-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JtCpa/42Pz/fiW5lOWJlgfVTxW/jvU8rMo0Z90nSj88DEu16dfHzqOELsYAe4SmE Oa4MTg61TCDX9H6dVLUI4A== 0000883843-96-000003.txt : 19960502 0000883843-96-000003.hdr.sgml : 19960502 ACCESSION NUMBER: 0000883843-96-000003 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960501 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: 96554323 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 EQUITY FUND ----------------------------------- ANNUAL REPORT [LOGO] 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 FEBRUARY 29, 1996 ----------------------------------- LOGO Since 1955 FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors Recycle LOGO Cusip 23321N202 G00498-02 (4/96) PRESIDENT'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: I am pleased to present the Annual Report to Shareholders for DG Equity Fund. This report covers activity in the fund over the twelve-month period from March 1, 1995, through February 29, 1996. The report begins with a Management Discussion and Analysis, in which the portfolio manager discusses economic and market developments as well as fund strategy. Following the Management Discussion and Analysis are a complete list of the fund's stock holdings and the financial statements. As a shareholder of DG Equity Fund, you are participating in the growth of a diversified, carefully researched portfolio of high-quality stocks--many of which are issued by companies that are household names. Reflecting an extremely positive stock market environment, the fund achieved a very strong total return of 33.73% during the period, based on net asset value.* The fund paid dividends totaling $0.71 per share, and the net asset value increased from $11.41 on the first day of the period to $14.49 on the last day of the period. Net assets grew from $260 million to $385.1 million. Thank you for participating in the growth opportunities of high-quality U.S. stocks through DG Equity Fund. We look forward to keeping you up-to-date on your investment progress. Sincerely, /s/ Edward C. Gonzales Edward C. Gonzales President April 15, 1996 * 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. Reflecting the maximum sales charge, the fund's total return for the period was 29.09%. MANAGEMENT DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- The second half of the fund's fiscal year proved to be even more explosive than the first. For this latest period, persistently declining interest rates and investor expectations of even lower rates provided an exceedingly accommodative environment for stocks. When coupled with the naturally buoying effect of the massive net cash inflows experienced by most mutual funds toward the end of the fund's year, these combined favorable influences powered mid-to-large company stock indices' six-month returns higher by 7% to 17%. Smaller-company stock indices, however, seemed to not fare as well during the period, although for the fiscal year as a whole, even those comparatively laggard indices easily doubled long-term annual expectations. Our focused "big and bigger" company indices, on average, tripled long-term return expectations for the full fiscal year. Our fund shared fully in the market's good fortune both over our second fiscal half and for the entire fiscal year. As a matter of course, the fund's portfolio is currently and nearly always will be clearly biased toward a classical large-cap growth stock mix. The fund's economic sector emphasis will reflect this preference as the higher growth rate and less cyclical Consumer Services, Consumer Staples, Health Care, and Technology sectors will dominate. Over the latest six-month period this resultant sector emphasis only marginally benefited our investors as individual selection proved to be of greater significance. The same may be said of the entire fiscal year. Our current expectations regarding earnings per share growth rates for our stocks are fairly typical by historical comparison. We expect operating per-share earnings to grow between 12% and 15% over the calendar year and believe these expectations have been discounted by the marketplace at a reasonable rate. In other words, no multiple (price per earnings) expansion should be contemplated or expected, based on possibly outsized earnings per share growth forecasts. With interest rates now seeming to be entering a troughing phase and the messages provided by a broad range of economic indicators appearing somewhat disconnected if not downright ambivalent, the equity market is likely to spend a good deal more of its time, near-term, gathering its feet beneath itself before pushing higher. But push higher it will, or so we believe. Our decidedly growth oriented stock (and economic scenario) emphasis may prove once again most appropriate as time unfolds and may reward, we believe, the discerning high quality focused shareholder whose patience appropriately mirrors the true equity investor's horizon. 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 29, 1996 compared to the Standard & Poor's 500 Index ("S&P 500").+ GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX A AVERAGE ANNUAL TOTAL RETURN*** FOR THE PERIOD ENDED FEBRUARY 29, 1996 1 Year................................................. 29.09% Start of Performance (August 1, 1992).................. 13.25% 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 the current maximum sales charge of 3.50%. + The S&P 500 is not adjusted to reflect sales loads, expenses, or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. This index is unmanaged. DG EQUITY FUND PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996 - --------------------------------------------------------------------------------
SHARES VALUE - --------- ------------------------------------------------------------------ ------------ COMMON STOCKS--92.3% - ---------------------------------------------------------------------------------- BUSINESS EQUIPMENT & SERVICES--7.1% ------------------------------------------------------------------ 250,000 Automatic Data Processing, Inc. $ 9,687,500 ------------------------------------------------------------------ 125,000 Donnelley (R.R.) & Sons Co. 4,500,000 ------------------------------------------------------------------ 70,000 Dun & Bradstreet Corp. 4,427,500 ------------------------------------------------------------------ 180,000 Pitney Bowes, Inc. 8,685,000 ------------------------------------------------------------------ ------------ Total 27,300,000 ------------------------------------------------------------------ ------------ CAPITAL GOODS--8.2% ------------------------------------------------------------------ 240,000 Dover Corp. 10,680,000 ------------------------------------------------------------------ 135,000 General Electric Co. 10,192,500 ------------------------------------------------------------------ 150,000 PPG Industries, Inc. 6,956,250 ------------------------------------------------------------------ 100,000 Tyco International, LTD 3,612,500 ------------------------------------------------------------------ ------------ Total 31,441,250 ------------------------------------------------------------------ ------------ CONSUMER NON-DURABLES--20.0% ------------------------------------------------------------------ 125,000 Coca-Cola Co. 10,093,750 ------------------------------------------------------------------ 60,000 Eastman Kodak Co. 4,290,000 ------------------------------------------------------------------ 120,000 Heinz (H.J.) Co. 4,080,000 ------------------------------------------------------------------ 220,000 International Flavors & Fragrances, Inc. 11,027,500 ------------------------------------------------------------------ 200,000 PepsiCo., Inc. 12,650,000 ------------------------------------------------------------------ 80,000 Philip Morris Cos., Inc. 7,920,000 ------------------------------------------------------------------ 120,000 Proctor & Gamble Co. 9,840,000 ------------------------------------------------------------------ 70,000 Quaker Oats Co. 2,406,250 ------------------------------------------------------------------ 200,000 Sara Lee Corp. 6,475,000 ------------------------------------------------------------------ 140,000 Sysco Corp. 4,602,500 ------------------------------------------------------------------ 75,000 Tambrands, Inc. 3,618,750 ------------------------------------------------------------------ ------------ Total 77,003,750 ------------------------------------------------------------------ ------------
DG EQUITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - --------- ------------------------------------------------------------------ ------------ COMMON STOCKS--CONTINUED - ---------------------------------------------------------------------------------- CONSUMER SERVICES--3.4% ------------------------------------------------------------------ 200,000 Disney (Walt) Co. $ 13,100,000 ------------------------------------------------------------------ ------------ ENERGY--2.4% ------------------------------------------------------------------ 60,000 Amoco Corp. 4,170,000 ------------------------------------------------------------------ 90,000 Chevron Corp. 5,006,250 ------------------------------------------------------------------ ------------ Total 9,176,250 ------------------------------------------------------------------ ------------ HEALTHCARE--17.3% ------------------------------------------------------------------ 180,000 Abbott Laboratories 7,515,000 ------------------------------------------------------------------ 80,000 Bristol-Myers Squibb Co. 6,810,000 ------------------------------------------------------------------ 70,000 Hillenbrand Industries, Inc. 2,283,750 ------------------------------------------------------------------ 120,000 Johnson & Johnson 11,220,000 ------------------------------------------------------------------ 160,000 Medtronic, Inc. 9,180,000 ------------------------------------------------------------------ 120,000 Merck & Co., Inc. 7,950,000 ------------------------------------------------------------------ 170,000 Pfizer, Inc. 11,198,750 ------------------------------------------------------------------ 130,000 Schering Plough Corp. 7,296,250 ------------------------------------------------------------------ 30,000 U.S. Healthcare, Inc. 1,462,500 ------------------------------------------------------------------ 30,000 United Healthcare Corp. 1,957,500 ------------------------------------------------------------------ ------------ Total 66,873,750 ------------------------------------------------------------------ ------------ RAW MATERIALS--3.2% ------------------------------------------------------------------ 75,000 Great Lakes Chemical Corp. 5,362,500 ------------------------------------------------------------------ 90,000 Lubrizol Corp. 2,632,500 ------------------------------------------------------------------ 120,000 Morton International, Inc. 4,545,000 ------------------------------------------------------------------ ------------ Total 12,540,000 ------------------------------------------------------------------ ------------ RETAIL--11.5% ------------------------------------------------------------------ 180,000 Albertsons, Inc. 6,660,000 ------------------------------------------------------------------ 150,000 Home Depot, Inc. 6,487,500 ------------------------------------------------------------------ 275,000 McDonald's Corp. 13,750,000 ------------------------------------------------------------------
DG EQUITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - --------- ------------------------------------------------------------------ ------------ COMMON STOCKS--CONTINUED - ---------------------------------------------------------------------------------- RETAIL--CONTINUED ------------------------------------------------------------------ 240,000 Wal-Mart Stores, Inc. $ 5,100,000 ------------------------------------------------------------------ 370,000 Walgreen Co. 12,210,000 ------------------------------------------------------------------ ------------ Total 44,207,500 ------------------------------------------------------------------ ------------ TECHNOLOGY--16.4% ------------------------------------------------------------------ 150,000 AMP, Inc. 6,393,750 ------------------------------------------------------------------ 85,000 Boeing Co. 6,895,625 ------------------------------------------------------------------ 200,000 (a) Compaq Computer Corp. 10,125,000 ------------------------------------------------------------------ 130,000 (a) Digital Equipment Corp. 9,360,000 ------------------------------------------------------------------ 125,000 Hewlett-Packard Co. 12,593,750 ------------------------------------------------------------------ 100,000 International Business Machines Corp. 12,262,500 ------------------------------------------------------------------ 100,000 Motorola, Inc. 5,425,000 ------------------------------------------------------------------ ------------ Total 63,055,625 ------------------------------------------------------------------ ------------ UTILITIES--2.8% ------------------------------------------------------------------ 100,000 AT&T Corp. 6,362,500 ------------------------------------------------------------------ 80,000 Central & SouthWest Corp. 2,220,000 ------------------------------------------------------------------ 40,000 SBC Communications, Inc. 2,195,000 ------------------------------------------------------------------ ------------ Total 10,777,500 ------------------------------------------------------------------ ------------ TOTAL COMMON STOCKS (IDENTIFIED COST $247,957,684) 355,475,625 ------------------------------------------------------------------ ------------
DG EQUITY FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ----------------------------------------------------------------- ------------ (b)REPURCHASE AGREEMENT--7.4% - ----------------------------------------------------------------------------------- $28,675,914 Cantor Fitzgerald Securities, 5.46%, dated 2/29/1996, due 3/1/1996 (at amortized cost) $ 28,675,914 ----------------------------------------------------------------- ------------ (c) TOTAL INVESTMENTS (IDENTIFIED COST $276,633,598) $384,151,539 ----------------------------------------------------------------- ------------
(a) Non-income producing security. (b) The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. (c) The cost of investments for federal tax purposes amounts to $276,633,598. The net unrealized appreciation of investments on a federal tax basis amounts to $107,517,941, which is comprised of $111,359,827 appreciation and $3,841,886 depreciation at February 29, 1996. Note: The categories of investments are shown as a percentage of net assets ($385,145,037) at February 29, 1996. (See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Investments in securities, at value (identified and tax cost $276,633,598) $384,151,539 - ------------------------------------------------------------------------------- Income receivable 667,462 - ------------------------------------------------------------------------------- Receivable for shares sold 413,116 - ------------------------------------------------------------------------------- Deferred expenses 18,719 - ------------------------------------------------------------------------------- ------------ Total assets 385,250,836 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $51,630 - --------------------------------------------------------------------- Payable to Transfer Agent 7,816 - --------------------------------------------------------------------- Payable to Portfolio Accountant 7,500 - --------------------------------------------------------------------- Accrued expenses 38,853 - --------------------------------------------------------------------- ------- Total liabilities 105,799 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 26,583,091 shares outstanding $385,145,037 - ------------------------------------------------------------------------------- ------------ NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------- Paid in capital $277,190,330 - ------------------------------------------------------------------------------- Net unrealized appreciation of investments 107,517,941 - ------------------------------------------------------------------------------- Accumulated net realized gain on investments 1,184 - ------------------------------------------------------------------------------- Undistributed net investment income 435,582 - ------------------------------------------------------------------------------- ------------ Total Net Assets $385,145,037 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE and Redemption Proceeds Per Share: - ------------------------------------------------------------------------------- ------------ $385,145,037 / 26,583,091 shares outstanding $14.49 - ------------------------------------------------------------------------------- ------------ Offering Price Per Share (100/96.50 of $14.49)* $15.02 - ------------------------------------------------------------------------------- ------------
* See "What Shares Cost" in the Prospectus. (See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Dividends $ 6,053,305 - --------------------------------------------------------------------------------- Interest 1,433,292 - --------------------------------------------------------------------------------- ----------- Total income 7,486,597 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee $2,568,435 - -------------------------------------------------------------------- Administrative personnel and services fee 401,890 - -------------------------------------------------------------------- Custodian fees 47,658 - -------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 42,263 - -------------------------------------------------------------------- Directors'/Trustees' fees 3,868 - -------------------------------------------------------------------- Auditing fees 12,078 - -------------------------------------------------------------------- Legal fees 2,313 - -------------------------------------------------------------------- Portfolio accounting fees 85,202 - -------------------------------------------------------------------- Share registration costs 41,601 - -------------------------------------------------------------------- Printing and postage 7,734 - -------------------------------------------------------------------- Insurance premiums 7,892 - -------------------------------------------------------------------- Miscellaneous 9,475 - -------------------------------------------------------------------- ---------- Total expenses 3,230,409 - --------------------------------------------------------------------------------- ----------- Net investment income 4,256,188 - --------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - --------------------------------------------------------------------------------- Net realized gain on investments 13,664,210 - --------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 81,182,937 - --------------------------------------------------------------------------------- ----------- Net realized and unrealized gain on investments 94,847,147 - --------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $99,103,335 - --------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------- OPERATIONS-- - ---------------------------------------------------- Net investment income $ 4,256,188 $ 3,920,459 - ---------------------------------------------------- Net realized gain on investments ($13,575,513 and $2,523,351, respectively, as computed for federal tax purposes) 13,664,210 2,434,655 - ---------------------------------------------------- Net change in unrealized appreciation (depreciation) 81,182,937 11,661,159 - ---------------------------------------------------- --------------- ------------- Change in net assets resulting from operations 99,103,335 18,016,273 - ---------------------------------------------------- --------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------- Distributions from net investment income (4,438,344) (3,923,189) - ---------------------------------------------------- Distributions from net realized gains (13,575,996) (3,737,081) - ---------------------------------------------------- --------------- ------------- Change in net assets resulting from distributions to shareholders (18,014,340) (7,660,270) - ---------------------------------------------------- --------------- ------------- SHARE TRANSACTIONS-- - ---------------------------------------------------- Proceeds from sale of shares 129,890,889 61,047,804 - ---------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 10,503,917 4,839,980 - ---------------------------------------------------- Cost of shares redeemed (96,336,688) (100,448,383) - ---------------------------------------------------- --------------- ------------- Change in net assets resulting from share transactions 44,058,118 (34,560,599) - ---------------------------------------------------- --------------- ------------- Change in net assets 125,147,113 (24,204,596) - ---------------------------------------------------- NET ASSETS: - ---------------------------------------------------- Beginning of period 259,997,924 284,202,520 - ---------------------------------------------------- --------------- ------------- End of period (including undistributed net investment income of $435,582 and $617,738, respectively) $ 385,145,037 $ 259,997,924 - ---------------------------------------------------- --------------- -------------
(See Notes which are an integral part of the Financial Statements) 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 15.
YEAR ENDED FEBRUARY 28 OR 29, ------------------------------------------- 1996 1995 1994 1993(A) ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $11.41 $10.87 $10.54 $10.00 - --------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------------- Net investment income 0.16 0.16 0.14 0.12 - --------------------------------------------------------- Net realized and unrealized gain (loss) on investments 3.63 0.71 0.38 0.52 - --------------------------------------------------------- ------ ------ ------ ------ Total from investment operations 3.79 0.87 0.52 0.64 - --------------------------------------------------------- ------ ------ ------ ------ LESS DISTRIBUTIONS - --------------------------------------------------------- Distributions from net investment income (0.17) (0.16) (0.14) (0.10) - --------------------------------------------------------- Distributions from net realized gain on investment (0.54) (0.17) (0.05) -- - --------------------------------------------------------- ------ ------ ------ ------ Total distributions (0.71) (0.33) (0.19) (0.10) - --------------------------------------------------------- ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $14.49 $11.41 $10.87 $10.54 - --------------------------------------------------------- ------ ------ ------ ------ TOTAL RETURN (B) 33.73% 8.23% 4.99% 6.40% - --------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------------- Expenses 0.94% 0.95% 0.96% 0.51%* - --------------------------------------------------------- Net investment income 1.24% 1.54% 1.38% 2.15%* - --------------------------------------------------------- Expense waiver/reimbursement (c) -- -- 0.01% 0.53%* - --------------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------------- Net assets, end of period (000 omitted) $385,145 $259,998 $284,203 $181,239 - --------------------------------------------------------- Average commission rate paid $0.0653 -- -- -- - --------------------------------------------------------- Portfolio turnover 15% 1% 7% 28% - ---------------------------------------------------------
* Computed on an annualized basis. (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) 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) DG EQUITY FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- (1) ORGANIZATION DG Investors 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 portfolios. The financial statements included herein are only those of DG Equity Fund (the "Fund"), a diversified portfolio. The investment objective of the Fund is to provide long term capital appreciation with current income as a secondary objective. 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--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. All other securities are valued at prices provided by an independent pricing service. 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"). 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. 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 DG EQUITY FUND - -------------------------------------------------------------------------------- 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 have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. 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 YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 - ------------------------------------------------------ ------------------ ------------------ Shares sold 10,299,860 5,663,505 - ------------------------------------------------------ Shares issued to shareholders in payment of distributions declared 782,712 455,037 - ------------------------------------------------------ Shares redeemed (7,276,853) (9,475,512) - ------------------------------------------------------ ---------------- --------------- Net change resulting from share transactions 3,805,719 (3,356,970) - ------------------------------------------------------ ---------------- ---------------
(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. In addition, Trust Division of Commercial National Bank may voluntarily choose to reduce its compensation. 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. DG EQUITY FUND - -------------------------------------------------------------------------------- TRANSFER AGENT AND DIVIDEND DISBURSING AGENT FEES--Federated Services Company 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. PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily 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 the effective date. For the period ended February 29, 1996, the Fund paid $6,630 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 29, 1996, were as follows: - ------------------------------------------------------------------------------- PURCHASES $73,584,355 - ------------------------------------------------------------------------------- ----------- SALES $48,158,462 - ------------------------------------------------------------------------------- -----------
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 29, 1996, and the related statement of operations for the period then ended, the statements of changes in net assets for the years ended February 29, 1996 and February 28, 1995, and the financial highlights for the periods from August 3, 1992 (commencement of operations) to February 29, 1996. 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 29, 1996, 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 8, 1996 TRUSTEES OFFICERS - ------------------------------------------------------------------------------------------ John F. Donahue John F. Donahue Thomas G. Bigley Chairman John T. Conroy, Jr. Edward C. Gonzales William J. Copeland President and Treasurer James E. Dowd J. Christopher Donahue Lawrence D. Ellis, M.D. Executive Vice President Edward L. Flaherty, Jr. John W. McGonigle Edward C. Gonzales Executive Vice President and Secretary Peter E. Madden Richard B. Fisher Gregor F. Meyer Vice President John E. Murray, Jr. Charles L. Davis, Jr. Wesley W. Posvar Vice President and Assistant Treasurer Marjorie P. Smuts C. Grant Anderson Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. DG OPPORTUNITY FUND ----------------------------------- ANNUAL REPORT [LOGO] 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 FEBRUARY 29, 1996 ----------------------------------- LOGO Since 1955 FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor for the fund and is a subsidiary of Federated Investors Recycle [LOGO] Cusip 23321N608 G00498-06 (4/96) PRESIDENT'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: I am pleased to present the Annual Report to Shareholders for DG Opportunity Fund. This report covers activity in the fund over the twelve-month period from March 1, 1995, through February 29, 1996. The report begins with a Management Discussion and Analysis, in which the portfolio manager discusses economic and market developments as well as fund strategy. Following the Management Discussion and Analysis are a complete list of the fund's stock holdings and the financial statements. As a shareholder of DG Opportunity Fund, you are participating in the growth of a diversified, carefully researched portfolio of stocks issued by smaller, emerging companies. Consistent with a highly favorable stock market climate, the fund achieved a very strong total return of 31.42% based on net asset value, for the period ended February 29, 1996.* The fund paid capital gains totaling $1.66 per share, while its net asset value rose from $11.15 on the first day of the period to $12.79 on the last day. Net assets stood at $53.5 million. Thank you for participating in the growth opportunities of our nation's emerging companies through DG Opportunity Fund. We look forward to keeping you up-to-date on your investment progress. Sincerely, /s/ Edward C. Gonzales Edward C. Gonzales President April 15, 1996 * 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. Reflecting the maximum sales charge, the fund's total return for the period was 26.87%. MANAGEMENT DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- DG Opportunity 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 retail, restaurants and technology sectors. We anticipate more sector rotation during the next six months. The total rate of return (income plus capital appreciation) for the fiscal year ended February 29, 1996 was 31.42% based on net asset value (26.87% taking into account the sales charge).* The fund's net assets have increased since inception to $53.5 million as of February 29, 1996. * 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. DG OPPORTUNITY FUND - -------------------------------------------------------------------------------- GROWTH OF $10,000 INVESTED IN DG OPPORTUNITY FUND The graph below illustrates the hypothetical investment of $10,000 in DG Opportunity Fund (the "Fund") from August 1, 1994 (start of performance) to February 29, 1996 compared to the Russell 2000 Index.+ GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX B AVERAGE ANNUAL TOTAL RETURN*** FOR THE PERIOD ENDED FEBRUARY 29, 1996 1 Year................................................ 26.87% Start of Performance (August 1, 1994)................. 24.77% 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 the current maximum sales charge of 3.50%. + The Russell 2000 Index is not adjusted to reflect sales loads, expenses, or other fees that the Securities and Exchange Commission requires to be reflected in the Fund's performance. This index is unmanaged. DG OPPORTUNITY FUND PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996 - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------- ----------- COMMON STOCKS--86.9% - -------------------------------------------------------------------------------------- BROADCASTING--1.7% ------------------------------------------------------------------- 49,000 * New World Communications Group, Inc. $ 918,750 ------------------------------------------------------------------- ---------- COMMUNICATIONS--5.7% ------------------------------------------------------------------- 13,000 * MFS Communications Company, Inc. 786,500 ------------------------------------------------------------------- 80,000 * Metromedia International Group, Inc. 1,100,000 ------------------------------------------------------------------- 5,500 * Mobile Telecommunication Technologies Corp. 79,063 ------------------------------------------------------------------- 36,000 * Periphonics Corp. 864,000 ------------------------------------------------------------------- 20,000 * Symmetricom, Inc. 230,000 ------------------------------------------------------------------- ---------- Total 3,059,563 ------------------------------------------------------------------- ---------- COMPUTER SERVICES--14.3% ------------------------------------------------------------------- 28,000 * Applied Magnetics Corp. 441,000 ------------------------------------------------------------------- 76,000 * Blyth Holdings, Inc. 218,500 ------------------------------------------------------------------- 65,000 * Data General Corp. 1,096,875 ------------------------------------------------------------------- 50,000 * Datastream Systems, Inc. 1,015,625 ------------------------------------------------------------------- 45,000 * GT Interactive Software 579,375 ------------------------------------------------------------------- 41,800 * Harbinger Corp. 825,550 ------------------------------------------------------------------- 33,000 * Interphase Corp. 363,000 ------------------------------------------------------------------- 30,000 * MICROS Systems Corp. 1,560,000 ------------------------------------------------------------------- 25,500 * Optical Data Systems, Inc. 701,250 ------------------------------------------------------------------- 62,700 * Physician Computer Network, Inc. 869,963 ------------------------------------------------------------------- ---------- Total 7,671,138 ------------------------------------------------------------------- ---------- ELECTRICAL EQUIPMENT--2.2% ------------------------------------------------------------------- 75,000 Kuhlman Corp. 1,153,125 ------------------------------------------------------------------- ---------- ENVIRONMENTAL CONTROL--0.4% ------------------------------------------------------------------- 80,000 * Encon Systems, Inc. 220,000 ------------------------------------------------------------------- -----------
DG OPPORTUNITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------- ----------- COMMON STOCKS--CONTINUED - -------------------------------------------------------------------------------------- FINANCIAL SERVICES--13.5% ------------------------------------------------------------------- 22,500 Commercial Bankshares, Inc. $ 300,938 ------------------------------------------------------------------- 50,000 Edwards (AG), Inc. 1,212,500 ------------------------------------------------------------------- 69,000 * Envoy Corp. 1,362,750 ------------------------------------------------------------------- 39,250 Morgan Keegan & Co., Inc. 480,813 ------------------------------------------------------------------- 54,000 * Olympic Financial Ltd. 837,000 ------------------------------------------------------------------- 31,000 Stewart Enterprises, Inc. 1,286,500 ------------------------------------------------------------------- 33,000 T. Rowe Price Associates 1,773,750 ------------------------------------------------------------------- ---------- Total 7,254,251 ------------------------------------------------------------------- ---------- HEALTHCARE--12.9% ------------------------------------------------------------------- 120,000 * American Healthcorp, Inc. 1,170,000 ------------------------------------------------------------------- 52,000 * ClinTrials, Inc. 1,527,500 ------------------------------------------------------------------- 16,000 * Equimed, Inc. 226,000 ------------------------------------------------------------------- 43,000 KeraVision, Inc. 521,375 ------------------------------------------------------------------- 135,000 * Tokos Medical Corp. 1,282,500 ------------------------------------------------------------------- 32,000 * Vencor, Inc. 1,196,000 ------------------------------------------------------------------- 32,600 * Vivra, Inc. 961,700 ------------------------------------------------------------------- ---------- Total 6,885,075 ------------------------------------------------------------------- ---------- HOTELS--4.6% ------------------------------------------------------------------- 92,300 * Aztar Corp. 726,863 ------------------------------------------------------------------- 78,400 * Casino American, Inc. 475,300 ------------------------------------------------------------------- 48,000 * Promus Hotel Corp. 1,248,000 ------------------------------------------------------------------- ---------- Total 2,450,163 ------------------------------------------------------------------- ---------- INSURANCE--3.1% ------------------------------------------------------------------- 43,000 * Compdent Corp. 1,644,750 ------------------------------------------------------------------- ---------- MANUFACTURING--3.2% ------------------------------------------------------------------- 50,000 * J. Ray McDermott, S.A. 887,500 ------------------------------------------------------------------- 36,000 Quanex Corp. 715,500 -------------------------------------------------------------------
DG OPPORTUNITY FUND - --------------------------------------------------------------------------------
SHARES VALUE - ---------- ------------------------------------------------------------------- ----------- COMMON STOCKS--CONTINUED - -------------------------------------------------------------------------------------- MANUFACTURING--CONTINUED ------------------------------------------------------------------- 26,000 * Terex Corp. $ 126,750 ------------------------------------------------------------------- ----------- Total 1,729,750 ------------------------------------------------------------------- ----------- OIL--2.4% ------------------------------------------------------------------- 75,000 * International Colin Energy Corp. 309,375 ------------------------------------------------------------------- 69,100 * Quaker State Corp. 967,400 ------------------------------------------------------------------- ----------- Total 1,276,775 ------------------------------------------------------------------- ----------- RETAIL--21.4% ------------------------------------------------------------------- 50,000 * Brightpoint, Inc. 875,000 ------------------------------------------------------------------- 72,000 * Coastcast Corp. 1,206,000 ------------------------------------------------------------------- 47,500 * Hometown Buffet, Inc. 552,187 ------------------------------------------------------------------- 37,900 * Insight Enterprises, Inc. 511,650 ------------------------------------------------------------------- 61,000 Intimate Brands, Inc. 1,014,124 ------------------------------------------------------------------- 56,000 * Landrys Seafood Restaurants, Inc. 980,000 ------------------------------------------------------------------- 62,000 * Logan's Roadhouse, Inc. 1,488,000 ------------------------------------------------------------------- 33,100 * Longhorn Steaks, Inc. 703,374 ------------------------------------------------------------------- 33,000 * Papa Johns International, Inc. 1,699,500 ------------------------------------------------------------------- 60,000 * Renters Choice, Inc. 1,016,250 ------------------------------------------------------------------- 75,000 Sanderson Farms, Inc. 806,250 ------------------------------------------------------------------- 47,000 * Stein Mart, Inc. 575,750 ------------------------------------------------------------------- ----------- Total 11,428,085 ------------------------------------------------------------------- ----------- TRANSPORTATION--1.5% ------------------------------------------------------------------- 35,000 * KLLM Transportation Services, Inc. 358,750 ------------------------------------------------------------------- 19,000 * ValuJet, Inc. 439,375 ------------------------------------------------------------------- ----------- Total 798,125 ------------------------------------------------------------------- ----------- TOTAL COMMON STOCK (IDENTIFIED COST $37,782,824) 46,489,550 ------------------------------------------------------------------- -----------
DG OPPORTUNITY FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ------------------------------------------------------------------- ----------- (a) REPURCHASE AGREEMENT--14.1% - -------------------------------------------------------------------------------------- $ 7,564,700 Cantor Fitzgerald Securities, 5.47%, dated 2/29/1996, due 3/1/1996 $ 7,564,700 ------------------------------------------------------------------- ----------- TOTAL INVESTMENTS (IDENTIFIED COST $45,347,524)(b) $54,054,250 ------------------------------------------------------------------- -----------
* Non-income producing. (a) The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. (b) The cost of investments for federal tax purposes amounts to $45,409,602. The net unrealized appreciation of investments on a federal tax basis amounts to $8,644,648, which is comprised of $10,198,142 appreciation and $1,553,494 depreciation at February 29, 1996. Note: The categories of investments are shown as a percentage of net assets ($53,477,325) at February 29, 1996. (See Notes which are an integral part of the Financial Statements) DG OPPORTUNITY FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- ASSETS: - --------------------------------------------------------------------------------- Investments in repurchase agreements $ 7,564,700 - ------------------------------------------------------------------- Investments in securities 46,489,550 - ------------------------------------------------------------------- ----------- Total investments in securities, at value (identified cost $45,347,524, tax cost $45,409,602) $54,054,250 - --------------------------------------------------------------------------------- Income receivable 18,303 - --------------------------------------------------------------------------------- Receivable for shares sold 8,756 - --------------------------------------------------------------------------------- Deferred expenses 1,737 - --------------------------------------------------------------------------------- ----------- Total assets 54,083,046 - --------------------------------------------------------------------------------- LIABILITIES: - --------------------------------------------------------------------------------- Payable for investments purchased $ 564,765 - ------------------------------------------------------------------- Accrued expenses 40,956 - ------------------------------------------------------------------- ----------- Total liabilities 605,721 - --------------------------------------------------------------------------------- ----------- NET ASSETS for 4,181,974 shares outstanding $53,477,325 - --------------------------------------------------------------------------------- ----------- NET ASSETS CONSIST OF: - --------------------------------------------------------------------------------- Paid in capital $45,828,705 - --------------------------------------------------------------------------------- Net unrealized appreciation of investments 8,706,726 - --------------------------------------------------------------------------------- Accumulated net realized loss on investments (1,058,345) - --------------------------------------------------------------------------------- Undistributed net investment income 239 - --------------------------------------------------------------------------------- ----------- Total Net Assets $53,477,325 - --------------------------------------------------------------------------------- ----------- NET ASSET VALUE and Redemption Proceeds Per Share: $53,477,325 / 4,181,974 shares outstanding $12.79 - --------------------------------------------------------------------------------- ----------- Offering Price Per Share: (100/96.50 of $12.79)* $13.25 - --------------------------------------------------------------------------------- -----------
* See "What Shares Cost" in the Prospectus. (See Notes which are an integral part of the Financial Statements) DG OPPORTUNITY FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - -------------------------------------------------------------------------------- Dividend Income $ 221,593 - -------------------------------------------------------------------------------- Interest Income 321,994 - -------------------------------------------------------------------------------- ----------- Total income 543,587 - -------------------------------------------------------------------------------- EXPENSES: - -------------------------------------------------------------------------------- Investment advisory fee $441,513 - -------------------------------------------------------------------- Administrative personnel and services fee 100,000 - -------------------------------------------------------------------- Custodian fees 31,691 - -------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 35,538 - -------------------------------------------------------------------- Directors'/Trustees' fees 645 - -------------------------------------------------------------------- Auditing fees 11,520 - -------------------------------------------------------------------- Legal fees 380 - -------------------------------------------------------------------- Portfolio accounting fees 53,203 - -------------------------------------------------------------------- Share registration costs 19,460 - -------------------------------------------------------------------- Printing and postage 6,389 - -------------------------------------------------------------------- Insurance premiums 1,731 - -------------------------------------------------------------------- Miscellaneous 3,914 - -------------------------------------------------------------------- -------- Total expenses 705,984 - -------------------------------------------------------------------- Deduct--Waiver of investment advisory fee 162,538 - -------------------------------------------------------------------- -------- Net expenses 543,446 - -------------------------------------------------------------------------------- ----------- Net investment income 141 - -------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - -------------------------------------------------------------------------------- Net realized gain on investments 4,440,660 - -------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 7,971,651 - -------------------------------------------------------------------------------- ----------- Net realized and unrealized gain on investments 12,412,311 - -------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $12,412,452 - -------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG OPPORTUNITY FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995* ------------------ ------------------- INCREASE (DECREASE) IN NET ASSETS: - -------------------------------------------------- OPERATIONS-- - -------------------------------------------------- Net investment income $ 141 $ 7,921 - -------------------------------------------------- Net realized gain on investments ($5,471,469 and $529,084, respectively, as computed for federal tax purposes) 4,440,660 501,584 - -------------------------------------------------- Net change in unrealized appreciation (depreciation) 7,971,651 735,075 ----------- - -------------------------------------------------- ------------ Change in net assets resulting from operations 12,412,452 1,244,580 ----------- - -------------------------------------------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS-- - -------------------------------------------------- Distributions from net investment income -- (7,823) - -------------------------------------------------- Distributions from net realized gains (5,952,830) (47,759) - -------------------------------------------------- ------------ ----------- Change in net assets resulting from distributions to shareholders (5,952,830) (55,582) - -------------------------------------------------- ------------ ----------- SHARE TRANSACTIONS-- - -------------------------------------------------- Proceeds from sale of shares 19,841,733 38,226,967 - -------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 4,248,370 37,506 - -------------------------------------------------- Cost of shares redeemed (13,735,953) (2,789,918) - -------------------------------------------------- ------------ ----------- Change in net assets resulting from share transactions 10,354,150 35,474,555 - -------------------------------------------------- ------------ ----------- Change in net assets 16,813,772 36,663,553 - -------------------------------------------------- NET ASSETS: - -------------------------------------------------- Beginning of period 36,663,553 -- - -------------------------------------------------- ------------ ----------- End of period (including undistributed net investment income of $239 and $98, respectively) $ 53,477,325 $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 FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- (FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD) Reference is made to the Report of KPMG Peat Marwick LLP, Independent Auditors, on page 15.
YEAR ENDED FEBRUARY 28 OR 29, --------------------- 1996 1995(a) ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $11.15 $10.00 - -------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------------------------- Net investment income -- 0.02 - -------------------------------------------------------------------------- Net realized and unrealized gain on investments 3.30 1.17 - -------------------------------------------------------------------------- ------ ------ Total from investment operations 3.30 1.19 - -------------------------------------------------------------------------- ------ ------ LESS DISTRIBUTIONS - -------------------------------------------------------------------------- Distributions from net investment income -- (0.02) - -------------------------------------------------------------------------- Distributions from net realized gain on investments (1.66) (0.02) - -------------------------------------------------------------------------- ------ ------ Total distributions (1.66) (0.04) - -------------------------------------------------------------------------- ------ ------ NET ASSET VALUE, END OF PERIOD $12.79 $11.15 - -------------------------------------------------------------------------- ------ ------ TOTAL RETURN (b) 31.42% 11.84% - -------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------------------------- Expenses 1.17% 0.79%* - -------------------------------------------------------------------------- Net investment income -- 0.06%* - -------------------------------------------------------------------------- Expense waiver/reimbursement (c) 0.35% 1.34%* - -------------------------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------------------------- Net assets, end of period (000 omitted) $53,477 $36,664 - -------------------------------------------------------------------------- Average commission rate period $0.0098 $-- - -------------------------------------------------------------------------- Portfolio turnover 154% 45% - --------------------------------------------------------------------------
* Computed on an annualized basis. (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) 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) DG OPPORTUNITY FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- (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 portfolios. The financial statements included herein are only those of DG Opportunity Fund (the "Fund"), a diversified portfolio. 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--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. All other securities are valued at prices provided by an independent pricing service. 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"). 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"). 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 OPPORTUNITY FUND - -------------------------------------------------------------------------------- Additionally, net capital loss of $996,231 attributable to security transactions incurred after October 31, 1995 are treated as arising on 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 have been deferred and are being amortized using the straight-line method over 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 PERIOD ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995* - -------------------------------------------------- ------------------ ------------------- Shares sold 1,579,949 3,539,667 - -------------------------------------------------- Shares issued to shareholders in payment of distributions declared 368,888 3,640 - -------------------------------------------------- Shares redeemed (1,054,805) (255,365) - -------------------------------------------------- ---------- --------- Net change resulting from share transactions 894,032 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 any 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. In addition, Trust Division of Commercial National Bank may voluntarily choose to reduce its compensation. DG OPPORTUNITY 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 DIVIDEND DISBURSING AGENT FEES--Federated Services Company 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. PORTFOLIO ACCOUNTING FEES--Federated Services Company 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 daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses ($22,108) were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following the effective date. For the period ended February 29, 1996, the Fund paid $2,670 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 29, 1996, were as follows: - ------------------------------------------------------------------------------ PURCHASES $63,354,221 - ------------------------------------------------------------------------------ ----------- SALES $65,023,727 - ------------------------------------------------------------------------------ -----------
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 Opportunity Fund (a portfolio within DG Investor Series) as of February 29, 1996, and the related statements of operations for the period then ended, the statements of changes in net assets and the financial highlights, for the year ended February 29, 1996 and 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 as of February 29, 1996, and the results of its operations for the period then ended, and the changes in its net assets and financial highlights for the periods listed above, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 8, 1996 TRUSTEES OFFICERS - ----------------------------------------------------------------------------- John F. Donahue John F. Donahue Thomas G. Bigley Chairman John T. Conroy, Jr. Edward C. Gonzales William J. Copeland President and Treasurer James E. Dowd J. Christopher Donahue Lawrence D. Ellis, M.D. Executive Vice President Edward L. Flaherty, Jr. John W. McGonigle Edward C. Gonzales Executive Vice President and Peter E. Madden Secretary Gregor F. Meyer Richard B. Fisher John E. Murray, Jr. Vice President Wesley W. Posvar Charles L. Davis, Jr. Marjorie P. Smuts Vice President and Assistant Treasurer C. Grant Anderson Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. DG LIMITED TERM GOVERNMENT INCOME FUND ----------------------------------- ANNUAL REPORT 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 FEBRUARY 29, 1996 ----------------------------------- LOGO Since 1955 FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors Recycle [LOGO] Cusip 23321N400 G00498-03 (4/96) PRESIDENT'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: I am pleased to present the Annual Report to Shareholders for DG Limited Term Government Income Fund. This report covers activity in the fund over the twelve-month period from March 1, 1995, through February 29, 1996. The report begins with a Management Discussion and Analysis, in which the portfolio manager discusses economic and market developments as well as fund strategy. Following the Management Discussion and Analysis are a complete list of the fund's bond holdings and the financial statements. DG Limited Term Government Income Fund helps your money earn competitive monthly income--with a high degree of relative safety--by investing primarily in a diversified portfolio of U.S. government bonds with relatively short maturities. At the end of the reporting period, more than 70% of the fund's assets were invested in U.S. Treasury obligations, with 4% invested in government agency securities. In addition, 19.8% of fund assets were invested in corporate bonds. The remaining assets were invested in a repurchase agreement backed by U.S. government securities. During the twelve-month period, the fund paid dividends totaling $0.54 per share. Net asset value increased from $9.65 on the first day of the period to $9.80 on the last day of the period. The fund's total return was 7.34%, based on net asset value.* At the end of the reporting period, the fund's net assets stood at $93.2 million. Thank you for your confidence in DG Limited Term Government Income Fund. We look forward to keeping you up-to-date on your investment progress. Sincerely, /s/ Edward C. Gonzales Edward C. Gonzales President April 15, 1996 *Performance quoted represents past performance. Investment return and principal value will fluctuate, so an investor's shares, when redeemed, may be worth more or less than their original cost. Reflecting the maximum sales charge, the fund's total return for the period was 5.16%. MANAGEMENT DISCUSSION AND ANALYSIS ------------------------------------------------------------------------------- Interest rates declined during the twelve-month period ended February 29, 1996 reflecting the Federal Reserve Board's efforts to maintain economic growth and positive news on inflation. The federal funds targeted rate was lowered three times during the reporting period from 6.00% to 5.25%. U.S. Treasury yields declined across the full maturity spectrum with the 1-Year, 5-Year, and 30-Year securities moving from 6.41%, 7.04%, and 7.44% to 5.22%, 5.73%, and 6.47%, respectively. Most of the bond market rally occurred in the first half of the year. The fund fell short of its benchmark's performance due to the fund's shorter maturity and duration. For the fiscal year ended February 29, 1996, DG Limited Term Government Income Fund's total rate of return was 7.34% based on net asset value (5.16% taking into account the sales charge)* compared to the Merrill Lynch 1-3 Year Treasury Index** total return of 8.45%. 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. U.S. government agency securities may be utilized more in the future as spreads to U.S. Treasury securities have widened, and may provide 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. ** Merrill Lynch 1-3 Year Treasury Index tracks short-term U.S. government securities with maturities between 1 and 2.99 years. This index is unmanaged, and actual investments cannot be made in an index. 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 DG Limited Term Government Income Fund (the "Fund") from August 1, 1992 (start of performance) to February 29, 1996 compared to the Merrill Lynch 1-3 Year Treasury Index ("ML1-3").+ GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX C AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED FEBRUARY 29, 1996 1 Year............................................... 5.16% Start of Performance (August 1, 1992)................ 4.45% 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 Securities and Exchange Commission requires to be reflected in the Fund's performance. This index is unmanaged. DG LIMITED TERM GOVERNMENT INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ---------- ------------------------------------------------------------------ ----------- CORPORATE BONDS--19.8% - ------------------------------------------------------------------------------------- BANKING--1.3% ------------------------------------------------------------------ $1,200,000 Bankers Trust New York Corp., 4.70%, 7/1/1996 $ 1,197,048 ------------------------------------------------------------------ ----------- BUSINESS EQUIPMENT & SERVICES--1.1% ------------------------------------------------------------------ 1,000,000 International Business Machines Corp., 6.375%, 11/1/1997 1,010,910 ------------------------------------------------------------------ ----------- CONSUMER NON-DURABLES--2.3% ------------------------------------------------------------------ 1,447,000 Kellogg Co., 5.90%, 7/15/1997 1,451,963 ------------------------------------------------------------------ 725,000 Philip Morris Cos., Inc., 7.50%, 3/15/1997 737,920 ------------------------------------------------------------------ ----------- Total 2,189,883 ------------------------------------------------------------------ ----------- FINANCIAL SERVICES--3.7% ------------------------------------------------------------------ 905,000 American General Finance Corp., 7.15%, 5/15/1997 920,638 ------------------------------------------------------------------ 1,500,000 Ford Motor Credit Corp., 5.625%, 3/3/1997 1,501,050 ------------------------------------------------------------------ 1,000,000 Norwest Financial, Inc., 6.25%, 2/15/1997 1,006,240 ------------------------------------------------------------------ ----------- Total 3,427,928 ------------------------------------------------------------------ ----------- HEALTHCARE--1.3% ------------------------------------------------------------------ 1,250,000 Upjohn Co., 5.875%, 4/15/2000 1,242,150 ------------------------------------------------------------------ ----------- PHARMACEUTICALS--1.1% ------------------------------------------------------------------ 1,000,000 American Home Products, 7.70%, 2/15/2000 1,057,690 ------------------------------------------------------------------ ----------- POLLUTION CONTROL--0.8% ------------------------------------------------------------------ 723,000 Waste Management, Inc., 6.375%, 7/1/1997 729,652 ------------------------------------------------------------------ ----------- PUBLISHING--1.1% ------------------------------------------------------------------ 1,000,000 Gannett, Inc., 5.25%, 3/1/1998 990,590 ------------------------------------------------------------------ ----------- RETAIL TRADE--1.2% ------------------------------------------------------------------ 1,136,000 Wal-Mart Stores, Inc., 5.50%, 9/15/1997 1,132,649 ------------------------------------------------------------------ ----------- UTILITIES--5.9% ------------------------------------------------------------------ 1,000,000 GTE California, Inc., 6.25%, 1/15/1998 1,005,490 ------------------------------------------------------------------ 1,000,000 New England Telephone & Telegraph Co., 6.25%, 12/15/1997 1,007,220 ------------------------------------------------------------------
DG LIMITED TERM GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ---------- ------------------------------------------------------------------ ----------- CORPORATE BONDS--CONTINUED - ------------------------------------------------------------------------------------- UTILITIES--CONTINUED ------------------------------------------------------------------ $1,500,000 Northern States Power Co., 5.50%, 2/1/1999 $ 1,481,985 ------------------------------------------------------------------ 1,000,000 Pacific Gas & Electric Co., 5.375%, 8/1/1998 987,140 ------------------------------------------------------------------ 1,000,000 Southern California Edison Co., 5.60%, 12/15/1998 989,630 ------------------------------------------------------------------ ----------- Total 5,471,465 ------------------------------------------------------------------ ----------- TOTAL CORPORATE BONDS (IDENTIFIED COST $18,244,513) 18,449,965 ------------------------------------------------------------------ ----------- GOVERNMENT AGENCIES--4.3% - ------------------------------------------------------------------------------------- 2,000,000 Federal Farm Credit Bank, 5.73%, 3/1/1996 2,001,280 ------------------------------------------------------------------ 2,000,000 Federal Home Loan Bank, 6.23%, 4/24/1996 2,003,760 ------------------------------------------------------------------ ----------- TOTAL GOVERNMENT AGENCIES (IDENTIFIED COST $3,998,120) 4,005,040 ------------------------------------------------------------------ ----------- U.S. TREASURY NOTES--70.3% - ------------------------------------------------------------------------------------- 9,000,000 5.125%, 3/31/1998 8,948,430 ------------------------------------------------------------------ 4,000,000 5.125%, 12/31/1998 3,956,120 ------------------------------------------------------------------ 4,000,000 5.25%, 7/31/1998 3,978,600 ------------------------------------------------------------------ 2,000,000 5.625%, 6/30/1997 2,007,680 ------------------------------------------------------------------ 5,000,000 5.625%, 11/30/2000 4,968,850 ------------------------------------------------------------------ 4,000,000 5.75%, 10/31/1997 4,021,720 ------------------------------------------------------------------ 8,000,000 6.25%, 1/31/1997 8,072,720 ------------------------------------------------------------------ 7,000,000 6.50%, 4/30/1997 7,094,570 ------------------------------------------------------------------ 4,000,000 6.75%, 6/30/1999 4,136,240 ------------------------------------------------------------------ 5,000,000 7.375%, 5/15/1996 5,023,650 ------------------------------------------------------------------ 2,000,000 7.50%, 10/31/1999 2,120,400 ------------------------------------------------------------------ 4,000,000 8.00%, 1/15/1997 4,092,880 ------------------------------------------------------------------ 7,000,000 8.00%, 10/15/1996 7,120,470 ------------------------------------------------------------------ ----------- TOTAL U.S. TREASURY NOTES (IDENTIFIED COST $65,977,808) 65,542,330 ------------------------------------------------------------------ -----------
DG LIMITED TERM GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ---------- ------------------------------------------------------------------ ----------- (a)REPURCHASE AGREEMENT--4.1% - ------------------------------------------------------------------------------------- $3,867,200 Cantor Fitzgerald Securities Corp., 5.47%, dated 2/29/1996, due 3/1/1996 (at amortized cost) $ 3,867,200 ------------------------------------------------------------------ ----------- TOTAL INVESTMENTS (IDENTIFIED COST $92,087,641)(b) $91,864,535 ------------------------------------------------------------------ -----------
(a) The repurchase agreement is fully collateralized by U.S. government obligations based on market prices at the date of the portfolio. (b) The cost for federal tax purposes amounts to $92,087,641. The net unrealized depreciation of investments on a federal tax basis amounts to $223,106, which is comprised of $703,884 appreciation and $926,990 depreciation at February 29, 1996. Note: The categories of investments are shown as a percentage of net assets ($93,275,611) at February 29, 1996. (See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Total investments in securities, at value (identified and tax cost $92,087,641) $91,864,535 - -------------------------------------------------------------------------------- Cash 4,765 - -------------------------------------------------------------------------------- Income receivable 1,439,579 - -------------------------------------------------------------------------------- Deferred expenses 8,141 - -------------------------------------------------------------------------------- ----------- Total assets 93,317,020 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for shares redeemed $ 4,262 - ---------------------------------------------------------------------- Payable to Portfolio Accountant 11,126 - ---------------------------------------------------------------------- Payable to Transfer Agent 5,750 - ---------------------------------------------------------------------- Accrued expenses 20,271 - ---------------------------------------------------------------------- ------- Total liabilities 41,409 - -------------------------------------------------------------------------------- ----------- NET ASSETS for 9,513,347 shares outstanding $93,275,611 - -------------------------------------------------------------------------------- ----------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Paid in capital $95,908,440 - -------------------------------------------------------------------------------- Net unrealized depreciation of investments (223,106) - -------------------------------------------------------------------------------- Accumulated net realized loss on investments (2,466,248) - -------------------------------------------------------------------------------- Undistributed net investment income 56,525 - -------------------------------------------------------------------------------- ----------- Total Net Assets $93,275,611 - -------------------------------------------------------------------------------- ----------- NET ASSET VALUE and Redemption Proceeds Per Share: - -------------------------------------------------------------------------------- $93,275,611 / 9,513,347 shares outstanding $9.80 - -------------------------------------------------------------------------------- ----------- Offering Price Per Share (100/98.00 of $9.80)* $10.00 - -------------------------------------------------------------------------------- -----------
* See "What Shares Cost" in the Prospectus. (See Notes which are an integral part of the Financial Statements) DG LIMITED TERM GOVERNMENT INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Interest $5,931,201 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee $ 572,084 - --------------------------------------------------------------------- Administrative personnel and services fee 112,018 - --------------------------------------------------------------------- Custodian fees 20,188 - --------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 34,484 - --------------------------------------------------------------------- Directors'/Trustees' fees 1,355 - --------------------------------------------------------------------- Auditing fees 12,095 - --------------------------------------------------------------------- Legal fees 925 - --------------------------------------------------------------------- Portfolio accounting fees 53,781 - --------------------------------------------------------------------- Share registration costs 17,808 - --------------------------------------------------------------------- Printing and postage 6,442 - --------------------------------------------------------------------- Insurance premiums 3,796 - --------------------------------------------------------------------- Miscellaneous 7,609 - --------------------------------------------------------------------- --------- Total expenses 842,585 - --------------------------------------------------------------------- Deduct--Waiver of investment advisory fee 190,371 - --------------------------------------------------------------------- --------- Net expenses 652,214 - --------------------------------------------------------------------------------- ---------- Net investment income 5,278,987 - --------------------------------------------------------------------------------- ---------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - --------------------------------------------------------------------------------- Net realized loss on investments (677,996) - --------------------------------------------------------------------------------- Net change in unrealized depreciation of investments 2,272,579 - --------------------------------------------------------------------------------- ---------- Net realized and unrealized gain on investments 1,594,583 - --------------------------------------------------------------------------------- ---------- Change in net assets resulting from operations $6,873,570 - --------------------------------------------------------------------------------- ----------
(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 YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 ------------------ ------------------ INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------- OPERATIONS-- - --------------------------------------------------- Net investment income $ 5,278,987 $ 5,347,922 - --------------------------------------------------- Net realized loss on investments ($1,040,337 and $1,406,691, respectively, as computed for federal tax purposes) (677,996) (1,068,070) - --------------------------------------------------- Net change in unrealized appreciation (depreciation) 2,272,579 (1,836,643) - --------------------------------------------------- ---------------- ------------ Change in net assets resulting from operations 6,873,570 2,443,209 - --------------------------------------------------- ---------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------------- Distributions from net investment income (5,261,106) (5,266,273) - --------------------------------------------------- ---------------- ------------ SHARE TRANSACTIONS-- - --------------------------------------------------- Proceeds from sale of shares 26,209,467 43,863,105 - --------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,236,332 2,064,317 - --------------------------------------------------- Cost of shares redeemed (32,999,086) (63,548,352) - --------------------------------------------------- ---------------- ------------ Change in net assets resulting from share transactions (4,553,287) (17,620,930) - --------------------------------------------------- ---------------- ------------ Change in net assets (2,940,823) (20,443,994) - --------------------------------------------------- NET ASSETS: - --------------------------------------------------- Beginning of period 96,216,434 116,660,428 - --------------------------------------------------- ---------------- ------------ End of period (including undistributed net investment income of $56,525 and $93,936, respectively) $ 93,275,611 $ 96,216,434 - --------------------------------------------------- ---------------- ------------
(See Notes which are an integral part of the Financial Statements) 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 14.
YEAR ENDED FEBRUARY 28 OR 29, ------------------------------------------- 1996 1995 1994 1993(a) ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.65 $ 9.87 $10.07 $10.00 - ------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ------------------------------------------------------------- Net investment income 0.54 0.49 0.52 0.36 - ------------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.15 (0.23) (0.17) 0.07 - ------------------------------------------------------------- ----- ------ ------ ----- Total from investment operations 0.69 0.26 0.35 0.43 - ------------------------------------------------------------- ----- ------ ------ ----- LESS DISTRIBUTIONS - ------------------------------------------------------------- Distributions from net investment income (0.54) (0.48) (0.52) (0.36) - ------------------------------------------------------------- Distributions from net realized gain on investments -- -- (0.03) -- - ------------------------------------------------------------- ----- ------ ------ ----- Total distributions (0.54) (0.48) (0.55) (0.36) - ------------------------------------------------------------- ----- ------ ------ ------ NET ASSET VALUE, END OF PERIOD $ 9.80 $ 9.65 $ 9.87 $10.07 - ------------------------------------------------------------- ----- ------ ------ ------ TOTAL RETURN (b) 7.34% 2.72% 3.52% 4.43% - ------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ------------------------------------------------------------- Expenses 0.69% 0.63% 0.59% 0.50%* - ------------------------------------------------------------- Net investment income 5.49% 5.00% 5.21% 6.25%* - ------------------------------------------------------------- Expense waiver/reimbursement (c) 0.20% 0.25% 0.29% 0.42%* - ------------------------------------------------------------- SUPPLEMENTAL DATA - ------------------------------------------------------------- Net assets, end of period (000 omitted) $93,276 $96,216 $116,600 $99,921 - ------------------------------------------------------------- Portfolio turnover 56% 14% 76% 18% - -------------------------------------------------------------
* Computed on an annualized basis. (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) 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) DG LIMITED TERM GOVERNMENT INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- (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 portfolios. The financial statements included herein are only those of DG Limited Term Government Income Fund (the "Fund"), a diversified portfolio. The investment objective of the Fund is to provide current income. 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--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. All other securities are valued at prices provided by an independent pricing service. 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"). INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--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"). 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 LIMITED TERM GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- At February 29, 1996, the Fund, for federal tax purposes, had a capital loss carryforward of $2,447,028 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 follows: EXPIRATION YEAR EXPIRATION AMOUNT - ----------------- --------------------- 2003 $1,406,691 2004 $1,040,337
Additionally, net capital losses of $74,936 attributable to security transactions incurred after October 31, 1995 are treated as arising on 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 have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. 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 YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 - ---------------------------------------------------- ----------------- ----------------- Shares sold 2,675,393 4,548,639 - ---------------------------------------------------- Shares issued to shareholders in payment of distributions declared 228,722 214,556 - ---------------------------------------------------- Shares redeemed (3,365,918) (6,604,481) - ---------------------------------------------------- -------------- -------------- Net change resulting from share transactions (461,803) (1,841,286) - ---------------------------------------------------- -------------- --------------
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 any 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. In addition, Trust Division of Commercial National Bank may voluntarily choose to reduce its compensation. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust with certain administrative personnel and services. This 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 DIVIDEND DISBURSING AGENT FEES--Federated Services Company 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. PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses ($22,407) were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following the effective date. For the year ended February 29, 1996, the Fund paid $6,928 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 29, 1996, were as follows: - ------------------------------------------------------------------------------- PURCHASES $49,259,018 - ------------------------------------------------------------------------------- ----------- SALES $48,358,512 - ------------------------------------------------------------------------------- -----------
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 29, 1996, and the related statements of operations for the period then ended, the statement of changes in net assets for the years ended February 29, 1996 and February 28, 1995 and the financial highlights, which is presented on page 11 of this prospectus, for the periods from August 3, 1992 (commencement of operations) to February 29, 1996. 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 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 29, 1996, 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 5, 1996 TRUSTEES OFFICERS - --------------------------------------------------------------------------------------------- John F. Donahue John F. Donahue Thomas G. Bigley Chairman John T. Conroy, Jr. Edward C. Gonzales William J. Copeland President and Treasurer James E. Dowd J. Christopher Donahue Lawrence D. Ellis, M.D. Executive Vice President Edward L. Flaherty, Jr. John W. McGonigle Edward C. Gonzales Executive Vice President and Secretary Peter E. Madden Richard B. Fisher Gregor F. Meyer Vice President John E. Murray, Jr. Charles L. Davis, Jr. Wesley W. Posvar Vice President and Assistant Treasurer Marjorie P. Smuts C. Grant Anderson Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. DG GOVERNMENT INCOME FUND ----------------------------------- ANNUAL REPORT [LOGO] 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 FEBRUARY 29, 1996 ----------------------------------- LOGO Since 1955 FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors Recycle [LOGO] Cusip 2332IN301 G00498-04 (4/96) PRESIDENT'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: I am pleased to present the Annual Report to Shareholders for DG Government Income Fund.This report covers activity in the fund over the twelve-month period from March 1, 1995, through February 29, 1996. The report begins with a Management Discussion and Analysis, in which the portfolio manager discusses economic and market developments as well as fund strategy. Following the Management Discussion and Analysis are a complete list of the fund's bond holdings and the financial statements. In DG Government Income Fund, your money is pursuing competitive monthly income--with a high level of relative investment safety--through a diversified portfolio that consists primarily of U.S. government securities. At the end of the reporting period, more than 82% of the fund's assets were invested in U.S. Treasury securities. The remaining assets were invested in high-quality corporate bonds and a repurchase agreement backed by U.S. government securities. During the twelve-month period, the fund paid dividends totaling $0.59 per share. At the end of the reporting period, its net asset value was $9.87, an increase of $0.40 from the first day of the period. The income and growth in share price resulted in a total return of 10.70%, based on net asset value.* Net assets grew from $168.3 million to $184.2 million. Thank you for your confidence in DG Government Income Fund. We look forward to keeping you up-to-date on your investment progress. Sincerely, /s/ Edward C. Gonzales Edward C. Gonzales President April 15, 1996 * Performance quoted represents past performance. Investment return and principal value will fluctuate so an investor's shares, when redeemed, may be worth more or less than their original cost. Reflecting the maximum sales charge, the fund's total return for the period was 8.52%. MANAGEMENT DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- Interest rates declined during the twelve-month period ended February 29, 1996 reflecting the Federal Reserve Board's efforts to maintain economic growth and positive news on inflation. The federal funds targeted rate was lowered three times during the reporting period from 6.00% to 5.25%. U.S. Treasury yields declined across the full maturity spectrum with the 1-Year, 5-Year, and 30-Year securities moving from 6.41%, 7.04%, and 7.44% to 5.22%, 5.73%, and 6.47% respectively. Most of the bond market rally occurred in the first half of the year. The fund fell short of its benchmark's performance due to the fund's shorter maturity and duration. For the fiscal year ended February 29, 1996, DG Government Income Fund's total return was 10.70% (8.52% taking into account the sales charge)* compared to the Lehman Brothers Government/Corporate Total Index** return of 12.62%. 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 will fluctuate, so that an investor's shares, when redeemed, may be worth more or less than their original cost. ** Lehman Brothers Government/Corporate Total Index is comprised of approximately 5,000 issues which include non-convertible bonds publicly issued by the U.S. government or its agencies; corporate bonds guaranteed by the U.S. government and quasi-federal corporations; and publicly issued fixed rate, non-convertible domestic bonds of companies in industry, public utilities and finance. This index is unmanaged, and actual investments cannot be made in an index. 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 29, 1996 compared to the Lehman Brothers Government/Corporate Total Index ("LBGCT").+ GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX D AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED FEBRUARY 29, 1996 1 Year............................................... 8.52% Start of Performance (August 1, 1992)................ 5.75% 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 Securities and Exchange Commission requires to be reflected in the Fund's performance. This index is unmanaged. DG GOVERNMENT INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996 - -------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ CORPORATE BONDS--13.0% - ----------------------------------------------------------------------------------- BANKING--1.0% ---------------------------------------------------------------- $ 800,000 Bankers Trust New York Corp., 4.70%, 7/1/1996 $ 798,032 ---------------------------------------------------------------- 1,000,000 NationsBank Corp., 5.375%, 4/15/2000 972,240 ---------------------------------------------------------------- ------------ Total 1,770,272 ---------------------------------------------------------------- ------------ BUSINESS EQUIPMENT & SERVICE--0.8% ---------------------------------------------------------------- 1,500,000 International Business Machines Corp., 6.375%, 11/1/1997 1,516,365 ---------------------------------------------------------------- ------------ CONSUMER NON-DURABLES--1.1% ---------------------------------------------------------------- 889,000 Anheuser-Busch Cos. Inc., 6.90%, 10/1/2002 909,607 ---------------------------------------------------------------- 1,000,000 H.J. Heinz Co., 6.75%, 10/15/1999 1,023,870 ---------------------------------------------------------------- ------------ Total 1,933,477 ---------------------------------------------------------------- ------------ FINANCIAL SERVICES--1.6% ---------------------------------------------------------------- 1,500,000 Ford Motor Credit Corp., 5.625%, 3/3/1997 1,501,050 ---------------------------------------------------------------- 437,000 General Motors Acceptance Corp., 9.75%, (Callable 5/15/1996 @ 100), 5/15/1999 440,605 ---------------------------------------------------------------- 1,000,000 Norwest Financial, Inc., 6.25%, 2/15/1997 1,006,240 ---------------------------------------------------------------- ------------ Total 2,947,895 ---------------------------------------------------------------- ------------ HEALTHCARE--0.5% ---------------------------------------------------------------- 1,000,000 Upjohn Co., 5.875%, 4/15/2000 993,720 ---------------------------------------------------------------- ------------ PHARMACEUTICAL-HEALTH CARE--0.8% ---------------------------------------------------------------- 1,400,000 American Home Products, 7.70%, 2/15/2000 1,480,766 ---------------------------------------------------------------- ------------ PRINTING & PUBLISHING--0.8% ---------------------------------------------------------------- 1,500,000 Gannett, Inc., 5.25%, 3/1/1998 1,485,885 ---------------------------------------------------------------- ------------ RAW MATERIALS--0.8% ---------------------------------------------------------------- 889,000 DuPont (E.I.) de Nemours & Co., 6.75%, 10/15/2002 910,514 ---------------------------------------------------------------- 437,000 DuPont (E.I.) de Nemours & Co., 9.15%, 4/15/2000 486,468 ---------------------------------------------------------------- ------------ Total 1,396,982 ---------------------------------------------------------------- ------------
DG GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ CORPORATE BONDS--CONTINUED - ----------------------------------------------------------------------------------- RETAIL TRADE--0.9% ---------------------------------------------------------------- $ 437,000 Sears, Roebuck & Co., 9.00%, 9/15/1996 $ 445,089 ---------------------------------------------------------------- 1,200,000 Wal-Mart, Inc., 5.50%, 9/15/97 1,196,460 ---------------------------------------------------------------- ------------ Total 1,641,549 ---------------------------------------------------------------- ------------ SHELTER--0.2% ---------------------------------------------------------------- 437,000 Kimberly Clark Corp., 9.125%, 6/1/1997 455,468 ---------------------------------------------------------------- ------------ TECHNOLOGY SERVICES--0.5% ---------------------------------------------------------------- 437,000 Boeing Co., 8.375%, 3/1/1996 437,341 ---------------------------------------------------------------- 437,000 Texas Instruments, Inc., 9.25%, 6/15/2003 502,318 ---------------------------------------------------------------- ------------ Total 939,659 ---------------------------------------------------------------- ------------ UTILITIES--4.0% ---------------------------------------------------------------- 1,000,000 Alabama Power Co., 6.75%, (Callable 2/1/1998 @ 101.6), 2/1/2003 990,820 ---------------------------------------------------------------- 1,500,000 GTE California, Inc., 6.25%, 1/15/1998 1,508,235 ---------------------------------------------------------------- 1,500,000 New England Telephone & Telegraph Co., 6.25%, 12/15/1997 1,510,830 ---------------------------------------------------------------- 1,500,000 Northern States Power Co., 5.50%, 2/1/1999 1,481,985 ---------------------------------------------------------------- 1,000,000 Pacific Gas and Electric Co., 6.25%, 3/1/2004 967,790 ---------------------------------------------------------------- 1,000,000 Southern California Edison Co., 5.625%, 10/1/2002 951,730 ---------------------------------------------------------------- ------------ Total 7,411,390 ---------------------------------------------------------------- ------------ TOTAL CORPORATE BONDS (IDENTIFIED COST $23,780,088) 23,973,428 ---------------------------------------------------------------- ------------ U.S. TREASURY--82.3% - ----------------------------------------------------------------------------------- TREASURY BONDS--16.5% ---------------------------------------------------------------- 5,000,000 6.875%, 8/15/2025 5,213,000 ---------------------------------------------------------------- 9,000,000 7.125%, 2/15/2023 9,550,080 ---------------------------------------------------------------- 7,000,000 7.50%, 11/15/2016 7,698,880 ---------------------------------------------------------------- 7,000,000 7.625%, 11/15/2022 7,856,660 ---------------------------------------------------------------- ------------ Total 30,318,620 ---------------------------------------------------------------- ------------
DG GOVERNMENT INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ U.S. TREASURY--CONTINUED - ----------------------------------------------------------------------------------- TREASURY NOTES--65.8% ---------------------------------------------------------------- $ 9,000,000 5.75%, 9/30/1997 $ 9,050,220 ---------------------------------------------------------------- 10,000,000 5.75%, 8/15/2003 9,836,200 ---------------------------------------------------------------- 4,000,000 5.875%, 7/31/1997 4,028,720 ---------------------------------------------------------------- 10,000,000 5.875%, 11/15/2005 9,802,300 ---------------------------------------------------------------- 9,000,000 6.125%, 5/15/1998 9,121,140 ---------------------------------------------------------------- 9,000,000 6.50%, 8/15/2005 9,209,520 ---------------------------------------------------------------- 9,000,000 7.125%, 10/15/1998 9,344,430 ---------------------------------------------------------------- 10,000,000 7.50%, 10/31/1999 10,602,000 ---------------------------------------------------------------- 10,000,000 7.75%, 1/31/2000 10,714,700 ---------------------------------------------------------------- 9,000,000 7.75%, 2/15/2001 9,761,670 ---------------------------------------------------------------- 7,000,000 7.875%, 8/15/2001 7,660,100 ---------------------------------------------------------------- 8,000,000 8.00%, 1/15/1997 8,185,760 ---------------------------------------------------------------- 9,000,000 8.00%, 5/15/2001 9,873,990 ---------------------------------------------------------------- 4,000,000 9.375%, 4/15/1996 4,021,680 ---------------------------------------------------------------- ------------ Total 121,212,430 ---------------------------------------------------------------- ------------ TOTAL U.S. TREASURY (IDENTIFIED COST $150,265,944) 151,531,050 ---------------------------------------------------------------- ------------ (a)REPURCHASE AGREEMENT--3.3% - ----------------------------------------------------------------------------------- 6,005,000 Cantor Fitzgerald Securities Corp., 5.47%, dated 2/29/1996, due 3/1/1996 (AT AMORTIZED COST) 6,005,000 ---------------------------------------------------------------- ------------ TOTAL INVESTMENTS (IDENTIFIED COST $180,051,032)(b) $181,509,478 ---------------------------------------------------------------- ------------
(a) The repurchase agreement is fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. (b) The cost of investments for federal tax purposes amounts to $180,051,032. The unrealized appreciation of investments on a federal tax basis amounts to $1,458,446, which is composed of $3,735,735 appreciation and $2,277,289 depreciation at February 29, 1996. Note: The categories of investments are shown as a percentage of net assets ($184,226,106) at February 29, 1996. (See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- ASSETS: - ------------------------------------------------------------------------------- Total investments in securities, at value (identified and tax cost $180,051,032) $181,509,478 - ------------------------------------------------------------------------------- Income receivable 2,449,999 - ------------------------------------------------------------------------------- Receivable for shares sold 285,548 - ------------------------------------------------------------------------------- Deferred expenses 11,120 - ------------------------------------------------------------------------------- ------------ Total assets 184,256,145 - ------------------------------------------------------------------------------- LIABILITIES: - ------------------------------------------------------------------------------- Payable for shares redeemed $9,796 - ---------------------------------------------------------------------- Payable to portfolio accounting 7,001 - ---------------------------------------------------------------------- Payable to transfer agent 4,336 - ---------------------------------------------------------------------- Accrued expenses 8,906 - ---------------------------------------------------------------------- ------ Total liabilities 30,039 - ------------------------------------------------------------------------------- ------------ NET ASSETS for 18,659,694 shares outstanding $184,226,106 - ------------------------------------------------------------------------------- ------------ NET ASSETS CONSIST OF: - ------------------------------------------------------------------------------- Paid-in capital $183,293,842 - ------------------------------------------------------------------------------- Net unrealized appreciation of investments 1,458,446 - ------------------------------------------------------------------------------- Accumulated net realized loss on investments (589,078) - ------------------------------------------------------------------------------- Undistributed net investment income 62,896 - ------------------------------------------------------------------------------- ------------ Total Net Assets $184,226,106 - ------------------------------------------------------------------------------- ------------ NET ASSET VALUE AND REDEMPTION PROCEEDS PER SHARE: - ------------------------------------------------------------------------------- $184,226,106 / 18,659,694 shares outstanding $9.87 - ------------------------------------------------------------------------------- ------------ Offering Price Per Share: (100/98.00 of $9.87)* $10.07 - ------------------------------------------------------------------------------- ------------
* See "What Shares Cost" in the Prospectus. (See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Interest $10,006,589 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee $ 892,734 - -------------------------------------------------------------------- Administrative personnel and services fees 174,394 - -------------------------------------------------------------------- Custodian fees 19,898 - -------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 33,499 - -------------------------------------------------------------------- Directors'/Trustees' fees 2,210 - -------------------------------------------------------------------- Auditing fees 12,485 - -------------------------------------------------------------------- Legal fees 2,093 - -------------------------------------------------------------------- Portfolio accounting fees 62,590 - -------------------------------------------------------------------- Share registration costs 6,281 - -------------------------------------------------------------------- Printing and postage 6,948 - -------------------------------------------------------------------- Insurance premiums 3,853 - -------------------------------------------------------------------- Miscellaneous 5,271 - -------------------------------------------------------------------- ---------- Total expenses 1,222,256 - -------------------------------------------------------------------- Deduct--waiver of investment advisory fee 148,789 - -------------------------------------------------------------------- ---------- Net expenses 1,073,467 - --------------------------------------------------------------------------------- ----------- Net investment income 8,933,122 - --------------------------------------------------------------------------------- ----------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: - --------------------------------------------------------------------------------- Net realized gain on investments 1,713,476 - --------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 4,322,771 - --------------------------------------------------------------------------------- ----------- Net realized and unrealized gain on investments 6,063,247 - --------------------------------------------------------------------------------- ----------- Change in net assets resulting from operations $14,969,369 - --------------------------------------------------------------------------------- -----------
(See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED FEBRUARY 29, YEAR ENDED 1996 FEBRUARY 28, 1995 ---------------- ------------------- INCREASE (DECREASE) IN NET ASSETS: - --------------------------------------------------- OPERATIONS-- - --------------------------------------------------- Net investment income $ 8,933,122 $ 8,944,197 - --------------------------------------------------- Net realized loss on investments ($467,764 and $181,520, respectively, as computed for federal tax purposes) 1,713,476 (2,301,667) - --------------------------------------------------- Net change in unrealized appreciation (depreciation) 4,322,771 (2,720,070) - --------------------------------------------------- ------------- ------------ Change in net assets resulting from operations 14,969,369 3,922,460 - --------------------------------------------------- ------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS-- - --------------------------------------------------- Distributions from net investment income (8,982,698) (8,775,580) - --------------------------------------------------- ------------- ------------ SHARE TRANSACTIONS-- - --------------------------------------------------- Proceeds from sale of shares 153,671,801 101,532,823 - --------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 2,976,364 3,719,989 - --------------------------------------------------- Cost of shares redeemed (146,722,215) (50,781,330) - --------------------------------------------------- ------------- ------------ Change in net assets resulting from share transactions 9,925,950 54,471,482 - --------------------------------------------------- ------------- ------------ Change in net assets 15,912,621 49,618,362 - --------------------------------------------------- NET ASSETS: - --------------------------------------------------- Beginning of period 168,313,485 118,695,123 - --------------------------------------------------- ------------- ------------ End of period (including undistributed net investment income of $62,896 and $173,076, respectively) $ 184,226,106 $168,313,485 - --------------------------------------------------- ------------- ------------
(See Notes which are an integral part of the Financial Statements) 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 14.
YEAR ENDED FEBRUARY 28, OR 29, ------------------------------------------- 1996 1995 1994 1993(a) ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.47 $ 9.90 $10.25 $10.00 - ---------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - ---------------------------------------------------------- Net investment income 0.58 0.54 0.55 0.37 - ---------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.41 (0.44) (0.09) 0.25 - ---------------------------------------------------------- ------ ------ ------ ------ Total from investment operations 0.99 0.10 0.46 0.62 - ---------------------------------------------------------- ------ ------ ------ ------ LESS DISTRIBUTIONS - ---------------------------------------------------------- Distributions from net investment income (0.59) (0.53) (0.55) (0.37) - ---------------------------------------------------------- Distributions from net realized gain on investments (d) -- -- (0.25) -- - ---------------------------------------------------------- Distributions in excess of net realized gain on investments -- -- (0.01) -- - ---------------------------------------------------------- ------ ------ ------ ------ Total distributions (0.59) (0.53) (0.81) (0.37) - ---------------------------------------------------------- ----- ----- ------ ------ NET ASSET VALUE, END OF PERIOD $ 9.87 $ 9.47 $ 9.90 $10.25 - ---------------------------------------------------------- ------ ------ ------ ------ TOTAL RETURN (b) 10.70% 1.20% 4.55% 6.40% - ---------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - ---------------------------------------------------------- Expenses 0.72% 0.68% 0.70% 0.50%* - ---------------------------------------------------------- Net investment income 5.96% 5.79% 5.34% 6.45%* - ---------------------------------------------------------- Expense waiver/reimbursement (c) 0.10% 0.15% 0.19% 0.41%* - ---------------------------------------------------------- SUPPLEMENTAL DATA - ---------------------------------------------------------- Net assets, end of period (000 omitted) $184,226 $168,313 $118,695 $111,435 - ---------------------------------------------------------- Portfolio turnover 87% 31% 49% 78% - ----------------------------------------------------------
* Computed on an annualized basis. (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) This voluntary expense decrease is reflected in both the expense and net investment income ratios shown above. (d) This distribution does not represent a return of capital for federal tax purposes. (See Notes which are an integral part of the Financial Statements) DG GOVERNMENT INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- (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 portfolios. The financial statements included herein are only those of DG Government Income Fund (the "Fund"), a diversified portfolio. The investment objective of the Fund is to provide current income. 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--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. All other securities are valued at prices provided by an independent pricing service. 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"). INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--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"). 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 GOVERNMENT INCOME FUND - -------------------------------------------------------------------------------- At February 29, 1996, the Fund, for federal tax purposes, had a capital loss carryforward of $649,284 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 follows:
EXPIRATION YEAR EXPIRATION AMOUNT --------------------------------------------- ------------------ 2003 $181,520 2004 $467,764
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 have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statement. Actual results could differ from those estimated. 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 YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 - -------------------------------------------------- ------------------ ------------------ Shares sold 15,482,495 10,805,072 - -------------------------------------------------- Shares issued to shareholders in payment of distributions declared 302,148 397,343 - -------------------------------------------------- Shares redeemed (14,897,666) (5,423,669) - -------------------------------------------------- ----------- ---------- Net change resulting from share transactions 886,977 5,778,746 - -------------------------------------------------- ----------- ----------
DG 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 any 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. In addition, Trust Division of Commercial National Bank may voluntarily choose to reduce its compensation. ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Trust with certain administrative personnel and services. This 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 DIVIDEND DISBURSING AGENT FEES--Federated Services Company 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. PORTFOLIO ACCOUNTING FEES--Federated Services Company 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 daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses ($20,015) were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following the effective date. For the period ended February 29, 1996, the Fund paid $6,224 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 29, 1996, were as follows: - ---------------------------------------------------------------- PURCHASES $138,091,093 - ---------------------------------------------------------------- ------------ SALES $122,033,257 - ---------------------------------------------------------------- ------------
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 29, 1996, and the related statement of operations for the period then ended, the statements of changes in net assets for the years ended February 29, 1996 and February 28, 1995, and the financial highlights for the periods from August 3, 1992 (commencement of operations) to February 29, 1996. 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 29, 1996, and the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the periods listed above, in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 8, 1996 TRUSTEES OFFICERS - ------------------------------------------------------------------------------- John F. Donahue John F. Donahue Thomas G. Bigley Chairman John T. Conroy, Jr. Edward C. Gonzales William J. Copeland President and Treasurer James E. Dowd J. Christopher Donahue Lawrence D. Ellis, M.D. Executive Vice President Edward L. Flaherty, Jr. John W. McGonigle Edward C. Gonzales Executive Vice President and Secretary Peter E. Madden Richard B. Fisher Gregor F. Meyer Vice President John E. Murray, Jr. Charles L. Davis, Jr. Wesley W. Posvar Vice President and Assistant Treasurer Marjorie P. Smuts C. Grant Anderson Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. DG MUNICIPAL INCOME FUND ----------------------------------- ANNUAL REPORT [LOGO] 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 FEBRUARY 29, 1996 ----------------------------------- LOGO Since 1955 FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor for the fund and is a subsidiary of Federated Investors Recycle LOGO Cusip 23321N509 G00498-05 (4/96) PRESIDENT'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: I am pleased to present the Annual Report to Shareholders for DG Municipal Income Fund. This report covers activity in the fund over the twelve-month period from March 1, 1995, through February 29, 1996. The report begins with a Management Discussion and Analysis, in which the portfolio manager discusses economic and market developments as well as fund strategy. Following the Management Discussion and Analysis are a complete list of the fund's municipal bond holdings and the financial statements. As a DG Municipal Income Fund shareholder, you are participating in the tax-free income opportunities of securities issued by municipalities across the nation. The income you earn through the fund is free of federal regular income tax.* During the twelve-month period, the fund's portfolio earned tax-free dividends totaling $0.48 per share. The net asset value increased from $10.15 on the first day of the period to $10.66 on the last day of the period. The fund's total return was 9.96%, based on net asset value for the period ended February 29, 1996.** At the end of the reporting period, net assets reached $44.5 million. Thank you for participating in the tax-free earning opportunities of DG Municipal Income Fund. We look forward to keeping you up-to-date on your investment progress. Sincerely, /s/ Edward C. Gonzales Edward C. Gonzales President April 15, 1996 * Income may be subject to the federal alternative minimum tax and state and local taxes may also apply. ** 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. Reflecting the maximum sales charge, the fund's total return for the period was 7.73%. MANAGEMENT DISCUSSION AND ANALYSIS - -------------------------------------------------------------------------------- DG Municipal Income Fund was established in December 1992 to provide investors with the ability to invest in a diversified portfolio of quality long-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 nine 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 portfolio. The total rate of return (income plus capital appreciation) for the twelve-month period ended February 29, 1996 was 9.96% based on net asset value (7.73% taking into account the sales charge). The fund's 30-day SEC yield for the period ended February 29, 1996 was 4.27%, based on offering price.** The fund's 30-day distribution rate as of February 29, 1996 was 4.48% based on net asset value (4.39% taking into account the sales charge).*** The fund's net assets increased from $41.5 million on February 28, 1995 to $44.6 million as of February 29, 1996. * Income may be subject to the federal alternative minimum 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 DG Municipal Income Fund (the "Fund") from December 21, 1992 (start of performance) to February 29, 1996 compared to the Lehman Brothers Municipal Bond Index ("LBMBI").+ GRAPHIC REPRESENTATION OMITTED. SEE APPENDIX E AVERAGE ANNUAL TOTAL RETURN** FOR THE PERIOD ENDED FEBRUARY 29, 1996 1 Year.......................................................... 7.73% Start of Performance (December 21, 1992)........................ 6.13% 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 Securities and Exchange Commission requires to be reflected in the Fund's performance. This index is unmanaged. DG MUNICIPAL INCOME FUND PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996 - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- LONG-TERM MUNICIPALS--96.6% - ---------------------------------------------------------------------- ALABAMA--3.5% -------------------------------------------------------- $ 500,000 Huntsville, AL, GO LT Warrants (Series A), 6.00% (Original Issue Yield: 6.325%), 11/1/2012 AA $ 524,215 -------------------------------------------------------- 1,000,000 Jefferson County, AL, Sewer Revenue Bonds, 6.00% (Original Issue Yield: 6.30%), 9/1/2013 A1 1,025,070 -------------------------------------------------------- ----------- Total 1,549,285 -------------------------------------------------------- ----------- ARIZONA--2.2% -------------------------------------------------------- 1,000,000 Phoenix, AZ, GO UT Refunding Bonds (Series C), 4.90% (Original Issue Yield: 5.00%), 7/1/2008 AA+ 997,640 -------------------------------------------------------- ----------- CALIFORNIA--2.4% -------------------------------------------------------- 1,000,000 California State, GO UT Public Improvement Bonds, 5.75%, 5/1/2007 A1 1,063,670 -------------------------------------------------------- ----------- CONNECTICUT--2.4% -------------------------------------------------------- 1,000,000 Connecticut State, GO UT Public Improvement Bonds (Series C), 5.80%, 8/15/2008 Aa 1,065,980 -------------------------------------------------------- ----------- FLORIDA--9.0% -------------------------------------------------------- 1,000,000 Broward County, FL, School District, GO UT Refunding Bonds, 5.60% (Original Issue Yield: 5.80%), 2/15/2007 AA- 1,055,970 -------------------------------------------------------- 1,000,000 Florida State Board of Education Administration, GO UT Refunding Bonds (Series D), 5.00% (Original Issue Yield: 5.15%), 6/1/2015 AA 944,960 -------------------------------------------------------- 1,000,000 Jacksonville, FL, Electric Authority, Refunding Revenue Bonds (Issue 2-Series 8), 5.50% (St. John's River)/ (Original Issue Yield: 5.582%), 10/1/2013 Aa1 994,930 -------------------------------------------------------- 1,000,000 St. Petersburg, FL, Public Utility, Water & Sewer Revenue Bonds, 5.50%, 10/1/2009 Aa 1,028,840 -------------------------------------------------------- ----------- Total 4,024,700 -------------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------- HAWAII--3.5% -------------------------------------------------------- $ 500,000 Hawaii State, GO UT Bonds, (Series CA), 5.75% (Original Issue Yield: 5.95%), 1/1/2008 AA $ 536,635 -------------------------------------------------------- 1,000,000 Honolulu, HI, City & County, GO UT Improvement Refunding Bonds (Series B), 5.50% (Original Issue Yield: 5.70%), 10/1/2011 AA 1,030,100 -------------------------------------------------------- ----------- Total 1,566,735 -------------------------------------------------------- ----------- ILLINOIS--4.6% -------------------------------------------------------- 500,000 Du Page County, IL, GO UT Revenue Bonds, 5.40% (Jail Project), 1/1/2007 AAA 516,240 -------------------------------------------------------- 1,000,000 Illinois State, GO UT Bonds, 5.60% (Original Issue Yield: 5.65%), 4/1/2008 AA- 1,036,610 -------------------------------------------------------- 500,000 Illinois State, GO UT Refunding Bonds, 5.875% (Original Issue Yield: 6.05%), 6/1/2011 AA- 512,090 -------------------------------------------------------- ----------- Total 2,064,940 -------------------------------------------------------- ----------- INDIANA--1.2% -------------------------------------------------------- 500,000 Indianapolis, IN, Local Public Improvement Revenue Bonds, 6.00% (Original Issue Yield: 6.40%), 7/1/2010 Aa 519,690 -------------------------------------------------------- ----------- KENTUCKY--2.2% -------------------------------------------------------- 1,000,000 Kentucky State Property & Buildings Commission, Refunding Revenue Bonds, 5.00% (Project No. 55)/(Original Issue Yield: 5.20%), 9/1/2009 A 980,290 -------------------------------------------------------- ----------- LOUISIANA--1.2% -------------------------------------------------------- 500,000 Louisiana PFA, Hospital Refunding Revenue Bonds (Series C), 6.05% (Our Lady of Lake Regional)/(MBIA Insurance Corporation INS)/(Original Issue Yield: 6.15%), 12/1/2008 AAA 527,935 -------------------------------------------------------- ----------- MARYLAND--2.4% -------------------------------------------------------- 1,000,000 Maryland State & Local Facilities, GO UT Bonds (Series BB), 5.50%, 6/1/2009 AAA 1,049,530 -------------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------- MASSACHUSETTS--3.5% -------------------------------------------------------- $ 450,000 Commonwealth of Massachusetts, GO UT Bonds (Series A), 6.00% (CGIC LOC)/(Original Issue Yield:, 7.618%), 6/1/2011 AAA $ 465,386 -------------------------------------------------------- 1,000,000 Commonwealth of Massachusetts, GO UT Refunding Revenue Bonds (Series A), 6.25%, 7/1/2003 A1 1,107,950 -------------------------------------------------------- ----------- Total 1,573,336 -------------------------------------------------------- ----------- MISSISSIPPI--15.4% -------------------------------------------------------- 1,000,000 Hinds County, MS, GO UT Refunding Bonds, 5.50% (MBIA Insurance Corporation INS/(Original Issue Yield: 5.75%), 3/1/2008 AAA 1,055,360 -------------------------------------------------------- 500,000 Jackson, MS, Redevelopment Authority, Refunding Revenue Bonds (Series B), 5.75% (Central Business District Development Program Project)/(Jackson, MS, Redevelopment Authority GTD)/(Original Issue Yield: 5.80%), 7/1/2008 A 523,380 -------------------------------------------------------- 1,125,000 Jackson, MS, GO UT Refunding Bonds (Series A), 5.85% (MBIA Insurance Corporation INS), 5/1/2006 AAA 1,190,138 -------------------------------------------------------- 1,000,000 Madison County, MS, School District, GO UT Refunding Bonds, 5.10% (AMBAC INS)/(Original Issue Yield: 5.10%), 6/1/2008 AAA 1,001,790 -------------------------------------------------------- 1,000,000 Mississippi Hospital Equipment & Facilities Authority, Refunding Revenue Bonds, 5.50% (North Mississippi Health Services)/(AMBAC INS)/(Original Issue Yield: 5.93%), 5/15/2009 AAA 1,019,450 -------------------------------------------------------- 1,000,000 Mississippi State, GO UT Bonds, 5.90% (United States Treasury PRF)/(Original Issue Yield: 5.95%), 12/15/2002 (@100) Aaa 1,090,870 -------------------------------------------------------- 1,000,000 Tupelo, MS, Public School District, GO UT Refunding Bonds, 5.00% (AMBAC INS)/(Original Issue Yield: 5.10%), 12/1/2007 Aaa 1,002,270 -------------------------------------------------------- ----------- Total 6,883,258 -------------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------- MISSOURI--3.4% -------------------------------------------------------- $ 500,000 Missouri State, GO UT Water PCR Bonds (Series B), 5.25% (Original Issue Yield: 5.55%), 8/1/2008 AAA $ 510,490 -------------------------------------------------------- 1,000,000 Missouri State, Water PCR Bonds (Series B), 5.00% (Original Issue Yield: 5.60%), 8/1/2010 AAA 997,420 -------------------------------------------------------- ----------- Total 1,507,910 -------------------------------------------------------- ----------- MONTANA--2.2% -------------------------------------------------------- 1,000,000 Montana State, GO UT Bonds (Series A), 4.875% (Long Range Building Program)/(Original Issue Yield: 4.95%), 8/1/2009 Aa 990,250 -------------------------------------------------------- ----------- NEVADA--3.4% -------------------------------------------------------- 500,000 Las Vegas Valley, NV, Water District, GO LT Refunding Revenue Bonds, 5.75% (MBIA Insurance Corporation INS)/(Original Issue Yield: 5.90%), 9/1/2008 AAA 518,220 -------------------------------------------------------- 1,000,000 Nevada State, GO LT Bonds (Series A), 4.90% (Project R-5)/(Original Issue Yield: 5.00%), 11/1/2007 AA 996,850 -------------------------------------------------------- ----------- Total 1,515,070 -------------------------------------------------------- ----------- NEW JERSEY--1.2% -------------------------------------------------------- 500,000 New Jersey State, GO UT Refunding Bonds (Series D), 5.90% (Original Issue Yield: 6.05%), 2/15/2008 AA+ 538,195 -------------------------------------------------------- ----------- NORTH CAROLINA--3.4% -------------------------------------------------------- 1,000,000 North Carolina Eastern Municipal Power Agency, Power System Refunding Revenue Bonds (Series C), 5.50% (Original Issue Yield: 5.70%), 1/1/2007 A 1,005,600 -------------------------------------------------------- 500,000 North Carolina Eastern Municipal Power Agency, Power System Revenue Bonds (Series B), 6.125% (Original Issue Yield: 6.30%), 1/1/2009 A 529,410 -------------------------------------------------------- ----------- Total 1,535,010 -------------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------- NORTH DAKOTA--1.2% -------------------------------------------------------- $ 500,000 North Dakota State Building Authority, Lease Revenue Bonds (Series A), 6.00% (AMBAC INS)/(Original Issue Yield: 6.05%), 6/1/2010 AAA $ 526,855 -------------------------------------------------------- ----------- OREGON--2.3% -------------------------------------------------------- 1,000,000 Portland, OR, GO UT Refunding Revenue Bonds, 4.90% (Original Issue Yield: 5.00%), 10/1/2007 Aaa 1,005,610 -------------------------------------------------------- ----------- RHODE ISLAND--1.2% -------------------------------------------------------- 500,000 Providence, RI, GO UT Bonds, 5.90% (MBIA Insurance Corporation INS)/(Original Issue Yield: 6.05%), 1/15/2009 AAA 527,370 -------------------------------------------------------- ----------- TENNESSEE--2.3% -------------------------------------------------------- 1,000,000 Memphis, TN, GO UT Refunding Bonds (Series A), 4.90% (Original Issue Yield: 5.05%), 8/1/2006 AA 1,015,060 -------------------------------------------------------- ----------- TEXAS--7.1% -------------------------------------------------------- 500,000 Corpus Christi, TX, GO UT Refunding Bonds, 6.00% (FGIC INS)/(Original Issue Yield: 6.15%), 3/1/2010 AAA 523,980 -------------------------------------------------------- 500,000 El Paso, TX, Independent School District, GO UT Refunding Bonds (Series A), 5.75% (PSFG INS)/(Original Issue Yield: 6.15%), 7/1/2007 AAA 523,850 -------------------------------------------------------- 500,000 Harris County, TX, Flood Control District, GO LT Bonds (Series B), 6.20% (United States Treasury PRF)/ (Original Issue Yield: 6.25%), 10/1/2002 (@100) AA 552,175 -------------------------------------------------------- 1,000,000 Houston, TX, Independent School District, GO UT Refunding Bonds, 5.50% (PSFG INS)/(Original Issue Yield: 5.55%), 8/15/2008 AAA 1,034,260 -------------------------------------------------------- 500,000 Texas State Public Finance Authority, GO UT Refunding Bonds (Series A), 5.90% (Original Issue Yield: 6.00%), 10/1/2011 AA 524,885 -------------------------------------------------------- ----------- Total 3,159,150 -------------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
PRINCIPAL CREDIT AMOUNT RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- LONG-TERM MUNICIPALS--CONTINUED - ---------------------------------------------------------------------- VIRGINIA--3.5% -------------------------------------------------------- $ 1,000,000 Fairfax County, VA, GO UT Bonds (Series A), 5.50% (Original Issue Yield: 5.70%), 6/1/2008 AAA $ 1,039,910 -------------------------------------------------------- 500,000 Virginia State Transportation Board, Refunding Revenue Bonds, 6.00% (Original Issue Yield: 6.45%), 4/1/2010 AA 524,600 -------------------------------------------------------- ----------- Total 1,564,510 -------------------------------------------------------- ----------- WASHINGTON--7.3% -------------------------------------------------------- 500,000 King County, WA, GO UT Refunding Bonds (Series A), 6.00%, 12/1/2010 AA+ 526,685 -------------------------------------------------------- 500,000 Port of Seattle, WA, Revenue Bonds (Series A), 6.25% (Original Issue Yield: 6.566%), 11/1/2010 AA- 527,625 -------------------------------------------------------- 650,000 Tacoma, WA, Electric System, Refunding Revenue Bonds, 6.25% (AMBAC INS)/(Original Issue Yield: 6.60%), 1/1/2011 AAA 688,492 -------------------------------------------------------- 500,000 Washington State, GO LT Refunding Revenue Bonds (Series R92-B), 6.25% (Original Issue Yield: 6.80%), 9/1/2009 AA 529,635 -------------------------------------------------------- 1,000,000 Washington State, GO UT Refunding Bonds (Series R-96B), 5.00% (Original Issue Yield: 5.45%), 7/1/2010 AA 979,400 -------------------------------------------------------- ----------- Total 3,251,837 -------------------------------------------------------- ----------- WISCONSIN--4.6% -------------------------------------------------------- 500,000 Green Bay, WI, Area Public School District, GO UT Bonds (Series F), 6.00% (Original Issue Yield: 6.10%), 4/1/2010 Aa 517,320 -------------------------------------------------------- 1,000,000 Wisconsin State, GO UT Bonds (Series C), 5.25% (Original Issue Yield: 5.45%), 5/1/2011 AA 997,330 -------------------------------------------------------- 500,000 Wisconsin State, GO UT Public Improvement Bonds (Series A), 6.30% (Original Issue Yield: 6.60%), 5/1/2012 AA 552,530 -------------------------------------------------------- ----------- Total 2,067,180 -------------------------------------------------------- ----------- TOTAL LONG-TERM MUNICIPAL (IDENTIFIED COST $41,453,621) 43,070,996 -------------------------------------------------------- -----------
DG MUNICIPAL INCOME FUND - --------------------------------------------------------------------------------
CREDIT SHARES RATING* VALUE - ----------- -------------------------------------------------------- -------- ----------- MUTUAL FUND--3.9% - ---------------------------------------------------------------------- 1,747,043 Lehman Municipal Money Market Fund (AT NET ASSET VALUE) $ 1,747,043 -------------------------------------------------------- ----------- TOTAL INVESTMENTS (IDENTIFIED COST $43,200,664)(A) $44,818,039 -------------------------------------------------------- -----------
(a) The cost of investments for federal tax purposes amounts to $43,200,664. The net unrealized appreciation of investments on a federal tax basis amounts to $1,617,375, which is comprised of $1,643,492 appreciation and $26,117 depreciation at February 29, 1996. * 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 ($44,578,324) at February 29, 1996. The following acronyms are used throughout this portfolio: AMBAC -- American Municipal Bond Assurance Corporation CGIC -- Capital Guaranty Insurance Corporation FGIC -- Financial Guaranty Insurance Company GO -- General Obligation GTD -- Guaranty INS -- Insured LOC -- Letter of Credit LT -- Limited Tax MBIA -- Municipal Bond Investors Assurance PCR -- Pollution Control Revenue PFA -- Public Facility Authority PRF -- Prerefunded UT -- Unlimited Tax
(See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Total investments in securities, at value (identified and tax cost $43,200,664) $44,818,039 - -------------------------------------------------------------------------------- Income receivable 639,740 - -------------------------------------------------------------------------------- Receivable for shares sold 107,253 - -------------------------------------------------------------------------------- Deferred expenses 1,740 - -------------------------------------------------------------------------------- ----------- Total assets 45,566,772 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for investments purchased $964,900 - --------------------------------------------------------------------- Payable for shares redeemed 1,466 - --------------------------------------------------------------------- Accrued expenses 22,082 - --------------------------------------------------------------------- -------- Total liabilities 988,448 - -------------------------------------------------------------------------------- ----------- Net Assets for 4,182,389 shares outstanding $44,578,324 - -------------------------------------------------------------------------------- ----------- NET ASSETS CONSIST OF: - -------------------------------------------------------------------------------- Paid in capital $42,856,552 - -------------------------------------------------------------------------------- Net unrealized appreciation of investments 1,617,375 - -------------------------------------------------------------------------------- Accumulated net realized gain on investments 35,979 - -------------------------------------------------------------------------------- Undistributed net investment income 68,418 - -------------------------------------------------------------------------------- ----------- Total Net Assets $44,578,324 - -------------------------------------------------------------------------------- ----------- NET ASSET VALUE and Redemption Proceeds Per Share: - -------------------------------------------------------------------------------- $44,578,324 / 4,182,389 shares outstanding) $10.66 - -------------------------------------------------------------------------------- ----------- Offering Price Per Share: (100/98.00 of $10.66)* $10.88 - -------------------------------------------------------------------------------- -----------
* See "What Shares Cost" in the Prospectus. (See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF OPERATIONS YEAR ENDED FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - ----------------------------------------------------------------------------------- Interest $2,337,615 - ----------------------------------------------------------------------------------- EXPENSES: - ----------------------------------------------------------------------------------- Investment advisory fee $262,552 - ----------------------------------------------------------------------- Administrative personnel and services fee 100,000 - ----------------------------------------------------------------------- Custodian fees 26,072 - ----------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 29,418 - ----------------------------------------------------------------------- Directors'/Trustees' fees 1,376 - ----------------------------------------------------------------------- Auditing fees 12,029 - ----------------------------------------------------------------------- Legal fees 1,941 - ----------------------------------------------------------------------- Portfolio accounting fees 57,928 - ----------------------------------------------------------------------- Share registration costs 4,853 - ----------------------------------------------------------------------- Printing and postage 5,694 - ----------------------------------------------------------------------- Insurance premiums 2,791 - ----------------------------------------------------------------------- Miscellaneous 3,727 - ----------------------------------------------------------------------- -------- Total expenses 508,381 - ----------------------------------------------------------------------- Deduct - ----------------------------------------------------------------------- Waiver of investment advisory fee $155,258 - ------------------------------------------------------------ Waiver of administrative personnel and services fee 48,579 - ------------------------------------------------------------ -------- Total waivers 203,837 - ----------------------------------------------------------------------- -------- Net expenses 304,544 - ----------------------------------------------------------------------------------- ---------- Net investment income 2,033,071 - ----------------------------------------------------------------------------------- ---------- REALIZED AND UNREALIZED GAIN ON INVESTMENTS: - ----------------------------------------------------------------------------------- Net realized gain on investments 36,102 - ----------------------------------------------------------------------------------- Net change in unrealized appreciation of investments 2,105,078 - ----------------------------------------------------------------------------------- ---------- Net realized and unrealized gain on investments 2,141,180 - ----------------------------------------------------------------------------------- ---------- Change in net assets resulting from operations $4,174,251 - ----------------------------------------------------------------------------------- ----------
(See Notes which are an integral part of the Financial Statements) DG MUNICIPAL INCOME FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 ----------------- ----------------- INCREASE (DECREASE) IN NET ASSETS: - ---------------------------------------------------- OPERATIONS-- - ---------------------------------------------------- Net investment income $ 2,033,071 $ 1,853,385 - ---------------------------------------------------- Net realized gain on investments ($36,102 and $11,477, respectively, as computed for federal tax purposes) 36,102 11,477 - ---------------------------------------------------- Net change in unrealized appreciation (depreciation) 2,105,078 (1,201,336) - ---------------------------------------------------- ------------ ----------- Change in net assets resulting from operations 4,174,251 663,526 - ---------------------------------------------------- ------------ ----------- DISTRIBUTIONS TO SHAREHOLDERS-- - ---------------------------------------------------- Distributions from net investment income (1,990,513) (1,838,300) - ---------------------------------------------------- Distributions from net realized gains (11,600) -- - ---------------------------------------------------- ------------ ----------- Change in net assets resulting from distributions to shareholders (2,002,113) (1,838,300) - ---------------------------------------------------- ------------ ----------- SHARE TRANSACTIONS-- - ---------------------------------------------------- Proceeds from sale of shares 17,982,143 17,562,723 - ---------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 25,625 18,007 - ---------------------------------------------------- Cost of shares redeemed (17,143,725) (9,298,915) - ---------------------------------------------------- ------------ ----------- Change in net assets resulting from share transactions 864,043 8,281,815 - ---------------------------------------------------- ------------ ----------- Change in net assets 3,036,181 7,107,041 - ---------------------------------------------------- NET ASSETS: - ---------------------------------------------------- Beginning of period 41,542,143 34,435,102 - ---------------------------------------------------- ------------ ----------- End of period (including undistributed net investment income of $68,418 and $25,860, respectively) $ 44,578,324 $41,542,143 - ---------------------------------------------------- ------------ -----------
(See Notes which are an integral part of the Financial Statements) 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 18.
YEAR ENDED FEBRUARY 28 OR 29, ---------------------------------------------- 1996 1995 1994 1993(a) ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $10.15 $10.57 $10.51 $10.00 - -------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - -------------------------------------------------------- Net investment income 0.49 0.49 0.48 0.07 - -------------------------------------------------------- Net realized and unrealized gain (loss) on investments 0.50 (0.43) 0.08 0.49 - -------------------------------------------------------- ------ ------ ------ ------ Total from investment operations 0.99 0.06 0.56 0.56 - -------------------------------------------------------- ------ ------ ------ ------ LESS DISTRIBUTIONS - -------------------------------------------------------- Distributions from net investment income (0.48) (0.48) (0.49) (0.05) - -------------------------------------------------------- Distributions from net realized gain on investments -- -- (0.01) -- - -------------------------------------------------------- ------ ------ ------ ------ Total distributions (0.48) (0.48) (0.50) (0.05) - -------------------------------------------------------- ------ ------ ------ ------ NET ASSET VALUE, END OF PERIOD $10.66 $10.15 $10.57 $10.51 - -------------------------------------------------------- ------ ------ ------ ------ TOTAL RETURN (b) 9.96% 0.81% 5.34% 5.65% - -------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - -------------------------------------------------------- Expenses 0.70% 0.75% 0.74% 0.48%* - -------------------------------------------------------- Net investment income 4.65% 4.93% 4.60% 4.11%* - -------------------------------------------------------- Expense waiver/reimbursement (c) 0.47% 0.41% 0.67% 1.02%* - -------------------------------------------------------- SUPPLEMENTAL DATA - -------------------------------------------------------- Net assets, end of period (000 omitted) $44,578 $41,542 $34,435 $15,644 - -------------------------------------------------------- Portfolio turnover 20% 9% 9% 93% - --------------------------------------------------------
* Computed on an annualized basis. (a) Reflects operations for the period from December 29, 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) 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) DG MUNICIPAL INCOME FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- (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 portfolios. The financial statements included herein are only those of DG Municipal Income Fund (the "Fund"), a diversified portfolio. 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--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. All other securities are valued at prices provided by an independent pricing service. INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--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"). 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 have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. 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 YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 - ---------------------------------------------------- ------------------ ------------------ Shares sold 1,716,250 1,764,990 - ---------------------------------------------------- Shares issued to shareholders in payment of distributions declared 2,449 1,825 - ---------------------------------------------------- Shares redeemed (1,627,203) (933,737) - ---------------------------------------------------- ---------- --------- Net change resulting from share transactions 91,496 833,078 - ---------------------------------------------------- ---------- ---------
(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 any 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. In addition, Trust Division of Commercial National Bank may voluntarily choose to reduce its compensation. 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 DIVIDEND DISBURSING AGENT FEES--Federated Services Company serves as transfer agent and dividend disbursing agent for the Fund. This fee is based on the size, type, and number of accounts and transactions made by shareholders. PORTFOLIO ACCOUNTING FEES--Federated Services Company 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 daily net assets for the period, plus out-of-pocket expenses. DG MUNICIPAL INCOME FUND - -------------------------------------------------------------------------------- ORGANIZATIONAL EXPENSES--Organizational expenses ($19,321) were initially borne by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following the effective date. For the period ended February 29, 1996, the Fund paid $4,722 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 29, 1996, were as follows: - -------------------------------------------------------------------------------- PURCHASES $9,043,005 - -------------------------------------------------------------------------------- ---------- SALES $8,412,338 - -------------------------------------------------------------------------------- ----------
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 29, 1996, and the related statements of operations for the year then ended, the statement of changes in net assets for the years ended February 29, 1996 and February 28, 1995, and the financial highlights for the periods from December 21, 1992 (commencement of operations) to February 29, 1996. 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 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 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 29, 1996, 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 8, 1996 TRUSTEES OFFICERS - ----------------------------------------------------------------------------- John F. Donahue John F. Donahue Thomas G. Bigley Chairman John T. Conroy, Jr. Edward C. Gonzales William J. Copeland President and Treasurer James E. Dowd J. Christopher Donahue Lawrence D. Ellis, M.D. Executive Vice President Edward L. Flaherty, Jr. John W. McGonigle Edward C. Gonzales Executive Vice President and Peter E. Madden Secretary Gregor F. Meyer Richard B. Fisher John E. Murray, Jr. Vice President Wesley W. Posvar Charles L. Davis, Jr. Marjorie P. Smuts Vice President and Assistant Treasurer C. Grant Anderson Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including possible loss of principal. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. DG U.S. GOVERNMENT MONEY MARKET FUND ----------------------------------- ANNUAL REPORT [LOGO] A Diversified Portfolio of DG Investor Series, an Open-End Management Investment Company Deposit Guaranty National Bank Jackson, MS Investment Adviser FEBRUARY 29, 1996 ----------------------------------- LOGO Since 1955 FEDERATED INVESTORS Federated Investors Tower Pittsburgh, PA 15222-3779 Federated Securities Corp. is the distributor of the fund and is a subsidiary of Federated Investors Recycle LOGO Cusip 23321N103 G00498-07 (4/96) PRESIDENT'S MESSAGE - -------------------------------------------------------------------------------- Dear Shareholder: I am pleased to present the Annual Report to Shareholders for DG U.S. Government Money Market Fund. This report covers activity in the fund over the twelve-month period from March 1, 1995, through February 29, 1996. In DG U.S. Government Money Market Fund, your ready cash is at work every day in a diversified portfolio of high-quality U.S. government money market securities. During the twelve-month period, the fund paid dividends totaling $0.05 per share. Net assets grew considerably, from $162.5 million at the beginning of the period to $245.6 million at the end. Thank you for investing your cash through the convenience of DG U.S. Government Money Market Fund. We will continue to keep you up-to-date on your progress. Sincerely, /s/ Edward C. Gonzales Edward C. Gonzales President April 15, 1996 Although money market funds seek to maintain a stable net asset value of $1.00 per share, there is no assurance that they will be able to do so. An investment in the fund is not insured or guaranteed by the U.S. government. DG U.S. GOVERNMENT MONEY MARKET FUND PORTFOLIO OF INVESTMENTS FEBRUARY 29, 1996 - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--70.9% - ------------------------------------------------------------------------------------ U.S. TREASURY BILLS--58.7% ---------------------------------------------------------------- $ 5,000,000 3/7/1996 $ 4,995,567 ---------------------------------------------------------------- 5,000,000 3/14/1996 4,990,431 ---------------------------------------------------------------- 10,000,000 3/21/1996 9,970,694 ---------------------------------------------------------------- 10,000,000 3/28/1996 9,961,000 ---------------------------------------------------------------- 6,000,000 4/4/1996 5,969,627 ---------------------------------------------------------------- 10,000,000 4/11/1996 9,940,949 ---------------------------------------------------------------- 10,000,000 4/18/1996 9,933,933 ---------------------------------------------------------------- 10,000,000 4/25/1996 9,921,090 ---------------------------------------------------------------- 5,000,000 5/2/1996 4,952,467 ---------------------------------------------------------------- 5,000,000 5/30/1996 4,932,500 ---------------------------------------------------------------- 10,000,000 6/6/1996 9,866,086 ---------------------------------------------------------------- 10,000,000 6/13/1996 9,856,567 ---------------------------------------------------------------- 10,000,000 6/27/1996 9,843,978 ---------------------------------------------------------------- 10,000,000 7/5/1996 9,832,874 ---------------------------------------------------------------- 10,000,000 7/25/1996 9,806,550 ---------------------------------------------------------------- 10,000,000 8/8/1996 9,790,667 ---------------------------------------------------------------- 10,000,000 9/19/1996 9,738,803 ---------------------------------------------------------------- ------------ Total 144,303,783 ---------------------------------------------------------------- ------------ U.S. TREASURY NOTES--12.2% ---------------------------------------------------------------- 5,000,000 4.250%, 5/15/1996 4,985,443 ---------------------------------------------------------------- 4,000,000 5.500%, 4/30/1996 3,998,494 ---------------------------------------------------------------- 5,000,000 5.875%, 5/31/1996 4,999,296 ---------------------------------------------------------------- 5,000,000 7.625%, 4/30/1996 5,012,026 ----------------------------------------------------------------
DG U.S. GOVERNMENT MONEY MARKET FUND - --------------------------------------------------------------------------------
PRINCIPAL AMOUNT VALUE - ----------- ---------------------------------------------------------------- ------------ U.S. TREASURY OBLIGATIONS--CONTINUED - ------------------------------------------------------------------------------------ U.S. TREASURY NOTES--CONTINUED ---------------------------------------------------------------- $ 6,000,000 7.875%, 7/15/1996 $ 6,049,025 ---------------------------------------------------------------- 5,000,000 9.375%, 4/15/1996 5,021,505 ---------------------------------------------------------------- ------------ Total 30,065,789 ---------------------------------------------------------------- ------------ TOTAL U.S. TREASURY OBLIGATIONS 174,369,572 ---------------------------------------------------------------- ------------ (a)REPURCHASE AGREEMENTS--29.1% - ------------------------------------------------------------------------------------ 36,000,000 Cantor Fitzgerald Securities Corp., 5.47%, dated 2/29/1996, due 3/1/1996 36,000,000 ---------------------------------------------------------------- 35,580,800 Eastbridge Capital, Inc., 5.43%, dated 2/29/1996, due 3/1/1996 35,580,800 ---------------------------------------------------------------- ------------ TOTAL REPURCHASE AGREEMENTS 71,580,800 ---------------------------------------------------------------- ------------ TOTAL INVESTMENTS AT AMORTIZED COST(b) $245,950,372 ---------------------------------------------------------------- ------------
(a) The repurchase agreements are fully collateralized by U.S. Treasury obligations based on market prices at the date of the portfolio. (b) Also represents cost for federal tax purposes. Note: The categories of investments are shown as a percentage of net assets ($245,647,230) at February 29, 1996. (See Notes which are an integral part of the Financial Statements) DG U.S. GOVERNMENT MONEY MARKET FUND STATEMENT OF ASSETS AND LIABILITIES FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- ASSETS: - -------------------------------------------------------------------------------- Investments in repurchase agreements $ 71,580,800 - ----------------------------------------------------------------- Investments in securities 174,369,572 - ----------------------------------------------------------------- ------------ Total investments in securities, at amortized cost and value $245,950,372 - -------------------------------------------------------------------------------- Cash 6,526 - -------------------------------------------------------------------------------- Income receivable 585,112 - -------------------------------------------------------------------------------- Deferred expenses 17,676 - -------------------------------------------------------------------------------- ------------ Total assets 246,559,686 - -------------------------------------------------------------------------------- LIABILITIES: - -------------------------------------------------------------------------------- Payable for shares redeemed 3,969 - ----------------------------------------------------------------- Income distribution payable 852,386 - ----------------------------------------------------------------- Accrued expenses 56,101 - ----------------------------------------------------------------- ------------ Total liabilities 912,456 - -------------------------------------------------------------------------------- ------------ NET ASSETS for 245,647,230 shares outstanding $245,647,230 - -------------------------------------------------------------------------------- ------------ NET ASSET VALUE, Offering Price and Redemption Proceeds Per Share: - -------------------------------------------------------------------------------- $245,647,230 / 245,647,230 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 29, 1996 - -------------------------------------------------------------------------------- INVESTMENT INCOME: - --------------------------------------------------------------------------------- Interest $12,196,878 - --------------------------------------------------------------------------------- EXPENSES: - --------------------------------------------------------------------------------- Investment advisory fee $1,044,577 - -------------------------------------------------------------------- Administrative personnel and services fee 244,926 - -------------------------------------------------------------------- Custodian fees 42,352 - -------------------------------------------------------------------- Transfer and dividend disbursing agent fees and expenses 31,920 - -------------------------------------------------------------------- Directors'/Trustees' fees 2,408 - -------------------------------------------------------------------- Auditing fees 11,998 - -------------------------------------------------------------------- Legal fees 2,093 - -------------------------------------------------------------------- Portfolio accounting fees 40,723 - -------------------------------------------------------------------- Share registration costs 43,537 - -------------------------------------------------------------------- Printing and postage 4,860 - -------------------------------------------------------------------- Insurance premiums 5,331 - -------------------------------------------------------------------- Miscellaneous 7,292 - -------------------------------------------------------------------- ---------- Total expenses 1,482,017 - -------------------------------------------------------------------- Deduct--Waiver of investment advisory fee 417,831 - -------------------------------------------------------------------- ---------- Net expenses 1,064,186 - --------------------------------------------------------------------------------- ----------- Net investment income $11,132,692 - --------------------------------------------------------------------------------- -----------
(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 YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 ------------------ ------------------- INCREASE (DECREASE) IN NET ASSETS: - ----------------------------------------------------- OPERATIONS-- - ----------------------------------------------------- Net investment income $ 11,132,692 $ 6,636,382 - ----------------------------------------------------- ----------------- ------------------ DISTRIBUTIONS TO SHAREHOLDERS-- - ----------------------------------------------------- Distributions from net investment income (11,132,692) (6,636,382) - ----------------------------------------------------- ----------------- ------------------ SHARE TRANSACTIONS-- - ----------------------------------------------------- Proceeds from sale of shares 505,711,379 394,768,127 - ----------------------------------------------------- Net asset value of shares issued to shareholders in payment of distributions declared 114,789 51,622 - ----------------------------------------------------- Cost of shares redeemed (422,693,644) (421,619,818) - ----------------------------------------------------- ----------------- ------------------ Change in net assets resulting from share transactions 83,132,524 (26,800,069) - ----------------------------------------------------- ----------------- ------------------ Change in net assets 83,132,524 (26,800,069) - ----------------------------------------------------- NET ASSETS: - ----------------------------------------------------- Beginning of period 162,514,706 189,314,775 - ----------------------------------------------------- ----------------- ------------------ End of period $ 245,647,230 $ 162,514,706 - ----------------------------------------------------- ----------------- ------------------
(See Notes which are an integral part of the Financial Statements) 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 11.
YEAR ENDED FEBRUARY 28 OR 29, ------------------------------------------- 1996 1995 1994 1993(a) ------ ------ ------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS - --------------------------------------------------- Net investment income 0.05 0.04 0.03 0.02 - --------------------------------------------------- LESS DISTRIBUTIONS - --------------------------------------------------- Distributions from net investment income (0.05) (0.04) (0.03) (0.02) - --------------------------------------------------- ------ ------ ------ ------- NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 - --------------------------------------------------- ------ ------ ------ ------- TOTAL RETURN (b) 5.48% 4.06% 2.74% 1.97% - --------------------------------------------------- RATIOS TO AVERAGE NET ASSETS - --------------------------------------------------- Expenses 0.51% 0.53% 0.54% 0.41%* - --------------------------------------------------- Net investment income 5.33% 3.96% 2.70% 2.88%* - --------------------------------------------------- Expense waiver/reimbursement (c) 0.20% 0.20% 0.20% 0.38%* - --------------------------------------------------- SUPPLEMENTAL DATA - --------------------------------------------------- Net assets, end of period (000 omitted) $245,647 $162,515 $189,315 $189,024 - ---------------------------------------------------
* Computed on an annualized basis. (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) 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) DG U.S. GOVERNMENT MONEY MARKET FUND NOTES TO FINANCIAL STATEMENTS FEBRUARY 29, 1996 - -------------------------------------------------------------------------------- (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 portfolios. The financial statements included herein are only those of DG U.S. Government Money Market Fund (the "Fund"), a diversified portfolio. The investment objective of the Fund is current income consistent with stability of principal and liquidity. 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--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"). INVESTMENT INCOME, EXPENSES AND DISTRIBUTIONS--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"). 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 have been deferred and are being amortized using the straight-line method over a period of five years from the Fund's commencement date. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts of assets, liabilities, expenses and revenues reported in the financial statements. Actual results could differ from those estimated. 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 29, 1996, capital paid-in aggregated $245,647,230. Transactions in shares were as follows:
YEAR ENDED YEAR ENDED FEBRUARY 29, 1996 FEBRUARY 28, 1995 - ---------------------------------------------------- ------------------ ------------------ Shares sold 505,711,379 394,768,127 - ---------------------------------------------------- Shares issued to shareholders in payment of distributions declared 114,789 51,622 - ---------------------------------------------------- Shares redeemed (422,693,644) (421,619,818) - ---------------------------------------------------- ---------------- ---------------- Net change resulting from share transactions 83,132,524 (26,800,069) - ---------------------------------------------------- ---------------- ----------------
(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 .50 of 1% of the Fund's average daily net assets. The Adviser may voluntarily choose to waive any portion of its fee. The Adviser can modify or terminate this voluntary waiver at any time at its sole discretion. DG U.S GOVERNMENT MONEY MARKET FUND - -------------------------------------------------------------------------------- ADMINISTRATIVE FEE--Federated Administrative Services ("FAS") provides the Fund with certain administrative personnel and services. This 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 DIVIDEND DISBURSING AGENT FEES--Federated Services Company 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. PORTFOLIO ACCOUNTING FEES--Federated Services Company maintains the Fund's accounting records for which it receives a fee. The fee is based on the level of the Fund's average daily net assets for the period, plus out-of-pocket expenses. ORGANIZATIONAL EXPENSES--Organizational expenses ($26,560) were borne initially by FAS. The Fund has agreed to reimburse FAS for the organizational expenses during the five year period following the effective date. For the year ended February 29, 1996, the Fund paid $9,712 pursuant to this agreement. GENERAL--Certain of the Officers and Trustees of the Trust 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 29, 1996, and the related statement of operations for the year then ended, the statements of changes in net assets for the years ended February 29, 1996 and February 28, 1995 and the financial highlights for the years or periods from March 31, 1992 (commencement of operations) to February 29, 1996. 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 29, 1996, and the results of its operations for the year then ended, and the changes in its net assets and financial highlights for each of the periods listed above in conformity with generally accepted accounting principles. KPMG PEAT MARWICK LLP Pittsburgh, Pennsylvania April 8, 1996 TRUSTEES OFFICERS - ----------------------------------------------------------------------------- John F. Donahue John F. Donahue Thomas G. Bigley Chairman John T. Conroy, Jr. Edward C. Gonzales William J. Copeland President and Treasurer James E. Dowd J. Christopher Donahue Lawrence D. Ellis, M.D. Executive Vice President Edward L. Flaherty, Jr. John W. McGonigle Edward C. Gonzales Executive Vice President and Peter E. Madden Secretary Gregor F. Meyer Richard B. Fisher John E. Murray, Jr. Vice President Wesley W. Posvar Charles L. Davis, Jr. Marjorie P. Smuts Vice President and Assistant Treasurer C. Grant Anderson Assistant Secretary
Mutual funds are not bank deposits or obligations, are not guaranteed by any bank, and are not insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other government agency. Investment in mutual funds involves investment risk, including possible loss of principal. Although money market funds seek to maintain a stable net asset value of $1.00 per share, there is no assurance that they will be able to do so. This report is authorized for distribution to prospective investors only when preceded or accompanied by the Fund's prospectus which contains facts concerning its objective and policies, management fees, expenses and other information. DG INVESTOR SERIES APPENDIX A. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. DG Equity Fund, with the old sales charge of 2.00%, is represented by a bold solid line. DG Equity Fund, with the current sales charge of 3.50%, is represented by a dotted line. The Standard & Poor's 500 Index is represented by a bold broken line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in DG Equity Fund with the 2.00% sales charge, DG Equity Fund with the 3.50% sales charge, and Standard & Poor's 500 Index. The "x" axis reflects computation periods from August 1, 1992 (start of performance) to February 29, 1996. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in DG Equity Fund with the 2.00% sales charge, DG Equity Fund with the 3.50% sales charge, and Standard & Poor's 500 Index. The ending values were $15,845, $15,602, and $16,648, respectively. B. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. DG Opportunity Fund, with the old sales charge of 2.00%, is represented by a bold solid line. DG Opportunity Fund, with the current sales charge of 3.50%, is represented by a dotted line. The Russell 2000 Index is represented by a bold broken line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in DG Opportunity Fund with the 2.00% sales charge, DG Opportunity Fund with the 3.50% sales charge, and the Russell 2000 Index. The "x" axis reflects computation periods from August 1, 1994 (start of performance) to February 29, 1996. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in DG Opportunity Fund with the 2.00% sales charge, DG Opportunity Fund with the 3.50% sales charge, and the Russell 2000 Index. The ending values were $14,404, $14,184, and $13,660, respectively. C. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. DG Limited Term Government Income Fund is represented by a bold solid line. The Merrill Lynch 1-3 Year Treasury Index is represented by a dotted line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in DG Limited Term Government Income Fund and the Merrill Lynch 1-3 Year Treasury Index. The "x" axis reflects computation periods from August 1, 1992 (start of performance) to February 29, 1996. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in DG Limited Term Government Income Fund and the Merrill Lynch 1-3 Year Treasury Index. The ending values were $11,681, and $12,056, respectively. D. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. DG Government Income Fund is represented by a bold solid line. The Lehman Brothers Government/Corporate Total Index is represented by a dotted line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in DG Government Income Fund and the Lehman Brothers Government/Corporate Total Index. The "x" axis reflects computation periods from August 1, 1992 (start of performance) to February 29, 1996. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in DG Government Income Fund and the Lehman Brothers Government/Corporate Total Index. The ending values were $12,213, and $12,879, respectively. E. The graphic presentation here displayed consists of a line graph. The corresponding components of the line graph are listed underneath. DG Municipal Income Fund is represented by a bold solid line. The Lehman Brothers Municipal Bond Index is represented by a dotted line. The line graph is a visual representation of a comparison of change in value of a $10,000 hypothetical investment in DG Municipal Income Fund and the Lehman Brothers Municipal Bond Index. The "x" axis reflects computation periods from December 21, 1992 (start of performance) to February 29, 1996. The "y" axis reflects the cost of the investment. The right margin reflects the ending value of the hypothetical investment in DG Municipal Income Fund and the Lehman Brothers Municipal Bond -----END PRIVACY-ENHANCED MESSAGE-----