the federal alternative minimum tax and state and local taxes. ** Performance quoted represents past performance. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. *** Distribution rate reflects actual distribution made to shareholders. It is calculated by dividing the monthly annualized dividend plus short-term capital gains, if any, by the average 30-day offering price. DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- GROWTH OF $10,000 INVESTED IN DG MUNICIPAL INCOME FUND The graph below illustrates the hypothetical investment of $10,000 in the DG Municipal Income Fund (the "Fund") from December 21, 1992 (start of performance) to February 28, 1995 compared to the Lehman Brothers Municipal Bond Index ("LBMBI").+ Graphic presentation. See Appendix C.
Lehman Brothers Mu- Measurement Period DG Municipal nicipal Bond (Fiscal Year Covered) Income Fund Index 12/21/92 9800 10000 2/28/93 10354 10482 2/28/94 10907 11063 2/28/95 10995 11271 AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED FEBRUARY 28, 1995 1 Year............................................................. (1.24%) Start of Performance (December 21, 1992)........................... 4.44%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. * Represents a hypothetical investment of $10,000 in the Fund after deducting the maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge = $9,800). The Fund's performance assumes the reinvestment of all dividends and distributions. The LBMBI has been adjusted to reflect reinvestment of dividends on securities in the index. ** Total return quoted reflects all applicable sales charges and contingent deferred sales charges. + The LBMBI is not adjusted to reflect sales loads, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. This index is unmanaged. FEDERATED SECURITIES CORP. (LOGO) - -------------------------------------------------------------------------------- Distributor 23321N509 2112511ARS (4/95) DG EQUITY FUND - -------------------------------------------------------------------------------- ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995 MANAGEMENT DISCUSSION AND ANALYSIS: --------------------------------------------------------------------------- In the early months of the second half of DG Equity Fund's (the "Fund") fiscal year, the stock market alternately surged, stumbled, and leaped only to stagger lower to levels near 1994's previously established troughs. From about mid-December through our Fund's fiscal year-end, equity prices began to run upward. The irrepressibly robust economy, coupled with the October to November reversal in the bond market's thirteen month decline, seemed to provide the bulk of the impetus in the market's upward thrust. Since we continue to believe that additional interest rate risk will be relatively constrained over the remainder of this cycle and that the economy's underlying growth/productivity ratio remains more than just healthily aligned, the market's record high levels pose no significant long-term concern to us at this time. Short term, however, the market fluctuation may well get bumpier! Reversing the Fund's market experience during the first half of the fiscal year, our portfolio's stock values increased at a rate more than twice that of our long-term benchmark, the Standard & Poor's 500 Index* ("S&P 500"), during the fiscal year's second half. Our recent investment results more closely reflected those of the major large capitalization growth-style benchmarks. This very short-term period of out-performing the broader market indicators was largely the result of two principal influences. The first was the Fund's favorable economic sector weightings in comparison to the economic sector weightings of the S&P 500. The second, and possibly the most important influence, was our favorable stock selection. For the fiscal year as a whole, it was a good time to be a large-cap growth-style manager as growth stocks outperformed value stocks by some 400+ basis points. Last year, it may be recalled, the shoe was on the other foot with value stocks outperforming growth stocks by nearly 900 basis points. So, the pendulum swings, but not always evenly or when convenient. We plan to take advantage of the market's practices and unpredictability by applying our large-cap growth approach consistently and without fail. By doing so, we believe a major equity management pitfall can be avoided. We believe that sudden shifts of management style have proven to be many a manager's Achilles heel. Being successful by shifting management style over the long-run requires a degree of prescience well beyond that demonstrated by most money managers. We, on the other hand, believe stock price follows earnings growth. In our opinion, the best equity investment for the long-run is a well-diversified portfolio of growth stocks in which company earnings can reasonably be expected to grow rapidly and consistently. Coupled with our very high quality issue requirements, a portfolio such as ours offers excellent long-term equity investment potential. * This index is unmanaged. DG EQUITY FUND - -------------------------------------------------------------------------------- GROWTH OF $10,000 INVESTED IN DG EQUITY FUND The graph below illustrates the hypothetical investment of $10,000 in the DG Equity Fund (the "Fund") from August 1, 1992 (start of performance) to February 28, 1995 compared to the Standard and Poor's 500 Index ("S&P 500").+ Graphic presentation. See Appendix D.
Measurement Period DG Equity DG Equity (Fiscal Year Covered) Fund-2.00% Fund-3.50% S&P 500 8/1/92 9800 9650 10000 2/28/93 10427 10267 10632 2/28/94 10948 10780 11512 2/28/95 11859 11677 12359 AVERAGE ANNUAL TOTAL RETURN*** FOR THE PERIOD ENDED FEBRUARY 28, 1995 1 Year......................................................................... 4.48% Start of Performance (August 1, 1992).......................................... 6.17%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. * Represents a hypothetical investment of $10,000 in the Fund after deducting the original maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge = $9,800). The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500 has been adjusted to reflect reinvestment of dividends on securities in the index. ** Represents a hypothetical investment of $10,000 in the Fund after deducting the current maximum sales charge of 3.50% (effective 5/1/95) ($10,000 investment minus $350 sales charge = $9,650). The Fund's performance assumes the reinvestment of all dividends and distributions. The S&P 500 has been adjusted to reflect reinvestment of dividends on securities in the index. *** Total return quoted reflects all applicable current maximum sales charges and contingent deferred sales charges. + The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. This index is unmanaged. FEDERATED SECURITIES CORP. (LOGO) - -------------------------------------------------------------------------------- Distributor 2061001ARS (4/95) 23321N202 2061001ARS (4/95) DG OPPORTUNITY FUND - -------------------------------------------------------------------------------- ANNUAL REPORT FOR FISCAL YEAR ENDED FEBRUARY 28, 1995 MANAGEMENT DISCUSSION AND ANALYSIS: --------------------------------------------------------------------------- DG Opportunity Fund (the "Fund") was established in July 1994 to provide investors with a diversified portfolio of smaller capitalized companies. The investment objective of the Fund is to provide capital appreciation. Stocks purchased by the Fund since July have mostly been smaller capitalization issues. The stock selection has been well diversified with some concentrations being made in the technology, financial and consumer sectors. We anticipate more sector rotation during the next six months. The total rate of return (income plus capital appreciation) since inception of the Fund was 11.84% based on net asset value (7.96% taking into account the sales charge).* The Fund's 30-day distribution rate as of February 28, 1995 was 0.76% for shares based on net asset value (and 0.75% taking into account the sales charge).** The Fund's net assets have increased since inception to $36.7 million as of February 28, 1995. * Performance quoted represents past performance. Investment return and principal value will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. ** Distribution rate reflects actual distributions made to shareholders. It is calculated by dividing the monthly annualized dividend plus short-term capital gains, if any, by the average 30-day offering price. DG OPPORTUNITY FUND - -------------------------------------------------------------------------------- GROWTH OF $10,000 INVESTED IN DG OPPORTUNITY FUND The graph below illustrates the hypothetical investment of $10,000 in the DG Opportunity Fund (the "Fund") from August 1, 1994 (start of performance) to February 28, 1995 compared to the Russell 2000 Index.+ Graphic presentation. See Appendix E.
Measurement Period DG Opportunity DG Opportunity Russell 2000 (Fiscal Year Covered) Fund- 2.00% Fund- 3.50% Index 8/1/94 9800 9650 10000 2/28/95 10960 10793 10632 AVERAGE ANNUAL TOTAL RETURN*** FOR THE PERIOD ENDED FEBRUARY 28, 1995 Start of Performance (August 1, 1994) (cumulative)............................. 7.96%
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE. YOUR INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO WHEN SHARES ARE REDEEMED, THEY MAY BE WORTH MORE OR LESS THAN ORIGINAL COST. MUTUAL FUNDS ARE NOT OBLIGATIONS OF OR GUARANTEED BY ANY BANK AND ARE NOT FEDERALLY INSURED. * Represents a hypothetical investment of $10,000 in the Fund after deducting the original maximum sales charge of 2.00% ($10,000 investment minus $200 sales charge = $9,800). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 2000 Index has been adjusted to reflect reinvestment of dividends on securities in the index. ** Represents a hypothetical investment of $10,000 in the Fund after deducting the current maximum sales charge of 3.50% (effective 5/1/95) ($10,000 investment minus $350 sales charge = $9,650). The Fund's performance assumes the reinvestment of all dividends and distributions. The Russell 2000 Index has been adjusted to reflect reinvestment of dividends on securities in the index. *** Total return quoted reflects all applicable current maximum sales charges and contingent deferred sales charges. + The Russell 2000 Index is not adjusted to reflect sales loads, expenses, or other fees that the SEC requires to be reflected in the Fund's performance. FEDERATED SECURITIES CORP. (LOGO) - -------------------------------------------------------------------------------- Distributor 23321N608 G00499-03 (4/95) APPENDIX A The graphic presentation here displayed consists of a line graph comparing the performance of DG Limited Term Government Income Fund (the "Fund") to the performance of the Merrill Lynch 1-3 Year Treasury Index (the "Index"). The Fund's performance is represented by a solid line. The Index's performance is represented by a broken line. The line graph presents the change in value of a hypothetical $10,000 purchase in the Fund and the Index. The "y" axis reflects the cost of the investment. The "x" axis reflects computation periods from August 1, 1992, through February 28, 1995. The right margin reflects the ending value of the hypothetical investment in the Fund as compared to the Index; the ending values are $10,882, and $11,117, respectively. APPENDIX B The graphic presentation here displayed consists of a line graph comparing the performance of DG Government Income Fund (the "Fund") to the performance of the Lehman Brothers Government/Corporate Total Index (the "Index"). The Fund's performance is represented by a solid line. The Index's performance is represented by a broken line. The line graph presents the change in value of a hypothetical $10,000 purchase in the Fund and the Index. The "y" axis reflects the cost of the investment. The "x" axis reflects computation periods from August 1, 1992, through February 28, 1995. The right margin reflects the ending value of the hypothetical investment in the Fund as compared to the Index; the ending values are $11,032, and $11,437, respectively. APPENDIX C The graphic presentation here displayed consists of a line graph comparing the performance of DG Municipal Income Fund (the "Fund") to the performance of the Lehman Brother Municipal Bond Index (the "Index"). The Fund's performance is represented by a solid line. The Index's performance is represented by a broken line. The line graph presents the change in value of a hypothetical $10,000 purchase in the Fund and the Index. The "y" axis reflects the cost of the investment. The "x" axis reflects computation periods from December 21, 1992, through February 28, 1995. The right margin reflects the ending value of the hypothetical investment in the Fund as compared to the Index; the ending values are $10,995, and $11,271, respectively. APPENDIX D The graphic presentation here displayed consists of a line graph comparing the performance of DG Equity Fund (the "Fund") to the performance of the Standard & Poor's 500 Index (the "Index"). The Fund's performance, assuming a 2.00% sales load, is represented by a solid line. The Fund's performance, assuming a 3.50% sales load, is represented by a dotted line. The Index's performance is represented by a broken line. The line graph presents the change in value of a hypothetical $10,000 purchase in the Fund and the Index, less any applicable sales loads. The "y" axis reflects the cost of the investment. The "x" axis reflects computation periods from August 1, 1992, through February 28, 1995. The right margin reflects the ending value of the hypothetical investment in the Fund as compared to the Index; the ending values are $11,859, and $11,677, and $12,359, respectively. APPENDIX E The graphic presentation here displayed consists of a line graph comparing the performance of DG Opportunity Fund (the "Fund") to the performance of the Russell 2000 Index (the "Index"). The Fund's performance, assuming a 2.00% sales load, is represented by a solid line. The Fund's performance, assuming a 3.50% sales load, is represented by a dotted line. The Index's performance is represented by a broken line. The line graph presents the change in value of a hypothetical $10,000 purchase in the Fund and the Index, less any applicable sales loads. The "y" axis reflects the cost of the investment. The "x" axis reflects computation periods from August 1, 1994, through February 28, 1995. The right margin reflects the ending value of the hypothetical investment in the Fund as compared to the Index; the ending values are $10,960, and $10,793, and $10,632, respectively. -----END PRIVACY-ENHANCED MESSAGE-----