<PAGE> 1
AMSOUTH MUTUAL FUNDS
GROWTH FUNDS
SUPPLEMENT DATED APRIL 11, 1996
TO PROSPECTUS DATED NOVEMBER 30, 1995
Capitalized terms used in this Supplement have the meaning assigned to them in
the Prospectus.
Effective February 16, 1996, the Fee Table that appears on page 2 is amended as
follows to reflect a change in the Management Fees of the Balanced Fund
resulting from a termination of the Voluntary Fee Reduction:
FEE TABLE
<TABLE>
<CAPTION>
Regional
Equity Equity Balanced
Fund Fund Fund
------ -------- ----
<S> <C> <C> <C>
Shareholder Transaction Expenses1
--------------------------------
Maximum Sales Load Imposed on Purchases 4.50% 4.50% 4.50%
(as a percentage of offering price)
Maximum Sales Load Imposed on Reinvested 0% 0% 0%
Dividends (as a percentage of offering price)
Deferred Sales Load (as a percentage
of original purchase price or redemption
proceeds, as applicable) 0% 0% 0%
Redemption Fees (as a percentage 0% 0% 0%
of amount redeemed, if applicable)2
Exchange Fee $0 $0 $0
Annual Fund Operating Expenses
------------------------------
(as a percentage of net assets)
Management Fees .80% .80% .80%
12b-1 Fees .00% .00% .00%
Other Expenses (After Voluntary Fee .23% .27% .24%
Reduction) 3
Total Fund Operating Expenses4 1.03% 1.07% 1.04%
===== ===== ======
</TABLE>
<PAGE> 2
Example:
You would pay the following expenses on a $1,000 investment, assuming (1)
5% annual return and (2) redemption at the end of each time period:
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund $55 $76 $99 $165
Regional Equity Fund $55 $78 $101 $170
Balanced Fund $55 $77 $100 $166
- --------------------
</TABLE>
1 AmSouth Bank of Alabama and its correspondent or affiliated banks
may charge a Customer's (as defined in the Prospectus) account fees for
automatic investment and other cash management services provided in connection
with investment in the Funds. (See "HOW TO PURCHASE AND REDEEM SHARES -
Purchases of Shares.")
2 A wire redemption charge (up to a maximum of $15) is deducted from
the amount of a wire redemption payment made at the request of a shareholder.
(See "HOW TO PURCHASE AND REDEEM SHARES - Redemption by Telephone.")
3 Absent the voluntary reduction of administration fees, Other
Expenses are estimated to be .31% for the Equity Fund, .35% for the Regional
Equity Fund and .32% for the Balanced Fund.
4 In the absence of any voluntary reduction in administration fees,
Total Fund Operating Expenses are estimated to be 1.11% for the Equity Fund,
1.15% for the Regional Equity Fund and 1.12% for the Balanced Fund.
The purpose of the table above is to assist an investor in the Fund in
understanding the various costs and expenses that an investor in a Growth Fund
will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for
a more complete discussion of annual operating expenses of the Growth Funds.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
Effective April 1, 1996 all references to "BISYS Fund Services" as
Administrator for each Fund of the Trust is hereby replaced by "ASO Services
Company."
Also effective April 1, 1996, BISYS Fund Services joins AmSouth Bank of
Alabama as a Sub-Administrator to each Fund of the Trust.
The total percentage of fees payable by the Trust for administrative
services to each of the Funds will remain the same.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE
PROSPECTUS FOR FUTURE REFERENCE
-2-
<PAGE> 3
AMSOUTH MUTUAL FUNDS
INCOME FUNDS
SUPPLEMENT DATED APRIL 11, 1996
TO PROSPECTUS DATED NOVEMBER 30, 1995
Capitalized terms used in this Supplement have the meaning assigned to them in
the Prospectus.
Effective April 1, 1996 all references to "BISYS Fund Services" as
Administrator for each Fund of the Trust is hereby replaced by "ASO Services
Company."
Also effective April 1, 1996, BISYS Fund Services joins AmSouth Bank of
Alabama as a Sub-Administrator to each Fund of the Trust.
The total percentage of fees payable by the Trust for administrative
services to each of the Funds will remain the same.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE
PROSPECTUS FOR FUTURE REFERENCE
<PAGE> 4
AMSOUTH MUTUAL FUNDS
TAX-FREE FUNDS
SUPPLEMENT DATED APRIL 11, 1996
TO PROSPECTUS DATED NOVEMBER 30, 1995
Capitalized terms used in this Supplement have the meaning assigned to them in
the Prospectus.
Effective April 1, 1996 all references to "BISYS Fund Services" as
Administrator for each Fund of the Trust is hereby replaced by "ASO Services
Company."
Also effective April 1, 1996, BISYS Fund Services joins AmSouth Bank of
Alabama as a Sub-Administrator to each Fund of the Trust.
The total percentage of fees payable by the Trust for administrative
services to each of the Funds will remain the same.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE
PROSPECTUS FOR FUTURE REFERENCE
<PAGE> 5
AMSOUTH MUTUAL FUNDS
MONEY MARKET FUNDS
SUPPLEMENT DATED APRIL 11, 1996
TO PROSPECTUS DATED APRIL 1, 1995
Capitalized terms used in this Supplement have the meaning assigned to them in
the Prospectus.
Effective April 1, 1996 all references to "BISYS Fund Services" as
Administrator for each Fund of the Trust is hereby replaced by "ASO Services
Company."
Also effective April 1, 1996, BISYS Fund Services joins AmSouth Bank of
Alabama as a Sub-Administrator to each Fund of the Trust.
The total percentage of fees payable by the Trust for administrative
services to each of the Funds will remain the same.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE
PROSPECTUS FOR FUTURE REFERENCE
<PAGE> 6
AMSOUTH MUTUAL FUNDS
SUPPLEMENT DATED APRIL 11, 1996
TO STATEMENT OF ADDITIONAL INFORMATION DATED NOVEMBER 30, 1995
Capitalized terms used in this Supplement have the meaning assigned to them in
the Prospectus.
Effective April 1, 1996 all references to "BISYS Fund Services" as
Administrator for each Fund of the Trust is hereby replaced by "ASO Services
Company."
Also effective April 1, 1996, BISYS Fund Services joins AmSouth Bank of
Alabama as a Sub-Administrator to each Fund of the Trust.
The total percentage of fees payable by the Trust for administrative
services to each of the Funds will remain the same.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE
STATEMENT OF ADDITIONAL INFORMATION FOR FUTURE REFERENCE
<PAGE> 7
AMSOUTH MUTUAL FUNDS
INCOME FUNDS
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase and redemption
Columbus, Ohio 43219 information call (800) 451-8382
</TABLE>
The AmSouth Mutual Funds Income Funds (the "Income Funds") are three of
twelve separate investment funds of AmSouth Mutual Funds (the "Trust"), a
diversified, open-end management investment company.
The AmSouth Bond Fund and the AmSouth Limited Maturity Fund seek current
income, consistent with the preservation of capital. The AmSouth Government
Income Fund seeks to provide shareholders with a high level of current income
consistent with prudent investment risk. The net asset value per share of each
Income Fund will fluctuate as the value of such Income Fund's investment
portfolio changes in response to changing market interest rates and other
factors.
AMSOUTH BOND FUND (the "Bond Fund") invests in long-term bonds and other
fixed-income securities. These investments may include debt securities issued by
United States corporations and debt securities issued or guaranteed by the
United States Government or its agencies or instrumentalities as well as
zero-coupon obligations. The Bond Fund invests in fixed-income securities with a
maturity in excess of one year, although such securities can have maturities of
thirty years or longer.
AMSOUTH LIMITED MATURITY FUND (the "Limited Maturity Fund") invests in
bonds (including debentures), notes and other debt securities which have a
stated or remaining maturity of five years or less or which have an
unconditional redemption feature that will permit the Limited Maturity Fund to
require the issuer of the security to redeem the security within five years from
the date of purchase or for which the Limited Maturity Fund has acquired an
unconditional "put" to sell the security within five years from the date of
purchase. These investments may include debt securities issued by United States
corporations and debt securities issued or guaranteed by the United States
Government or its agencies or instrumentalities as well as zero-coupon
obligations.
AMSOUTH GOVERNMENT INCOME FUND (the "Government Income Fund") invests,
under normal market conditions, at least 65% of the value of its total assets in
obligations issued or guaranteed by the U.S. Government its agencies or
instrumentalities.
AmSouth Bank of Alabama, Birmingham, Alabama ("AmSouth"), acts as the
investment advisor to each Fund of the Trust. BISYS Fund Services, Limited
Partnership ("BISYS Fund Services"), formerly The Winsbury Company, Columbus,
Ohio, acts as the Income Funds' distributor.
This Prospectus relates only to the Income Funds. Interested persons who
wish to obtain a copy of the prospectuses of the AmSouth Prime Obligations Fund,
the AmSouth U.S. Treasury Fund, and the AmSouth Tax Exempt Fund (the "Money
Market Funds"); the AmSouth Equity Fund, the AmSouth Regional Equity Fund, and
the AmSouth Balanced Fund (the "Growth Funds"); or the AmSouth Municipal Bond
Fund, the AmSouth Alabama Tax-Free Fund and the AmSouth Florida Tax-Free Fund
(the "Tax-Free Funds") may contact the Trust's distributor at the telephone
number shown above. Additional information about the Income Funds, contained in
a Statement of Additional Information, has been filed with the Securities and
Exchange Commission and is available upon request without charge by writing to
the Trust at its address or by calling the Trust at the telephone number shown
above. The Statement of Additional Information bears the same date as this
Prospectus and is incorporated by reference in its entirety into this
Prospectus.
This Prospectus sets forth concisely the information about the Income Funds
that a prospective investor ought to know before investing. Investors should
read this Prospectus and retain it for future reference.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY AMSOUTH OR ANY OF ITS AFFILIATES. THE TRUST'S SHARES ARE
NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR BY ANY OTHER AGENCY.
AN INVESTMENT IN THE TRUST'S SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is November 30, 1995.
<PAGE> 8
THE TRUST
The Trust is a diversified, open-end management investment company. The
Trust consists of twelve series of units of beneficial interest ("Shares"), each
representing interests in one of twelve separate investment funds (the "Funds").
This Prospectus relates only to the Income Funds. Interested persons who
wish to obtain a copy of the prospectuses of the Money Market Funds, the Growth
Funds, or the Tax-Free Funds may contact the Trust at the telephone number shown
on the front cover of this Prospectus.
FEE TABLE
<TABLE>
<CAPTION>
LIMITED GOVERNMENT
BOND MATURITY INCOME
FUND FUND FUND
----- -------- ----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)................................................................ 3.00 % 3.00% 3.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................... 0 % 0% 0%
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds, as applicable)................................... 0 % 0% 0%
Redemption Fees (as a percentage of amount redeemed, if applicable)(2).. 0 % 0% 0%
Exchange Fee............................................................ $0 $0 $0
ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets)
Management Fees (After Voluntary Fee Reduction)(3)...................... .50 % .50% .30%
12b-1 Fees.............................................................. .00 % .00% .00%
Other Expenses (After Voluntary Fee Reduction)(4)....................... .25 % .30% .52%
----- ----- -----
Total Fund Operating Expenses(5)........................................ .75 % .80% .82%
===== ===== =====
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Bond Fund.......................................................... $ 37 $53 $70 $120
Limited Maturity Fund.............................................. $ 38 $55 $73 $126
Government Income Fund............................................. $ 38 $55 $74 $128
<FN>
- ------------
1 AmSouth Bank of Alabama and its correspondent or affiliated banks may charge a
Customer's (as defined in the Prospectus) account fees for automatic
investment and other cash management services provided in connection with
investment in the Fund. (See "HOW TO PURCHASE AND REDEEM SHARES -- Purchases
of Shares.")
2 A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a shareholder. (See "HOW TO PURCHASE AND REDEEM
SHARES -- Redemption by Telephone.")
3 Absent the voluntary reduction of investment advisory fees, Management Fees as
a percentage of average net assets are estimated to be .65% for each of the
Bond Fund, the Limited Maturity Fund and the Government Income Fund. (See
"MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- Investment Advisor.")
4 Absent the voluntary reduction of administration fees, Other Expenses as a
percentage of average net assets are estimated to be .33% for the Bond Fund,
.38% for the Limited Maturity Fund and .62% for the Government Income Fund.
(See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- Administrator and Distributor.")
5 In the absence of any voluntary reduction in investment advisory fees and
administration fees, Total Fund Operating Expenses are estimated to be .98%
for the Bond Fund, 1.03% for the Limited Maturity Fund and 1.27% for the
Government Income Fund.
</TABLE>
The purpose of the table above is to assist an investor in the Fund in
understanding the various costs and expenses that an investor in an Income Fund
will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a
more complete discussion of annual operating expenses of the Income Funds. THE
FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE> 9
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information concerning the
investment results for each of the Income Funds for the periods indicated. This
information has been derived from financial statements audited by Coopers &
Lybrand L.L.P., independent accountants for the Trust, whose report thereon is
included in the Statement of Additional Information. Further financial data is
included in the Statement of Additional Information.
<TABLE>
<CAPTION>
BOND FUND
----------------------------------------------------------------------------------
DECEMBER 1,
YEAR ENDED JULY 31, 1988 TO
------------------------------------------------------------------- JULY 31,
1995 1994 1993 1992 1991 1990 1989(A)
------- ------- ------- ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $ 10.61 $10.00
------- ------- ------- ------- ------- ------- ------
INVESTMENT ACTIVITIES
Net Investment income....................... 0.69 0.69 0.71 0.74 0.74 0.77 0.50
Net realized and unrealized gain (loss)
on investments............................ 0.28 (0.66) 0.33 0.91 0.05 (0.21) 0.56
------- ------- ------- ------- ------- ------- ------
Total from Investment Activities.......... 0.97 0.03 1.04 1.65 0.79 0.56 1.06
------- ------- ------- ------- ------- ------- ------
DISTRIBUTIONS
Net investment income....................... (0.69) (0.70) (0.71) (0.73) (0.74) (0.75) (0.45)
Net realized gains.......................... (0.04) (0.03) (0.33) (0.05) (0.02) (0.03)
------- ------- ------- ------- ------- ------- ------
Total Distributions....................... (0.73) (0.73) (1.04) (0.78) (0.76) (0.78) (0.45)
------- ------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD............... $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $10.61
======== ======== ======== ======== ======== ======== =======
Total Return (Excluding Sales Charge)....... 9.70% 0.23% 9.80% 16.41% 7.99% 5.54% 10.91%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)........... $94,671 $79,472 $65,777 $60,156 $26,008 $17,518 $4,954
Ratio of expenses to average net assets..... 0.75% 0.78% 0.78% 0.82% 0.93% 0.84% 1.10%(b)
Ratio of net investment income to average
net assets................................ 6.63% 6.31% 6.37% 6.94% 7.26% 7.82% 7.47%(b)
Ratio of expenses to average net assets*.... 0.98% 1.01% 1.01% 1.01% 1.11% 1.21% 2.28%(b)
Ratio of net investment income to average
net assets*............................... 6.40% 6.08% 6.14% 6.75% 7.09% 7.45% 6.29%(b)
PORTFOLIO TURNOVER........................... 17.70% 30.90% 14.98% 240.64% 181.77% 53.52% 0.00%
</TABLE>
<TABLE>
<CAPTION>
LIMITED MATURITY FUND
---------------------------------------------------------------------------------
FEBRUARY 1,
YEAR ENDED JULY 31, 1989 TO
------------------------------------------------------------------ JULY 31,
1995 1994 1993 1992 1991 1990 1989(A)
------- ------- ------- ------- ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......... $ 10.23 $ 10.81 $ 10.81 $ 10.44 $ 10.29 $10.35 $10.00
------- ------- ------- ------- ------- ------ ------
INVESTMENT ACTIVITIES
Net Investment income........................ 0.58 0.54 0.60 0.70 0.73 0.72 0.35
Net realized and unrealized gain (loss)
on investments............................. 0.17 (0.45) 0.09 0.45 0.17 (0.05) 0.32
------- ------- ------- ------- ------- ------ ------
Total from Investment Activities........... 0.75 0.09 0.69 1.15 0.90 0.67 0.67
------- ------- ------- ------- ------- ------ ------
DISTRIBUTIONS
Net investment income........................ (0.57) (0.54) (0.61) (0.69) (0.73) (0.70) (0.32)
Net realized gains........................... (0.13) (0.08) (0.09) (0.02) (0.03)
------- ------- ------- ------- ------- ------ ------
Total Distributions........................ (0.57) (0.67) (0.69) (0.78) (0.75) (0.73) (0.32)
------- ------- ------- ------- ------- ------ ------
NET ASSET VALUE, END OF PERIOD................ $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 $10.29 $10.35
======== ======== ======== ======== ======== ======= ======
Total Return (Excluding Sales Charge)........ 7.65% 0.77% 6.72% 11.48% 9.06% 6.80% 6.87%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)............ $59,798 $51,660 $53,933 $38,206 $11,112 $5,983 $3,165
Ratio of expenses to average net assets...... 0.80% 0.79% 0.69% 0.68% 0.85% 1.02% 1.41%(b)
Ratio of net investment income to average net
assets..................................... 5.69% 5.05% 5.67% 6.78% 7.19% 7.23% 6.82%(b)
Ratio of expenses to average net assets*..... 1.03% 1.02% 1.03% 1.03% 1.20% 1.45% 2.72%(b)
Ratio of net investment income to average net
assets*.................................... 5.46% 4.82% 5.33% 6.43% 6.84% 6.80% 5.51%(b)
PORTFOLIO TURNOVER............................ 38.11% 48.06% 141.27% 35.64% 85.08% 119.69% 28.28%
<FN>
- ------------
* During the period the investment advisory and administration fees were
voluntarily reduced. If such voluntary fee reductions had not occurred, the
ratios would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
</TABLE>
3
<PAGE> 10
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND
--------------------------------------
YEAR ENDED OCTOBER 1, 1993
JULY 31, 1995 TO JULY 31, 1994(A)
-------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................... $ 9.48 $ 10.00
------------- ----------
INVESTMENT ACTIVITIES
Net investment income........................................ 0.68 0.54
Net realized and unrealized gain (loss) on investments....... 0.08 (0.57)
------------- ----------
Total from Investment Activities.......................... 0.76 (0.03)
------------- ----------
DISTRIBUTIONS
Net investment income........................................ (0.70) (0.33)
Net realized gains........................................... (0.16)
------------- ----------
Total Distributions....................................... (0.70) (0.49)
------------- ----------
NET ASSET VALUE, END OF PERIOD................................. $ 9.54 $ 9.48
========== ==========
Total Return (Excluding Sales Charge)........................ 8.43% (0.26%)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)............................ $ 16,679 $ 15,465
Ratio of expenses to average net assets...................... 0.58% 0.37%(b)
Ratio of net investment income to average net assets......... 7.18% 6.56%(b)
Ratio of expenses to average net assets*..................... 1.19% 1.22%(b)
Ratio of net investment income to average net assets*........ 6.57% 5.71%(b)
PORTFOLIO TURNOVER............................................. 27.32% 122.94%
<FN>
- ------------
* During the period the investment advisory and administration fees were
voluntarily reduced. If such voluntary fee reductions had not occurred, the
ratio would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
</TABLE>
4
<PAGE> 11
INVESTMENT OBJECTIVE AND POLICIES
Each of the Income Funds seeks current income consistent with the preservation
of capital. There can be, of course, no assurance that any Income Fund will
achieve its investment objective. The investment objective of each Income Fund
is fundamental and may not be changed without a vote of a majority of the
outstanding Shares of that Fund (as defined below under "GENERAL
INFORMATION -- Miscellaneous" in this prospectus).
THE BOND FUND invests in long-term bonds and other fixed-income securities.
The Bond Fund's investments primarily consist of, but are not limited to, debt
obligations such as bonds, notes and debentures, which are issued by United
States corporations or issued or guaranteed by the United States Government or
its agencies or instrumentalities. The Bond Fund invests in debt securities only
if they are rated at time of purchase in one of the three highest rating
categories by a nationally recognized statistical rating organization (an
"NRSRO"), or including all subclassifications indicated by modifiers of such "A"
ratings. See "Appendix" to the Statement of Additional Information for an
explanation of these ratings.
The Bond Fund invests in fixed-income securities with a maturity in excess of
one year, except for amounts held in cash equivalents. Fixed-income securities
can have maturities of thirty years or more. The Bond Fund will invest at least
65% of the value of its total assets in bonds (including debentures), except
that, when market conditions indicate a temporary defensive investment strategy
as determined by AmSouth, more than 35% of the Bond Fund's total assets may be
held in cash and cash equivalents. "Cash equivalents" are short-term,
interest-bearing instruments or deposits. The purpose of cash equivalents is to
provide income at money market rates while minimizing the risk of decline in
value to the maximum extent possible. The instruments may include, but are not
limited to, commercial paper, certificates of deposit, repurchase agreements,
bankers' acceptances, United States Treasury Bills, bank money market deposit
accounts and money market mutual funds. The Bond Fund will purchase commercial
paper rated at the time of purchase in the highest rating category by an NRSRO
or, if not rated, found by the investment advisor under guidelines established
by the Trust's Board of Trustees to be of comparable quality. See "Appendix" to
the Statement of Additional Information for an explanation of these ratings.
THE LIMITED MATURITY FUND invests in bonds (including debentures), notes and
other debt securities which have a stated or remaining maturity of five years or
less or which have an unconditional redemption feature that will permit the
Limited Maturity Fund to require the issuer of the security to redeem the
security within five years from the date of purchase by the Limited Maturity
Fund or for which the Limited Maturity Fund has acquired an unconditional "put"
to sell the security within five years from the date of purchase by the Limited
Maturity Fund.
The Limited Maturity Fund's investments consist primarily of, but are not
limited to, debt securities such as bonds, notes and debentures, which are
issued by United States corporations or issued or guaranteed by the United
States Government or its agencies or instrumentalities. The Limited Maturity
Fund invests in debt securities only if they are rated at time of purchase in
one of the three highest rating categories by an NRSRO or, if not rated, found
by the investment advisor under guidelines established by the Trust's Board of
Trustees to be of comparable quality. See "Appendix" to the Statement of
Additional Information for an explanation of these ratings.
Under normal circumstances, the Limited Maturity Fund will invest at least 65%
of the value of its total assets in bonds (including debentures), notes and
other debt securities which have a stated or remaining maturity of five years or
less or which have an unconditional redemption feature that will permit the
Limited Maturity Fund to require the issuer of the security to redeem the
security within five years from the date of purchase by The Limited
5
<PAGE> 12
Maturity Fund or for which the Limited Maturity Fund has acquired an
unconditional "put" to sell the security within five years from the date of
purchase by the Limited Maturity Fund. The remainder of the Limited Maturity
Fund's assets will be invested in cash, cash equivalents and government and
corporate bonds, including without limitation cash or money-market instruments,
commercial paper, certificates of deposit, repurchase agreements, bankers'
acceptances, U.S. Treasury Bills, obligations of the U.S. Government and its
agencies, bank money market deposit accounts and money market mutual funds. The
Limited Maturity Fund will purchase commercial paper rated at the time of
purchase in the highest rating category by an NRSRO or, if not rated, found by
the investment advisor under guidelines established by the Trust's Board of
Trustees to be of comparable quality. See "Appendix" to the Statement of
Additional Information for an explanation of these ratings. At times, AmSouth
may determine that it is not in the best interests of Shareholders of the
Limited Maturity Fund to invest 65% of The Limited Maturity Fund's total assets
in bonds, debentures, notes and other debt securities. At such times, the Fund
may follow the temporary defensive investment strategy of investing more than
35% of its total assets in cash, cash equivalents and corporate bonds with
remaining maturities of less than 1 year. There is no way to predict when, or
for how long, the Limited Maturity Fund may pursue such a defensive investment
strategy.
At the time of purchase of a debt security with a stated or remaining maturity
in excess of three years from the date of purchase by the Limited Maturity Fund,
the Limited Maturity Fund may acquire a "put" with respect to such debt
securities. Under a "put", the Limited Maturity Fund would have the right to
sell the debt security within a specified period of time at a specified minimum
price. The Limited Maturity Fund will only acquire puts from dealers, banks and
broker-dealers which AmSouth has determined are creditworthy under guidelines
established by the Trust's Board of Trustees. A put will be sold, transferred,
or assigned by the Limited Maturity Fund only with the underlying debt security.
The Limited Maturity Fund will acquire puts solely to shorten the maturity of
the underlying debt security. The aggregate price of a security subject to a put
may be higher than the price which otherwise would be paid for the security
without such an option, thereby increasing the security's cost and reducing its
yield.
THE GOVERNMENT INCOME FUND invests at least 65% of its total assets in
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, although up to 35% of the value of its total assets may be
invested in other types of debt securities, preferred stocks and options.
Consistent with the foregoing, under normal market conditions, the Government
Income Fund will invest up to 80% of the value of its total assets in
mortgage-related securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"), and in mortgage-related
securities issued by nongovernmental entities which are rated, at the time of
purchase, in one of the three highest rating categories by an NRSRO or, if
unrated, which AmSouth deems present attractive opportunities and are of
comparable quality. For a description of the rating symbols of each NRSRO, see
the Appendix to the Statement of Additional Information.
THE BOND FUND AND THE LIMITED
MATURITY FUND
The Bond and Limited Maturity Funds may also invest in master demand notes in
order to satisfy short-term needs or, if warranted, as part of their temporary
defensive investment strategy. Such notes are demand obligations that permit the
investment of fluctuating amounts at varying market rates of interest pursuant
to arrangements between the issuer and a United States commercial bank acting as
agent for the payees of such notes. Master demand notes are callable on demand
by an Income Fund, but are not marketable to third parties. Master demand notes
are direct lending arrangements between an Income Fund and the issuer of
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such notes. The quality of master demand notes will be reviewed by the
investment advisor of the Income Funds at least quarterly, which review will
consider the earning power, cash flow and debt-to-equity ratios indicating the
borrower's ability to pay principal together with accrued interest on demand.
While master demand notes are not typically rated by credit rating agencies,
issuers of such notes must satisfy the same criteria for the Bond Fund and the
Limited Maturity Fund set forth above for commercial paper.
The Bond Fund and the Limited Maturity Fund may acquire rated and unrated
variable and floating rate notes. Variable and floating rate notes are
frequently not rated by credit rating agencies; however, unrated variable and
floating rate notes purchased by an Income Fund will be determined by the
Trust's investment advisor under guidelines established by the Trust's Board of
Trustees to be of comparable quality at the time of purchase to rated
instruments eligible for purchase under the Fund's investment policies. There
may be no active secondary market with respect to a particular variable or
floating rate note. Nevertheless, the periodic readjustments of their interest
rates tend to assure that their value to an Income Fund will approximate their
par value.
It is anticipated that the only non-income producing securities to be held in
the Bond Fund and Limited Maturity Fund will be zero-coupon obligations
evidencing ownership of future interest and principal payments on United States
Treasury Bonds. Such zero-coupon obligations pay no current interest and are
typically sold at prices greatly discounted from par value, with par value to be
paid to the holder at maturity. The return on a zero-coupon obligation, when
held to maturity, equals the difference between the par value and the original
purchase price. Zero-coupon obligations have greater price volatility than
coupon obligations and such obligations will be purchased when the yield spread,
in light of the obligation's duration, is considered advantageous. The Bond Fund
will only purchase zero-coupon obligations if, at the time of purchase, such
investments do not exceed 15% of the value of the Bond Fund's total assets, and
the Limited Maturity Fund will only purchase zero-coupon obligations if, at the
time of purchase, such investments do not exceed 25% of the value of the Limited
Maturity Fund's total assets.
An increase in interest rates will generally reduce the value of the
investments in the Income Funds and a decline in interest rates will generally
increase the value of those investments. Depending upon prevailing market
conditions, AmSouth may purchase debt securities at a discount from face value,
which produces a yield greater than the coupon rate. Conversely, if debt
securities are purchased at a premium over face value, the yield will be lower
than the coupon rate. In making investment decisions, AmSouth will consider many
factors other than current yield, including the preservation of capital,
maturity, and yield to maturity.
FOREIGN INVESTMENTS
The Bond Fund may invest up to 20% of the value of its total assets and the
Limited Maturity Fund may invest up to 30% of its total assets in debt
securities of foreign issuers. Any investments by the Bond Fund and Limited
Maturity Fund in these securities will be in accordance with such Fund's
investment policies and restrictions. The Bond Fund and the Limited Maturity
Fund may also invest in securities issued by foreign branches of U.S. banks and
foreign banks and in Canadian Commercial Paper and Europaper. Investment in
securities of foreign issuers is subject to special risks, such as future
adverse political and economic developments, possible seizure, currency
blockage, nationalization or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, or the adoption of other foreign
governmental restrictions. Additional risks include currency exchange risks,
less publicly available information, the risk that companies may not be subject
to the accounting, auditing and financial reporting standards and requirements
of U.S. companies, the risk that foreign securities markets may have less volume
and therefore less liquidity and greater price volatility than U.S. securities,
and the
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risk that custodian and brokerage costs may be higher. To the extent that the
Income Funds may invest in securities of foreign issuers which are not traded on
any exchange, there is a further risk that these securities may not be readily
marketable. The Income Funds will not hold foreign currency as a result of such
investments.
THE GOVERNMENT INCOME FUND
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. Government obligations, including mortgage-related
securities, invested in by the Government Income Fund includes obligations
issued or guaranteed as to payment of principal and interest by the full faith
and credit of the U.S. Treasury, such as Treasury bills, notes, bonds and
certificates of indebtedness, and obligations issued or guaranteed by the
agencies or instrumentalities of the U.S. Government, but not supported by such
full faith and credit. Obligations of the U.S. Treasury include "stripped" U.S.
Treasury Obligations such as Treasury Receipts, representing either future
interest or principal payments. Stripped securities are issued at a discount to
their "face value" and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors.
Obligations of certain agencies and instrumentalities of the U.S. Government,
such as GNMA and the Export-Import Bank of the United States, are supported by
the full faith and credit of the U.S. Treasury; others, such as those of FNMA,
are supported by the right of the issuer to borrow from the Treasury; others are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; still others, such as those of the Federal Farm Credit
Banks or FHLMC, are supported only by the credit of the instrumentality. No
assurance can be given that the U.S. Government would provide financial support
to U.S. Government-sponsored agencies or instrumentalities if it is not
obligated to do so by law.
The principal governmental (i.e., backed by the full faith and credit of the
United States Government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned United States Government corporation within the Department of
Housing and Urban Development. GNMA is authorized to guarantee, with the full
faith and credit of the U.S. Government, the timely payment of principal and
interest on securities issued by institutions approved by GNMA (such as savings
and loan institutions, commercial banks and mortgage bankers) and backed by
pools of FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of the
United States Government) guarantors include FNMA and FHLMC. FNMA and FHLMC are
government-sponsored corporations owned entirely by private stockholders. Pass-
through securities issued by FNMA and FHLMC are guaranteed as to timely payment
of principal and interest by FNMA and FHLMC but are not backed by the full faith
and credit of the U.S. Government.
MORTGAGE-RELATED SECURITIES -- IN GENERAL
Mortgage-related securities have mortgage obligations backing such securities,
including among others, conventional thirty year fixed rate mortgage
obligations, graduated payment mortgage obligations, fifteen year mortgage
obligations, and adjustable rate mortgage obligations. All of these mortgage
obligations can be used to create pass-through securities. A pass-through
security is created when mortgage obligations are pooled together and undivided
interests in the pool or pools are sold. The cash flow from the mortgage
obligations is passed through to the holders of the securities in the form of
periodic payments of interest, principal and prepayments (net of a service fee).
Prepayments occur when the holder of an individual mortgage obligation prepays
the remaining principal before the mortgage obligation's scheduled maturity
date. As a result of the pass-through of prepayments of principal on the
underlying securities, mortgage-backed securities are often subject to more
rapid prepayment of principal than their stated maturity would indicate. Because
the prepayment characteristics of the underlying mortgage obligations vary, it
is not possible to predict accurately the realized yield or
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average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield and price of the
securities. Accelerated prepayments have an adverse impact on yields for
pass-throughs purchased at a premium (i.e., a price in excess of principal
amount) and may involve additional risk of loss of principal because the premium
may not have been fully amortized at the time the obligation is repaid. The
opposite is true for pass-throughs purchased at a discount. The Government
Income Fund may purchase mortgage-related securities at a premium or at a
discount.
MORTGAGE-RELATED SECURITIES ISSUED BY
NONGOVERNMENTAL ENTITIES
The Government Income Fund may invest in mortgage-related securities issued by
nongovernmental entities. Commercial banks, savings and loan institutions,
private mortgage insurance companies, mortgage bankers and other secondary
market issues also create pass-through pools of conventional residential
mortgage loans. Such issuers may also be the originators of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such nongovernmental issuers generally offer a higher rate of
interest than government and government-related pools because there are not
direct or indirect government guarantees of payments in the former pools.
However, timely payment of interest and principal of these pools is supported by
various forms of insurance or guarantees, including individual loan, title, pool
and hazard insurance. The insurance and guarantees are issued by government
entities, private insurers and the mortgage poolers. Such insurance and
guarantees and the creditworthiness of the issuers thereof will be considered in
determining whether a mortgage-related security meets the Government Income
Fund's investment quality standards. There can be no assurance that the private
insurers can meet their obligations under the policies. The Government Income
Fund may buy mortgage-related securities without insurance or guarantees if
through an examination of the loan experience and practices of the poolers
AmSouth determines that the securities meet the Government Income Fund's quality
standards. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable. The Government Income Fund will not purchase mortgage-related
securities or any other assets which in AmSouth's opinion are illiquid, if as a
result, more than 15% of the value of the Government Income Fund's net assets
will be illiquid.
COLLATERALIZED MORTGAGE OBLIGATIONS
Mortgage-related securities in which the Government Income Fund may invest may
also include collateralized mortgage obligations ("CMOs"). CMOs are debt
obligations issued generally by finance subsidiaries or trusts that are secured
by mortgage-backed certificates, including, in many cases, certificates issued
by government-related guarantors, including GNMA, FNMA and FHLMC, together with
certain funds and other collateral. Although payment of the principal of and
interest on the mortgage-backed certificates pledged to secure the CMOs may be
guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the
issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other
governmental agency, or by any other person or entity. The issuers of the CMOs
typically have no significant assets other than those pledged as collateral for
the obligations. The staff of the Securities and Exchange Commission has
determined that certain issuers of CMOs are investment companies for purposes of
the Investment Company Act of 1940, as amended (the "1940 Act").
CMOs may include Stripped Mortgage Securities. Such securities are derivative
multiclass mortgage securities issued by agencies or instrumentalities of the
U.S. Government, or by private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose subsidiaries of the foregoing. Stripped
Mortgage Securities are usually structured with two classes that receive
different proportions of the interest and principal distributions on a pool of
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mortgage assets. A common type of Stripped Mortgage Security will have one class
receiving all of the interest from the mortgage assets (the interest-only or
"IO" class), while the other class will receive all of the principal (the
principal-only or "PO" class). The yield to maturity on an IO class is extremely
sensitive to the rate of principal payments (including prepayments) on the
related underlying mortgage assets, and a rapid rate of principal payments may
have a material adverse effect on the securities' yield to maturity. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Fund may fail to fully recoup its initial investment in these
securities even if the security is rated AAA or Aaa.
Although Stripped Mortgage Securities are purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers,
these securities were only recently developed. As a result, established trading
markets have not fully developed. The Stripped Mortgage Securities held by the
Fund will be considered liquid securities only under guidelines established by
the Trust's Board of Trustees, and the Fund will not purchase a Stripped
Mortgage Security that is illiquid if, as a result thereof, more than 15% of the
value of the Fund's net assets would be invested in such securities and other
illiquid securities.
In reliance on a recent staff interpretation, the Government Income Fund's
investment in certain qualifying CMOs, including CMOs that have elected to be
treated as Real Estate Mortgage Investment Conduits (REMICs), are not subject to
the 1940 Act's limitation on acquiring interests in other investment companies.
In order to be able to rely on the staff's interpretation, the CMOs and REMICs
must be unmanaged, fixed-asset issuers, that (a) invest primarily in
mortgaged-backed securities, (b) do not issue redeemable securities, (c) operate
under general exemptive orders exempting them from all provisions of the 1940
Act, and (d) are not registered or regulated under the 1940 Act as investment
companies. To the extent that the Government Income Fund selects CMOs or REMICs
that do not meet the above requirements, the Government Income Fund's investment
in such securities will be subject to the limitations on its investment in
investment company securities as set forth under "INVESTMENT OBJECTIVES AND
POLICIES -- Investment Restrictions" in the Statement of Additional Information.
The Government Income Fund expects that governmental, government-related or
private entities may create mortgage loan pools offering pass-through
investments in addition to those described above. The mortgages underlying these
securities may be alternative mortgage instruments, that is, mortgage
instruments whose principal or interest payments may vary or whose terms to
maturity may be different from customary long-term fixed rate mortgages. As new
types of mortgage-related securities are developed and offered to investors,
AmSouth will, consistent with the Government Income Fund's investment objective,
policies and quality standards, consider making investments in such new types of
securities.
OTHER SECURITIES
The Government Income Fund may hold some short-term obligations (with
maturities of 12 months or less) consisting of domestic and foreign commercial
paper (including variable amount master demand notes), bankers' acceptances,
certificates of deposit and time deposits of domestic and foreign branches of
U.S. banks and foreign banks, and repurchase and reverse repurchase agreements.
The Government Income Fund may also invest in corporate debt securities that are
rated at the time of purchase in one of the three highest rating categories by
an NRSRO or, if not rated, found by the investment advisor under guidelines
established by the Trust's Board of Trustees to be of comparable quality.
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INVESTMENT TECHNIQUES
Each Income Fund may invest up to 5% of the value of its total assets in the
securities of any one money market mutual fund (including Shares of the AmSouth
Prime Obligations Fund and the AmSouth U.S. Treasury Fund), provided that no
more than 10% of an Income Fund's total assets may be invested in the securities
of money market mutual funds in the aggregate. In order to avoid the imposition
of additional fees as a result of investments by the Income Funds in Shares of
the AmSouth Prime Obligations Fund and the AmSouth U.S. Treasury Fund, the
Investment Advisor and the Administrator (see "MANAGEMENT OF AMSOUTH MUTUAL
FUNDS" -- "Investment Advisor" and "Administrator and Distributor") will not
retain the portion of their usual service fees from the Income Funds that are
attributable to investments by an Income Fund in Shares of those Funds up to the
rate paid in those Funds. The Investment Advisor and the Administrator will
promptly forward such fees to the Income Funds. Each Income Fund will incur
additional expenses due to the duplication of expenses as a result of investing
in securities of other unaffiliated money market mutual funds. Additional
restrictions regarding the Income Funds' investments in the securities of an
unaffiliated money market fund and/or the AmSouth Prime Obligations Fund and the
AmSouth U.S. Treasury Fund are contained in the Statement of Additional
Information.
OPTIONS
The Income Funds may engage in writing call options from time to time as
AmSouth deems to be appropriate. Options are written solely as covered call
options (options on securities owned by the Fund). Such options must be listed
on a national securities exchange and issued by the Options Clearing
Corporation. In order to close out an option position, the Income Fund will
enter into a "closing purchase transaction" -- the purchase of a call option on
the same security with the same exercise price and expiration date as any call
option which it may previously have written on any particular securities. When
the portfolio security is sold, the Income Fund effects a closing purchase
transactions so as to close out any existing call option on that security. If
the Fund is unable to effect a closing purchase transactions so as to close out
any existing call option on that security. If the Fund is unable to effect a
closing purchase transaction, it will not be able to sell the underlying
security until the option expires or the Fund delivers the underlying security
upon exercise. When writing a covered call option, the Fund, in return for the
premium, gives up the opportunity for profit from a price increase in the
underlying security above the exercise price, but retains the risk of loss
should the price of the security decline.
From time to time, the Bond Fund and the Limited Maturity Fund may also
purchase call options on any of the types of securities in which each Fund may
invest. A purchased call option gives a Fund the right to buy and obligates the
seller to sell the underlying security at a specified exercise price during the
option period. Purchasing call options is a specialized investment technique
that entails a substantial risk of a complete loss of the amounts paid as
premiums to writers of options.
From time to time, the Bond Fund may purchase put options. A put is a right to
sell a specified security (or securities) within a specified period of time at a
specified exercise price. Puts may be acquired by the Fund to facilitate the
liquidity of the portfolio assets. Puts may also be used to facilitate the
reinvestment of assets at a rate of return more favorable than that of the
underlying security. The Bond Fund may sell, transfer, or assign a put only in
conjunction with the sale, transfer or assignment of the underlying security or
securities.
The amount payable to the Bond Fund upon its exercise of a "put" is normally
(i) the Fund's acquisition cost of the securities subject to the put (excluding
any accrued interest which the Fund paid on the acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the
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securities, plus (ii) all interest accrued on the securities which are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities).
The Bond Fund intends to enter into puts only with dealers, banks, and
broker-dealers which, in AmSouth's opinion, present minimal credit risks.
WHEN-ISSUED SECURITIES
Each Income Fund may also purchase securities on a "when-issued" basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than that available in the market
when delivery takes place. The Income Funds will generally not pay for such
securities or start earning interest on them until they are received. When an
Income Fund agrees to purchase securities on a "when-issued" basis, the Trust's
custodian will set aside cash or liquid Fund securities equal to the amount of
the commitment in a segregated account. Securities purchased on a "when-issued"
basis are recorded as an asset and are subject to changes in value based upon
changes in the general level of interest rates. Each of the Income Funds expects
that commitments to purchase "when-issued" securities will not exceed 25% of the
value of its total assets under normal market conditions, and that a commitment
to purchase "when-issued" securities will not exceed 60 days. In the event that
its commitment to purchase "when-issued" securities ever exceeded 25% of the
value of its total assets, an Income Fund's liquidity and the investment
advisor's ability to manage it might be adversely affected. The Income Funds do
not intend to purchase "when-issued" securities for speculation purposes, but
only for the purpose of acquiring portfolio securities.
FUTURES CONTRACTS
The Government Income Fund may (i) enter into contracts for the future
delivery of securities and futures contracts based on a specific security, class
of securities or an index, (ii) purchase or sell options on any such futures
contracts, and (iii) engage in related closing transactions. A futures contract
on a securities index is an agreement obligating either party to pay, and
entitling the other party to receive, while the contract is outstanding, cash
payments based on the level of a specified securities index.
The Government Income Fund may engage in such futures contracts in an effort
to hedge against market risks. For example, when interest rates are expected to
rise or market values of portfolio securities are expected to fall, the
Government Income Fund can seek through the sale of futures contracts to offset
a decline in the value of its portfolio securities. When interest rates are
expected to fall or market values are expected to rise, the Government Income
Fund, through the purchase of such contracts, can attempt to secure better rates
or prices for the Government Income Fund than might later be available in the
market when it effects anticipated purchases.
The acquisition of put and call options on futures contracts will,
respectively, give the Government Income Fund the right (but not the
obligations), for a specified price, to sell or to purchase the underlying
futures contract, upon exercise of the option, at any time during the option
period.
Aggregate initial margin deposits for futures contracts, and premiums paid for
related options, may not exceed five percent of the Government Income Fund's
total assets, and the value of securities that are the subject of such futures
and options (both for receipt and delivery) may not exceed one-third of the
market value of the Government Income Fund's total assets. Futures transactions
will be limited to the extent necessary to maintain the Government Income Fund's
qualification as a regulated investment company.
Futures transactions involve brokerage costs and require the Government Income
Fund to segregate assets to cover contracts that would require it to purchase
securities. The Government Income Fund may lose the expected benefit of futures
transactions if interest rates or securities prices move in an unanticipated
manner. Such unanticipated changes
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may also result in poorer overall performance than if the Government Income Fund
had not entered into any futures transactions. In addition, the value of the
Government Income Fund's futures positions may not prove to be perfectly or even
highly correlated with the value of its portfolio securities, limiting the
Government Income Fund's ability to hedge effectively against interest rate
and/or market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
For further information about the characteristics, risks and possible benefits
of futures, see "INVESTMENT OBJECTIVE AND POLICIES -- Additional Information on
Portfolio Instruments" in the Statement of Additional Information.
REPURCHASE AGREEMENTS
Securities held by the Income Funds may be subject to repurchase agreements.
If the seller under a repurchase agreement were to default on its repurchase
obligation or become insolvent, the Income Fund would suffer a loss to the
extent that the proceeds from a sale of the underlying portfolio securities were
less than the repurchase price under the agreement, or to the extent that the
disposition of such securities by the Income Fund were delayed pending court
action. Additionally, if the seller should be involved in bankruptcy or
insolvency proceedings, the Income Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Income
Fund is treated as an unsecured creditor and required to return the underlying
security to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
Each Income Fund may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, an Income Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers,
and agree to repurchase them at a mutually agreed-upon date and price. Reverse
purchase agreements involve the risk that the market value of the securities
sold by an Income Fund may decline below the price at which the Fund is
obligated to repurchase the securities.
INSURANCE COMPANY FUNDING AGREEMENTS
The Bond Fund and the Limited Maturity Fund may invest in funding agreements
("Funding Agreements") issued by insurance companies. Pursuant to such
agreements, the Bond Fund and Limited Maturity Fund invests an amount of cash
with an insurance company and the insurance company credits such investment on a
monthly basis with guaranteed interest which is based on an index. The Funding
Agreements provide that this guaranteed interest will not be less than a certain
minimum rate. The Bond Fund and the Limited Maturity Fund will only purchase a
Funding Agreement when AmSouth has determined, under guidelines established by
the Board of Trustees, that the Funding Agreement presents minimal credit risks
to the Fund and is of comparable quality to instruments that are rated high
quality by a nationally recognized statistical rating organization that is not
an affiliated person, as defined in the Investment Company Act of 1940, of the
issuer, on any insurer, guarantor, provider of credit support for the
instrument. The Bond Fund and the Limited Maturity Fund may receive all
principal of and accrued interest on a Funding Agreement at any time upon thirty
days' written notice. Because the Bond Fund and the Limited Maturity Fund may
not receive the principal amount of a Funding Agreement from the insurance
company on seven days' notice or less, the Funding Agreement is considered an
illiquid investment, and, together with other instruments in such Fund which are
not readily marketable, will not exceed 15% of such Fund's net assets.
ASSET-BACKED SECURITIES
The Bond Fund and the Limited Maturity Fund may invest in securities backed by
automobile receivables and credit-card receivables and other securities backed
by other types of receivables.
Offerings of Certificates for Automobile Receivables ("CARS") are structured
either as flow-
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through grantor trusts or as pay-through notes. CARS structured as flow-through
instruments represent ownership interests in a fixed pool of receivables. CARS
structured as paythrough notes are debt instruments supported by the cash flows
from the underlying assets. CARS may also be structured as securities with fixed
payment schedules which are generally issued in multiple-classes. Cash-flow from
the underlying receivables is directed first to paying interest and then to
retiring principal via paying down the two respective classes of notes
sequentially. Cash-flows on fixed-payment CARS are certain, while cash-flows on
other types of CARS issues depends on the prepayment rate of the underlying
automobile loans. Prepayments of automobile loans are triggered mainly by
automobile sales and trade-ins. Many people buy new cars every two or three
years, leading to rising prepayment rates as a pool becomes more seasoned.
Certificates for Amortizing Revolving Debt ("CARDS") represent participation
in a fixed pool of credit card accounts. CARDS pay "interest only" for a
specified period, typically 18 months. The CARD'S principal balance remains
constant during this period, while any cardholder repayments or new borrowings
flow to the issuer's participation. Once the principal amortization phase
begins, the balance declines with paydowns on the underlying portfolio. CARDS
have monthly payment schedules, weighted-average lives of 18-24 months and
stated final maturities ranging from 3 to 5 years. Cash flows on CARDS are
certain during the interest-only period. After this initial interest-only
period, the cash flow will depend on how fast cardholders repay their
borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments on
CARDS depend specifically on the method for allocating cardholder repayments to
investors. In many cases, the investor's participation is based on the ratio of
the CARDS' balance to the total credit card portfolio balance. This ratio can be
adjusted monthly or can be based on the balances at the beginning of the
amortization period. In some issues, investors are allocated most of the
repayments, regardless of the CARDS' balance. This method results in especially
fast amortization.
Credit support for asset-backed securities may be based on the underlying
assets or provided by a third party. Credit enhancement techniques include
letters of credit, insurance bonds, limited guarantees (which are generally
provided by the issuer), senior-subordinated structures and over
collateralization. The Bond Fund and the Limited Maturity Fund will only
purchase an asset-backed security if it is rated at the time of purchase in one
of the three highest rating categories by an NRSRO or, if unrated, found by the
investment advisor under guidelines established by the Trust's Board of Trustees
to be of comparable quality.
OTHER INVESTMENT PRACTICES
In order to generate additional income, each Income Fund may, from time to
time, lend its securities to broker-dealers, banks or institutional borrowers of
securities which are not affiliated directly or indirectly with the Trust. While
the lending of securities may subject the Funds to certain risks, such as delays
or an inability to regain the securities in the event the borrower were to
default on its lending agreement or enter into bankruptcy, each Fund will
receive 100% collateral in the form of cash or U.S. Government securities. This
collateral will be valued daily by AmSouth and should the market value of the
loaned securities increase, the borrower will furnish additional collateral to
each Fund. During the time securities of the Funds are on loan, the borrower
pays the Fund any dividends or interest paid on such securities. Loans are
subject to termination by the Funds or the borrower at any time. While the Funds
do not have the right to vote securities on loan, each Fund intends to terminate
the loan and regain the right to vote if that is considered important with
respect to the investment. The Funds will only enter into loan arrangements with
broker-dealers, banks or other institutions which AmSouth has determined are
creditworthy under guidelines established by the Trust's Board of Trustees.
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The Government Income Fund may engage in the technique of short-term trading.
Such trading involves the selling of securities held for a short time, ranging
from several months to less than a day. The object of such short-term trading is
to increase the potential for capital appreciation and/or income of the
Government Income Fund in order to take advantage of what AmSouth believes are
changes in market, industry or individual company conditions or outlook. Any
such trading would increase the turnover rate of the Government Income Fund and
its transaction costs. The Bond Fund and Limited Maturity Funds will not
purchase securities solely for the purpose of short-term trading.
INVESTMENT RESTRICTIONS
Each of the Income Funds is subject to a number of investment restrictions
that may be changed only by a vote of a majority of the outstanding Shares of
that Fund. See "GENERAL INFORMATION -- Miscellaneous" in this prospectus.
The Income Funds may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of such Income Fund's
total assets would be invested in such issuer, or such Income Fund would hold
more than 10% of any class of securities of the issuer or more than 10% of the
outstanding voting securities of the issuer, except that up to 25% of the value
of each Income Fund's total assets may be invested without regard to such
limitations. There is no limit to the percentage of assets that may be invested
in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities.
2. Purchase any securities which would cause more than 25% of the value of
such Income Fund's total assets at the time of purchase to be invested in
securities of one or more issuers conducting their principal business activities
in the same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) for the Bond Fund and the
Limited Maturity Fund, there is no limitation with respect to Municipal
Securities, which, for purposes of this limitation only, do not include private
activity bonds that are backed only by the assets and revenues of a
non-governmental user; (c) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily related
to financing the activities of their parents; and (d) utilities will be divided
according to their services. For example, gas, gas transmission, electric and
gas, electric, and telephone will each be considered a separate industry.
3. Borrow money or issue senior securities, except that each Income Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
emergency purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing; or mortgage, pledge, or hypothecate any assets, except
in connection with any such borrowing and in amounts not in excess of the lesser
of the dollar amounts borrowed or 10% of the value of such Fund's total assets
at the time of its borrowing. An Income Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
4. Make loans, except that each Income Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, may lend
Fund securities in accordance with its investment objective and policies, and
may enter into repurchase agreements.
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<PAGE> 22
VALUATION OF SHARES
The net asset value of each Income Fund is determined and its Shares are
priced as of 4:00 p.m., Eastern Time (the "Valuation Time") on each Business Day
of such Fund. As used herein a "Business Day" constitutes any day on which the
New York Stock Exchange (the "NYSE") is open for trading and the Federal Reserve
Bank of Atlanta is open, except days on which there are not sufficient changes
in the value of the Fund's portfolio securities that the Fund's net asset value
might be materially affected, or days during which no Shares are tendered for
redemption and no orders to purchase Shares are received. Currently, either the
NYSE or the Federal Reserve Bank of Atlanta is closed on the customary national
business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents'
Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veteran's Day, Thanksgiving Day and Christmas Day. Net asset value per Share for
purposes of pricing sales and redemptions is calculated by dividing the value of
all securities and other assets belonging to an Income Fund, less the
liabilities charged to that Fund, by the number of the outstanding Shares of
that Fund. The net asset value per Share of each Income Fund will fluctuate as
the value of its investment portfolio changes.
The securities in each Income Fund will be valued at market value. If market
quotations are not available, the securities will be valued by a method which
the Board of Trustees of the Trust believes accurately reflects fair value. For
further information about valuation of investments in the Income Funds, see the
Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each Income Fund are sold on a continuous basis by the Trust's
distributor, BISYS Fund Services (the "Distributor"). The principal office of
the Distributor is 3435 Stelzer Road, Columbus, Ohio 43219. If you wish to
purchase Shares, contact the Trust at (800) 451-8382.
PURCHASES OF SHARES
Shares of the Income Funds may be purchased through procedures established by
the Distributor in connection with requirements of qualified accounts maintained
by or on behalf of certain persons ("Customers") by AmSouth or its correspondent
or affiliated banks (collectively, the "Banks"). These procedures may include
instructions under which a Customer's account is "swept" automatically no less
frequently than weekly and amounts in excess of a minimum amount agreed upon by
a Bank and its Customer are invested by the Distributor in Shares of the Income
Funds. These procedures may also include transactions whereby AmSouth as agent
purchases Shares of the Income Funds in amounts that correspond to the market
value of securities sold to the Income Funds by AmSouth as agent.
Shares of the Trust sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares so sold, it is the
responsibility of the particular Bank to transmit purchase or redemption orders
to the Distributor and to deliver federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.
Investors may also purchase Shares of an Income Fund by completing and signing
an Account Registration Form and mailing it, together with a check (or other
negotiable bank draft or money order) in at least the minimum initial purchase
amount, payable to the Trust in care of AmSouth Mutual Funds, Department L1304,
Columbus, Ohio
16
<PAGE> 23
43260-1304. Subsequent purchases of Shares of an Income Fund may be made at any
time by mailing a check (or other negotiable bank draft or money order) payable
to the Trust, to the above address.
If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Shares of an Income Fund either by
telephone or by wiring funds to the Trust's custodian. Telephone orders may be
placed by calling the Trust at (800) 451-8382. Payment for Shares ordered by
telephone may be made by check and must be received by the Trust's custodian
within seven days of the telephone order. If payment is not received within
seven days or a check timely received does not clear, the purchase will be
cancelled and the investor could be liable for any losses or fees incurred. In
the case of purchase of Shares effected by wiring funds to the Trust's
custodian, investors must call the Trust at (800) 451-8382 to obtain
instructions regarding the bank account number into which the funds should be
wired and other pertinent information.
Investors may also purchase Shares by arranging systematic monthly, bi-monthly
or quarterly investments into the Funds with the Trust's Automatic Investment
Plan ("AIP"). The minimum investment amounts are $50 per transfer and the
maximum amount with respect to any transfer is $100,000. After investors give
the Trust proper authorization, their bank accounts, which must be with banks
that are members of the Automated Clearing House, will be debited accordingly to
purchase Shares. Investors will receive a confirmation from the Trust for every
transaction, and a withdrawal will appear on their bank statements.
To participate in AIP, investors must complete the appropriate sections of the
Account Registration form or call for instructions. This form may be obtained by
calling the Trust at (800) 451-8382. The amount investors specify will
automatically be invested in Shares at the specified Fund's public offering
price per Share next determined after the debit is made.
To change the frequency or amount invested, written instructions must be
received by the Trust at least seven Business Days in advance of the next
transfer. If the bank or bank account number is changed, instructions must be
received by the Trust at least 20 Business Days in advance. In order to change a
bank or bank account number, investors also must have their signature guaranteed
by a bank, broker, dealer, credit union, securities exchange, securities
association, clearing agency or savings association, as those terms are defined
in Rule 17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible
Guarantor Institution"). Signature guarantees are described more fully under
"REDEMPTION BY MAIL" below. If there are insufficient funds in the investor's
designated bank account to cover the Shares purchased using AIP, the investor's
bank may charge the investor a fee or may refuse to honor the transfer
instruction (in which case no Fund Shares will be purchased).
Investors should check with their banks to determine whether they are members
of the Automated Clearing House and whether their banks charge a fee for
transferring funds through the Automated Clearing House. Expenses incurred by
the Funds related to AIP are borne by the Funds and therefore there is no direct
charge by the Funds to investors for use of these services.
Shares of each Income Fund are purchased at the public offering price per
Share, which is the net asset value per Share (see "VALUATION OF SHARES") next
determined after receipt by the Distributor of an order in good form to purchase
Shares plus the applicable sales charge as described below. Purchases of Shares
of an Income Fund will be effected only on a Business Day (as defined in
"VALUATION OF SHARES") of such Fund. An order received prior to the Valuation
Time on any Business Day will be executed based on the net asset value
determined as of the Valuation Time on the date of receipt. An order received
after the Valuation Time on any Business Day will be executed based on the net
asset value determined as of the next Business Day.
The minimum investment is $1,000 for the initial purchase of Shares of an
Income Fund by an investor. There is no minimum investment for sub-
17
<PAGE> 24
sequent purchases; however, as described above, the minimum subsequent
investment when using AIP is $50 per transfer. The minimum initial investment
amount may be waived if purchases are made in connection with Individual
Retirement Accounts, Keogh plans or similar plans. For information on IRAs or
Keogh or similar plans, contact AmSouth at (800) 444-4727.
Depending upon the terms of a particular Customer account, the Banks may
charge a Customer's account fees for automatic investment and other cash
management services provided in connection with investment in an Income Fund.
Information concerning these services and any charges can be obtained from the
Banks. This Prospectus should be read in conjunction with any such information
received from the Banks.
The Trust reserves the right to reject any order for the purchase of its
Shares in whole or in part, including purchases made with foreign and third
party drafts or checks.
Every Shareholder will receive a confirmation of each new transaction in his
or her account, which will also show the total number of Shares of the
particular Fund owned by the Shareholder. Reports of purchases and redemptions
of Shares by Banks on behalf of their Customers will be sent by the Banks to
their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
SALES CHARGE
The public offering price of a share of an Income Fund equals its net asset
value plus a sales charge. The Winsbury Company receives this sales charge as
Distributor and will re-allow a portion of it as dealer discounts and brokerage
commissions. However, Winsbury, at its sole discretion, may pay certain dealers
all or part of the portion of the sales charge it receives. A broker or dealer
who receives a reallowance in excess of 90% of the sales charge may be deemed to
be an "underwriter" for purposes of the Securities Act of 1933.
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS ALLOWANCE
A PERCENTAGE OF SALES CHARGE AS AS A PERCENTAGE
NET AMOUNT A PERCENTAGE OF OF OFFERING
AMOUNT OF PURCHASE INVESTED OFFERING PRICE PRICE
- ---------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Less than $100,000............................ 3.09% 3.00% 2.70%
$100,000 but less than $250,000............... 2.04% 2.00% 1.80%
$250,000 but less than $1,000,000............. 1.01% 1.00% .90%
$1,000,000 or more............................ -0- -0- -0-
</TABLE>
From time to time dealers who receive dealer discounts and broker commissions
from the Distributor may reallow all or a portion of such dealer discounts and
broker commissions to other dealers or brokers. The Distributor, at its expense,
will also provide additional compensation to dealers in connection with sales of
Shares of any of the Funds. Such compensation will include financial assistance
to dealers in connection with conferences, sales or training programs for their
employees, seminars for the public, advertising campaigns regarding one or more
Funds of the Trust, and/or other dealer-sponsored special events. In some
instances, this compensation will be made available only to certain dealers
whose representatives have sold a significant amount of such Shares.
Compensation will include payment for travel expenses, including lodging,
incurred in connection with trips taken by invited registered representatives
and members of their families to locations within or outside of the United
States for meetings or seminars of a business nature. Compensation will also
include the following types of non-cash compensation offered through sales
contests: (1) vacation trips, including the provision of travel arrangements and
lodging at luxury resorts at an exotic location, (2) tickets for entertainment
18
<PAGE> 25
events (such as concerts, cruises and sporting events) and (3) merchandise (such
as clothing, trophies, clocks and pens). Dealers may not use sales of a Fund's
Shares to qualify for this compensation to the extent such may be prohibited by
the laws of any state or any self-regulatory agency, such as the National
Association of Securities Dealers, Inc. None of the aforementioned compensation
is paid for by any Fund or its Shareholders.
The sales charges set forth in the table above are applicable to purchases
made at one time by any purchaser (a "Purchaser"), which includes: (i) an
individual, his or her spouse and children under the age of 21; (ii) a trustee
or other fiduciary of a single trust estate or single fiduciary account; or
(iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some purpose other than the purchase of redeemable securities of a
registered investment company. In order to qualify for a lower sales charge, all
orders from a Purchaser will have to be placed through a single investment
dealer and identified at the time of purchase as originating from the same
Purchaser, although such orders may be placed into more than one discrete
account which identifies the Purchasers.
SALES CHARGE WAIVERS
The following classes of investors may purchase Shares of an Income Fund with
no sales charge in the manner described below (which may be changed or
eliminated at any time by the Distributor):
(1) Existing Shareholders of an Income Fund upon the reinvestment of dividend
and capital gain distributions;
(2) Officers, trustees, directors, employees and retired employees of the
Trust, AmSouth Bancorporation and its affiliates, and BISYS Fund Services and
its affiliates (and spouses and children of each of the foregoing);
(3) Investors for whom AmSouth Bancorporation or one of its affiliates acts in
a fiduciary, advisory, custodial (non-retirement account), agency or similar
capacity; and
(4) Investors who purchase Shares of an Income Fund through a payroll
deduction plan, a 401(k) plan, or a 403(b) plan which by its terms permits
purchases of Shares.
(5) Employees (and their spouses and children under the age of 21) of any
broker-dealer with which the Distributor enters into a dealer agreement to sell
shares of the Funds.
(6) Orders placed on behalf of other investment companies distributed by the
Distributor and its affiliated companies.
(7) Investors who purchase Shares of an Income Fund through certain
broker-dealers, registered investment advisors and other financial institutions
that have entered into an agreement with the Distributor which includes a
requirement that such shares be sold for the benefit of clients participating in
a "wrap account," asset allocation or a similar program under which such clients
pay a fee to such broker-dealer, registered investment advisor or other
financial institution.
From time to time, for special promotional purposes, the Distributor may offer
special concessions to enable investors to purchase shares of a Fund offered by
the Trust at net asset value without payment of a front-end charge. To qualify
for a net asset value purchase, the investor must pay for such purchase with the
proceeds from the redemption of shares of a non-affiliated mutual fund on which
a front-end sales charge was paid. A qualifying purchase of shares must occur
within 30 days of prior redemption and must be evidenced by a confirmation of
the redemption transaction. At the time of purchase, the investment
representative must notify the Distributor that the purchase qualifies for a
purchase at net asset value. Proceeds from the redemption of shares on which no
front-end sales charge was paid do not qualify for a purchase at net asset
value.
19
<PAGE> 26
The Distributor may also periodically waive the sales charge for all investors
with respect to any Income Fund.
LETTER OF INTENT
By checking the Letter of Intent box on the account application, a shareholder
becomes eligible for reduced sales charges applicable to the total amount
invested in shares of an Income Fund in the load fund over a 13-month period
(beginning up to 90 days prior to the date indicated on the account
application). The Trust's Transfer Agent will hold in escrow 5% of the amount
indicated for payment of the higher sales charge if a shareholder does not
purchase the full amount indicated on the account application. Upon completion
of the total minimum investment specified on the account application, the escrow
will be released, and an adjustment will be made to reflect any reduced sales
charge applicable to shares purchased during the 90-day period prior to
submission of the account application. Additionally, if the total purchases
within the 13-month period exceed the amount specified, an adjustment will be
made to reflect further reduced sales charges applicable to such purchases. All
such adjustments will be made at the conclusion of the 13-month period in the
form of additional shares credited to the shareholder's account at the then
current Public Offering Price applicable to a single purchase of the total
amount of the total purchases. If total purchases are less than the amount
specified, escrowed shares may be involuntarily redeemed to pay the additional
sales charge. Checking a Letter of Intent box does not bind an investor to
purchase, or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but an investor must complete the intended
purchase to obtain the reduced sales load.
For further information about Letters of Intent, interested investors should
contact the Trust at (800) 451-8382. This program, however, may be modified or
eliminated at any time or from time to time by the Distributor without notice.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION
A Purchaser may qualify for a reduced sales charge by combining concurrent
purchases of Shares of an Income Fund and one or more of the other Funds of the
Trust sold with a sales charge or by combining a current purchase of Shares of
an Income Fund with prior purchases of Shares of any Fund of the Trust sold
subject to a sales charge. The applicable sales charge is based on the sum of
(i) the Purchaser's current purchase of shares of any Fund sold with a sales
charge plus (ii) the then current net asset value of all Shares held by the
Purchaser in any Fund sold with a sales charge. To receive the applicable public
offering price pursuant to the right of accumulation Shareholders must at the
time of purchase provide the Transfer Agent or the Distributor with sufficient
information to permit confirmation of qualification. Accumulation privileges may
be amended or terminated without notice at any time by the Distributor.
EXCHANGE PRIVILEGE
Shareholders may exchange Shares of an Income Fund for Shares of any other
Fund of the Trust so long as they maintain the respective minimum account
balance in each Fund in which they own Shares. Income Fund Shareholders may
exchange their Shares for Shares of a Fund with the same or lower sales charge
on the basis of the relative net asset value of the Shares exchanged without the
imposition of a sales charge. Income Fund Shareholders may exchange their Shares
for Shares of a Fund with a higher sales charge by paying the difference between
the two sales charges; however, Shareholders of the Limited Maturity Fund who
owned Shares of that Fund as of March 15, 1992 may exchange Shares of that Fund
for Shares of a Fund with a higher sales charge without payment of an additional
sales charge. Shareholders may exchange Shares of a Fund without a sales charge
for Shares of a Fund with a sales charge, by paying the applicable sales charge,
so long as they maintain the respective minimum account balances in each Fund in
which they own Shares. Shares of a Fund without a sales charge that were
acquired through an exchange of Shares of a Fund with respect to which a
20
<PAGE> 27
sales charge was paid may be exchanged for Shares of a Fund with a sales charge
without payment of a sales charge, provided that such an exchange may only be
made once during each calendar year and only upon the written request of a
Shareholder. To receive the applicable public offering price, shareholders must
at the time of purchase provide the Transfer Agent or the Distributor with
sufficient information to permit confirmation of qualification.
An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. In general,
if a shareholder exchanges Income Fund shares for Shares of another Fund without
paying a sales charge, the gain or loss on the exchange of the Income Fund
Shares will be calculated without taking into account the sales charge paid on
the Income Fund Shares if the Income Fund Shares were not held for at least 91
days. The sales charge will instead be added to the basis of the Fund Shares
acquired in the exchange. The application of this rule will increase the gain or
reduce the loss that the Shareholder would otherwise recognize on the exchange
of the Shares of the Income Fund.
Before an exchange can be effected, a Shareholder must receive a current
prospectus of the Fund into which the Shares are exchanged. An exchange may be
made by calling the Trust at (800) 451-8382 or by mailing written instructions
to the Transfer Agent. Exchange privileges may be exercised only in those states
where Shares of such other Funds of the Trust may legally be sold, and may be
amended or terminated at any time upon sixty (60) days' notice.
The Trust's exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Trust and increase transaction costs, the Trust has
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
DIRECTED DIVIDEND OPTION
Shareholders can elect to have dividend distributions (capital gains,
dividends, dividends and capital gains) paid by check or reinvested within the
Fund or reinvested in other AmSouth Mutual Funds of the same shareholder
registration without a sales charge. To participate in the Directed Dividend
Option, a shareholder must maintain a minimum balance of $1,000 in each Fund
into which he or she plans to reinvest dividends.
The Directed Dividend Option may be modified or terminated without notice. In
addition, the Trust may suspend a shareholder's Directed Dividend Option without
notice if the account balance is less than the minimum $1,000. Participation in
the Option may be terminated or changed by the shareholder at anytime by writing
the Distributor. The Directed Dividend Option is not available to participants
in an AmSouth Mutual Funds IRA.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all or
part of a Customer's Shares may be redeemed in accordance with instructions and
limitations pertaining to his or her account at a Bank.
REDEMPTION BY MAIL
A written request for redemption must be received by the Transfer Agent in
order to constitute a valid tender for redemption. The Transfer Agent will
require a signature guarantee by an eligible guarantor institution. For purposes
of this policy, the term "eligible guarantor institution" shall include banks,
brokers, dealers, credit unions, securities exchanges and associations, clearing
agencies and savings associations as those terms are defined in Rule 17Ad-15
under the Securities Exchange Act of 1934. The Transfer Agent reserves the right
to reject any signature guarantee if (1) it has reason to believe that the
signature is not genuine, (2) it has reason to believe that the transaction
would otherwise be improper, or (3) the guarantor institution is a broker or
dealer that is neither a member of a clearing corporation nor maintains net
capital of at
21
<PAGE> 28
least $100,000. The signature guarantee requirement will be waived if the
following conditions apply: (1) the redemption check is payable to the
Shareholder(s) of record; and (2) the redemption check is mailed to the
Shareholder(s) at the address of record or the proceeds are either mailed or
wired to a financial institution account previously designated. There is no
charge for having redemption requests mailed to a designated bank account.
REDEMPTION BY TELEPHONE
A Shareholder may have the payment of redemption requests wired or mailed
directly to a domestic commercial bank account previously designated by the
Shareholder on the Account Registration Form. Under most circumstances, such
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption. Such wire redemption requests may be made by the
Shareholder by telephone to the Transfer Agent. The Transfer Agent may reduce
the amount of a wire redemption payment from the maximum wire redemption charge
of $15.00. Such charge is presently $7.00 for each wire redemption. There is no
charge for having payment of redemption requests mailed or sent via the
Automated Clearing House to a designated bank account. For telephone
redemptions, call the Trust at (800) 451-8382. The Trust will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine;
if these procedures are not followed, the Trust may be liable for any losses due
to unauthorized or fraudulent instructions. These procedures include recording
all phone conversations, sending confirmations to Shareholders within 72 hours
of the telephone transaction, verifying the account name and a shareholder's
account number or tax identification number, and sending redemption proceeds
only to the address of record or to a previously authorized account.
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of Shares in an Income Fund may be more
or less than the amount invested. Payment to Shareholders for Shares redeemed
will be made within seven days after receipt by the Transfer Agent of the
request for redemption. However, to the greatest extent possible, the Trust will
attempt to honor requests from Shareholders for next Business Day payments upon
redemption of Shares if the request for redemption is received by the Transfer
Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the request for
redemption is received after 4:00 p.m., Eastern Time, to honor requests for
payment within two Business Days, unless it would be disadvantageous to the
Trust or the Shareholders of the particular Income Fund to sell or liquidate
portfolio securities in an amount sufficient to satisfy requests for payments in
that manner.
At various times, the Trust may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Trust may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by wire transfer. The Trust intends to pay cash for
all Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Trust may make payment wholly or partly in portfolio securities at
their then current market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Trust
reserves the right to redeem, at net asset value, the Shares of any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder, the
account of such Shareholder in any Income Fund has a value of less than $250.
Accordingly, an investor purchasing Shares of an Income Fund in only the minimum
investment amount may be subject to such involuntary redemption if he or she
thereafter redeems some of his or her Shares. Before the Trust exercises its
right to redeem such Shares and to send the proceeds to the
22
<PAGE> 29
Shareholder, the Shareholder will be given notice that the value of the Shares
in his or her account is less than the minimum amount and will be allowed 60
days to make an additional investment in an amount which will increase the value
of the account to at least $250.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Trust may suspend the right of
redemption or redeem Shares involuntarily if it appears appropriate to do so in
light of the Trust's responsibilities under the Investment Company Act of 1940.
DIVIDENDS AND TAXES
A dividend for each Income Fund will be declared monthly at the close of
business on the day of declaration consisting of an amount of accumulated
undistributed net income of the Fund as determined to be necessary or
appropriate by the appropriate officers of the Trust. Dividends will generally
be paid monthly. Distributable net realized capital gains are distributed
annually to Shareholders of record. A Shareholder will automatically receive all
income dividends and capital gains distributions in additional full and
fractional Shares unless the Shareholder elects to receive such dividends or
distributions in cash. Dividends and distributions are reinvested without a
sales charge as of the ex-dividend date using the net asset value determined on
that date and are credited to a Shareholder's account on the payment date.
Reinvested dividends and distributions receive the same tax treatment as
dividends and distributions paid in cash. Dividends are generally taxable when
received. However, dividends declared in October, November, or December to
Shareholders of record during those months and paid during the following January
are treated for tax purposes as if they were received by each Shareholder on
December 31 of the prior year. Elections to receive dividends or distributions
in cash, or any revocation thereof, must be made in writing to the Transfer
Agent at 3435 Stelzer Road, Columbus, Ohio 43219, and will become effective with
respect to dividends and distributions having record dates after its receipt by
the Transfer Agent.
Each of the Income Funds is treated as a separate entity for federal income
tax purposes. Each Income Fund intends to qualify for treatment as a "regulated
investment company" under the Internal Revenue Code of 1986, as amended (the
"Code"). If they so qualify, the Income Funds will not have to pay federal
income taxes on net income and net capital gain income that they distribute to
shareholders. Regulated investment companies are also subject to a federal
excise tax if they do not distribute their income on a timely basis. Each Income
Fund intends to avoid paying federal income and excise taxes by timely
distributing substantially all its net income and net capital gain income.
Distributions by the Income Funds of ordinary income and/or an excess of
short-term capital gain over net long-term loss are taxable to shareholders as
ordinary income. It is not expected that the dividends-received deduction for
corporations will apply.
Distribution by the Income Funds of the excess of net long-term capital gain
over net short-term capital loss is taxable to Shareholders as long-term capital
gain in the year in which it is received, regardless of how long the Shareholder
has held Shares in such Fund. Such distributions are not eligible for the
dividends-received deduction.
Prior to purchasing Shares of the Income Funds, the impact of dividends or
capital gains distributions which are expected to be declared or have been
declared, but not paid, should be carefully considered. Dividends or capital
gains distributions paid after a purchase of Shares are subject to federal
income taxes, although in some circumstances the dividends or distributions may
be, as an economic
23
<PAGE> 30
matter, a return of capital. A Shareholder should consult his or her own advisor
for any special advice.
Dividends received by a Shareholder that are derived from the Income Funds
investments in U.S. Government obligations may not be entitled to the exemptions
from state and local income taxes that would be available if the Shareholder had
purchased U.S. Government obligations directly.
A Shareholder will generally recognize long-term capital gain or loss on the
sale or exchange of shares in an Income Fund held by the Shareholder for more
than twelve months. If a Shareholder receives a capital gain dividend with
respect to a Share of the Income Funds and such Share is held for six months or
less, any loss on the sale or exchange of such Share shall be treated as a
long-term capital loss to the extent of the capital gain dividend.
The holder of a security issued with "original issue discount" (including a
zero-coupon United States Treasury security) is required to accrue as income
each year a portion of the discount at which the security was purchased, even
though the holder does not currently receive the interest payment in cash. A
security has original issue discount if its redemption price exceeds its issue
price by more than a de minimis amount. Accordingly, Income Funds may be
required to distribute each year an amount which is greater than the total
amount of cash interest the Fund actually received. Such distributions may be
made from the cash assets of the Fund or by liquidation of its portfolio
securities, if necessary. The Fund may realize gains or losses from such
liquidations. In the event the Fund realizes net capital gains from such
transactions, its shareholders may receive a larger capital gain distribution,
if any, than they would have in the absence of such transactions.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION -- Additional Tax Information" and "Additional Tax Information
Concerning the Tax Exempt Fund."
The foregoing discussion is limited to federal income tax consequences and is
based on tax laws and regulations which are in effect as of the date of this
Prospectus; such laws and regulations may be changed by legislative or
administrative actions. The foregoing is also intended only as a brief summary
of some of the important tax considerations generally affecting the Income Funds
and their Shareholders. Potential investors in the Income Funds are urged to
consult their tax advisors concerning their own tax situation and concerning the
application of state and local taxes which may differ from the federal income
tax consequences described above.
Shareholders will be advised at least annually as to the character for federal
income tax purposes of distributions made during the year.
MANAGEMENT OF AMSOUTH MUTUAL FUNDS
TRUSTEES OF THE TRUST
Overall responsibility for management of the Trust rests with the Board of
Trustees of the Trust, who are elected by the Shareholders of the Trust. There
are currently six Trustees, two of whom are "interested persons" of the Trust
within the meaning of that term under the Investment Company Act of 1940. The
Trustees, in turn, elect the officers of the Trust to supervise actively its
day-to-day operations. The Trustees of the Trust, their current addresses, and
principal occupations during the past five years are as follows (if no address
is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
24
<PAGE> 31
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS
- ------------------------------ --------------------- --------------------------------------
<S> <C> <C>
Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and
459 DER Building Vice Chairman, Department of Medicine,
1808 7th Avenue University of Alabama at Birmingham
UAB Medical Center School of Medicine; from June 1988 to
Birmingham, Alabama 35294 October 1992, President, Chief
Executive Officer and Medical
Director, University of Alabama Health
Services Foundation
Wendell D. Cleaver Trustee From September 3, 1993 to present,
209 Lakewood Drive, West retired; from December 1988 to August,
Mobile, Alabama 36608 1993, Executive Vice President, Chief
Operating Officer and Director, Mobile
Gas Service Corporation
J. David Huber* Trustee and From June 1987 to present, employee of
President BISYS Fund Services, Limited
Partnership
William J. Tomko* Chairman of the From April 1987 to present, employee
Board of Trustees of BISYS Fund Services, Limited
Partnership
Homer H. Turner, Jr. Trustee From June 1991 to present, retired;
729 Cary Drive until June 1991, Vice President,
Auburn, Alabama 36830 Birmingham Division, Alabama Power
Company
James H. Woodward, Jr. Trustee From July 1989 to present, Chancellor,
The University of North The University of North Carolina at
Carolina at Charlotte Charlotte; until July 1989, Senior
Charlotte, North Carolina Vice President, University College,
28223 University of Alabama at Birmingham
<FN>
- ------------
* Indicates an "interested person" of the Trust as defined in the Investment
Company Act of 1940.
</TABLE>
The Trustees receive fees and are reimbursed for expenses in connection with
each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, or BISYS Fund Services Ohio, Inc. receives any
compensation from the Trust for acting as a Trustee. The officers of the Trust
(see the Statement of Additional Information) receive no compensation directly
from the Trust for performing the duties of their offices. BISYS Fund Services
receives fees from the Trust for acting as Administrator and BISYS Fund Services
Ohio, Inc. receives fees from the Trust for acting as Transfer Agent for and for
providing fund accounting services to the Trust. Mr. Huber and Mr. Tomko are
employees of BISYS Fund Services. Mr. Huber also serves as an executive officer
of BISYS Fund Services.
INVESTMENT ADVISOR
AmSouth has served as investment advisor of each Fund of the Trust since the
Trust's inception in August 1988. AmSouth was the first bank in its markets and
among the first in the Southeast to serve as an investment advisor for a family
of registered mutual funds. AmSouth is the principal bank affiliate of AmSouth
Bancorporation, the largest banking institution headquartered in the mid-south
region consisting of Alabama, Florida, Georgia and Tennessee. AmSouth
Bancorporation reported assets as of December 31, 1994 of $16.7 billion and
operates more than 317 banking
25
<PAGE> 32
offices in Alabama, Florida, Georgia and Tennessee and 52 mortgage banking
offices in nine states. AmSouth has provided investment management services
through its Trust Investment Department since 1915. As of March 31, 1995 that
department had over $6.3 billion in assets under discretionary management and
provided custody services for an additional $678 million in securities, making
AmSouth the largest provider of trust services in Alabama. AmSouth served as
administrator for over $12 billion in bond issues, and its trust division's
Natural Resources Department is ranked as one of the largest natural resource
managers in the United States. As Investment Advisor to the Trust, AmSouth
provides investors in the Trust with the same professional experienced money
management expertise that AmSouth has provided its trust customers.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the respective investment objectives and restrictions of the
Income Funds, AmSouth manages the Income Funds, makes decisions with respect to
and places orders for all purchases and sales of their investment securities,
and maintains their records relating to such purchases and sales. Brian B.
Sullivan, CFA is the portfolio manager for the Bond Fund and, as such, has had
primary responsibility for the day-to-day portfolio management of the Bond Fund
since 1992. Mr. Sullivan has been a portfolio manager at AmSouth since 1984, and
is currently Senior Vice President and Trust Investment Officer in charge of
fixed income investments. John P. Boston is the portfolio manager for the
Limited Maturity Fund since August, 1995, and of the Government Income Fund
since inception and, as such, has primary responsibility for the day-to-day
portfolio management of the Limited Maturity and Government Income Funds. Mr.
Boston has been associated with AmSouth's Trust Investment Group for over five
years and is currently an Assistant Vice President and Trust Investment Officer.
Under investment advisory agreements between the Trust and AmSouth, the fee
payable to AmSouth by each Income Fund for investment advisory services is the
lesser of (a) a fee computed daily and paid monthly at the annual rate of up to
sixty-five one-hundredths of one percent (.65%) of such Income Fund's average
daily net assets or (b) such fee as may from time to time be agreed upon in
writing by the Trust and AmSouth. A fee agreed to in writing from time to time
by the Trust and AmSouth may be significantly lower than the fee calculated at
the annual rate and the effect of such lower fee would be to lower an Income
Fund's expenses and increase the net income of the Fund during the period when
such lower fee is in effect.
During the Trust's fiscal year ended July 31, 1995, AmSouth received
investment advisory fees amounting to .50% of the Bond Fund's average net
assets, .50% of the Limited Maturity Fund's average net assets, and .20% of the
Government Income Fund's average net assets.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for each Fund of the Trust, and also
acts as the Trust's principal underwriter and distributor (the "Administrator"
or the "Distributor," as the context indicates). BISYS Fund Services is a
subsidiary of The BISYS Group, Inc., 150 Clove Road, Little Falls, New Jersey
07424, a publicly owned company engaged in information processing, loan
servicing and 401(k) administration and recordkeeping services to and through
banking and other financial organizations.
The Administrator generally assists in all aspects of the Income Funds'
administration and operation. Under management and administration agreements
between the Trust, the fee payable by each Income Fund to the Administrator for
administration services is the lesser of (a) a fee computed at the annual rate
of up to twenty one-hundredths of one percent (.20%) of such Income Fund's
average daily net assets or (b) such fee as may from time to time be agreed upon
in writing by the Trust and the Administrator. A fee agreed to in writing from
time to time by the Trust and the Administrator may be significantly lower than
the fee calculated at the annual rate and the effect of such lower fee would be
to lower an Income Fund's expenses and increase
26
<PAGE> 33
the net income of the Fund during the period when such lower fee is in effect.
During the Trust's fiscal year ended July 31, 1995, BISYS Fund Services
received administration fees amounting to .12% of the Bond Fund's average net
assets, .12% of the Limited Maturity Fund's average net assets, and .04% of the
Government Income Fund's average net assets.
SUB-ADMINISTRATOR
Effective August 1, 1995, AmSouth became the Sub-Administrator to the Trust
pursuant to an agreement between the Administrator and AmSouth. Pursuant to this
agreement, AmSouth has assumed certain of the Administrator's duties, for which
AmSouth receives a fee, paid by the Administrator, calculated at an annual rate
of up to ten one-hundredths of one percent (.10%) of each Fund's average net
assets.
EXPENSES
AmSouth and the Administrator each bear all expenses in connection with the
performance of their services as Investment Advisor and Administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for an Income Fund. No Income Fund will bear,
directly or indirectly, the cost of any activity primarily intended to result in
the distribution of Shares of such Fund; such costs will be borne by the
Distributor.
BANKING LAWS
AmSouth believes that it possesses the legal authority to perform the
investment advisory services for the Income Funds contemplated by its investment
advisory agreement with the Trust and described in this Prospectus without
violation of applicable banking laws and regulations, and has so represented in
its investment advisory agreement with the Trust. Future changes in federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which AmSouth could continue
to perform such services for the Trust. See "MANAGEMENT OF The Trust --
Glass-Steagall Act" in the Statement of Additional Information for further
discussion of applicable banking laws and regulations.
GENERAL INFORMATION
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Massachusetts business trust on October 1, 1987.
The Trust has an unlimited number of authorized shares of beneficial interest
which may, without shareholder approval, be divided into an unlimited number of
series of such shares, and which are presently divided into twelve series of
shares, one for each of the following Funds: the AmSouth Prime Obligations Fund,
the AmSouth U.S. Treasury Fund, the AmSouth Tax Exempt Fund, the AmSouth Equity
Fund, the AmSouth Regional Equity Fund, the AmSouth Bond Fund, the AmSouth
Limited Maturity Fund, the AmSouth Municipal Bond Fund, the AmSouth Balanced
Fund, the AmSouth Alabama Tax-Free Fund, the AmSouth Government Income Fund and
the AmSouth Florida Tax-Free Fund. Each Share represents an equal proportionate
interest in a Fund with other Shares of the same series, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that Fund as are declared at the discretion of the Trustees (see "Miscellaneous"
below).
Shareholders are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote as a single class except (i) when required by the Investment
Company Act of 1940, shares shall be voted by individual series and (ii) when
the Trustees have determined that the
27
<PAGE> 34
matter affects only the interests of one or more series, then only Shareholders
of such series shall be entitled to vote thereon.
Overall responsibility for the management of the Trust is vested in the Board
of Trustees. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- Trustees of the Trust."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Trust and Massachusetts law. See "ADDITIONAL INFORMATION -- Miscellaneous"
in the Statement of Additional Information for further information.
As of October 5, 1995, AmSouth was the beneficial owner of approximately 80.6%
of the outstanding shares of the Bond Fund and 84.8% of the outstanding shares
of the Limited Maturity Fund and may be deemed to be a "controlling person" of
each Fund within the meaning of the Investment Company Act of 1940.
CUSTODIAN
Bank of California, N.A. serves as custodian for the Trust.
TRANSFER AGENT AND FUND ACCOUNTING SERVICES
BISYS Funds Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the Trust.
PERFORMANCE INFORMATION
From time to time performance information for an Income Fund showing its total
return and/or yield may be presented in advertisements, sales literature and
Shareholder reports. Total return will be calculated for the past year and the
period since the establishment of an Income Fund. Average annual total return is
measured by comparing the value of an investment in an Income Fund at the
beginning of the relevant period to the redemption value of the investment at
the end of the period (assuming the investor paid the maximum sales load on the
investment and assuming immediate reinvestment of any dividends or capital gains
distributions) and annualizing the difference. Aggregate total return is
calculated similarly to average annual total return except that the return
figure is aggregated over the relevant period instead of annualized. Yield will
be computed by dividing an Income Fund's net investment income per share earned
during a recent one-month period by the Fund's per share maximum offering price
(reduced by any undeclared earned income expected to be paid shortly as a
dividend) on the last day of the period and annualizing the result.
Investors may also judge the performance of each Income Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc. Comparisons may also
be made to indices or data published in Money Magazine, Forbes, Barron's, The
Wall Street Journal, The New York Times, Business Week, American Banker,
Fortune, Institutional Investor, Ibbotson Associates, Inc., Morningstar Inc.,
CDA/Wiesenberger, Pensions and Investments, U.S.A. Today, and local newspapers.
In addition to performance information, general information about these Funds
that appears in a publication such as those mentioned above may be included in
advertisements, sales literature and in reports to Shareholders. Additional
performance information is contained in the Trust's Annual Report, which is
available free of charge by calling the number on the front page of the
prospectus.
Information about an Income Fund's performance is based on the Fund's record
up to a certain date and is not intended to indicate future performance. Yield
and total return are functions of the type and quality of instruments held in an
Income Fund, operating expenses and market conditions. Any fees charged by a
Bank with respect to accounts investing in Shares of an Income Fund will not be
included in performance calculations.
28
<PAGE> 35
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a Fund" means the consideration received by the Fund upon
the issuance or sale of Shares in that Group, together with all income,
earnings, profits, and proceeds derived from the investment thereof, including
any proceeds from the sale, exchange, or liquidation of such investments, and
any funds or payments derived from any reinvestment of such proceeds, and any
general assets of the Trust not readily identified as belonging to a particular
Fund that are allocated to that Fund by the Trust's Board of Trustees. The Board
of Trustees may allocate such general assets in any manner it deems fair and
equitable. It is anticipated that the factor that will be used by the Board of
Trustees in making allocations of general assets to particular Funds will be the
relative net assets of the respective Funds at the time of allocation. Assets
belonging to a particular Fund are charged with the direct liabilities and
expenses in respect of that Fund, and with a share of the general liabilities
and expenses of the Trust not readily identified as belonging to a particular
Fund that are allocated to that Fund in proportion to the relative net assets of
the respective Funds at the time of allocation. The timing of allocations of
general assets and general liabilities and expenses of the Trust to particular
Funds will be determined by the Board of Trustees of the Trust and will be in
accordance with generally accepted accounting principles. Determinations by the
Board of Trustees of the Trust as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Trust or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Trust or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Trust or such Fund.
Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims Shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in every
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification out of a Fund's
property for all loss and expense of any Shareholder of such Fund held liable on
account of being or having been a Shareholder. Thus, the risk of a Shareholder
incurring financial loss on account of Shareholder liability is limited to
circumstances in which a Fund would be unable to meet its obligations.
Inquiries regarding the Trust may be directed in writing to the Trust at 3435
Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800) 451-8382.
29
<PAGE> 36
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 37
AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
[LOGO]
AmSouth Bank of Alabama
1901 Sixth Avenue North
Birmingham, AL 35203
DISTRIBUTOR
BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005-3333
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, OH 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Trust................................. 2
Fee Table................................. 2
Financial Highlights...................... 3
Investment Objective and Policies......... 5
Investment Techniques..................... 11
Investment Restrictions................... 15
Valuation of Shares....................... 16
How to Purchase and Redeem Shares......... 16
Dividends and Taxes....................... 23
Management of The AmSouth Mutual Funds.... 24
General Information....................... 27
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
[LOGO]
INCOME FUNDS
[LOGO]
AMSOUTH BANK OF ALABAMA
INVESTMENT ADVISOR
--------------------------------
THIS PRODUCT IS
NOT FDIC INSURED
--------------------------------
BISYS FUND SERVICES, LIMITED PARTNERSHIP
Prospectus dated November 30, 1995
<PAGE> 38
AMSOUTH MUTUAL FUNDS
TAX-FREE FUNDS
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase and redemption
Columbus, Ohio 43219 information call (800) 451-8382
</TABLE>
The AmSouth Alabama Tax-Free Fund (the "Alabama Fund"), the AmSouth Florida
Tax-Free Fund (the "Florida Fund") and the AmSouth Municipal Bond Fund (the
"Municipal Bond Fund") (collectively, "the Tax-Free Funds") are three of twelve
separate investment funds of AmSouth Mutual Funds (formerly, The ASO Outlook
Group) (the "Trust"), an open-end management investment company.
AMSOUTH ALABAMA TAX-FREE FUND seeks to produce as high a level of current
interest income exempt from federal and Alabama income taxes as is consistent
with the preservation of capital. The Alabama Fund seeks to achieve this
objective by investing in high-grade obligations. While the Alabama Fund may
invest in taxable obligations, under normal market conditions at least 80% of
the Alabama Fund's net assets will be invested in obligations exempt from both
federal and Alabama personal income tax. The Fund is non-diversified and
therefore may invest more than 5% of its total assets in the obligations of one
issuer.
AMSOUTH FLORIDA TAX-FREE FUND seeks to produce as high a level of current
interest income exempt from federal income taxes and Florida intangibles taxes
as is consistent with the preservation of capital. The Florida Fund seeks to
achieve this objective by investing in high-grade obligations. While the Florida
Fund may invest in taxable obligations, under normal market conditions at least
80% of the Florida Fund's net assets will be invested in obligations exempt from
both federal personal income tax and, as at year-end, the Florida intangible
personal property tax. The Fund is non-diversified and therefore may invest more
than 5% of its total assets in the obligations of one issuer.
AMSOUTH MUNICIPAL BOND FUND seeks to produce as high a level of current
interest income exempt from federal income taxes as is consistent with the
preservation of capital. The Municipal Bond Fund seeks to achieve this objective
by investing in high-grade obligations. While the Municipal Bond Fund may invest
in taxable obligations, under normal market conditions at least 80% of the
Municipal Bond Fund's net assets will be invested in obligations exempt from
federal income tax. The Municipal Bond Fund is a diversified fund.
The net asset value per share of the Alabama Fund, the Florida Fund and the
Municipal Bond Fund will fluctuate as the value of the Funds' investment
portfolio changes in response to changing interest rates and other factors. The
Alabama and Municipal Bond Funds have not commenced operations.
AmSouth Bank of Alabama, Birmingham, Alabama ("AmSouth"), acts as the
investment advisor to each Fund of the Trust. BISYS Fund Services, Limited
Partnership ("BISYS Fund Services"), formerly The Winsbury Company, Columbus,
Ohio, acts as the Trust's distributor.
This Prospectus relates only to the Alabama Fund, the Florida Fund and the
Municipal Bond Fund. Interested persons who wish to obtain a copy of the
prospectuses of the AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury
Fund, and the AmSouth Tax Exempt Fund (the "Money Market Funds"); the AmSouth
Equity Fund, the AmSouth Regional Equity Fund and the AmSouth Balanced Fund (the
"Growth Funds"); or the AmSouth Bond Fund, the AmSouth Limited Maturity Fund,
and the AmSouth Government Income Fund (the "Income Funds") may contact the
Trust's distributor at the telephone number shown above. Additional information
about the Tax-Free Funds, contained in a Statement of Additional Information,
has been filed with the Securities and Exchange Commission and is available upon
request without charge by writing to the Trust at its address or by calling the
Trust at the telephone number shown above. The Statement of Additional
Information bears the same date as this Prospectus and is incorporated by
reference in its entirety into this Prospectus.
This Prospectus sets forth concisely the information about the Tax-Free
Funds that a prospective investor ought to know before investing. Investors
should read this Prospectus and retain it for future reference.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR
GUARANTEED BY AMSOUTH OR ANY OF ITS AFFILIATES. THE TRUST'S SHARES ARE NOT
FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR BY ANY
OTHER AGENCY. AN INVESTMENT IN THE TRUST'S SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is November 30, 1995
<PAGE> 39
THE TRUST
The Trust is an open-end management investment company. The Trust consists
of twelve series of units of beneficial interest ("Shares"), each representing
interests in one of twelve separate investment funds (the "Funds").
This Prospectus relates only to the Tax-Free Funds. Interested persons who
wish to obtain a copy of the prospectuses of the Money Market Funds, the Growth
Funds, or the Income Funds may contact the Trust at the telephone number shown
on the front cover of this Prospectus.
FEE TABLE
<TABLE>
<CAPTION>
MUNICIPAL
ALABAMA FLORIDA BOND
FUND FUND FUND
----------- ------- ------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES1
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................ 3.00% 3.00% 3.00%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................ 0% 0% 0%
Deferred Sales Load (as a percentage of original purchase price or
redemption proceeds, as applicable)................................ 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed, if
applicable)2....................................................... 0% 0% 0%
Exchange Fee......................................................... 0% 0% 0%
ANNUAL FUND OPERATING EXPENSES (as a percentage of net assets)
Management Fees (After Voluntary Fee Reduction)3..................... .50% .30% .50%
12b-1 Fees........................................................... .00% .00% .00%
Other Expenses (After Voluntary Fee Reduction)....................... 1.27% .20%4 1.27%
--- ------- ------
Total Fund Operating Expenses5 (After Voluntary Fee Reduction)....... 1.77% .50% 1.77%
--- ------- ------
EXAMPLE:
You would pay the following expenses on a $1,000 investment, assuming
(1) 5% annual return and (2) redemption at the end of each time
period:
</TABLE>
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C> <C>
Alabama Fund..................................................................... $ 47 $84
Florida Fund..................................................................... $ 35 $46
Municipal Bond Fund.............................................................. $ 47 $84
</TABLE>
- ------------
1 AmSouth Bank of Alabama and its correspondent or affiliated banks may charge a
Customer's (as defined in the Prospectus) account fees for automatic
investment and other cash management services provided in connection with
investments in the Funds. (See "HOW TO PURCHASE AND REDEEM SHARES -- Purchases
of Shares.")
2 A wire redemption charge is deducted from the amount of a wire redemption
payment made at the request of a shareholder. (See "HOW TO PURCHASE AND REDEEM
SHARES -- Redemption by Telephone.")
3 Absent the voluntary reduction of investment advisory fees, Management Fees as
a percentage of average net assets are estimated to be .65% for the Alabama
Fund, the Florida Fund and the Municipal Bond Fund. (See "MANAGEMENT OF
AMSOUTH MUTUAL FUNDS -- Investment Advisor.")
4 Absent the voluntary reduction of administration fees, Other Expenses as a
percentage of average net assets are estimated to be .30% for the Florida
Fund. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- Administrator and
Distributor.")
5 In the absence of any voluntary reduction in investment advisory fees and
administration fees, Total Fund Operating Expenses are estimated to be at
least 1.92% for each of the Alabama Fund and the Municipal Bond Fund, and .95%
for the Florida Fund.
The purpose of the table above is to assist an investor in the Fund in
understanding the various costs and expenses that an investor in the Tax-Free
Funds will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS"
for a more complete discussion of annual operating expenses of the Tax-Free
Funds.
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE> 40
FINANCIAL HIGHLIGHTS
The table below sets forth certain financial information concerning the
investment results for the Florida Fund for the period indicated. This
information has been derived from financial statements audited by Coopers &
Lybrand L.L.P., independent accountants for the Trust, whose report thereon is
included in the Statement of Additional Information. Further financial data is
included in the Statement of Additional Information.
<TABLE>
<CAPTION>
FLORIDA FUND
----------------------
SEPTEMBER 30, 1994(a)
THROUGH JULY 31, 1995
----------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................. $ 10.00
INVESTMENT ACTIVITIES
Net investment income............................................... 0.34
Net realized and unrealized gain (loss) on investments.............. 0.30
----------
Total from Investment Activities................................. 0.64
----------
DISTRIBUTIONS
Net investment income............................................... (0.32)
Net realized gains..................................................
----------
Total Distributions.............................................. (0.32)
----------
NET ASSET VALUE, END OF PERIOD........................................ $ 10.32
===============
Total Return (Excluding Sales Charge)............................... 6.53%
RATIOS/SUPPLEMENTAL DATA:
Net Asset at end of period (000).................................... $ 48,333
Ratio of expenses to average net assets............................. 0.70%(b)
Ratio of net investment income to average net assets................ 4.16%(b)
Ratio of expenses to average net assets*............................ 1.01%(b)
Ratio of net investment income to average net assets*............... 3.86%(b)
PORTFOLIO TURNOVER.................................................... 2.33%
</TABLE>
- ------------
* During the period the investment advisory and administration fees were
voluntarily reduced. If such voluntary fee reductions had not occurred, the
ratio would have been as indicated.
(a) Period from commencement of operations.
(b) Annualized.
3
<PAGE> 41
INVESTMENT OBJECTIVE AND POLICIES
The Alabama Fund seeks to produce as high a level of current interest income
exempt from federal and Alabama income taxes as is consistent with the
preservation of capital. The Florida Fund seeks to produce as high a level of
current interest income exempt from federal income taxes and Florida intangibles
taxes as is consistent with the preservation of capital. The Municipal Bond Fund
seeks to produce as high a level of current federal tax-exempt income, as is
consistent with the preservation of capital. There can be, of course, no
assurance that the Alabama Fund, the Florida Fund or the Municipal Bond Fund
will achieve their investment objectives. The investment objective of each
TaxFree Fund is fundamental and may not be changed without a vote of a majority
of the outstanding Shares of the Fund (as defined below under "GENERAL
INFORMATION -- Miscellaneous" in this prospectus).
THE ALABAMA FUND invests primarily in bonds, notes and warrants generally
issued by or on behalf of the State of Alabama and its political subdivisions,
the interest on which, in the opinion of the issuer's bond counsel at the time
of issuance, is exempt from both federal income tax and Alabama personal income
tax and is not treated as a preference item for purposes of the federal
alternative minimum tax for individuals ("Alabama Municipal Securities"). As a
fundamental policy, under normal market conditions at least 80% of the Alabama
Fund's net assets will be invested in Alabama Municipal Securities.
The Alabama Fund may also invest in General Obligation Warrants (see
"INFORMATION RELATING TO THE ALABAMA FUND" -- "General Obligation Warrants").
THE FLORIDA FUND invests primarily in bonds, notes and warrants generally
issued by or on behalf of the State of Florida and its political subdivisions,
the interest on which, in the opinion of the issuer's bond counsel at the time
of issuance, is exempt from federal income tax, is not treated as a preference
item for purposes of the federal alternative minimum tax for individuals, and is
exempt from the Florida Intangible Personal Property Tax ("Florida Municipal
Securities"). As a fundamental policy, under normal market conditions at least
80% of the Florida Fund's net assets will be invested in Florida Municipal
Securities.
THE MUNICIPAL BOND FUND invests primarily in bonds and notes issued by or on
behalf of states (including the District of Columbia), territories, and
possessions of the United States and their respective authorities, agencies,
instrumentalities, and political subdivisions, the interest on which is both
exempt from federal income tax and not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("Municipal Securities").
As a fundamental policy, under normal market conditions at least 80% of the
Municipal Bond Funds' net assets will be invested in Municipal Securities and in
securities of money market mutual funds which invest primarily in obligations
exempt from federal income tax. Additionally, as a fundamental policy, under
normal market conditions at least 65% of the Municipal Bond Fund's total assets
will be invested in bonds.
THE TAX-FREE FUNDS
Under normal market conditions, the Tax-Free Funds may invest up to 20% of
their net assets in obligations, the interest on which is either subject to
federal income taxation or treated as a preference item for purposes of the
federal alternative minimum tax ("Taxable Obligations"). The Alabama and Florida
Funds may also invest in Municipal Securities. At times, AmSouth may determine
that, because of unstable conditions in the markets for Municipal Securities, or
Alabama or Florida Municipal Securities (hereinafter referred to collectively as
"Eligible Municipal Securities"), pursuing the Funds' basic investment
strategies is inconsistent with the best interests of the Shareholders of the
Funds. At such times, AmSouth may use temporary defensive strategies differing
from those designed to achieve the Funds' investment objectives, such as by
increasing the Funds' holdings in Munic-
4
<PAGE> 42
ipal Securities (in the case of the Alabama and Florida Funds) and Taxable
Obligations to over 20% of the Funds' total assets and by holding uninvested
cash reserves pending investment. Taxable Obligations may include obligations
issued or guaranteed by the U.S. Government, its agencies or instrumentalities
(some of which may be subject to repurchase agreements), certificates of
deposit, demand and time deposits, bankers' acceptances of selected banks, and
commercial paper meeting the Tax-Free Funds' quality standards (as described
below) for tax-exempt commercial paper. These obligations are described further
in the Statement of Additional Information.
The Tax-Free Funds may also invest in private activity bonds ("industrial
development bonds" under prior law). Interest on private activity bonds (and
industrial development bonds) is fully tax-exempt only if the bonds fall within
certain defined categories of qualified private activity bonds and meet the
requirements specified in those respective categories. Regardless of whether
they qualify for tax-exempt status, private activity bonds may subject both
individual and corporate investors to tax liability under the alternative
minimum tax. However, private activity bonds will only be considered Municipal
Securities for the purposes of this Prospectus if they do not have this effect
regarding individuals. For additional information on the federal alternative
minimum tax, see "DIVIDENDS AND TAXES."
The Funds may invest in Eligible Municipal Securities that are rated at the
time of purchase within the three highest rating groups assigned by a nationally
recognized statistical rating organization (an "NRSRO"). The Funds may also
purchase Eligible Municipal Securities that are unrated at the time of purchase
but are determined to be of comparable quality by AmSouth pursuant to guidelines
approved by the Trust's Board of Trustees. Eligible Municipal Securities may be
purchased in reliance upon a rating only when the rating organization is not
affiliated with the issuer or guarantor of the securities. The applicable
ratings are described in the Appendix to the Statement of Additional
Information.
The two principal classifications of Eligible Municipal Securities that may be
held by the Tax-Free Funds are "general obligation" securities and "revenue"
securities. General obligation securities are secured by the issuer's pledge of
its full faith, credit and taxing power for the payment of principal and
interest. Revenue securities are payable only from the revenues derived from a
particular facility or class of facilities, or, in some cases, from the proceeds
of a special excise tax or other specific revenue source such as the user of the
facility being financed. Private activity bonds held by the Funds are in most
cases revenue securities and are not payable from the unrestricted revenues of
the issuer. Consequently, the credit quality of private activity bonds is
usually directly related to the credit standing of the corporate user of the
facility involved.
Eligible Municipal Securities may also include "moral obligation" bonds, which
are normally issued by special purpose public authorities. If the issuer of
moral obligation bonds is unable to meet its debt service obligations from
current revenues, it may draw on a reserve fund, the restoration of which is a
moral commitment but not a legal obligation of the state or municipality that
created the issuer.
Opinions relating to the validity of Eligible Municipal Securities and to the
exemption of interest thereon from federal income tax are rendered by bond
counsel to the respective issuers at the time of issuance. Neither the Tax-Free
Funds nor their investment advisor will review the proceedings relating to the
issuance of Eligible Municipal Securities or the basis for such opinions.
Although the Municipal Bond Fund does not presently intend to do so on a
regular basis, it may invest more than 25% of its total assets in Municipal
Securities that are related in such a way that an economic, business, or
political development or change affecting one such security would likewise
affect the other Municipal Securities. An example of such securities are
obligations the repayment of which is dependent upon similar types of projects.
Such investments would be made only if deemed necessary or appropriate by the
Fund's investment
5
<PAGE> 43
advisor. To the extent that the Fund's assets are concentrated in Municipal
Securities that are so related, the Fund will be subject to the peculiar risks
presented by such securities, such as negative developments in a particular
industry, to a greater extent than it would be if the Fund's assets were not so
concentrated.
The Tax-Free Funds may acquire "puts" with respect to Eligible Municipal
Securities held in their portfolios. Under a put, the Funds would have the right
to sell a specified Eligible Municipal Security within a specified period of
time at a specified price to a third party. A put would be sold, transferred, or
assigned only with the underlying Eligible Municipal Security. The Funds will
acquire puts solely to facilitate portfolio liquidity, shorten the maturity of
the underlying Eligible Municipal Securities, or permit the investment of the
Funds' at a more favorable rate of return. The Funds expect that they will
generally acquire puts only where the puts are available without the payment of
any direct or indirect consideration. However, if necessary or advisable, the
Funds may pay for a put separately in cash. The aggregate price of a security
subject to a put may be higher than the price which otherwise would be paid for
the security without such an option, thereby increasing the security's cost and
reducing its yield.
The Tax-Free Funds may also invest in master demand notes in order to satisfy
short-term needs or, if warranted, as part of its temporary defensive investment
strategy. Such notes are demand obligations that permit the investment of
fluctuating amounts at varying market rates of interest pursuant to arrangements
between the issuer and a United States commercial bank acting as agent for the
payees of such notes. Master demand notes are callable on demand by the Funds,
but are not marketable to third parties. Master demand notes are direct lending
arrangements between the Fund and the issuer of such notes. The investment
advisor of the Funds will review the quality of master demand notes at least
quarterly, and will consider the earning power, cash flow and debt-to-equity
ratios indicating the borrower's ability to pay principal together with accrued
interest on demand. While master demand notes are not typically rated by credit
rating agencies, issuers of such notes must satisfy the same criteria for the
Funds set forth above for commercial paper.
The Tax-Free Funds may acquire rated and unrated variable and floating rate
notes. Variable and floating rate notes are frequently not rated by credit
rating agencies; however, unrated variable and floating rate notes purchased by
the Funds will be determined by the Funds' investment advisor under guidelines
established by the Board of Trustees to be of comparable quality at the time of
purchase to rated instruments eligible for purchase under the Funds' investment
policies. There may be no active secondary market with respect to a particular
variable or floating rate note. Nevertheless, the periodic readjustments of
their interest rates tend to assure that their value to the Funds will
approximate their par value.
The Tax-Free Funds may invest up to 5% of the value of their total assets in
the securities of any one money market mutual fund (including Shares of the
AmSouth Prime Obligations Fund, AmSouth U.S. Treasury Fund and the AmSouth Tax
Exempt Fund), provided that no more than 10% of each Fund's total assets may be
invested in the securities of money market mutual funds in the aggregate. In
order to avoid the imposition of additional fees as a result of investments by
the Tax-Free Funds in Shares of the AmSouth Prime Obligations Fund, the AmSouth
U.S. Treasury Fund, and the AmSouth Tax Exempt Fund, the Investment Advisor and
the Administrator (see "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" -- "Investment
Advisor" and "Administrator and Distributor") will not retain the portion of
their usual service fees from the Funds that are attributable to investments by
the Tax-Free Funds in Shares of those Funds up to the rate paid in these Funds.
The Investment Advisor and the Administrator will promptly forward such fees to
the Tax-Free Funds. The Tax-Free Funds will incur additional expenses due to the
duplication of expenses as a result of investing in securities of other
unaffiliated money market mutual funds. Additional restrictions regarding the
Tax-Free Funds investments in the securities of an
6
<PAGE> 44
unaffiliated money market fund and/or the AmSouth Prime Obligations Fund, the
AmSouth U.S. Treasury Fund and the AmSouth Tax Exempt Fund are contained in the
Statement of Additional Information.
The Tax-Free Funds may acquire zero coupon obligations. Such zero-coupon
obligations pay no current interest and are typically sold at prices greatly
discounted from par value, with par value to be paid to the holder at maturity.
The return on a zero-coupon obligation, when held to maturity, equals the
difference between the par value and the original purchase price. Zero-coupon
obligations have greater price volatility than coupon obligations and such
obligations will be purchased when the yield spread, in light of the
obligation's duration, is considered advantageous. The Funds will only purchase
zero-coupon obligations if, at the time of purchase, such investments do not
exceed 20% of the value of the Alabama or Florida Funds' total assets and 25% of
the Municipal Bond Fund's total assets.
An increase in interest rates will generally reduce the value of the
investments in the Tax-Free Funds and a decline in interest rates will generally
increase the value of those investments. Depending upon prevailing market
conditions, AmSouth may purchase debt securities at a discount from face value,
which produces a yield greater than the coupon rate. Conversely, if debt
securities are purchased at a premium over face value, the yield will be lower
than the coupon rate. In making investment decisions, AmSouth will consider many
factors besides current yield, including the preservation of capital, maturity,
and yield to maturity.
INVESTMENT TECHNIQUES
WHEN-ISSUED SECURITIES
The Tax-Free Funds may purchase securities on a "when-issued" basis.
When-issued securities are securities purchased for delivery beyond the normal
settlement date at a stated price and yield and thereby involve a risk that the
yield obtained in the transaction will be less than that available in the market
when delivery takes place. The Funds will generally not pay for such securities
or start earning interest on them until they are received. When the Funds agree
to purchase securities on a "when-issued" basis, the Trust's custodian will set
aside cash or liquid Fund securities equal to the amount of the commitment in a
segregated account. Securities purchased on a "when-issued" basis are recorded
as an asset and are subject to changes in value based upon changes in the
general level of interest rates. The Tax-Free Funds expect that commitments to
purchase "when-issued" securities will not exceed 25% of the value of its total
assets under normal market conditions, and that a commitment to purchase
"when-issued" securities will not exceed 60 days. In the event that its
commitment to purchase "when-issued" securities ever exceeded 25% of the value
of its total assets, the Funds' liquidity and the investment advisor's ability
to manage it might be adversely affected. The Funds do not intend to purchase
"when-issued" securities for speculative purposes, but only for the purpose of
acquiring portfolio securities.
REPURCHASE AGREEMENTS
Securities held by the Tax-Free Funds may be subject to repurchase agreements.
If the seller under a repurchase agreement were to default on its repurchase
obligation or become insolvent, the Funds would suffer a loss to the extent that
the proceeds from a sale of the underlying portfolio securities were less than
the repurchase price under the agreement, or to the extent that the disposition
of such securities by the Funds were delayed pending court action. Additionally,
if the seller should be involved in bankruptcy or insolvency proceedings, a Fund
may encounter delays and incur costs in selling the underlying security or may
suffer a loss of principal and interest if the Fund is treated as an unsecured
creditor and required to return the underlying security to the seller's estate.
7
<PAGE> 45
REVERSE REPURCHASE AGREEMENTS
The Tax-Free Funds may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, the Funds would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase them at a mutually agreed-upon date and price. Reverse purchase
agreements involve the risk that the market value of the securities sold by the
Funds may decline below the price at which the Fund is obligated to repurchase
the securities.
THE ALABAMA AND FLORIDA FUNDS--DIVERSIFICATION AND CONCENTRATION
The Alabama Fund and the Florida Fund are each non-diversified funds under the
Investment Company Act of 1940 and may concentrate their investments in the
securities of a limited number of issuers. Under the Internal Revenue Code of
1986, as amended, the Alabama Fund and the Florida Fund generally may not invest
more than 25% of their total assets in securities of any one issuer (other than
U.S. government securities) at the end of each fiscal quarter and, with respect
to 50% of their total assets, each Fund may not invest more than 5% of its total
assets in the securities of any one issuer (other than U.S. government
securities) at the end of each fiscal quarter. Thus, the Alabama Fund and the
Florida Fund generally may each invest up to 25% of its total assets in the
securities of each of any two issuers. Because of the relatively small number of
issuers of Alabama and Florida Municipal Securities, the Alabama Fund and the
Florida Fund are more likely to invest a higher percentage of their assets in
the securities of a single issuer than an investment company that invests in a
broad range of tax-exempt securities. This concentration involves an increased
risk of loss if the issuer is unable to make interest or principal payments or
if the market value of such securities were to decline. Concentration of this
nature may cause greater fluctuation in the net asset value of the Alabama
Fund's and the Florida Fund's shares.
INVESTMENT RESTRICTIONS
The Tax-Free Funds are subject to a number of investment restrictions that may
be changed only by a vote of a majority of the outstanding Shares of that Fund.
See "GENERAL INFORMATION -- Miscellaneous" in this prospectus.
THE TAX-FREE FUNDS MAY NOT:
1. Purchase any securities which would cause more than 25% of the value of the
Funds' total assets at the time of purchase to be invested in securities of one
or more issuers conducting their principal business activities in the same
industry, provided that (a) there is no limitation with respect to obligations
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and repurchase agreements secured by obligations of the U.S.
Government or its agencies or instrumentalities; (b) there is no limitation with
respect to Municipal Securities, which, for purposes of this limitation only, do
not include private activity bonds that are backed only by the assets and
revenues of a non-governmental user; (c) wholly-owned finance companies will be
considered to be in the industries of their parents if their activities are
primarily related to financing the activities of their parents; and (d)
utilities will be divided according to their services. For example, gas, gas
transmission, electric and gas, electric, and telephone will each be considered
a separate industry.
2. Borrow money or issue senior securities, except that the Funds may borrow
from banks or enter into reverse repurchase agreements for temporary emergency
purposes in amounts up to 10% of the value of their total assets at the time of
such borrowing; or mortgage, pledge, or hypothecate any assets, except in
connection with any such borrowing and in amounts not in excess of the lesser of
the dollar amounts borrowed or 10% of the value of the Funds' total assets at
the time of its borrowing. The Funds will not purchase securities while
borrowings
8
<PAGE> 46
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding.
3. Make loans, except that the Funds may purchase or hold debt instruments in
accordance with their investment objective and policies, may lend Fund
securities in accordance with its investment objective and policies, and may
enter into repurchase agreements.
4. Write or sell puts, calls, straddles, spreads, or combinations thereof
except that the Funds may acquire puts with respect to Eligible Municipal
Securities and sell those puts in conjunction with a sale of those Eligible
Municipal Securities.
AND THE MUNICIPAL BOND FUND MAY NOT,
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in such issuer, or the Fund would hold more than 10% of
any class of securities of the issuer or more than 10% of the outstanding voting
securities of the issuer, except that up to 25% of the value of the Fund's total
assets may be invested without regard to such limitations. There is no limit to
the percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities.
VALUATION OF SHARES
The net asset value of each Fund is determined and its Shares are priced as of
4:00 p.m., Eastern Time (the "Valuation Time") on each Business Day of the Fund.
A "Business Day" is a day on which the New York Stock Exchange is open for
trading. The New York Stock Exchange will not open in observance of the
following holidays: New Year's Day, President's Day, Good Friday, Memorial Day,
Labor Day, Independence Day, Thanksgiving and Christmas. Net asset value per
Share for purposes of pricing sales and redemptions is calculated by dividing
the value of all securities and other assets belonging to a Fund, less the
liabilities charged to the Fund, by the number of the outstanding Shares of the
Fund. The net asset value per Share of the Tax-Free Funds will fluctuate as the
value of their investment portfolio changes.
The securities in each Tax-Free Fund will be valued at market value. If market
quotations are not available, the securities will be valued by a method which
the Board of Trustees of the Trust believes accurately reflects fair value. For
further information about valuation of investments in the Tax-Free Funds, see
the Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in the Funds are sold on a continuous basis by the distributor, BISYS
Fund Services (the "Distributor"). The principal office of the Distributor is
3435 Stelzer Road, Columbus, Ohio 43219. If you wish to purchase Shares, contact
the Trust at (800) 451-8382.
PURCHASES OF SHARES
Shares of the Funds may be purchased through procedures established by the
Distributor in connection with requirements of qualified accounts maintained by
or on behalf of certain persons ("Customers") by AmSouth or its correspondent or
affiliated banks (collectively, the "Banks"). These procedures may include
instructions under which a Customer's account is "swept" automatically no less
frequently than weekly and amounts in excess
9
<PAGE> 47
of a minimum amount agreed upon by a Bank and its Customer are invested by the
Distributor in Shares of a Tax-Free Fund. These procedures may also include
transactions whereby AmSouth as agent purchases Shares of a Fund in amounts that
correspond to the market value of securities sold to a Fund by AmSouth as agent.
Shares of the Trust sold to the Banks acting in a fiduciary, advisory,
custodial, or other similar capacity on behalf of Customers will normally be
held of record by the Banks. With respect to Shares so sold, it is the
responsibility of the particular Bank to transmit purchase or redemption orders
to the Distributor and to deliver federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Banks and reflected
in the account statements provided by the Banks to Customers.
Investors may also purchase Shares of a Tax-Free Fund by completing and
signing an Account Registration Form and mailing it, together with a check (or
other negotiable bank draft or money order) in at least the minimum initial
purchase amount of $1,000, payable to the Trust in care of AmSouth Mutual Funds,
Department L 1304, Columbus, Ohio 43260-1304. Subsequent purchases of Shares of
a Fund may be made at any time by mailing a check (or other negotiable bank
draft or money order) payable to the Trust, to the above address.
If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Shares of a Fund either by telephone or
by wiring funds to the Trust's custodian. Telephone orders may be placed by
calling the Trust at (800) 451-8382. Payment for Shares ordered by telephone may
be made by check and must be received by the Trust's custodian within seven days
of the telephone order. If payment is not received within seven days or a check
timely received does not clear, the purchase will be canceled and the investor
could be liable for any losses or fees incurred. In the case of purchase of
Shares effected by wiring funds, investors must call the Trust at (800) 451-8382
to obtain instructions regarding the bank account number into which the funds
should be wired and other pertinent information.
Investors may also purchase Shares by arranging systematic monthly, bi-monthly
or quarterly investments into the Funds with the Trust's Automatic Investment
Plan ("AIP"). The minimum investment amounts are $50 per transfer and the
maximum amount with respect to any transfer is $100,000. After investors give
the Trust proper authorization, their bank accounts, which must be with banks
that are members of the Automated Clearing House, will be debited accordingly to
purchase Shares. Investors will receive a confirmation from the Trust for every
transaction, and a withdrawal will appear on their bank statements.
To participate in AIP, investors must complete the appropriate sections of the
Account Registration form or call for instructions. This form may be obtained by
calling the Trust at (800) 451-8382. The amount investors specify will
automatically be invested in Shares at the specified Fund's public offering
price per Share next determined after the debit is made.
To change the frequency or amount invested, written instructions must be
received by the Trust at least seven Business Days in advance of the next
transfer. If the bank or bank account number is changed, instructions must be
received by the Trust at least 20 Business Days in advance. In order to change a
bank or bank account number, investors must also have their signature guaranteed
by a bank, broker, dealer, credit union, securities exchange, securities
association, clearing agency or savings association, as those terms are defined
in Rule 17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible
Guarantor Institution"). Signature guarantees are described more fully under
"REDEMPTION BY MAIL" below. If there are insufficient funds in the investor's
designated bank account to cover the Shares purchased using AIP, the investor's
bank may charge the investor a fee or may refuse to honor the transfer
instruction (in which case no Fund Shares will be purchased).
Investors should check with their banks to determine whether they are members
of the Automated
10
<PAGE> 48
Clearing House and whether their banks charge a fee for transferring funds
through the Automated Clearing House. Expenses incurred by the Funds related to
AIP are borne by the Funds; therefore, there is no direct charge by the Funds to
investors for use of these services.
Shares of the Tax-Free Funds are purchased at the public offering price per
Share, which is the net asset value per Share (see "VALUATION OF SHARES") next
determined after receipt by the Distributor of an order in good form to purchase
Shares plus the applicable sales charge as described below. Purchases of Shares
of the Funds will be effected only on Business Days (as defined in "VALUATION OF
SHARES" in this Prospectus) of the Funds. An order received prior to the
Valuation Time on any Business Day will be executed based on the net asset value
determined as of the Valuation Time on the date of receipt. An order received
after the Valuation Time on any Business Day will be executed based on the net
asset value determined as of the next Business Day.
In the case of orders for the purchase of Shares placed through a
broker-dealer, the applicable public offering price will be the net asset value
as so determined, but only if the broker-dealer receives the order prior to the
Valuation Time for that day and transmits it to the Distributor prior to its
close of business that same day (normally 4:00 p.m. Eastern Time). The
broker-dealer is responsible for transmitting such orders by 4:00 p.m. If the
broker-dealer fails to do so, the investor's right to that day's closing price
must be settled between the investor and the broker-dealer.
The minimum investment is $1,000 for the initial purchase of Shares of the
Tax-Free Funds by an investor. There is no minimum investment for subsequent
purchases; however, as described above, the minimum subsequent investment when
using AIP is $50 per transfer.
Depending upon the terms of a particular Customer account, the Banks may
charge a Customer's account fees for automatic investment and other cash
management services provided in connection with investment in the Tax-Free
Funds. Information concerning these services and any charges can be obtained
from the Banks. This Prospectus should be read in conjunction with any such
information received from the Banks.
The Trust reserves the right to reject any order for the purchase of its
Shares in whole or in part, including purchases made with foreign and third
party drafts or checks.
Every Shareholder will receive a confirmation of each new transaction in his
or her account, which will also show the total number of Shares of the
particular Fund owned by the Shareholder. Reports of purchases and redemptions
of Shares by Banks on behalf of their Customers will be sent by the Banks to
their Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
SALES CHARGE
The public offering price of a share of the Tax-Free Funds equals its net
asset value plus a sales charge. The Winsbury Company receives this sales charge
as Distributor and may re-allow a portion of it as dealer discounts and
brokerage commissions. However, Winsbury, at its sole discretion, may pay
certain dealers all or part of the portion of the sales charge it receives. A
broker or dealer who receives a reallowance in excess of 90% of the sales charge
may be deemed to be an "underwriter" for purposes of the Securities Act of 1933.
11
<PAGE> 49
<TABLE>
<CAPTION>
DEALER
SALES CHARGE AS ALLOWANCE
A PERCENTAGE OF SALES CHARGE AS AS A PERCENTAGE
NET AMOUNT A PERCENTAGE OF OF OFFERING
AMOUNT OF PURCHASE INVESTED OFFERING PRICE PRICE
- ---------------------------------------------- --------------- --------------- ---------------
<S> <C> <C> <C>
Less than $100,000............................ 3.09% 3.00% 2.70%
$100,000 but less than $250,000............... 2.04% 2.00% 1.80%
$250,000 but less than $1,000,000............. 1.01% 1.00% .90%
$1,000,000 or more............................ -0- -0- -0-
</TABLE>
From time to time dealers who receive dealer discounts and broker commissions
from the Distributor may reallow all or a portion of such dealer discounts and
broker commissions to other dealers or brokers. Compensation will also include
the following types of non-cash compensation offered through sales contests: (1)
vacation trips, including the provision of travel arrangements and lodging at
luxury resorts at an exotic location, (2) tickets for entertainment events (such
as concerts, cruises and sporting events) and (3) merchandise (such as clothing,
trophies, clocks and pens).
The sales charges set forth in the table above are applicable to purchases
made at one time by any purchaser (a "Purchaser"), which includes: (i) an
individual, his or her spouse and children under the age of 21; (ii) a trustee
or other fiduciary of a single trust estate or single fiduciary account; or
(iii) any other organized group of persons, whether incorporated or not,
provided that such organization has been in existence for at least six months
and has some purpose other than the purchase of redeemable securities of a
registered investment company. In order to qualify for a lower sales charge, all
orders from a Purchaser will have to be placed through a single investment
dealer and identified at the time of purchase as originating from the same
Purchaser, although such orders may be placed into more than one discrete
account which identifies the Purchasers.
SALES CHARGE WAIVERS
The following classes of investors may purchase Shares of the Tax-Free Funds
with no sales charge in the manner described below (which may be changed or
eliminated at any time by the Distributor):
(1) Existing Shareholders of the Funds upon the reinvestment of dividend and
capital gain distributions;
(2) Officers, trustees, directors, employees and retired employees of the
Trust, AmSouth Bancorporation and its affiliates, and BISYS Fund Services and
its affiliates (and spouses and children of each of the foregoing);
(3) Investors for whom AmSouth Bancorporation or one of its affiliates acts in
a fiduciary, advisory, custodial (non-retirement account), agency or similar
capacity; and
(4) Employees (and their spouses and children under the age of 21) of any
broker-dealer with which the Distributor enters into a dealer agreement to sell
shares of the Funds; and
(5) Orders placed on behalf of other investment companies distributed by the
Distributor and its affiliated companies.
(6) Investors who purchase Tax-Free Fund Shares through certain
broker-dealers, registered investment advisers and other financial institutions
that have entered into an agreement with the Distributor, which includes a
requirement that such shares be sold for the benefit of clients participating in
a "wrap account," asset allocation or a similar program under which such clients
pay a fee to such broker-dealer, registered investment advisor or other
financial institution.
From time to time, for special promotional purposes, the Distributor may offer
special concessions
12
<PAGE> 50
to enable investors to purchase shares of a Fund offered by the Trust at net
asset value without payment of a front-end charge. To qualify for a net asset
value purchase, the investor must pay for such purchase with the proceeds from
the redemption of shares of a non-affiliated mutual fund on which a front-end
sales charge was paid. A qualifying purchase of shares must occur within 30 days
of prior redemption and must be evidenced by a confirmation of the redemption
transaction. At the time of purchase, the investment representative must notify
the Distributor that the purchase qualifies for a purchase at net asset value.
Proceeds from the redemption of shares on which no front-end sales charge was
paid do not qualify for a purchase at net asset value.
From time to time, the Distributor may also periodically waive all or a
portion of the sales charge for all investors with respect to the Tax-Free
Funds.
LETTER OF INTENT
By checking the Letter of Intent box on the account application, a shareholder
becomes eligible for reduced sales charges applicable to the total amount
invested in shares of a Tax-Free Fund in the load fund over a 13-month period
(beginning up to 90 days prior to the date indicated on the account
application). The Trust's Transfer Agent will hold in escrow 5% of the amount
indicated for payment of the higher sales charge if a shareholder does not
purchase the full amount indicated on the account application. Upon completion
of the total minimum investment specified on the account application, the escrow
will be released, and an adjustment will be made to reflect any reduced sales
charge applicable to shares purchased during the 90-day period prior to
submission of the account application. Additionally, if the total purchases
within the 13-month period exceed the amount specified, an adjustment will be
made to reflect further reduced sales charges applicable to such purchases. All
such adjustments will be made at the conclusion of the 13-month period in the
form of additional shares credited to the shareholder's account at the then
current Public Offering Price applicable to a single purchase of the total
amount of the total purchases. If total purchases are less than the amount
specified, escrowed shares may be involuntarily redeemed to pay the additional
sales charge. Checking a Letter of Intent box does not bind an investor to
purchase, or the Fund to sell, the full amount indicated at the sales load in
effect at the time of signing, but an investor must complete the intended
purchase to obtain the reduced sales load.
For further information about Letters of Intent, interested investors should
contact the Trust at (800) 451-8382. This program, however, may be modified or
eliminated at any time or from time to time by the Distributor without notice.
CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION
A Purchaser may qualify for a reduced sales charge by combining concurrent
purchases of Shares of a Tax-Free Fund and one or more of the other Funds of the
Trust sold with a sales charge or by combining a current purchase of Shares of a
Tax-Free Fund with prior purchases of Shares of any Fund of the Trust sold
subject to a sales charge. The applicable sales charge is based on the sum of
(i) the Purchaser's current purchase of shares of any Fund sold with a sales
charge plus (ii) the then current net asset value of all Shares held by the
Purchaser in any Fund sold with a sales charge. To receive the applicable public
offering price pursuant to the right of accumulation Shareholders must at the
time of purchase provide the Transfer Agent or the Distributor with sufficient
information to permit confirmation of qualification. Accumulation privileges may
be amended or terminated without notice at any time by the Distributor.
EXCHANGE PRIVILEGE
Shareholders may exchange Shares of the Tax-Free Funds for Shares of any other
Fund of the Trust so long as they maintain the respective minimum account
balance in each Fund in which they own Shares. Tax-Free Fund Shareholders may
exchange their Shares for Shares of a Fund with the same or lower sales charge
on the basis of the relative net asset value of the Shares exchanged. Tax-Free
Fund Shareholders may exchange their
13
<PAGE> 51
Shares for Shares of a Fund with a higher sales charge by paying the difference
between the two sales charges. Shares of a Fund without a sales charge that were
acquired through an exchange of Shares of a Fund in which a sales charge was
paid may be exchanged for Shares of a Fund with a sales charge without payment
of a sales charge, provided that such an exchange may only be made once during
each calendar year and only upon the written request of a Shareholder. To
receive the applicable public offering price, shareholders must at the time of
purchase provide the Transfer Agent or the Distributor with sufficient
information to permit confirmation of qualification.
An exchange is considered to be a sale of Shares for federal income tax
purposes on which a Shareholder may realize a capital gain or loss. In general,
if a shareholder exchanges Alabama, Florida or Municipal Bond Fund shares for
Shares of another Fund without paying a sales charge, the gain or loss on the
exchange of the Alabama, Florida or Municipal Bond Fund Shares will be
calculated without taking into account the sales charge paid on the Alabama,
Florida or Municipal Bond Fund Shares if the Shares were not held for at least
91 days. The sales charge will instead be added to the basis of the Fund Shares
acquired in the exchange. The application of this rule will increase the gain or
reduce the loss that the Shareholder would otherwise recognize on the exchange
of the Shares of the Tax-Free Funds. Before an exchange can be effected, a
Shareholder must receive a current prospectus of the Fund into which the Shares
are exchanged. An exchange may be made by calling the Trust at (800) 451-8382 or
by mailing written instructions to the Transfer Agent. Exchange privileges may
be exercised only in those states where Shares of such other Funds of the Trust
may legally be sold, and may be amended or terminated at any time upon sixty
(60) days' notice.
The Trust's exchange privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Accordingly, in order to
prevent excessive use of the exchange privilege that may potentially disrupt the
management of the Trust and increase transaction costs, the Trust has
established a policy of limiting excessive exchange activity. Exchange activity
will not be deemed excessive if limited to four substantive exchange redemptions
from a Fund during any calendar year.
DIRECTED DIVIDEND OPTION
Shareholders can elect to have dividend distributions (capital gains,
dividends, dividends and capital gains) paid by check or reinvested within the
Tax-Free Funds or reinvested in other AmSouth Mutual Funds of the same
shareholder registration without a sales charge. To participate in the Directed
Dividend Option, a shareholder must maintain a minimum balance of $1,000 in each
Fund into which he or she plans to reinvest dividends.
The Directed Dividend Option may be modified or terminated without notice. In
addition, the Trust may suspend a shareholder's Directed Dividend Option without
notice if the account balance is less than the minimum $1,000. Participation in
the Option may be terminated or changed by the shareholder at anytime by writing
the Distributor. The Directed Dividend Option is not available to participants
in an AmSouth Mutual Fund IRA.
REDEMPTION OF SHARES
Shares may ordinarily be redeemed by mail or by telephone. However, all or
part of a Customer's Shares may be redeemed in accordance with instructions and
limitations pertaining to his or her account at a Bank.
REDEMPTION BY MAIL
A written request for redemption must be received by the Trust in order to
constitute a valid tender for redemption. The Transfer Agent will require a
signature guarantee by an eligible guarantor institution. For purposes of this
policy, the term "eligible guarantor institution" shall include banks, brokers,
dealers, credit unions, securities exchanges and associations, clearing agencies
and savings associations as those terms are defined in Rule 17 Ad-15 under the
Securities Exchange Act of 1934. The Transfer Agent reserves the right to reject
any signature guarantee if (1) it has reason to believe
14
<PAGE> 52
that the signature is not genuine, (2) it has reason to believe that the
transaction would otherwise be improper, or (3) the guarantor institution is a
broker or dealer that is neither a member of a clearing corporation nor
maintains net capital of at least $100,000. The signature guarantee requirement
will be waived if the following conditions apply: (1) the redemption check is
payable to the Shareholder(s) of record; and (2) the redemption check is mailed
to the Shareholder(s) at the address of record or the proceeds are either mailed
or wired to a financial institution account previously designated. There is no
charge for having redemption requests mailed to a designated bank account.
REDEMPTION BY TELEPHONE
A Shareholder may have the payment of redemption requests wired or mailed
directly to a domestic commercial bank account previously designated by the
Shareholder on the Account Registration Form. Under most circumstances, such
payments will be transmitted on the next Business Day following receipt of a
valid request for redemption. Such wire redemption requests may be made by the
Shareholder by telephone to the Trust. The Transfer Agent may reduce the amount
of a wire redemption payment from the maximum wire redemption charge of $15.00.
Such charge is presently $7.00 for each wire redemption. There is no charge for
having payment of redemption requests mailed or transmitted via the Automated
Clearing House to a designated bank account. For telephone redemptions, call the
Trust at (800) 451-8382. The Trust will employ reasonable procedures to confirm
that instructions communicated by telephone are genuine; if these procedures are
not followed, the Trust may be liable for any losses due to unauthorized or
fraudulent instructions. These procedures include recording all phone
conversations, sending confirmations to Shareholders within 72 hours of the
telephone transaction, verifying the account name and a shareholder's account
number or tax identification number and sending redemption proceeds only to the
address of record or to a previously authorized account. During periods of
significant economic or market change, telephone redemptions may be difficult to
complete. If a Shareholder is unable to contact the Distributor by telephone, a
Shareholder may also mail the redemption request to the Distributor at the
address listed above under "HOW TO REDEEM SHARES -- Redemption by Mail."
PAYMENTS TO SHAREHOLDERS
Redemption orders are effected at the net asset value per Share next
determined after the Shares are properly tendered for redemption, as described
above. The proceeds paid upon redemption of Shares in the Tax-Free Funds may be
more or less than the amount invested. Payment to Shareholders for Shares
redeemed will be made within seven days after receipt by the Transfer Agent of
the request for redemption. However, to the greatest extent possible, the Trust
will attempt to honor requests from Shareholders for next Business Day payments
upon redemption of Shares if the request for redemption is received by the
Transfer Agent before 4:00 p.m., Eastern Time, on a Business Day or, if the
request for redemption is received after 4:00 p.m., Eastern Time, to honor
requests for payment within two Business Days, unless it would be
disadvantageous to the Trust or the Shareholders of the particular Fund to sell
or liquidate portfolio securities in an amount sufficient to satisfy requests
for payments in that manner.
At various times, the Trust may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Trust may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by wire transfer. The Trust intends to pay cash for
all Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Trust may make payment wholly or partly in portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
15
<PAGE> 53
Due to the relatively high cost of handling small investments, the Trust
reserves the right to redeem, at net asset value, the Shares of any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder, the
account of such Shareholder in a Tax-Free Fund has a value of less than $250.
Accordingly, an investor purchasing Shares of the Funds in only the minimum
investment amount may be subject to such involuntary redemption if he or she
thereafter redeems some of his or her Shares. Before the Trust exercises its
right to redeem such Shares and to send the proceeds to the Shareholder, the
Shareholder will be given notice that the value of the Shares in his or her
account is less than the minimum amount and will be allowed 60 days to make an
additional investment in an amount which will increase the value of the account
to at least $250.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Trust may suspend the right of
redemption or redeem Shares involuntarily if it appears appropriate to do so in
light of the Trust's responsibilities under the Investment Company Act of 1940.
DIVIDENDS AND TAXES
A dividend for each of the Funds will be declared monthly at the close of
business on the day of declaration consisting of an amount of accumulated
undistributed net income of the Fund as determined necessary or appropriate by
the appropriate officers of the Trust. Dividends will generally be paid monthly.
Distributable net realized capital gains are distributed at least annually to
Shareholders of record. A Shareholder will automatically receive all income
dividends and capital gains distributions in additional full and fractional
Shares unless the Shareholder elects to receive such dividends or distributions
in cash. Dividends and distributions are reinvested without a sales charge as of
the ex-dividend date using the net asset value determined on that date and are
credited to a Shareholder's account on the payment date. Reinvested dividends
and distributions receive the same tax treatment as dividends and distributions
paid in cash. Dividends are generally taxable when received. However, dividends
declared in October, November, or December to Shareholders of record during
those months and paid during the following January are treated for tax purposes
as if they were received by each Shareholder on December 31 of the prior year.
Elections to receive dividends or distributions in cash, or any revocation
thereof, must be made in writing to the Transfer Agent at 3435 Stelzer Road,
Columbus, Ohio 43219, and will become effective with respect to dividends and
distributions having record dates after its receipt by the Transfer Agent.
The Funds are treated as separate entities for federal income tax purposes.
The Tax-Free Funds intend to qualify for treatment as a "regulated investment
company" under the Internal Revenue Code of 1986, as amended (the "Code"). If
they so qualify, the Funds will not have to pay federal income taxes on net
income and net capital gain income that they distribute to shareholders.
Regulated investment companies are also subject to a federal excise tax if they
do not distribute their income on a timely basis. The Funds intend to avoid
paying federal income and excise taxes by timely distributing substantially all
of their net income and net capital gain income.
The Funds' Shareholders may treat as exempt interest and exclude from gross
income for federal income tax purposes dividends derived from net
exempt-interest income and designated by the Funds as exempt interest dividends.
However, such dividends may be taxable to shareholders under state or local law
as ordinary income even though all or a portion of the amounts may be derived
from interest on tax-exempt obligations which, if realized directly, would be
exempt from such taxes.
Dividends from the Funds attributable to exempt-interest dividends may cause
the social security and railroad retirement benefits of individual sharehold-
16
<PAGE> 54
ers to become taxable, or increase the amount that is taxable. Interest on
indebtedness incurred by a Shareholder to purchase or carry Shares is not
deductible for federal income tax purposes to the extent the Funds distribute
exempt-interest dividends during the Shareholder's taxable year. It is
anticipated that distributions from the Funds will not be eligible for the
dividends received deduction for corporate shareholders.
Gains on the sale of Shares in the Tax-Free Funds will be subject to federal,
state, and local taxes. If a Shareholder receives an exempt-interest dividend
with respect to any Share of the Fund and such Share is held for six months or
less, any loss on the sale or exchange of such Share will be disallowed to the
extent of the amount of such exempt-interest dividend.
A Tax-Free Fund may at times purchase Municipal Securities at a discount from
the price at which they were originally issued. For federal income tax purposes,
some or all of this market discount will be included in the Tax-Free Fund's
ordinary income and will be taxable to Shareholders as such when it is
distributed to them.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit, market discount or
repurchase agreements) or from long-term or short-term capital gains, such
dividends will be subject to federal income tax and may be subject to state and
local tax. A Shareholder should consult his or her own tax advisor for any
special advice.
Dividends attributable to interest on certain private activity bonds issued
after August 7, 1986 must be included in alternative minimum taxable income of
individual and corporate Shareholders for the purpose of determining liability
(if any) for the applicable alternative minimum tax. All tax-exempt interest
dividends will be required to be taken into account in calculating the
alternative minimum taxable income of corporate shareholders.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION -- Additional Tax Information" and "Additional Tax Information
Concerning the Alabama and Florida Funds."
The foregoing discussion is limited to federal income tax consequences and is
based on tax laws and regulations which are in effect as of the date of this
Prospectus; such laws and regulations may be changed by legislative or
administrative actions. The foregoing is also intended only as a brief summary
of some of the important tax considerations generally affecting the Tax-Free
Funds and their Shareholders. Potential investors in the Tax-Free Funds are
urged to consult their tax advisers concerning their own tax situation and
concerning the application of state and local taxes which may differ from the
federal income tax consequences described above.
Shareholders will be advised at least annually as to the character for federal
income tax purposes of distributions made during the year.
ALABAMA TAXES
Section 40-18-14(2)f of the Alabama Code specifies that interest on
obligations of the State of Alabama and any county, municipality or other
political subdivision thereof is exempt from personal income tax. Section
40-18-14(2)d provides similar tax-exempt treatment for interest on obligations
of the United States or its Possessions (including Puerto Rico, Guam and the
Virgin Islands). In addition, Regulation Section 810-3-14-.02(4)(b)2 and an
Administrative ruling of the Alabama Department of Revenue dated March 1, 1990
extend these exemptions for interest to distributions from a regulated
investment company (such as the Alabama Fund) to the extent that they are paid
out of interest earned on such exempt obligations. Tax-exempt treatment is not
available on distributions from income earned on securities that are merely
guaranteed by the federal government (GNMAs, FNMAs, etc.), for repurchase
agreements collateralized by U.S. Government obligations or for obligations of
other states to the extent such investments are made by the Fund for temporary
or
17
<PAGE> 55
defensive purposes. Such interest will be taxable on a pro rata basis.
Any distributions of net short-term and net long-term capital gain earned by
the Fund are fully includable in each shareholder's Alabama taxable income as
dividend income and long-term capital gain, respectively. Both types of income
are currently taxed at ordinary rates.
The foregoing discussion is based on tax laws and regulations which are in
effect as of the date of this Prospectus; such laws and regulations may be
changed by legislative or administrative actions. The foregoing is also intended
only as a brief summary of some of the important Alabama tax considerations
generally affecting the Alabama Fund and its Shareholders. Potential investors
are urged to consult their tax advisors concerning their own tax situation and
concerning the application of state and local (as well as federal) taxes.
FLORIDA TAXES
The State of Florida does not impose an income tax on individuals. Therefore,
distributions of the Florida Fund to individuals will not be subject to personal
income taxation in Florida. Corporations and other entities subject to the
Florida income tax will be subject to tax on distributions of investment income
and capital gains by the Fund. Distributions attributable to interest on
obligations of any state (including Florida), the District of Columbia, U.S.
possessions, or any political subdivision thereof, will be taxable for Florida
income tax purposes even though such interest income is exempt from federal
income tax. Similarly, distributions attributable to interest on obligations of
the United States and its territories will be taxable under the Florida income
tax. For individuals and other entities subject to taxation in states and
localities other than Florida, distributions of the Fund will be subject to
applicable taxes imposed by such other states and localities.
In the opinion of special Florida tax counsel to the Fund, shareholders of the
Florida Fund who are subject to the Florida Intangible Personal Property Tax
(the "Intangible Tax") will not be subject to the Intangible Tax on shares of
the Florida Fund if, on the first day of the applicable calendar year, the
assets of the Florida Fund consist solely of obligations of Florida or its
political subdivisions; obligations of the United States, Puerto Rico, the
Virgin Islands or Guam; or bank deposits, cash or other assets which would be
exempt from the Intangible Tax if directly held by the shareholder. A ruling
confirming this tax treatment is being sought from the Florida Department of
Revenue. As described above, its is the Florida Fund's policy to invest at least
80% of its assets in Florida Municipal Securities exempt from the Intangible Tax
under normal market conditions. The Florida Fund intends to insure that, absent
abnormal market conditions, all of its assets held on January 1 of each year are
exempt from the Intangible Tax. Accordingly, the value of the Florida Fund
shares held by a shareholder should ordinarily be exempt from the Intangible
Tax. However, if on any January 1 the Florida Fund holds investments that are
not exempt from the Intangible Tax, the Florida Fund's shares could be wholly or
partially subject to the Intangible Tax for that year.
The foregoing discussion is intended only as a brief summary of the Florida
tax laws currently in effect which would generally affect the Florida Fund and
its shareholders. Potential investors are urged to consult with their Florida
tax counsel concerning their own tax situation.
MANAGEMENT OF AMSOUTH MUTUAL FUNDS
TRUSTEES OF AMSOUTH MUTUAL FUNDS
Overall responsibility for management of the Trust rests with the Board of
Trustees who are elected by the Shareholders of the Trust. There are currently
six Trustees, two of whom are "interested persons" of the Trust within the
meaning of that term under the Investment Company Act of 1940.
18
<PAGE> 56
The Trustees, in turn, elect the officers of the Trust to supervise actively its
day-to-day operations. The Trustees of the Trust, their current addresses, and
principal occupations during the past five years are as follows (if no address
is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS
- ------------------------------ --------------------- --------------------------------------
<S> <C> <C>
Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and
459 DER Building Vice Chairman, Department of Medicine,
1808 7th Avenue South University of Alabama at Birmingham
Birmingham, Alabama 35294 UAB Medical Center School of Medicine;
from June 1988 to October 1992,
President, Chief Executive Officer and
Medical Director, University of
Alabama Health Services Foundation
Wendell D. Cleaver Trustee From December 1988 to present,
2828 Dauphin Street Executive Vice President, Chief
Post Office Box 2248 Operating Officer and Director, Mobile
Mobile, AL 36652 Gas Service Corporation
J. David Huber* Trustee and From June 1987 to present, employee of
President BISYS Fund Services, Limited
Partnership
William J. Tomko* Chairman of the From April 1987 to present, employee
Board of Trustees of BISYS Fund Services, Limited
Partnership
Homer H. Turner, Jr. Trustee From June 1991 to present, retired;
729 Cary Drive until June 1991, Vice President,
Auburn, Alabama 36830 Birmingham Division, Alabama Power
Company
James H. Woodward, Jr. Trustee From July 1989 to present, Chancellor,
The University of North The University of North Carolina at
Carolina at Charlotte Charlotte; until July 1989, Senior
Charlotte, North Carolina Vice President, University College,
28223 University of Alabama at Birmingham
</TABLE>
- ------------
* Indicates an "interested person" of the Trust as defined in the Investment
Company Act of 1940.
The Trustees receive fees and are reimbursed for expenses in connection with
each meeting of the Board of Trustees they attend. However, no officer or
employee of BISYS Fund Services, or BISYS Fund Services Ohio, Inc. receives any
compensation from the Trust for acting as a Trustee. The officers of the Trust
(see the Statement of Additional Information) receive no compensation directly
from the Trust for performing the duties of their offices. BISYS Fund Services
receives fees from the Trust for acting as Administrator and BISYS Fund Services
Ohio, Inc. receives fees from the Trust for acting as Transfer Agent for and for
providing fund accounting services to the Trust. Mr. Huber and Mr. Tomko are
employees of BISYS Fund Services. Mr. Huber also serves as an executive officer
of BISYS Fund Services.
INVESTMENT ADVISOR
AmSouth has served as investment advisor of each Fund of the Trust since the
Trust's inception in August 1988. AmSouth was the first bank in its markets and
among the first in the Southeast to serve as an investment advisor for a family
of registered mutual funds. AmSouth is the principal
19
<PAGE> 57
bank affiliate of AmSouth Bancorporation, the largest banking institution
headquartered in the mid-south region consisting of Alabama, Florida, Georgia
and Tennessee. AmSouth Bancorporation reported assets as of December 31, 1994 of
$16.7 billion and operates more than 317 banking offices in Alabama, Florida,
Georgia and Tennessee and 52 mortgage banking offices in nine states. AmSouth
has provided investment management services through its Trust Investment
Department since 1915. As of March 31, 1995, that department had over $6.3
billion in assets under discretionary management and provided custody services
for an additional $678 million in securities, making AmSouth the largest
provider of trust services in Alabama. AmSouth serves as administrator for over
$12 billion in bond issues, and its trust division's Natural Resources
Department is ranked as one of the largest natural resource managers in the
United States. As Investment Advisor to the AmSouth Mutual Funds, AmSouth
provides investors in the Trust with the same professional, experienced money
management expertise that AmSouth has provided its trust customers.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the respective investment objectives and restrictions of the
Tax-Free Funds, AmSouth manages the Funds, makes decisions with respect to and
places orders for all purchases and sales of their investment securities, and
maintains their records relating to such purchases and sales. Dorothy E. Thomas
is the portfolio manager for the Alabama Tax-Free Fund and the Municipal Bond
Fund, and as such, has had primary responsibility for the day-to-day management
of the Funds' portfolios since their inception. Ms. Thomas has been associated
with AmSouth's Trust Investment Group for over ten years and is currently Vice
President and Trust Investment Officer. Gerald E. Canopari is the portfolio
manager for the Florida Tax-Free Fund, and as such, has had primary
responsibility for the day-to-day management of the Fund's portfolio since its
inception. Mr. Canopari has 23 years experience with AmSouth in managing Florida
Municipal Securities, and is currently Vice President and Trust Investment
Officer in the Clearwater office.
Under investment advisory agreements between the Trust and AmSouth, the fee
payable to AmSouth by the Tax-Free Funds for investment advisory services is the
lesser of (a) a fee computed daily and paid monthly at the annual rate of up to
sixty-five one-hundredths of one percent (.65%) of the Funds' average daily net
assets or (b) such fee as may from time to time be agreed upon in writing by the
Trust and AmSouth. A fee agreed to in writing from time to time by the Trust and
AmSouth may be significantly lower than the fee calculated at the annual rate
and the effect of such lower fee would be to lower the Funds' expenses and
increase the net income of the Funds during the period when such lower fee is in
effect. During the Trust's fiscal year ended July 31, 1995, AmSouth received
investment advisory fees amounting to .34% of the Florida Fund's average net
assets.
ADMINISTRATOR AND DISTRIBUTOR
BISYS Fund Services is the administrator for each Fund of the Trust, and also
acts as the Trust's principal underwriter and distributor (the "Administrator"
or the "Distributor," as the context indicates).
The Administrator generally assists in all aspects of the Tax-Free Funds'
administration and operation. Under a management and administration agreement
between the Trust and the Administrator, the fee payable by the Funds to the
Administrator for administration services is the lesser of (a) a fee computed at
the annual rate of up to twenty one-hundredths of one percent (.20%) of the
Funds' average daily net assets or (b) such fee as may from time to time be
agreed upon in writing by the Trust and the Administrator. A fee agreed to in
writing from time to time by the Trust and the Administrator may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower the Funds' expenses and increase the net income
of the Funds during the period when such lower fee is in effect. During the
Trust's fiscal year ended July 31, 1995, BISYS
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<PAGE> 58
Fund Services received administration fees amounting to .10% of the Florida
Fund's average net assets.
SUB-ADMINISTRATOR
Effective August 1, 1995, AmSouth became the Sub-Administrator to the Trust
pursuant to an agreement between the Administrator and AmSouth. Pursuant to this
agreement, AmSouth has assumed certain of the Administrator's duties, for which
AmSouth receives a fee, paid by the Administrator, calculated at an annual rate
of up to ten one-hundredths of one percent (.10%) of each Fund's average net
assets.
EXPENSES
AmSouth and the Administrator each bear all expenses in connection with the
performance of their services as Investment Advisor and Administrator,
respectively, other than the cost of securities (including brokerage
commissions, if any) purchased for the Alabama, Florida and Municipal Bond
Funds. Each Fund bears the following expenses relating to its operations: taxes,
interest, any brokerage fees and commissions, fees of the Trustees of the Trust,
Securities and Exchange Commission fees, state securities qualification fees,
costs of preparing and printing prospectuses for regulatory purposes and for
distribution to current Shareholders, outside auditing and legal expenses,
amortized organizational expenses, advisory and administration fees, fees and
out-of-pocket expenses of the custodian and the transfer agent, fees and out-of-
pocket expenses for fund accounting services, expenses incurred for pricing
securities owned by it, certain insurance premiums, costs of maintenance of its
existence, costs of Shareholders' and Trustees' reports and meetings, and any
extraordinary expenses incurred in the operation. The Funds will not bear,
directly or indirectly, the cost of any activity primarily intended to result in
the distribution of Shares of such Fund; such costs will be borne by the
Distributor.
BANKING LAWS
AmSouth believes that it possesses the legal authority to perform the
investment advisory services for the Funds contemplated by its investment
advisory agreement with the Trust and described in this Prospectus without
violation of applicable banking laws and regulations, and has so represented in
its investment advisory agreement with the Trust. Future changes in federal or
state statutes and regulations relating to permissible activities of banks or
bank holding companies and their subsidiaries and affiliates as well as further
judicial or administrative decisions or interpretations of present and future
statutes and regulations could change the manner in which AmSouth could continue
to perform such services for the Trust. See "MANAGEMENT OF THE TRUST -
Glass-Steagall Act" in the Statement of Additional Information for further
discussion of applicable banking laws and regulations.
INFORMATION RELATING TO THE ALABAMA FUND
GENERAL ECONOMIC CHARACTERISTICS OF ALABAMA
Alabama ranks twenty-second in the nation in total population, with over four
million residents in 1993. Its economy has historically been based primarily on
agriculture, textiles, mineral extraction and iron and steel production,
although the state has diversified into healthcare related industries and other
service-oriented sectors. Overall job growth rate was 4.0% for the period from
1989 to 1992. Alabama's per capita income in 1994 was ranked fortieth in the
nation. Currently Alabama's general obligations are rated Aa by Moody's and AA
by Standard and Poor's.
BALANCED BUDGET AND PRO-RATION PROCEDURES
Section 213 of the Constitution of Alabama, as amended, requires that annual
financial operations of Alabama must be on a balanced budget. The Constitution
also prohibits the state from incurring general obligation debt unless
authorized by an amendment to the Constitution. Amendments to the Constitution
have generally been adopted
21
<PAGE> 59
through a procedure that requires each amendment to be proposed by a favorable
vote of three-fifths of all the members of each house of the Legislature and
thereafter approved by a majority of the voters of the state voting in a
statewide election.
Alabama has statutory budget provisions which create a proration procedure in
the event that estimated budget resources in a fiscal year are insufficient to
pay in full all appropriations for such fiscal year. The Alabama state budget is
composed of two funds - the General Fund and the Education Fund. Proration of
either Fund is possible in any fiscal year, and proration may have a material
adverse effect on entities dependent on state funding, including certain issuers
of Alabama Municipal Securities held in the Alabama Fund.
Court decisions have indicated that certain state expenses necessary for
essential functions of government are not subject to proration under applicable
law. The Supreme Court of Alabama has held that the debt prohibition contained
in the constitutional amendment does not apply to obligations incurred for
current operating expenses payable during the current fiscal year, debts
incurred by separate public corporations, or state debt incurred to repel
invasion or suppress insurrection. The state may also make temporary loans not
exceeding $300,000 to cover deficits in the state treasury. Limited obligation
debt may be authorized by the legislature without amendment to the Constitution.
The state has followed the practice of financing certain capital improvement
programs - principally for highways, education and improvements to the State
Docks - through the issuance of limited obligation bonds payable solely out of
certain taxes and other revenues specifically pledged for their payment and not
from the general revenues of the state.
GENERAL OBLIGATION WARRANTS
Municipalities and counties in Alabama traditionally have issued general
obligation warrants to finance various public improvements. Alabama statutes
authorizing the issuance of such interest-bearing warrants do not require an
election prior to issuance. On the other hand, the Constitution of Alabama
(Section 222) provides that general obligation bonds may not be issued without
an election.
The Supreme Court of Alabama validated certain general obligation warrants
issued by the City of Hoover, reaffirming that such obligations did not require
an election under Section 222 of the Constitution of Alabama. In so holding, the
Court found that warrants are not "bonds" within the meaning of Section 222.
According to the Court, warrants are not negotiable instruments and transferees
of warrants cannot be holders in due course. Therefore, a transferee of warrants
is subject to all defenses that the issuer of such warrants may have against the
transferor.
County boards of education may borrow money by issuing interest-bearing
warrants payable solely out of such board's allocated or apportioned share of
specified tax. The county board's apportioned share of such tax may be
diminished upon the establishment of a city school system, which could
jeopardize the payment of the county board's warrants.
LIMITED TAXING AUTHORITY
Political subdivisions of the state have limited taxing authority. Ad valorem
taxes may be levied only as authorized by the Alabama Constitution. In order to
increase the rate at which any ad valorem tax is levied above the limit
otherwise provided in the Constitution, the proposed increase must be proposed
by the governing body of the taxing authority after a public hearing, approved
by an act of the Alabama Legislature and approved at an election within the
taxing authority's jurisdiction. In addition, the Alabama Constitution limits
the total amount of state, county, municipal and other ad valorem taxes that may
be imposed on any class of property in any one tax year. This limitation is
expressed in terms of a specified percentage of the market value of such
property.
Specific authorizing legislation is required for the levy of taxes by local
governments. In addition, the rate at which such taxes are levied may be limited
to the authorizing legislation or judicial precedent. For example, the Alabama
Supreme Court has held that sales and use taxes, which usually comprise a
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<PAGE> 60
significant portion of the revenues for local governments, may not be levied at
rates that are confiscatory or unreasonable. The total sales tax (state and
local) in some jurisdictions is 9%.
PRIORITY FOR ESSENTIAL GOVERNMENTAL FUNCTIONS
Numerous decisions of the Alabama Supreme Court hold that a governmental unit
may first use its taxes and other revenues to pay the expenses of providing
necessary governmental services before paying debt service on its bonds,
warrants or other indebtedness.
CHALLENGE TO EDUCATION FUNDING
On April 1, 1993, Montgomery Circuit Court Judge Gene Reese ruled that an
unconstitutional disparity exists among Alabama's school districts because of
inequitable distribution of tax funds. Judge Reese issued an order calling for a
new design for the distribution of funds for educational purposes as well as a
new system for funding public education.
The Alabama Legislature has recently adopted a new funding program. The new
funding program reduces the funds available for two-year colleges and
universities in order to increase the funding available for elementary and
secondary schools. In addition, the new law provides more funds to school
districts with lower property values by withholding some funds from wealthier
school districts. Any allocation of funds away from school districts could
impair the ability of such districts to service debt. It is impossible to
predict whether this new law would be found to comply with Judge Reese's ruling
or whether future challenges will occur.
INFORMATION RELATING TO THE FLORIDA FUND
GENERAL ECONOMIC CHARACTERISTICS OF FLORIDA
Florida ranks fourth in the nation in total population, with over 12.9 million
residents in 1990, and has been one of the fastest growing states in the nation.
Historically, tourism, agriculture, construction and manufacturing have
constituted the most important sectors of the state's economy. Construction
activity slows during periods of high interest rates or cyclical downturns. The
service sector employs the largest number of people in Florida. While wages in
the service sector tend to be lower than in manufacturing and other sectors of
the economy, the service sector traditionally has been less sensitive to
business cycles. Currently, Florida's general obligations are rated AA by both
Moody's and Standard and Poor's.
The southern and central portions of Florida's economy, in particular, rely
heavily on tourism and are sensitive to changes in the tourism industry. For
example, tourism in Florida has been adversely affected by publicity regarding
violent crimes against tourists, particularly tourists from abroad. Gasoline
price hikes and/or shortages from an oil embargo or other oil shortage could
severely affect U.S. tourism in the state, which is heavily dependent on
automobiles as the primary form of transportation.
South Florida also is susceptible to international trade and currency
imbalances due to its geographic location as the gateway to Latin America and
its involvement in foreign trade and investment. The central portion of the
state is affected by conditions in the phosphate and agriculture industries,
especially citrus and sugar. Northern Florida's economy is more heavily tied to
military bases, some of which are closing or scaling back as a result of Federal
budget cutbacks, and the lumber and paper industries.
The entire state can be affected by severe weather conditions including
hurricanes. The impact of severe hurricanes on the fiscal resources of the state
and local governments is difficult to assess.
SOURCES OF STATE AND LOCAL REVENUES
Florida's Constitution prohibits deficit spending by the state for
governmental operations. Florida
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<PAGE> 61
does not have a personal income tax. An amendment to the state's Constitution
would be required in order to institute an income tax, and passage of such an
amendment is believed to be highly unlikely due to the relatively large number
of retirees living in the state as well as to the general unpopularity of tax
increases in the current political climate. The principal sources of state
revenues are a 6% sales tax, state lottery, motor fuels tax, corporate income
tax, and miscellaneous other revenue sources, including beverage tax and
licenses, cigarette tax, documentary stamp taxes and an intangibles tax.
Dependence on the sales tax subjects state revenues to more volatility than
would be the case if Florida had a personal income tax, with sales tax
collections adversely affected during recessions and periods when tourism
declines.
Taxation by units of government other than the state is permitted only to the
extent that Florida's legislature enacts enabling legislation. The principle
sources of county and municipal government revenues are ad valorem property
taxes, state revenue sharing, and miscellaneous other revenue sources, including
utilities services fees and local option fees. The principal sources of revenues
for Florida's school districts are ad valorem property taxes and state revenue
sharing, including revenues from a state lottery. The state Constitution imposes
millage limits, including a 10-mill limit each on county, municipal and school
ad valorem taxes. Effective January 1, 1995, Florida's voters amended the state
Constitution to limit annual increases in the assessed value of homestead
property to the lesser of 3% of the prior year's assessment or the percentage
change in the Consumer Price Index during the preceding calendar year. The
limitation on increases in assessment of homestead property could eventually
lead to ratings revisions that could have a negative impact on the prices of
obligations funded with this source of taxation. However, the effect of the
limit will be tempered by reassessments of homestead property at market value
when sold.
Units of state and local government in Florida will continue to face spending
pressures due to infrastructure needs for an expanding population, especially in
view of growth management laws enacted by Florida's legislature. These laws
include concurrency requirements that impose building moratoriums unless roads
and other infrastructure are added concurrently with additional commercial or
residential developments.
TYPES OF INDEBTEDNESS
The two principal types of indebtedness issued by state or local units of
government in Florida are "general obligation bonds" and "revenue bonds."
General obligation bonds are secured by a pledge of the full faith, credit and
taxing power of the governmental entity issuing the bonds. They can be issued in
Florida only after a referendum in which the voters in the jurisdictional limits
of the jurisdiction issuing the bonds approve their issuance. Revenue bonds are
payable only from the revenues derived from a facility or class of facilities
or, in some cases, from the proceeds of a special tax or other specific revenue
source. Revenue bonds are not secured by the full faith, credit and taxing power
of the governmental issuer.
MARKET RISK CAUSED BY INTANGIBLE TAX
CONSIDERATIONS
As a normal policy, on January 1 of each calendar year the Florida Fund
intends to own only assets which are exempt from the Florida Intangibles Tax.
Accordingly, it is possible that the Florida Fund, in disposing of non-exempt
assets to meet this policy objective, might sustain losses which might not
otherwise be incurred absent this policy of avoiding the Florida Intangible Tax.
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<PAGE> 62
GENERAL INFORMATION RELATING TO THE FUNDS
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Massachusetts business trust on October 1, 1987.
The Trust has an unlimited number of authorized shares of beneficial interest
which may, without shareholder approval, be divided into an unlimited number of
series of such shares, and which are presently divided into twelve series of
shares, one for each of the following Funds: the AmSouth Prime Obligations Fund,
the AmSouth U.S. Treasury Fund, the AmSouth Tax Exempt Fund, the AmSouth Equity
Fund, the AmSouth Regional Equity Fund, the AmSouth Bond Fund, the AmSouth
Limited Maturity Fund, the AmSouth Municipal Bond Fund, the AmSouth Balanced
Fund, the AmSouth Government Income Fund, the AmSouth Alabama TaxFree Fund and
the AmSouth Florida Tax-Free Fund. Each Share represents an equal proportionate
interest in a Fund with other Shares of the same series, and is entitled to such
dividends and distributions out of the income earned on the assets belonging to
that Fund as are declared at the discretion of the Trustees (see "Miscellaneous"
below).
Shareholders are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as shareholders are entitled to vote.
Shareholders vote as a single class except (i) when required by the Investment
Company Act of 1940, shares shall be voted by individual series and (ii) when
the Trustees have determined that the matter affects only the interests of one
or more series, then only Shareholders of such series shall be entitled to vote
thereon.
Overall responsibility for the management of the Trust is vested in the Board
of Trustees. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- Trustees of the Trust."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Trust and Massachusetts law. See "ADDITIONAL INFORMATION -- Miscellaneous"
in the Statement of Additional Information for further information.
As of October 5, 1995, AmSouth was the beneficial owner of approximately 88.2%
of the outstanding shares of the Florida Fund, and may be deemed to be a
"controlling person" of that Fund within the meaning of the Investment Company
Act of 1940.
CUSTODIAN
Bank of California, N.A. serves as custodian for the Trust.
TRANSFER AGENT AND FUND ACCOUNTING SERVICES
BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the Trust.
PERFORMANCE INFORMATION
From time to time performance information for the Funds showing their total
return and/or yield may be presented in advertisements and sales literature.
Total return will be calculated for the past year and the period since the
establishment of the Funds. Average annual total return is measured by comparing
the value of an investment in each Fund at the beginning of the relevant period
to the redemption value of the investment at the end of the period (assuming the
investor paid the maximum sales load on the investment and assuming immediate
reinvestment of any dividends or capital gains distributions) and annualizing
the result. Aggregate total return is calculated similarly to average annual
total return except that the return figure is aggregated over the relevant
period instead of annualized. Yield will be computed by dividing the Funds' net
investment income per share earned during a recent one-month period by the
Funds' per share maximum offering price (reduced by any undeclared earned income
expected to be paid shortly as a dividend) on the last day of the period and
annualizing the result. Each Fund may also present its total return and/or yield
excluding the effect of the sales charge.
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<PAGE> 63
The Funds may also present its "tax equivalent yield" which reflects the
amount of income subject to federal income taxation that a taxpayer in a stated
tax bracket would have to earn in order to obtain the same after-tax income as
that derived from the yield of the Funds. The tax equivalent yield will be
significantly higher than the yield of the Funds.
Investors may also judge the performance of the Funds by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc. Comparisons may also
be made to indices or data published in Money Magazine, Forbes, Barron's, The
Wall Street Journal, The New York Times, Business Week, American Banker,
Fortune, Institutional Investor, Ibbotson Associates, Inc., Morningstar Inc.,
CDA/Wiesenberger, Pensions and Investments, U.S.A. Today, and local newspapers.
In addition to performance information, general information about these Funds
that appear in a publication such as those mentioned above may be included in
advertisements, sales literature and in reports to Shareholders.
Information about each Funds' performance is based on the Funds' record up to
a certain date and is not intended to indicate future performance. Yield and
total return are functions of the type and quality of instruments held in each
Fund, operating expenses and market conditions. Any fees charged by a Bank with
respect to accounts investing in Shares of each Fund will not be included in
performance calculations.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a Fund" means the consideration received by a Fund upon the
issuance or sale of Shares in that Trust, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or payments derived from any reinvestment of such proceeds, and any
general assets of the Trust not readily identified as belonging to a particular
Fund that are allocated to that Fund by the Trust's Board of Trustees. The Board
of Trustees may allocate such general assets in any manner it deems fair and
equitable. It is anticipated that the factor that will be used by the Board of
Trustees in making allocations of general assets to particular Funds will be the
relative net assets of the respective Funds at the time of allocation. Assets
belonging to a particular Fund are charged with the direct liabilities and
expenses in respect of that Fund, and with a share of the general liabilities
and expenses of the Trust not readily identified as belonging to a particular
Fund that are allocated to that Fund in proportion to the relative net assets of
the respective Funds at the time of allocation. The timing of allocations of
general assets and general liabilities and expenses of the Trust to particular
Funds will be determined by the Board of Trustees of the Trust and will be in
accordance with generally accepted accounting principles. Determinations by the
Board of Trustees of the Trust as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Trust or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Trust or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Trust or such Fund.
Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims Shareholder
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<PAGE> 64
liability for acts or obligations of the Trust and requires that notice of such
disclaimer be given in every agreement, obligation or instrument entered into or
executed by the Trust or the Trustees. The Declaration of Trust provides for
indemnification out of a Fund's property for all loss and expense of any
Shareholder of such Fund held liable on account of being or having been a
Shareholder. Thus, the risk of a Shareholder incurring financial loss on account
of Shareholder liability is limited to circumstances in which a Fund would be
unable to meet its obligations.
Inquiries regarding the Trust may be directed in writing to the Trust at 3435
Stelzer Road, Columbus, Ohio 43219, or by calling toll free (800) 451-8382.
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AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
LOGO
AmSouth Bank N.A.
1901 Sixth Avenue North
Birmingham, AL 35203
DISTRIBUTOR
BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005-3333
TRANSFER AGENT
BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
Coopers & Lybrand L.L.P.
100 East Broad Street
Columbus, OH 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
The Trust................................. 2
Fee Table................................. 2
Financial Highlights...................... 3
Investment Objective and Policies......... 4
Investment Techniques..................... 7
Investment Restrictions................... 8
Valuation of Shares....................... 9
How to Purchase and Redeem Shares......... 9
Dividends and Taxes....................... 16
Management of AmSouth Mutual Funds........ 18
Information Relating to the Alabama
Fund.................................... 21
Information Relating to the Florida
Fund.................................... 23
General Information....................... 25
</TABLE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE TRUST
OR THE DISTRIBUTOR. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING BY THE TRUST
OR BY THE DISTRIBUTOR IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT
LAWFULLY BE MADE.
LOGO
TAX-FREE FUNDS
LOGO
AMSOUTH BANK OF ALABAMA
INVESTMENT ADVISOR
--------------------------------
THIS PRODUCT IS
NOT FDIC INSURED
--------------------------------
BISYS FUND SERVICES,
LIMITED PARTNERSHIP
Prospectus dated November 30, 1995.
