<PAGE> 1
As filed with the Securities and Exchange Commission
on August 27, 1997
Registration Nos. 33-21660 and 811-5551
---------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933 [ ]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 24 [ X ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ ]
Amendment No. 25 [ X ]
AMSOUTH MUTUAL FUNDS
(Exact Name of Registrant as Specified in Charter)
3435 Stelzer Road, Columbus, Ohio 43219
---------------------------------------
(Address of Principal Executive Offices)
(800) 451-8379
(Registrant's Telephone Number, Including Area Code)
Name and address
of agent for service: Copy to:
--------------------- --------
Mr. J. David Huber Alan G. Priest, Esq.
AmSouth Mutual Funds Ropes & Gray
3435 Stelzer Road 1301 K Street, N.W., Suite 800 East
Columbus, Ohio 43219 Washington, D.C. 20005
It is proposed that this filing will become effective (check appropriate
box)
[ ] immediately upon filing pursuant to paragraph (b)
[ X ] on September 2, 1997 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485
[ ] This post-effective amendment designates a new effective date for
a previously filed post-effective amendment
The Registrant has registered an indefinite number or amount of its shares
of beneficial interest under the Securities Act of 1933 pursuant to Rule 24f-2.
The Registrant has filed a Rule 24f-2 Notice with respect to the Registrant's
fiscal year ended July 31, 1996 on September 25, 1996.
<PAGE> 2
CROSS REFERENCE SHEET
- ---------------------
Part A
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
PROSPECTUS FOR AMSOUTH BOND FUND,
---------------------------------
AMSOUTH LIMITED MATURITY FUND,
------------------------------
AMSOUTH GOVERNMENT INCOME FUND,
-------------------------------
AMSOUTH FLORIDA TAX-FREE FUND,
------------------------------
AND AMSOUTH MUNICIPAL BOND FUND
-------------------------------
<TABLE>
<CAPTION>
CLASSIC SHARES AND CLASS B SHARES
<S> <C> <C>
1. Cover Page............................... Cover Page
2. Synopsis ................................ Fee Table
3. Condensed Financial
Information ........................... Financial Highlights
4. General Description
of Registrant ......................... The Trust; Investment Objective and
Policies; Investment Restrictions; General
Information - Description of the Trust and
Its Shares
5. Management of the Fund Management of AmSouth Mutual Funds;
General Information - Custodian and
Transfer Agent
6. Capital Stock and
Other Securities ...................... The Trust; How to Purchase and Redeem
Shares; Dividends and Taxes; General
Information - Description of the Trust and
Its Shares; General Information -
Miscellaneous
7. Purchase of Securities
Being Offered ......................... Valuation of Shares; How to Purchase and
Redeem Shares
8. Redemption or Repurchase How to Purchase and Redeem Shares
9. Legal Proceedings ....................... Inapplicable
</TABLE>
<PAGE> 3
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 Bond Fund (the "Bond Fund"), the AmSouth Limited Maturity Fund
(the "Limited Maturity Fund"), the AmSouth Government Income Fund (the
"Government Income Fund"), the AmSouth Florida Tax-Free Fund (the "Florida
Fund"), and the AmSouth Municipal Bond Fund (the "Municipal Bond Fund")
(collectively, "the Income Funds" and the Florida Fund and Municipal Bond Fund
sometimes collectively referred to herein as "the Tax-Free Funds") are five of
fourteen series of units of beneficial interest ("Shares") each representing
interests in one of fourteen separate investment funds (the "Funds") of AmSouth
Mutual Funds (the "Trust"), an open-end management investment company. Each
Income Fund has its own investment objective, and the net asset value per share
of each Income Fund will fluctuate as the value of such Fund's investment
portfolio changes in response to changing market interest rates and other
factors. Each Income Fund is authorized to offer Premier Shares, Classic Shares
and Class B Shares. However, currently only Class B Shares of the Bond Fund are
being offered. The Shares of the Income Funds outstanding on August 31, 1997,
have been redesignated as Classic Shares.
AMSOUTH BOND FUND seeks current income consistent with the preservation of
capital. The Bond Fund seeks to achieve this objective by investing 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 seeks current income consistent with the
preservation of capital. The Limited Maturity Bond Fund seeks to achieve this
objective by investing 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 seeks current income consistent with the
preservation of capital. The Government Income Fund seeks to achieve this
objective by investing 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 FLORIDA TAX-FREE FUND seeks to produce as high a level of current
interest income exempt from federal income taxes and Florida intangible 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
<PAGE> 4
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.
AmSouth Bank, Birmingham, Alabama ("AmSouth") acts as the investment advisor
to each Fund of the Trust ("Advisor"). BISYS Fund Services, Limited Partnership
("BISYS Fund Services"), Columbus, Ohio, acts as the Trust's distributor
("Distributor").
Each Income Fund has been divided into three classes of Shares, Premier
Shares, Classic Shares and Class B Shares. The following investors qualify to
purchase Premier Shares: (i) investors for whom AmSouth acts in a fiduciary,
advisory, custodial, agency or similar capacity through an account with its
Trust Department; (ii) investors who purchase Shares of a Fund through a 401(k)
plan or a 403(b) plan which by its terms permits purchases of Shares; and (iii)
orders placed on behalf of other investment companies distributed by the
Distributor and its affiliated companies. All other investors are eligible to
purchase Classic Shares or Class B Shares only.
This Prospectus relates only to the Classic Shares and Class B Shares of the
Income Funds, which are offered to the general public. Premier Shares of the
Income Funds are offered through a separate prospectus. 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") and the AmSouth Equity Fund, the AmSouth Regional Equity Fund,
the AmSouth Balanced Fund, the AmSouth Capital Growth Fund, the AmSouth Small
Cap Fund, and the AmSouth Equity Income Fund (the "Capital Appreciation 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 Classic Shares
and Class B Shares of 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 September 1, 1997.
<PAGE> 5
FEE TABLE
<TABLE>
<CAPTION>
LIMITED GOVERNMENT MUNICIPAL
MATURITY INCOME FLORIDA BOND
BOND FUND FUND FUND FUND FUND
------------------- -------- ---------- ------- ---------
CLASSIC CLASS B CLASSIC CLASSIC CLASSIC CLASSIC
SHARES SHARES SHARES SHARES SHARES SHARES
------- ------- -------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price).................. 4.00% 0% 4.00% 4.00% 4.00% 4.00%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)......................................... 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of
original purchase price or redemption proceeds,
as applicable)................................. 0% 5.00% 0% 0% 0% 0%
Redemption Fees (as a percentage of amount
redeemed, if applicable)(2).................... 0% 0% 0% 0% 0% 0%
Exchange Fee................................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee
reduction)(3).................................. .50% .50% .50% .30% .30% .40%
12b-1 Fees..................................... .00% 1.00% .00% .00% .00% .00%
Shareholder Servicing Fees....................... .25% .00% .25% .25% .25% .25%
Other Expenses (after voluntary fee
reduction)(4).................................. .25% .25% .26% .35% .29% .30%(5)
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary fee reduction)(6)............. 1.00% 1.75% 1.01% .90% .84% .95%
==== ==== ==== ==== ==== ====
</TABLE>
- ---------------
(1) Financial Institutions 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 would be .65% for each 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 would be 0.33% for the Bond Fund, 0.34% for
the Limited Maturity Fund, 0.45% for the Government Income Fund, 0.39% for
the Florida Fund and are estimated to be 0.38% for the Municipal Bond Fund.
(See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS-Administrator.")
(5) "Other expenses" for the Municipal Bond Fund are based on estimated amounts
for the current fiscal year.
(6) In the absence of any voluntary reduction in investment advisory fees and
administration fees, Total Fund Operating Expenses for the Classic Shares
would be 1.23% for the Bond Fund, 1.24% for the Limited Maturity Fund, 1.35%
for the Government Income Fund, 1.29% for the Florida Fund and are estimated
to be 1.28% for the Municipal Bond Fund. In the absence of any voluntary
reduction in investment advisory fees and administration fees, Total Fund
Operating Expenses for the Class B Shares would be 1.98% for the Bond Fund.
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Classic Shares,
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>
Bond Fund................................................................ $ 50 $71 $93 $158
Limited Maturity Fund.................................................... $ 50 $71 $94 $159
Government Income Fund................................................... $ 49 $68 $88 $146
Florida Fund............................................................. $ 48 $66 $85 $140
Municipal Bond Fund...................................................... $ 49 $69 N/A N/A
</TABLE>
3
<PAGE> 6
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming (1) deduction of the applicable Contingent Deferred Sales Charge; and
(2) 5% annual return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Bond Fund Assuming a complete redemption at end of period................ $ 68 $85 $ 115 $186
Assuming no redemption................................................. $ 18 $55 $ 95 $186
</TABLE>
Long-term shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by NASD Rules.
The purpose of the tables above is to assist an investor in the Classic Shares
and Class B Shares of an Income Fund in understanding the various costs and
expenses that an investor 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 EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
The information set forth in the foregoing tables and examples relates only to
Classic Shares and Class B Shares. The Trust also offers Premier Shares of each
Income Fund which are subject to the same expenses except that there are no
sales charges nor shareholder servicing or distribution expenses charged to
Premier Shares. (See "Management of AmSouth Mutual Funds" -- "Investment
Advisor" and "Distributor").
4
<PAGE> 7
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information concerning the
investment results for each of the Funds for the period from commencement of
operations to January 31, 1997. The information from the commencement of
operations to July 31, 1996 is a part of the financial statements audited by
Coopers & Lybrand L.L.P., independent accountants for the Trust, whose report on
the Trust's financial statements for the year ended July 31, 1996 appears in the
Statement of Additional Information. The information for the period ended
January 31, 1997 is unaudited. The Municipal Bond Fund had not commenced
operations as of January 31, 1997. Further financial data is incorporated by
reference into the Statement of Additional Information.
BOND FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
SIX MONTHS ENDED --------------------------------------------------------------------
JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 1990
---------------- -------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $ 10.61
----- ----- ----- ----- ----- ----- ----- -----
INVESTMENT ACTIVITIES
Net investment income..... 0.32 $ 0.65 0.69 0.69 0.71 0.74 0.74 0.77
Net realized and
unrealized gains
(losses) from
investments............. 0.15 (0.18) 0.28 (0.66) 0.33 0.91 0.05 (0.21)
----- ----- ----- ----- ----- ----- ----- -----
Total from Investment
Activities.............. 0.47 0.47 0.97 0.03 1.04 1.65 0.79 0.56
----- ----- ----- ----- ----- ----- ----- -----
DISTRIBUTIONS
Net investment income..... (0.36) (0.65) (0.69) (0.70) (0.71) (0.73) (0.74) (0.75)
Net realized gains........ -- (0.11) (0.04) (0.03) (0.33) (0.05) (0.02) (0.03)
----- ----- ----- ----- ----- ----- ----- -----
Total Distributions....... (0.36) (0.76) (0.73) (0.73) (1.04) (0.78) (0.76) (0.78)
----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD.................... $ 10.65 $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39
===== ===== ===== ===== ===== ===== ===== =====
Total Return (Excludes
Sales Charge)........... 4.53%(c) 4.40% 9.70% 0.23% 9.80% 16.41% 7.99% 5.54%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000)............ $132,112 $132,737 $94,671 $79,472 $65,777 $60,156 $26,008 $17,518
Ratio of expenses to
average net assets...... 0.75%(b) 0.75% 0.75% 0.78% 0.78% 0.82% 0.93% 0.84%
Ratio of net investment
income to average net
assets.................. 6.03%(b) 6.12% 6.63% 6.31% 6.37% 6.94% 7.26% 7.82%
Ratio of expenses to
average net assets*..... 0.98%(b) 0.98% 0.98% 1.01% 1.01% 1.01% 1.11% 1.21%
Ratio of net investment
income to average net
assets*................. 5.80%(b) 5.89% 6.40% 6.08% 6.14% 6.75% 7.09% 7.45%
Portfolio Turnover.......... 11.20% 9.60% 17.70% 30.90% 14.98% 240.64% 181.77% 53.52%
<CAPTION>
DECEMBER 1, 1988
TO
JULY 31, 1989(a)
----------------
<S> <<C>
NET ASSET VALUE, BEGINNING
OF PERIOD................. $10.00
-----
INVESTMENT ACTIVITIES
Net investment income..... 0.50
Net realized and
unrealized gains
(losses) from
investments............. 0.56
-----
Total from Investment
Activities.............. 1.06
-----
DISTRIBUTIONS
Net investment income..... (0.45)
Net realized gains........ --
-----
Total Distributions....... (0.45)
-----
NET ASSET VALUE, END OF
PERIOD.................... $10.61
=====
Total Return (Excludes
Sales Charge)........... 10.91%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000)............ $4,954
Ratio of expenses to
average net assets...... 1.10%(b)
Ratio of net investment
income to average net
assets.................. 7.47%(b)
Ratio of expenses to
average net assets*..... 2.28%(b)
Ratio of net investment
income to average net
assets*................. 6.29%(b)
Portfolio Turnover.......... 0.00%
</TABLE>
- ---------------
- During the period certain 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.
(c) Not annualized.
5
<PAGE> 8
LIMITED MATURITY FUND
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
SIX MONTHS ENDED --------------------------------------------------------------------
JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 1990
---------------- -------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 $ 10.29 $ 10.35
INVESTMENT ACTIVITIES
Net investment income.... 0.30 0.58 0.58 0.54 0.60 0.70 0.73 0.72
Net realized and
unrealized gains
(losses) from
investments............ 0.04 (0.10) 0.17 (0.45) 0.09 0.45 0.17 (0.05)
----- ----- ----- ----- ----- ----- ----- -----
Total from Investment
Activities............. 0.34 0.48 0.75 0.09 0.69 1.15 0.90 0.67
----- ----- ----- ----- ----- ----- ----- -----
DISTRIBUTIONS
Net investment income.... (0.33) (0.57) (0.57) (0.54) (0.61) (0.69) (0.73) (0.70)
In excess of net
investment income...... -- (0.01) -- -- -- -- -- --
Net realized gains....... -- -- -- -- (0.08) (0.09) (0.02) (0.03)
In excess of net realized
gains.................. -- -- -- (0.13) -- -- -- --
----- ----- ----- ----- ----- ----- ----- -----
Total Distributions...... (0.33) (0.58) (0.57) (0.67) (0.69) (0.78) (0.75) (0.73)
----- ----- ----- ----- ----- ----- ----- -----
NET ASSET VALUE, END OF
PERIOD................... $ 10.32 $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 $ 10.29
===== ===== ===== ===== ===== ===== ===== =====
Total Return (Excludes
Sales Charge).......... 3.29%(c) 4.74% 7.65% 0.77% 6.72% 11.48% 9.06% 6.80%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000)........... $ 41,087 $ 46,005 $59,798 $51,660 $53,933 $38,206 $11,112 $ 5,983
Ratio of expenses to
average net assets..... 0.77%(b) 0.76% 0.80% 0.79% 0.69% 0.68% 0.85% 1.02%
Ratio of net investment
income to average net
assets................. 5.56%(b) 5.48% 5.69% 5.05% 5.67% 6.78% 7.19% 7.23%
Ratio of expenses to
average net assets*.... 1.00%(b) 0.99% 1.03% 1.02% 1.03% 1.03% 1.20% 1.45%
Ratio of net investment
income to average net
assets*................ 5.33%(b) 5.25% 5.46% 4.82% 5.33% 6.43% 6.84% 6.80%
PORTFOLIO TURNOVER......... 42.36% 29.56% 38.11% 48.06% 141.27% 35.64% 85.08% 119.69%
<CAPTION>
FEBRUARY 1, 1988
TO
JULY 31, 1989(a)
----------------
<S> <<C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $10.00
INVESTMENT ACTIVITIES
Net investment income.... 0.35
Net realized and
unrealized gains
(losses) from
investments............ 0.32
-----
Total from Investment
Activities............. 0.67
-----
DISTRIBUTIONS
Net investment income.... (0.32)
In excess of net
investment income...... --
Net realized gains....... --
In excess of net realized
gains.................. --
-----
Total Distributions...... (0.32)
-----
NET ASSET VALUE, END OF
PERIOD................... $10.35
=====
Total Return (Excludes
Sales Charge).......... 6.87%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000)........... $3,165
Ratio of expenses to
average net assets..... 1.41%(b)
Ratio of net investment
income to average net
assets................. 6.82%(b)
Ratio of expenses to
average net assets*.... 2.72%(b)
Ratio of net investment
income to average net
assets*................ 5.51%(b)
PORTFOLIO TURNOVER......... 28.28%
</TABLE>
- ---------------
- During the period certain 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.
(c) Not annualized.
6
<PAGE> 9
GOVERNMENT INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED
JULY 31, OCTOBER 1, 1993
SIX MONTHS ENDED ------------------- TO
JANUARY 31, 1997 1996 1995 JULY 31, 1994(a)
---------------- ------- ------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.......................... $ 9.40 $ 9.54 $ 9.48 $ 10.00
----- ----- ----- -----
INVESTMENT ACTIVITIES
Net investment income....................................... 0.26 0.66 0.68 0.54
Net realized and unrealized gains (losses) from
investments............................................... 0.20 (0.20) 0.08 (0.57)
----- ----- ----- -----
Total from Investment Activities.......................... 0.46 0.46 0.76 (0.03)
----- ----- ----- -----
DISTRIBUTIONS
Net investment income....................................... (0.27) (0.59) (0.70) (0.33)
Tax return of capital....................................... -- (0.01) -- (0.16)
----- ----- ----- -----
Total Distributions....................................... (0.27) (0.60) (0.70) (0.49)
----- ----- ----- -----
NET ASSET VALUE, END OF PERIOD................................ $ 9.59 $ 9.40 $ 9.54 $ 9.48
===== ===== ===== =====
Total Return (Excludes Sales Charge)...................... 4.95%(c) 4.91% 8.43% (0.26)%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)........................... $ 13,762 $15,752 $16,679 $ 15,465
Ratio of expenses to average net assets..................... 0.72%(b) 0.65% 0.58% 0.37%(b)
Ratio of net investment income to average net assets........ 5.49%(b) 6.81% 7.18% 6.56%(b)
Ratio of expenses to average net assets*.................... 1.17%(b) 1.10% 1.19% 1.22%(b)
Ratio of net investment income to average net assets*....... 5.04%(b) 6.36% 6.57% 5.71%(b)
PORTFOLIO TURNOVER............................................ 2.65% 78.31% 27.32% 122.94%
</TABLE>
- ---------------
* During the period certain 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.
(c) Not annualized.
FLORIDA TAX-FREE FUND
<TABLE>
<CAPTION>
SEPTEMBER 30, 1994
SIX MONTHS ENDED YEAR ENDED TO
JANUARY 31, 1997 JULY 31, 1996 JULY 31, 1995(a)
---------------- ------------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................ $ 10.30 $ 10.32 $ 10.00
----- ----- -----
INVESTMENT ACTIVITIES
Net investment income............................................. 0.22 0.45 0.34
Net realized and unrealized gains (losses) from investments....... 0.05 (0.01) 0.30
----- ----- -----
Total from Investment Activities................................ 0.27 0.44 0.64
----- ----- -----
DISTRIBUTIONS
Net investment income............................................. (0.25) (0.45) (0.32)
Net realized gains................................................ (0.01) (0.01) --
----- ----- -----
Total Distributions............................................. (0.26) (0.46) (0.32)
----- ----- -----
NET ASSET VALUE, END OF PERIOD...................................... $ 10.31 $ 10.30 $ 10.32
===== ===== =====
Total Return (Excludes Sales Charge)............................ 2.71%(c) 4.24% 6.53%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Asset at end of period (000).................................. $ 52,825 $48,869 $ 48,333
Ratio of expenses to average net assets........................... 0.54%(b) 0.59% 0.70%(b)
Ratio of net investment income to average net assets.............. 4.35%(b) 4.33% 4.16%(b)
Ratio of expenses to average net assets*.......................... 0.99%(b) 1.04% 1.01%(b)
Ratio of net investment income to average net assets*............. 3.90%(b) 3.88% 3.86%(b)
PORTFOLIO TURNOVER.................................................. 2.30% 12.21% 2.33%
</TABLE>
- ---------------
* During the period certain 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.
(c) Not annualized.
7
<PAGE> 10
INVESTMENT OBJECTIVE AND POLICIES
Each of the Bond Fund, Limited Maturity Fund, and Government Income Fund seeks
current income consistent with the preservation of capital. There can be, of
course, no assurance that any Fund will achieve its investment objective. The
investment objective of each 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 AND LIMITED MATURITY FUND
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 the Advisor, 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 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 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
8
<PAGE> 11
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 remainder of the Limited
Maturity Fund's assets will be invested in bonds (including debentures), notes
and other debt securities which have a stated or remaining maturity of greater
than five years, 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 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, the Advisor 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 five 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 the Advisor 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.
MASTER DEMAND NOTES
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 such
notes. The quality of master demand notes will be reviewed by the 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.
VARIABLE AND FLOATING RATE NOTES
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
Advisor under guidelines established by the
9
<PAGE> 12
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, the Advisor 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, the Advisor 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 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.
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
mini-
10
<PAGE> 13
mum rate. The Bond Fund and the Limited Maturity Fund will only purchase a
Funding Agreement when the Advisor 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-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 pay-through 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
Advisor under guidelines established by the Trust's Board of Trustees to be of
comparable quality.
11
<PAGE> 14
THE GOVERNMENT INCOME FUND
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 the Advisor 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.
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
12
<PAGE> 15
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 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 the
Advisor 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 the Advisor'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
13
<PAGE> 16
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
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.
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, the
Advisor 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
14
<PAGE> 17
categories by an NRSRO or, if not rated, found by the Advisor under guidelines
established by the Trust's Board of Trustees to be of comparable quality.
THE FLORIDA FUND AND MUNICIPAL BOND FUND
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 Florida
Fund or the Municipal Bond Fund will achieve their investment objectives. The
investment objective of each Tax-Free 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 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.
Under normal market conditions, each Tax-Free Fund may invest up to 20% of 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 Florida Fund may also invest in
Municipal Securities. At times, the Advisor may determine that, because of
unstable conditions in the markets for Municipal Securities 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, the
Advisor may use temporary defensive strategies differing from those designed to
achieve the Funds' investment objectives, such as by increasing the Funds'
holdings in Taxable Obligations to over 20% of each Fund's net assets and by
holding uninvested cash reserves pending investment and, with respect to the
Florida Fund, increasing its holdings in Municipal Securities to over 20% of net
assets. 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
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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 Tax-Free Funds may invest in Eligible Municipal Securities that are rated
at the time of purchase within the three highest rating groups assigned by 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 the Advisor 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 the 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
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
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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 Advisor 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 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 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 Florida Fund's 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, the Advisor 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, the Advisor will consider
many factors besides current yield, including the preservation of capital,
maturity, and yield to maturity.
THE MUNICIPAL BOND FUND -- CONCENTRATION
The Municipal Bond Fund may invest 25% or more of its total assets 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 form 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"). Because of the relatively small number of
issuers of Alabama Municipal Securities, the Fund is more likely to invest a
higher percentage of its assets in the securities of a single issuer. 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
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this nature may cause greater fluctuation in the net asset value of the Fund's
Shares.
GENERAL ECONOMIC CHARACTERISTICS OF ALABAMA
Alabama ranks twenty-second in the nation in total population, with over four
million residents in 1995. Its economy has historically been based primarily on
agriculture, textiles, mineral extraction and iron and steel production,
although the state has diversified into health care related industries and other
service-oriented sectors. Overall job growth rate was 4.0% for the period from
1992 to 1994. Alabama's per capita income in 1996 was ranked thirty-ninth 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 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 para.222 of the Constitution of Alabama. In so holding, the
Court found that warrants are not "bonds" within the meaning of para. 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.
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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
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%. State and local governments in Alabama are
more dependent on general and special sales taxes than are state and local
governments in many states. Because sales taxes are less stable sources of
revenue than are property taxes, state and local governments in Alabama may be
subject to shortfalls in revenue due to economic cycles.
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.
On January 10, 1997, the Alabama Supreme Court affirmed Judge Reese's ruling.
The court stated that the Alabama Legislature must develop a plan within one
year to correct the unconstitutional disparity. Any allocation of funds away
from school districts could impair the ability of such districts to service
debt.
THE FLORIDA FUND -- DIVERSIFICATION AND CONCENTRATION
The Florida Fund is a non-diversified fund under the Investment Company Act of
1940 (the "1940 Act") and may concentrate its investments in the securities of a
limited number of issuers. Under the Internal Revenue Code of 1986, as amended
(the "Code"), the Florida Fund generally may not invest in a manner such that at
the end of each fiscal quarter (i) more than 25% of its total assets are
represented by securities of any one issuer (other than U.S. government
securities) and (ii) with respect to 50% of its total assets, more than 5% of
its total assets are represented by the securities of any one issuer (other than
U.S. government securities). Thus, the Florida Fund generally may 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 Florida Municipal Securities, the
Florida Fund is more likely to invest a higher percentage of its 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
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fluctuation in the net asset value of the Florida Fund's shares.
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 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 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. A two-
thirds approval of voters voting in an election is now required for the addition
of any new taxes to the Florida Constitution. 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 intangible tax.
Dependence on the sales tax may subject 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
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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 Intangible 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.
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, the AmSouth U.S. Treasury Fund (and, with respect to the
Tax-Free Funds, 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 each Funds in the Prime Obligations Fund
and the AmSouth U.S. Treasury Fund (and with respect to the Tax-Free Funds, the
AmSouth Tax-Exempt Fund), the Advisor and the Administrator will reduce that
portion of their usual service fees from each Fund by an amount equal to their
service fees from the AmSouth Money Market Funds that are attributable to those
Fund investments. Each 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
Funds' investments in the securities of an unaffiliated money market fund and/or
the AmSouth Money Market Funds are contained in the Statement of Additional
Information.
OPTIONS
The Bond Fund, Limited Maturity Fund, and Government Income Fund may engage in
writing call options from time to time as the Advisor deems to be appropriate.
Options are written solely as covered call options (options on securities owned
by the Fund). Such options are issued by the Options Clearing Corporation and
may or may not be listed on a national securities exchange. In order to close
out an option position, the 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 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
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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 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 the
Advisor's opinion, present minimal credit risks.
For a discussion of the Limited Maturity Fund's ability to acquire puts, see
"The Bond Fund and the Limited Maturity Fund" in this prospectus.
For a discussion of the Tax-Free Funds' ability to acquire puts, see "The
Florida Fund and the Municipal Bond Fund" in this Prospectus.
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 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 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.
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
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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.
OTHER INVESTMENT PRACTICES
In order to generate additional income, the Bond Fund, Limited Maturity Fund,
and Government 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 other liquid securities. This collateral will
be valued daily by the Advisor 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 the Advisor has determined are
creditworthy under guidelines established by the Trust's Board of Trustees.
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 the Advisor 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 Income Fund 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 BOND FUND, LIMITED MATURITY FUND, GOVERNMENT INCOME FUND, 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,
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immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in such issuer, or such 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
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.
THE INCOME FUNDS MAY NOT:
1. 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, the
Limited Maturity Fund, the Florida Fund, and the Municipal Bond 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.
2. Borrow money or issue senior securities, except that each 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. A Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding.
3. Make loans, except that each 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.
THE TAX-FREE FUNDS MAY NOT:
1. 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.
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
24
<PAGE> 27
an Income Fund, less the liabilities charged to that Class, by the number of the
outstanding Shares that Class 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 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.
Each Income Fund has been divided into three classes of Shares, Premier
Shares, Classic Shares and B Shares. Class B Shares are currently offered only
in the Bond Fund. The three classes of a particular Fund represent interests in
the same investments and are identical in all respects except that (i) Classic
Shares bear the expense of the fee under the Trust's Shareholder Servicing Plan
(the "Servicing Plan"), which will cause the Classic Shares to have a higher
expense ratio and to pay lower dividends than those of the Premier Shares, (ii)
Class B Shares bear the expense of the fee under the Trust's Distribution and
Shareholder Services Plan (the "Distribution Plan"), which will cause the Class
B Shares to have a higher expense ratio and to pay a lower dividend than those
of the Classic Shares or Premier Shares, (iii) Classic Shares have certain
exclusive voting rights with respect to the Servicing Plan and Class B Shares
have certain exclusive voting rights with respect to the Distribution Plan, and
(iv) Classic Shares are subject to a front-end sales charge and Class B Shares
are subject to a contingent deferred sales charge. The following investors
qualify to purchase Premier Shares: (i) investors for whom AmSouth acts in a
fiduciary, advisory, custodial, agency or similar capacity through an account
with its Trust Department; (ii) investors who purchase Shares of a Fund through
a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares;
and (iii) orders placed on behalf of other investment companies distributed by
the Distributor and its affiliated companies. All other investors are eligible
to purchase Classic Shares or Class B Shares only.
PURCHASES OF CLASSIC SHARES AND CLASS B 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 financial
institutions that provide certain administrative support services for their
customers or account holders (collectively, "Financial Institutions"). 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 Financial Institution and its Customer are invested by
the Distributor in Shares of the 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 Funds by
AmSouth as agent.
Shares of the Trust sold to Financial Institutions acting in a fiduciary,
advisory, custodial, agency, or other similar capacity on behalf of Customers
will normally be held of record by the Financial Institutions. With respect to
Shares so sold, it is the responsibility of the particular Financial Institution
to transmit purchase or redemption orders to the Distributor and to deliver
federal funds for purchase
25
<PAGE> 28
on a timely basis. Beneficial ownership of the Shares will be recorded by the
Financial Institutions and reflected in the account statements provided by the
Financial Institutions to Customers.
Depending upon the terms of a particular Customer account, Financial
Institutions may charge a Customer's account fees for automatic investment and
other cash management services provided in connection with investment in a Fund.
Information concerning these services and any charges can be obtained from the
Financial Institutions. This Prospectus should be read in conjunction with any
such information received from the Financial Institutions.
Investors may also purchase Classic Shares and Class B 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, P.O. Box 182733, Columbus, Ohio 43218-2733. Subsequent
purchases of Classic Shares and Class B 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 Classic Shares and Class B 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
Custodian within three days of the telephone order. If payment is not received
within three 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 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 Classic Shares and Class B 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
26
<PAGE> 29
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.
Classic Shares and Class B Shares of each 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 at the time of purchase
in the case of Classic Shares 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.
In the case of orders for the purchase of Shares placed through a
broker-dealer, the applicable public offering price will be calculated with
reference to 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
close of business. 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 Classic Shares
and Class B Shares 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. 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 800-451-8382.
The maximum investment is $250,000 for total purchases of Class B Shares.
There is no limit on the amount of Classic Shares that may be purchased.
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. In the case of Classic Shares and
Class B Shares held of record by Financial Institutions but beneficially owned
by a Customer, confirmations of purchases, exchanges and redemptions of Classic
Shares or Class B Shares by a Financial Institution will be sent to the Customer
by the Financial Institution. Shareholders may rely on these statements in lieu
of certificates. Certificates representing Shares will not be issued.
SALES CHARGE -- CLASSIC SHARES
The public offering price of a Classic Share of an Income Fund equals its net
asset value plus a sales charge. BISYS receives this sales charge as Distributor
and will re-allow a portion of it as dealer discounts and brokerage commissions.
However, BISYS, 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.
27
<PAGE> 30
<TABLE>
<CAPTION>
SALES CHARGE AS
A PERCENTAGE OF SALES CHARGE AS DEALER ALLOWANCE AS
NET AMOUNT A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF PURCHASE INVESTED OFFERING PRICE OFFERING PRICE
- ---------------------------------------------- --------------- --------------- -------------------
<S> <C> <C> <C>
Less than $100,000............................ 4.17% 4.00% 3.60%
$100,000 but less than $250,000............... 3.09% 3.00% 2.70%
$250,000 but less than $500,000............... 2.04% 2.00% 1.90%
$500,000 but less than $1,000,000............. 1.01% 1.00% .90%
$1,000,000 or more............................ 0%* 0%* 0%*
</TABLE>
- ---------------
* Classic Shares are offered at net asset value without an initial sales charge
but are subject to a contingent deferred sales charge equal to 1% of the
lesser of the value of the shares redeemed (exclusive of reinvested dividends
and capital gain distributions) or the total cost of such shares in the event
of a share redemption within twelve months following the purchase of $1
million or more in Classic Shares. The Distributor will provide additional
compensation in an amount up to 1.00% of the offering price of Classic Shares
of the Funds for sales of $1 million to $5 million, and 0.50% for sales over
$5 billion.
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 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 Classic Shares of a 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 a 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) 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;
(4) Investors who purchase Shares of a Fund through a payroll deduction plan;
and
(5) Investors who purchase Shares of a 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
28
<PAGE> 31
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
and provide sufficient information to permit confirmation of qualification.
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.
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 Classic 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 Classic 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
Classic Shares of a Fund with prior purchases of Classic 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.
SALES CHARGE -- CLASS B SHARES
Class B Shares are not subject to a sales charge when they are purchased, but
are subject to a sales charge (the "Contingent Deferred Sales Charge") if a
Shareholder redeems them prior to the sixth anniversary of purchase. When a
Shareholder purchases Class B Shares, the full purchase amount is invested
directly in the applicable Fund. Class B Shares of each Fund are subject to an
ongoing distribution and shareholder service fee at an annual
29
<PAGE> 32
rate of 1.00% of such Fund's average daily net assets as provided in the
Distribution Plan (described below under "The Distributor"). This ongoing fee
will cause Class B Shares to have a higher expense ratio and to pay lower
dividends than Classic Shares. Class B Shares convert automatically to Classic
Shares after eight years, commencing from the end of the calendar month in which
the purchase order was accepted under the circumstances and subject to the
qualifications described in this Prospectus.
Proceeds from the Contingent Deferred Sales Charge and the distribution and
shareholder service fees under the Distribution Plan are payable to the
Distributor to defray the expenses of advance brokerage commissions and expenses
related to providing distribution-related and Shareholder services to the Fund
in connection with the sale of the Class B Shares, such as the payment of
compensation to dealers and agents selling Class B Shares. A dealer commission
of 4.00% of the original purchase price of the Class B Shares of the Fund will
be paid to financial institutions and intermediaries. However, the Distributor
may, in its sole discretion, pay a higher dealer commission.
CONTINGENT DEFERRED SALES CHARGE
If the Shareholder redeems Class B Shares prior to the sixth anniversary of
purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the
rates set forth below. The Contingent Deferred Sales Charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of the
Shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on Shares derived from reinvestment of dividends or capital gain
distributions.
The amount of the Contingent Deferred Sales Charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
Shares until the time of redemption of such Shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
Shares, all payments during a month are aggregated and deemed to have been made
on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
YEAR(S) PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- ----------- -----------------
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
6-7 None
7-8 None
</TABLE>
In determining whether a particular redemption is subject to a Contingent
Deferred Sales Charge, it is assumed that the redemption is first of any Classic
Shares in the Shareholder's Fund account (unless the Shareholder elects to have
Class B Shares redeemed first) or Shares representing capital appreciation, next
of Shares acquired pursuant to reinvestment of dividends and capital gain
distributions, and finally of other Shares held by the Shareholder for the
longest period of time. This method should result in the lowest possible sales
charge.
To provide an example, assume you purchased 100 Shares at $10 per share (a
total cost of $1,000) and prior to the second anniversary after purchase, the
net asset value per share is $12 and during such time you have acquired 10
additional Shares through dividends paid in Shares. If you then make your first
redemption of 50 Shares (proceeds of $600), 10 Shares will not be subject to
charge because you received them as dividends. With respect to the remaining 40
Shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds is subject to a Contingent Deferred Sales Charge at a rate
of 4.00% (the applicable rate prior to the second anniversary after purchase).
The Contingent Deferred Sales Charge is waived on redemption of Shares: (i)
following the death or disability (as defined in the Code) of a Shareholder
30
<PAGE> 33
or a participant or beneficiary of a qualifying retirement plan if redemption is
made within one year of such death or disability; or (ii) to the extent that the
redemption represents a minimum required distribution from an Individual
Retirement Account or other qualifying retirement plan to a Shareholder who has
attained the age of 70 1/2. A Shareholder or his or her representative should
contact the Transfer Agent to determine whether a retirement plan qualifies for
a waiver and must notify the Transfer Agent prior to the time of redemption if
such circumstances exist and the Shareholder is eligible for this waiver. In
addition, the following circumstances are not deemed to result in a "redemption"
of Class B Shares for purposes of the assessment of a Contingent Deferred Sales
Charge, which is therefore waived: (i) plans of reorganization of the Fund, such
as mergers, asset acquisitions and exchange offers to which the Fund is a party;
or (ii) exchanges for Class B Shares of other Funds of the Trust as described
under "Exchange Privilege."
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Classic Shares and will be subject to the lower distribution and Shareholder
service fees charged to Classic Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.
For purposes of conversion to Classic Shares, shares received as dividends and
other distributions paid on Class B Shares in a Shareholder's Fund account will
be considered to be held in a separate sub-account. Each time any Class B Shares
in a Shareholder's Fund account (other than those in the sub-account) convert to
Classic Shares, a pro-rata portion of the Class B Shares in the sub-account will
also convert to Classic Shares.
If a Shareholder effects one or more exchanges among Class B Shares of the
Funds of the Trust during the eight-year period, the Trust will aggregate the
holding periods for the shares of each Fund of the Trust for purposes of
calculating that eight-year period. Because the per share net asset value of the
Classic Shares may be higher than that of the Class B Shares at the time of
conversion, a Shareholder may receive fewer Classic Shares than the number of
Class B Shares converted, although the dollar value will be the same.
ADDITIONAL INFORMATION REGARDING BROKER COMPENSATION
The Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Classic Shares and Class B 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 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.
31
<PAGE> 34
EXCHANGE PRIVILEGE
CLASSIC SHARES
Classic Shares of each Fund may be exchanged for Classic Shares of the other
Funds, provided that the Shareholder making the exchange is eligible on the date
of the exchange to purchase Classic Shares (with certain exceptions and subject
to the terms and conditions described in this prospectus). Classic Shares may
not be exchanged for Class B Shares of the other Funds, and may be exchanged for
Premier Shares of the other Funds only if the Shareholder becomes eligible to
purchase Premier Shares. Shareholders may exchange their Classic Shares for
Classic Shares of a Fund with the same or lower sales charge on the basis of the
relative net asset value of the Classic Shares exchanged. Shareholders may
exchange their Classic Shares for Classic Shares of a Fund with a higher sales
charge by paying the difference between the two sales charges. Shareholders may
also exchange Classic Shares of a Money Market Fund, for which no sales load was
paid, for Classic Shares of a variable net asset value Fund ("Variable NAV
Fund"). Under such circumstances, the cost of the acquired Classic Shares will
be the net asset value per share plus the appropriate sales load. If Classic
Shares of a Money Market Fund were acquired in a previous exchange involving
Shares of a Variable NAV Fund, then such Shares of the Money Market Fund may be
exchanged for Shares of a Variable NAV Fund without payment of any additional
sales load within a twelve month period. Under such circumstances, the
Shareholder must notify the Distributor that a sales load was originally paid.
Depending upon the terms of a particular Customer account, a Participating
Organization may charge a fee with regard to such an exchange. Information about
such charges will be supplied by the Participating Organization.
CLASS B SHARES
Class B Shares of each Fund may be exchanged for Class B Shares of the other
Funds on the basis of relative net asset value per Class B Share, without the
payment of any Contingent Deferred Sales Charge which might otherwise be due
upon redemption of the outstanding Class B Shares. Investors should note that,
as of the date of this prospectus, Class B Shares were not offered in the
AmSouth U.S. Treasury Fund, Tax Exempt Fund, Government Income Fund, Limited
Maturity Fund, Florida Fund, and Municipal Bond Fund, thus, no exchanges may be
effected for Class B Shares of these Funds. For purposes of computing the
Contingent Deferred Sales Charge that may be payable upon a disposition of the
newly acquired Class B Shares, the holding period for outstanding Class B Shares
of the Fund from which the exchange was made is "tacked" to the holding period
of the newly acquired Class B Shares. For purposes of calculating the eight-year
holding period applicable to the newly acquired Class B Shares, the newly
acquired Class B Shares shall be deemed to have been issued on the date of
receipt of the Shareholder's order to purchase the outstanding Class B Shares of
the Fund from which the exchange was made.
Class B Shares may not be exchanged for Classic Shares of the other Funds, and
may be exchanged for Premier Shares of the other Funds only if the Shareholder
becomes eligible to purchase Premier Shares. A Contingent Deferred Sales Charge
will apply as described in "How To Purchase and Redeem Shares" -- "Class B
Shares" to exchanges of Class B Shares for Premier Shares.
ADDITIONAL INFORMATION ABOUT EXCHANGES
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 Fund Shares will
be calculated without taking into account the sales charge paid on the Fund
Shares if the Fund Shares were held less than 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 Fund.
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Before an exchange can be effected, a Shareholder must receive a current
prospectus of the Fund and class 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.
AUTO EXCHANGE
AmSouth Mutual Funds Auto Exchange enables Shareholders to make regular,
automatic withdrawals from Classic Shares and Class B Shares of the AmSouth
Prime Obligations Fund and use those proceeds to benefit from
dollar-cost-averaging by automatically making purchases of shares of the same
Class of another AmSouth Mutual Fund. With shareholder authorization, the
Trust's transfer agent will withdraw the amount specified (subject to the
applicable minimums) from the shareholder's Prime Obligations Fund account and
will automatically invest that amount in Classic Shares or Class B Shares of the
AmSouth Mutual Fund designated by the Shareholder at the public offering price
on the date of such deduction. In order to participate in the Auto Exchange,
Shareholders must have a minimum initial purchase of $10,000 in their Prime
Obligations Fund account and maintain a minimum account balance of $1,000.
To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the Account Registration Form, which can be acquired by
calling the Distributor. To change the Auto Exchange instructions or to
discontinue the feature, a Shareholder must send a written request to the
AmSouth Mutual Funds, P.O. Box 182733, Columbus, OH 43218-2733. The Auto
Exchange may be amended or terminated without notice at any time by the
Distributor.
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
Shareholders may redeem their Classic Shares without charge, and their Class B
Shares subject to the applicable Contingent Deferred Sales Charge, on any day
that net asset value is calculated (see "VALUATION 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 Financial Institution. For
example, if a Customer has agreed with a Financial Institution to maintain a
minimum balance in his or her account with a Financial Institution, and the
balance in that account falls below that minimum, the Customer may be obliged to
redeem, or the Financial Institution may redeem for and on behalf of the
Customer, all or part of the Customer's Shares of a Fund of the
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<PAGE> 36
Trust to the extent necessary to maintain the required minimum balance.
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 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.
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 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 the Valuation Time on a Business Day or, if the request for
redemption is received after the Valuation 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.
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<PAGE> 37
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 a 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 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 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.
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 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 Fund intends to avoid paying federal income and excise taxes
by timely distributing substantially all its net income and net capital gain
income.
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<PAGE> 38
The amount of dividends payable with respect to the Premier Shares will exceed
dividends on Classic Shares, and the amount of dividends on Classic Shares will
exceed the dividends on Class B Shares, as a result of the Shareholder Services
Plan fee applicable to Classic Shares and the Distribution and Shareholder
Services Plan fee applicable to Class B Shares.
BOND FUND, LIMITED MATURITY FUND, AND GOVERNMENT INCOME FUND
Distributions by the Bond Fund, Limited Maturity Fund, and Government Income
Fund 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 Bond Fund, Limited Maturity Fund, and Government Income
Fund 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 Bond Fund, Limited Maturity Fund, and
Government Income Fund, 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 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 Bond Fund,
Limited Maturity Fund, and Government Income Fund 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 Bond Fund, Limited Maturity Fund, and Government
Income Fund 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, the Bond Fund, Limited
Maturity Fund, and Government Income Fund 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 sum-
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<PAGE> 39
mary of some of the important tax considerations generally affecting the Income
Funds and their Shareholders. Potential investors in the Bond Fund, Limited
Maturity Fund, and Government Income Fund 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.
FLORIDA FUND AND MUNICIPAL BOND FUND
The Tax-Free 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 Tax-Free Funds attributable to exempt-interest dividends
may cause the social security and railroad retirement benefits of individual
shareholders 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. The amount of
the disallowed interest deduction is the total amount of interest paid or
accrued on the indebtedness multiplied by a fraction, the numerator of which is
the amount of exempt-interest dividends received by the Shareholder and the
denominator of which is the sum of the exempt-interest dividends and taxable
dividends received by the Shareholder (excluding capital gain dividends received
by the Shareholder and capital gains required to be included in the
Shareholder's computation of long-term capital gains under Section 852(b)(3)(D)
of the Code). It is anticipated that distributions from the Tax-Free 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 Florida Fund."
The foregoing discussion is limited to federal income tax consequences and is
based on tax laws
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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 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 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 Municipal 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 to
corporations and other entities 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 to corporations and other entities 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
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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, it is the Florida Fund's policy to invest at least 80% of its
net 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 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):
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<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS
- ------------------------------ ------------------ -------------------------------------------
<S> <C> <C>
George R. Landreth* Chairman From December 1992 to present, employee of
BISYS Fund Services BISYS Fund Services, Limited Partnership;
3435 Stelzer Road from July 1991 to December 1992, employee
Columbus, Ohio 43219 of PNC Financial Corp.; from October 1984
to July 1991, employee of The Central Trust
Co., N.A.
Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and Vice
459 DER Building Chairman, Department of Medicine,
1808 7th Avenue South University of Alabama at Birmingham School
UAB Medical Center of Medicine; December 1995, to present,
Birmingham, Alabama 35294 Physician, University of Alabama Health
Services Foundation; from June 1988 to
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, retired;
209 Lakewood Drive, West from December 1988 to August, 1993,
Mobile, Alabama 36608 Executive Vice President, Chief Operating
Officer and Director, Mobile Gas Service
Corporation
J. David Huber* Trustee From June 1987 to present, employee of
BISYS Fund Services BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
Homer H. Turner, Jr. Trustee From June 1991 to present, retired; until
729 Cary Drive June 1991, Vice President, Birmingham
Auburn, Alabama 36830 Division, Alabama Power Company
James H. Woodward, Jr. Trustee From 1996 to present, Trustee of The
The University of North Sessions Group; from July 1989 to present,
Carolina at Charlotte Chancellor, The University of North
Charlotte, North Carolina Carolina at Charlotte; until July 1989,
28223 Senior Vice President, University College,
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. Messrs. Huber and Landreth are
employees and executive officers of BISYS Fund Services.
INVESTMENT ADVISOR
AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank
affiliate of AmSouth
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<PAGE> 43
Bancorporation, one of the largest banking
institutions headquartered in the mid-south region. AmSouth Bancorporation
reported assets as of December 31, 1996 of $18.4 billion and operated 272
banking offices in Alabama, Florida, Georgia and Tennessee. AmSouth has provided
investment management services through its Trust Investment Department since
1915. As of December 31, 1996, AmSouth and its affiliates had over $7.1 billion
in assets under discretionary management and provided custody services for an
additional $13.4 billion in securities. AmSouth is the largest provider of trust
services in Alabama. AmSouth serves as administrator for over $12 billion in
bond issues, and its Trust Natural Resources and Real Estate Department is a
major manager of timberland, mineral, oil and gas properties and other real
estate interests.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the respective investment objectives and restrictions of the
Funds, the Advisor 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.
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 the
Advisor since 1984, and is currently Senior Vice President and Trust Investment
Officer in charge of fixed income investments.
John P. Boston, CFA 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 a
Vice President and Trust Investment Officer.
Dorothy E. Thomas, CFA is the portfolio manager for the Municipal Bond Fund
and since May 15, 1997 is the portfolio manager for the Florida Fund, and as
such, has primary responsibility for the day-to-day management of each Fund's
portfolio. Ms. Thomas has been associated with AmSouth's Trust Investment Group
for over ten years and is currently Vice President and Trust Investment Officer.
Under investment advisory agreements between the Trust and the Advisor, the
fee payable to the Advisor by each Fund for investment advisory services is the
lesser of (a) a fee computed daily and paid monthly at the annual rate of
sixty-five one-hundredths of one percent (.65%) of such 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 Advisor. A fee agreed to in writing from time to time by the Trust
and the Advisor may be significantly lower than the fee calculated at the annual
rate and the effect of such lower fee would be to lower a 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, 1996, the Advisor received
investment advisory fees amounting to .50% of the Bond Fund's average daily net
assets, .50% of the Limited Maturity Fund's average daily net assets, .30% of
the Government Income Fund's average daily net assets, and .30% of the Florida
Fund's average daily net assets. The Municipal Bond Fund had not commenced
operations as of July 31, 1996.
ADMINISTRATOR
ASO Service Company ("ASO") is the administrator for each Fund of the Trust
(the "Administrator"). ASO is a wholly owned subsidiary of BISYS. BISYS 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 Funds'
administration and operation. Under management and administration agreements
between the Trust, the fee payable by each Fund to the Administrator for
administration services is the
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<PAGE> 44
lesser of (a) a fee computed at the annual rate of 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 by the Trust and the Administrator. A fee
agreed to 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 the net
income of the Fund during the period when such lower fee is in effect.
ASO succeeded BISYS as Administrator on April 1, 1996. During the Trust's
fiscal year ended July 31, 1996, BISYS and ASO received administration fees,
after voluntary fee reductions, amounting to .12% of the Bond Fund's average
daily net assets; .12% of the Limited Maturity Fund's average daily net assets;
.10% of the Government Income Fund's average daily net assets; and .10% of the
Florida Fund's average daily net assets, after voluntary fee reductions.
SUB-ADMINISTRATORS
AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current
agreement with the Administrator, 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 daily net assets.
BISYS Fund Services also serves as a Sub-Administrator to the Trust. Pursuant
to its agreement with the Administrator, BISYS is entitled to compensation as
mutually agreed from time to time by it and the Administrator.
DISTRIBUTOR
BISYS Fund Services acts as the Trust's principal underwriter and distributor
(the "Distributor") pursuant to a Distribution Agreement under which shares are
sold on a continuous basis.
Classic Shares of the Trust are subject to a Shareholder Servicing Plan (the
"Servicing Plan") permitting payment of compensation to financial institutions
that agree to provide certain administrative support services for their
customers or account holders. Each Fund has entered into a specific arrangement
with BISYS for the provision of such services by BISYS, and reimburses BISYS for
its cost of providing these services, subject to a maximum annual rate of
twenty-five one-hundredths of one percent (.25%) of the average daily net assets
of the Classic Shares of each Fund.
Under the Trust's Distribution and Shareholder Services Plan (the
"Distribution Plan"), Class B Shares of a Fund will pay a monthly distribution
fee to the Distributor as compensation for its services in connection with the
Distribution Plan at an annual rate equal to one percent (1.00%) of the average
daily net assets of Class B Shares of each Fund which includes Shareholder
Servicing fee of .25% of the average daily net assets of the Class B Shares of
each Fund. The Distributor may periodically waive all or a portion of the fee
with respect to a Fund in order to increase the net investment income of the
Fund available for distribution as dividends. The Distributor may apply the B
Share Fee toward the following: (i) compensation for its services or expenses in
connection with distribution assistance with respect to such Fund's B Shares;
(ii) payments to financial institutions and intermediaries (such as banks,
savings and loan associations, insurance companies, and investment counselors)
as brokerage commissions in connection with the sale of such Fund's B Shares;
and (iii) payments to financial institutions and intermediaries (such as banks,
savings and loan associations, insurance companies, and investment counselors),
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services and/or reimbursement of expenses incurred in
connection with distribution or shareholder services with respect to such Fund's
B Shares.
All payments by the Distributor for distribution assistance or shareholder
services under the Distribution Plan will be made pursuant to an agreement (a
"Servicing Agreement") between the Distributor and such bank, other financial
institution or intermediary, broker-dealer, or affiliate or subsidiary of
42
<PAGE> 45
the Distributor (hereinafter referred to individually as "Participating
Organizations"). A Servicing Agreement will relate to the provision of
distribution assistance in connection with the distribution of a Fund's Class B
Shares to the Participating Organization's customers on whose behalf the
investment in such Shares is made and/or to the provision of shareholder
services to the Participating Organization's customers owning a Fund's Class B
Shares. Under the Distribution Plan, a Participating Organization may include
AmSouth or a subsidiary bank or nonbank affiliates, or the subsidiaries or
affiliates of those banks. A Servicing Agreement entered into with a bank (or
any of its subsidiaries or affiliates) will contain a representation that the
bank (or subsidiary or affiliate) believes that it possesses the legal authority
to perform the services contemplated by the Servicing Agreement without
violation of applicable banking laws (including the Glass-Steagall Act) and
regulations.
The distribution fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular year
by the Distributor in connection with distribution assistance or shareholder
services rendered by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under the Distribution Plan.
If the amount of the distribution fee is greater than the Distributor's actual
expenses incurred in a particular year (and the Distributor does not waive that
portion of the distribution fee), the Distributor will realize a profit in that
year from the distribution fee. If the amount of the distribution fee is less
than the Distributor's actual expenses incurred in a particular year, the
Distributor will realize a loss in that year under the Distribution Plan and
will not recover from a Fund the excess of expenses for the year over the
distribution fee, unless actual expenses incurred in a later year in which the
Distribution Plan remains in effect were less than the distribution fee paid in
that later year.
The Glass-Steagall Act and other applicable laws prohibit banks generally from
engaging in the business of underwriting securities, but in general do not
prohibit banks from purchasing securities as agent for and upon the order of
customers. Accordingly, the Trust will require banks acting as Participating
Organizations to provide only those services which, in the banks' opinion, are
consistent with the then current legal requirements. It is possible, however,
that future legislative, judicial or administrative action affecting the
securities activities of banks will cause the Trust to alter or discontinue its
arrangements with banks that act as Participating Organizations, or change its
method of operations. It is not anticipated, however, that any change in a
Fund's method of operations would affect its net asset value per share or result
in financial loss to any customer.
EXPENSES
AmSouth and the Administrator each bear all expenses in connection with the
performance of their services as Advisor and Administrator, respectively, other
than the cost of securities (including brokerage commissions, if any) purchased
for an Income Fund. No 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.
As a general matter, expenses are allocated to the Premier, Classic, and Class
B Shares of a Fund on the basis of the relative net asset value of each class.
At present, the only expenses that will be borne solely by Classic and Class B
Shares, other than in accordance with the relative net asset value of the class,
are expenses under the Trust's Servicing Plan which relates only to the Classic
Shares and the Distribution Plan which relates only to the Class B Shares.
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
43
<PAGE> 46
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 fourteen 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 Capital Growth Fund, the
AmSouth Small Cap Fund, the AmSouth Equity Income Fund, the AmSouth Bond Fund,
the AmSouth Limited Maturity Fund, the AmSouth Municipal Bond Fund, the AmSouth
Balanced Fund, the AmSouth Government Income Fund and the AmSouth Florida Tax-
Free Fund. Each Fund, except the AmSouth Florida Tax-Free Fund, is diversified
for purposes of the 1940 Act. As of the date of this Prospectus, Shares are not
currently being offered in the AmSouth Small Cap Fund. Each Fund has been
divided into three classes of Shares: Premier, Classic and Class B Shares,
except that the AmSouth U.S. Treasury Fund and the Tax Exempt Fund are divided
into Premier Shares and Classic Shares only. As of the date of this Prospectus,
however, Class B Shares were not offered in the Limited Maturity Fund,
Government Income Fund, Florida Fund, and Municipal Bond 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).
Shares of the Trust are entitled to one vote per share (with proportional
voting for fractional shares) on such matters as Shareholders are entitled to
vote. Shareholders vote in the aggregate and not by series or class on all
matters except (i) when required by the Investment Company Act of 1940, shares
shall be voted by individual series or class, (ii) when the Trustees have
determined that the matter affects only the interests of one or more series or
class, then only Shareholders of such series of class shall be entitled to vote
thereon, (iii) only the holders of Classic Shares will be entitled to vote on
matters submitted to Shareholder vote with regard to the Servicing Plan, and
(iv) only the holders of Class B Shares will be entitled to vote on matters
submitted to Shareholder vote with regard to the Distribution Plan.
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.
The Trust believes as of August 21, 1997, AmSouth, 1901 Sixth Avenue North,
Birmingham, AL 35203, was the Shareholder of record of 98.01% of the outstanding
shares of the Bond Fund, 97.51% of the outstanding shares of the Limited
Maturity Fund, and 88.18% of the outstanding shares of the Florida Fund. As of
August 21, 1997, AmSouth was the beneficial owner of approximately 72.49% of the
44
<PAGE> 47
outstanding shares of the Bond Fund and 57.28% of the outstanding shares of the
Limited Maturity Fund and may be deemed to be a "controlling person" of the Bond
Fund and Limited Maturity Fund within the meaning of the Investment Company Act
of 1940.
CUSTODIAN
As of April 17, 1997, AmSouth serves as custodian for the Trust ("Custodian").
Pursuant to the Custodian Agreement with the Trust, the Custodian receives
compensation from each Fund for such services in an amount equal to an
asset-based fee.
TRANSFER AGENT AND FUND ACCOUNTANT
BISYS Funds Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the Trust.
PERFORMANCE INFORMATION
MUNICIPAL BOND FUND
The Municipal Bond Fund commenced operations on July 1, 1997 subsequent to the
transfer of assets by the Tax-Exempt Portfolio, a common trust fund, to the
Municipal Bond Fund in exchange for shares of the Municipal Bond Fund. The
Fund's portfolio of investments on July 1, 1997 was the same as the portfolio of
the Tax-Exempt Portfolio immediately prior to the transfer.
The Tax-Exempt Portfolio is not a registered investment company as it is
exempt from registration under the 1940 Act. Since, in a practical sense, the
Tax-Exempt Portfolio constitutes a "predecessor" of the Fund, the Municipal Bond
Fund calculates the performance for each Class of the Fund for periods
commencing prior to the transfer of the Tax-Exempt Portfolio assets to the Fund
by including the common trust fund's total return adjusted to reflect the
deduction of fees and expenses applicable to the Classic Shares of the Municipal
Bond Fund as stated in the Fee Table in this prospectus (i.e., adjusted to
reflect anticipated expenses, net of management and administrative fee waivers).
These fees and expenses include the appliable sales charge.
The Municipal Bond Fund from time to time may advertise certain investment
performance figures, as discussed below. These figures are based on historical
earnings, but past performance data is not necessarily indicative of future
performance of the Fund.
COMPARATIVE PERFORMANCE INFORMATION REGARDING THE TAX-EXEMPT PORTFOLIO AND THE
MUNICIPAL BOND FUND
AVERAGE ANNUAL TOTAL RETURN*
<TABLE>
<CAPTION>
3 5 10
FUND 1 YEAR YEARS YEARS YEARS
- ------------------------------ ------ ------ ------ ------
<S> <C> <C> <C> <C>
Tax-Exempt Portfolio.......... 0.99% 3.54% 3.59% 5.24%
</TABLE>
- ---------------
* Figures were calculated pursuant to a methodology established by the SEC. The
maximum sales load is 4.00% for the Municipal Bond Fund.
The above-quoted performance data includes the performance of the Tax-Exempt
Portfolio for the period before the Municipal Bond Fund commenced operations
adjusted to reflect the deduction of fees and expenses applicable to the Classic
Shares of the Municipal Bond Fund (i.e., adjusted to reflect anticipated
expenses, net of management and administrative fee waivers). The Tax-Exempt
Portfolio was not registered under the 1940 Act and therefore was not subject to
certain investment restrictions, limitations and diversification requirements
imposed by the Act and the Code. If the Tax-Exempt Portfolio had been registered
under the 1940 Act, its performance may have been adversely affected. The
investment objective, restrictions and guidelines of the Municipal Bond Fund are
substan-
45
<PAGE> 48
tially similar to the Tax-Exempt Portfolio and both were managed by the same
personnel.
GENERAL
From time to time performance information for the Classic Shares and Class B
Shares of 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, five years (if applicable) and the period since
the establishment of a Fund. Average annual total return is measured by
comparing the value of an investment in a 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 a
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. Each Fund may also present its total return and/or
yield excluding the effect of the sales charge.
The Tax-Free 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 Tax-Free Funds.
Yield, effective yield, tax-equivalent yield, and total return will be
calculated separately for each Class of Shares. Because Classic Shares are
subject to lower Shareholder Services fees than Class B Shares, the yield and
total return for Classic Shares will be higher than that of the Class B Shares
for the same period. Because Premier Shares are not subject to the Distribution
and Shareholder Services fees, the yield and total return for Premier Shares
will be higher than that of the Classic and Class B Shares for the same period.
Investors may also judge the performance of each 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 each 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 Fund,
operating expenses and market conditions. Any fees charged by a Financial
Institution with respect to accounts investing in Shares of an Income 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 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,
46
<PAGE> 49
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 P.O.
Box 182733, Columbus, Ohio 43218-2733 or by calling toll free (800) 451-8382.
47
<PAGE> 50
AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
[AMSOUTH LOGO]
AmSouth Bank
1901 Sixth Avenue North
Birmingham, AL 35203
DISTRIBUTOR
BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
ADMINISTRATOR
ASO Services Company
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>
Fee Table................................. 3
Financial Highlights...................... 5
Investment Objective and Policies......... 8
Investment Techniques..................... 21
Investment Restrictions................... 23
Valuation of Shares....................... 24
How to Purchase and Redeem Shares......... 25
Dividends and Taxes....................... 35
Management of the AmSouth Mutual Funds.... 39
General Information....................... 44
</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.
AS2P090197
<PAGE> 51
AMSOUTH MUTUAL FUNDS
--------------------
[AMSOUTH LOGO]
AMSOUTH BANK
Investment Advisor
INCOME
FUNDS
[AMSOUTH MUTUAL FUNDS LOGO]
Not FDIC Insured
BISYS FUND SERVICES, DISTRIBUTOR
Prospectus dated September 1, 1997
<PAGE> 52
CROSS REFERENCE SHEET
- ---------------------
Part A
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
AMSOUTH MUTUAL FUNDS
<TABLE>
<CAPTION>
PREMIER SHARES
<S> <C> <C>
1. Cover Page............................... Cover Page
2. Synopsis ................................ Fee Table
3. Condensed Financial
Information ........................... Financial Highlights
4. General Description
of Registrant ......................... The Trust; Investment Objective and
Policies; Investment Restrictions; General
Information - Description of the Trust and
Its Shares
5. Management of the Fund Management of AmSouth Mutual Funds;
General Information - Custodian and
Transfer Agent
6. Capital Stock and
Other Securities ...................... The Trust; How to Purchase and Redeem
Shares; Dividends and Taxes; General
Information - Description of the Trust and
Its Shares; General Information -
Miscellaneous
7. Purchase of Securities
Being Offered ......................... Valuation of Shares; How to Purchase and
Redeem Shares
8. Redemption or Repurchase How to Purchase and Redeem Shares
9. Legal Proceedings ....................... Inapplicable
</TABLE>
<PAGE> 53
AMSOUTH MUTUAL FUNDS
PREMIER SHARES
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase, and redemption
Columbus, Ohio 43219 information, call (800) 451-8382
</TABLE>
The AmSouth Prime Obligations Fund (the "Prime Obligations Fund"), the AmSouth
U.S. Treasury Fund (the "AmSouth U.S. Treasury Fund"), and the AmSouth Tax
Exempt Fund (the "Tax Exempt Fund") (collectively, the "Money Market Funds"),
the AmSouth Bond Fund (the "Bond Fund"), the AmSouth Limited Maturity Fund (the
"Limited Maturity Fund"), the AmSouth Government Income Fund (the "Government
Income Fund"), the AmSouth Florida Tax-Free Fund (the "Florida Fund"), and the
AmSouth Municipal Bond Fund (the "Municipal Bond Fund") (collectively, "the
Income Funds" and the Florida Fund and Municipal Bond Fund sometimes
collectively referred to herein as "the Tax-Free Funds"), and the AmSouth Equity
Fund (the "Equity Fund"), the AmSouth Regional Equity Fund (the "Regional Equity
Fund"), the AmSouth Balanced Fund (the "Balanced Fund"), the AmSouth Capital
Growth Fund ( the "Capital Growth Fund"), the AmSouth Small Cap Fund (the "Small
Cap Fund"), and the AmSouth Equity Income Fund (the "Equity Income Fund")
(collectively, the "Capital Appreciation Funds") are fourteen series of units of
beneficial interest ("Shares") each representing interests in one of fourteen
separate investment funds (the "Funds") of AmSouth Mutual Funds (the "Trust"),
an open-end management investment company. All securities or instruments in
which the Money Market Funds invest have remaining maturities of 397 days or
less. Each Money Market Fund seeks to maintain a constant net asset value of
$1.00 per unit of beneficial interest, but there can be no assurance that net
asset value will not vary. Each Income Fund and Capital Appreciation has its own
investment objective and the net asset value per share of each Income Fund and
Capital Appreciation Fund will fluctuate as the value of such Fund's investment
portfolio changes in response to changing market interest rates and other
factors. The Shares of the Income Funds and the Capital Appreciation Funds
outstanding on August 31, 1997, have been redesignated as Classic Shares.
AMSOUTH PRIME OBLIGATIONS FUND seeks current income with liquidity and
stability of principal. The Prime Obligations Fund invests in high quality
United States dollar-denominated money market instruments and other high-quality
United States dollar-denominated instruments.
AMSOUTH U.S. TREASURY FUND seeks current income with liquidity and stability
of principal. The AmSouth U.S. Treasury Fund invests exclusively in short-term
obligations issued by the U.S. Treasury, some of which may be subject to
repurchase agreements collateralized by U.S. Treasury obligations.
AMSOUTH TAX EXEMPT 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 and relative stability of principal. The Tax Exempt Fund seeks to
achieve this objective by investing in short-term high-quality obligations.
While the Tax Exempt Fund may invest in short-term taxable obligations, under
normal market conditions at least 80% of the Tax Exempt Fund's total assets will
be invested in obligations exempt from federal income tax.
AMSOUTH BOND FUND seeks current income consistent with the preservation of
capital. The Fund seeks to achieve this objective by investing 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 seeks current income consistent with the
preservation of capital. The Fund seeks to achieve this objective by investing
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 seeks current income consistent with the
preservation of capital. The Fund seeks to achieve this objective by investing,
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 FLORIDA TAX-FREE FUND seeks to produce as high a level of current
interest income exempt from federal income taxes and Florida intangible 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.
AMSOUTH EQUITY FUND seeks growth of capital by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks such as convertible bonds and convertible preferred stocks. The
production of income is an incidental objective. The Advisor will seek
opportunities for the Equity Fund in securities that are believed to represent
investment value.
<PAGE> 54
AMSOUTH REGIONAL EQUITY FUND seeks growth of capital by investing primarily in
a diversified portfolio of common stocks and securities convertible into common
stocks, such as convertible bonds and convertible preferred stocks, of companies
headquartered in the Southern Region of the United States. The Southern Region
of the United States includes Alabama, Florida, Georgia, Louisiana, Mississippi,
North Carolina, South Carolina, Tennessee and Virginia. The production of income
is an incidental objective. The Advisor will seek opportunities for the Regional
Equity Fund in securities that are believed to represent investment value.
AMSOUTH BALANCED FUND seeks to obtain long-term capital growth and produce a
reasonable amount of current income through a moderately aggressive investment
strategy. The Balanced Fund seeks to achieve this objective by investing in a
broadly diversified portfolio of securities, including common stocks, preferred
stocks and bonds. The Advisor will seek opportunities for the Balanced Fund in
securities that are believed to represent investment value.
AMSOUTH CAPITAL GROWTH FUND seeks long-term capital appreciation and growth of
income by investing primarily in a diversified portfolio of common stocks and
securities convertible into common stocks such as convertible bonds and
convertible preferred stocks.
AMSOUTH SMALL CAP FUND seeks capital appreciation by investing primarily in a
diversified portfolio of securities consisting of common stocks and securities
convertible into common stocks such as convertible bonds and convertible
preferred stock. Any current income generated from these securities is
incidental to the investment objective of the Fund. Under normal market
conditions, the Fund will invest at least 65% of its total assets in common
stocks and securities convertible into common stocks such as convertible bonds
and convertible preferred stock of companies with a market capitalization of
less than $1 billion.
AMSOUTH EQUITY INCOME FUND seeks above average income and capital appreciation
by investing primarily in a diversified portfolio of common stocks and
securities convertible into common stocks such as convertible bonds and
convertible preferred stock.
Under normal market conditions, the Fund will invest at least 65% of its total
assets in income-producing equity securities including common stock, preferred
stock, and securities convertible into common stocks such as convertible bonds
and convertible preferred stock. The portion of the Fund's total assets invested
in common stock, preferred stock, and convertible securities will vary according
to the Fund's assessment of market and economic conditions and outlook.
AmSouth Bank, Birmingham, Alabama ("AmSouth"), acts as the investment advisor
to each Fund of the Trust (the "Advisor"). Rockhaven Asset Management, LLC
("Rockhaven") acts as the investment sub-advisor to the Equity Income Fund
("Sub-Advisor"). BISYS Fund Services, Limited Partnership ("BISYS Fund
Services"), Columbus, Ohio, acts as the Trust's distributor ("Distributor").
Each Fund has been divided into three classes of Shares, Premier Shares,
Classic Shares and Class B Shares, except that the AmSouth U.S. Treasury Fund
and the Tax-Exempt Fund are divided into Premier Shares and Classic Shares only.
The following investors qualify to purchase Premier Shares: (i) investors for
whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar
capacity through an account with its Trust Department; (ii) investors who
purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its
terms permits purchases of Shares; and (iii) orders placed on behalf of other
investment companies distributed by the Distributor and its affiliated
companies. All other investors are eligible to purchase Classic Shares or Class
B Shares only. As of the date of this Prospectus, the Small Cap Fund is not
currently offering Shares.
This Prospectus relates only to the Premier Shares of the Funds. Interested
persons who wish to obtain a copy of the prospectuses of Classic Shares and
Class B Shares of the Money Market Funds, the Income Funds and the Capital
Appreciation Funds may contact the Trust's distributor at the telephone number
shown above. Additional information about the 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 Premier Shares
of the 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.
------------------------
AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN
A STABLE NET ASSET VALUE OF $1.00 PER SHARE
------------------------
The date of this prospectus is September 1, 1997.
<PAGE> 55
FEE TABLE FOR THE MONEY MARKET FUNDS
<TABLE>
<CAPTION>
PRIME AMSOUTH
OBLIGATIONS U.S. TREASURY TAX
FUND FUND EXEMPT FUND
----------- ------------- -----------
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a percentage of offering
price)............................................................ 0% 0% 0%
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 for the Tax Exempt
Fund)........................................................... 0.40% 0.40% 0.20%(3)
12b-1 Fees........................................................ 0% 0% 0%
Other Expenses.................................................... 0.31% 0.31% 0.34%
---- ---- ----
Total Fund Operating Expenses (after voluntary fee reduction for
the Tax Exempt Fund)............................................ 0.71% 0.71% 0.54%(4)
==== ==== ====
</TABLE>
- ------------
(1) AmSouth 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 a Money Market 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 would be .40% for the Tax Exempt Fund.
(See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS--INVESTMENT ADVISOR.")
(4) In the absence of any voluntary reduction in investment advisory fees, Total
Fund Operating Expenses for the Premier Shares of the Tax Exempt Fund would
be .74%.
EXAMPLE
You would pay the following expenses on a $1,000 investment in Premier
Shares, 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>
Prime Obligations Fund................................................ $7 $23 $40 $ 88
AmSouth U.S. Treasury Fund............................................ $7 $23 $40 $ 88
Tax Exempt Fund....................................................... $6 $17 $30 $ 68
</TABLE>
Premier Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses that an investor in Premier Shares
of a Money Market Fund will bear directly or indirectly. See "MANAGEMENT OF
AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual operating
expenses of the Money Market 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.
3
<PAGE> 56
FEE TABLE FOR THE INCOME FUNDS
<TABLE>
<CAPTION>
LIMITED GOVERNMENT MUNICIPAL
BOND MATURITY INCOME FLORIDA BOND
FUND FUND FUND FUND FUND
------- -------- ---------- ------- ---------
PREMIER PREMIER PREMIER PREMIER PREMIER
SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)....................... 0% 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested Dividends (as
a percentage of offering price)..................... 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as
applicable)......................................... 0% 0% 0% 0% 0%
Redemption Fees (as a percentage of amount redeemed,
if applicable)(2)................................... 0% 0% 0% 0% 0%
Exchange Fee.......................................... $0 $0 $0 $0 $0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees
(after voluntary fee reduction)(3).................. .50% .50% .30% .30% .40
12b-1 Fees............................................ .00% .00% .00% .00% .00
Other Expenses (after voluntary fee reduction)(4)..... .25% .26% .35% .29% .30
---- ---- ---- ---- ----
Total Fund Operating Expenses (after voluntary fee
reduction)(6)....................................... .75% .76% .65% .59% .70%
==== ==== ==== ==== ====
</TABLE>
- ------------
(1) AmSouth 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 would be .65% for each 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 would be 0.33% for the Bond Fund, 0.34% for
the Limited Maturity Fund, 0.45% for the Government Income Fund and 0.39%
for the Florida Fund and are estimated to be 0.38% for the Municipal Bond
Fund. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS--Administrator and
Distributor.")
(5) Other expenses for the Municipal Bond Fund are based on estimated amounts
for the current fiscal year.
(6) In the absence of any voluntary reduction in investment advisory fees and
administration fees, Total Fund Operating Expenses would be 0.98% for the
Bond Fund, 0.99% for the Limited Maturity Fund, 1.10% for the Government
Income Fund, 1.04% for the Florida Fund, and are estimated to be 1.03% for
the Municipal Bond Fund.
EXAMPLE
You would pay the following expenses on a $1,000 investment in Premier
Shares, 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>
Bond Fund............................................................. $ 8 $24 $42 $ 93
Limited Maturity Fund................................................. $ 8 $24 $42 $ 94
Government Income Fund................................................ $ 7 $21 $36 $ 81
Florida Fund.......................................................... $ 6 $19 $33 $ 74
Municipal Bond Fund................................................... $ 7 $22 N/A N/A
</TABLE>
Premier Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.
The purpose of the table above is to assist an investor in the Premier
Shares of the Income Funds in understanding the various costs and expenses that
an investor 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.
4
<PAGE> 57
FEE TABLE FOR THE CAPITAL APPRECIATION FUNDS
<TABLE>
<CAPTION>
REGIONAL CAPITAL EQUITY
EQUITY EQUITY BALANCED GROWTH SMALL INCOME
FUND FUND FUND FUND CAP FUND FUND
------- -------- -------- ------- -------- -------
PREMIER PREMIER PREMIER PREMIER PREMIER PREMIER
SHARES SHARES SHARES SHARES SHARES SHARES
<S> <C> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases (as a
percentage of offering price)................. 0% 0% 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering
price)........................................ 0% 0% 0% 0% 0% 0%
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as
applicable)................................... 0% 0% 0% 0% 0% 0%
Redemption Fees (as a percentage of amount
redeemed, if applicable)(2)................... 0% 0% 0% 0% 0% 0%
Exchange Fee.................................... $0 $0 $0 $0 $0 $0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees................................. .80% .80% .80%(3) .80% .90% .80%
12b-1 Fees...................................... .00% .00% .00% .00% .00% .00%
Other Expenses (after voluntary fee
reduction)(4)................................. .22% .25% .24% .27% .27% .27%
---- ---- ---- ---- ---- ----
Total Fund Operating Expenses (after voluntary
fee reductions)............................... 1.02%(5) 1.05%(5) 1.04%(3,5) 1.07% 1.17% 1.07%
==== ==== ==== ==== ==== ====
</TABLE>
- ------------
(1) AmSouth 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 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) Amounts have been restated to reflect current fees.
(4) Absent the voluntary reduction of administration fees, Other Expenses would
be 0.31% for the Equity Fund, 0.33% for the Regional Equity Fund and 0.31%
for the Balanced Fund. Other Expenses for the Capital Growth Fund, Small Cap
Fund, and Equity Income Fund are based on estimates for the current fiscal
year.
(5) In the absence of any voluntary reduction of administration fees, Total Fund
Operating Expenses would be 1.11% for the Equity Fund, 1.13% for the
Regional Equity Fund and 1.11% for the Balanced Fund.
EXAMPLE
You would pay the following expenses on a $1,000 investment in Premier
Shares, 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........................................................... $ 10 $32 $56 $125
Regional Equity Fund.................................................. $ 11 $33 $58 $128
Balanced Fund......................................................... $ 11 $33 $57 $127
Capital Growth Fund................................................... $ 11 $34 N/A N/A
Small Cap Fund........................................................ $ 12 $37 N/A N/A
Equity Income Fund.................................................... $ 11 $34 N/A N/A
</TABLE>
Premier Shares are not subject to a 12b-1 fee and are not sold pursuant to a
sales charge.
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses that an investor in Premier Shares
of a Capital Appreciation Fund will bear directly or indirectly. See "MANAGEMENT
OF AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual operating
expenses of the Capital Appreciation 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.
5
<PAGE> 58
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information concerning the
investment results for each of the Funds for the period of commencement of
operations to January 31, 1997. The information from the commencement of
operations to July 31, 1996 is a part of the financial statements audited by
Coopers & Lybrand L.L.P., independent accountants for the Trust, whose report on
the Trust's financial statements for the year ended July 31, 1996 appears in the
Statement of Additional Information. The information for the period ended
January 31, 1997 is unaudited. The Municipal Bond Fund, Capital Growth Fund,
Small Cap Fund and Equity Income Fund had not commenced operations as of January
31, 1997. Further financial data is incorporated by reference into the Statement
of Additional Information.
<TABLE>
<CAPTION>
PRIME OBLIGATIONS FUND
SIX ----------------------------------------------------------------------------
MONTHS
ENDED YEAR ENDED JULY 31,
JANUARY 31, ----------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
----------- ---------- -------- -------- -------- -------- -------- --------
PREMIER(b) PREMIER(b)
----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ---------- -------- -------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income........... 0.024 0.016 0 .050 0.029 0.027 0.042 0.067 0.079
----------- ---------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income........... (0.024) (0.016) (0.050) (0.029) (0.027) (0.042) (0.067) (0.079)
----------- ---------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ =========== ========= ========= ========= ========= ========= =========
Total Return.................... 2.46%(d) 5.10% 5.14% 2.94% 2.76% 4.28% 6.87% 8.16%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end
of period (000)............... $ 450,867 $478,542 $617,673 $577,331 $456,428 $457,511 $307,873 $298,498
Ratio of expenses to average net
assets........................ 0.68%(c) 0.71% 0.69% 0.70% 0.71% 0.71% 0.72% 0.70%
Ratio of net investment income
to average net assets......... 4.83%(c) 5.01% 5.04% 2.92% 2.73% 4.08% 6.61% 7.88%
Ratio of expenses to average net
assets*....................... (e) (e) (e) (e) (e) (e) (e) 0.72%
Ratio of net investment income
to average net assets*........ (e) (e) (e) (e) (e) (e) (e) 7.86%
<CAPTION>
AUGUST 8,
1988 TO
JULY 31,
1989(a)
----------
<S> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.......................... $ 1.000
----------
INVESTMENT ACTIVITIES
Net investment income........... 0.084
----------
DISTRIBUTIONS
Net investment income........... (0.084)
----------
NET ASSET VALUE, END OF PERIOD... $ 1.000
==========
Total Return.................... 8.72%(d)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end
of period (000)............... $293,749
Ratio of expenses to average net
assets........................ 0.58%(c)
Ratio of net investment income
to average net assets......... 8.69%(c)
Ratio of expenses to average net
assets*....................... 0.71%(c)
Ratio of net investment income
to average net assets*........ 8.56%(c)
</TABLE>
- ------------
* During the period, certain 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) Effective April 1, 1996, the Fund's existing shares, which were previously
unclassified, were designated as Premier Shares, and the Fund Commenced
offering Classic Shares.
(c) Annualized.
(d) Not annualized.
(e) There were no waivers during the period.
6
<PAGE> 59
<TABLE>
<CAPTION>
AMSOUTH U.S. TREASURY FUND
----------------------------------------------------------------------------
SIX MONTHS SEPTEMBER 8,
ENDED YEAR ENDED JULY 31, 1988 TO
JANUARY 31, ---------------------------------------------------------------------------- JULY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989(a)
----------- ---------- -------- -------- -------- -------- -------- -------- ------------
PREMIER(b) PREMIER(b)
----------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
----------- ---------- -------- -------- -------- -------- -------- -------- ------------
INVESTMENT
ACTIVITIES
Net investment
income.......... 0.023 0.015 0.048 0.028 0.027 0.041 0.064 0.077 0.075
----------- ---------- -------- -------- -------- -------- -------- -------- ------------
DISTRIBUTIONS
Net investment
income.......... (0.023) (0.015) (0.048) (0.028) (0.027) (0.041) (0.064) (0.077) (0.075)
----------- ---------- -------- -------- -------- -------- -------- -------- ------------
NET ASSET VALUE,
END OF PERIOD..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
============ =========== ========= ========= ========= ========= ========= ========= ============
Total Return....... 2.33%(d) 4.93% 4.90% 2.80% 2.69% 4.15% 6.58% 8.04% 7.75%(d)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets at end
of period
(000)........... $ 312,929 $368,162 $322,939 $300,603 $404,473 $339,666 $343,967 $239,291 $131,956
Ratio of expenses
to average net
assets.......... 0.70%(c) 0.71% 0.70% 0.71% 0.72% 0.73% 0.72% 0.68% 0.61%(c)
Ratio of net
investment
income to
average
net assets...... 4.58%(c) 4.82% 4.81% 2.77% 2.66% 4.08% 6.28% 7.73% 8.31%(c)
Ratio of expenses
to average net
assets*......... (e) (e) (e) (e) (e) (e) (e) 0.73% 0.74%(c)
Ratio of net
investment
income to
average
net assets*..... (e) (e) (e) (e) (e) (e) (e) 7.68% 8.18%(c)
</TABLE>
- ------------
* During the period, certain 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) Effective April 1, 1996, the Fund's existing shares, which were previously
unclassified, were designated as Premier Shares, and the Fund commenced
offering Classic Shares.
(c) Annualized.
(d) Not annualized.
(e) There were no waivers during the period.
7
<PAGE> 60
<TABLE>
<CAPTION>
TAX EXEMPT FUND
--------------------------------------------------------------
SIX MONTHS JUNE 27,
ENDED YEAR ENDED JULY 31, 1988 TO
JANUARY 31, -------------------------------------------------------------- JULY 31,
1997 1996 1995 1994 1993 1992 1991 1990(a)
----------- ------- ------- ------- ------- ------- ------- --------
PREMIER(b) PREMIER(b)
----------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income.............. 0.015 0.010 0.032 0.019 0.021 0.030 0.046 0.011
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income.............. (0.015) (0.010) (0.032) (0.019) (0.021) (0.030) (0.046) (0.011)
-------- -------- -------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ======== ========
Total Return....................... 1.55%(d) 3.15% 3.22% 1.95% 2.16% 3.12% 4.69% 0.54%(d)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)............................ $66,974 $43,611 $57,640 $60,923 $48,151 $38,392 $25,400 $28,246
Ratio of expenses to average net
assets........................... 0.51%(c) 0.54% 0.54% 0.57% 0.49% 0.65% 0.52% 0.21%(c)
Ratio of net investment income
to average net assets............ 3.07%(c) 3.11% 3.15% 1.93% 2.12% 2.98% 4.59% 5.70%(c)
Ratio of expenses to average net
assets*.......................... 0.71%(c) 0.74% 0.74% 0.77% 0.78% 0.77% 0.77% 0.81%(c)
Ratio of net investment income
to average net assets*........... 2.87%(c) 2.91% 2.95% 1.73% 1.83% 2.86% 4.34% 5.10%(c)
</TABLE>
- ------------
* During the period, certain 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) Effective April 1, 1996, the Fund's existing shares, which were previously
unclassified, were designated as Premier Shares, and the Fund commenced
offering Classic Shares.
(c) Annualized.
(d) Not annualized.
8
<PAGE> 61
<TABLE>
<CAPTION>
BOND FUND
--------------------------------------------------------------------
SIX MONTHS DECEMBER 1,
ENDED YEAR ENDED JULY 31, 1988 TO
JANUARY 31, -------------------------------------------------------------------- JULY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989(a)
----------- -------- ------- ------- ------- ------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD...................... $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $ 10.61 $ 10.00
----------- -------- ------- ------- ------- ------- ------- ------- -----
INVESTMENT ACTIVITIES
Net investment income....... 0.32 0.65 0.69 0.69 0.71 0.74 0.74 0.77 0.50
Net realized and unrealized
gains (losses) from
investments............... 0.15 (0.18) 0.28 (0.66) 0.33 0.91 0.05 (0.21) 0.56
----------- -------- ------- ------- ------- ------- ------- ------- -----
Total from Investment
Activities................ 0.47 0.47 0.97 0.03 1.04 1.65 0.79 0.56 1.06
----------- -------- ------- ------- ------- ------- ------- ------- -----
DISTRIBUTIONS
Net investment income....... (0.36) (0.65) (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) --
----------- -------- ------- ------- ------- ------- ------- ------- -----
In excess of net realized
gain...................... -- (0.11) -- -- -- -- -- -- --
----------- -------- ------- ------- ------- ------- ------- ------- -----
Total Distributions......... (0.36) (0.76) (0.73) (0.73) (1.04) (0.78) (0.76) (0.78) (0.45)
----------- -------- ------- ------- ------- ------- ------- ------- -----
NET ASSET VALUE, END OF
PERIOD...................... $ 10.65 $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $ 10.61
============ ========= ======== ======== ======== ======== ======== ======== =============
Total Return
(Excludes Sales Charge)... 4.53%(c) 4.40% 9.70% 0.23% 9.80% 16.41% 7.99% 5.54% 10.91%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)..................... $ 132,112 $132,737 $94,671 $79,472 $65,777 $60,156 $26,008 $17,518 $ 4,954
Ratio of expenses to average
net assets................ 0.75%(b) 0.75% 0.75% 0.78% 0.78% 0.82% 0.93% 0.84% 1.10%(b)
Ratio of net investment
income to average
net assets................ 6.03%(b) 6.12% 6.63% 6.31% 6.37% 6.94% 7.26% 7.82% 7.47%(b)
Ratio of expenses to average
net assets*............... 0.98%(b) 0.98% 0.98% 1.01% 1.01% 1.01% 1.11% 1.21% 2.28%(b)
Ratio of net investment
income to average net
assets*................... 5.80%(b) 5.89% 6.40% 6.08% 6.14% 6.75% 7.09% 7.45% 6.29%(b)
PORTFOLIO TURNOVER........... 11.20% 9.60% 17.70% 30.90% 14.98% 240.64% 181.77% 53.52% 0.00%
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
9
<PAGE> 62
<TABLE>
<CAPTION>
LIMITED MATURITY FUND
-------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JULY 31,
JANUARY 31, -------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
---------------- ------- ------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 $ 10.29
------- ------- ------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income................ 0.30 0.58 0.58 0.54 0.60 0.70 0.73
Net realized and unrealized gains
(losses) from investments.......... 0.04 (0.10) 0.17 (0.45) 0.09 0.45 0.17
------- ------- ------- ------- ------- ------- -------
Total from Investment Activities..... 0.34 0.48 0.75 0.09 0.69 1.15 0.90
------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income................ (0.33) (0.57) (0.57) (0.54) (0.61) (0.69) (0.73)
In excess of net investment income... -- (0.01) -- -- -- -- --
Net realized gains................... -- -- -- -- (0.08) (0.09) (0.02)
In excess of net realized gains...... -- -- -- (0.13) -- -- --
------- ------- ------- ------- ------- ------- -------
Total Distributions.................. (0.33) (0.58) (0.57) (0.67) (0.69) (0.78) (0.75)
------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD........ $ 10.32 $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44
======= ======= ======= ======= ======= ======= =======
Total Return (Excludes Sales
Charge)............................ 3.29%(c) 4.74% 7.65% 0.77% 6.72% 11.48% 9.06%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000).... $ 41,087 $46,005 $59,798 $51,660 $53,933 $38,206 $11,112
Ratio of expenses to average net
assets............................. 0.77%(b) 0.76% 0.80% 0.79% 0.69% 0.68% 0.85%
Ratio of net investment income to
average net assets................. 5.56%(b) 5.48% 5.69% 5.05% 5.67% 6.78% 7.19%
Ratio of expenses to average net
assets*............................ 1.00%(b) 0.99% 1.03% 1.02% 1.03% 1.03% 1.20%
Ratio of net investment income to
average net assets*................ 5.33%(b) 5.25% 5.46% 4.82% 5.33% 6.43% 6.84%
PORTFOLIO TURNOVER.................... 42.36% 29.56% 38.11% 48.06% 141.27% 35.64% 85.08%
<CAPTION>
FEBRUARY 1,
1988 TO
JULY 31,
1990 1989(a)
------ -----------
<S> <C<C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.. $10.35 $ 10.00
------- -------
INVESTMENT ACTIVITIES
Net investment income................ 0.72 0.35
Net realized and unrealized gains
(losses) from investments.......... (0.05) 0.32
------- -------
Total from Investment Activities..... 0.67 0.67
------- -------
DISTRIBUTIONS
Net investment income................ (0.70) (0.32)
In excess of net investment income... -- --
Net realized gains................... (0.03) --
In excess of net realized gains...... -- --
------- -------
Total Distributions.................. (0.73) (0.32)
------- -------
NET ASSET VALUE, END OF PERIOD........ $10.29 $ 10.35
======= =======
Total Return (Excludes Sales
Charge)............................ 6.80% 6.87%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000).... $5,983 $ 3,165
Ratio of expenses to average net
assets............................. 1.02% 1.41%(b)
Ratio of net investment income to
average net assets................. 7.23% 6.82%(b)
Ratio of expenses to average net
assets*............................ 1.45% 2.72%(b)
Ratio of net investment income to
average net assets*................ 6.80% 5.51%(b)
PORTFOLIO TURNOVER.................... 119.69% 28.28%
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
10
<PAGE> 63
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND
--------------------------------------
YEAR ENDED
SIX MONTHS ENDED JULY 31, OCTOBER 1, 1993
JANUARY 31, ------------------ TO JULY 31,
1997 1996 1995 1994(a)
---------------- ------- ------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $ 9.40 $ 9.54 $ 9.48 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income...................... 0.26 0.66 0.68 0.54
Net realized and unrealized gains (losses)
from investments........................ 0.20 (0.20) 0.08 (0.57)
------- ------- ------- -------
Total from Investment Activities........... 0.46 0.46 0.76 (0.03)
------- ------- ------- -------
DISTRIBUTIONS
Net investment income...................... (0.27) (0.59) (0.70) (0.33)
Tax return of capital...................... -- (0.01) -- (0.16)
------- ------- ------- -------
Total Distributions........................ (0.27) (0.60) (0.70) (0.49)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD............... $ 9.59 $ 9.40 $ 9.54 $ 9.48
======= ======= ======= =======
Total Return (Excludes Sales Charge)....... 4.95%(c) 4.91% 8.43% (0.26)%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000).......... $ 13,762 $15,752 $16,679 $15,465
Ratio of expenses to average net assets.... 0.72%(b) 0.65% 0.58% 0.37%(b)
Ratio of net investment income to average
net assets.............................. 5.49%(b) 6.81% 7.18% 6.56%(b)
Ratio of expenses to average net assets*... 1.17%(b) 1.10% 1.19% 1.22%(b)
Ratio of net investment income to average
net assets*............................. 5.04%(b) 6.36% 6.57% 5.71%(b)
PORTFOLIO TURNOVER........................... 2.65% 78.31% 27.32% 122.94%
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
11
<PAGE> 64
<TABLE>
<CAPTION>
FLORIDA TAX-FREE FUND
----------------------------------------------------
SIX MONTHS ENDED YEAR ENDED SEPTEMBER 30, 1994
JANUARY 31, JULY 31, TO JULY 31,
1997 1996 1995(a)
---------------- ---------- ------------------
(UNAUDITED)
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 10.30 $ 10.32 $ 10.00
---------------- ---------- ----------
INVESTMENT ACTIVITIES
Net investment income........................... 0.22 0.45 0.34
Net realized and unrealized gains (losses) from
investments.................................. 0.05 (0.01) 0.30
---------------- ---------- ----------
Total from Investment Activities................ 0.27 0.44 0.64
---------------- ---------- ----------
DISTRIBUTIONS
Net investment income........................... (0.25) (0.45) (0.32)
Net realized gains.............................. (0.01) (0.01) --
---------------- ---------- ----------
Total Distributions............................. (0.26) (0.46) (0.32)
---------------- ---------- ----------
NET ASSET VALUE, END OF PERIOD.................... $ 10.31 $ 10.30 $ 10.32
============= ======== ==============
Total Return (Excludes Sales Charge).............. 2.71%(c) 4.24% 6.53%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Asset at end of period (000)................ $ 52,825 $ 48,869 $ 48,333
Ratio of expenses to average net assets......... 0.54%(b) 0.59% 0.70%(b)
Ratio of net investment income to average net
assets....................................... 4.35%(b) 4.33% 4.16%(b)
Ratio of expenses to average net assets*........ 0.99%(b) 1.04% 1.01%(b)
Ratio of net investment income to average net
assets*...................................... 3.90%(b) 3.88% 3.86%(b)
PORTFOLIO TURNOVER................................ 2.30% 12.21% 2.33%
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
12
<PAGE> 65
<TABLE>
<CAPTION>
EQUITY FUND
------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JULY 31,
JANUARY 31, ------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
---------------- -------- -------- -------- -------- -------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 $ 11.99
-------- -------- -------- -------- -------- -------- -------
INVESTMENT ACTIVITIES
Net Investment income........ 0.16 0.33 0.33 0.28 0.28 0.32 0.36
Net realized and unrealized
gains from investments..... 2.30 1.48 2.39 0.83 1.48 1.20 0.61
-------- -------- -------- -------- -------- -------- -------
Total from Investment
Activities................. 2.46 1.81 2.72 1.11 1.76 1.52 0.97
-------- -------- -------- -------- -------- -------- -------
DISTRIBUTIONS
Net investment income........ (0.17) (0.33) (0.32) (0.28) (0.29) (0.33) (0.37)
Net realized gains........... (1.04) (0.61) (0.47) (0.39) (0.49) (0.36) (0.02)
-------- -------- -------- -------- -------- -------- -------
Total Distributions.......... (1.21) (0.94) (0.79) (0.67) (0.78) (0.69) (0.39)
-------- -------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF
PERIOD....................... $ 18.87 $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57
======== ======== ======== ======== ======== ======== =======
Total Return (Excludes Sales
Charge)...................... 14.32%(c) 11.09% 19.27% 7.90% 13.81% 12.94% 8.46%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)...................... $419,009 $374,622 $275,757 $205,611 $153,074 $107,934 $32,406
Ratio of expenses to average
net assets................. 1.01%(b) 1.02% 1.03% 0.94% 0.95% 1.01% 1.15%
Ratio of net investment
income to average net
assets..................... 1.71%(b) 1.86% 2.17% 1.93% 2.08% 2.50% 3.16%
Ratio of expenses to average
net assets*................ 1.09%(b) 1.11% 1.11% 1.11% 1.13% 1.15% 1.26%
Ratio of net investment
income to average net
assets*.................... 1.63%(b) 1.77% 2.09% 1.76% 1.90% 2.36% 3.04%
PORTFOLIO TURNOVER............ 11.94% 19.11% 19.46% 11.37% 15.12% 113.12% 15.78%
Average commission rate
paid(d).................... $ 0.0668 $ 0.0700 -- -- -- -- --
<CAPTION>
DECEMBER 1,
1988 TO
JULY 31,
1990 1989(a)
------- -----------
<S> <C<C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD....................... $ 12.18 $ 10.00
------- ------
INVESTMENT ACTIVITIES
Net Investment income........ 0.37 0.22
Net realized and unrealized
gains from investments..... (0.17) 2.16
------- ------
Total from Investment
Activities................. 0.20 2.38
------- ------
DISTRIBUTIONS
Net investment income........ (0.35) (0.20)
Net realized gains........... (0.04) --
------- ------
Total Distributions.......... (0.39) (0.20)
------- ------
NET ASSET VALUE, END OF
PERIOD....................... $ 11.99 $ 12.18
======= ======
Total Return (Excludes Sales
Charge)...................... 1.66% 24.06%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)...................... $14,383 $ 5,476
Ratio of expenses to average
net assets................. 1.11% 1.16%(b)
Ratio of net investment
income to average net
assets..................... 3.16% 2.91%(b)
Ratio of expenses to average
net assets*................ 1.41% 2.34%(b)
Ratio of net investment
income to average net
assets*.................... 2.86% 1.73%(b)
PORTFOLIO TURNOVER............ 14.89% 4.03%
Average commission rate
paid(d).................... -- --
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
13
<PAGE> 66
<TABLE>
<CAPTION>
REGIONAL EQUITY FUND
-----------------------------------------------------------------------------
SIX MONTHS ENDED YEAR ENDED JULY 31,
JANUARY 31, -----------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
---------------- ------- ------- ------- ------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $ 13.44 $12.45 $11.64
------- ------- ------- ------- ------- ------- ------ ------
INVESTMENT
ACTIVITIES
Net investment
income........... 0.15 0.26 0.23 0.23 0.19 0.23 0.26 0.23
Net realized and
unrealized gains
from
investments...... 3.79 2.20 2.26 0.58 2.09 2.34 1.20 0.84
------- ------- ------- ------- ------- ------- ------ ------
Total from
Investment
Activities....... 3.94 2.46 2.49 0.81 2.28 2.57 1.46 1.07
------- ------- ------- ------- ------- ------- ------ ------
DISTRIBUTIONS
Net investment
income........... (0.15) (0.26) (0.23) (0.23) (0.20) (0.23) (0.26) (0.22)
Net realized
gains............ (0.49) (0.19) -- (0.41) (0.20) (0.92) (0.21) (0.04)
-------
In excess of net
realized gains... -- -- -- (0.23) -- -- -- --
------- ------- ------- ------- ------- ------- ------ ------
Total
Distributions.... (0.64) (0.45) (0.23) (0.87) (0.40) (1.15) (0.47) (0.26)
------- ------- ------- ------- ------- ------- ------ ------
NET ASSET VALUE, END
OF PERIOD.......... $ 24.25 $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $13.44 $12.45
=================== ======== ======== ======== ======== ======== ======= =======
Total Return
(Excludes Sales
Charge).......... 18.96%(c) 13.10% 15.10% 4.87% 15.53% 20.66% 12.52% 9.41%
RATIOS/SUPPLEMENTAL
DATA:
Net Assets at end
of period
(000)............ $120,448 $93,584 $68,501 $54,744 $41,347 $15,707 $7,853 $3,161
Ratio of expenses
to average net
assets........... 1.03%(b) 1.05% 1.07% 0.79% 0.80% 0.91% 0.79% 1.22%
Ratio of net
investment income
to average net
assets........... 1.22%(b) 1.30% 1.35% 1.36% 1.17% 1.61% 2.21% 1.92%
Ratio of expenses
to average net
assets*.......... 1.11%(b) 1.13% 1.15% 1.24% 1.28% 1.36% 1.58% 2.32%
Ratio of net
investment income
to average net
assets*.......... 1.14%(b) 1.22% 1.27% 0.90% 0.69% 1.16% 1.42% 0.82%
PORTFOLIO
TURNOVER........... 7.45% 8.22% 14.25% 5.83% 10.22% 24.99% 14.41% 14.00%
Average commission
rate paid(d)..... $ 0.0829 $0.0827 -- -- -- -- -- --
<CAPTION>
DECEMBER 1,
1988 TO
JULY 31,
1989(a)
-----------
<S> <C<C>
NET ASSET VALUE,
BEGINNING OF
PERIOD............. $ 10.00
-----
INVESTMENT
ACTIVITIES
Net investment
income........... 0.14
Net realized and
unrealized gains
from
investments...... 1.64
-----
Total from
Investment
Activities....... 1.78
-----
DISTRIBUTIONS
Net investment
income........... (0.14)
Net realized
gains............ --
-----
In excess of net
realized gains... --
-----
Total
Distributions.... (0.14)
-----
NET ASSET VALUE, END
OF PERIOD.......... $ 11.64
=============
Total Return
(Excludes Sales
Charge).......... 17.79%(c)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets at end
of period
(000)............ $ 2,523
Ratio of expenses
to average net
assets........... 1.41%(b)
Ratio of net
investment income
to average net
assets........... 1.98%(b)
Ratio of expenses
to average net
assets*.......... 2.65%(b)
Ratio of net
investment income
to average net
assets*.......... 0.74%(b)
PORTFOLIO
TURNOVER........... 1.13%
Average commission
rate paid(d)..... --
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
14
<PAGE> 67
<TABLE>
<CAPTION>
BALANCED FUND
--------------------------------------------
DECEMBER 19,
SIX MONTHS ENDED YEAR ENDED JULY 31, 1991 TO
JANUARY 31, -------------------------------------------- JULY 31,
1997 1996 1995 1994 1993 1992(a)
---------------- -------- -------- -------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD.............................. $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12 $ 10.00
-------- -------- -------- -------- -------- ------------
INVESTMENT ACTIVITIES
Net Investment income............... 0.25 0.47 0.47 0.42 0.44 0.27
Net realized and unrealized gains
from investments.................. 0.99 0.58 1.24 0.18 0.80 1.09
-------- -------- -------- -------- -------- ------------
Total from Investment Activities.... 1.24 1.05 1.71 0.60 1.24 1.36
-------- -------- -------- -------- -------- ------------
DISTRIBUTIONS
Net investment income............... (0.27) (0.47) (0.46) (0.42) (0.45) (0.24)
Net realized gains.................. (0.58) (0.31) (0.30) (0.23) (0.05) --
-------- -------- -------- -------- -------- ------------
Total Distributions................. (0.85) (0.78) (0.76) (0.65) (0.50) (0.24)
-------- -------- -------- -------- -------- ------------
NET ASSET VALUE, END OF PERIOD........ $ 13.42 $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12
=============== ======== ======== ======== ======== ============
Total Return (Excludes Sales
Charge)........................... 9.73%(c) 8.37% 15.27% 5.13% 11.47% 13.71%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)... $355,980 $338,425 $295,509 $236,306 $179,134 $143,813
Ratio of expenses to average net
assets............................ 1.02%(b) 0.98% 0.94% 0.84% 0.84% 0.83%(b)
Ratio of net investment income to
average net assets................ 3.62%(b) 3.61% 3.91% 3.56% 3.90% 4.45%(b)
Ratio of expenses to average net
assets*........................... 1.10%(b) 1.11% 1.12% 1.11% 1.12% 1.17%(b)
Ratio of net investment income to
average net assets*............... 3.54%(b) 3.48% 3.73% 3.28% 3.62% 4.10%(b)
PORTFOLIO TURNOVER.................... 13.57% 20.47% 16.97% 14.43% 11.09% 23.18%
Average commission rate paid(d)..... $ 0.0760 $ 0.0773 -- -- -- --
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
15
<PAGE> 68
<TABLE>
<CAPTION>
EQUITY INCOME FUND
------------------
SIX MONTHS ENDED
JULY 31, 1997
------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................... $ 10.00
----------
INVESTMENT ACTIVITIES
Net investment income................................................ 0.07
Net realized and unrealized gains from investments................... 1.71
----------
Total from Investment Activities..................................... 1.78
----------
DISTRIBUTIONS
Net investment income................................................ (0.06)
Net realized gains................................................... 0.00
----------
Total Distributions.................................................. (0.06)
----------
NET ASSET VALUE, END OF PERIOD......................................... $ 11.72
==============
Total Return (Excludes Sales Charge)................................. 17.81%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000).................................... $ 22,273
Ratio of expenses to average net assets.............................. 1.28%(b)
Ratio of net investment income to average net assets................. 2.11%(b)
Ratio of expenses to average net assets*............................. 1.49%(b)
Ratio of net investment income to average net assets*................ 1.89%(b)
PORTFOLIO TURNOVER..................................................... 27.38%
Average commission rate paid(d)...................................... $ 0.0600
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
16
<PAGE> 69
INVESTMENT OBJECTIVE AND POLICIES
The investment objective of each 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). There can
be, of course, no assurance that any Fund will achieve its investment objective.
THE PRIME OBLIGATIONS AND AMSOUTH U.S. TREASURY FUNDS
The investment objective of the Prime Obligations Fund and the AmSouth U.S.
Treasury Fund is to seek current income with liquidity and stability of
principal. Although the Prime Obligations Fund and the AmSouth U.S. Treasury
Fund have the same Advisor and the same investment objective, their particular
portfolio securities and yield will ordinarily differ due to differences in the
types of investments permitted, cash flow, and the availability of particular
portfolio investments. Market conditions and interest rates may affect the types
and yields of securities held in each Fund.
Changes in prevailing interest rates may affect the yield, and possibly the
net asset value, of each Fund. Each Money Market Fund invests only in those
securities and instruments considered by the Advisor to present minimal credit
risks under guidelines established by the Trust's Board of Trustees. All
securities or instruments in which each of the Money Market Funds invest have
remaining maturities of 397 days or less, although instruments subject to
repurchase agreements may bear longer maturities. The dollar-weighted average
maturity of the securities in each Money Market Fund will not exceed 90 days.
THE PRIME OBLIGATIONS FUND invests in U.S. dollar-denominated, high-quality
short-term debt instruments. Investments will be limited to those obligations
which, at the time of purchase, (i) possess the highest short-term rating from
at least two nationally recognized statistical rating organizations (an "NRSRO")
(for example, commercial paper rated "A-1" by Standard & Poor's Corporation and
"P-1" by Moody's Investors Service, Inc.) or one NRSRO if only rated by one
NRSRO or (ii) do not possess a rating (i.e., are unrated) but are determined to
be of comparable quality to the rated instruments eligible for purchase by the
Fund under the guidelines adopted by the Trustees. The Statement of Additional
Information contains further information concerning the rating and other
requirements governing the Prime Obligation Fund's investments, including
information relating to the treatment of securities subject to a tender or
demand feature and securities deemed to possess a rating based on comparable
rated securities of the same issuer. The Statement also identifies the NRSROs
that may be utilized by the Advisor with respect to portfolio investments for
the Fund and provides a description of the relevant ratings assigned by each
such NRSRO.
The Prime Obligations Fund will invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, and other obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association 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 the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, 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 Bank or the Federal Home Loan Mortgage
Corporation, 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 Prime Obligations Fund will invest in the
obligations of such agencies or instrumentalities only when the Advisor believes
that the credit risk with respect thereto is minimal.
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The Prime Obligations Fund may invest in bankers' acceptances guaranteed by
domestic and foreign banks if at the time of investment the guarantor bank has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements). The Prime Obligations
Fund may invest in certificates of deposit and demand and time deposits of
domestic and foreign banks and savings and loan associations if (a) at the time
of investment the depository institution has capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of their most recently
published financial statements) or (b) the principal amount of the instrument is
insured in full by the Federal Deposit Insurance Corporation.
Variable amount master demand notes in which the Prime Obligations Fund may
invest are unsecured demand notes that permit the indebtedness thereunder to
vary, and that provide for periodic adjustments in the interest rate according
to the terms of the instrument. Because master demand notes are direct lending
arrangements between the Prime Obligations Fund and the issuer, they are not
normally traded. Although there is no secondary market in the notes, the Prime
Obligations Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by credit rating agencies, issuers
of variable amount master demand notes (which are normally manufacturing,
retail, financial, and other business concerns) must satisfy the same criteria
as to quality as set forth above for commercial paper. The Advisor will consider
the earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. In determining average weighted portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand. The period of time remaining until the principal
amount can be recovered under a variable master demand note may not exceed seven
days.
The Prime Obligations Fund may invest in the securities of other money market
funds that have similar policies and objectives, invest in securities of equal
or higher short-term ratings, and are in compliance with Rule 2a-7 under the
Investment Company Act of 1940.
The Prime Obligations Fund may also invest in short-term municipal
obligations.
THE AMSOUTH U.S. TREASURY FUND invests exclusively in short-term United States
dollar-denominated obligations issued by the U.S. Treasury. Such obligations may
include "stripped" U.S. Treasury obligations such as Treasury Receipts issued by
the U.S. Treasury representing either future interest or principal payments.
Stripped Treasury Securities are sold at a deep discount because the buyer of
those securities receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest payments on
the security. These securities may exhibit greater price volatility then
ordinary debt securities because of the manner in which their principal and
interest are returned to investors. Obligations purchased by the AmSouth U.S.
Treasury Fund may be subject to repurchase agreements collateralized by the
underlying U.S. Treasury obligation.
THE BOND FUND AND LIMITED
MATURITY FUND
THE BOND FUND seeks current income consistent with the preservation of
capital. 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 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.
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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 the Advisor, 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 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 seeks current income consistent with the
preservation of capital. 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 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 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 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, the Advisor 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
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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 five 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 the Advisor 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.
MASTER DEMAND NOTES
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 such
notes. The quality of master demand notes will be reviewed by the 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.
VARIABLE AND FLOATING RATE NOTES
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
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.
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An increase in interest rates will generally reduce the value of the
investments in the Funds and a decline in interest rates will generally increase
the value of those investments. Depending upon prevailing market conditions, the
Advisor 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, the Advisor will consider many
factors other than current yield, including the preservation of capital,
maturity, and yield to maturity.
THE GOVERNMENT INCOME FUND
THE GOVERNMENT INCOME FUND seeks current income consistent with preservation
of capital. 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 the Advisor 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 Government Income Fund may also 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 Advisor under guidelines established by
the Trust's Board of Trustees to be of comparable quality.
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 Govern-
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ment) 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 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 passthrough 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 exam-
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ination of the loan experience and practices of the poolers the Advisor
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 the Advisor'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
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.
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
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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, the
Advisor will, consistent with the Government Income Fund's investment objective,
policies and quality standards, consider making investments in such new types of
securities.
THE TAX EXEMPT FUND, FLORIDA FUND AND MUNICIPAL BOND FUND
THE TAX EXEMPT FUND seeks as high a level of current interest income exempt
from federal income taxes as is consistent with the preservation of capital and
relative stability of principal. The Tax Exempt 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") and which generally have remaining
maturities of one year or less. The Tax Exempt Fund may also invest up to 10% of
the value of its total assets in the securities of money market mutual funds
which invest primarily in obligations exempt from federal income tax. The Tax
Exempt Fund will incur additional expenses due to the duplication of expenses as
a result of investing in securities of such money market mutual funds.
Additional restrictions on the Tax Exempt Fund's investments in the securities
of such money market funds are contained in the Statement of Additional
Information. As a fundamental policy, under normal market conditions at least
80% of the Tax Exempt Fund's total 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.
Changes in prevailing interest rates may affect the yield, and possibly the
net asset value, of the Tax Exempt Fund. The Tax Exempt Fund invests only in
those securities and instruments considered by the Advisor to present minimal
credit risks under guidelines established by the Trust's Board of Trustees. All
securities or instruments in which the Fund invests have remaining maturities of
397 days or less, although instruments subject to repurchase agreements and
certain variable rate and floating rate instruments subject to demand features
may bear longer maturities. The dollar-weighted average maturity of the
securities in the Tax Exempt Fund will not exceed 90 days.
The Tax Exempt Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the Tax Exempt Fund would not be appropriate for tax-deferred
plans, such as IRA and Keogh plans. Investors should consult a tax or other
financial advisor to determine whether investment in the Tax Exempt Fund would
be appropriate.
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 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 seeks to produce as high a level of current federal
tax-exempt income,
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as is consistent with the preservation of capital. The Municipal Bond Fund
invests primarily in Municipal Securities, as defined above. 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.
It is a fundamental policy that, under normal market conditions, the Tax
Exempt Fund may invest up to 20% of its total 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"). Under normal market conditions, the Florida Fund and the
Municipal Bond Fund may invest up to 20% of its net assets in Taxable
Obligations. The Florida Fund may also invest in Municipal Securities. At times,
the Advisor may determine that, because of unstable conditions in the markets
for Municipal Securities 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, the Advisor may use temporary
defensive strategies differing from those designed to achieve the Funds'
investment objectives. With regard to the Tax Exempt Fund, the Advisor may
increase its holdings in short-term Taxable Obligations to over 20% of its total
assets and hold uninvested cash reserves pending investment. With regard to the
Tax-Free Funds, the Advisor may increase each Fund's holdings in Taxable
Obligations to over 20% of each Fund's net assets, and with respect to the
Florida Fund, increase its holdings in Municipal Securities to over 20% of net
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 Funds' quality
standards (as described below) for tax-exempt commercial paper. These
obligations are described further in the Statement of Additional Information.
The Tax Exempt Fund and 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
Eligible 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 Tax Exempt Fund will invest only in those Municipal Securities and other
obligations which are considered by the Advisor, pursuant to guidelines approved
by the Board of Trustees, to present minimal credit risks. In addition,
investments will be limited to those obligations which, at the time of purchase,
(i) possess one of the two highest short-term ratings from an NRSRO in the case
of single-rated securities or (ii) possess, in the case of multiple-rated
securities, one of the two highest short-term ratings by at least two NRSROs; or
(iii) do not possess a rating (i.e., are unrated) but are determined by the
Advisor to be of comparable quality to the rated instruments eligible for
purchase by the Fund under the guidelines adopted by the Trustees. The Statement
of Additional Information contains further information concerning the rating and
other requirements governing the Tax Exempt Fund's investments, including
information relating to the treatment of securities subject to a tender or
demand feature and securities deemed to possess a rating based on comparable
rated securities of the same issuer. The Statement of Additional Information
also identifies the NRSROs that may be uti-
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lized by the Advisor with respect to portfolio investments for the Fund and
provides a description of the relevant ratings assigned by each such NRSRO.
The Tax-Free 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 Tax-Free
Funds may also purchase Eligible Municipal Securities that are unrated at the
time of purchase but are determined to be of comparable quality by the Advisor
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 and the Tax Exempt Fund 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
Exempt Fund, the Tax-Free Funds nor the Advisor will review the proceedings
relating to the issuance of Eligible Municipal Securities or the basis for such
opinions.
Although the Municipal Bond Fund and the Tax Exempt Fund do not presently
intend to do so on a regular basis, each 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 or projects located in the same state. Such investments would be made
only if deemed necessary or appropriate by the Advisor. To the extent that a
Fund's assets are concentrated in Municipal Securities that are so related, a
Fund will be subject to the peculiar risks presented by such securities, such as
negative developments in a particular industry or state, to a greater extent
than it would be if the Fund's assets were not so concentrated.
The Tax Exempt Fund and 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 Tax-Free
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 ad-
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visable, the TaxFree 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 Advisor 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.
Municipal Securities purchased by the Tax Exempt Fund may include rated and
unrated variable and floating rate tax-exempt notes, which may have a stated
maturity in excess of one year but which will, in such event, be subject to a
demand feature that will permit the Tax Exempt Fund to demand payment of the
principal of the note either (i) at any time upon not more than thirty days'
notice or (ii) at specified intervals not exceeding one year and upon no more
than thirty days' notice. The Tax-Free Funds may also 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 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 Exempt Fund and 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 Tax-Free
Funds will only purchase zero-coupon obligations if, at the time of purchase,
such investments do not exceed 20% of the value of the Florida Fund's 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, the Advisor 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, the Advisor will consider
many factors besides current yield, including the preservation of capital,
maturity, and yield to maturity.
THE MUNICIPAL BOND FUND--CONCENTRATION
The Municipal Bond Fund may invest 25% or more of its total assets 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 form both federal
income tax and Alabama personal income tax and is
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not treated as a preference item for purposes of the federal alternative minimum
tax for individuals ("Alabama Municipal Securities"). Because of the relatively
small number of issuers of Alabama Municipal Securities, the Fund is more likely
to invest a higher percentage of its assets in the securities of a single
issuer. 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 Fund's Shares.
GENERAL ECONOMIC CHARACTERISTICS OF ALABAMA
Alabama ranks twenty-second in the nation in total population, with over four
million residents in 1995. Its economy has historically been based primarily on
agriculture, textiles, mineral extraction and iron and steel production,
although the state has diversified into health care related industries and other
service-oriented sectors. Overall job growth rate was 4.0% for the period from
1992 to 1994. Alabama's per capita income in 1996 was ranked thirty-ninth 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 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 sec. 222 of the Constitution of Alabama. In so holding, the
Court found that warrants are not "bonds" within the meaning of sec. 222.
According to the Court, warrants are not negotiable instruments and transferees
of warrants
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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
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%. State and local governments in Alabama are
more dependent on general and special sales taxes than are state and local
governments in many states. Because sales taxes are less stable sources of
revenue than are property taxes, state and local governments in Alabama may be
subject to shortfalls in revenue due to economic cycles.
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.
On January 10, 1997, the Alabama Supreme Court affirmed Judge Reese's ruling.
The court stated that the Alabama Legislature must develop a plan within one
year to correct the unconstitutional disparity. Any allocation of funds away
from school districts could impair the ability of such districts to service
debt.
THE FLORIDA FUND--DIVERSIFICATION AND
CONCENTRATION
The Florida Fund is a non-diversified fund under the Investment Company Act of
1940 (the "1940 Act") and may concentrate its investments in the securities of a
limited number of issuers. Under the Internal Revenue Code of 1986, as amended
(the "Code"), the Florida Fund generally may not invest in a manner such that at
the end of each fiscal quarter, (i) more than 25% of its total assets are
represented by securities of any one issuer (other than U.S. government
securities) and (ii) with respect to 50% of its total assets, more than 5% of
its total assets are represented by in the securities of any one issuer (other
than U.S. government securities). Thus, the Florida Fund generally may each
invest up to 25% of its total assets in the securities of
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each of any two issuers. Because of the relatively small number of issuers of
Florida Municipal Securities, the Florida Fund is more likely to invest a higher
percentage of its 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 Florida Fund's shares.
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 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 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. A
two-thirds approval of voters voting in an election is now required for the
addition of any new taxes to the Florida Constitution. 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 intangible tax.
Dependence on the sales tax may subject 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
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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 Intangible 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.
CAPITAL APPRECIATION FUNDS
The Advisor will seek to invest in equity securities which are believed to
represent investment value. Factors which the Advisor may consider in selecting
equity securities include industry and company fundamentals, historical price
relationships, and/or underlying asset value.
The Advisor to the Equity, Regional Equity, and Balanced Funds will use a
variety of economic projections, technical analysis, and earnings projections in
formulating individual stock purchase and sale decisions. The Advisor will
select investments that it believes have basic investment value which will
eventually be recognized by other investors, thus increasing their value to the
Funds. In the selection of the investments for the Equity, Regional Equity, and
Balanced Funds, the Advisor may therefore be making investment decisions which
could be contrary to the present expectations of other professional investors.
These decisions may involve greater risks compared to other mutual funds, of
either (a) more accurate assessment by other investors, in which case losses may
be incurred by a Fund, or (b) long delay in investor recognition of the accuracy
of the investment decisions of a Fund, in which case invested capital of a
Capital Appreciation Fund in an individual security or group of securities may
not appreciate for an extended period.
In managing the Capital Growth Fund and Small Cap Fund, the Advisor will seek
securities with
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potential to produce above-average earnings growth. Issuers include companies
with a history of above-average growth or companies that are expected to enter
periods of above-average growth or are positioned in emerging growth industries.
Should the expected growth potential of such companies fail to be realized, a
loss may be incurred.
The equity securities in which the Capital Appreciation Funds may invest may
be subject to wider fluctuations in value than some other forms of investment.
Depending upon the performance of a Capital Appreciation Fund's investments, the
net asset value per Share of such Fund may decrease instead of increase.
Each Capital Appreciation Fund may provide current income. The Balanced Fund
and the Equity Income Fund are expected to produce a higher level of current
income than the other Capital Appreciation Funds.
Most companies in which the Equity, Regional Equity, Balanced, Capital Growth,
and Equity Income Funds will invest will be listed on national securities
exchanges. Stocks held by the Small Cap Fund will frequently be traded over the
counter.
THE EQUITY FUND seeks capital appreciation by investing primarily in a
diversified portfolio of common stock and securities convertible into common
stocks such as convertible bonds and convertible preferred stock. The Equity
Fund will normally invest at least 80% of the value of its total assets in
common stocks and securities convertible into common stocks, such as convertible
bonds and convertible preferred stocks, believed by the Advisor to be
undervalued. The production of current income is an incidental objective of the
Fund. Under normal market conditions, the Equity Fund may also invest up to 20%
of the value of its total assets in preferred stocks, corporate bonds, notes,
and warrants, and obligations with maturities of 12 months or less such as
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, money market mutual
funds, obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations. If deemed appropriate for temporary defensive
purposes, the Equity Fund may increase its holdings in short-term obligations to
over 20% of its total assets and may also hold uninvested cash pending
investment. The Fund may also write covered call options. See "Options."
THE REGIONAL EQUITY FUND seek capital growth by investing primarily in a
diversified portfolio of common stock and securities convertible into common
stock, such as convertible bonds and convertible preferred stock. The Regional
Equity Fund will normally invest at least 65% of the value of its total assets
in common stocks and securities convertible into common stocks believed by the
Advisor to be undervalued of companies headquartered in the Southern Region of
the United States, which includes Alabama, Florida, Georgia, Louisiana,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. The
production of current income is an incidental objective of the Fund. Under
normal market conditions, the Regional Equity Fund may also invest up to 35% of
the value of its total assets in common stocks and securities convertible into
common stock of companies headquartered outside the Southern Region, preferred
stocks, corporate bonds, notes, and warrants, and obligations with maturities of
12 months or less such as commercial paper (including variable amount master
demand notes), bankers' acceptances, certificates of deposit, repurchase
agreements, money market mutual funds, obligations issued or guaranteed by the
U.S. Government or its agencies or instrumentalities, and demand and time
deposits of domestic and foreign banks and savings and loan associations. If
deemed appropriate for temporary defensive purposes, the Regional Equity Fund
may increase its holdings in short-term obligations to over 35% of its total
assets and may also hold uninvested cash pending investment. The Regional Equity
Fund may also write covered call options. See "Options."
There can be no assurance that the economy of the Southern Region or the
companies headquartered in the Southern Region will grow in the future or that a
company headquartered in the Southern Region whose assets, revenues or employees
are
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located substantially outside of the Southern Region will share in any economic
growth of the Southern Region. Additionally, any localized negative economic
factors or possible physical disasters in the Southern Region area could have a
much greater impact on the Regional Equity Fund's assets than on similar funds
whose investments are geographically more diverse.
THE BALANCED FUND seeks to obtain long-term capital growth and produce a
reasonable amount of current income through a moderately aggressive investment
strategy. The Balanced Fund seeks to achieve this objective by investing in a
broadly diversified portfolio of securities, including common stocks, preferred
stocks and bonds. The Balanced Fund will normally invest in equity securities
consisting of common stocks but may also invest in other equity-type securities
such as warrants, preferred stocks and convertible debt instruments. The Fund's
equity investments will be in companies with a favorable outlook and believed by
the Advisor to be undervalued. The Balanced Fund's debt securities will consist
of securities such as bonds, notes, debentures and money market instruments. The
average dollar-weighted portfolio maturity of debt securities held by the
Balanced Fund will vary according to market conditions and interest rate cycles
and will range between 1 year and 30 years under normal market conditions. The
Balanced Fund's debt securities will consist of high grade securities, which are
those securities rated in one of the three highest rating categories by an NRSRO
at the time of purchase, or if not rated, found the by the Advisor under
guidelines established by the Trust's Board of Trustees to be of comparable
quality. (For a further description of these bond ratings, see the Appendix to
the Trust's Statement of Additional Information.) In the event that the rating
of any debt securities held by the Balanced Fund falls below the third highest
by an NRSRO the Fund will not be obligated to dispose of such obligations and
may continue to hold such obligations if, in the opinion of the Advisor, such
investment is considered appropriate under the circumstances. The Balanced Fund
may also write covered call options. See "Options."
It is a fundamental policy of the Balanced Fund that it will invest at least
25% of its total assets in fixed-income securities. For this purpose,
fixed-income securities include debt securities, preferred stock and that
portion of the value of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is attributable to the
fixed-income characteristics of those securities.
The portion of the Balanced Fund's assets invested in equity and debt
securities will vary in accordance with economic conditions, the general level
of common stock prices, interest rates and other relevant considerations,
including the risks associated with each investment medium. Although the
Balanced Fund seeks to reduce the risks associated with any one investment
medium by utilizing a variety of investments, performance will depend upon
additional factors such as timing and mix and the ability of the Advisor to
judge and react to changing market conditions.
THE CAPITAL GROWTH FUND seeks long-term capital appreciation and growth of
income by investing primarily in a diversified portfolio of common stocks and
securities convertible into common stocks such as convertible bonds and
convertible preferred stocks. The Capital Growth Fund will normally invest at
least 65% of the value of its total assets in common stocks and securities
convertible into common stocks, such as convertible bonds and convertible
preferred stocks, believed by the Advisor to have attractive potential for
growth. Under normal market conditions, the Capital Growth Fund may also invest
up to 35% of the value of their total assets in preferred stocks, corporate
bonds, notes, and warrants, and obligations with maturities of 12 months or less
such as commercial paper (including variable amount master demand notes),
bankers' acceptances, certificates of deposit, repurchase agreements, money
market mutual funds, obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities, and demand and time deposits of domestic and
foreign banks and savings and loan associations. If deemed appropriate for
temporary defensive purposes, the Capital Growth Fund may increase its holdings
in
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short-term obligations to over 35% of their total assets and may also hold
uninvested cash pending investment. The Capital Growth Fund may also write
covered call options. See "Options."
THE SMALL CAP FUND seeks capital appreciation by investing primarily in a
diversified portfolio of securities consisting of common stocks and securities
convertible into common stocks such as convertible bonds and convertible
preferred stocks. Any current income generated from these securities is
incidental to the investment objective of the Fund. Under normal market
conditions, the Fund will invest at least 65% of its total assets in common
stocks and securities convertible into common stocks of companies with a market
capitalization of less than $1 billion determined at the time the security is
purchased. Under normal market conditions, the Small Cap Fund may invest up to
35% of the value of its total assets in common stock and securities convertible
into common stocks of companies with a market capitalization of greater than $1
billion determine at the time the security is purchased, preferred stocks,
corporate bonds, notes, and warrants, and obligations with maturities of 12
months or less such as commercial paper (including variable amount master demand
notes), bankers' acceptances, certificates of deposit, repurchase agreements,
money market mutual funds, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and demand and time deposits of
domestic and foreign banks and savings and loan associations. If deemed
appropriate for temporary defensive purposes, Small Cap Fund may increase its
holdings in short-term obligations to over 35% of its total assets and may also
hold uninvested cash pending investment. The Small Cap Fund may also write
covered call options. See "Options."
While small capital company securities may offer a greater capital
appreciation potential than investments in mid- or large-cap company securities,
they may also present greater risks. Small capital company securities tend to be
more sensitive to changes in earnings expectations and have lower trading
volumes than mid-to large-cap company securities and, as a result, they may
experience more abrupt and erratic price movements. Any current income produced
by a security is not a primary factor in the selection of investments.
The Small Cap Fund may also invest in investment grade debt securities, that
is, securities rated "BBB" or higher by an NRSRO at the time of purchase. If the
rating of a security falls below investment grade, the Advisor will consider
whatever action is appropriate consistent with the Fund's investment objectives
and policies. See the Appendix to the Statement of Additional Information for a
discussion of rating categories.
The Small Cap Fund is managed in accordance with a value philosophy. This
approach consists of developing a diversified portfolio of securities consistent
with the Fund's investment objective and selected primarily on the basis of the
Advisor's judgment that the securities have an underlying value, or potential
value, which exceeds their current prices. The basis and quantification of the
economic worth, or basic value of individual companies reflects the Advisor's
assessment of a company's assets and the company's prospects for earning growth
over the next 1 1/2-to-3 years. The Advisor relies primarily on the knowledge,
experience and judgment of its own research staff, but also receives and uses
information from a variety of outside sources, including brokerage firms,
electronic data bases, specialized research firms and technical journals.
THE EQUITY INCOME FUND seeks above average income and capital appreciation by
investing primarily in a diversified portfolio of common stocks, preferred
stocks, and securities that are convertible into common stocks, such as
convertible bonds and convertible preferred stock. Under normal market
conditions, the Fund will invest at least 65% of its total assets in
income-producing equity securities including common stock, preferred stock, and
securities convertible into common stocks such as convertible bonds and
convertible preferred stock. The portion of the Fund's total assets invested in
common stock, preferred stock, and convertible securities will vary according to
the Fund's assessment of market and economic conditions and outlook.
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Under normal market conditions, the Equity Income Fund may also invest up to 35%
of the value of its total assets in corporate bonds, notes, and warrants, and
obligations with maturities of 12 months or less such as commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, money market mutual funds,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations. If deemed appropriate for temporary defensive
purposes, the Equity Income Fund may increase its holdings in short-term
obligations to over 35% of its total assets and may also hold uninvested cash
pending investment. The Equity Income Fund may also write covered call options.
See "Options."
The Equity Income Fund's stock selection emphasizes those common stocks in
each sector that have good value, attractive yield, and dividend growth
potential. The Fund will utilize convertible securities because such securities
typically offer higher yields and good potential for capital appreciation.
REAL ESTATE INVESTMENT TRUSTS
The Capital Growth Fund, Small Cap Fund, and Equity Income Fund may invest in
real estate investment trusts. Real estate investment trusts are sensitive to
factors such as changes in real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and the
management skill and creditworthiness of the issuer. Real estate may also be
affected by tax and regulatory requirements, such as those relating to the
environment.
CONVERTIBLE SECURITIES
Each of the Capital Appreciation Funds may invest in convertible securities.
Convertible securities are fixed income-securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. Each Capital Appreciation Fund
other than the Balanced Fund may invest in convertible securities rated "BBB" or
higher by an NRSRO at the time of investment, or if unrated, of comparable
quality. The Equity Income Fund may invest in convertible securities rated "BB"
or lower by an NRSRO at the time of investment, or if unrated, of comparable
quality. The Balanced Fund may invest in convertible securities rated "A" or
higher by an NRSRO or, if unrated, of comparable quality. If a convertible
security falls below these minimum ratings after a Fund has purchased it, a Fund
is not required to drop the convertible bond from its portfolio, but will
consider appropriate action. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for
different investment objectives.
Securities which are rated "BB" or lower by Standard & Poor's or "Ba" or lower
by Moody's either have speculative characteristics or are speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligations. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information. There is no lower limit
with respect to rating categories for convertible securities in which the Equity
Income Fund may invest.
Corporate debt obligations that are not determined to be investment-grade are
high-yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment-grade securities, lower rated securities tend
to reflect short-term corporate, economic and market developments, as well as
investor perceptions or the issuer's credit quality. Because investments in
lower rated securities involve greater investment risk, achievement of the
Equity Income Fund's investment objective may be more dependent on the
Sub-Advisor's credit analysis than would be the case if the Equity Income Fund
were
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investing in higher rated securities. High yield securities may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities. A projection of an economic
downturn, for example, could cause a decline in high yield prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest payments on its debt securities. In addition, the
secondary trading market for high yield securities may be less liquid than the
market for higher grade securities. The market prices of debt securities also
generally fluctuate with changes in interest rates so that the Equity Income
Fund's net asset value can be expected to decrease as long-term interest rates
rise and to increase as long-term rates fall. In addition, lower rated
securities may be more difficult to dispose of or to value than high-rated,
lower-yielding securities. The Sub-Advisor attempts to reduce the risks
described above through diversification of the portfolio and by credit analysis
of each issuer as well as by monitoring broad economic trends and corporate and
legislative developments.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same
company. The interest income and dividends from convertible bonds and preferred
stocks provide a stable stream of income with generally higher yields than
common stocks, but lower than non-convertible securities of similar quality.
The Capital Appreciation Funds will exchange or convert the convertible
securities held in portfolio into shares of the underlying common stock in
instances in which, in the opinion of the Advisor or Sub-Advisor, the investment
characteristics of the underlying common shares will assist a Fund in achieving
its investment objectives. Otherwise, a Fund will hold or trade the convertible
securities. In selecting convertible securities for a Fund, the Advisor or
Sub-Advisor evaluates the investment characteristics of the convertible security
as a fixed-income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, the Advisor or Sub-Advisor
considers numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability and
practices.
As with all debt securities, the market values of convertible securities tend
to increase when interest rates decline and, conversely, tend to decline when
interest rates increase.
OTHER INVESTMENTS
FOREIGN INVESTMENTS
The Prime Obligations Fund may invest in Eurodollar Certificates of Deposits
("ECDs") which are U.S. dollar denominated certificates of deposit issued by
offices of foreign and domestic banks located outside the United States;
Eurodollar Time Deposits ("ETDs") which are U.S. dollar denominated deposits in
a foreign branch of a U.S. bank or a foreign bank; Canadian Time Deposits
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("CTDs") which are essentially the same as ETDs except they are issued by
Canadian offices of major Canadian banks; and Yankee Certificates of Deposit
("Yankee CDs") which are certificates of deposit issued by a U.S. branch of a
foreign bank denominated in U.S. dollars and held in the United States.
The Prime Obligations Fund will not invest in excess of 10% of its net assets
in time deposits, including ETDs and CTDs but not including certificates of
deposit, with maturities in excess of seven days which are subject to penalties
upon early withdrawal.
The Prime Obligations Fund may also invest in commercial paper (including
variable amount master demand notes) issued by U.S. or foreign corporations. The
Prime Obligations Fund may also invest in Canadian Commercial Paper ("CCP"),
which is commercial paper issued by a Canadian corporation or a Canadian
counterpart of a U.S. corporation, and in Europaper, which is U.S. dollar
denominated commercial paper of a foreign issuer. The Prime Obligations Fund
will acquire securities issued by foreign branches of U.S. banks, foreign banks,
or other foreign issuers only when the Advisor believes that the risks
associated with such instruments are minimal and only when such instruments are
denominated and payable in United States dollars.
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. Each Capital Appreciation Fund may invest in
foreign securities through the purchase of American Depository Receipts or the
purchase of securities on the Toronto Stock Exchange, but will not do so if
immediately after a purchase and as a result of the purchase the total value of
such foreign securities owned by such Fund would exceed 25% (20% for the
Balanced Fund) of the value of the total assets of such Fund. The Bond Fund, the
Limited Maturity Fund, and the Capital Appreciation Funds may also invest in
ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper.
Investment in securities of foreign issuers is subject to special risks, such
as future adverse political and economic developments, the possible imposition
of withholding taxes on interest income, 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 risk that custodian and brokerage costs may be higher. In addition, foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic branches of U.S.
banks. To the extent that a Fund 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.
INSURANCE COMPANY FUNDING AGREEMENTS
The Prime Obligations Fund, the Bond Fund, and the Limited Maturity Fund may
invest in funding agreements, also known as guaranteed investment contracts,
("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 Prime Obligations Fund, the Bond Fund and the Limited Maturity
Fund will only purchase a Funding Agreement (i) when the Advisor 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 instru-
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ments that are rated high quality by an NRSRO that is not an affiliated person,
as defined in the Investment Company Act of 1940, of the issuer, on any insurer,
guarantor, or provider of credit support for the instrument and (ii) with
respect to the Prime Obligations Fund, if it may receive all principal of and
accrued interest on a Funding Agreement at any time upon thirty days' written
notice. 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 a Fund may not receive the principal amount of a Funding
Agreement from the insurance company on seven days' notice or less, a Funding
Agreement is considered an illiquid investment, and, together with other
instruments in such Fund which are not readily marketable, will not exceed 10%
of the Prime Obligations Fund's net assets and 15% of the Bond Fund or Limited
Maturity Fund's net assets. With regard to the Prime Obligations Fund, in
determining average weighted portfolio maturity, a Funding Agreement will be
deemed to have a maturity equal to 30 days, representing the period of time
remaining until the principal amount can be recovered through demand.
ASSET-BACKED SECURITIES
The Prime Obligations Fund, 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-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 pay-through 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 tradeins. 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
generally 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. Asset-backed securities purchased by the Prime Obligations
Fund will be subject to the same quality requirements as other securities
purchased
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by the Fund. 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 Advisor under
guidelines established by the Trust's Board of Trustees to be of comparable
quality.
INVESTMENT TECHNIQUES
OPTIONS
The Bond Fund, Limited Maturity Fund, Government Income Fund, and the Capital
Appreciation Funds may engage in writing call options from time to time as the
Advisor or Sub-Advisor deems to be appropriate. Options are written solely as
covered call options (options on securities owned by a Fund). Such options must
be issued by the Options Clearing Corporation and may or may not be listed on a
national securities exchange. In order to close out an option position, a 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, a Fund effects a closing purchase
transactions so as to close out any existing call option on that security. If a
Fund is unable to effect a closing purchase transaction so as to close out any
existing call option on that security. If a Fund is unable to effect a closing
purchase transaction, it will not be able to sell the underlying security until
the option expires or a Fund delivers the underlying security upon exercise.
When writing a covered call option, a 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 and the Balanced Fund may purchase put
options as the Advisor deems to be appropriate. 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 a 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 and the Balanced 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 a 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
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 Balanced Fund 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 Fund may pay for puts
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to 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 the Advisor's
opinion, present minimal credit risks.
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For a discussion of the Limited Maturity Fund's ability to acquire puts, see
"The Bond Fund and the Limited Maturity Fund" in this prospectus.
For discussion of the Tax Exempt Fund's and the Tax-Free Funds' ability to
acquire puts, see "The Tax-Free Fund, the Florida Fund and the Municipal Bond
Fund" in this Prospectus.
WHEN-ISSUED SECURITIES
The Tax Exempt Fund, the Income Funds and the Capital Appreciation Funds 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. A Fund will generally not pay for such securities or start earning
interest on them until they are received. When a Fund agrees to purchase
securities on a "when-issued" basis, the Trust's custodian will set aside cash
or liquid 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 Fund 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 a Fund's commitment to purchase
"when-issued" securities ever exceeded 25% of the value of its total assets, a
Fund's liquidity and the Advisor's or Sub-Advisor's ability to manage it might
be adversely affected. The Funds do not intend to purchase "when-issued"
securities for speculation purposes, but only for the purpose of acquiring
portfolio securities.
REPURCHASE AGREEMENTS
Securities held by each Fund may be subject to repurchase agreements. If the
seller under a repurchase agreement were to default on its repurchase obligation
or become insolvent, a 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 a Fund were delayed pending court action. Additionally, if the
seller should be involved in bankruptcy or insolvency proceedings, a Fund may
incur delay and costs in selling the underlying security or may suffer a loss of
principal and interest if a Fund is treated as an unsecured creditor and
required to return the underlying security to the seller's estate.
REVERSE REPURCHASE AGREEMENTS
Each 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, a 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 a Fund may
decline below the price at which a Fund is obligated to repurchase the
securities.
OTHER INVESTMENT PRACTICES
Each Income Fund and Capital Appreciation 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, the AmSouth U.S.
Treasury Fund (and, with respect to the Tax-Free Funds, 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 a Fund in the Prime Obligations Fund and the AmSouth U.S. Treasury Fund (and
with respect to the Tax-Free Funds, the AmSouth Tax-Exempt Fund), the Advisor
and the Administrator will reduce that portion of their usual service fees from
each Fund by an amount equal to their service fees from the AmSouth Money Market
Funds that are attributable to those Fund invest-
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ments. The Advisor and the Administrator will promptly forward such fees to the
Funds. Each 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 Funds' investments in
the securities of an unaffiliated money market fund and/or the AmSouth Money
Market Funds are contained in the Statement of Additional Information.
In order to generate additional income, the Bond Fund, Limited Maturity Fund,
Government Income Fund and the Capital Appreciation Funds 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 other liquid securities. This
collateral will be valued daily by the Advisor or Sub-Advisor and should the
market value of the loaned securities increase, the borrower will furnish
additional collateral to each Fund. During the time securities of a Fund are on
loan, the borrower pays the Fund any dividends or interest paid on such
securities. Loans are subject to termination by a Fund 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
the Advisor or Sub-Advisor has determined are creditworthy under guidelines
established by the Trust's Board of Trustees.
The Government Income Fund and the Capital Appreciation Funds 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 the Advisor or Sub-Advisor 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.
Each Capital Appreciation Fund will not invest more than 15% of its net assets
in time deposits with maturities in excess of seven days which are subject to
penalties upon early withdrawal.
The portfolio turnover of each Capital Appreciation Fund and Income Fund may
vary greatly from year to year as well as within a particular year. High
turnover rates will generally result in higher transaction costs and higher
levels of taxable realized gains to the Fund's shareholders. Portfolio turnover
for the Capital Growth Fund, Small Cap Fund, and Equity Income Fund is not
expected to exceed 200% in the coming year.
INVESTMENT RESTRICTIONS
Each Fund 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 PRIME OBLIGATIONS 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 Prime
Obligations Fund's total assets would be invested in such issuer, except that
25% or less of the value of the Prime Obligations Fund's total assets may be
invested without regard to such 5% limitation. There is no limit to the
percentage of assets that may be invested in U.S. Treasury bills, notes, or
other obligations issued or
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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 the
Prime Obligations 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, bank certificates of deposit or bankers' acceptances issued
by a domestic bank or by a U.S. branch of a foreign bank provided that such U.S.
branch is subject to the same regulation as United States banks, and repurchase
agreements secured by bank instruments or obligations of the U.S. Government or
its agencies or instrumentalities; (b) 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 (c)
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.
THE AMSOUTH U.S. TREASURY FUND MAY NOT:
1. Purchase securities other than bills, notes, and bonds issued by the U.S.
Treasury, certain of which securities may be subject to repurchase agreements
collateralized by the underlying U.S. Treasury obligation.
THE TAX EXEMPT 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 its total assets
would be invested in such issuer (except that up to 25% of the value of the Tax
Exempt Fund's total assets may be invested without regard to such 5%
limitation). For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back the
security; with respect to a private activity bond that is backed only by the
assets and revenues of a non-government user, a security is considered to be
issued by such non-governmental user.
2. Purchase any securities which would cause 25% or more of the Tax Exempt
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry; provided that this limitation shall not apply to Municipal Securities;
and provided, further, that for the purpose of this limitation only, private
activity bonds that are backed only by the assets and revenues of a
non-governmental user shall not be deemed to be Municipal Securities.
3. Acquire a put if, immediately after such acquisition, over 5% of the total
amortized cost value of the Tax Exempt Fund's assets would be subject to puts
from the same institution (except that (i) up to 25% of the value of the Tax
Exempt Fund's total assets may be subject to puts without regard to such 5%
limitation and (ii) the 5% limitation is inapplicable to puts that, by their
terms, would be readily exercisable in the event of a default in payment of
principal or interest on the underlying securities). For the purpose of this
investment restriction and investment restriction No. 4 below, a put will be
considered to be from the party to whom the Tax Exempt Fund will look for
payment of the exercise price.
4. Acquire a put that, by its terms would be readily exercisable in the event
of a default in payment of principal and interest on the underlying security or
securities if, immediately after that acquisition, the amortized cost value of
the security or securities underlying that put, when aggregated with the
amortized cost value of any other securities issued or guaranteed by the issuer
of the put, would exceed 10% of the total amortized cost value of the Tax Exempt
Fund's assets.
THE BOND FUND, LIMITED MATURITY FUND, GOVERNMENT INCOME FUND, MUNICIPAL BOND
FUND AND THE CAPITAL APPRECIATION FUNDS MAY NOT:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S.
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Government or its agencies or instrumentalities, if, immediately after such
purchase, more than 5% of the value of such Fund's total assets would be
invested in such issuer, or such 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 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.
THE INCOME FUNDS AND THE CAPITAL APPRECIATION FUNDS MAY NOT:
1. 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, the
Limited Maturity Fund, the Florida Fund, and the Municipal Bond 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.
THE TAX-FREE FUNDS MAY NOT:
1. 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.
THE MONEY MARKET FUNDS, INCOME FUNDS, AND CAPITAL APPRECIATION FUNDS MAY NOT:
1. Borrow money or issue senior securities, except that each 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. A Fund will not purchase securities while borrowings
(including reverse repurchase agreements) in excess of 5% of its total assets
are outstanding.
2. Make loans, except that each 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.
VALUATION OF SHARES
The net asset value of each Income Fund and Capital Appreciation 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. The net asset value of each
of the Prime Obligations Fund and the AmSouth U.S. Treasury Fund is determined
and its Shares are priced as of 1:00 p.m. and 4:00 p.m., Eastern Time
("Valuation Times") on each Business Day of such Fund. The net asset value of
the Tax Exempt Fund is determined and its Shares are priced as of 12:00 noon and
4:00 p.m., Eastern Time (the "Valuation Times") on each Business Day of the
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
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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 a Fund, less the liabilities charged to
that Class, by the number of the outstanding Shares of that Class. The net asset
value per Share of each Income Fund and Capital Appreciation Fund will fluctuate
as the value of its investment portfolio changes.
The securities in each Income Fund and Capital Appreciation 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 and Capital Appreciation Funds, see the
Statement of Additional Information.
The assets in each Money Market Fund are valued based upon the amortized cost
method. Pursuant to rules and regulations of the Securities and Exchange
Commission regarding the use of the amortized cost method, each Money Market
Fund will maintain a dollar-weighted average portfolio maturity of 90 days or
less. Although the Trust seeks to maintain each Money Market Fund's net asset
value per share at $1.00, there can be no assurance that net asset value will
not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each 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.
Each Fund has been divided into three classes of Shares, Premier Shares,
Classic Shares and B Shares, except that the AmSouth U.S. Treasury Fund and Tax
Exempt Fund are divided into Premier Shares and Classic Shares only. Class B
Shares are not currently offered in the Limited Maturity Fund, Government Income
Fund, Florida Fund and Municipal Bond Fund. The three classes of a particular
Fund represent interests in the same investments and are identical in all
respects except that (i) Classic Shares bear the expense of the fee under the
Trust's Shareholder Servicing Plan (the "Servicing Plan"), which will cause the
Classic Shares to have a higher expense ratio and to pay lower dividends than
those of the Premier Shares, (ii) Class B Shares bear the expense of the fee
under the Trust's Distribution and Shareholder Services Plan (the "Distribution
Plan"), which will cause the Class B Shares to have a higher expense ratio and
to pay a lower dividend than those of the Classic Shares or Premier Shares,
(iii) Classic Shares have certain exclusive voting rights with respect to the
Servicing Plan and Class B Shares have certain exclusive voting rights with
respect to the Distribution Plan, and (iv) Classic Shares are subject to a
front-end sales charge and Class B Shares are subject to a contingent deferred
sales charge. The following investors qualify to purchase Premier Shares: (i)
investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or
similar capacity through an account with its Trust Department; (ii) investors
who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by
its terms permits purchases of Shares; and (iii) orders placed on behalf of
other investment companies distributed by the Distributor and its affiliated
companies. All other investors are eligible to purchase Classic Shares or Class
B Shares only.
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PURCHASES OF PREMIER 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.
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 AmSouth and its Customer are invested by the
Distributor in Shares of a Money Market Fund.
Premier Shares of the Trust sold to AmSouth on behalf of Customers will
normally be held of record by AmSouth. With respect to Shares so sold, it is the
responsibility of AmSouth 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 AmSouth and reflected in
the account statements provided by AmSouth to Customers.
Premier Shares of each Fund are purchased at the appropriate 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. An order to purchase
Money Market Fund Shares will be deemed to have been received by the Distributor
only when federal funds with respect thereto are available to the Trust's
custodian for investment. Federal funds are monies credited to a bank's account
within a Federal Reserve Bank. Payment for an order to purchase Shares which is
transmitted by federal funds wire will be available the same day for investment
by the Trust's custodian, if received prior to the last Valuation Time (see
"VALUATION OF SHARES"). Payments transmitted by other means (such as by check
drawn on a member of the Federal Reserve System) will normally be converted into
federal funds within two banking days after receipt. The Trust strongly
recommends that investors of substantial amounts use federal funds to purchase
Shares.
Purchases of Shares of a Fund will be effected only on a Business Day (as
defined in "VALUATION OF SHARES") of such Fund. With respect to the Income Funds
and the Capital Appreciation 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.
With respect to the Money Market Funds, an order received prior to a Valuation
Time on any Business Day will be executed at the net asset value determined as
of the next Valuation Time on the date of receipt. An order received after the
last Valuation Time on any Business Day will be executed at the net asset value
determined as of the next Valuation Time on the next Business Day. Shares of the
Prime Obligations Fund and the AmSouth U.S. Treasury Fund purchased before 1:00
p.m., Eastern Time, begin earning dividends on the same Business Day. Shares of
the Tax Exempt Fund purchased before 12:00 noon, Eastern Time, begin earning
dividends on the same Business Day. All Shares of a Money Market Fund continue
to earn dividends through the day before their redemption.
In the case of orders for the purchase of Shares placed through a
broker-dealer, the applicable public offering price will be calculated with
reference to 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
close of business. 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.
There is no sales charge imposed by the Trust in connection with the purchase
of Premier Shares of a Fund. Sales charges apply to purchases of other classes.
Depending upon the terms of a particular
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Customer account, AmSouth may charge a Customer's account fees for automatic
investment and other cash management services provided in connection with
investment in a Fund. Information concerning these services and any charges can
be obtained from AmSouth. This Prospectus should be read in conjunction with any
such information received from AmSouth.
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, redemptions and
exchanges of Shares by AmSouth on behalf of its Customers will be sent by
AmSouth to its Customers. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
EXCHANGE PRIVILEGE
Premier Shares of each Fund may be exchanged for Premier Shares of the other
Funds, provided that the Shareholder making the exchange is eligible on the date
of the exchange to purchase Premier Shares (with certain exceptions and subject
to the terms and conditions described in this prospectus). Premier Shares of
each Fund may also be exchanged for Classic Shares, if the Shareholder ceases to
be eligible to purchase Premier Shares. Premier Shares of each Fund may not be
exchanged for Class B Shares.
The Trust does not impose a charge for processing exchanges of its Premier
Shares. However, the exchange of Premier Shares for Classic Shares will require
payment of the sales charge unless a sales charge waiver applies. Shareholders
may exchange their Premier Shares for Premier Shares of another Fund on the
basis of the relative net asset value of the Shares exchanged.
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 Fund Shares will
be calculated without taking into account the sales charge paid on the Fund
Shares if the Fund Shares were held less than 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 Fund.
Before an exchange can be effected, a Shareholder must receive a current
prospectus of the Fund and class 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.
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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.
CHECK WRITING SERVICE
A Shareholder may write checks on his or her Prime Obligations Fund account
for $1,000 or more. Once a Shareholder has signed and returned a signature card,
he or she will receive a supply of checks drawn on Huntington National Bank. The
check may be made payable to any person, and the Shareholder's account will
continue to earn dividends until the check clears. Because of the difficulty of
determining in advance the exact value of a Fund account, a Shareholder should
not use a check to close his or her account. The Shareholder's account will be
charged a fee on stopping payment of a check upon the Shareholder's request or
if the check cannot be honored because of insufficient funds or other valid
reasons.
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 AmSouth. For example, if a
Customer has agreed with AmSouth to maintain a minimum balance in his or her
account with AmSouth, and the balance in that account falls below that minimum,
the Customer may be obliged to redeem, or AmSouth may redeem for and on behalf
of the Customer, all or part of the Customer's Shares of a Fund of the Trust to
the extent necessary to maintain the required minimum balance.
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 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 then maximum wire redemption
charge. 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
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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 an Income Fund and a
Capital Appreciation 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 Income Fund and
Capital Appreciation Fund 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. To the greatest extent possible, the Trust will attempt to honor
requests from Money Market Fund Shareholders for same day payments upon
redemption of Shares if the request for redemption is received by the Transfer
Agent before 12:00 noon, Eastern Time, on a Business Day or, if the request for
redemption is received after 12:00 noon, Eastern Time, to honor requests for
payment on the next Business Day, unless it would be disadvantageous to the
Trust or the Shareholders of the particular Money Market 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 Fund has a value of less than $250.
Accordingly, an investor purchasing Shares of a 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 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" and "VALUATION--Valuation
of the Money Market Funds" in
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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
Each Fund is treated as a separate entity for federal income tax purposes.
Each Fund intends to qualify for treatment as a "regulated investment company"
under the Code. If it so qualifies, a Fund 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 Fund
intends to avoid paying federal income and excise taxes by timely distributing
substantially all its net income and net capital gain income.
The amount of dividends payable with respect to the Premier Shares will exceed
dividends on Classic Shares, and the amount of dividends on Classic Shares will
exceed the dividends on Class B Shares, as a result of the Shareholder Services
Plan fee applicable to Classic Shares and the Distribution and Shareholder
Services Plan fee applicable to Class B Shares.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION--Additional Tax Information."
The following 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 following is also intended only as a brief summary
of some of the important tax considerations generally affecting the Funds and
Shareholders. Potential investors are urged to consult their tax advisors
concerning their own tax situations and concerning the application of state and
local taxes which may differ from the federal income tax consequences described
below.
Shareholders will be advised at least annually as to the character for federal
income tax purposes of distributions made during the year.
PRIME OBLIGATIONS FUND AND AMSOUTH
U.S. TREASURY FUND
The net income of each Money Market Fund is declared daily as a dividend to
Shareholders of record at the close of business on the day of declaration. The
net income attributable to a Fund's Classic Shares and the dividends payable on
Classic Shares will be reduced by the shareholder service fee assessed against
such Shares under the Shareholder Servicing Plan (see Administrator and
Distributor below). Dividends will generally be paid monthly. Distributable net
capital gains (if any) will be distributed at least annually. A Shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares of the same class at net asset value as of
the date of payment unless the Shareholder elects to receive such dividends or
distributions in cash. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to the Transfer Agent at P.O. Box 182733, Columbus, Ohio 43218-2733,
and will become effective with respect to dividends and distributions having
record dates after its receipt by the Transfer Agent. Dividends are paid in cash
not later than seven Business Days after a Shareholder's complete redemption of
his or her Shares. 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.
Dividends will generally be taxable to a Shareholder as ordinary income to the
extent of the
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Shareholder's ratable share of each Fund's earnings and profits as determined
for tax purposes. Because all of the net investment income of the Prime
Obligations Fund and the AmSouth U.S. Treasury Fund is expected to be interest
income, it is anticipated that no distributions will qualify for the dividends
received deduction for corporate shareholders. The Prime Obligations Fund and
the AmSouth U.S. Treasury Fund do not expect to realize any long-term capital
gains and, therefore, do not foresee paying any "capital gains dividends" as
described in the Code. Dividends received by a Shareholder that are derived from
the AmSouth U.S. Treasury Fund's investments in U.S. government obligations may
not be eligible for exemption from state and local taxes even though the income
on such investments would have been exempt from state and local taxes if the
Shareholder directly held such investments. In addition, the state and local tax
exemption for interest earned on U.S. government obligations may not extend to
income earned on U.S. government obligations that are subject to a repurchase
agreement. Shareholders are advised to consult their own tax advisors concerning
their own tax situation and the application of state and local taxes.
THE INCOME FUNDS
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 P.O. Box 182733, Columbus, Ohio 43218-2733, and will become effective
with respect to dividends and distributions having record dates after its
receipt by the Transfer Agent.
BOND FUND, LIMITED MATURITY FUND, AND GOVERNMENT INCOME FUND
Distributions by the Bond Fund, Limited Maturity Fund, and Government Income
Fund 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 Bond Fund, Limited Maturity Fund, and Government Income
Fund 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 Bond Fund, Limited Maturity Fund, and
Government Income Fund, 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 matter, a
return of capital. A Shareholder should consult his or her own advisor for any
special advice.
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Dividends received by a Shareholder that are derived from the Bond Fund,
Limited Maturity Fund, and Government Income Fund 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 Bond Fund, Limited Maturity Fund, and Government
Income Fund 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, the Bond Fund, Limited
Maturity Fund, and Government Income Fund 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.
TAX EXEMPT FUND, FLORIDA FUND, AND MUNICIPAL BOND FUND
The Tax Exempt and Tax-Free 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 Tax Exempt and Tax-Free Funds attributable to
exempt-interest dividends may cause the social security and railroad retirement
benefits of individual shareholders 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. The amount of the disallowed interest deduction is the total amount of
interest paid or accrued on the indebtedness multiplied by a fraction, the
numerator of which is the amount of exempt-interest dividends received by the
Shareholder and the denominator of which is the sum of the exempt-interest
dividends and taxable dividends received by the Shareholder (excluding capital
gain dividends received by the Shareholder and capital gains required to be
included in the Shareholder's computation of long-term capital gains under
Section 852(b)(3)(D) of the Code). It is anticipated that distributions from the
Tax Exempt and Tax-Free Funds will not be eligible for the dividends received
deduction for corporate shareholders.
Gains on the sale of Shares in the Tax Exempt and 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.
The Tax Exempt Fund and the Tax-Free Funds may at times purchase Municipal
Securities at a discount from the price at which they were originally issued.
For federal income tax purposes, some
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<PAGE> 104
or all of this market discount will be included in a 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.
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 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 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 Municipal 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 to
corporations and other entities 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 to corporations and other entities 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,
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<PAGE> 105
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, it
is the Florida Fund's policy to invest at least 80% of its net 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.
THE CAPITAL APPRECIATION FUNDS
The net income of each of the Capital Appreciation Funds will be declared
monthly as a dividend to Shareholders at the close of business on the day of
declaration. 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 P.O. Box 182733,
Columbus, Ohio 43218-2733, and will become effective with respect to dividends
and distributions having record dates after its receipt by the Transfer Agent.
A distribution to a Shareholder of net investment income (generally the Fund's
ordinary income) and the excess, if any, of net short-term capital gain over net
long-term loss will be taxable to the Shareholder as ordinary income. The 70%
dividends-received deduction for corporations generally will apply to the Fund's
distributions to corporations to the extent such distributions represent amounts
that would qualify for the dividends-received deduction when received by the
Fund if the Fund were a regular corporation and are designated by the Fund as
qualifying for the dividends-received deduction.
A distribution by a Capital Appreciation Fund of the excess of net long-term
capital gain over net short-term capital loss designated by such Fund as a
capital gain dividend is taxable to Shareholders as long-term capital gain,
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 a Capital Appreciation Fund, 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 dividend or
distribution may be, as an economic matter, a return of capital. A Shareholder
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<PAGE> 106
should consult his or her own advisor for any special advice.
Dividends received by a Shareholder that are derived from a Capital
Appreciation Fund's 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 capital gain or loss on the sale or
exchange of shares in a Capital Appreciation Fund. If a Shareholder receives a
capital gain dividend with respect to a Share of a Capital Appreciation Fund 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.
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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):
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS
- ------------------------------ ------------------ -------------------------------------------
<S> <C> <C>
George R. Landreth* Chairman From December 1992 to present, employee of
BISYS Fund Services BISYS Fund Services, Limited Partnership;
3435 Stelzer Road from July 1991 to December 1992, employee
Columbus, OH 43219 of PNC Financial Corp.; from October 1984
to July 1991, employee of The Central Trust
Co., N.A.
Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and Vice
459 DER Building Chairman, Department of Medicine,
1808 7th Avenue South University of Alabama at Birmingham School
UAB Medical Center of Medicine; December 1995, to present,
Birmingham, Alabama 35294 Physician, University of Alabama Health
Services Foundation; from June 1988 to
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, retired;
209 Lakewood Drive, West from December 1988 to August, 1993,
Mobile, Alabama 36608 Executive Vice President, Chief Operating
Officer and Director, Mobile Gas Service
Corporation
J. David Huber* Trustee From June 1987 to present, employee of
BISYS Fund Services BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
Homer H. Turner, Jr. Trustee From June 1991 to present, retired; until
729 Cary Drive June 1991, Vice President, Birmingham
Auburn, Alabama 36830 Division, Alabama Power Company
James H. Woodward, Jr. Trustee From 1996 to present, Trustee of The
The University of North Sessions Group; from July 1989 to present,
Carolina at Charlotte Chancellor, The University of North
Charlotte, North Carolina Carolina at Charlotte; until July 1989,
28223 Senior Vice President, University College,
University of Alabama at Birmingham
</TABLE>
- ------------
* Indicates an "interested person" of the Trust as defined in the Investment
Company Act of 1940.
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<PAGE> 108
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. Messrs. Huber and Landreth are
employees and executive officers of BISYS Fund Services.
INVESTMENT ADVISOR
AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank
affiliate of AmSouth Bancorporation, one of the largest banking institutions
headquartered in the midsouth region. AmSouth Bancorporation reported assets as
of December 31, 1996 of $18.4 billion and operated 272 banking offices in
Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment
management services through its Trust Investment Department since 1915. As of
December 31, 1996, AmSouth and its affiliates had over $7.1 billion in assets
under discretionary management and provided custody services for an additional
$13.4 billion in securities. AmSouth is the largest provider of trust services
in Alabama. AmSouth serves as administrator for over $12 billion in bond issues,
and its Trust Natural Resources and Real Estate Department is a major manager of
timberland, mineral, oil and gas properties and other real estate interests.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the respective investment objectives and restrictions of the
Funds, the Advisor manages the Funds (except with respect to the Equity Income
Fund), 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, CFA, 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 a
Vice President and Trust Investment Officer.
Dorothy E. Thomas, CFA, is the portfolio manager for the Municipal Bond Fund
and since May 15, 1997 is the portfolio manager for the Florida Fund, and as
such, has primary responsibility for the day-to-day management of each Fund's
portfolio. Ms. Thomas has been associated with AmSouth's Trust Investment Group
for over ten years and is currently Vice President and Trust Investment Officer.
Pedro Verdu, CFA, is the portfolio manager for each Capital Appreciation Fund
(except the Equity Income Fund) and, as such, has had primary responsibility for
the day-to-day portfolio management of each of these Funds since their
inception. Mr. Verdu has twenty-four years of experience as an analyst and
portfolio manager; he is currently the Director of Equity Investing at AmSouth.
Under investment advisory agreements between the Trust and the Advisor, the
fee payable to the Advisor by each Fund for investment advisory services is the
lesser of (a) a fee computed daily and paid monthly at the annual rate of: forty
one hundredths of one percent (.40%) of each Money Market Fund's average daily
net assets; sixty-five
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<PAGE> 109
one-hundredths of one percent (.65%) of each
Income Fund's average daily net assets; eighty one-hundredths of one percent
(.80%) of each of the Equity, Regional Equity, Balanced, Equity Income and
Capital Growth Fund's average daily net assets; and ninety one-hundredths of one
percent (.90%) of the Small Cap 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 Advisor.
With respect to the Capital Appreciation Funds, while this fee may be higher
than the advisory fee paid by most mutual funds, it is believed to be comparable
to advisory fees paid by many funds having similar objectives and policies. A
fee agreed to in writing from time to time by the Trust and the Advisor may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower a 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, 1996, the Advisor received
investment advisory fees amounting to .40% of the Prime Obligation Fund's
average net assets, .40% of the AmSouth U.S. Treasury Fund's average net assets
and .20% of the Tax Exempt Fund's average net assets, after voluntary fee
reductions with respect to the Tax Exempt Fund.
During the Trust's fiscal year ended July 31, 1996, after voluntary fee
reductions, the Advisor received investment advisory fees amounting to 0.50% of
the Bond Fund's average net assets, .50% of the Limited Maturity Fund's average
net assets, .30% of the Government Income Fund's average net assets, and .30% of
the Florida Fund's average net assets. The Municipal Bond Fund had not commenced
operations as of July 31, 1996.
During the Trust's fiscal year ended July 31, 1996, the Advisor received
investment advisory fees amounting to .80% of the Equity Fund's average daily
net assets, .80% of the Regional Equity Fund's average daily net assets and .75%
of the Balanced Fund's average daily net assets after voluntary fee reductions
with respect to the Balanced Fund.
INVESTMENT SUB-ADVISORS
Rockhaven Asset Management, LLC ("Rockhaven") serves as sub-advisor to the
Equity Income Fund pursuant to a Sub-Advisory Agreement with the Advisor
("Sub-Advisor"). Under the Sub-Advisory Agreement, the Sub-Advisor manages the
Fund, selects investments, and places all order for purchases and sales of
securities, subject to the general supervision of the Trust's Board of Trustees
and the Advisor in accordance with the Fund's investment objective, policies,
and restrictions.
Rockhaven is 50% owned by AmSouth and 50% owned by Mr. Christopher H. Wiles.
Rockhaven was organized in 1997 to perform advisory services for investment
companies and has its principal offices at 100 First Avenue, Suite 1050,
Pittsburgh, PA 15222.
For its services and expenses incurred under the Sub-Advisory Agreement, the
SubAdvisor is entitled to a fee, payable by the Advisor. The fee is computed
daily and paid monthly at the annual rate of forty-eight one-hundredths of one
percent (.48%) of the Fund's average daily net assets or such lower fee as may
be agreed upon in writing by the Advisor and Sub-Advisor.
Mr. Wiles is the portfolio manager for the Equity Income Fund, and, as such,
has the primary responsibility for the day-to-day portfolio management of the
Fund. Mr. Wiles is the President and Chief Investment Officer of Rockhaven. From
August 1, 1991 to January 31, 1997, he was the portfolio manager of the
Federated Equity Income Fund.
The cumulative total return for the Federated Equity Income Fund from August
1, 1991 through January 31, 1997 was 138.72%. The cumulative total return for
the same period for the Standard & Poor's Composite Stock Price Index ("S&P 500
Index") was 135.09%. At January 31, 1997, the Fund had approximately $970
million in net assets. As portfolio manager of the Federated Equity Income Fund,
Mr. Wiles had full discretionary authority over the selection of investments for
that Fund. Average annual returns for the one-year,
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<PAGE> 110
three-year, and five-year periods ended January 31,
1997 and for the entire period during which Mr. Wiles managed that fund compared
with the performance of the S&P 500 Index were:
<TABLE>
<CAPTION>
FEDERATED S&P 500 LIPPER EQUITY
EQUITY INCOME FUND(a)(b) INDEX(c) INCOME FUND INDEX(d)
------------------------ -------- --------------------
<S> <C> <C> <C>
One Year.................................... 23.03% 26.34% 19.48%
Three Years................................. 16.93% 20.72%
Five Years.................................. 16.38% 17.02%
August 1, 1991 through January 31, 1997..... 17.11% 16.78%
</TABLE>
- ------------
(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
(b) During the period from August 1, 1991 through January 31, 1997, the
operating expense ratio of the Federated Equity Income Fund ranged from .95%
to 1.05% of the Fund's average daily net assets.
(c) The S&P 500 Index is an unmanaged index of common stocks that is considered
to be generally representative of the United States stock market. The Index
is adjusted to reflect reinvestment of dividends.
(d) The Lipper Equity Income Fund Index is equally weighted and composed of the
largest mutual funds within its investment objective. These funds seek high
current income and growth of income through investing 60% or more of their
respective portfolios in equity securities.
HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. The Federated
Equity Income Fund is a separate fund and its historical performance is not
indicative of the potential performance of the AmSouth Equity Income Fund. Share
prices and investment returns will fluctuate reflecting market conditions, as
well as changes in company-specific fundamentals of portfolio securities.
Christopher Wiles was the Federated Equity Income Fund's portfolio manager
from August 1, 1991 to January 31, 1997. Mr. Wiles joined Federated Investors in
1990 and served as a Vice President of the Fund's investment advisor from 1992
and Senior Vice President from October, 1996 to January 31, 1997. Mr. Wiles
served as Assistant Vice President of the Fund's investment advisor in 1991. Mr.
Wiles is a Chartered Financial Analyst and received his M.B.A. in Finance from
Cleveland State University.
ADMINISTRATOR AND DISTRIBUTOR
ASO Service Company ("ASO") is the administrator for each Fund of the Trust
and BISYS Fund Services ("BISYS") acts as the Trust's principal underwriter and
distributor (the "Administrator" and the "Distributor," respectively). ASO is a
wholly owned subsidiary of BISYS. BISYS 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 Funds'
administration and operation. Under management and administration agreements
between the Trust, the fee payable by each Fund to the Administrator for
administration services is the lesser of (a) a fee computed at the annual rate
of 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 by the
Trust and the Administrator. A fee agreed to 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
58
<PAGE> 111
expenses and increase the net income of the Fund during the period when such
lower fee is in effect.
ASO succeeded BISYS as Administrator on April 1, 1996. During the Trust's
fiscal year ended July 31, 1996, BISYS and ASO received administration fees
amounting to .20% of each Money Market Fund's average daily net assets. During
the Trust's fiscal year ended July 31, 1996, BISYS and ASC received
administration fees, after voluntary fee reductions, amounting to .12% of the
Bond Fund's average daily net assets; .12% of the Limited Maturity Fund's
average daily net assets; .10% of the Government Income Fund's average daily net
assets; .10% of the Florida Fund's average daily net assets; .11% of the Equity
Fund's average daily net assets, .12% of the Regional Equity Fund's average
daily net assets, and .11% of the Balanced Fund's average daily net assets.
SUB-ADMINISTRATORS
AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current
agreement with the Administrator, 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 daily net assets.
BISYS Fund Services serves as a Sub-Administrator to the Trust. Pursuant to
its agreement with the Administrator, BISYS is entitled to compensation as
mutually agreed from time to time by it and the Administrator.
EXPENSES
AmSouth and the Administrator each bear all expenses in connection with the
performance of their services as Advisor and Administrator, respectively, other
than the cost of securities (including brokerage commissions, if any) purchased
for an Fund. No 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.
As a general matter, expenses are allocated to the Classic, Class B, and
Premier Class of a Fund on the basis of the relative net asset value of each
Class. At present, the only expenses that will be borne solely by Classic and
Class B Shares, other than in accordance with the relative net asset value of
the Class, are expenses under the Servicing Plan with respect to the Classic
Shares and under the Distribution Plan with respect to the Class B Shares.
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.
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 fourteen series of
shares, one for each of the follow-
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<PAGE> 112
ing 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 Capital Growth Fund, the AmSouth Small Cap Fund, the
AmSouth Equity Income Fund, the AmSouth Bond Fund, the AmSouth Limited Maturity
Fund, the AmSouth Municipal Bond Fund, the AmSouth Balanced Fund, the AmSouth
Government Income Fund and the AmSouth Florida Tax-Free Fund. Each Fund, except
the AmSouth Florida Tax-Free Fund, is diversified for purposes of the 1940 Act.
Each Fund offers three classes of shares: Premier, Classic and Class B Shares,
except the AmSouth U.S. Treasury Fund and Tax Exempt Fund which offer only
Premier Shares and Classic Shares. As of the date of this prospectus, however,
Class B Shares are not offered in the Limited Maturity Fund, Government Income
Fund, Florida Fund and Municipal Bond 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).
Shares of the Trust are entitled to one vote per share (with proportional
voting for fractional shares) on such matters as Shareholders are entitled to
vote. Shareholders vote in the aggregate and not by series or class on all
matters except (i) when required by the 1940 Act, shares shall be voted by
individual series, (ii) when the Trustees have determined that the matter
affects only the interests of one or more series or class, then only
Shareholders of such series or class shall be entitled to vote thereon, (iii)
only the holders of Classic Shares will be entitled to vote on matters submitted
to Shareholder vote with regard to the Servicing Plan, and (iv) only the holders
of Class B Shares will be entitled to vote on matters submitted to Shareholder
vote with regard to the Distribution Plan.
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.
The Trust believes that as of August 21, 1997, AmSouth, 1901 Sixth Avenue
North, Birmingham, AL 35203, was the Shareholder of record of 98.81% of the
outstanding shares of the Premier Class of the Prime Obligations Fund, 98.98% of
the outstanding shares of the Premier Class of the AmSouth U.S. Treasury Fund,
and 98.98% of the Premier Class of the Tax Exempt Fund. As of August 21, 1997,
AmSouth was the beneficial owner of approximately 76.79% of the outstanding
shares of the Premier Shares of the Prime Obligations Fund, 11.55% of the
outstanding shares of the Premier Shares of the AmSouth U.S. Treasury Fund and
69.27% of the outstanding shares of the Premier Shares of the Tax Exempt Fund,
and may be deemed to be a "controlling person" of each of the Premier Shares of
the Prime Obligations Fund and the Tax Exempt Fund within the meaning of the
Investment Company Act of 1940.
The Trust believes as of August 21, 1997, AmSouth, 1901 Sixth Avenue North,
Birmingham, AL 35203, was the Shareholder of record of 98.01% of the outstanding
shares of the Bond Fund, 97.51% of the outstanding shares of the Limited
Maturity Fund, 88.18% of the outstanding shares of the Florida Fund; 94.92% of
the outstanding shares of the Equity Fund; 68.22% of the outstanding shares of
the Regional Equity Fund; and 86.78% of the outstanding shares of the Balanced
Fund. As of August 21, 1997, AmSouth was the beneficial owner of approximately
72.49% of the outstanding shares of the Bond Fund, 57.28% of the outstanding
shares of the Limited Maturity Fund; 61.73% of the outstanding shares of the
Equity Fund; 54.67% of the outstanding shares of the Regional Equity Fund; and
81.58% of the outstanding shares of the Balanced Fund and may be deemed to be a
"controlling person" of each of the above-mentioned Funds
60
<PAGE> 113
within the meaning of the Investment Company Act of 1940.
CUSTODIAN
As of April 17, 1997, AmSouth serves as custodian for the Trust ("Custodian").
Pursuant to the Custodian Agreement with the Trust, the Custodian receives
compensation from each Fund for such services in an amount equal to an
asset-based fee.
TRANSFER AGENT AND FUND ACCOUNTING
BISYS Funds Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the Trust.
PERFORMANCE INFORMATION
MUNICIPAL BOND FUND
The Municipal Bond Fund commenced operations on July 1, 1997 subsequent to the
transfer of assets by the Tax-Exempt Portfolio, a common trust fund, to the
Municipal Bond Fund in exchange for shares of the Municipal Bond Fund. The
Municipal Bond Fund's portfolio of investments on July 1, 1997 was the same as
the portfolio of the Tax-Exempt Portfolio immediately prior to the transfer.
The Tax-Exempt Portfolio is not a registered investment company as it is
exempt from registration under the 1940 Act. Since, in a practical sense, the
common trust fund constitutes a "predecessor" of the Fund, the Municipal Bond
Fund calculates the performance for each Class of the Fund for periods
commencing prior to the transfer of the Tax-Exempt Portfolio assets to the
Municipal Bond Fund by including the Tax-Exempt Portfolio's total return
adjusted to reflect the deduction of fees and expenses applicable to the Premier
Shares of the Fund as stated in the Fee Table in this prospectus (i.e., adjusted
to reflect anticipated expenses, net of management and administrative fee
waivers).
The Municipal Bond Fund from time to time may advertise certain investment
performance figures, as discussed below. These figures are based on historical
earnings, but past performance data is not necessarily indicative of future
performance of the Fund.
COMPARATIVE PERFORMANCE INFORMATION REGARDING
THE TAX-EXEMPT PORTFOLIO AND THE MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN*
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- ------------------------------------------------------------- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Tax-Exempt Portfolio......................................... 5.45% 5.21% 4.69% 5.92%
</TABLE>
- ------------
* Figures were calculated pursuant to a methodology established by the SEC and
do not reflect an imposition of a sales charge given that Premier Shares of
the Municipal Bond Fund are not subject to a sales charge.
The above-mentioned performance data includes the performance of the
Tax-Exempt Portfolio for the period before the Municipal Bond Fund commenced
operations adjusted to reflect the deduction of fees and expenses applicable to
the Premier Shares of the Municipal Bond Fund (i.e., adjusted to reflect
anticipated expenses, net of management and administrative fee waivers). The
Tax-Exempt Portfolio was not registered under the 1940 Act and therefore was not
subject to certain investment restrictions, limitations and diversification
requirements imposed by the Act and the Code. If the Tax-Exempt Portfolio had
been registered under the 1940 Act, its performance may have been adversely
affected. The investment objective, restrictions and guidelines of the Municipal
Bond Fund are substantially similar to the Tax Exempt Portfolio and both were
managed by the same personnel.
MONEY MARKET FUNDS
From time to time, the Money Market Funds' annualized "yield" and "effective
yield" and total return may be presented in advertisements and sales literature.
The "yield" of a Money Market Fund is based upon the income earned by the
Money Market
61
<PAGE> 114
Fund over a seven-day period and then annualized, i.e. the income earned in the
period is assumed to be earned every seven days over a 52-week period and is
stated as a percentage of the investment. The "effective yield" of a Money
Market Fund is calculated similarly but when annualized, the income earned by
the investment is assumed to be reinvested in Shares of the Fund and thus
compounded in the course of a 52-week period. The effective yield will be higher
than the yield because of the compounding effect of this assumed reinvestment.
The Tax Exempt Fund may also present its "tax equivalent yield" and "tax
equivalent effective yield" which reflect 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
and effective yield, respectively, of the Tax Exempt Fund. The tax equivalent
yield and tax equivalent effective yield will be significantly higher than the
yield and effective yield of the Tax Exempt Fund.
Total return is calculated for the past year, five years (if applicable) and
the period since the establishment of a Money Market Fund. Average annual total
return is measured by comparing the value of an investment in a Money Market
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (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.
INCOME FUNDS AND CAPITAL APPRECIATION FUNDS
From time to time performance information for the Premier Shares of a 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, five years (if applicable) and the period since the establishment of a
Fund. Average annual total return is measured by comparing the value of an
investment in a 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 a 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. Each Fund may also present its total return and/or yield excluding the
effect of the sales charge.
The Tax-Free 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 Tax-Free Funds.
GENERAL
Yield, effective yield, tax-equivalent yield, and total return will be
calculated separately for each Class of Shares. Because Premier Shares are not
subject to a distribution and/or shareholder services fee, the yield and total
return for Premier Shares will be higher than that of the Classic and Class B
Shares for the same period.
Investors may also judge the performance of each 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,
62
<PAGE> 115
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 each 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 Fund,
operating expenses and market conditions. Yields and total return of each Fund
will fluctuate. Any fees charged by AmSouth with respect to accounts investing
in Shares of a 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 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 P.O.
Box 182733, Columbus, Ohio 43218-2733, or by calling toll free (800) 451-8382.
63
<PAGE> 116
AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
[AMSOUTH LOGO]
AmSouth Bank
1901 Sixth Avenue North
Birmingham, AL 35203
INVESTMENT SUB-ADVISORS
(Equity Income Fund only)
Rockhaven Asset Management, LLC
100 First Avenue, Suite 1050
Pittsburgh, PA 15222
(Capital Growth Fund only)
Peachtree Asset Management
A Division of Smith Barney Inc.
One Peachtree Center
Atlanta, GA 30308
DISTRIBUTOR
BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
ADMINISTRATOR
ASO Services Company
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>
Fee Table...................................... 3
Financial Highlights........................... 6
Investment Objective and Policies.............. 17
Investment Techniques.......................... 39
Investment Restrictions........................ 41
Valuation of Shares............................ 43
How to Purchase and Redeem Shares.............. 44
Dividends and Taxes............................ 49
Management of the AmSouth Mutual Funds......... 55
General Information............................ 59
</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.
AS4P090197
<PAGE> 117
AMSOUTH MUTUAL FUNDS
====================
[AMSOUTH(R) LOGO]
AMSOUTH BANK
Investment Advisor
P R E M I E R
S H A R E S
[AMSOUTH MUTUAL FUNDS LOGO]
NOT FDIC INSURED
BISYS FUND SERVICES, DISTRIBUTOR
Prospectus dated September 1, 1997
<PAGE> 118
CROSS REFERENCE SHEET
- ---------------------
Part A
Form N-1A Item No. Prospectus Caption
- ------------------ ------------------
PROSPECTUS FOR AMSOUTH EQUITY FUND,
-----------------------------------
AMSOUTH REGIONAL EQUITY FUND, AMSOUTH BALANCED FUND,
----------------------------------------------------
AMSOUTH CAPITAL GROWTH FUND,
----------------------------
AMSOUTH SMALL CAP FUND, AND AMSOUTH
-----------------------------------
EQUITY INCOME FUND
------------------
<TABLE>
<CAPTION>
CLASSIC SHARES AND CLASS B SHARES
<S> <C> <C>
1. Cover Page.................................................... Cover Page
2. Synopsis...................................................... Fee Table
3. Condensed Financial Information............................... Financial Highlights
4. General Description of Registrant............................. The Trust; Investment Objective
and Policies; Investment
Restrictions; General Information -
Description of the Trust and Its
Shares
5. Management of the Fund........................................ Management of AmSouth Mutual
Funds; General Information -
Custodian and Transfer Agent
6. Capital Stock and Other Securities The Trust; How to Purchase and
Redeem Shares; Dividends and
Taxes; General Information -
Description of the Trust and Its
Shares; General Information -
Miscellaneous
7. Purchase of Securities Being Offered Valuation of Shares; How to
Purchase and Redeem Shares
8. Redemption or Repurchase...................................... How to Purchase and Redeem
Shares
9. Legal Proceedings............................................. Inapplicable
</TABLE>
<PAGE> 119
AMSOUTH MUTUAL FUNDS
CAPITAL APPRECIATION FUNDS
CLASSIC SHARES AND CLASS B SHARES
<TABLE>
<S> <C>
3435 Stelzer Road For current yield, purchase, and redemption
Columbus, Ohio 43219 information, call (800) 451-8382
</TABLE>
The Capital Appreciation Funds (the "Capital Appreciation Funds") are six
of fourteen series of units of beneficial interest ("Shares") each representing
interests in one of fourteen separate investment funds (the "Funds") of AmSouth
Mutual Funds (the "Trust"), an open-end management investment company. Each
Capital Appreciation Fund has its own investment objective and the net asset
value per share of each Capital Appreciation Fund will fluctuate as the value of
such Capital Appreciation Fund's investment portfolio changes in response to
changing market conditions and other factors. Each Capital Appreciation Fund
offers Premier Shares, Classic Shares and Class B Shares. The Shares of the
Capital Appreciation Funds outstanding on August 31, 1997, were redesignated as
Classic Shares. Currently, Shares are not being offered in the Small Cap Fund.
AMSOUTH EQUITY FUND (the "Equity Fund") seeks growth of capital by
investing primarily in a diversified portfolio of common stocks and securities
convertible into common stocks such as convertible bonds and convertible
preferred stocks. The production of income is an incidental objective. The
Advisor will seek opportunities for the Equity Fund in securities that are
believed to represent investment value.
AMSOUTH REGIONAL EQUITY FUND (the "Regional Equity Fund") seeks growth of
capital by investing primarily in a diversified portfolio of common stocks and
securities convertible into common stocks, such as convertible bonds and
convertible preferred stocks, of companies headquartered in the Southern Region
of the United States. The Southern Region of the United States includes Alabama,
Florida, Georgia, Louisiana, Mississippi, North Carolina, South Carolina,
Tennessee and Virginia. The production of income is an incidental objective. The
Advisor will seek opportunities for the Regional Equity Fund in securities that
are believed to represent investment value.
AMSOUTH BALANCED FUND (the "Balanced Fund") seeks to obtain long-term
capital growth and produce a reasonable amount of current income through a
moderately aggressive investment strategy. The Balanced Fund seeks to achieve
this objective by investing in a broadly diversified portfolio of securities,
including common stocks, preferred stocks and bonds. The Advisor will seek
opportunities for the Balanced Fund in securities that are believed to represent
investment value.
AMSOUTH CAPITAL GROWTH FUND (the "Capital Growth Fund") seeks long-term
capital appreciation and growth of income by investing primarily in a
diversified portfolio of common stocks and securities convertible into common
stocks such as convertible bonds and convertible preferred stocks.
AMSOUTH SMALL CAP FUND (the "Small Cap Fund") seeks capital appreciation by
investing primarily in a diversified portfolio of securities consisting of
common stocks and securities convertible into common stocks such as convertible
bonds and convertible preferred stock. Any current income generated from these
securities is incidental to the investment objective of the Fund. Under normal
market conditions, the Fund will invest at least 65% of its total assets in
common stocks and securities convertible into common stocks such as convertible
bonds and convertible preferred stock of companies with a market capitalization
of less than $1 billion.
AMSOUTH EQUITY INCOME FUND (the "Equity Income Fund") seeks above average
income and capital appreciation by investing primarily in a diversified
portfolio of common stocks and securities convertible into common stocks such as
convertible bonds and convertible preferred stock. Under normal market
conditions, the Fund will invest at least 65% of its total assets in
income-producing equity securities including common stock, preferred stock, and
securities convertible into common stocks such as convertible bonds and
convertible preferred stock. The portion of the Fund's total assets invested in
common stock,
<PAGE> 120
preferred stock, and convertible securities will vary according to the Fund's
assessment of market and economic conditions and outlook.
AmSouth Bank, Birmingham, Alabama ("AmSouth") acts as the investment
advisor to each Capital Appreciation Fund ("Advisor"). Rockhaven Asset
Management, LLC ("Rockhaven") acts as the investment sub-advisor to the Equity
Income Fund. BISYS Fund Services, Limited Partnership ("BISYS Fund Services"),
Columbus, Ohio, acts as the Capital Appreciation Funds' distributor
("Distributor").
Each Capital Appreciation Fund has been divided into three classes of
Shares, Premier Shares, Classic Shares and Class B Shares. The following
investors qualify to purchase Premier Shares: (i) investors for whom AmSouth
acts in a fiduciary, advisory, custodial, agency or similar capacity through an
account with its Trust Department; (ii) investors who purchase Shares of a Fund
through a 401(k) plan or a 403(b) plan which by its terms permits purchases of
Shares; and (iii) orders placed on behalf of other investment companies
distributed by the Distributor and its affiliated companies. All other investors
are eligible to purchase Classic Shares or Class B Shares only.
This Prospectus relates only to the Classic Shares and Class B Shares of
the Capital Appreciation Funds, which are offered to the general public. Premier
Shares of the Capital Appreciation Funds are offered through a separate
prospectus. 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"), and the AmSouth Bond Fund,
the AmSouth Limited Maturity Fund, the AmSouth Government Income Fund, the
AmSouth Municipal Bond Fund, and the AmSouth Florida Tax-Free Fund (the "Income
Funds") may contact the Distributor at the telephone number shown above.
Additional information about the Capital Appreciation 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 Classic
Shares and Class B Shares of the Capital Appreciation 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 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 September 1, 1997.
<PAGE> 121
FEE TABLE
<TABLE>
<CAPTION>
REGIONAL EQUITY
EQUITY CAPITAL GROWTH SMALL CAP EQUITY INCOME
FUND FUND BALANCED FUND FUND FUND FUND
---------------- ---------------- ---------------- ---------------- ---------------- ----------------
CLASS B CLASS B CLASS B CLASS B CLASS B CLASS B
CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SHAREHOLDER
TRANSACTION
EXPENSES(1)
Maximum Sales Load
Imposed on
Purchases (as a
percentage of
offering
price).......... 4.50% 0% 4.50% 0% 4.50% 0% 4.50% 0% 4.50% 0% 4.50% 0%
Maximum Sales Load
Imposed on
Reinvested
Dividends (as a
percentage of
offering
price).......... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Deferred Sales
Load (as a
percentage of
original
purchase price
or redemption
proceeds, as
applicable)..... 0% 5.00% 0% 5.00% 0% 5.00% 0% 5.00% 0% 5.00% 0% 5.00%
Redemption Fees
(as a percentage
of amount
redeemed, if
applicable)(2)... 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee...... $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
ANNUAL FUND
OPERATING EXPENSES
(as a percentage
of net assets)
Management
Fees.......... .80% .80% .80% .80% .80%(3) .80%(3) .80% .80% .90% .90% .80% .80%
12b-1 Fees...... .00% 1.00% .00% 1.00% .00% 1.00% .00% 1.00% .00% 1.00% .00% 1.00%
Shareholder
Servicing
Fees.......... .25% .00% .25% .00% .25% .00% .25% .00% .25% .00% .25% .00%
Other Expenses
(after
voluntary fee
reduction)(4)... .22% .22% .25% .25% .24% .24% .27% .27% .27% .27% .27% .27%
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total Fund
Operating
Expenses(5)
(after
voluntary fee
reduction).... 1.27% 2.02% 1.30% 2.05% 1.29% 2.04% 1.32% 2.07% 1.42% 2.17% 1.32% 2.07%
======== ========= ======== ========= ======== ========= ======== ========= ======== ========= ======== ======
</TABLE>
- ------------
(1) Financial Institutions 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 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) Amounts have been restated to reflect current fees.
(4) Absent the voluntary reduction of administration fees, Other Expenses would
be 0.31% for the Equity Fund, 0.33% for the Regional Equity Fund and 0.31%
for the Balanced Fund. Other Expenses for the Capital Growth Fund, Small Cap
Fund, and Equity Income Fund are based on estimates for the current fiscal
year.
(5) In the absence of any voluntary reduction of administration fees, Total Fund
Operating Expenses for the Classic Shares would be 1.36% for the Equity
Fund, 1.38% for the Regional Equity Fund and 1.36% for the Balanced Fund. In
the absence of any voluntary reduction of administration fees, Total Fund
Operating Expenses for the Class B Shares would be 2.11% for the Equity
Fund, 2.13% for the Regional Equity Fund and 2.11% for the Balanced Fund.
3
<PAGE> 122
EXAMPLE:
You would pay the following expenses on a $1,000 investment in Classic Shares,
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.............................................................. $ 57 $83 $ 112 $191
Regional Equity Fund..................................................... $ 58 $84 $ 113 $195
Balanced Fund............................................................ $ 58 $84 $ 113 $194
Capital Growth Fund...................................................... $ 58 $85 N/A N/A
Small Cap Fund........................................................... $ 59 $88 N/A N/A
Equity Income Fund....................................................... $ 58 $85 N/A N/A
</TABLE>
- ------------
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming (1) deduction of the applicable Contingent Deferred Sales Charge; and
(2) 5% annual return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Equity Fund
Assuming a complete redemption at end of period........................ $ 71 $ 93 $ 129 $216
Assuming no redemption................................................. $ 21 $ 63 $ 109 $216
Regional Equity Fund
Assuming a complete redemption at end of period........................ $ 71 $ 94 $ 130 $218
Assuming no redemption................................................. $ 21 $ 64 $ 110 $218
Balanced Fund
Assuming a complete redemption at end of period........................ $ 71 $ 94 $ 130 $217
Assuming no redemption................................................. $ 21 $ 64 $ 110 $217
Capital Growth Fund
Assuming a complete redemption at end of period........................ $ 71 $ 95 N/A N/A
Assuming no redemption................................................. $ 21 $ 65 N/A N/A
Small Cap Fund
Assuming a complete redemption at end of period........................ $ 72 $ 98 N/A N/A
Assuming no redemption................................................. $ 22 $ 68 N/A N/A
Equity Income Fund
Assuming a complete redemption at end of period........................ $ 71 $ 95 N/A N/A
Assuming no redemption................................................. $ 21 $ 65 N/A N/A
</TABLE>
The purpose of the tables above is to assist a potential investor in
understanding the various costs and expenses that an investor in the Classic
Shares or Class B Shares of each Capital Appreciation Fund will bear directly or
indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more complete
discussion of annual operating expenses. THE FOREGOING EXAMPLES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE
GREATER OR LESS THAN THOSE SHOWN.
Long-term shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by NASD Rules.
The information set forth in the foregoing tables and examples relates only to
Classic Shares and Class B Shares. The Trust also offers Premier Shares of each
Capital Appreciation Fund which are subject to the same expenses except that
there are no sales charges nor distribution or shareholder servicing expenses
charged to Premier Shares. (See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS"--
"Investment Advisor" and "Distributor.")
4
<PAGE> 123
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information concerning the
investment results for each of the Funds for the period from commencement of
operations to January 31, 1997. The information from the commencement of
operations to July 31, 1996 is a part of the financial statements audited by
Coopers & Lybrand L.L.P., independent accountants for the Trust, whose report on
the Trust's financial statements for the year ended July 31, 1996 appears in the
Statement of Additional Information. The information for the period ended
January 31, 1997 is unaudited. The Small Cap Fund, Capital Growth Fund, and
Equity Income Fund had not commenced operations as of January 31, 1997. Further
financial data is incorporated by reference into in the Statement of Additional
Information.
<TABLE>
<CAPTION>
EQUITY FUND
------------------------------------------------------------------------ DECEMBER 1,
YEAR ENDED JULY 31, 1988 TO
------------------------------------------------------------------------ JULY 31,
1996 1995 1994 1993 1992 1991 1990 1989(A)
SIX MONTHS -------- -------- -------- -------- -------- ------- ------- -----------
ENDED
JANUARY 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD... $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 $ 11.99 $ 12.18 $ 10.00
----------- -------- -------- -------- -------- -------- ------- ------- -----
INVESTMENT ACTIVITIES
Net investment
income.............. 0.16 0.33 0.33 0.28 0.28 0.32 0.36 0.37 0.22
Net realized and
unrealized gains
from investments.... 2.30 1.48 2.39 0.83 1.48 1.20 0.61 (0.17) 2.16
----------- -------- -------- -------- -------- -------- ------- ------- -----
Total from Investment
Activities.......... 2.46 1.81 2.72 1.11 1.76 1.52 0.97 0.20 2.38
----------- -------- -------- -------- -------- -------- ------- ------- -----
DISTRIBUTIONS
Net investment
income.............. (0.17) (0.33) (0.32) (0.28) (0.29) (0.33) (0.37) (0.35) (0.20)
Net realized gains.... (1.04) (0.61) (0.47) (0.39) (0.49) (0.36) (0.02) (0.04) --
----------- -------- -------- -------- -------- -------- ------- ------- -----
Total Distributions... (1.21) (0.94) (0.79) (0.67) (0.78) (0.69) (0.39) (0.39) (0.20)
----------- -------- -------- -------- -------- -------- ------- ------- -----
NET ASSET VALUE, END OF
PERIOD................ 1$8.87..... $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 $ 11.99 $ 12.18
=============== ========= ========= ========= ========= ========= ======== ======== =============
Total Return (Excludes
Sales Charge)....... 14.32%(c).. 11.09% 19.27% 7.90% 13.81% 12.94% 8.46% 1.66% 24.06%(c)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets at end of
period (000)........ $ 419,009 $374,622 $275,757 $205,611 $153,074 $107,934 $32,406 $14,383 $ 5,476
Ratio of expenses to
average net
assets.............. 1.01%(b).. 1.02% 1.03% 0.94% 0.95% 1.01% 1.15% 1.11% 1.16%(b)
Ratio of net
investment income to
average net
assets.............. 1.71%(b) 1.86% 2.17% 1.93% 2.08% 2.50% 3.16% 3.16% 2.91%(b)
Ratio of expenses to
average net
assets*............. 1.09%(b).. 1.11% 1.11% 1.11% 1.13% 1.15% 1.26% 1.41% 2.34%(b)
Ratio of net
investment income to
average net
assets*............. 1.63%(b) 1.77% 2.09% 1.76% 1.90% 2.36% 3.04% 2.86% 1.73%(b)
PORTFOLIO TURNOVER..... 11.94% 19.11% 19.46% 11.37% 15.12% 113.12% 15.78% 14.89% 4.03%
Average commission
rate paid(d)........ $ 0.0668 $ 0.0700 -- -- -- -- -- -- --
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
5
<PAGE> 124
<TABLE>
<CAPTION>
REGIONAL EQUITY FUND
----------------------------------------------------------------- DECEMBER 1,
YEAR ENDED JULY 31, 1988 TO
----------------------------------------------------------------- JULY 31,
1996 1995 1994 1993 1992 1991 1990 1989(A)
SIX MONTHS ------- ------- ------- ------- ------- ------ ------ -----------
ENDED
JANUARY 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD............... $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $ 13.44 $12.45 $11.64 $ 10.00
----------- ------- ------- ------- ------- ------- ------ ------ -----------
INVESTMENT ACTIVITIES
Net investment income... 0.15 0.26 0.23 0.23 0.19 0.23 0.26 0.23 0.14
Net realized and
unrealized gains from
investments........... 3.79 2.20 2.26 0.58 2.09 2.34 1.20 0.84 1.64
----------- ------- ------- ------- ------- ------- ------ ------ -----------
Total from Investment
Activities............ 3.94 2.46 2.49 0.81 2.28 2.57 1.46 1.07 1.78
----------- ------- ------- ------- ------- ------- ------ ------ -----------
DISTRIBUTIONS
Net investment income... (0.15) (0.26) (0.23) (0.23) (0.20) (0.23) (0.26) (0.22) (0.14)
Net realized gains...... (0.49) (0.19) -- (0.41) (0.20) (0.92) (0.21) (0.04) --
------- -----------
In excess of net
realized gains........ -- -- -- (0.23) -- -- -- -- --
----------- ------- ------- ------- ------- ------- ------ ------ -----------
Total Distributions..... (0.64)...... (0.45) (0.23) (0.87) (0.40) (1.15) (0.47) (0.26) (0.14)
----------- ------- ------- ------- ------- ------- ------ ------ -----------
NET ASSET VALUE, END OF
PERIOD.................. 2$4.25..... $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $13.44 $12.45 $ 11.64
=========== ======= ======= ======= ======= ======= ====== ====== ===========
Total Return (Excludes
Sales Charge)......... 18.96%(c)... 13.10% 15.10% 4.87% 15.53% 20.66% 12.52% 9.41% 17.79%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000).......... $ 120,448 $93,584 $68,501 $54,744 $41,347 $15,707 $7,853 $3,161 $ 2,523
Ratio of expenses to
average net assets.... 1.03%(b)... 1.05% 1.07% 0.79% 0.80% 0.91% 0.79% 1.22% 1.41%(b)
Ratio of net investment
income to average net
assets................ 1.22%(b) 1.30% 1.35% 1.36% 1.17% 1.61% 2.21% 1.92% 1.98%(b)
Ratio of expenses to
average net assets*... 1.11%(b) 1.13% 1.15% 1.24% 1.28% 1.36% 1.58% 2.32% 2.65%(b)
Ratio of net investment
income to average net
assets*............... 1.14%(b) 1.22% 1.27% 0.90% 0.69% 1.16% 1.42% 0.82% 0.74%(b)
PORTFOLIO TURNOVER........ 7.45%...... 8.22% 14.25% 5.83% 10.22% 24.99% 14.41% 14.00% 1.13%
Average commission rate
paid(d)................. 0$.0829.... $0.0827 -- -- -- -- -- -- --
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
6
<PAGE> 125
<TABLE>
<CAPTION>
BALANCED FUND
-----------------------------------------------
DECEMBER 19,
YEAR ENDED JULY 31, 1991 TO
----------------------------------------------- JULY 31,
1996 1995 1994 1993 1992(A)
-------- -------- -------- -------- ------------
SIX MONTHS
ENDED
JANUARY 31,
1997
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD............................. $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12 $ 10.00
-------- -------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income.............. 0.25 0.47 0.47 0.42 0.44 0.27
Net realized and unrealized gains
from investments................. 0.99 0.58 1.24 0.18 0.80 1.09
-------- -------- -------- -------- -------- --------
Total from Investment Activities... 1.24 1.05 1.71 0.60 1.24 1.36
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income.............. (0.27) (0.47) (0.46) (0.42) (0.45) (0.24)
Net realized gains................. (0.58) (0.31) (0.30) (0.23) (0.05) --
-------- -------- -------- -------- -------- --------
Total Distributions................ (0.85) (0.78) (0.76) (0.65) (0.50) (0.24)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD....... $ 13.42 $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12
======== ======== ======== ======== ======== ========
Total Return (Excludes Sales
Charge).......................... 9.73%(c) 8.37% 15.27% 5.13% 11.47% 13.71%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)............................ $ 355,980 $338,425 $295,509 $236,306 $179,134 $143,813
Ratio of expenses to average net
assets........................... 1.02%(b) 0.98% 0.94% 0.84% 0.84% 0.83%(b)
Ratio of net investment income to
average net assets............... 3.62%(b) 3.61% 3.91% 3.56% 3.90% 4.45%(b)
Ratio of expenses to average net
assets*.......................... 1.10%(b) 1.11% 1.12% 1.11% 1.12% 1.17%(b)
Ratio of net investment income to
average net assets*.............. 3.54%(b) 3.48% 3.73% 3.28% 3.62% 4.10%(b)
PORTFOLIO TURNOVER................... 13.57% 20.47% 16.97% 14.43% 11.09% 23.18%
Average commission rate paid(d).... $ 0.0760 $ 0.0773 -- -- -- --
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
7
<PAGE> 126
<TABLE>
<CAPTION>
EQUITY INCOME
FUND
----------------
SIX MONTHS ENDED
JULY 31, 1997
(UNAUDITED)
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................................. $ 10.00
========
INVESTMENT ACTIVITIES
Net Investment income.............................................. 0.07
Net realized and unrealized gains from investments................. 1.71
--------
Total from Investment Activities................................... 1.78
========
DISTRIBUTIONS
Net investment income.............................................. (0.06)
Net realized gains................................................. 0.00
--------
Total Distributions................................................ (0.06)
========
NET ASSET VALUE, END OF PERIOD....................................... $ 11.72
========
Total Return (Excludes Sales Charge)................................. 17.81%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000).................................. $ 22,273
Ratio of expenses to average net assets............................ 1.28%(b)
Ratio of net investment income to average net assets............... 2.11%(b)
Ratio of expenses to average net assets*........................... 1.49%(b)
Ratio of net investment income to average net assets*.............. 1.89%(b)
PORTFOLIO TURNOVER................................................... 27.38%
Average commission rate paid(d).................................... $ 0.0600
</TABLE>
- ------------
* During the period certain 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.
(c) Not annualized.
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
8
<PAGE> 127
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of a Capital Appreciation Fund may not be changed
without a majority of the outstanding shares of that Fund (as defined in
"GENERAL INFORMATION--Miscellaneous"). There can be no assurance that the
investment objectives of any of the Capital Appreciation Funds will be achieved.
THE EQUITY FUND AND THE REGIONAL EQUITY FUND seek capital growth by investing
primarily in a diversified portfolio of common stock and securities convertible
into common stock, such as convertible bonds and convertible preferred stock. In
the case of the Regional Equity Fund, such securities must be issued by
companies headquartered in the Southern Region of the United States which
includes Alabama, Florida, Georgia, Louisiana, Mississippi, North Carolina,
South Carolina, Tennessee and Virginia. The production of current income is an
incidental objective of both the Equity Fund and the Regional Equity Fund.
THE BALANCED FUND seeks to obtain long-term capital growth and produce a
reasonable amount of current income through a moderately aggressive investment
strategy. The Balanced Fund seeks to achieve this objective by investing in a
broadly diversified portfolio of securities, including common stocks, preferred
stocks and bonds.
THE CAPITAL GROWTH FUND seeks long-term capital appreciation and growth of
income by investing primarily in a diversified portfolio of common stocks and
securities convertible into common stocks such as convertible bonds and
convertible preferred stocks.
THE SMALL CAP FUND seeks capital appreciation by investing primarily in a
diversified portfolio of securities consisting of common stocks and securities
convertible into common stocks such as convertible bonds and convertible
preferred stocks. Any current income generated from these securities is
incidental to the investment objective of the Fund. Under normal market
conditions, the Fund will invest at least 65% of its total assets in common
stocks and securities convertible into common stocks of companies with a market
capitalization of less than $1 billion determined at the time the security is
purchased.
THE EQUITY INCOME FUND seeks above average income and capital appreciation by
investing primarily in a diversified portfolio of common stocks, preferred
stocks, and securities that are convertible into common stocks, such as
convertible bonds and convertible preferred stock. Under normal market
conditions, the Fund will invest at least 65% of its total assets in
income-producing equity securities including common stock, preferred stock, and
securities convertible into common stocks such as convertible bonds and
convertible preferred stock. The portion of the Fund's total assets invested in
common stock, preferred stock, and convertible securities will vary according to
the Fund's assessment of market and economic conditions and outlook.
The Advisor will seek to invest in equity securities which are believed to
represent investment value. Factors which the Advisor may consider in selecting
equity securities include industry and company fundamentals, historical price
relationships, and/or underlying asset value.
With respect to the Equity, Regional Equity, and Balanced Funds, the Advisor
will use a variety of economic projections, technical analysis, and earnings
projections in formulating individual stock purchase and sale decisions. The
Advisor will select investments that it believes have basic investment value
which will eventually be recognized by other investors, thus increasing their
value to the Funds. In the selection of the investments for the Equity, Regional
Equity, and Balanced Funds, the Advisor may therefore be making investment
decisions which could be contrary to the present expectations of other
professional investors. These decisions may involve greater risks compared to
other mutual funds, of either (a) more accurate assessment by other investors,
in which case losses may be incurred by a Fund, or (b) long delay in investor
recognition of the accuracy of the investment decisions of a Fund, in which case
invested capital of a Capital Appreciation Fund in an individual security
9
<PAGE> 128
or group of securities may not appreciate for an extended period.
In managing the Capital Growth Fund and Small Cap Fund, the Advisor will seek
securities with potential to produce above-average earnings growth. Issuers
include companies with a history of above-average growth or companies that are
expected to enter periods of above-average growth or are positioned in emerging
growth industries. Should the expected growth potential of such companies fail
to be realized, a loss may be incurred.
The equity securities in which the Capital Appreciation Funds may invest may
be subject to wider fluctuations in value than some other forms of investment.
Depending upon the performance of a Capital Appreciation Fund's investments, the
net asset value per Share of such Fund may decrease instead of increase.
Each Capital Appreciation Fund may provide current income. The Balanced Fund
and the Equity Income Fund are expected to produce a higher level of current
income than the other Capital Appreciation Funds.
Most companies in which the Equity, Regional Equity, Balanced, Capital Growth,
and Equity Income Funds will invest will be listed on national securities
exchanges. Stocks held by the Small Cap Fund will frequently be traded over the
counter.
THE EQUITY FUND will normally invest at least 80% of the value of its total
assets in common stocks and securities convertible into common stocks, such as
convertible bonds and convertible preferred stocks, believed by the Advisor to
be undervalued. Under normal market conditions, the Equity Fund may also invest
up to 20% of the value of its total assets in preferred stocks, corporate bonds,
notes, and warrants, and obligations with maturities of 12 months or less such
as commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, money market mutual
funds, obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations. If deemed appropriate for temporary defensive
purposes, the Equity Fund may increase its holdings in short-term obligations to
over 20% of its total assets and may also hold uninvested cash pending
investment. The Fund may also write covered call options. See "Options."
THE REGIONAL EQUITY FUND will normally invest at least 65% of the value of its
total assets in common stocks and securities convertible into common stocks
believed by the Advisor to be undervalued of companies headquartered in the
Southern Region as defined above. Under normal market conditions, the Regional
Equity Fund may also invest up to 35% of the value of its total assets in common
stocks and securities convertible into common stock of companies headquartered
outside the Southern Region, preferred stocks, corporate bonds, notes, and
warrants, and obligations with maturities of 12 months or less such as
commercial paper (including variable amount master demand notes), bankers'
acceptances, certificates of deposit, repurchase agreements, money market mutual
funds, obligations issued or guaranteed by the U.S. Government or its agencies
or instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations. If deemed appropriate for temporary defensive
purposes, the Regional Equity Fund may increase its holdings in short-term
obligations to over 35% of its total assets and may also hold uninvested cash
pending investment. The Regional Equity Fund may also write covered call
options. See "Options."
The Regional Equity Fund will normally invest at least 65% of the value of its
total assets in common stock and securities convertible into common stock of
companies headquartered in the Southern Region. There can be no assurance that
the economy of the Southern Region or the companies headquartered in the
Southern Region will grow in the future or that a company headquartered in the
Southern Region whose assets, revenues or employees are located substantially
outside of the Southern Region will share in any economic growth of the Southern
Region. Additionally, any localized negative economic factors or possible
physical disasters in the
10
<PAGE> 129
Southern Region area could have a much greater impact on the Regional Equity
Fund's assets than on similar funds whose investments are geographically more
diverse.
THE BALANCED FUND will normally invest in equity securities consisting of
common stocks but may also invest in other equity-type securities such as
warrants, preferred stocks and convertible debt instruments. The Fund's equity
investments will be in companies with a favorable outlook and believed by the
Advisor to be undervalued. The Balanced Fund's debt securities will consist of
securities such as bonds, notes, debentures and money market instruments. The
average dollar-weighted portfolio maturity of debt securities held by the
Balanced Fund will vary according to market conditions and interest rate cycles
and will range between 1 year and 30 years under normal market conditions. The
Balanced Fund's debt securities will consist of high grade securities, which are
those securities rated in one of the three highest rating categories by a
nationally recognized statistical rating organization (an "NRSRO") at the time
of purchase, or if not rated, found the by the Advisor under guidelines
established by the Trust's Board of Trustees to be of comparable quality. (For a
further description of these bond ratings, see the Appendix to the Trust's
Statement of Additional Information.) In the event that the rating of any debt
securities held by the Balanced Fund falls below the third highest by an NRSRO
the Fund will not be obligated to dispose of such obligations and may continue
to hold such obligations if, in the opinion of the Advisor, such investment is
considered appropriate under the circumstances. The Balanced Fund may also write
covered call options. See "Options."
It is a fundamental policy of the Balanced Fund that it will invest at least
25% of its total assets in fixed-income securities. For this purpose,
fixed-income securities include debt securities, preferred stock and that
portion of the value of securities convertible into common stock, including
convertible preferred stock and convertible debt, which is attributable to the
fixed-income characteristics of those securities.
The portion of the Balanced Fund's assets invested in equity and debt
securities will vary in accordance with economic conditions, the general level
of common stock prices, interest rates and other relevant considerations,
including the risks associated with each investment medium. Although the
Balanced Fund seeks to reduce the risks associated with any one investment
medium by utilizing a variety of investments, performance will depend upon
additional factors such as timing and mix and the ability of the Advisor to
judge and react to changing market conditions.
THE CAPITAL GROWTH FUND will normally invest at least 65% of the value of its
total assets in common stocks and securities convertible into common stocks,
such as convertible bonds and convertible preferred stocks, believed by the
Advisor to have attractive potential for growth. Under normal market conditions,
the Capital Growth Fund may also invest up to 35% of the value of their total
assets in preferred stocks, corporate bonds, notes, and warrants, and
obligations with maturities of 12 months or less such as commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, money market mutual funds,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations. If deemed appropriate for temporary defensive
purposes, the Capital Growth Fund may increase its holdings in short-term
obligations to over 35% of their total assets and may also hold uninvested cash
pending investment. The Capital Growth Fund may also write covered call options.
See "Options."
THE SMALL CAP FUND will normally invest at least 65% of its total assets in
common stocks and securities convertible into common stocks such as convertible
bonds and convertible preferred stock of companies with a market capitalization
of less than $1 billion determined at the time the security is purchased. Under
normal market conditions, the Small Cap Fund may invest up to 35% of the value
of its total assets in common stocks and securities convertible into common
stocks of companies with a
11
<PAGE> 130
market capitalization of greater than $1 billion determined at the time the
security is purchased, preferred stocks, corporate bonds, notes, and warrants,
and obligations with maturities of 12 months or less such as commercial paper
(including variable amount master demand notes), bankers' acceptances,
certificates of deposit, repurchase agreements, money market mutual funds,
obligations issued or guaranteed by the U.S. Government or its agencies or
instrumentalities, and demand and time deposits of domestic and foreign banks
and savings and loan associations. If deemed appropriate for temporary defensive
purposes, the Small Cap Fund may increase its holdings in short-term obligations
to over 35% of its total assets and may also hold uninvested cash pending
investment. The Small Cap Fund may also write covered call options. See
"Options."
While small capital company securities may offer a greater capital
appreciation potential than investments in mid- or large-cap company securities,
they may also present greater risks. Small capital company securities tend to be
more sensitive to changes in earnings expectations and have lower trading
volumes than mid-to large-cap company securities and, as a result, they may
experience more abrupt and erratic price movements. Any current income produced
by a security is not a primary factor in the selection of investments.
The Small Cap Fund may also invest in investment grade debt securities, that
is, securities rated "BBB" or higher by an NRSRO at the time of purchase. If the
rating of a security falls below investment grade, the Advisor will consider
whatever action is appropriate consistent with the Fund's investment objectives
and policies. See the Appendix to the Statement of Additional Information for a
discussion of rating categories.
The Small Cap Fund is managed in accordance with a value philosophy. This
approach consists of developing a diversified portfolio of securities consistent
with the Fund's investment objective and selected primarily on the basis of the
Advisor's judgment that the securities have an underlying value, or potential
value, which exceeds their current prices. The basis and quantification of the
economic worth, or basic value of individual companies reflects the Advisor's
assessment of a company's assets and the company's prospects for earning growth
over the next 1 1/2-to-3 years. The Advisor relies primarily on the knowledge,
experience and judgment of its own research staff, but also receives and uses
information from a variety of outside sources, including brokerage firms,
electronic data bases, specialized research firms and technical journals.
THE EQUITY INCOME FUND will normally invest at least 65% of the value of its
total assets in income-producing equity securities such as common stocks,
preferred stocks, and securities convertible into common stocks, such as
convertible bonds and convertible preferred stocks. The portion of the Fund's
total assets invested in common stocks, preferred stocks, and convertible
securities will vary according to the Sub-Advisor's assessment of market and
economic conditions and outlook. Under normal market conditions, the Equity
Income Fund may also invest up to 35% of the value of its total assets in
corporate bonds, notes, and warrants, and obligations with maturities of 12
months or less such as commercial paper (including variable amount master demand
notes), bankers' acceptances, certificates of deposit, repurchase agreements,
money market mutual funds, obligations issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, and demand and time deposits of
domestic and foreign banks and savings and loan associations. If deemed
appropriate for temporary defensive purposes, the Equity Income Fund may
increase its holdings in short-term obligations to over 35% of its total assets
and may also hold uninvested cash pending investment. The Equity Income Fund may
also write covered call options. See "Options."
The Equity Income Fund's stock selection emphasizes those common stocks in
each sector that have good value, attractive yield, and dividend growth
potential. The Fund will utilize convertible securities because such securities
typically offer higher yields and good potential for capital appreciation.
12
<PAGE> 131
FOREIGN INVESTMENTS
Each of the Capital Appreciation Funds may invest in foreign securities
through the purchase of American Depository Receipts or the purchase of
securities on the Toronto Stock Exchange, but will not do so if immediately
after a purchase and as a result of the purchase the total value of such foreign
securities owned by such Fund would exceed 25% (20% for the Balanced Fund) of
the value of the total assets of such Fund. Each of the Capital Appreciation
Funds 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
foreign securities 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 and
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 risk that custodian and brokerage
costs may be higher.
CONVERTIBLE SECURITIES
Each of the Capital Appreciation Funds may invest in convertible securities.
Convertible securities are fixed income-securities which may be exchanged or
converted into a predetermined number of the issuer's underlying common stock at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, units consisting of "usable" bonds and warrants or a combination of
the features of several of these securities. Each Capital Appreciation Fund
other than the Balanced Fund may invest in convertible securities rated "BBB" or
higher by an NRSRO at the time of investment, or if unrated, of comparable
quality. The Equity Income Fund may invest in convertible securities rated "BB"
or lower by an NRSRO at the time of investment, or if unrated, of comparable
quality. The Balanced Fund may invest in convertible securities rated "A" or
higher by an NRSRO or, if unrated, of comparable quality. If a convertible
security falls below these minimum ratings after a Fund has purchased it, a Fund
is not required to drop the convertible bond from its portfolio, but will
consider appropriate action. The investment characteristics of each convertible
security vary widely, which allows convertible securities to be employed for
different investment objectives.
Securities which are rated "BB" or lower by Standard & Poor's or "Ba" or lower
by Moody's either have speculative characteristics or are speculative with
respect to capacity to pay interest and repay principal in accordance with the
terms of the obligations. A description of the rating categories is contained in
the Appendix to the Statement of Additional Information. There is no lower limit
with respect to rating categories for convertible securities in which the Equity
Income Fund may invest.
Corporate debt obligations that are not determined to be investment-grade are
high-yield, high-risk bonds, typically subject to greater market fluctuations
and greater risk of loss of income and principal due to an issuer's default. To
a greater extent than investment-grade securities, lower rated securities tend
to reflect short-term corporate, economic and market developments, as well as
investor perceptions or the issuer's credit quality. Because investments in
lower rated securities involve greater investment risk, achievement of the
Equity Income Fund's investment objective may be more dependent on the
Sub-Advisor's credit analysis than would be the case if the Equity Income Fund
were investing in higher rated securities. High yield securities may be more
susceptible to real or perceived adverse economic and competitive industry
conditions than investment grade securities. A projection of an economic
downturn, for example, could cause a decline in high yield prices because the
advent of a recession could lessen the ability of a highly leveraged company to
make principal and interest pay-
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<PAGE> 132
ments on its debt securities. In addition, the secondary trading market for high
yield securities may be less liquid than the market for higher grade securities.
The market prices of debt securities also generally fluctuate with changes in
interest rates so that the Equity Income Fund's net asset value can be expected
to decrease as long-term interest rates rise and to increase as long-term rates
fall. In addition, lower rated securities may be more difficult to dispose of or
to value than high-rated, lower-yielding securities. The Sub-Advisor attempts to
reduce the risks described above through diversification of the portfolio and by
credit analysis of each issuer as well as by monitoring broad economic trends
and corporate and legislative developments.
Convertible bonds and convertible preferred stocks are fixed-income securities
that generally retain the investment characteristics of fixed-income securities
until they have been converted but also react to movements in the underlying
equity securities. The holder is entitled to receive the fixed-income of a bond
or the dividend preference of a preferred stock until the holder elects to
exercise the conversion privilege. Usable bonds are corporate bonds that can be
used in whole or in part, customarily at full face value, in lieu of cash to
purchase the issuer's common stock. When owned as part of a unit along with
warrants, which are options to buy the common stock, they function as
convertible bonds, except that the warrants generally will expire before the
bond's maturity. Convertible securities are senior to equity securities, and,
therefore, have a claim to assets of the corporation prior to the holders of
common stock in the case of liquidation. However, convertible securities are
generally subordinated to similar non-convertible securities of the same
company. The interest income and dividends from convertible bonds and preferred
stocks provide a stable stream of income with generally higher yields than
common stocks, but lower than non-convertible securities of similar quality.
The Capital Appreciation Funds will exchange or convert the convertible
securities held in portfolio into shares of the underlying common stock in
instances in which, in the opinion of the Advisor or Sub-Advisor, the investment
characteristics of the underlying common shares will assist a Fund in achieving
its investment objectives. Otherwise, a Fund will hold or trade the convertible
securities. In selecting convertible securities for a Fund, the Advisor or
Sub-Advisor evaluates the investment characteristics of the convertible security
as a fixed income instrument, and the investment potential of the underlying
equity security for capital appreciation. In evaluating these matters with
respect to a particular convertible security, the Advisor or Sub-Advisor
considers numerous factors, including the economic and political outlook, the
value of the security relative to other investment alternatives, trends in the
determinants of the issuer's profits, and the issuer's management capability and
practices.
As with all debt securities, the market values of convertible securities tend
to increase when interest rates decline and, conversely, tend to decline when
interest rates increase.
WHEN-ISSUED SECURITIES
Each of the Capital Appreciation Funds 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 those available in the market when delivery takes place. The Capital
Appreciation Funds will generally not pay for such securities or start earning
interest on them until they are received. When a Capital Appreciation Fund
agrees to purchase securities on a "when-issued" basis, the Trust's custodian
will set aside cash or liquid 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 Capital Appreciation 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 its commitment to purchase "when-issued" securities ever exceeded 25% of
the
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<PAGE> 133
value of its total assets, a Capital Appreciation Fund's liquidity and the
Advisor's or Sub-Advisor's ability to manage it might be adversely affected. The
Capital Appreciation Funds do not intend to purchase "when-issued" securities
for speculative purposes, but only for the purpose of acquiring portfolio
securities.
OPTIONS
Each of the Capital Appreciation Funds may engage in writing call options from
time to time as the Advisor or Sub-Advisor deems to be appropriate. Options are
written solely as covered call options (options on securities owned by the
Fund). Such options must be issued by the Options Clearing Corporation and may
or may not be listed on a national securities exchange. In order to close out an
option position, a Capital Appreciation 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 Capital Appreciation Fund effects a closing purchase transaction so as to
close out any existing call option on that security. If the Capital Appreciation
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 Capital
Appreciation Fund delivers the underlying security upon exercise. When writing a
covered call option, a Capital Appreciation 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.
The Balanced Fund may purchase put options from time to time as the Advisor
deems to be appropriate. 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 Balanced 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
Balanced 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 Balanced Fund upon its exercise of a "put" is normally (i)
the Balanced 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 accreted market or original issue
discount during the period the Balanced Fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date during
that period. The Balanced Fund 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 Fund may pay for puts either separately
in cash or by paying a higher price for portfolio securities which are acquired
subject to the puts (thus reducing the yield to maturity otherwise available for
the same securities). The Balanced Fund intends to enter into puts only with
dealers, banks, and broker-dealers which, in the Advisor's opinion, present
minimal credit risks.
REPURCHASE AGREEMENTS
Securities held by the Capital Appreciation 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 Capital Appreciation 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 Capital
Appreciation Fund were delayed pending court action. Additionally, if the seller
should be involved in bankruptcy or insolvency proceedings, the Capital
Appreciation Fund may incur delay and costs in selling the underlying security
or may suffer a loss of principal and interest if the Capital Appreciation Fund
is treated as an unsecured creditor and required to return the underlying
security to the seller's estate.
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REVERSE REPURCHASE AGREEMENTS
Each of the Capital Appreciation 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, a Capital
Appreciation 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 repurchase agreements involve the risk that
the market value of the securities sold by a Capital Appreciation Fund may
decline below the price at which the Fund is obligated to repurchase the
securities.
REAL ESTATE INVESTMENT TRUSTS
The Capital Growth Fund, Small Cap Fund, and Equity Income Fund may invest in
real estate investment trusts. Real estate investment trusts are sensitive to
factors such as changes in real estate values and property taxes, interest
rates, cash flow of underlying real estate assets, overbuilding, and the
management skill and creditworthiness of the issuer. Real estate may also be
affected by tax and regulatory requirements, such as those relating to the
environment.
OTHER INVESTMENT PRACTICES
Each Capital Appreciation 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 (the
"AmSouth Money Market Funds"), provided that no more than 10% of a Capital
Appreciation 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 Capital Appreciation Funds in
the AmSouth Money Market Funds, the Advisor and the Administrator will reduce
that portion of their usual service fees from each Capital Appreciation Fund by
an amount equal to their service fees from the AmSouth Money Market Funds that
are attributable to those Capital Appreciation Fund investments. The Advisor and
the Administrator will promptly forward such fees to the Capital Appreciation
Funds. Each Capital Appreciation 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
Capital Appreciation 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.
In order to generate additional income, each Capital Appreciation Fund may,
from time to time, lend its portfolio 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 a Capital
Appreciation Fund to certain risks, such as delays or the inability to regain
the securities in the event the borrower were to default on its lending
agreement or enter into bankruptcy, the Capital Appreciation Fund will receive
100% collateral in the form of cash or other liquid securities. This collateral
will be valued daily by the Advisor or Sub-Advisor and should the market value
of the loaned securities increase, the borrower will furnish additional
collateral to the Capital Appreciation Fund. During the time portfolio
securities are on loan, the borrower pays the Capital Appreciation Fund any
dividends or interest paid on such securities. Loans are subject to termination
by the Capital Appreciation Funds or the borrower at any time. While the Capital
Appreciation Funds do not have the right to vote securities on loan, the Capital
Appreciation Funds intend to terminate the loan and regain the right to vote if
that is considered important with respect to the investment. The Capital
Appreciation Funds will only enter into loan arrangements with broker-dealers,
banks or other institutions which the Advisor or Sub-Advisor has determined are
creditworthy under guidelines established by the Trust's Board of Trustees.
Each Capital Appreciation Fund may engage in the technique of short-term
trading. Such trading involves the selling of securities held for a short
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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 Capital Appreciation Fund in order to take advantage of what the
Advisor or Sub-Advisor believes are changes in market, industry or individual
company conditions or outlook. Any such trading would increase the turnover rate
of a Capital Appreciation Fund and its transaction costs.
Each Capital Appreciation Fund will not invest more than 15% of its net assets
in time deposits with maturities in excess of seven days which are subject to
penalties upon early withdrawal.
The portfolio turnover of each Capital Appreciation Fund may vary greatly from
year to year as well as within a particular year. High turnover rates will
generally result in higher transaction costs and higher levels of taxable
realized gains to the Fund's shareholders. Portfolio turnover for the Capital
Growth Fund, Small Cap Fund, and Equity Income Fund is not expected to exceed
200% in the coming year.
INVESTMENT RESTRICTIONS
Each of the Capital Appreciation 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).
No Capital Appreciation Fund may:
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 Capital
Appreciation Fund's total assets would be invested in such issuer, or such
Capital Appreciation 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 Capital Appreciation 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 25% or more of the value of such
Capital Appreciation 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) 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 (c) 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 Capital
Appreciation Fund may borrow from banks or enter into reverse repurchase
agreements for temporary 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
Capital Appreciation Fund's total assets at the time of its borrowing. A Capital
Appreciation 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 Capital Appreciation Fund may purchase or hold
debt securities and lend portfolio securities in accordance with its investment
objective and policies, and may enter into repurchase agreements.
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VALUATION OF SHARES
The net asset value of each Capital Appreciation 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
a Capital Appreciation Fund, less the liabilities charged to that Class, by the
number of the outstanding Shares of that Class. The net asset value per Share of
each Capital Appreciation Fund will fluctuate as the value of its investment
portfolio changes.
The securities in each Capital Appreciation 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
Capital Appreciation Funds, see the Statement of Additional Information.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares in each of the Capital Appreciation Funds 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.
Each Capital Appreciation Fund has been divided into three classes of Shares,
Premier Shares, Classic Shares and Class B Shares. The three classes of a
particular Fund represent interests in the same investments and are identical in
all respects except that (i) Classic Shares bear the expense of the fee under
the Trust's Shareholder Servicing Plan (the "Servicing Plan"), which will cause
the Classic Shares to have a higher expense ratio and to pay lower dividends
than those of the Premier Shares, (ii) Class B Shares bear the expense of the
fee under the Trust's Distribution and Shareholder Services Plan (the
"Distribution Plan"), which will cause the Class B Shares to have a higher
expense ratio and to pay a lower dividend than those of the Classic Shares or
Premier Shares, (iii) Classic Shares have certain exclusive voting rights with
respect to the Servicing Plan and Class B Shares have certain exclusive voting
rights with respect to the Distribution Plan, and (iv) Classic Shares are
subject to a front-end sales charge and Class B Shares are subject to a
contingent deferred sales charge. The following investors qualify to purchase
Premier Shares: (i) investors for whom AmSouth acts in a fiduciary, advisory,
custodial, agency or similar capacity through an account with its Trust
Department; (ii) investors who purchase Shares of a Fund through a 401(k) plan
or a 403(b) plan which by its terms permits purchases of Shares; and (iii)
orders placed on behalf of other investment companies distributed by the
Distributor and its affiliated companies. All other investors are eligible to
purchase Classic Shares or Class B Shares only.
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PURCHASES OF CLASSIC SHARES AND CLASS B SHARES
Shares of the Capital Appreciation 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 financial institutions that provide certain administrative support services
for their customers or account holders (collectively, "Financial Institutions").
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 Financial Institution and its Customer are
invested by the Distributor in Shares of the Capital Appreciation Funds. These
procedures may also include transactions whereby AmSouth as agent purchases
Shares of the Capital Appreciation Funds in amounts that correspond to the
market value of securities sold to the Capital Appreciation Funds by AmSouth as
agent.
Shares of the Trust sold to Financial Institutions acting in a fiduciary,
advisory, custodial, agency, or other similar capacity on behalf of Customers
will normally be held of record by the Financial Institutions. With respect to
Shares so sold, it is the responsibility of the particular Financial Institution
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 Financial Institutions and reflected in the account
statements provided by the Financial Institutions to Customers.
Depending upon the terms of a particular Customer account, the Financial
Institutions may charge a Customer's account fees for automatic investment and
other cash management services provided in connection with investment in the
Capital Appreciation Funds. Information concerning these services and any
charges can be obtained from the Financial Institutions. This Prospectus should
be read in conjunction with any such information received from the Financial
Institutions.
Investors may also purchase Classic Shares and Class B Shares of a Capital
Appreciation 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, P.O. Box 182733, Columbus, Ohio 43218-2733.
Subsequent purchases of Classic Shares or Class B Shares of a Capital
Appreciation 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 Classic Shares and Class B Shares
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 three days of the telephone order. If payment is not received
within three 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 purchases 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 Classic Shares and Class B 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
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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.
Classic Shares and Class B Shares of each Capital Appreciation 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 at the time of purchase in the case of Classic Shares as described
below. Purchases of Shares of a Capital Appreciation 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.
In case of orders for the purchase of Shares placed through a broker-dealer,
the applicable public offering price will be calculated with reference to 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
close of business. 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 Classic Shares
and Class B Shares of a Capital Appreciation Fund 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. 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 Keoghs or similar plans, contact AmSouth at 800-451-8382.
The maximum investment is $250,000 for total purchases of Class B Shares.
There is no limit on the amount of Classic Shares that may be purchased.
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 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. In the case of Classic Shares and
Class B Shares held of
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record by Financial Institutions but beneficially owned by a Customer,
confirmations of purchases, exchanges, and redemptions of Classic Shares or
Class B Shares by a Financial Institution will be sent to the Customer by the
Financial Institution. Shareholders may rely on these statements in lieu of
certificates. Certificates representing Shares will not be issued.
SALES CHARGE--CLASSIC SHARES
The public offering price of a Classic Share of a Capital Appreciation Fund
equals its net asset value plus a sales charge. BISYS receives this sales charge
as Distributor and may re-allow a portion of it as dealer discounts and
brokerage commissions. However, BISYS, at its sole discretion, may pay certain
dealers all or part of the portion of the sales charges 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>
SALES CHARGE AS DEALER
A PERCENTAGE OF SALES CHARGE AS ALLOWANCE
NET AMOUNT A PERCENTAGE OF AS A PERCENTAGE
AMOUNT OF PURCHASE INVESTED OFFERING PRICE OF OFFERING PRICE
- ---------------------------------------------------- --------------- --------------- -----------------
<S> <C> <C> <C>
Less than $50,000................................... 4.71% 4.50% 4.05%
$50,000 but less than $100,000...................... 4.17% 4.00% 3.60%
$100,000 but less than $250,000..................... 3.09% 3.00% 2.70%
$250,000 but less than $500,000..................... 2.04% 2.00% 1.80%
$500,000 but less than $1,000,000................... 1.01% 1.00% .90%
$1,000,000 or more.................................. -0-* -0-* -0-*
</TABLE>
- ---------
* Classic Shares are offered at net asset value without an initial sales
charge but are subject to a Contingent Deferred Sales Charge equal to 1% of
the lesser of the value of the Shares redeemed (exclusive of reinvested
dividends and capital gains distributions) or the total cost of such Shares
in the event of a Share redemption within twelve months following the
purchase of $1 million or more in Classic Shares. The Distributor will
provide additional compensation in an amount up to 1.00% of the offering
price of Classic Shares of the Funds for sales of $1 million to $5 million
and 0.50% for sales over $5 million.
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 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 Classic Shares of a Capital
Appreciation Fund with no sales charge in the manner described below (which may
be changed or eliminated at any time by the Distributor):
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(1) Existing Shareholders of a Capital Appreciation 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) Employees (and their spouses and children under the age of 21) of any
brokerdealer with which the Distributor enters into a dealer agreement to sell
Shares of the Funds;
(4) Investors who purchase Shares of a Fund through a payroll deduction plan;
and
(5) Investors who purchase Shares of a Capital Appreciation 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 and provide sufficient information to permit
confirmation of qualification. 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.
The Distributor may also periodically waive the sales charge for all investors
with respect to any Capital Appreciation 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 Classic Shares of a Capital Appreciation 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.
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CONCURRENT PURCHASES AND RIGHT OF ACCUMULATION
A Purchaser may qualify for a reduced sales charge by combining concurrent
purchases of Classic Shares of a Capital Appreciation Fund and one or more of
the other Funds of the Trust sold with a sales charge or by combining a current
purchase of Classic Shares of a Capital Appreciation Fund with prior purchases
of Classic 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.
SALES CHARGE--CLASS B SHARES
Class B Shares are not subject to a sales charge when they are purchased, but
are subject to a sales charge (the "Contingent Deferred Sales Charge") if a
Shareholder redeems them prior to the sixth anniversary of purchase. When a
Shareholder purchases Class B Shares, the full purchase amount is invested
directly in the applicable Fund. Class B Shares of each Fund are subject to an
ongoing distribution and shareholder service fee at an annual rate of 1.00% of
such Fund's average daily net assets as provided in the Distribution Plan
(described below under "The Distributor"). This ongoing fee will cause Class B
Shares to have a higher expense ratio and to pay lower dividends than Classic
Shares. Class B Shares convert automatically to Classic Shares after eight
years, commencing from the end of the calendar month in which the purchase order
was accepted under the circumstances and subject to the qualifications described
in this Prospectus.
Proceeds from the Contingent Deferred Sales Charge and the distribution and
shareholder service fees under the Distribution Plan are payable to the
Distributor to defray the expenses of advance brokerage commissions and expenses
related to providing distribution-related and Shareholder services to the Fund
in connection with the sale of the Class B Shares, such as the payment of
compensation to dealers and agents selling Class B Shares. A dealer commission
of 4.00% of the original purchase price of the Class B Shares of the Fund will
be paid to financial institutions and intermediaries. However, the Distributor
may, in its sole discretion, pay a higher dealer commission.
CONTINGENT DEFERRED SALES CHARGE
If the Shareholder redeems Class B Shares prior to the sixth anniversary of
purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the
rates set forth below. The Contingent Deferred Sales Charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of the
Shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on Shares derived from reinvestment of dividends or capital gain
distributions.
The amount of the Contingent Deferred Sales Charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
Shares until the time of redemption of such Shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
Shares, all payments during a month
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<PAGE> 142
are aggregated and deemed to have been made on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
YEAR(S) PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- -------- ------------------
<S> <C>
0-1... 5.00%
1-2... 4.00%
2-3... 3.00%
3-4... 3.00%
4-5... 2.00%
5-6... 1.00%
6-7... None
7-8... None
</TABLE>
In determining whether a particular redemption is subject to a Contingent
Deferred Sales Charge, it is assumed that the redemption is first of any Classic
Shares in the Shareholder's Fund account (unless the Shareholder elects to have
Class B Shares redeemed first) or Shares representing capital appreciation, next
of Shares acquired pursuant to reinvestment of dividends and capital gain
distributions, and finally of other Shares held by the Shareholder for the
longest period of time. This method should result in the lowest possible sales
charge.
To provide an example, assume you purchased 100 Shares at $10 per share (a
total cost of $1,000) and prior to the second anniversary after purchase, the
net asset value per share is $12 and during such time you have acquired 10
additional Shares through dividends paid in Shares. If you then make your first
redemption of 50 Shares (proceeds of $600), 10 Shares will not be subject to
charge because you received them as dividends. With respect to the remaining 40
Shares, the charge is applied only to the original cost of $10 per share and not
to the increase in net asset value of $2 per share. Therefore, $400 of the $600
redemption proceeds is subject to a Contingent Deferred Sales Charge at a rate
of 4.00% (the applicable rate prior to the second anniversary after purchase).
The Contingent Deferred Sales Charge is waived on redemption of Shares: (i)
following the death or disability (as defined in the Code) of a Shareholder or a
participant or beneficiary of a qualifying retirement plan if redemption is made
within one year of such death or disability; or (ii) to the extent that the
redemption represents a minimum required distribution from an Individual
Retirement Account or other qualifying retirement plan to a Shareholder who has
attained the age of 70 1/2. A Shareholder or his or her representative should
contact the Transfer Agent to determine whether a retirement plan qualifies for
a waiver and must notify the Transfer Agent prior to the time of redemption if
such circumstances exist and the Shareholder is eligible for this waiver. In
addition, the following circumstances are not deemed to result in a "redemption"
of Class B Shares for purposes of the assessment of a Contingent Deferred Sales
Charge, which is therefore waived: (i) plans of reorganization of the Fund, such
as mergers, asset acquisitions and exchange offers to which the Fund is a party;
or (ii) exchanges for Class B Shares of other Funds of the Trust as described
under "Exchange Privilege."
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Classic Shares and will be subject to the lower distribution and Shareholder
service fees charged to Classic Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.
For purposes of conversion to Classic Shares, shares received as dividends and
other distributions paid on Class B Shares in a Shareholder's Fund account will
be considered to be held in a separate sub-account. Each time any Class B Shares
in a Shareholder's Fund account (other than those in the sub-account) convert to
Classic Shares, a pro-rata portion of the Class B Shares in the sub-account will
also convert to Classic Shares.
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<PAGE> 143
If a Shareholder effects one or more exchanges among Class B Shares of the
Funds of the Trust during the eight-year period, the Trust will aggregate the
holding periods for the shares of each Fund of the Trust for purposes of
calculating that eight-year period. Because the per share net asset value of the
Classic Shares may be higher than that of the Class B Shares at the time of
conversion, a Shareholder may receive fewer Classic Shares than the number of
Class B Shares converted, although the dollar value will be the same.
ADDITIONAL INFORMATION REGARDING BROKER COMPENSATION
The Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Classic Shares and Class B 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 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 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.
EXCHANGE PRIVILEGE
CLASSIC SHARES
Classic Shares of each Fund may be exchanged for Classic Shares of the other
Funds, provided that the Shareholder making the exchange is eligible on the date
of the exchange to purchase Classic Shares (with certain exceptions and subject
to the terms and conditions described in this prospectus). Classic Shares may
not be exchanged for Class B Shares of the other Funds, and may be exchanged for
Premier Shares of the other Funds only if the Shareholder becomes eligible to
purchase Premier Shares. Shareholders may exchange their Classic Shares for
Classic Shares of a Fund with the same or lower sales charge on the basis of the
relative net asset value of the Classic Shares exchanged. Shareholders may
exchange their Classic Shares for Classic Shares of a Fund with a higher sales
charge by paying the difference between the two sales charges. Shareholders may
also exchange Classic Shares of a Money Market Fund, for which no sales load was
paid, for Classic Shares of a variable net asset value Fund ("Variable NAV
Fund"). Under such circumstances, the cost of the acquired Classic Shares will
be the net asset value per share plus the appropriate sales load. If Classic
Shares of a Money Market Fund were acquired in a previous exchange involving
Shares of a Variable NAV Fund, then such Shares of the Money Market Fund may be
exchanged for Shares of a Variable NAV Fund without payment of any additional
sales load within a twelve month period. Under such circumstances, the
Shareholder must notify the Distributor that a sales load was originally paid.
Depending upon the terms of a particular Customer account, a Participating
Organization may charge a fee with regard to such an exchange. Information about
such charges will be supplied by the Participating Organization.
CLASS B
Class B Shares of each Fund may be exchanged for Class B Shares of the other
Funds on the basis of relative net asset value per Class B Share, without the
payment of any Contingent Deferred Sales Charge which might otherwise be due
upon re-
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<PAGE> 144
demption of the outstanding Class B Shares. Investors should note that, as of
the date of this prospectus, Class B Shares were not yet being offered in the
Government Income Fund, Limited Maturity Fund, Florida Fund and Municipal Bond
Fund, thus, no exchanges may be effected for Class B Shares of these Funds. For
purposes of computing the Contingent Deferred Sales Charge that may be payable
upon a disposition of the newly acquired Class B Shares, the holding period for
outstanding Class B Shares of the Fund from which the exchange was made is
"tacked" to the holding period of the newly acquired Class B Shares. For
purposes of calculating the eight-year holding period applicable to the newly
acquired Class B Shares, the newly acquired Class B Shares shall be deemed to
have been issued on the date of receipt of the Shareholder's order to purchase
the outstanding Class B Shares of the Fund from which the exchange was made.
Class B Shares may not be exchanged for Classic Shares of the other Funds, and
may be exchanged for Premier Shares of the other Funds only if the Shareholder
becomes eligible to purchase Premier Shares. A Contingent Deferred Sales Charge
will apply as described in "How To Purchase and Redeem Shares" -- "Class B
Shares" to exchanges of Class B Shares for Premier Shares.
ADDITIONAL INFORMATION ABOUT EXCHANGES
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 Capital Appreciation Fund Shares for Shares of
another Fund without paying a sales charge, the gain or loss on the sale of the
Capital Appreciation Fund Shares will be calculated without taking into account
the sales charge paid on the Capital Appreciation Fund Shares if the Shares were
held less than 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 Capital Appreciation Fund.
Before an exchange can be effected, a Shareholder must receive a current
prospectus of the Fund and class 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.
AUTO EXCHANGE
AmSouth Mutual Funds Auto Exchange enables Shareholders to make regular,
automatic withdrawals from Classic Shares and Class B Shares of the AmSouth
Prime Obligations Fund and use those proceeds to benefit from
dollar-cost-averaging by automatically making purchases of shares of the same
Class of another AmSouth Mutual Fund. With shareholder authorization, the
Trust's transfer agent will withdraw the amount specified (subject to the
applicable minimums) from the shareholder's Prime Obligations Fund account and
will automatically invest that amount in Classic Shares or Class B Shares of the
AmSouth Mutual Fund designated by the Shareholder at the public offering price
on the date of such deduction. In order to participate in the Auto Exchange,
Shareholders must have a minimum initial purchase of $10,000 in their Prime
Obligations Fund account and maintain a minimum account balance of $1,000.
To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the Account Registration Form, which can be acquired by
calling the Distributor. To change the Auto
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<PAGE> 145
Exchange instructions or to discontinue the feature, a Shareholder must send a
written request to the AmSouth Mutual Funds, P.O. Box 182733, Columbus, OH
43218-2733. The Auto Exchange may be amended or terminated without notice at any
time by the Distributor.
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
Shareholders may redeem their Classic Shares without charge, and their Class B
Shares subject to the applicable Contingent Deferred Sales Charge, on any day
that net asset value is calculated (see "VALUATION 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 Financial Institution. For
example, if a Customer has agreed with a Financial Institution to maintain a
minimum balance in his or her account with the Financial Institution, and the
balance in that account falls below that minimum, the Customer may be obliged to
redeem, or the Financial Institution may redeem for and on behalf of the
Customer, all or part of the Customer's Shares of a Fund of the Trust to the
extent necessary to maintain the required minimum balance.
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 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 then maximum wire redemption
charge. Such charge is presently $7.00 for each wire redemption. There is no
charge for having payment of redemption requests mailed or
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<PAGE> 146
sent via 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 a Capital Appreciation
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 the Valuation Time on a Business Day or, if the
request for redemption is received after the Valuation Time to honor requests
for payment within two Business Days, unless it would be disadvantageous to the
Trust or the Shareholders of the particular Capital Appreciation 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.
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 Capital Appreciation Fund has a value of less
than $250. Accordingly, an investor purchasing Shares of a Capital Appreciation
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
Shareholder, the Shareholder will be given notice that the value of the Shares
of a Capital Appreciation Fund 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.
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<PAGE> 147
DIVIDENDS AND TAXES
The net income of each of the Capital Appreciation Funds will be declared
monthly as a dividend to Shareholders at the close of business on the day of
declaration. 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.
Each of the Capital Appreciation Funds is treated as a separate entity for
Federal income tax purposes. Each of the Capital Appreciation Funds intends to
qualify as a "regulated investment company" under the Internal Revenue Code of
1986, as amended (the "Code"). If they so qualify, the Capital Appreciation
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 Capital Appreciation Funds intend to avoid paying federal
income and excise taxes by timely distributing substantially all their net
income and net investment capital gain income.
A distribution to a Shareholder of net investment income (generally the Fund's
ordinary income) and the excess, if any, of net short-term capital gain over net
long-term loss will be taxable to the Shareholder as ordinary income. The 70%
dividends-received deduction for corporations generally will apply to the Fund's
distributions to corporations to the extent such distributions represent amounts
that would qualify for the dividends-received deduction when received by the
Fund if the Fund were a regular corporation and are designated by the Fund as
qualifying for the dividends-received deduction.
A distribution by a Capital Appreciation Fund of the excess of net long-term
capital gain over net short-term capital loss designated by such Fund as a
capital gain dividend is taxable to Shareholders as long-term capital gain,
regardless of how long the Shareholder has held Shares in such Fund. Such
distributions are not eligible for the dividends-received deduction.
The amount of dividends payable with respect to the Premier Shares will exceed
dividends on Classic Shares, and the amount of dividends on Classic Shares will
exceed the dividends on Class B Shares, as a result of the Shareholder Services
Plan fee applicable to Classic Shares and the Distribution and Shareholder
Services Plan fee applicable to Class B Shares.
Prior to purchasing Shares of a Capital Appreciation Fund, 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 dividend or
distribution may be, as an economic 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 a Capital
Appreciation Fund's investments in U.S. government obligations may not be
entitled to the exemptions from state and local
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<PAGE> 148
income taxes that would be available if the Shareholder had purchased U.S.
government obligations directly.
A Shareholder will generally recognize capital gain or loss on the sale or
exchange of shares in a Capital Appreciation Fund. If a Shareholder receives a
capital gain dividend with respect to a Share of a Capital Appreciation Fund 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 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 Capital
Appreciation Funds and their Shareholders. Potential investors in the Capital
Appreciation 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.
Additional Information regarding federal taxes is contained in the Statement
of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION--Additional Tax Information."
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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):
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS
- ------------------------------ ------------------ -------------------------------------------
<S> <C> <C>
George R. Landreth* Chairman From December 1992 to present, employee of
BISYS Fund Services BISYS Fund Services, Limited Partnership;
3435 Stelzer Road from July 1991 to December 1992, employee
Columbus, Ohio 43219 of PNC Financial Corp.; from October 1984
to July 1991, employee of The Central Trust
Co., N.A.
Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and Vice
459 DER Building Chairman, Dept. of Medicine, Univ. of
1808 7th Avenue South Alabama at Birmingham School of Medicine;
UAB Medical Center from December 1995 to present, Physician,
Birmingham, Alabama 35294 University of Alabama Health Services
Foundation; from 1988 to 1992, President,
CEO and Medical Director, Univ. of Alabama
Health Services Foundation
Wendell D. Cleaver Trustee From September 3, 1993 to present, retired;
209 Lakewood Drive, West from December, 1988 to August, 1993,
Mobile, Alabama 36608 Executive Vice President, Chief Operating
Officer and Director, Mobile Gas Service
Corporation
J. David Huber* Trustee From June 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services, Limited Partnership
Columbus, Ohio 43219
Homer H. Turner, Jr. Trustee From June 1991 to present, retired; until
729 Cary Drive June 1991, Vice President, Birmingham
Auburn, Alabama 36830 Division, Alabama Power Company
James H. Woodward, Jr. Trustee From July 1989 to present, Chancellor, The
The University of North University of North Carolina at Charlotte;
Carolina at Charlotte until July 1989, Senior Vice President,
Charlotte, North Carolina University College, University of Alabama
28223 at Birmingham
</TABLE>
- ------------
* Indicates an "interested person" of the Trust as defined in the Investment
Company Act of 1940.
31
<PAGE> 150
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. Messrs. Huber and Landreth are
executive officers and employees of BISYS Fund Services.
INVESTMENT ADVISOR
AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank
affiliate of AmSouth Bancorporation, one of the largest banking institutions
headquartered in the midsouth region. AmSouth Bancorporation reported assets as
of December 31, 1996 of $18.4 billion and operated 272 banking offices in
Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment
management services through its Trust Investment Department since 1915. As of
December 31, 1996, AmSouth and its affiliates had over $7.1 billion in assets
under discretionary management and provided custody services for an additional
$13.4 billion in securities. AmSouth is the largest provider of trust services
in Alabama. AmSouth serves as administrator for over $12 billion in bond issues,
and its Trust Natural Resources and Real Estate Department is a major manager of
timberland, mineral, oil and gas properties and other real estate interests.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the respective investment objectives and restrictions of the
Capital Appreciation Funds, the Advisor manages the Capital Appreciation Funds
(except for the Equity Income Fund), and therefore 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. Pedro Verdu,
CFA, is the portfolio manager for each Capital Appreciation Fund (except the
Equity Income Fund) and, as such, has had primary responsibility for the day-to-
day portfolio management of each of these Funds since their inception. Mr. Verdu
has twenty-four years of experience as an analyst and portfolio manager; he is
currently the Director of Equity Investing at AmSouth.
Under an investment advisory agreement between the Trust and the Advisor, the
fee payable to the Advisor by the Equity, Regional Equity, Balanced, Equity
Income, and Capital Growth Funds for investment advisory services is the lesser
of (a) a fee computed daily and paid monthly at the annual rate of eighty
one-hundredths of one percent (.80%) of such 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 Advisor. The fee payable for the Advisor by the Small Cap Fund for
investment advisory services is the lesser of (a) a fee computed daily and paid
monthly at the annual rate of ninety one-hundredths of one percent (.90%) of
such 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 Advisor. While this fee is higher
than the advisory fee paid by most mutual funds, it is believed to be comparable
to advisory fees paid by many funds having similar objectives and policies. A
fee agreed to in writing from time to time by the Trust and the Advisor may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower a 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, 1996, the Advisor received
investment advisory fees amounting to .80% of the Equity Fund's average daily
net assets, .80% of the Regional Equity Fund's average daily net assets and .75%
of the Balanced Fund's average daily net assets after voluntary fee reductions
with respect to the Balanced Fund.
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<PAGE> 151
INVESTMENT SUB-ADVISORS
Rockhaven Asset Management, LLC ("Rockhaven") serves as Sub-Advisor to the
Equity Income Fund pursuant to a Sub-Advisory Agreement with the Advisor. Under
the SubAdvisory Agreement, the Sub-Advisor manages the Fund, selects
investments, and places all order for purchases and sales of securities, subject
to the general supervision of the Trust's Board of Trustees and the Advisor in
accordance with the Fund's investment objective, policies, and restrictions.
Rockhaven is 50% owned by AmSouth and 50% owned by Mr. Christopher H. Wiles.
Rockhaven was organized in 1997 to perform advisory services for investment
companies and has its principal offices at 100 First Avenue, Suite 1050,
Pittsburgh, PA 15222.
For its services and expenses incurred under the Sub-Advisory Agreement, the
SubAdvisor is entitled to a fee, payable by the Advisor. The fee is computed
daily and paid monthly at the annual rate of forty-eight one-hundredths of one
percent (.48%) of the Fund's average daily net assets or such lower fee as may
be agreed upon in writing by the Advisor and Sub-Advisor.
Mr. Wiles is the portfolio manager for the Equity Income Fund, and, as such,
has the primary responsibility for the day-to-day portfolio management of the
Fund. Mr. Wiles is the President and Chief Investment Officer of Rockhaven. From
August 1, 1991 to January 31, 1997, he was the portfolio manager of the
Federated Equity Income Fund.
The cumulative total return for the Federated Equity Income Fund from August
1, 1991 through January 31, 1997 was 138.72%. The cumulative total return for
the same period for the Standard & Poor's Composite Stock Price Index ("S&P 500
Index") was 135.09%. At January 31, 1997, the Fund had approximately $970
million in net assets. As portfolio manager of the Federated Equity Income Fund,
Mr. Wiles had full discretionary authority over the selection of investments for
that Fund. Average annual returns for the one-year, three-year, and five-year
periods ended January 31, 1997 and for the entire period during which Mr. Wiles
managed that fund compared with the performance of the S&P 500 Index were:
<TABLE>
<CAPTION>
FEDERATED S&P 500 LIPPER EQUITY
EQUITY INCOME FUND(A)(B) INDEX(C) INCOME FUND INDEX(D)
------------------------ ------- --------------------
<S> <C> <C> <C>
One Year.................................... 23.03% 26.34% 19.48%
Three Years................................. 16.93% 20.72%
Five Years.................................. 16.38% 17.02%
August 1, 1991 through January 31, 1997..... 17.11% 16.78%
</TABLE>
(a) Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
(b) During the period from August 1, 1991 through January 31, 1997, the
operating expense ratio of the Federated Equity Income Fund ranged from .95%
to 1.05% of the Fund's average daily net assets.
(c) The S&P 500 Index is an unmanaged index of common stocks that is considered
to be generally representative of the United States stock market. The Index
is adjusted to reflect reinvestment of dividends.
(d) The Lipper Equity Income Fund Index is equally weighted and composed of the
largest mutual funds within its investment objective. These funds seek high
current income and growth of income through investing 60% or more of their
respective portfolios in equity securities.
33
<PAGE> 152
HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. The Federated
Equity Income Fund is a separate fund and its historical performance is not
indicative of the potential performance of the AmSouth Equity Income Fund. Share
prices and investment returns will fluctuate reflecting market conditions, as
well as changes in company-specific fundamentals of portfolio securities.
Christopher Wiles was the Federated Equity Income Fund's portfolio manager
from August 1, 1991 to January 31, 1997. Mr. Wiles joined Federate Investors in
1990 and served as a Vice President of the Fund's investment advisor from 1992
and Senior Vice President from October, 1996 to January 31, 1997. Mr. Wiles
served as Assistant Vice President of the Fund's investment advisor in 1991. Mr.
Wiles is a Chartered Financial Analyst and received his M.B.A. in Finance from
Cleveland State University.
ADMINISTRATOR
ASO Services Company ("ASO") is the administrator for each Fund of the Trust
(the "Administrator"). ASO is a wholly-owned subsidiary of BISYS. BISYS 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 Capital Appreciation
Funds' administration and operation. Under a management and administration
agreement between the Trust and the Administrator, the fee payable by each
Capital Appreciation Fund to the Administrator for administration services is
the lesser of (a) a fee computed at the annual rate of twenty one-hundredths of
one percent (.20%) of such Capital Appreciation Fund's average daily net assets
or (b) such fee as may from time to time be agreed upon by the Trust and the
Administrator. A fee agreed to 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 a Capital Appreciation
Fund's expenses and increase the net income of the Fund during the period when
such lower fee is in effect.
ASO succeeded BISYS as Administrator on April 1, 1996. During the Trust's
fiscal year ended July 31, 1996, BISYS and ASO received administration fees,
after voluntary fee reductions, amounting to .11% of the Equity Fund's average
daily net assets, .12% of the Regional Equity Fund's average daily net assets
and .11% of the Balanced Fund's average daily net assets.
SUB-ADMINISTRATORS
AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current
agreement with the Administrator, 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 daily net assets.
BISYS Fund Services serves as a Sub-Administrator to the Trust. Pursuant to
its agreement with the Administrator, BISYS Fund Services is entitled to
compensation as mutually agreed from time to time by it and the Administrator.
DISTRIBUTOR
BISYS Fund Services acts as the Trust's principal underwriter and distributor
(the "Distributor") pursuant to a Distribution Agreement under which shares are
sold on a continuous basis.
Classic Shares of the Trust are subject to a Shareholder Servicing Plan (the
"Servicing Plan") permitting payment of compensation to financial institutions
that agree to provide certain administrative support services for their
customers or account holders. Each Fund has entered into a specific arrangement
with BISYS for the provision of such services by BISYS, and reimburses BISYS for
its cost of providing these services, subject to a maximum annual rate of
twenty-five one-hundredths of
34
<PAGE> 153
one percent (.25%) of the average daily net assets of the Classic Shares of each
Fund.
Under the Trust's Distribution and Shareholder Services Plan (the
"Distribution Plan"), Class B Shares of a Fund will pay a monthly distribution
fee to the Distributor as compensation for its services in connection with the
Distribution Plan at an annual rate equal to one percent (1.00%) of the average
daily net assets of Class B Shares of each Fund which includes Shareholder
Servicing fee of .25% of the average daily net assets of the Class B Shares of
each Fund. The Distributor may periodically waive all or a portion of the fee
with respect to a Fund in order to increase the net investment income of the
Fund available for distribution as dividends. The Distributor may apply the B
Share Fee toward the following: (i) compensation for its services or expenses in
connection with distribution assistance with respect to such Fund's B Shares;
(ii) payments to financial institutions and intermediaries (such as banks,
savings and loan associations, insurance companies, and investment counselors)
as brokerage commissions in connection with the sale of such Fund's B Shares;
and (iii) payments to financial institutions and intermediaries (such as banks,
savings and loan associations, insurance companies, and investment counselors),
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services and/or reimbursement of expenses incurred in
connection with distribution or shareholder services with respect to such Fund's
B Shares.
All payments by the Distributor for distribution assistance or shareholder
services under the Distribution Plan will be made pursuant to an agreement (a
"Servicing Agreement") between the Distributor and such bank, other financial
institution or intermediary, broker-dealer, or affiliate or subsidiary of the
Distributor (hereinafter referred to individually as "Participating
Organizations"). A Servicing Agreement will relate to the provision of
distribution assistance in connection with the distribution of a Fund's Class B
Shares to the Participating Organization's customers on whose behalf the
investment in such Shares is made and/or to the provision of shareholder
services to the Participating Organization's customers owning a Fund's Class B
Shares. Under the Distribution Plan, a Participating Organization may include
AmSouth or a subsidiary bank or nonbank affiliates, or the subsidiaries or
affiliates of those banks. A Servicing Agreement entered into with a bank (or
any of its subsidiaries or affiliates) will contain a representation that the
bank (or subsidiary or affiliate) believes that it possesses the legal authority
to perform the services contemplated by the Servicing Agreement without
violation of applicable banking laws (including the Glass-Steagall Act) and
regulations.
The distribution fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular year
by the Distributor in connection with distribution assistance or shareholder
services rendered by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under the Distribution Plan.
If the amount of the distribution fee is greater than the Distributor's actual
expenses incurred in a particular year (and the Distributor does not waive that
portion of the distribution fee), the Distributor will realize a profit in that
year from the distribution fee. If the amount of the distribution fee is less
than the Distributor's actual expenses incurred in a particular year, the
Distributor will realize a loss in that year under the Distribution Plan and
will not recover from a Fund the excess of expenses for the year over the
distribution fee, unless actual expenses incurred in a later year in which the
Distribution Plan remains in effect were less than the distribution fee paid in
that later year.
The Glass-Steagall Act and other applicable laws prohibit banks generally from
engaging in the business of underwriting securities, but in general do not
prohibit banks from purchasing securities as agent for and upon the order of
customers. Accordingly, the Trust will require banks acting as Participating
Organizations to provide only those services which, in the banks' opinion, are
consistent with the then current legal requirements. It is possible, however,
that future legislative, judicial or administrative action affecting the
securities activities of banks will cause the Trust to alter or discontinue its
arrange-
35
<PAGE> 154
ments with banks that act as Participating Organizations, or change its method
of operations. It is not anticipated, however, that any change in a Fund's
method of operations would affect its net asset value per share or result in
financial loss to any customer.
EXPENSES
AmSouth and the Administrator each bear all expenses in connection with the
performance of their services as Advisor and Administrator, respectively, other
than the cost of securities (including brokerage commissions, if any) purchased
for a Capital Appreciation Fund. No Capital Appreciation Fund will bear,
directly or indirectly, the cost of any activity primarily intended to result in
the distribution of Shares of such Capital Appreciation Fund; such costs will be
borne by the Distributor.
As a general matter, expenses are allocated to the Premier, Classic, and Class
B Shares of a Fund on the basis of the relative net asset value of each class.
At present, the only expenses that will be borne solely by Classic and Class B
Shares, other than in accordance with the relative net asset value of the class,
are expenses under the Servicing Plan which relates only to the Classic Shares
and the Distribution Plan which relates only to the Class B Shares.
BANKING LAWS
AmSouth believes that it possesses the legal authority to perform the
investment advisory services for the Capital Appreciation 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 fourteen 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 Balanced Fund, the AmSouth
Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Government Income
Fund, the AmSouth Municipal Bond Fund, the AmSouth Florida TaxFree Fund, the
AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, and the AmSouth Equity
Income Fund. Each Fund, except the AmSouth Florida Tax-Free Fund, is a
diversified fund under the Investment Company Act of 1940, as amended. Each Fund
offers three classes of Shares: Premier, Classic and Class B Shares, except for
the AmSouth U.S. Treasury Fund and Tax Exempt Fund which offer only Premier
Shares and Classic Shares. As of the date of this Prospectus, however, Class B
Shares were not offered in Government Income Fund, Limited Maturity Fund,
Florida Fund, and Municipal Bond 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).
36
<PAGE> 155
Shares of the Trust are entitled to one vote per share (with proportional
voting for fractional shares) on such matters as Shareholders are entitled to
vote. Shareholders vote in the aggregate and not by series or class on all
matters except (i) when required by the Investment Company Act of 1940, shares
shall be voted by individual series or class, (ii) when the Trustees have
determined that the matter affects only the interests of one or more series or
class, and (iii) only the holders of Classic Shares will vote on matters
submitted to shareholder vote with regard to the Servicing Plan and (iv) only
the holders of Class B Shares will vote on matters submitted to shareholder vote
with regard to the Distribution Plan.
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 August 21, 1997, AmSouth Bank, 1901 Sixth Avenue North, Birmingham, AL
35203, was the Shareholder of record of approximately 94.92% of the outstanding
shares of the Equity Fund, 68.22% of the outstanding shares of the Regional
Equity Fund, 86.78% of the outstanding shares of the Balanced Fund, and 19.58%
of the outstanding shares of the Equity Income Fund. AmSouth Bank was the
beneficial owner of approximately 61.73% of the outstanding shares of the Equity
Fund, 54.67% of the outstanding shares of the Regional Equity Fund and 81.58% of
the outstanding shares of the Balanced Fund, and may be deemed to be a
"controlling person" of each of the above-mentioned Funds within the meaning of
the Investment Company Act of 1940.
CUSTODIAN
As of April 17, 1997, AmSouth serves as custodian for the Trust ("Custodian").
Pursuant to the Custodian Agreement with the Trust, the Custodian receives
compensation from each Fund for such services in an amount equal to an
asset-based fee.
TRANSFER AGENT AND FUND ACCOUNTING
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 Classic Shares and Class B
Shares of a Capital Appreciation Fund showing its total return and/or yield may
be presented in advertisements and sales literature. Average annual total return
will be calculated for the past year, five years (if applicable) and the period
since the establishment of a Capital Appreciation Fund. Total return is measured
by comparing the value of an investment in the Capital Appreciation 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). Aggregate total return is calculated similarly to average total
return except that the return figure is aggregated over the relevant period
instead of annualized. Yield will be computed by dividing the Capital
Appreciation Fund's net investment income per share earned during a recent
one-month period by the Capital Appreciation 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.
Yield, effective yield, and total return will be calculated separately for
each Class of Shares. Because Classic Shares are subject to lower Shareholder
Services fees than Class B Shares, the yield and total return for Classic Shares
will be higher than that of the Class B Shares for the same period. Because
Premier Shares are not subject to the
37
<PAGE> 156
Distribution and Shareholder Services fees, the yield and total return for
Premier Shares will be higher than that of the Classic and Class B Shares for
the same period.
Investors may also judge the performance of each Capital Appreciation 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., Morning Star, Inc., CDA/Wiesenberger, Pensions and
Investments, U.S.A. Today, and local newspapers and periodicals. 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 the performance of a Capital Appreciation Fund is based on
the Capital Appreciation 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 a Capital Appreciation Fund, operating
expenses, and marketing conditions. Any fees charged by a Financial Institution
with respect to customer accounts investing in Shares of a Capital Appreciation
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 the Trust upon
the issuance or sale of Shares in that Fund, 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 lia-
38
<PAGE> 157
ble 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 P.O.
Box 182733, Columbus, Ohio 43218-2733, or by calling toll free (800) 451-8382.
39
<PAGE> 158
AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
LOGO
AmSouth Bank
1901 Sixth Avenue North
Birmingham, AL 35203
INVESTMENT SUB-ADVISORS
(Equity Income Fund Only)
Rockhaven Asset Management, LLC
100 First Avenue, Suite 1050
Pittsburgh, PA 15222
(Capital Growth Fund Only)
Peachtree Asset Management
A Division of Smith Barney Inc.
One Peachtree Center
Atlanta, GA 30308
ADMINISTRATOR
ASO Services Company
3435 Stelzer Road
Columbus, OH 43219
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>
Fee Table...................................... 3
Financial Highlights........................... 5
Investment Objectives and Policies............. 9
Investment Restrictions........................ 17
Valuation of Shares............................ 18
How to Purchase and Redeem Shares.............. 18
Dividends and Taxes............................ 29
Management of AmSouth Mutual Funds............. 31
General Information............................ 36
</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.
AS3P090197
<PAGE> 159
A M S O U T H M U T U A L F U N D S
---------------------------------------
=======================================
[LOGO]
AMSOUTH BANK
Investment Advisor
C A P I T A L
APPRECIATION
F U N D S
A M S O U T H
MUTUAL FUNDS
NOT FDIC INSURED
BISYS FUND SERVICES, DISTRIBUTOR
Prospectus dated September 1, 1997
<PAGE> 160
CROSS REFERENCE SHEET
- ---------------------
Part A
Form N-1A Item No. Prospectus Caption
- ------------------ -------------------
PROSPECTUS FOR AMSOUTH PRIME OBLIGATIONS
FUND, AMSOUTH U.S. TREASURY FUND AND
AMSOUTH TAX EXEMPT FUND
CLASSIC SHARES AND CLASS B SHARES
1. Cover Page...................... Cover Page
2. Synopsis........................ Fee Table
3. Condensed Financial
Information................... Financial Highlights
4. General Description
of Registrant................. The Trust; Investment Objective and
Policies; Investment Restrictions;
General Information - Description of
the Trust and Its Shares
5. Management of the Fund.......... Management of AmSouth Mutual Funds;
General Information - Custodian and
Transfer Agent
6. Capital Stock and
Other Securities.............. The Trust; How to Purchase and Redeem
Shares; Dividends and Taxes; General
Information - Description of the Trust
and Its Shares; General Information -
Miscellaneous
7. Purchase of Securities
Being Offered................. Valuation of Shares; How to Purchase
and Redeem Shares
8. Redemption or Repurchase........ How to Purchase and Redeem Shares
9. Legal Proceedings............... Inapplicable
- 1 -
<PAGE> 161
AMSOUTH MUTUAL FUNDS
MONEY MARKET FUNDS
CLASSIC SHARES AND CLASS B SHARES
<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 Money Market Funds (the "Money Market Funds") are
three of fourteen series of units of beneficial interest ("Shares") each
representing interests in one of fourteen separate investment funds (the
"Funds") of AmSouth Mutual Funds (the "Trust"), an open-end management
investment company. All securities or instruments in which the Money Market
Funds invest have remaining maturities of 397 days or less. Each Money Market
Fund seeks to maintain a constant net asset value of $1.00 per unit of
beneficial interest, but there can be no assurance that net asset value will not
vary.
AMSOUTH PRIME OBLIGATIONS FUND (the "Prime Obligations Fund") seeks current
income with liquidity and stability of principal. The Prime Obligations Fund
invests in high quality United States dollar-denominated money market
instruments and other high-quality United States dollar-denominated instruments.
AMSOUTH U.S. TREASURY FUND (the "AmSouth U.S. Treasury Fund") seeks current
income with liquidity and stability of principal. The AmSouth U.S. Treasury Fund
invests exclusively in short-term obligations issued by the U.S. Treasury, some
of which may be subject to repurchase agreements collateralized by U.S. Treasury
obligations.
AMSOUTH TAX EXEMPT FUND (the "Tax Exempt 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 and relative stability of principal.
The Tax Exempt Fund seeks to achieve this objective by investing in short-term
high-quality obligations. While the Tax Exempt Fund may invest in short-term
taxable obligations, under normal market conditions at least 80% of the Tax
Exempt Fund's total assets will be invested in obligations exempt from federal
income tax.
AmSouth Bank, Birmingham, Alabama ("AmSouth"), acts as the investment advisor
to each Money Market Fund ("Advisor"). BISYS Fund Services, Limited Partnership
("BISYS Fund Services"), Columbus, Ohio, acts as distributor to each Money
Market Fund ("Distributor").
The Prime Obligations Fund has been divided into three classes of Shares:
Premier Shares, Classic Shares, and Class B Shares and the AmSouth U.S. Treasury
Fund and Tax Exempt Fund have been divided into two classes of Shares: Premier
Shares and Classic Shares. The following investors qualify to purchase a Money
Market Fund's Premier Shares: (i) investors for whom AmSouth acts in a
fiduciary, advisory, custodial, agency or similar capacity through an account
with its Trust Department; (ii) investors who purchase Shares of a Money Market
Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases
of Shares; and (iii) orders placed on behalf of other investment companies
distributed by the Distributor and its affiliated companies. All other investors
are eligible to purchase only Classic Shares of the Money Market Funds. Class B
Shares of the Prime Obligations Fund only are available to Shareholders of Class
B Shares of another Fund who wish to exchange their Class B Shares of such other
Fund for Class B Shares of the Prime Obligations Fund.
This Prospectus relates only to the Classic Shares of the Money Market Funds
and Class B Shares of the Prime Obligations Fund which are offered to the
general public. Through a separate Prospectus, the Trust also offers Premier
Shares of the Money Market Funds. Interested persons who wish to obtain a copy
of the prospectuses of the AmSouth Equity Fund, the AmSouth Regional Equity
Fund, the AmSouth Balanced Fund, the AmSouth Capital Growth Fund, the AmSouth
Small Cap Fund, and the AmSouth Equity Income
<PAGE> 162
Fund (the "Capital Appreciation Funds"); the AmSouth Bond Fund, the AmSouth
Limited Maturity Fund, the AmSouth Government Income Fund, the AmSouth Municipal
Bond Fund, and the AmSouth Florida Tax-Free Fund (the "Income Funds") may
contact the Distributor at the telephone number shown above. Additional
information about the Money Market 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 Classic Shares
and Class B Shares of the Money Market 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.
------------------------
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE
------------------------
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 OF THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Prospectus is September 1, 1997.
<PAGE> 163
FEE TABLE
<TABLE>
<CAPTION>
AMSOUTH TAX
PRIME OBLIGATIONS U.S. TREASURY EXEMPT
FUND FUND FUND
------------------ ------------- ------
CLASSIC CLASS B CLASSIC CLASSIC
SHARES SHARES SHARES SHARES
------- ------- ------------- ------
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES(1)
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price).......................... 0% 0% 0% 0%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price).......................... 0% 0% 0% 0%
Deferred Sales Load (as a percentage of original purchase
price or redemption proceeds, as applicable)................. 0% 5.00% 0% 0%
Redemption Fees (as a percentage of amount redeemed, if
applicable)(2)............................................... 0% 0% 0% 0%
Exchange Fee............................................... $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees (after voluntary fee reduction for the
Tax Exempt Fund)(3).......................................... .40% .40% .40% .20%
12b-1 Fees................................................... .00% 1.00% .00% .00%
Shareholder Servicing Fees(4)
(after voluntary fee reductions for the Classic Shares)...... .10% .00% .10% .10%
Other Expenses............................................... .31% .31% .32% .38%
--- ---- --- ---
Total Fund Operating Expenses(5)
(after voluntary fee reductions for the Classic Shares)...... .81% 1.71% .82% .68%
=== ==== === ===
</TABLE>
- ---------------
(1) Financial Institutions 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 a Money Market 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 would be .40% for the Tax Exempt Fund.
(See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- INVESTMENT ADVISOR.")
(4) Absent the voluntary reduction of shareholder servicing fees, Shareholder
Servicing Fees as a percentage of average net assets would be .25% for the
Classic Shares of each Money Market Fund.
(5) In the absence of any voluntary reduction in shareholder servicing and
investment advisory fees, Total Fund Operating Expenses for the Classic
Shares of the Prime Obligations Fund would be .96%, for the AmSouth U.S.
Treasury Fund would be .97%, and for the Tax Exempt Fund would be 1.03%.
3
<PAGE> 164
EXAMPLE
You would pay the following expenses on a $1,000 investment in Classic Shares,
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>
Prime Obligations Fund.............................................. $8 $26 $45 $100
AmSouth U.S. Treasury Fund.......................................... $8 $26 $46 $101
Tax Exempt Fund..................................................... $7 $22 $38 $ 85
</TABLE>
You would pay the following expenses on a $1,000 investment in Class B Shares,
assuming (1) deduction of the applicable Contingent Deferred Sales Charge; and
(2) 5% annual return.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
<S> <C> <C> <C> <C>
Prime Obligations Fund Assuming a complete redemption at end of
period............................................................ $ 67 $84 $ 113 $178
Assuming no redemption............................................ $ 17 $54 $ 93 $178
</TABLE>
The purpose of the tables above is to assist an investor in Classic Shares or
Class B Shares of a Money Market Fund in understanding the various costs and
expenses that an investor in a Fund will bear directly or indirectly. See
"MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more complete discussion of annual
operating expenses of the Money Market Funds.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE> 165
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information concerning the
investment results for each of the Funds for the period of commencement of
operations to January 31, 1997. The information from the commencement of
operations to July 31, 1996 is a part of the financial statements audited by
Coopers & Lybrand L.L.P., independent accountants for the Trust, whose report on
the Trust's financial statements for the year ended July 31, 1996 appears in the
Statement of Additional Information. The information for the period ended
January 31, 1997 is unaudited. Further financial data is incorporated by
reference into the Statement of Additional Information.
PRIME OBLIGATIONS FUND
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JULY 31, AUGUST 8, 1988
ENDED ------------------------------------------------------------------------------- TO
JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 1990 JULY 31, 1989(a)
---------------- ----------- -------- -------- -------- -------- -------- -------- ----------------
CLASSIC (b) CLASSIC (b)
---------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD...... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
-------- -------- -------- -------- -------- -------- -------- -------- --------
INVESTMENT
ACTIVITIES
Net
investment
income.... 0.024 0.050 0 .050 0.029 0.027 0.042 0.067 0.079 0.084
-------- -------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net
investment
income.... (0.024) (0.050) (0.050) (0.029) (0.027) (0.042) (0.067) (0.079) (0.084)
-------- -------- -------- -------- -------- -------- -------- -------- --------
NET ASSET
VALUE, END
OF PERIOD... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======== ======== ======== ======== ======== ======== ======== ======== ========
Total
Return.... 2.41%(d) 5.07%(f) 5.14% 2.94% 2.76% 4.28% 6.87% 8.16% 8.72%(d)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets
at end of
period
(000)..... $108,985 $ 125,075 $617,673 $577,331 $456,428 $457,511 $307,873 $298,498 $293,749
Ratio of
expenses
to average
net
assets.... 0.78%(c) 0.81%(c) 0.69% 0.70% 0.71% 0.71% 0.72% 0.70% 0.58%(c)
Ratio of net
investment
income to
average
net
assets.... 4.73%(c) 4.61%(c) 5.04% 2.92% 2.73% 4.08% 6.61% 7.88% 8.69%(c)
Ratio of
expenses
to average
net
assets*... 0.93%(c) 0.96%(c) (e) (e) (e) (e) (e) 0.72% 0.71%(c)
Ratio of net
investment
income to
average
net
assets*... 4.58%(c) 4.46%(c) (e) (e) (e) (e) (e) 7.86% 8.56%(c)
</TABLE>
- ---------------
* During the period, certain 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) Effective April 1, 1996, the Fund's existing shares, which were previously
unclassified, were designated as Premier Shares, and the Fund commenced
offering Classic Shares.
(c) Annualized.
(d) Not annualized.
(e) There were no waivers during the period.
(f) Represents total return for the Premier Shares for the period from August 1,
1995 to March 31, 1996 plus the total return for the Classic Shares for the
period from April 1, 1996 to July 31, 1996.
5
<PAGE> 166
AMSOUTH U.S. TREASURY FUND
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JULY 31, SEPTEMBER 8, 1988
ENDED ----------------------------------------------------------------------------- TO
JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 1990 JULY 31, 1989(a)
---------------- ----------- -------- -------- -------- -------- -------- -------- -----------------
CLASSIC (b) CLASSIC (b)
---------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET
VALUE,
BEGINNING OF
PERIOD....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- -------- -------- -------- -------- -------- -------- --------
INVESTMENT
ACTIVITIES
Net
investment
income..... 0.023 0.048 0.048 0.028 0.027 0.041 0.064 0.077 0.075
------- ------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net
investment
income..... (0.023) (0.048) (0.048) (0.028) (0.027) (0.041) (0.064) (0.077) (0.075)
------- ------- -------- -------- -------- -------- -------- -------- --------
NET ASSET
VALUE, END OF
PERIOD....... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======== ======== ======== ======== ======== ======== ========
Total
Return..... 2.28%(d) 4.90%(f) 4.90% 2.80% 2.69% 4.15% 6.58% 8.04% 7.75%(d)
RATIOS/SUPPLEMENTAL
DATA:
Net Assets at
end of
period
(000)...... $ 11,559 $12,263 $322,939 $300,603 $404,473 $339,666 $343,967 $239,291 $ 131,956
Ratio of
expenses to
average net
assets..... 0.80%(c) 0.82%(c) 0.70% 0.71% 0.72% 0.73% 0.72% 0.68% 0.61%(c)
Ratio of net
investment
income to
average net
assets..... 4.48%(c) 4.44%(c) 4.81% 2.77% 2.66% 4.08% 6.28% 7.73% 8.31%(c)
Ratio of
expenses to
average net
assets*.... 0.95%(c) 0.97%(c) (e) (e) (e) (e) (e) 0.73% 0.74%(c)
Ratio of net
investment
income to
average net
assets*.... 4.33%(c) 4.29%(c) (e) (e) (e) (e) (e) 7.68% 8.18%(c)
</TABLE>
- ---------------
* During the period, certain 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) Effective April 1, 1996, the Fund's existing shares, which were previously
unclassified, were designated as Premier Shares, and the Fund commenced
offering Classic Shares.
(c) Annualized.
(d) Not annualized.
(e) There were no waivers during the period.
(f) Represents total return for the Premier Shares for the period from August 1,
1995 to March 31, 1996 plus the total return for the Classic Shares for the
period from April 1, 1996 to July 31, 1996.
6
<PAGE> 167
TAX EXEMPT FUND
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JULY 31, JUNE 27, 1988
ENDED ------------------------------------------------------------------ TO
JANUARY 31, 1997 1996 1995 1994 1993 1992 1991 JULY 31, 1990(a)
---------------- ----------- ------- ------- ------- ------- ------- ----------------
CLASSIC (b) CLASSIC (b)
---------------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
------- ------- ------- ------- ------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income... 0.149 0.031 0.032 0.019 0.021 0.030 0.046 0.011
------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income... (0.149) (0.031) (0.032) (0.019) (0.021) (0.030) (0.046) (0.011)
------- ------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF
PERIOD.................. $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
======= ======= ======= ======= ======= ======= ======= =======
Total Return............ 1.50%(d) 3.12%(e) 3.22% 1.95% 2.16% 3.12% 4.69% 0.54%(d)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000).......... $ 16,390 $17,116 $57,640 $60,923 $48,151 $38,392 $25,400 $ 28,246
Ratio of expenses to
average net assets.... 0.61%(c) 0.68%(c) 0.54% 0.57% 0.49% 0.65% 0.52% 0.21%(c)
Ratio of net investment
income to average net
assets................ 2.96%(c) 2.82%(c) 3.15% 1.93% 2.12% 2.98% 4.59% 5.70%(c)
Ratio of expenses to
average net assets*... 0.96%(c) 1.03%(c) 0.74% 0.77% 0.78% 0.77% 0.77% 0.81%(c)
Ratio of net investment
income to average net
assets*............... 2.61%(c) 2.47%(c) 2.95% 1.73% 1.83% 2.86% 4.34% 5.10%(c)
</TABLE>
- ---------------
* During the period, certain 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) Effective April 1, 1996, the Fund's existing shares, which were previously
unclassified, were designated as Premier Shares, and the Fund commenced
offering Classic Shares.
(c) Annualized.
(d) Not annualized.
(e) Represents the total return for the Premier Shares for the period from
August 1, 1995 to March 31, 1996 plus the total return for the Classic
Shares for the period from April 1, 1996 to July 31, 1996.
7
<PAGE> 168
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Prime Obligations Fund and the AmSouth U.S.
Treasury Fund is to seek current income with liquidity and stability of
principal. The investment objective of the Tax Exempt Fund is to seek as high a
level of current interest income exempt from federal income taxes as is
consistent with the preservation of capital and relative stability of principal.
Although the Prime Obligations Fund and the AmSouth U.S. Treasury Fund have the
same Advisor and the same investment objective, their particular portfolio
securities and yield will ordinarily differ due to differences in the types of
investments permitted, cash flow, and the availability of particular portfolio
investments. Market conditions and interest rates may affect the types and
yields of securities held in each Fund. The investment objective of each Money
Market Fund is fundamental and may not be changed without a vote of the
outstanding Shares of that Fund (as defined below under "GENERAL
INFORMATION -- Miscellaneous.") There can be, of course, no assurance that any
Money Market Fund will achieve its investment objective.
Changes in prevailing interest rates may affect the yield, and possibly the
net asset value, of each Fund. Each of the Money Market Funds invests only in
those securities and instruments considered by the Advisor to present minimal
credit risks under guidelines established by the Trust's Board of Trustees. All
securities or instruments in which each of the Money Market Funds invest have
remaining maturities of 397 days or less, although instruments subject to
repurchase agreements (and, in the case of the Tax Exempt Fund, certain variable
rate and floating rate instruments subject to demand features) may bear longer
maturities. The dollar-weighted average maturity of the securities in each Money
Market Fund will not exceed 90 days.
The Tax Exempt Fund is not intended to constitute a balanced investment
program and is not designed for investors seeking capital appreciation.
Investment in the Tax Exempt Fund would not be appropriate for tax-deferred
plans, such as IRA and Keogh plans. Investors should consult a tax or other
financial adviser to determine whether investment in the Tax Exempt Fund would
be appropriate.
THE PRIME OBLIGATIONS FUND invests in U.S. dollar-denominated, high-quality
short-term debt instruments. Investments will be limited to those obligations
which, at the time of purchase, (i) possess the highest short-term rating from
at least two nationally recognized statistical rating organizations (an "NRSRO")
(for example, commercial paper rated "A-1" by Standard & Poor's Corporation and
"P-1" by Moody's Investors Service, Inc.) or one NRSRO if only rated by one
NRSRO or (ii) do not possess a rating (i.e., are unrated) but are determined to
be of comparable quality to the rated instruments eligible for purchase by the
Fund under the guidelines adopted by the Trustees. The Statement of Additional
Information contains further information concerning the rating and other
requirements governing the Prime Obligation Fund's investments, including
information relating to the treatment of securities subject to a tender or
demand feature and securities deemed to possess a rating based on comparable
rated securities of the same issuer. The Statement also identifies the NRSROs
that may be utilized by the Advisor with respect to portfolio investments for
the Fund and provides a description of the relevant ratings assigned by each
such NRSRO.
The Prime Obligations Fund will invest in a variety of U.S. Treasury
obligations, differing in their interest rates, maturities, and times of
issuance, and other obligations issued or guaranteed by the U.S. Government or
its agencies or instrumentalities. Obligations of certain agencies and
instrumentalities of the U.S. Government, such as the Government National
Mortgage Association 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 the Federal National Mortgage Association, are supported by the right
of the issuer to borrow from the Treasury; others, such as those of the Student
Loan Marketing Association, are supported by the discretionary authority of the
U.S. Government to purchase the
8
<PAGE> 169
agency's obligations; still others, such as those of the Federal Farm Credit
Bank or the Federal Home Loan Mortgage Corporation, 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 Prime
Obligations Fund will invest in the obligations of such agencies or
instrumentalities only when the Advisor believes that the credit risk with
respect thereto is minimal.
The Prime Obligations Fund may invest in bankers' acceptances guaranteed by
domestic and foreign banks if at the time of investment the guarantor bank has
capital, surplus, and undivided profits in excess of $100,000,000 (as of the
date of its most recently published financial statements). The Prime Obligations
Fund may invest in certificates of deposit and demand and time deposits of
domestic and foreign banks and savings and loan associations if (a) at the time
of investment the depository institution has capital, surplus, and undivided
profits in excess of $100,000,000 (as of the date of their most recently
published financial statements) or (b) the principal amount of the instrument is
insured in full by the Federal Deposit Insurance Corporation.
The Prime Obligations Fund may also invest in Eurodollar Certificates of
Deposits ("ECDs") which are U.S. dollar denominated certificates of deposit
issued by offices of foreign and domestic banks located outside the United
States; Eurodollar Time Deposits ("ETDs") which are U.S. dollar denominated
deposits in a foreign branch of a U.S. bank or a foreign bank; Canadian Time
Deposits ("CTDs") which are essentially the same as ETDs except they are issued
by Canadian offices of major Canadian banks; and Yankee Certificates of Deposit
("Yankee CDs") which are certificates of deposit issued by a U.S. branch of a
foreign bank denominated in U.S. dollars and held in the United States.
The Prime Obligations Fund will not invest in excess of 10% of its net assets
in time deposits, including ETDs and CTDs but not including certificates of
deposit, with maturities in excess of seven days which are subject to penalties
upon early withdrawal.
The Prime Obligations Fund may invest in commercial paper (including variable
amount master demand notes) issued by U.S. or foreign corporations. The Prime
Obligations Fund may also invest in Canadian Commercial Paper ("CCP"), which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and in Europaper, which is U.S. dollar denominated commercial
paper of a foreign issuer.
Variable amount master demand notes in which the Prime Obligations Fund may
invest are unsecured demand notes that permit the indebtedness thereunder to
vary, and that provide for periodic adjustments in the interest rate according
to the terms of the instrument. Because master demand notes are direct lending
arrangements between the Prime Obligations Fund and the issuer, they are not
normally traded. Although there is no secondary market in the notes, the Prime
Obligations Fund may demand payment of principal and accrued interest at any
time. While the notes are not typically rated by credit rating agencies, issuers
of variable amount master demand notes (which are normally manufacturing,
retail, financial, and other business concerns) must satisfy the same criteria
as to quality as set forth above for commercial paper. The Advisor will consider
the earning power, cash flow, and other liquidity ratios of the issuers of such
notes and will continuously monitor their financial status and ability to meet
payment on demand. In determining average weighted portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the period of time remaining until the principal amount can be recovered from
the issuer through demand. The period of time remaining until the principal
amount can be recovered under a variable master demand note may not exceed seven
days.
Investments in ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper may subject
the Prime Obligations Fund to investment risks that differ in some respects from
those related to investments in obligations of U.S. domestic issuers. Such risks
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include future adverse political and economic developments, the possible
imposition of foreign withholding taxes on interest income, possible seizure,
currency blockage, nationalization, or expropriation of foreign deposits, the
possible establishment of exchange controls, or the adoption of other foreign
governmental restrictions which might adversely effect the payment of principal
and interest on such obligations. In addition, foreign branches of U.S. banks
and foreign banks may be subject to less stringent reserve requirements and to
different accounting, auditing, reporting, and record keeping standards than
those applicable to domestic branches of U.S. banks. The Prime Obligations Fund
will acquire securities issued by foreign branches of U.S. banks, foreign banks,
or other foreign issuers only when the Advisor believes that the risks
associated with such instruments are minimal and only when such instruments are
denominated and payable in United States dollars.
The Prime Obligations Fund may invest in funding agreements ("Funding
Agreements"), also known as guaranteed investment contracts, issued by insurance
companies. Pursuant to such agreements, the Prime Obligations 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 Funding Agreements provide for adjustment
of the interest rate monthly and are considered variable rate instruments. The
Prime Obligations Fund will only purchase a Funding Agreement (i) when the
Advisor has determined, under guidelines established by the Board of Trustees,
that the Funding Agreement presents minimal credit risks to the Prime
Obligations Fund and is of comparable quality to instruments that are rated high
quality by an NRSRO that is not an affiliated person, as defined in the
Investment Company Act of 1940, of the issuer, or any insurer, guarantor, or
provider of credit support for the instrument and (ii) if it may receive all
principal of and accrued interest on a Funding Agreement at any time upon thirty
days' written notice. Because the Prime Obligations 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 the Fund which are not
readily marketable, may not exceed 10% of the Fund's net assets. In determining
average weighted portfolio maturity, a Funding Agreement will be deemed to have
a maturity equal to 30 days, representing the period of time remaining until the
principal amount can be recovered through demand.
The Prime Obligations Fund may invest in the securities of other money market
funds that have similar policies and objectives, invest in securities of equal
or higher short-term ratings, and are in compliance with Rule 2a-7 under the
Investment Company Act of 1940.
The Prime Obligations Fund may also invest in short-term municipal
obligations.
ASSET-BACKED SECURITIES
The Prime Obligations 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-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 pay-through 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
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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. The CARDS 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. 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. Asset-backed securities purchased by the Prime Obligations
Fund will be subject to the same quality requirements as other securities
purchased by the Fund.
THE AMSOUTH U.S. TREASURY FUND invests exclusively in short-term United States
dollar-denominated obligations issued by the U.S. Treasury. Such obligations may
include "stripped" U.S. Treasury obligations such as Treasury Receipts issued by
the U.S. Treasury representing either future interest or principal payments.
Stripped Treasury Securities are sold at a deep discount because the buyer of
those securities receives only the right to receive a future fixed payment on
the security and does not receive any rights to periodic interest payments on
the security. These securities may exhibit greater price volatility then
ordinary debt securities because of the manner in which their principal and
interest are returned to investors. Obligations purchased by the AmSouth U.S.
Treasury Fund may be subject to repurchase agreements collateralized by the
underlying U.S. Treasury obligation.
THE TAX EXEMPT 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")
and which generally have remaining maturities of one year or less. The Tax
Exempt Fund may also invest up to 10% of the value of its total assets in the
securities of money market mutual funds which invest primarily in obligations
exempt from federal income tax. The Tax Exempt Fund will incur additional
expenses due to the duplication of expenses as a result of investing in
securities of such money market mutual funds. Additional restrictions on the Tax
Exempt Fund's investments in the securities of such money market funds are
contained in the Statement of Additional Information. As a fundamental policy,
under normal market conditions at least 80% of the Tax Exempt Fund's total
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.
It is a fundamental policy that, under normal market conditions, the Tax
Exempt Fund may invest up to 20% of its total assets in obligations, the
interest on which is either subject to regular federal income tax or treated as
a preference item for purposes of the federal alternative minimum tax for
individuals ("Taxable Obligations"). At times, the
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Advisor may determine that, because of unstable conditions in the markets for
Municipal Securities, pursuing the Tax Exempt Fund's investment objective is
inconsistent with the best interests of the Shareholders of the Tax Exempt Fund.
At such times, the Advisor may use temporary defensive strategies differing from
those designed to achieve the Tax Exempt Fund's investment objective, by
increasing the Tax Exempt Fund's holdings in short-term Taxable Obligations to
over 20% of the Tax Exempt Fund's 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 and
bankers' acceptances of selected banks, and commercial paper meeting the Tax
Exempt Fund's quality standards (as described below) for tax-exempt commercial
paper. These obligations are described further in the Statement of Additional
Information.
The Tax Exempt Fund 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" below.
The Tax Exempt Fund will invest only in those Municipal Securities and other
obligations which are considered by the Advisor, pursuant to guidelines approved
by the Board of Trustees, to present minimal credit risks. In addition,
investments will be limited to those obligations which, at the time of purchase,
(i) possess one of the two highest short-term ratings from an NRSRO in the case
of single-rated securities or (ii) possess, in the case of multiple-rated
securities, one of the two highest short-term ratings by at least two NRSROs; or
(iii) do not possess a rating (i.e., are unrated) but are determined by the
Advisor to be of comparable quality to the rated instruments eligible for
purchase by the Fund under the guidelines adopted by the Trustees. The Statement
of Additional Information contains further information concerning the rating and
other requirements governing the Tax Exempt Fund's investments, including
information relating to the treatment of securities subject to a tender or
demand feature and securities deemed to possess a rating based on comparable
rated securities of the same issuer. The Statement of Additional Information
also identifies the NRSROs that may be utilized by the Advisor with respect to
portfolio investments for the Fund and provides a description of the relevant
ratings assigned by each such NRSRO.
The two principal classifications of Municipal Securities which may be held by
the Tax Exempt Fund 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 Tax Exempt Fund 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.
Municipal Securities in which the Tax Exempt Fund may invest 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
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commitment but not a legal obligation of the state or municipality that created
the issuer.
Municipal Securities purchased by the Tax Exempt Fund may include rated and
unrated variable and floating rate tax-exempt notes, which may have a stated
maturity in excess of one year but which will, in such event, be subject to a
demand feature that will permit the Tax Exempt Fund to demand payment of the
principal of the note either (i) at any time upon not more than thirty days'
notice or (ii) at specified intervals not exceeding one year and upon no more
than thirty days' notice. 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 Tax
Exempt Fund will approximate their par value. The Tax Exempt Fund may acquire
zero coupon obligations, which have greater price volatility than coupon
obligations and which will not result in the payment of interest until maturity.
Opinions relating to the validity of 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 Exempt Fund nor its
Advisor will review the proceedings relating to the issuance of Municipal
Securities or the basis for such opinions.
Although the Tax Exempt Fund presently does not intend to do so on a regular
basis, it may invest more than 25% of its total assets in Municipal Securities
which 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. Examples of such securities are obligations the
repayment of which is dependent upon similar types of projects or projects
located in the same state. Such investments would be made only if deemed
necessary or appropriate by the Advisor. To the extent that the Tax Exempt
Fund's assets are concentrated in Municipal Securities that are so related, the
Tax Exempt Fund will be subject to the peculiar risks presented by such
Municipal Securities, such as negative developments in a particular industry or
state, to a greater extent than it would be if the Tax Exempt Fund's assets were
not so concentrated.
The Tax Exempt Fund may also purchase Municipal 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 thereby involving the risk
that the yield obtained in the transaction will be less than that available in
the market when delivery takes place. The Tax Exempt Fund will generally not pay
for such securities and no income accrues on the securities until they are
received. When the Tax Exempt Fund agrees to purchase securities on a
"when-issued" basis, the Trust's custodian will set aside cash or liquid
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 Exempt Fund 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 by the Tax Exempt Fund to purchase
"when-issued" securities will not exceed 60 days. In the event its commitments
to purchase "when-issued" securities ever exceeded 25% of the value of its total
assets, the Tax Exempt Fund's liquidity and the Advisor's ability to manage it
might be adversely affected. The Tax Exempt Fund does not intend to purchase
"when-issued" securities for speculative purposes but only for the purpose of
acquiring portfolio securities.
The Tax Exempt Fund may acquire "puts" with respect to Municipal Securities
held in its portfolio. Under a put, the Tax Exempt Fund would have the right to
sell a specified 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 Municipal Security. The Tax Exempt Fund will acquire
puts solely to either facilitate portfolio liquidity, shorten the maturity of
the underlying Municipal Securities, or permit the investment of the Tax Exempt
Fund's funds at a more favorable rate of return. The aggregate price
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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.
REPURCHASE AGREEMENTS
Securities held by the Money Market Funds may be subject to repurchase
agreements. If the seller under a repurchase agreement were to default on its
repurchase obligation or become insolvent, a Money Market 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 Money Market Fund were
delayed pending court action. Additionally, if the seller should be involved in
bankruptcy or insolvency proceedings, the Money Market Fund may incur delays and
costs in selling the underlying security or may suffer a loss of principal and
interest if the Money Market Fund is treated as an unsecured creditor and
required to return the underlying security to the seller's estate. Except as
described below under "Investment Restrictions" there is no aggregate limitation
on the amount of any Money Market Fund's total assets that may be invested in
instruments which are subject to repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Each Money Market 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, a Money Market 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 repurchase agreements involve the risk that the market value of
the securities sold by a Money Market Fund may decline below the price at which
the Money Market Fund is obligated to repurchase the securities.
INVESTMENT RESTRICTIONS
Each of the Money Market 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).
PRIME OBLIGATIONS FUND
THE PRIME OBLIGATIONS 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 Prime
Obligations Fund's total assets would be invested in such issuer, except that
25% or less of the value of the Prime Obligations Fund's total assets may be
invested without regard to such 5% limitation. 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 the
Prime Obligations 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, bank certificates of deposit or bankers' acceptances issued
by a domestic bank or by a U.S. branch of a foreign bank provided that such U.S.
branch is subject to the same regulation as United States banks, and repurchase
agreements secured by bank instruments or obligations of the U.S. Government or
its agencies or instrumentalities; (b) 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 (c)
utilities will be
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divided according to their services. For example, gas, gas transmission,
electric and gas, electric, and telephone will each be considered a separate
industry.
AMSOUTH U.S. TREASURY FUND
The AmSouth U.S. Treasury Fund may not purchase securities other than bills,
notes, and bonds issued by the U.S. Treasury, certain of which securities may be
subject to repurchase agreements collateralized by the underlying U.S. Treasury
obligation.
TAX EXEMPT FUND
THE TAX EXEMPT 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 its total assets
would be invested in such issuer (except that up to 25% of the value of the Tax
Exempt Fund's total assets may be invested without regard to such 5%
limitation). For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back the
security; with respect to a private activity bond that is backed only by the
assets and revenues of a non-government user, a security is considered to be
issued by such non-governmental user.
2. Purchase any securities which would cause 25% or more of the Tax Exempt
Fund's total assets at the time of purchase to be invested in the securities of
one or more issuers conducting their principal business activities in the same
industry; provided that this limitation shall not apply to Municipal Securities;
and provided, further, that for the purpose of this limitation only, private
activity bonds that are backed only by the assets and revenues of a
non-governmental user shall not be deemed to be Municipal Securities.
3. Acquire a put if, immediately after such acquisition, over 5% of the total
amortized cost value of the Tax Exempt Fund's assets would be subject to puts
from the same institution (except that (i) up to 25% of the value of the Tax
Exempt Fund's total assets may be subject to puts without regard to such 5%
limitation and (ii) the 5% limitation is inapplicable to puts that, by their
terms, would be readily exercisable in the event of a default in payment of
principal or interest on the underlying securities). For the purpose of this
investment restriction and investment restriction No. 4 below, a put will be
considered to be from the party to whom the Tax Exempt Fund will look for
payment of the exercise price.
4. Acquire a put that, by its terms would be readily exercisable in the event
of a default in payment of principal and interest on the underlying security or
securities if, immediately after that acquisition, the amortized cost value of
the security or securities underlying that put, when aggregated with the
amortized cost value of any other securities issued or guaranteed by the issuer
of the put, would exceed 10% of the total amortized cost value of the Tax Exempt
Fund's assets.
PRIME OBLIGATIONS FUND, AMSOUTH U.S. TREASURY FUND AND TAX EXEMPT FUND
The Prime Obligations Fund, the AmSouth U.S. Treasury Fund and the Tax Exempt
Fund may not:
1. Borrow money or issue senior securities, except that each Money Market Fund
may borrow from banks or enter into reverse repurchase agreements for temporary
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 the Fund's total assets at
the time of its borrowing. A Money Market Fund will not purchase securities
while its borrowings (including reverse repurchase agreements) exceed 5% of its
total assets.
2. Make loans, except that each Money Market Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, may lend
portfolio securities in accordance with its investment objective and policies,
and may enter into repurchase agreements.
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VALUATION OF SHARES
The net asset value of each of the Prime Obligations Fund and the AmSouth U.S.
Treasury Fund is determined and its Shares are priced as of 1:00 p.m. and 4:00
p.m., Eastern Time (the "Valuation Times") on each Business Day of such Fund.
The net asset value of the Tax Exempt Fund is determined and its Shares are
priced as of 12:00 noon and 4:00 p.m., Eastern Time (the "Valuation Times") on
each Business Day of the 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
a Money Market Fund, less the liabilities charged to that Class, by the number
of the outstanding Shares of that Class.
The assets in each Money Market Fund are valued based upon the amortized cost
method. Pursuant to rules and regulations of the Securities and Exchange
Commission regarding the use of the amortized cost method, each Money Market
Fund will maintain a dollar-weighted average portfolio maturity of 90 days or
less. Although the Trust seeks to maintain each Money Market Fund's net asset
value per share at $1.00, there can be no assurance that net asset value will
not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares of the Money Market Funds 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.
The Prime Obligations Fund offers three classes of Shares, Premier Shares,
Classic Shares, and Class B Shares and the AmSouth U.S. Treasury Fund and the
Tax Exempt Fund offer Classic Shares and Premier Shares. Class B Shares of the
Prime Obligations Fund only are available to Shareholders of Class B Shares of
another Fund who wish to exchange their Class B Shares of such other Fund for
Class B Shares of the Prime Obligations Fund. The three Classes of Shares of a
particular Fund represent interests in the same investments and are identical in
all respects except that (i) Classic Shares bear the expense of the fee under
the Trust's Shareholder Servicing Plan (the "Servicing Plan"), which will cause
the Classic Shares to have a higher expense ratio and to pay lower dividends
than those of the Premier Shares, (ii) Class B Shares bear the expense of the
fee under the Trust's Distribution and Shareholder Services Plan (the
"Distribution Plan"), which will cause the Class B Shares to have a higher
expense ratio and to pay lower dividends than those of the Premier Shares and
Classic Shares, (iii) Classic Shares have certain exclusive voting rights with
respect to the Servicing Plan, and Class B Shares have certain exclusive voting
rights with respect to the Distribution Plan, and (iv) Class B Shares are
subject to a contingent deferred sales charge. The following investors qualify
to purchase a Money Market Fund's Premier Shares: (i) investors for whom AmSouth
acts in a fiduciary, advisory, custodial, agency or similar capacity through an
account with its Trust Department; (ii) investors who purchase Shares of a Money
Market Fund through
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a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares;
and (iii) orders placed on behalf of other investment companies distributed by
the Distributor and its affiliated companies. All other investors are eligible
to purchase Classic Shares only.
PURCHASES OF CLASSIC SHARES
Shares of the Money Market 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 a financial institution that provides certain administrative support services
for their customers or account holders (collectively, "Financial Institutions").
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 Financial Institutions and their Customers are
invested by the Distributor in Shares of a Money Market Fund.
Shares of the Money Market Funds sold to Financial Institutions acting in a
fiduciary, advisory, custodial, or other similar capacity on behalf of Customers
will normally be held of record by Financial Institutions. With respect to
Shares so sold, it is the responsibility of the particular Financial Institution
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 Financial Institution and reflected in the account
statements provided by Financial Institutions to Customers.
There is no sales charge imposed by the Trust in connection with the purchase
of Classic Shares in a Money Market Fund. Sales charges apply to purchases of
the other Funds of the Trust. Depending upon the terms of a particular Customer
account, the Financial Institutions may charge a Customer's account fees for
automatic investment and other cash management services provided in connection
with investment in a Money Market Fund. Information concerning these services
and any charges can be obtained from the Financial Institutions. This Prospectus
should be read in conjunction with any such information received from the
Financial Institutions.
Investors may also purchase Classic Shares of a Money Market 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, P.O. Box 182733, Columbus, Ohio 43218-2733. Subsequent purchases of
Classic Shares of a Money Market 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 Classic Shares either by telephone or
by wiring funds to the 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 or by wiring funds to the Custodian. To make payment by wire, 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 Classic Shares by arranging systematic monthly,
bimonthly 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
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invested in Shares at the specified Fund's net asset value 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 the Money Market Funds are purchased at the appropriate 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. An order to purchase
Shares will be deemed to have been received by the Distributor only when federal
funds with respect thereto are available to the Trust's custodian for
investment. Federal funds are monies credited to a bank's account within a
Federal Reserve Bank. Payment for an order to purchase Shares which is
transmitted by federal funds wire will be available the same day for investment
by the Trust's custodian, if received prior to the last Valuation Time (see
"VALUATION OF SHARES"). Payments transmitted by other means (such as by check
drawn on a member of the Federal Reserve System) will normally be converted into
federal funds within two banking days after receipt. The Trust strongly
recommends that investors of substantial amounts use federal funds to purchase
Shares.
The minimum investment is $1,000 for the initial purchase of Classic Shares of
a Money Market Fund 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. 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
Keoghs or similar plans, contact AmSouth at 800-451-8382.
The maximum investment is $250,000 for total purchases of Class B Shares.
There is no limitation on the amount of Classic Shares that may be purchased.
Purchases of Shares of a Money Market Fund will be effected only on a Business
Day (as defined in "VALUATION OF SHARES") of such Money Market Fund. An order
received prior to a Valuation Time on any Business Day will be executed at the
net asset value determined as of the next Valuation Time on the date of receipt.
An order received after the last Valuation Time on any Business Day will be
executed at the net asset value determined as of the next Valuation Time on the
next Business Day. Shares of the Prime Obligations Fund and the AmSouth U.S.
Treasury Fund purchased before 1:00 p.m., Eastern Time, begin earning dividends
on the same Business Day. Shares of the Tax Exempt Fund purchased before 12:00
noon, Eastern Time, begin earning dividends on the same Business Day. All Shares
of a Money Market Fund continue to earn dividends through the day before their
redemption.
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 checks.
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<PAGE> 179
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. In the case of Classic Shares held of
record by Financial Institutions but beneficially owned by a Customer,
confirmations of purchases, exchanges, and redemptions of Classic Shares by a
Financial Institution will be sent to the Customer by the Financial Institution.
Shareholders may rely on these statements in lieu of certificates. Certificates
representing Shares will not be issued.
SALES CHARGE -- CLASS B SHARES
Class B Shares are not subject to a sales charge when they are purchased, but
are subject to a sales charge (the "Contingent Deferred Sales Charge") if a
Shareholder redeems them prior to the sixth anniversary of purchase. When a
Shareholder purchases Class B Shares, the full purchase amount is invested
directly in the applicable Fund. Class B Shares of each Fund are subject to an
ongoing distribution and shareholder service fee at an annual rate of 1.00% of
such Fund's average daily net assets as provided in the Distribution Plan
(described below under "The Distributor"). This ongoing fee will cause Class B
Shares to have a higher expense ratio and to pay lower dividends than Classic
Shares. Class B Shares convert automatically to Classic Shares after eight
years, commencing from the end of the calendar month in which the purchase order
was accepted under the circumstances and subject to the qualifications described
in this Prospectus.
Proceeds from the Contingent Deferred Sales Charge and the distribution and
shareholder service fees under the Distribution Plan are payable to the
Distributor to defray the expenses of advance brokerage commissions and expenses
related to providing distribution-related and Shareholder services to the Fund
in connection with the sale of the Class B Shares, such as the payment of
compensation to dealers and agents selling Class B Shares. A dealer commission
of 4.00% of the original purchase price of the Class B Shares of the Fund will
be paid to financial institutions and intermediaries. However, the Distributor
may, in its sole discretion, pay a higher dealer commission.
CONTINGENT DEFERRED SALES CHARGE
If the Shareholder redeems Class B Shares prior to the sixth anniversary of
purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the
rates set forth below. The Contingent Deferred Sales Charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of the
Shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on Shares derived from reinvestment of dividends or capital gain
distributions.
The amount of the Contingent Deferred Sales Charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
Shares until the time of redemption of such Shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
Shares, all payments during a month are aggregated and deemed to have been made
on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
YEAR(S) PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- ----------- -----------------
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
6-7 None
7-8 None
</TABLE>
In determining whether a particular redemption is subject to a Contingent
Deferred Sales Charge, it is assumed that the redemption is first of any Classic
Shares in the Shareholder's Fund account (unless the Shareholder elects to have
Class B Shares redeemed first) or Shares representing capital appreciation, next
of Shares acquired pursuant to reinvestment of dividends and capital gain
distribu-
19
<PAGE> 180
tions, and finally of other Shares held by the Shareholder for the longest
period of time. This method should result in the lowest possible sales charge.
The Contingent Deferred Sales Charge is waived on redemption of Shares: (i)
following the death or disability (as defined in the Code) of a Shareholder or a
participant or beneficiary of a qualifying retirement plan if redemption is made
within one year of such death or disability; or (ii) to the extent that the
redemption represents a minimum required distribution from an Individual
Retirement Account or other qualifying retirement plan to a Shareholder who has
attained the age of 70 1/2. A Shareholder or his or her representative should
contact the Transfer Agent to determine whether a retirement plan qualifies for
a waiver and must notify the Transfer Agent prior to the time of redemption if
such circumstances exist and the Shareholder is eligible for this waiver. In
addition, the following circumstances are not deemed to result in a "redemption"
of Class B Shares for purposes of the assessment of a Contingent Deferred Sales
Charge, which is therefore waived: (i) plans of reorganization of the Fund, such
as mergers, asset acquisitions and exchange offers to which the Fund is a party;
or (ii) exchanges for Class B Shares of other Funds of the Trust as described
under "Exchange Privilege."
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Classic Shares and will be subject to the lower distribution and Shareholder
service fees charged to Classic Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.
For purposes of conversion to Classic Shares, shares received as dividends and
other distributions paid on Class B Shares in a Shareholder's Fund account will
be considered to be held in a separate sub-account. Each time any Class B Shares
in a Shareholder's Fund account (other than those in the sub-account) convert to
Classic Shares, a pro-rata portion of the Class B Shares in the sub-account will
also convert to Classic Shares.
If a Shareholder effects one or more exchanges among Class B Shares of the
Funds of the Trust during the eight-year period, the Trust will aggregate the
holding periods for the shares of each Fund of the Trust for purposes of
calculating that eight-year period. Because the per share net asset value of the
Classic Shares may be higher than that of the Class B Shares at the time of
conversion, a Shareholder may receive fewer Classic Shares than the number of
Class B Shares converted, although the dollar value will be the same.
EXCHANGE PRIVILEGE
CLASSIC SHARES
Classic Shares of each Fund may be exchanged for Classic Shares of the other
Funds, provided that the Shareholder making the exchange is eligible on the date
of the exchange to purchase Classic Shares (with certain exceptions and subject
to the terms and conditions described in this prospectus). Classic Shares may
not be exchanged for Class B Shares of the other Funds, and may be exchanged for
Premier Shares of the other Funds only if the Shareholder becomes eligible to
purchase Premier Shares. Shareholders may exchange their Classic Shares for
Classic Shares of a Fund with the same or lower sales charge on the basis of the
relative net asset value of the Classic Shares exchanged. Shareholders may
exchange their Classic Shares for Classic Shares of a Fund with a higher sales
charge by paying the difference between the two sales charges. Shareholders may
also exchange Classic Shares of a Money Market Fund, for which no sales load was
paid, for Classic Shares of a variable net asset value Fund. Under such
circumstances, the cost of the acquired Classic Shares will be the net asset
value per share plus the appropriate sales load. If Classic Shares of a Money
Market Fund were acquired in a previous exchange involving Shares of a variable
net
20
<PAGE> 181
asset value Fund, then such Shares of the Money Market Fund may be exchanged for
Shares of a variable net asset value Fund without payment of any additional
sales load within a twelve month period. Under such circumstances, the
Shareholder must notify the Distributor that a sales load was originally paid.
Depending upon the terms of a particular Customer account, a Participating
Organization may charge a fee with regard to such an exchange. Information about
such charges will be supplied by the Participating Organization.
CLASS B SHARES
Class B Shares of a Fund may be exchanged for Class B Shares of the other
Funds on the basis of relative net asset value per Class B Share, without the
payment of any Contingent Deferred Sales Charge which might otherwise be due
upon redemption of the outstanding Class B Shares. Investors should note that,
Class B Shares are not offered in the AmSouth U.S. Treasury Fund, Tax Exempt
Fund, Government Income Fund, Limited Maturity Fund, Florida Fund, and Municipal
Fund, thus, no exchanges may be effected for Class B Shares of these Funds. For
purposes of computing the Contingent Deferred Sales Charge that may be payable
upon a disposition of the newly acquired Class B Shares, the holding period for
outstanding Class B Shares of the Fund from which the exchange was made is
"tacked" to the holding period of the newly acquired Class B Shares. For
purposes of calculating the eight year holding period applicable to the newly
acquired Class B Shares, the newly acquired Class B Shares shall be deemed to
have been issued on the date of receipt of the Shareholder's order to purchase
the outstanding Class B Shares of the Fund from which the exchange was made.
Class B Shares may not be exchanged for Classic Shares, and may be exchanged
for Premier Shares only if the Shareholder becomes eligible to purchase Premier
Shares. A Contingent Deferred Sales Charge will apply as described in "How To
Purchase and Redeem Shares" -- "Class B Shares" to exchanges of Class B Shares
for Premier Shares.
ADDITIONAL INFORMATION ABOUT EXCHANGES
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.
Before an exchange can be effected, a Shareholder must receive a current
prospectus of the Fund and Class 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 Trust's transfer agent, BISYS Fund Services Ohio,
Inc. ("Transfer Agent"), P.O. Box 182733, Columbus, Ohio 43218-2733. 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.
AUTO EXCHANGE
AmSouth Mutual Funds Auto Exchange enables Shareholders to make regular,
automatic withdrawals from Classic Shares and Class B Shares of the AmSouth
Prime Obligations Fund and use those proceeds to benefit from
dollar-cost-averaging by automatically making purchases of shares of the same
Class of another AmSouth Mutual Fund. With shareholder authorization, the
Trust's transfer agent will withdraw the amount specified (subject to the
applicable minimums) from the shareholder's AmSouth Prime Obligations Fund
account and will automatically invest that amount in Classic Shares or Class B
Shares of the AmSouth Mutual Fund designated by the Shareholder at the public
offering price on the date of such deduction. In order to participate in the
Auto Exchange, Shareholders must have a minimum initial purchase of $10,000 in
their Prime Obligations Fund account and maintain a minimum account balance of
$1,000.
To participate in the Auto Exchange, Shareholders should complete the
appropriate section of the Account Registration Form, which can be acquired by
calling the Distributor. To change the Auto Exchange instructions or to
discontinue the feature, a Shareholder must send a written request to the
AmSouth Mutual Funds, P.O. Box 182733, Columbus, OH 43218-2733. The Auto
Exchange may be
21
<PAGE> 182
amended or terminated without notice at any time by the Distributor.
REDEMPTION OF SHARES
Shareholders may redeem their Classic Shares without charge, and their Class B
Shares subject to the applicable Contingent Deferred Sales Charge, on any day
that net asset value is calculated (see "VALUATION 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 Financial Institution. For
example, if a Customer has agreed with a Financial Institution to maintain a
minimum balance in his or her account with the Financial Institution, and the
balance in that account falls below that minimum, the Customer may be obliged to
redeem, or the Financial Institution may redeem for and on behalf of the
Customer, all or part of the Customer's Shares of a Fund of the Trust to the
extent necessary to maintain the required minimum balance.
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 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 financial institution 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 then maximum wire redemption.
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 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."
22
<PAGE> 183
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.
CHECK WRITING SERVICE
A Shareholder may write checks on his or her Prime Obligations Fund account
for $1,000 or more. Once a Shareholder has signed and returned a signature card,
he or she will receive a supply of checks drawn on Huntington National Bank. The
check may be made payable to any person, and the Shareholder's account will
continue to earn dividends until the check clears. Because of the difficulty of
determining in advance the exact value of a Fund account, a Shareholder should
not use a check to close his or her account. The Shareholder's account will be
charged a fee on stopping payment of a check upon the Shareholder's request or
if the check cannot be honored because of insufficient funds or other valid
reasons.
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. 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 same day payments upon redemption of Shares if the request for
redemption is received by the Transfer Agent before 12:00 noon, Eastern Time, on
a Business Day or, if the request for redemption is received after 12:00 noon,
Eastern Time, to honor requests for payment on the next Business Day, unless it
would be disadvantageous to the Trust or the Shareholders of the particular
Money Market 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.
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 Money Market Fund has a value of less than
$250. Accordingly, an investor purchasing Shares of a Money Market 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 of a Money Market
Fund 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.
23
<PAGE> 184
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and
"VALUATION -- Valuation of the Money Market Funds" 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
The net income of each Money Market Fund is declared daily as a dividend to
Shareholders of record at the close of business on the day of declaration. The
net income attributable to a Fund's Classic Shares and the dividends payable on
Classic Shares will be reduced by the shareholder service fee assessed against
such Shares under the Shareholder Servicing Plan (see Administrator and
Distributor below). Dividends will generally be paid monthly. Distributable net
capital gains (if any) will be distributed at least annually. A Shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares of the same class at net asset value as of
the date of payment unless the Shareholder elects to receive such dividends or
distributions in cash. Reinvested dividends receive the same tax treatment as
dividends paid in cash. Such election, or any revocation thereof, must be made
in writing to the Transfer Agent at P.O. Box 182733, Columbus, Ohio 43218-2733,
and will become effective with respect to dividends and distributions having
record dates after its receipt by the Transfer Agent. Dividends are paid in cash
not later than seven Business Days after a Shareholder's complete redemption of
his or her Shares. 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.
Each Money Market Fund will be treated as a separate entity for federal income
tax purposes. Each Money Market Fund intends to qualify for treatment as a
"regulated investment company" under the Internal Revenue Code of 1986, as
amended (the "Code"). If qualified, a Money Market Fund will not have to pay
federal taxes on amounts it distributes to Shareholders. Regulated investment
companies are subject to a federal excise tax if they do not distribute their
income on a timely basis. Each Money Market Fund intends to avoid paying federal
income and excise taxes by timely distributing all its net income and
substantially all its net capital gain income. Shareholders will be advised at
least annually as to the character for federal income tax purposes of
distributions made during the year.
The amount of dividends payable with respect to the Premier Shares will exceed
dividends on Classic Shares, and the amount of dividends on Classic Shares will
exceed the dividends on Class B Shares, as a result of the Shareholder Services
Plan fee applicable to Classic Shares and the Distribution and Shareholder
Services Plan fee applicable to Class B Shares.
PRIME OBLIGATIONS FUND AND AMSOUTH U.S. TREASURY FUND
Dividends will generally be taxable to a Shareholder as ordinary income to the
extent of the Shareholder's ratable share of each Fund's earnings and profits as
determined for tax purposes. Because all of the net investment income of the
Prime Obligations Fund and the AmSouth U.S. Treasury Fund is expected to be
interest income, it is anticipated that no distributions will qualify for the
dividends received deduction for corporate shareholders. The Prime Obligations
Fund and the AmSouth U.S. Treasury Fund do not expect to realize any long-term
capital gains and, therefore, do not foresee paying any "capital gains
dividends" as described in the Code. Dividends received by a Shareholder that
are derived from the AmSouth U.S. Treasury Fund's investments in U.S. govern-
24
<PAGE> 185
ment obligations may not be eligible for exemption from state and local taxes
even though the income on such investments would have been exempt from state and
local taxes if the Shareholder directly held such investments. In addition, the
state and local tax exemption for interest earned on U.S. government obligations
may not extend to income earned on U.S. government obligations that are subject
to a repurchase agreement. Shareholders are advised to consult their own tax
advisors concerning their own tax situation and the application of state and
local taxes.
TAX EXEMPT FUND
The Tax Exempt Fund's 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 Tax-Exempt Fund 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 Tax Exempt Fund attributable to exempt-interest income may
cause the social security and railroad retirement benefits of individual
Shareholders 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 Tax Exempt Fund
distributes exempt-interest dividends during the Shareholder's taxable year. It
is anticipated that distributions from the Tax Exempt Fund will not be eligible
for the dividends received deduction for corporate shareholders.
Gains on the sale of Shares in the Tax Exempt Fund 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.
To the extent dividends paid to Shareholders are derived from taxable income
(for example, from interest on certificates of deposit 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
both individual and corporate Shareholders for the purpose of determining
liability (if any) for the applicable alternative minimum tax. All tax-exempt
interest dividends are required to be taken into account in calculating the
alternative minimum taxable income of corporations.
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 Money Market
Funds and Shareholders. Potential investors are urged to consult their tax
advisors concerning their own tax situations and concerning the application of
state and local taxes which may differ from the federal income tax consequences
described above.
25
<PAGE> 186
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):
<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS
- ------------------------------ ------------------ -------------------------------------------
<S> <C> <C>
George R. Landreth* Chairman From December 1992 to present, employee of
3435 Stelzer Road BISYS Fund Services, Limited Partnership;
Columbus, Ohio 43219 form July 1991 to December 1992, employee
of PNC Financial Corp.; from October 1984
to July 1991, employee of The Central Trust
Co., N.A.
Dr. Dick D. Briggs, Jr. Trustee From 1981 to present, Professor and Vice
459 DER Building Chairman, Department of Medicine,
1808 7th Avenue South University of Alabama at Birmingham School
UAB Medical Center of Medicine; December 1995 to present,
Birmingham, Alabama 35294 Physician, University of Alabama Health
Services Foundation; from June 1988 to
October 1992, President, Chief Executive
Officer and Medical Director, University of
Alabama Health Services Foundation
Wendell D. Cleaver Trustee From September, 1993 to present, retired;
209 Lakewood Drive, West from December 1988 to August, 1993,
Mobile, Alabama 36608 Executive Vice President, Chief Operating
Officer and Director, Mobile Gas Service
Corporation
J. David Huber* Trustee From June 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services, Limited Partnership
Columbus, Ohio 43219
Homer H. Turner, Jr. Trustee From June 1991 to present, retired; until
729 Cary Drive June 1991, Vice President, Birmingham
Auburn, Alabama 36830 Division, Alabama Power Company
James H. Woodward, Jr. Trustee From 1996 to present, Trustee of The
The University of North Sessions Group; from July 1989 to present,
Carolina at Charlotte Chancellor, The University of North
Charlotte, North Carolina Carolina at Charlotte; until July 1989,
28223 Senior Vice President, University College,
University of Alabama at Birmingham
</TABLE>
- ---------------
* Indicates an "interested person" of the Trust as defined in the Investment
Company Act of 1940.
26
<PAGE> 187
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
providing fund accounting services to the Trust. Messrs. Landreth and Huber are
executive officers and employees of BISYS Fund Services.
INVESTMENT ADVISOR
AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank
affiliate of AmSouth Bancorporation, one of the largest banking institutions
headquartered in the midsouth region. AmSouth Bancorporation reported assets as
of December 31, 1996 of $18.4 billion and operated 272 banking offices in
Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment
management services through its Trust Investment Department since 1915. As of
December 31, 1996, AmSouth and its affiliates had over $7.1 billion in assets
under discretionary management and provided custody services for an additional
$13.4 billion in securities. AmSouth is the largest provider of trust services
in Alabama. AmSouth serves as administrator for over $12 billion in bond issues,
and its Trust Natural Resources and Real Estate Department is a major manager of
timberland, mineral, oil and gas properties and other real estate interests.
Subject to the general supervision of the Trust's Board of Trustees and in
accordance with the respective investment objectives and restrictions of the
Money Market Funds, the Advisor manages the Money Market 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.
Under an investment advisory agreement between the Trust and the Advisor, the
fee payable to the Advisor by each Money Market Fund for investment advisory
services is the lesser of (a) a fee computed daily and paid monthly at the
annual rate of forty one-hundredths of one percent (.40%) of such Money Market
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 Advisor. A fee agreed to in writing
from time to time by the Trust and the Advisor may be significantly lower than
the fee calculated at the annual rate and the effect of such lower fee would be
to lower a Money Market 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, 1996, the Advisor received
investment advisory fees amounting to .40% of the Prime Obligation Fund's
average daily net assets, .40% of the AmSouth U.S. Treasury Fund's average daily
net assets and .20% of the Tax Exempt Fund's average daily net assets, after
voluntary fee reductions with respect to the Tax Exempt Fund.
ADMINISTRATOR
ASO Services Company ("ASO") is the administrator for each Fund of the Trust
(the "Administrator"). ASO is a wholly owned subsidiary of BISYS. BISYS 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 Money Market Funds'
administration and operation. Under a management and administration agreement
between the Trust and the Administrator, the fee payable by each Money Market
Fund to the Administrator for administration services is the lesser of (a) a fee
computed at the annual rate of twenty one-hundredths of one percent (.20%) of
such Money Market Fund's average daily net assets
27
<PAGE> 188
or (b) such fee as may from time to time be agreed upon by the Trust and the
Administrator. A fee agreed to 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 a Money Market Fund's
expenses and increase the net income of the Fund during the period when such
lower fee is in effect.
ASO succeeded BISYS as Administrator on April 1, 1996. During the Trust's
fiscal year ended July 31, 1996, BISYS and ASO received administration fees
amounting to .20% of each Money Market Fund's average daily net assets.
SUB-ADMINISTRATORS
AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current
agreement with the Administrator, the Sub-Administrator has assumed certain of
the Administrator's duties, for which the Sub-Administrator 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 daily net assets.
BISYS Fund Services serves as a Sub-Administrator to the Trust. Pursuant to
its agreement with the Administrator, BISYS is entitled to compensation as
mutually agreed from time to time by it and the Administrator.
DISTRIBUTOR
BISYS Fund Services acts as the Trust's principal underwriter and distributor
(the "Distributor") pursuant to a Distribution Agreement under which shares are
sold on a continuous basis.
Classic Shares of the Trust are subject to a Shareholder Servicing Plan (the
"Servicing Plan") permitting payment of compensation to financial institutions
that agree to provide certain administrative support services for their
customers or account holders. Each Fund has entered into a specific arrangement
with BISYS for the provision of such services by BISYS, and reimburses BISYS for
its cost of providing these services, subject to a maximum annual rate of
twenty-five one-hundredths of one percent (0.25%) of the average daily net
assets of the Classic Shares of each Fund.
Under the Trust's Distribution and Shareholder Services Plan (the
"Distribution Plan"), Class B Shares of a Fund will pay a monthly distribution
fee to the Distributor as compensation for its services in connection with the
Distribution Plan at an annual rate equal to one percent (1.00%) of the average
daily net assets of Class B Shares of each Fund which includes a Shareholder
Servicing fee of .25% of the average daily net assets of the Class B Shares of
each Fund. The Distributor may periodically waive all or a portion of the fee
with respect to a Fund in order to increase the net investment income of the
Fund available for distribution as dividends. The Distributor may apply the B
Share Fee toward the following: (i) compensation for its services or expenses in
connection with distribution assistance with respect to such Fund's B Shares;
(ii) payments to financial institutions and intermediaries (such as banks,
savings and loan associations, insurance companies, and investment counselors)
as brokerage commissions in connection with the sale of such Fund's B Shares;
and (iii) payments to financial institutions and intermediaries (such as banks,
savings and loan associations, insurance companies, and investment counselors),
broker-dealers, and the Distributor's affiliates and subsidiaries as
compensation for services and/or reimbursement of expenses incurred in
connection with distribution or shareholder services with respect to such Fund's
B Shares.
All payments by the Distributor for distribution assistance or shareholder
services under the Distribution Plan will be made pursuant to an agreement (a
"Servicing Agreement") between the Distributor and such bank, other financial
institution or intermediary, broker-dealer, or affiliate or subsidiary of the
Distributor (hereinafter referred to individually as "Participating
Organizations"). A Servicing Agreement will relate to the provision of
distribution assistance in connection with the distribution of a Fund's Class B
Shares to the Participating Organization's customers on whose behalf the
investment in such Shares is made and/or to the provision of
28
<PAGE> 189
shareholder services to the Participating Organization's customers owning a
Fund's Class B Shares. Under the Distribution Plan, a Participating Organization
may include AmSouth or a subsidiary bank or nonbank affiliates, or the
subsidiaries or affiliates of those banks. A Servicing Agreement entered into
with a bank (or any of its subsidiaries or affiliates) will contain a
representation that the bank (or subsidiary or affiliate) believes that it
possesses the legal authority to perform the services contemplated by the
Servicing Agreement without violation of applicable banking laws (including the
Glass-Steagall Act) and regulations.
The distribution fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular year
by the Distributor in connection with distribution assistance or shareholder
services rendered by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under the Distribution Plan.
If the amount of the distribution fee is greater than the Distributor's actual
expenses incurred in a particular year (and the Distributor does not waive that
portion of the distribution fee), the Distributor will realize a profit in that
year from the distribution fee. If the amount of the distribution fee is less
than the Distributor's actual expenses incurred in a particular year, the
Distributor will realize a loss in that year under the Distribution Plan and
will not recover from a Fund the excess of expenses for the year over the
distribution fee, unless actual expenses incurred in a later year in which the
Distribution Plan remains in effect were less than the distribution fee paid in
that later year.
The Glass-Steagall Act and other applicable laws prohibit banks generally from
engaging in the business of underwriting securities, but in general do not
prohibit banks from purchasing securities as agent for and upon the order of
customers. Accordingly, the Trust will require banks acting as Participating
Organizations to provide only those services which, in the banks' opinion, are
consistent with the then current legal requirements. It is possible, however,
that future legislative, judicial or administrative action affecting the
securities activities of banks will cause the Trust to alter or discontinue its
arrangements with banks that act as Participating Organizations, or change its
method of operations. It is not anticipated, however, that any change in a
Fund's method of operations would affect its net asset value per share or result
in financial loss to any customer.
EXPENSES
AmSouth and the Administrator each bear all expenses in connection with the
performance of their services as Advisor and Administrator, respectively, other
than the cost of securities (including brokerage commissions, if any) purchased
for a Money Market Fund. No Money Market Fund will bear, directly or indirectly,
the cost of any activity primarily intended to result in the distribution of
Shares of such Money Market Fund; such costs will be borne by the Distributor.
As a general matter, expenses are allocated to the Premier, Classic, and Class
B Shares of a Fund on the basis of the relative net asset value of each class.
At present, the only expenses that will be borne solely by Classic and Class B
Shares, other than in accordance with the relative net asset value of the class,
are expenses under the Trust's Servicing Plan which relates only to the Classic
Shares and the Distribution Plan which relates only to the Class B Shares.
BANKING LAWS
AmSouth believes that it possesses the legal authority to perform the
investment advisory services for the Money Market 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
29
<PAGE> 190
"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 fourteen 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
Municipal Bond Fund, the AmSouth Limited Maturity Fund, the AmSouth Balanced
Fund, the AmSouth Government Income Fund, the AmSouth Florida Tax-Free Fund, the
AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, and the AmSouth Equity
Income Fund. Each Fund, except the AmSouth Florida Tax-Free Fund, is a
diversified fund under the Investment Company Act of 1940, as amended. As of the
date of this Prospectus, Shares were not yet being offered in the AmSouth Small
Cap Fund. Each Fund has authorized three classes of Shares: Premier, Classic and
Class B Shares, except for the AmSouth U.S. Treasury Fund and Tax-Exempt Fund
which has authorized two classes of Shares: Premier and Classic Shares. However,
Class B Shares are not currently offered in the AmSouth Limited Maturity Fund,
the Government Income Fund, the Florida Fund, and the Municipal Bond 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).
Shares of the Trust are entitled to one vote per share (with proportional
voting for fractional shares) on such matters as Shareholders are entitled to
vote. Shareholders vote in the aggregate and not by series or class on all
matters except (i) when required by the Investment Company Act of 1940, shares
shall be voted by individual series or class, (ii) when the Trustees have
determined that the matter affects only the interests of one or more series or
class, (iii) only the holders of Classic Shares will vote on matters submitted
to shareholder vote with regard to the Servicing Plan, and (iv) only the holders
of Class B Shares will vote on matters submitted to shareholder vote with regard
to the Distribution Plan.
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.
CUSTODIAN
As of April 17, 1997, AmSouth serves as custodian for the Trust ("Custodian").
Pursuant to the Custodian Agreement with the Trust, the Custodian receives
compensation from each Fund for such services in an amount equal to an
asset-based fee.
TRANSFER AGENT AND FUND ACCOUNTING
BISYS Fund Services Ohio, Inc. serves as transfer agent for and provides fund
accounting services to the Trust.
30
<PAGE> 191
PERFORMANCE INFORMATION
From time to time, the Money Market Funds' annualized "yield" and "effective
yield" and total return may be presented in advertisements and sales literature.
The "yield" of a Money Market Fund is based upon the income earned by the
Money Market Fund over a seven-day period and then annualized, i.e. the income
earned in the period is assumed to be earned every seven days over a 52-week
period and is stated as a percentage of the investment. The "effective yield" of
a Money Market Fund is calculated similarly but when annualized, the income
earned by the investment is assumed to be reinvested in Shares of the Fund and
thus compounded in the course of a 52-week period. The effective yield will be
higher than the yield because of the compounding effect of this assumed
reinvestment.
The Tax Exempt Fund may also present its "tax equivalent yield" and "tax
equivalent effective yield" which reflect 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
and effective yield, respectively, of the Tax Exempt Fund. The tax equivalent
yield and tax equivalent effective yield will be significantly higher than the
yield and effective yield of the Tax Exempt Fund.
Total return is calculated for the past year, five years (if applicable) and
the period since the establishment of a Money Market Fund. Average annual total
return is measured by comparing the value of an investment in a Money Market
Fund at the beginning of the relevant period to the redemption value of the
investment at the end of the period (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, effective yield, tax-equivalent yield and total return will be
calculated separately for each Class of Shares. Because Classic Shares are
subject to lower Shareholder Services fees than Class B Shares, the yield and
total return for Classic Shares will be higher than that of the Class B Shares
for the same period. Because Premier Shares are not subject to the Distribution
and Shareholder Services fees, the yield and total return for Premier Shares
will be higher than that of the Classic and Class B Shares for the same period.
Investors may also judge the performance of each Money Market 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. and Donoghue's MONEY FUND REPORT. 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 and periodicals.
Such publications may refer to Classic Shares as Class A Shares and Premier
Shares as Class Y Shares. 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 performance of a Money Market Fund is based on the Money
Market Fund's record up to a certain date and is not intended to indicate future
performance. Yield and total return of any investment is generally a function of
portfolio quality and maturity, type of investments and operating expenses.
Yields and total return of each Money Market Fund will fluctuate. Any fees
charged by the Financial Institutions to their customers in connection with
investment in a Money Market Fund are not reflected in the Fund's performance
information.
31
<PAGE> 192
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 Trust upon
the issuance or sale of Shares in that Fund, 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 P.O.
Box 182733, Columbus, Ohio 43218-2733, or by calling toll free (800) 451-8382.
32
<PAGE> 193
AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
LOGO
AmSouth Bank
1901 Sixth Avenue North
Birmingham, AL 35203
DISTRIBUTOR
BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
ADMINISTRATOR
ASO Services Company
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>
Fee Table................................. 3
Financial Highlights...................... 5
Investment Objectives and Policies........ 8
Investment Restrictions................... 14
Valuation of Shares....................... 16
How to Purchase and Redeem Shares......... 16
Dividends and Taxes....................... 24
Management of AmSouth Mutual Funds........ 26
General Information....................... 30
</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.
AS1P090197
<PAGE> 194
A M S O U T H M U T U A L F U N D S
---------------------------------------
=======================================
[LOGO]
AMSOUTH BANK
Investment Advisor
M O N E Y
M A R K E T
F U N D S
A M S O U T H
MUTUAL FUNDS
NOT FDIC INSURED
BISYS FUND SERVICES, DISTRIBUTOR
Prospectus dated September 1, 1997
<PAGE> 195
CROSS REFERENCE SHEET
- ---------------------
Part B
<TABLE>
<CAPTION>
Form N-1A Item No. Caption
- ------------------ -------
<S> <C> <C>
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and History Additional Information - Description of Shares
13. Investment Objectives and Policies Investment objectives and policies
14. Management of the Trust Management of the Trust
15. Control Persons and Principal
Holders of Securities Miscellaneous
16. Investment Advisory and
Other Services Management of the Trust
17. Brokerage Allocation Management of the Trust
18. Capital Stock and Other
Securities Valuation; Additional Purchase and Redemption
Information; Management of the Trust;
Redemptions; Additional Information
19. Purchase, Redemption and Pricing
of Securities Being Offered Valuation; Additional Purchase and Redemption
Information; Management of the Trust
20. Tax Status Additional Purchase and Redemption Information
21. Underwriters Management of the Trust
22. Calculation of Performance Data Performance Information
23. Financial Statements Financial Statements
</TABLE>
B-1
<PAGE> 196
AMSOUTH MUTUAL FUNDS
Statement of Additional Information
September 1, 1997
-----------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectuses of AmSouth Prime Obligations Fund, AmSouth
U.S. Treasury Fund, AmSouth Tax Exempt Fund, AmSouth Government Income Fund,
AmSouth Bond Fund, AmSouth Limited Maturity Fund, AmSouth Municipal Bond Fund,
AmSouth Florida Tax-Free Fund, AmSouth Equity Fund, AmSouth Regional Equity
Fund, AmSouth Balanced Fund, AmSouth Capital Growth Fund, AmSouth Small Cap Fund
and AmSouth Equity Income Fund, each dated as of the date hereof (the
"Prospectuses"). This Statement of Additional Information is incorporated by
reference in its entirety into those Prospectuses. Copies of the Prospectuses
may be obtained by writing AmSouth Mutual Funds at P.O. Box 182733, Columbus,
Ohio 43218-2733, or by telephoning toll free (800) 451-8382.
<PAGE> 197
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AMSOUTH MUTUAL FUNDS..............................................................................................1
INVESTMENT OBJECTIVES AND POLICIES................................................................................1
Additional Information on Portfolio Instruments...............................................................1
Investment Restrictions......................................................................................12
Additional Investment Restrictions...........................................................................14
Portfolio Turnover...........................................................................................14
VALUATION........................................................................................................15
Valuation of the Money Market Funds..........................................................................15
Valuation of the Capital Appreciation Funds and the Income Funds.............................................16
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................16
Purchase of Shares...........................................................................................16
Matters Affecting Redemption.................................................................................17
Additional Tax Information...................................................................................18
Additional Tax Information Concerning the Tax Exempt Fund and Tax-Free Funds.................................20
MANAGEMENT OF THE TRUST..........................................................................................22
Officers ....................................................................................................22
Investment Advisor...........................................................................................23
Portfolio Transactions.......................................................................................27
Glass-Steagall Act...........................................................................................29
Administrator................................................................................................30
Expenses ....................................................................................................32
Sub-Administrators...........................................................................................32
Distributor..................................................................................................33
Custodian....................................................................................................34
Transfer Agent and Fund Accounting Services..................................................................34
Auditors ....................................................................................................35
Legal Counsel................................................................................................35
PERFORMANCE INFORMATION..........................................................................................36
Yields of the Money Market Funds.............................................................................36
Yields of the Capital Appreciation Funds, the Income Funds,
and the Tax-Free Funds..............................................................................37
Calculation of Total Return..................................................................................38
Performance Comparisons......................................................................................40
</TABLE>
B-i
<PAGE> 198
<TABLE>
<S> <C>
ADDITIONAL INFORMATION...........................................................................................41
Organization and Description of Shares.......................................................................41
Shareholder Liability........................................................................................42
FINANCIAL STATEMENTS.............................................................................................45
APPENDIX.........................................................................................................46
</TABLE>
B-ii
<PAGE> 199
STATEMENT OF ADDITIONAL INFORMATION
AMSOUTH MUTUAL FUNDS
AmSouth Mutual Funds (the "Trust") is an open-end management investment
company. The Trust consists of fourteen series of units of beneficial interest
("Shares"), each representing interests in one of fourteen separate investment
portfolios: AmSouth Prime Obligations Fund (the "Prime Obligations Fund"),
AmSouth U.S. Treasury Fund (the "AmSouth U.S. Treasury Fund"), AmSouth Tax
Exempt Fund (the "Tax Exempt Fund" and, collectively, with the Prime Obligations
Fund and the U.S. Treasury Fund, the "Money Market Funds"), AmSouth Equity Fund
(the "Equity Fund"), AmSouth Regional Equity Fund (the "Regional Equity Fund"),
AmSouth Balanced Fund (the ("Balanced Fund"), AmSouth Capital Growth Fund (the
"Capital Growth Fund"), AmSouth Small Cap Fund (the "Small Cap Fund"), and
AmSouth Equity Income Fund (the "Equity Income Fund" and, collectively with the
Equity Fund, the Regional Equity Fund, the Balanced Fund, the Capital Growth
Fund, and the Small Cap Fund, the "Capital Appreciation Funds"), AmSouth Bond
Fund (the "Bond Fund"), AmSouth Limited Maturity Fund (the "Limited Maturity
Fund"), AmSouth Government Income Fund (the "Government Income Fund") AmSouth
Municipal Bond Fund (the "Municipal Bond Fund"), and AmSouth Florida Tax-Free
Fund (the "Florida Fund"and, collectively with the Bond Fund, the Limited
Maturity Fund, the Government Income Fund and the Municipal Bond Fund, the
"Income Funds," and the Florida Fund and the Municipal Bond Fund sometimes
collectively referred to herein as the "Tax-Free Funds.") The Small Cap Fund is
not currently offering Shares. The Funds offer three classes of Shares: Premier
Shares, Classic Shares, and Class B Shares, except for the AmSouth U.S. Treasury
Fund and Tax Exempt Fund which offers two classes of Shares: Premier Shares and
Classic Shares. Currently, Class B Shares are not being offered in the Limited
Maturity Fund, the Government Income Fund, the Florida Fund and the Municipal
Bond Fund. Much of the information contained in this Statement of Additional
Information expands on subjects discussed in the Prospectuses. Capitalized terms
not defined herein are defined in the Prospectuses. No investment in Shares of a
Fund should be made without first reading that Fund's Prospectus.
INVESTMENT OBJECTIVES AND POLICIES
Additional Information on Portfolio Instruments
- -----------------------------------------------
The following policies supplement the investment objectives,
restrictions and policies of each Fund of the Trust as set forth in the
respective Prospectus for that Fund.
HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET FUNDS. As noted in the
Prospectuses for the Money Market Funds, each such Fund may invest only in
obligations determined by AmSouth Bank, Birmingham, Alabama ("AmSouth") the
investment advisor to
<PAGE> 200
the Trust ("Advisor") to present minimal credit risks under guidelines adopted
by the Trust's Trustees.
With regard to the Prime Obligations Fund, investments will be limited
to those obligations which, at the time of purchase, (i) possess the highest
short-term ratings from at least two NRSROs; or (ii) do not possess a rating,
(I.E., are unrated) but are determined by the Advisor to be of comparable
quality to the rated instruments eligible for purchase by the Fund under
guidelines adopted by the Trustees. With regard to the Tax Exempt Fund,
investments will be limited to those obligations which, at the time of purchase,
(i) possess one of the two highest short-term ratings from an NRSRO; or (ii)
possess, in the case of multiple-rated securities, one of the two highest
short-term ratings by at least two NRSROs; or (iii) do not possess a rating,
(I.E., are unrated) but are determined by the Advisor to be of comparable
quality to the rated instruments eligible for purchase by the Fund under the
guidelines adopted by the Trustees. For purposes of these investment
limitations, a security that has not received a rating will be deemed to possess
the rating assigned to an outstanding class of the issuer's short-term debt
obligations if determined by the Advisor to be comparable in priority and
security to the obligation selected for purchase by a Fund. (The above-described
securities which may be purchased by the Prime Obligations Fund and the Tax
Exempt Fund are hereinafter referred to as "Eligible Securities.")
A security subject to a tender or demand feature will be considered an
Eligible Security only if both the demand feature and the underlying security
possess a high quality rating or, if such do not possess a rating, (I.E., are
unrated) but are determined by the Advisor to be of comparable quality;
provided, however, that where the demand feature would be readily exercisable in
the event of a default in payment of principal or interest on the underlying
security, the obligation may be acquired based on the rating possessed by the
demand feature or, if the demand feature does not possess a rating, a
determination of comparable quality by the Advisor. A security which at the time
of issuance had a maturity exceeding 397 days but, at the same time of purchase,
has a remaining maturity of 397 days or less, is not considered an Eligible
Security if it does not possess a high quality rating and the long-term rating,
if any, is not within the two highest rating categories of an NRSRO.
The Prime Obligations Fund will not invest more than 5% of its total
assets in the securities of any one issuer, except that the Fund may invest up
to 25% of its total assets in the securities of a single issuer for a period of
up to three business days. If a percentage limitation is satisfied at the time
of purchase, a later increase in such percentage resulting from a change in the
Fund's net asset value or a subsequent change in a security's qualification as
an Eligible Security will not constitute a violation of the limitation. In
addition, there is no limit on the percentage of the Fund's assets that may be
invested in obligations issued or guaranteed by the U.S. Government, its
agencies, and instrumentalities and repurchase agreements fully collateralized
by such obligations.
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Under the guidelines adopted by the Trust's Trustees and in accordance
with Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), the
Advisor may be required promptly to dispose of an obligation held in a Fund's
portfolio in the event of certain developments that indicate a diminishment of
the instrument's credit quality, such as where an NRSRO downgrades an obligation
below the second highest rating category, or in the event of a default relating
to the financial condition of the issuer.
The Appendix to this Statement of Additional Information identifies
each NRSRO that may be utilized by the Advisor with regard to portfolio
investments for the Funds and provides a description of relevant ratings
assigned by each such NRSRO. A rating by an NRSRO may be utilized only where the
NRSRO is neither controlling, controlled by, or under common control with the
issuer of, or any issuer, guarantor, or provider of credit support for, the
instrument.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the Funds of
the Trust except the U.S. Treasury Fund may invest in bankers' acceptances,
certificates of deposit, and demand and time deposits. Bankers' acceptances are
negotiable drafts or bills of exchange typically drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.
Bankers' acceptances will be those guaranteed by domestic and foreign
banks, if at the time of purchase, such banks have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements). Certificates of deposit and demand and
time deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of purchase they have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements) or (b) the principal amount of the
instrument is insured in full by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. Each Fund, except for the U.S. Treasury Fund, may
invest in commercial paper. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
Each Fund except the AmSouth U.S. Treasury Fund, the Tax Exempt Fund,
and the Tax-Free Funds may invest in (i) Canadian Commercial Paper, which is
commercial paper issued by a Canadian corporation or a Canadian counterpart of a
U.S. corporation, and (ii) Europaper, which is U.S. dollar-denominated
commercial paper of an issue located in Europe.
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VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Prime Obligations Fund, the Capital Appreciation Funds, and
the Income Funds may invest, are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic readjustments in the
interest rate according to the terms of the instrument. They are also referred
to as variable rate demand notes. Because these notes are direct lending
arrangements between a Fund and the issuer, they are not normally traded.
Although there may be no secondary market in the notes, a Fund may demand
payment of principal and accrued interest at any time or during specified
periods not exceeding one year, depending upon the instrument involved, and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for the Funds to dispose of a
variable amount master demand note if the issuer defaulted on its payment
obligations or during periods when the Funds are not entitled to exercise their
demand rights, and the Funds could, for this or other reasons, suffer a loss to
the extent of the default. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes must satisfy the
same criteria as set forth above for commercial paper. The Advisor or
Sub-Advisor will consider the earning power, cash flow, and other liquidity
ratios of the issuers of such notes and will continuously monitor their
financial status and ability to meet payment on demand. Where necessary to
ensure that a note is of "high quality," a Fund will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. In determining the
dollar-weighted average portfolio maturity, a variable amount master demand note
will be deemed to have a maturity equal to the period of time remaining until
the principal amount can be recovered from the issuer through demand.
FOREIGN INVESTMENT. All of the Funds except the AmSouth U.S. Treasury
Fund and the Tax-Free Funds may, subject to their investment objectives,
restrictions and policies, invest in certain obligations or securities of
foreign issuers. Permissible investments include Eurodollar Certificates of
Deposit ("ECDs") which are U.S. dollar denominated certificates of deposit
issued by branches of foreign and domestic banks located outside the United
States, Yankee Certificates of Deposit ("Yankee CTDs") which are certificates of
deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars
and held in the United States, Eurodollar Time Deposits ("ETD's") which are U.S.
dollar denominated deposits in a foreign branch of a U.S. bank or a foreign
bank, and Canadian Time Deposits ("CTD's") which are U.S. dollar denominated
certificates of deposit issued by Canadian offices of major Canadian Banks.
Investments in securities issued by foreign branches of U.S. banks, foreign
banks, or other foreign issuers, including American Depository Receipts ("ADRs")
and securities purchased on foreign securities exchanges, may subject the Funds
to investment risks that differ in some respects from those related to
investment in obligations of U.S. domestic issuers or in U.S. securities
markets. Such risks include 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, and the adoption of other
foreign governmental restrictions. Additional risks include currency exchange
risks, less publicly available information, the risk that
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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 many securities traded in these
markets may be less liquid and their prices more volatile than U.S. securities,
and the risk that custodian and brokerage costs may be higher. Foreign issuers
of securities or obligations are often subject to accounting treatment and
engage in business practices different from those respecting domestic issuers of
similar securities or obligations. Foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks. A Fund will acquire such
securities only when the Advisor or Sub-Advisor believes the risks associated
with such investments are minimal.
REPURCHASE AGREEMENTS. Securities held by each of the Trust's Funds may
be subject to repurchase agreements. Under the terms of a repurchase agreement,
a Fund would acquire securities from member banks of the Federal Deposit
Insurance Corporation with capital, surplus, and undivided profits of not less
than $100,000,000 (as of the date of their most recently published financial
statements) and from registered broker-dealers which the Advisor or Sub-Advisor
deems creditworthy under guidelines approved by the Board of Trustees, subject
to the seller's agreement to repurchase such securities at a mutually
agreed-upon date and price. The repurchase price would generally equal the price
paid by the Fund plus interest negotiated on the basis of current short-term
rates, which may be more or less than the rate on the underlying portfolio
securities. The seller under a repurchase agreement will be required to maintain
the value of collateral held pursuant to the agreement at not less than the
repurchase price (including accrued interest) and the Advisor or Sub-Advisor
will monitor the collateral's value to ensure that it equals or exceeds the
repurchase price (including accrued interest). In addition, securities subject
to repurchase agreements will be held in a segregated account. If the seller
were to default on its repurchase obligation or become insolvent, the Fund
holding such obligation 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 Fund were delayed pending court action. Additionally, if the
seller should be involved in bankruptcy or insolvency proceedings, a Fund may
incur delay and 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. Securities
subject to repurchase agreements will be held by the Trust's custodian or
another qualified custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a Fund under the
1940 Act.
REVERSE REPURCHASE AGREEMENTS. As discussed in the Prospectuses, each
of the Trust's Funds may borrow funds for temporary purposes by entering into
reverse repurchase agreements in accordance with the Fund's investment
restrictions. Pursuant to such agreements, a Fund would sell portfolio
securities to financial institutions such as banks and broker-dealers, and agree
to repurchase the securities at a mutually agreed-upon date and price. Each Fund
intends to enter into reverse repurchase agreements only to avoid otherwise
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selling securities during unfavorable market conditions to meet redemptions. At
the time a Fund enters into a reverse repurchase agreement, it will place in a
segregated custodial account assets consistent with the Fund's investment
restrictions having a value equal to the repurchase price (including accrued
interest), and will subsequently monitor the account to ensure that such
equivalent value is maintained. Such assets will include U.S. Government
securities or other liquid high quality debt securities in the case of the Money
Market Funds and the Income Funds or other liquid, high-grade debt securities,
in the case of the Capital Appreciation Funds. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price at which a Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by a
Fund under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. The AmSouth U.S. Treasury Fund will invest
exclusively in bills, notes and bonds issued by the U.S. Treasury. Such
obligations are supported by the full faith and credit of the U.S. Government.
Each of the other Funds may invest in such obligations and in other obligations
issued or guaranteed by the U.S. Government, its agencies and instrumentalities.
Such other obligations may include those which are supported by the full faith
and credit of the U.S. Government; others which are supported by the right of
the issuer to borrow from the Treasury; others which are supported by the
discretionary authority of the U.S. Government to purchase the agency's
obligations; and still others which 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. A Fund will invest in
the obligations of such agencies and instrumentalities only when the Advisor or
Sub-Advisor believes that the credit risk with respect thereto is minimal.
VARIABLE AND FLOATING RATE NOTES. The Tax Exempt Fund, the Bond Fund,
the Limited Maturity Fund and the Tax-Free Funds may acquire variable and
floating rate notes, subject to each Fund's investment objective, policies and
restrictions. A variable rate note is one whose terms provide "for the
readjustment of its interest rate on set dates and which, upon such
readjustment, can reasonably be expected to have a market value that
approximates its par value. A floating rate note is one whose terms provide for
the readjustment of its interest rate whenever a specified interest rate changes
and which, at any time, can reasonably be expected to have a market value that
approximates its par value. Such notes are frequently not rated by credit rating
agencies; however, unrated variable and floating rate notes purchased by a Fund
will be determined by the 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. In
making such determinations, the Advisor will consider the earning power, cash
flow and other liquidity ratios of the issuers of such notes (such issuers
include financial, merchandising, bank holding and other companies) and will
continuously monitor their financial condition. Although there may be no active
secondary market with respect to a particular variable or floating rate note
purchased by a Fund, the Fund may resell the note at any time to a third party.
The absence of an active
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secondary market, however, could make it difficult for the Fund to dispose of a
variable or floating rate note in the event the issuer of the note defaulted on
its payment obligations and the Fund could, as a result or for other reasons,
suffer a loss to the extent of the default. Variable or floating rate notes may
be secured by bank letters of credit or drafts.
For purposes of the Tax-Exempt Fund, the Bond Fund, the Limited
Maturity Fund and the Tax-Free Funds, the maturities of the variable and
floating rate notes will be determined in accordance with Rule 2a-7 under the
1940 Act.
MUNICIPAL SECURITIES. Under normal market conditions, the Tax Exempt
Fund and the Municipal Bond Fund will be primarily invested in bonds (and in the
case of the Tax Exempt Fund, 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 exempt from federal income tax
("Municipal Securities"). Under normal market conditions, the Tax Exempt Fund
will invest at least 80% of its total assets, the Municipal Bond Fund will
invest at least 80% of its net assets, and the Florida Fund may invest up to 20%
of its net assets in Municipal Securities, the interest on which is not treated
as a preference item for purposes of the federal alternative minimum tax.
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Securities if the interest paid thereon
is exempt from both federal income tax and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax.
Municipal Securities may also include General Obligation Notes, Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Project
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms of
short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
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As described in the prospectuses of the Tax Exempt Fund and the
Tax-Free Funds, the two principal classifications of Municipal Securities
consist of "general obligation" and "revenue" issues. A Fund permitted to invest
in Municipal Securities may also acquire "moral obligation" issues, which are
normally issued by special purpose authorities. There are, of course, variations
in the quality of Municipal Securities, both within a particular classification
and between classifications, and the yields on Municipal Securities depend upon
a variety of factors, including general money market conditions, the financial
condition of the issuer, general conditions of the municipal bond market, the
size of a particular offering, the maturity of the obligation and the rating of
the issue. The ratings of NRSROs represent their opinions as to the quality of
Municipal Securities. It should be emphasized, however, that ratings are general
and are not absolute standards of quality, and Municipal Securities with the
same maturity, interest rate and rating may have different yields, while
Municipal Securities of the same maturity and interest rate with different
ratings may have the same yield. Subsequent to purchases by the Tax Exempt Fund,
an issue of Municipal Securities may cease to be rated or its rating may be
reduced below the minimum rating required for purchase by the Tax Exempt Fund.
Neither event would under all circumstances require the elimination of such an
obligation from the Fund's investment portfolio. However, the obligation
generally would be retained only if such retention was determined by the Board
of Trustees to be in the best interests of the Fund.
An issuer's obligations under its Municipal Securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the federal bankruptcy code, and laws, if
any, which may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon the enforcement of such obligations or upon the ability of municipalities
to levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
HIGH YIELD SECURITIES. The Equity Income Fund may invest in high yield
convertible securities. High yield securities are securities that are rated
below investment grade by an NRSRO (e.g., "BB" or lower by S&P and "Ba" or lower
by Moody's). Other terms used to describe such securities include "lower rated
bonds," "non-investment grade bonds" and "junk bonds." Generally, lower rated
debt securities provide a higher yield than higher rated debt securities of
similar maturity, but are subject to a greater degree of risk with respect to
the ability of the issuer to meet its principal and interest obligations.
Issuers of high yield securities may not be as strong financially as those
issuing higher rated securities. The securities are regarded as predominantly
speculative. The market value of high yield securities may fluctuate more than
the market value of higher rated securities, since high yield securities tend to
reflect short-term corporate and market developments to a greater extent than
higher rated securities, which fluctuate primarily in response to the general
level of interest rates, assuming that there has been no change in the
fundamental interest rates, assuming that there has been no change in the
fundamental quality of such securities. The market prices of fixed
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income securities generally fall when interest rates rise. Conversely, the
market prices of fixed-income securities generally rise when interest rates
fall.
Additional risks of high yield securities include limited liquidity and
secondary market support. As a result, the prices of high yield securities may
decline rapidly in the event that a significant number of holders decide to
sell. Changes in expectations regarding an individual issuer, an industry or
high yield securities generally could reduce market liquidity for such
securities and make their sale by the Equity Income Fund more difficult, at
least in the absence of price concessions. Reduced liquidity also could
adversely affect the Equity Income Fund's ability to accurately value high yield
securities. Issuers of high yield securities also are more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, the Equity Income
Fund would experience a reduction of its income and could expect a decline in
the market value of the defaulted securities.
WHEN-ISSUED SECURITIES. As discussed in the Prospectuses, each Fund
except the Prime Obligations Fund and the U.S. Treasury Fund may purchase
securities on a when-issued basis (I.E., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
securities on a when-issued basis, the Fund's custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, a Fund's liquidity and the ability of the Advisor or
Sub-Advisor to manage it might be affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its total
assets.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing the opportunity to obtain a price considered to
be advantageous. No Fund intends to purchase when-issued securities for
speculative purposes but only in furtherance of its investment objective.
CALLS. The Capital Appreciation Funds and the Bond Fund, Limited
Maturity Fund, and Government Income Fund may write (sell) "covered" call
options and purchase options to close out options previously written by it. Such
options must be issued by the Options
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Clearing Corporation and may or may not be listed on a National Securities
Exchange. The purpose of writing covered call options is to generate additional
premium income for a Fund. This premium income will serve to enhance the Fund's
total return and will reduce the effect of any price decline of the security
involved in the option. Covered call options will generally be written on
securities which, in the Advisor's or Sub-Advisor's opinion, are not expected to
make any major price moves in the near future but which, over the long term, are
deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him or her to deliver
the underlying security against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by repurchasing an option
identical to that previously sold. To secure his or her obligation to deliver
the underlying security in the case of a call option, a writer is required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation. The Capital Appreciation Funds and
the Bond Fund, Limited Maturity Fund, and Government Income Fund will write only
covered call options. This means that a Fund will only write a call option on a
security which it already owns.
Fund securities on which call options may be written will be purchased
solely on the basis of investment considerations consistent with a Fund's
investment objectives. The writing of covered call options is a conservative
investment technique believed to involve relatively little risk (in contrast to
the writing of naked or uncovered options, which the Capital Appreciation Funds
and the Bond Fund, Limited Maturity Fund, and Government Income Fund will not
do), but capable of enhancing a Fund's total return. When writing a covered call
option, a 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. Unlike one
who owns securities not subject to an option, neither the Capital Appreciation
Funds nor the Bond Fund, Limited Maturity Fund, and Government Income Fund have
any control over when they may be required to sell the underlying securities,
since they may be assigned an exercise notice at any time prior to the
expiration of their obligation as a writer. If a call option which the Fund has
written expires, the Fund will realize a gain in the amount of the premium;
however, such gain may be offset by a decline in the market value of the
underlying security during the option period. If the call option is exercised,
the Fund will realize a gain or loss from the sale of the underlying security.
The security covering the call will be maintained in a segregated account of the
Fund's custodian. The Capital Appreciation Funds, the Bond Fund, Limited
Maturity Fund, and Government Income Fund will consider a security covered by a
call to be "pledged" as that term is used in its policy which limits the
pledging or mortgaging of its assets.
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The premium received is the market value of an option. The premium a
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once the decision to
write a call option has been made, the Advisor or Sub-Advisor, in determining
whether a particular call option should be written on a particular security,
will consider the reasonableness of the anticipated premium and the likelihood
that a liquid secondary market will exist for those options. The premium
received by a Fund for writing covered call options will be recorded as a
liability in the Fund's statement of assets and liabilities. This liability will
be adjusted daily to the option's current market value, which will be the latest
sale price at the time at which the net asset value per share of the Fund is
computed (close of the New York Stock Exchange), or, in the absence of such
sale, the latest asked price. The liability will be extinguished upon expiration
of the option, the purchase of an identical option in the closing transaction,
or delivery of the underlying security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both. If a Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that the Fund will be able to effect such closing transactions at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. A Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by the Capital Appreciation Funds, the Bond Fund,
Limited Maturity Fund, and Government Income Fund will normally have expiration
dates of less than nine months from the date written. The exercise price of the
options may be below, equal to, or above the current market values of the
underlying securities at the time the options are written. From time to time, a
Fund may purchase an underlying security for delivery in accordance with an
exercise notice of a call option assigned to it, rather than delivering such
security from its portfolio. In such cases, additional costs will be incurred.
A Fund will realize a profit or loss from a closing purchase
transaction if the cost of the transaction is less or more than the premium
received from the writing of the option. Because increases in the market price
of a call option will generally reflect increases in the market price of the
underlying security, any loss resulting from the repurchase of a call option is
likely to be offset in whole or in part by appreciation of the underlying
security owned by a Fund.
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PUTS. The Tax Exempt Fund and the Tax-Free Funds may acquire "puts"
with respect to Municipal Securities held in their portfolios, and the Balanced
Fund, the Bond Fund, and the Limited Maturity Fund may acquire "puts" with
respect to debt securities held in their portfolios. A put is a right to sell a
specified security (or securities) within a specified period of time at a
specified exercise price. The Tax Exempt Fund, the Tax-Free Funds, the Bond
Fund, the Balanced Fund, and the Limited Maturity 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 a 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 securities, plus (ii) all interest accrued on the
securities since the last interest payment date during that period.
Puts may be acquired by a 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. Puts
may, under certain circumstances, also be used to shorten the maturity of
underlying variable rate or floating rate securities for purposes of calculating
the remaining maturity of those securities and the dollar-weighted average
portfolio maturity of the Tax Exempt Fund's assets pursuant to Rule 2a-7 under
the 1940 Act. See "Variable and Floating Rate Notes" and "Valuation of the Prime
Obligations Fund, the U.S. Treasury Fund and the Tax Exempt Fund" in this
Statement of Additional Information.
The Limited Maturity Fund will acquire puts solely to shorten the
maturity of the underlying debt security.
The Tax Exempt Fund, the Tax-Free Funds and the Limited Maturity Fund
will generally acquire puts only where the puts are available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, a Fund may pay for puts either separately in cash or by paying a
higher price for portfolio securities which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
The Tax Exempt Fund, the Tax-Free Funds and the Limited Maturity Fund
intend to enter into puts only with dealers, banks, and broker-dealers which, in
the Advisor's opinion, present minimal credit risks.
Investment Restrictions
- -----------------------
The following investment restrictions may be changed with respect to a
particular Fund only by a vote of a majority of the outstanding voting Shares of
that Fund (as defined under "GENERAL INFORMATION - Miscellaneous" in the
Prospectuses).
B-12
<PAGE> 211
None of the Funds of the Trust may:
1. Purchase securities on margin, sell securities short, participate on
a joint or joint and several basis in any securities trading account, or
underwrite the securities of other issuers, except to the extent that a Fund may
be deemed to be an underwriter under certain securities laws in the disposition
of "restricted securities" acquired in accordance with such Fund's investment
objectives, restrictions and policies;
2. Purchase or sell commodities, commodity contracts (including futures
contracts), oil, gas or mineral exploration or development programs, or real
estate (although investments by all of the Funds except the U.S. Treasury Fund
in marketable securities of companies engaged in such activities and in
securities secured by real estate or interests therein are not hereby precluded
and investment in real estate investment trusts are permitted for the Capital
Growth, Small Cap and Equity Income Funds);
3. Invest in securities of other investment companies, except as such
securities may be acquired as part of a merger, consolidation, reorganization,
or acquisition of assets; PROVIDED, HOWEVER, that the Capital Appreciation Funds
and the Income Funds may purchase securities of a money market fund, including
securities of both the Prime Obligations Fund and the U.S. Treasury Fund (and in
the case of the Tax-Free Funds, securities of the Tax Exempt Fund) and the Tax
Exempt Fund and Prime Obligations Fund may purchase securities of a money market
fund which invests primarily in high quality short-term obligations exempt from
federal income tax, if, with respect to each such Fund, immediately after such
purchase, the acquiring Fund, does not own in the aggregate (i) more than 3% of
the acquired company's outstanding voting securities, (ii) securities issued by
the acquired company having an aggregate value in excess of 5% of the value of
the total assets of the acquiring Fund, or (iii) securities issued by the
acquired company and all other investment companies (other than Treasury stock
of the acquiring Fund) having an aggregate value in excess of 10% of the value
of the acquiring Fund's total assets;
4. Invest in any issuer for purposes of exercising control or
management;
5. Purchase or retain securities of any issuer if the officers or
Trustees of the Trust or the officers or directors of its investment advisor
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities; and
6. Invest more than 10% of total assets in the securities of issuers
which together with any predecessors have a record of less than three years of
continuous operation.
The Prime Obligations Fund and the U.S. Treasury Fund may not buy
common stocks or voting securities, or state, municipal, or private activity
bonds. The Money Market Funds and the Tax-Free Funds may not write or purchase
call options. None of the Funds may write
B-13
<PAGE> 212
put options. The Prime Obligations Fund, the U.S. Treasury Fund, the Equity
Fund, the Regional Equity Fund, the Capital Growth Fund, the Small Cap Fund, and
the Equity Income Fund may not purchase put options. The Tax Exempt Fund and the
Tax-Free Funds may not invest in private activity bonds where the payment of
principal and interest are the responsibility of a company (including its
predecessors) with less than three years of continuous operation.
If any percentage restriction described above is satisfied at the time
of investment, a later increase or decrease in such percentage resulting from a
change in asset value will not constitute a violation of such restriction.
Additional Investment Restrictions
- ----------------------------------
The following investment restriction is non-fundamental and may be
changed by a vote of the majority of the Board of Trustees: No Fund will invest
more than 15% of its net assets in securities that are restricted as to resale,
or for which no readily available market exists, including repurchase agreements
providing for settlement more than seven days after notice.
Portfolio Turnover
- ------------------
The portfolio turnover rate for each of the Trust's Funds is calculated
by dividing the lesser of a Fund's purchases or sales of portfolio securities
for the year by the monthly average value of the portfolio securities. The
calculation excludes all securities whose maturities at the time of acquisition
were one year or less. Portfolio turnover with respect to each of the Money
Market Funds is expected to be zero percent for regulatory purposes.
In the fiscal year ended July 31, 1996, portfolio turnover for the
Equity Fund, the Regional Equity Fund, the Limited Maturity Fund, the Government
Income Fund, the Bond Fund and the Florida Fund was 19.11%, 8.22%, 29.56%,
78.31%, 9.60% and 12.21%, respectively. In the fiscal year ended July 31, 1996,
the portfolio turnover rate for the Balanced Fund was 13.65% with respect to the
common stock portion of its portfolio and 6.82% with respect to the other
portion of its portfolio.
In the fiscal year ended July 31, 1995, portfolio turnover for the
Equity Fund, the Regional Equity Fund, the Limited Maturity Fund, the Government
Income Fund, the Bond Fund and the Florida Fund was 19.46%, 14.25%, 38.11%,
27.32%, 17.70% and 2.33%, respectively. In the fiscal year ended July 31, 1995,
the portfolio turnover rate for the Balanced Fund was 16.62% with respect to the
common stock portion of its portfolio and 10.07% with respect to the other
portion of its portfolio. The portfolio turnover rate may vary greatly from year
to year as well as within a particular year, and may also be affected by cash
requirements for redemptions of Shares and, in the case of the Tax Exempt Fund
and the Tax-Free Funds, by requirements which enable these Funds to receive
certain favorable tax
B-14
<PAGE> 213
treatments. A higher portfolio turnover rate may lead to increased taxes and
transaction costs. Portfolio turnover will not be a limiting factor in making
investment decisions.
The Tax-Free Funds will not purchase securities solely for the purpose
of short-term trading. The turnover rates for the Funds will not be a factor
preventing either the sale or the purchase of securities when the Advisor
believes investment considerations warrant such sale or purchase. The annual
portfolio turnover rate of the Municipal Bond Fund is not expected to exceed
50%. However, the portfolio turnover rate for each of the Tax-Free Funds may
vary greatly from year to year as well as within a particular year. High
turnover rates will generally result in higher transaction costs to the Funds
and may result in higher levels of taxable realized gains to the Funds'
Shareholders.
VALUATION
As indicated in the Prospectuses, the net asset value of each Fund is
determined and the Shares of each Fund are priced as of 4:00 p.m., Eastern Time
(the "Valuation Time") on each Business Day of the 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.
Valuation of the Money Market Funds
- -----------------------------------
The Money Market Funds have elected to use the amortized cost method of
valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. The value of
securities in these Funds can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, each Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per Share, provided that no Fund will
purchase any security with a remaining maturity of more than thirteen months
(securities subject to repurchase agreements may bear longer maturities) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
B-15
<PAGE> 214
The Trust's Board of Trustees has also undertaken to establish procedures
reasonably designed, taking into account current market conditions and the
Fund's investment objective, to stabilize the net asset value per Share of the
Money Market Funds for purposes of sales and redemptions at $1.00. These
procedures include review by the Trustees, at such intervals as they deem
appropriate, to determine the extent, if any, to which the net asset value per
Share of each Fund calculated by using available market quotations deviates from
$1.00 per Share. In the event such deviation exceeds one-half of one percent,
Rule 2a-7 requires that the Board of Trustees promptly consider what action, if
any, should be initiated. If the Trustees believe that the extent of any
deviation from a Fund's $1.00 amortized cost price per Share may result in
material dilution or other unfair results to new or existing investors, they
will take such steps as they consider appropriate to eliminate or reduce to the
extent reasonably practicable any such dilution or unfair results. These steps
may include selling portfolio instruments prior to maturity, shortening the
dollar-weighted average portfolio maturity, withholding or reducing dividends,
reducing the number of a Fund's outstanding Shares without monetary
consideration, or utilizing a net asset value per Share determined by using
available market quotations.
Valuation of the Capital Appreciation Funds and the Income Funds
- ----------------------------------------------------------------
The value of the portfolio securities held by each of the Capital
Appreciation Funds and the Income Funds for purposes of determining such Fund's
net asset value per Share will be established on the basis of current valuations
provided by Muller Data Corporation or Kenny S&P Evaluation Services, whose
procedures shall be monitored by the Administrator, and which valuations shall
be the fair market value of such securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each of the Trust's Funds are sold on a continuous basis by
BISYS Fund Services, Limited Partnership ("BISYS"), and BISYS has agreed to use
appropriate efforts to solicit all purchase orders. In addition to purchasing
Shares directly from BISYS, Shares may be purchased through procedures
established by BISYS in connection with the requirements of accounts at or
AmSouth or financial institutions that provide certain support services for
their customers or account holders ("Financial Institutions"). Customers
purchasing Shares of the Trust may include officers, directors, or employees of
AmSouth or AmSouth's correspondent banks.
Purchase of Shares
- ------------------
As stated in the relevant Prospectuses, the public offering price of
Classic Shares of the Capital Appreciation Funds and the Income Funds is their
net asset value computed after the sale plus a sales charge which varies based
upon the quantity purchased. The public offering price of such Shares of the
Trust is calculated by dividing net asset value by the difference
B-16
<PAGE> 215
(expressed as a decimal) between 100% and the sales charge percentage of the
offering price applicable to the purchase (see "How to Purchase and Redeem
Shares" in the relevant Prospectuses). The offering price is rounded to two
decimal places each time a computation is made. The sales charge scale set forth
in a Fund's Prospectus applies to purchases of Shares of such a Fund alone, by
any person, including members of a family unit (i.e., husband, wife and minor
children) and bona fide trustees and also applies to purchases made under a
Rights of Accumulation or a Letter of Intent.
Classic Shares of the Money Market Funds are sold at their net asset
value per share, as next computed after an order is received. However, as
discussed in the Classic and Class B Shares Prospectus, the Class B Shares are
subject to a Contingent Deferred Sales Charge if they are redeemed prior to the
sixth anniversary of purchase. Class B Shares of the Prime Obligations Fund only
are available to Shareholders of Class B Shares of another Fund who wish to
exchange their Class B Shares of such other Fund for Class B Shares of the Prime
Obligations Fund.
Certain sales of Classic Shares are made without a sales charge, as
described in the relevant Prospectuses under the caption "Sales Charge Waivers",
to promote goodwill with employees and others with whom BISYS, AmSouth and/or
the Trust have business relationships, and because the sales effort, if any,
involved in making such sales is negligible.
As the Trust's principal underwriter, BISYS acts as principal in
selling Classic Shares and Class B Shares of the Trust to dealers. BISYS
re-allows a portion of the sales charge as dealer discounts and brokerage
commissions. Dealer allowances expressed as a percentage of the offering price
for all offering prices are set forth in the relevant Classic Shares and Class B
Shares Prospectuses (see "How to Purchase and Redeem Shares"). From time to
time, BISYS may make expense reimbursements for special training of a dealer's
registered representatives in group meetings or to help pay the expenses of
sales contests. In some instances, promotional incentives to dealers may be
offered only to certain dealers who have sold or may sell significant amounts of
Group shares. Neither BISYS nor dealers are permitted to delay the placement of
orders to benefit themselves by a price change.
Matters Affecting Redemption
- ----------------------------
The Trust may suspend the right of redemption or postpone the date of
payment for Shares during any period when (a) trading on the New York Stock
Exchange (the "Exchange") is restricted by applicable rules and regulations of
the Securities and Exchange Commission, (b) the Exchange is closed for other
than customary weekend and holiday closings, (c) the Securities and Exchange
Commission has by order permitted such suspension, or (d) an emergency exists as
determined by the Securities and Exchange Commission.
B-17
<PAGE> 216
The Trust may redeem any class of Shares involuntarily if redemption
appears appropriate in light of the Trust's responsibilities under the 1940 Act.
See "Valuation of the Money Market Funds" above.
Additional Tax Information
- --------------------------
It is the policy of each of the Trust's Funds to qualify for the
favorable tax treatment accorded regulated investment companies under Subchapter
M of the Code. By following such policy, the Trust's Funds expect to eliminate
or reduce to a nominal amount the federal income taxes to which such Fund may be
subject.
In order to qualify for the special tax treatment accorded regulated
investment companies and their Shareholders, a Fund must, among other things,
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale or other
disposition of stock, securities, and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies; (b) derive less than 30% of its gross income from the sale or other
disposition of certain assets (including stocks and securities) held for less
than three months; (c) each year distribute at least 90% of its dividend,
interest (including tax-exempt interest), certain other income and the excess,
if any, of its net short-term capital gains over its net long-term capital
losses; and (d) diversify its holdings so that, at the end of each fiscal
quarter (i) at least 50% of the market value of its total assets is represented
by cash, cash items (including receivables), U.S. Government securities,
securities of other regulated investment companies, and other securities,
limited in respect of any one issuer to a value not greater than 5% of the value
of the Fund's total assets and 10% of the outstanding voting securities of such
issuer, and (ii) not more than 25% of the value of its total assets is invested
in the securities (other than those of the U.S. Government or other regulated
investment companies) of any one issuer or of two or more issuers which the Fund
controls and which are engaged in the same, similar, or related trades or
businesses. The 30% of gross income test described above may restrict a Fund's
ability to sell certain assets held (or considered under Code rules to have been
held) for less than three months and to engage in certain hedging transactions
(including hedging transactions in options and futures) that in some
circumstances could cause certain Fund assets to be treated as held for less
than three months.
A non-deductible excise tax is imposed on regulated investment
companies that do not distribute in each calendar year (regardless of whether
they have a non-calendar taxable year) an amount equal to 98% of their "ordinary
income" (as defined) for the calendar year plus 98% of their capital gain net
income for the 1-year period ending on October 31 of such calendar year plus any
undistributed amounts from the previous year. For the foregoing purposes, a Fund
is treated as having distributed the sum of (i) the deduction for dividends paid
(defined in Section 561 of the Code) during such calendar year, and (ii) any
amount on which it is subject to income tax for any taxable year ending in such
calendar year. If
B-18
<PAGE> 217
distributions during a calendar year by a Fund were less than the required
amount, the Fund would be subject to a non-deductible excise tax equal to 4% of
the deficiency.
Each of the Trust's Funds will be required in certain cases to withhold
and remit to the United States Treasury 31% of taxable dividends and other
distributions paid to any Shareholder who has provided either an incorrect
taxpayer identification number or no number at all, who is subject to
withholding by the Internal Revenue Service for failure properly to report
payments of interest or dividends, or who fails to provide a certified statement
that he or she is not subject to "backup withholding."
A Fund's transactions in options, foreign-currency-denominated
securities, and certain other investment and hedging activities of the Fund,
will be subject to special tax rules (including "mark-to-market," "straddle,"
"wash sale," and "short sale" rules), the effect of which may be to accelerate
income to the Fund, defer losses to the Fund, cause adjustments in the holding
periods of the Fund's assets, convert short-term capital losses into long-term
capital losses, and otherwise affect the character of the Fund's income. These
rules could therefore affect the amount, timing, and character of distributions
to Shareholders. Income earned as a result of these transactions would, in
general, not be eligible for the dividends received deduction or for treatment
as exempt-interest dividends when distributed to Shareholders. The Funds will
endeavor to make any available elections pertaining to these transactions in a
manner believed to be in the best interest of the Funds.
The Funds each expect to qualify as a "regulated investment company"
and to be relieved of all or substantially all federal income taxes, depending
upon the extent of their activities in states and localities in which their
offices are maintained, in which their agents or independent contractors are
located, or in which they are otherwise deemed to be conducting business, the
Funds may be subject to the tax laws of such states or localities.
However, if for any taxable year the Funds do not qualify for the
special federal tax treatment afforded regulated investment companies, all of
their taxable income will be subject to federal income tax at regular corporate
rates at the Fund level (without any deduction for distributions to their
Shareholders). In addition, distributions to Shareholders will be taxed as
ordinary income even if the distributions are attributable to capital gains or
exempt interest earned by the Fund.
Information set forth in the Prospectuses and this Statement of
Additional Information which relates to federal taxation is only a summary of
some of the important federal tax considerations generally affecting purchasers
of Shares of the Trust's Funds. No attempt has been made to present a detailed
explanation of the Federal income tax treatment of a Fund or its Shareholders
and this discussion is not intended as a substitute for careful tax planning.
Accordingly, potential purchasers of Shares of a Fund are urged to consult their
tax advisors with specific reference to their own tax situation. In addition,
the tax discussion in the Prospectuses and this Statement of Additional
Information is based on tax laws and regulations
B-19
<PAGE> 218
which are in effect on the date of the Prospectuses and this Statement of
Additional Information; such laws and regulations may be changed by legislative
or administrative action.
Additional Tax Information Concerning the Tax Exempt Fund and Tax-free Funds
- ----------------------------------------------------------------------------
As indicated in the prospectuses of the Tax Exempt Fund and the
Tax-Free Funds, these Funds are designed to provide Shareholders with current
tax-exempt interest income. The Funds are not intended to constitute a balanced
investment program and are not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax Exempt Fund and the Tax-Free Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, so-called Keogh or H.R. 10 plans,
and individual retirement accounts. Such plans and accounts are generally
tax-exempt and, therefore, would not gain any additional benefit from the
dividends of the Tax Exempt Fund and the Tax-Free Funds, being tax-exempt, and
such dividends would be ultimately taxable to the beneficiaries when distributed
to them.
In addition, the Tax Exempt Fund and the Tax-Free Funds may not be
appropriate investments for Shareholders that may be "substantial users" of
facilities financed by private activity bonds or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business, and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds represent more than 5% of the total revenues
derived by all users of such facilities, or who occupies more than 5% of the
usable area of such facilities, or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related person"
includes certain related natural persons, affiliated corporations, a partnership
and its partners and an S Corporation and its Shareholders. Each Shareholder
that may be considered a "substantial user" should consult a tax advisor with
respect to whether exempt-interest dividends would retain the exclusion under
Section 103 of the Code if the Shareholder were treated as a "substantial user"
or a "related person."
The Code permits a regulated investment company which invests at least
50% of its assets in tax-free Municipal Securities to pass through to its
investors, tax-free, net Municipal Securities interest income. The policy of the
Tax Exempt Fund and the Tax-Free Funds is to pay each year as dividends
substantially all such Fund's Municipal Securities interest income net of
certain deductions. An exempt-interest dividend is any dividend or part thereof
(other than a capital gain dividend) paid by the Tax Exempt Fund and the
Tax-Free Funds and designated as an exempt-interest dividend in a written notice
mailed to Shareholders after the close of such Fund's taxable year, but not to
exceed in the aggregate the net Municipal Securities interest received by the
Fund during the taxable year. The percentage of the total dividends paid for any
taxable year which qualifies as federal exempt-interest dividends will be the
same for all Shareholders receiving dividends from the Tax Exempt Fund and the
Tax-Free Funds during such year, regardless of the period for which the Shares
were held.
B-20
<PAGE> 219
While the Tax Exempt Fund and the Tax-Free Funds do not expect to
realize any significant amount of long-term capital gains, any net realized
long-term capital gains will be distributed annually. The Tax Exempt Fund and
the Tax-Free Funds will have no tax liability with respect to such gains and the
distributions will be taxable to Shareholders as long-term capital gains,
regardless of how long a Shareholder has held the Shares of the Funds. Such
distributions will be designated as a capital gains dividend in a written notice
mailed by the Tax Exempt Fund and the Tax-Free Funds to Shareholders after the
close of the Fund's taxable year.
While the Tax Exempt Fund and the Tax-Free Funds do not expect to earn
any significant amount of investment company taxable income, taxable income
earned by the Funds will be distributed to Shareholders. In general, the
investment company taxable income will be the taxable income of the Fund (for
example, short-term capital gains) subject to certain adjustments and excluding
the excess of any net long-term capital gains for the taxable year over the net
short-term capital loss, if any, for such year. Any such income will be taxable
to Shareholders as ordinary income (whether paid in cash or additional Shares).
As indicated in the prospectuses of the Tax Exempt Fund and the
Tax-Free Funds, the Funds may acquire puts with respect to Municipal Securities
(and in the case of the Florida Fund, Florida Municipal Securities) held in
their portfolios. See "INVESTMENT OBJECTIVES AND POLICIES - Additional
Information on Portfolio Instruments - Puts" in this Statement of Additional
Information. The policy of the Tax Exempt Fund and the Tax-Free Funds is to
limit their acquisition of puts to those under which the Fund will be treated
for federal income tax purposes as the owner of the Municipal Securities
acquired subject to the put and the interest on the Municipal Securities will be
tax-exempt to such Fund. Although the Internal Revenue Service has issued a
published ruling that provides some guidance regarding the tax consequences of
the purchase of puts, there is currently no guidance available from the Internal
Revenue Service that definitively establishes the tax consequences of many of
the types of puts that the Tax Exempt Fund and the Tax-Free Funds could acquire
under the 1940 Act. Therefore, although the Tax Exempt Fund and the Tax-Free
Funds will only acquire a put after concluding that it will have the tax
consequences described above, the Internal Revenue Service could reach a
different conclusion from that of the Funds. If the Tax Exempt Fund and the
Tax-Free Funds were not treated as the owner of the Municipal Securities, income
from such securities would probably not be tax-exempt.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting purchasers of Shares of the Tax Exempt Fund
and the Tax-Free Funds. No attempt has been made to present a detailed
explanation of the federal income tax treatment of the Tax Exempt Fund and the
Tax-Free Funds or their Shareholders and this discussion is not intended as a
substitute for careful tax planning. Accordingly, potential purchasers of Shares
of the Tax Exempt Fund and the Tax-Free Funds are urged to consult their tax
advisors with specific reference to their own tax situation. In addition, the
foregoing discussion is based on
B-21
<PAGE> 220
tax laws and regulations which are in effect on the date of this Statement of
Additional Information; such laws and regulations may be changed by legislative
or administrative action.
MANAGEMENT OF THE TRUST
Officers
- --------
The officers of each Fund 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 Past 5 Years
- ---------------- ---------------- -------------------
<S> <C> <C>
George R. Landreth Chairman and Vice President From December 1992 to present, employee of
BISYS Fund Services, Limited Partnership;
from July 1991 to December 1992, employee of
PNC Financial Corp.; from October 1984 to
July 1991, employee of The Central Trust Co.,
N.A.
Walter B. Grimm Vice President From June, 1992 to present, employee of BISYS
Fund Services, Limited Partnership; from 1990
to 1992, President and CEO, Security
Bancshares; from July, 1981 to present,
President of Leigh Investments Consulting
(investments firm).
Thomas Line Treasurer From December, 1996 to present, employee of
BISYS Fund Services Limited Partnership;
from September, 1989 to November, 1996, Audit
Senior Manager at KPMG Peat Marwick LLP.
John F. Calvano President and Secretary From October, 1994 to present, employee of
BISYS Fund Services, Limited Partnership;
from July, 1992 to August, 1994, investment
representative, BA Investment Services; and
from October, 1986 to July, 1994, Marketing
Manager, Great Western Investment
Management.
George O. Martinez Assistant Secretary From March, 1995 to present, Senior Vice
President and Director of Legal and Compliance
Services, BISYS Fund Services, Limited
Partnership; from June, 1989 to March, 1995,
Vice President and Associate General Counsel,
Alliance Capital Management.
Alaina V. Metz Assistant Secretary From June, 1995 to present, Chief
Administrator, Administrative and Regulatory
Services, BISYS Fund Services, Limited
</TABLE>
B-22
<PAGE> 221
<TABLE>
<S> <C> <C>
Partnership; from May, 1989 to June, 1995,
Supervisor, Mutual Fund Legal Department,
Alliance Capital Management.
Scott A. Englehart Assistant Secretary From October, 1990 to present, employee of
BISYS Fund Services, Limited Partnership.
</TABLE>
The officers of the Trust receive no compensation directly from the
Trust for performing the duties of their offices. BISYS 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. Messrs. Calvano, Line, Landreth, Grimm,
Englehart, and Martinez and Mme. Metz are employees of BISYS Fund Services,
Limited Partnership.
COMPENSATION TABLE 1
------------------
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual from AmSouth
Name of from AmSouth As Part of Benefits Upon Mutual Funds
Position Mutual Funds Fund Expenses Retirement Paid to Trustee
- -------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C>
J. David Huber None None None None
James H.
Woodward, Jr. 11,250 None None 11,250
Homer H.
Turner 11,250 None None 11,250
Wendell D.
Cleaver 11,250 None None 11,250
Dick D. Briggs,
Jr. 11,250 None None 11,250
<FN>
1 Figures are for the Trust's fiscal year ended July 31, 1996.
</TABLE>
Investment Advisor
- ------------------
Investment advisory and management services are provided to the Money
Market Funds, the Capital Appreciation Funds and the Income Funds (except the
Limited Maturity Fund) by the Advisor pursuant to the Investment Advisory
Agreement dated as of August 1,
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1988, as amended (the "First Investment Advisory Agreement"). Investment
advisory and management services are provided to the Limited Maturity Fund by
the Advisor pursuant to the Investment Advisory Agreement dated as of January
20, 1989, as amended (the "Second Investment Advisory Agreement" collectively
with the First and Second Investment Advisory Agreement, the "Advisory
Agreements").
In selecting investments for each of the Capital Appreciation Funds
(except for the Equity Income Fund), the Advisor employs the "value investing"
method. A primary theory of value investing is that many investors tend to
exaggerate both prosperity and problems in market valuations. This method, which
may conflict with the prevailing mood of the market, involves the use of
independent judgment backed by careful analysis of market data. The Advisor's
approach when selecting investment for each of these Funds is to attempt to buy
and sell securities that are temporarily mispriced relative to long-term value.
In selecting investments for each of the Income Funds and the Balanced
Fund, the Advisor attempts to anticipate interest rates, thereby capitalizing on
cyclical movements in the bond markets. The Advisor seeks to achieve this goal
through active management of the buying and selling of fixed-income securities
in anticipation of changes in yields.
Under the Advisory Agreements, the fee payable to the Advisor by the
Funds for investment advisory services is the lesser of (a) such fee as may from
time to time be agreed upon in writing by the Trust and the Advisor or (b) a fee
computed daily and paid monthly based on the average daily net assets of each
Fund as follows: the Prime Obligations Fund - forty one-hundredths of one
percent (.40%) annually; the Equity Fund - eighty one-hundredths of one percent
(.80%) annually; the Regional Equity Fund - eighty one-hundredths of one
percent (.80%) annually; the U.S. Treasury Fund - forty one-hundredths of one
percent (.40%) annually; the Tax Exempt Fund - forty one-hundredths of one
percent (.40%) annually; the Bond Fund - sixty-five one-hundredths of one
percent (.65%) annually; the Limited Maturity Fund - sixty-five one-hundredths
of one percent (.65%) annually; the Balanced Fund - eighty one-hundredths of
one percent (.80%) annually; the Government Income Fund - sixty-five
one-hundredths of one percent (.65%) annually; the Florida Fund - sixty-five
one-hundredths of one percent (.65%) annually; the Municipal Bond Fund -
sixty-five one-hundredths of one percent (.65%) annually; the Equity Income
Fund - eighty one-hundredths of one percent (.80%) annually; the Capital Growth
Fund - eighty one-hundredths of one percent (.80%) annually; and the Small Cap
Fund - ninety one-hundredths of one percent (.90%) annually. A fee agreed to in
writing from time to time by the Trust and the Advisor may be significantly
lower than the fee calculated at the annual rate and the effect of such lower
fee would be to lower a Fund's expenses and increase the net income of such
Fund during the period when such lower fee is in effect.
For the fiscal years ended July 31, 1996, July 31, 1995, and July 31,
1994, the Advisor received $2,459,885, $2,184,158, and $1,976,523, respectively,
from the Prime Obligations Fund. For the fiscal years ended July 31, 1996, July
31, 1995, and July 31, 1994,
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the Advisor received $1,588,850, $1,245,378, and $1,225,805, respectively, from
the U.S. Treasury Fund. For the fiscal years ended July 31, 1996, July 31, 1995,
and July 31, 1994, the Advisor received $133,336, $125,213, and $126,354 for the
Tax Exempt Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and
July 31, 1994, investment advisory fees paid to the Advisor reflect voluntary
reductions in investment advisory fees of $133,340, $125,213, and $126,354,
respectively, for the Tax Exempt Fund.
For the fiscal year ended July 31, 1996, the Advisor received
$2,706,627, $669,502, $547,123, $292,620, $2,429,049, $52,834, and $146,775 from
the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity
Fund, the Balanced Fund, the Government Income Fund, and Florida Fund,
respectively. For the fiscal year ended July 31, 1996, investment advisory fees
paid to the Advisor reflect voluntary fee reductions of $962, $165,186, $87,670,
$169,405, $61,522, and $171,316, for the Regional Equity Fund, the Bond Fund,
the Limited Maturity Fund, the Balanced Fund, the Government Income Fund, and
Florida Fund, respectively.
For the fiscal year ended July 31, 1995, the Advisor received
$1,841,031, $478,789, $461,002, $253,511, $1,807,557, and $29,835 from the
Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund,
the Balanced Fund and the Government Income Fund, respectively. For the fiscal
year ended July 31, 1995, investment advisory fees paid to the Advisor reflect
voluntary fee reductions of $3,057, $302, $138,571, $76,328, $259,520, and
$66,952, for the Equity Fund, the Regional Equity Fund, the Bond Fund, the
Limited Maturity Fund, the Balanced Fund and the Government Income Fund. For the
period from commencement of operations (September 30, 1994) through July 31,
1995, the Advisor received $124,256 from the Florida Fund, which reflects a
voluntary reduction in fees of $111,697.
For the fiscal year ended July 31, 1994, the Advisor received
$1,253,256, $209,061, $352,480, $280,251, and $1,274,752 from the Equity Fund,
the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund and the
Balanced Fund, respectively. For the fiscal year ended July 31, 1994, investment
advisory fees paid to the Advisor reflect voluntary fee reductions of $165,048,
$184,505, $105,953, $83,946, and $408,227, for the Equity Fund, the Regional
Equity Fund, the Bond Fund, the Limited Maturity Fund and the Balanced Fund. For
the period from commencement of operations October 1, 1993 through July 31,
1994, the Advisor received $0 from the Government Income Fund, which reflects a
voluntary reduction in fees of $117,065.
Each of the Advisory Agreements provides that the Advisor shall not be
liable for any error of judgment or mistake of law or for any loss suffered by
the Trust in connection with the performance of such Advisory Agreement, except
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith, or gross negligence on the part of the Advisor in the
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<PAGE> 224
performance of its duties, or from reckless disregard by the Advisor of its
duties and obligations thereunder.
Unless sooner terminated, the First Investment Advisory Agreement will
continue in effect until January 31, 1998 as to each of the Money Market Funds,
the Capital Appreciation Funds, the Tax-Free Funds, the Bond Fund and the
Government Income Fund and for successive one-year periods if such continuance
is approved at least annually by the Trust's Board of Trustees or by vote of the
holders of a majority of the outstanding voting Shares of that Fund (as defined
under "GENERAL INFORMATION -Miscellaneous" in the respective Prospectus of the
Money Market Funds, the Capital Appreciation Funds and the Income Funds), and a
majority of the Trustees who are not parties to the First Investment Advisory
Agreement or interested persons (as defined in the 1940 Act) of any party to the
First Investment Advisory Agreement by votes cast in person at a meeting called
for such purpose.
Unless sooner terminated, the Second Investment Advisory Agreement will
continue in effect as to the Limited Maturity Fund until January 31, 1998 and
for successive one-year periods thereafter if such continuance is approved at
least annually by the Trust's Board of Trustees or by vote of the holders of a
majority of the outstanding voting Shares of the Limited Maturity Fund (as
defined under "GENERAL INFORMATION - Miscellaneous" in the Prospectus of the
Income Funds), and a majority of the Trustees who are not parties to the Second
Investment Advisory Agreement or interested persons (as defined in the 1940 Act)
of any party to the Second Investment Advisory Agreement by votes cast in person
at a meeting called for such purpose. The Advisory Agreements are terminable as
to a particular Fund at any time on 60 days' written notice without penalty by
the Trustees, by vote of the holders of a majority of the outstanding voting
Shares of that Fund, or by the Advisor. The Advisory Agreements also terminate
automatically in the event of any assignment, as defined in the 1940 Act.
On December 5, 1990, the First Investment Advisory Agreement was
approved by the Shareholders of the Prime Obligations Fund, the U.S. Treasury
Fund, the Equity Fund, the Regional Equity Fund and the Bond Fund and the Second
Advisory Agreement was approved by the Shareholders of the Limited Maturity
Fund. On March 8, 1993, the First Investment Advisory Agreement was approved by
the Shareholders of the Prime Obligations Fund, the U.S. Treasury Fund, the Tax
Exempt Fund, the Equity Fund, the Regional Equity Fund, the Bond Fund, and the
Balanced Fund, and the Second Advisory Agreement was approved by the
Shareholders of the Limited Maturity Fund.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Funds may
include descriptions of the investment advisor including, but not limited to,
(i) descriptions of the advisor's operations; and (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings related to the
advisor's operations.
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AmSouth also serves as Sub-Administrator for the Trust. See
"SUB-ADMINISTRATOR" below.
Investment Sub-Advisor
- ----------------------
Investment sub-advisory services are provided to the Equity Income Fund
by Rockhaven Asset Management, LLC ("Rockhaven") ("Sub-Advisor") pursuant to a
Sub-Advisory Agreement dated as of March 12, 1997 between the Advisor and
Sub-Advisor ("Sub-Advisory Agreement").
The Sub-Advisor shall not be liable for any error of judgement or
mistake of law or for any loss suffered by the Advisor, the Trust or the Fund in
connection with the matters to which Agreement relates, except that Sub-Advisor
shall be liable to the Advisor for a loss resulting from a breach of fiduciary
duty by Sub-Advisor under the 1940 Act with respect to the receipt of
compensation for services or a loss resulting from willful misfeasance, bad
faith or gross negligence on the part of Sub-Advisor in the performance of its
duties or from reckless disregard by it of its obligations or duties thereunder.
Unless sooner terminated, the Sub-Advisory Agreement shall continue
with respect to the Equity Income Fund until January 31, 1998 and shall continue
in effect for successive one-year periods if such continuance is approved at
least annually by the Board of Trustees of the Trust or by vote of the holders
of a majority of the outstanding voting Shares of the Fund (as defined under
"GENERAL INFORMATION - Miscellaneous" in the Prospectus of the Capital
Appreciation Funds) and a majority of the Trustees who are not parties to the
Sub-Advisory Agreement or interested persons (as defined in the 1940 Act) of any
party to the Sub-Advisory Agreement by vote cast in person at a meeting called
for such purpose. This Agreement may be terminated with respect to the Fund by
the Trust at any time without the payment of any penalty by the Board of
Trustees of the Trust, by vote of the holders of a majority of the outstanding
voting securities of the Fund, or by the Advisor or Sub-Advisor on 60 days
written notice. This Agreement will also immediately terminate in the event of
its assignment.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective Shareholders of the Trust may
include descriptions of the investment sub-advisor including, but not limited
to, (i) descriptions of the sub-advisor's operations; (ii) descriptions of
certain personnel and their functions; and (iii) statistics and rankings
relating to the sub-advisor's operations.
Portfolio Transactions
- ----------------------
Pursuant to the Advisory Agreements, the Advisor or Sub-Advisor
determines, subject to the general supervision of the Board of Trustees of the
Trust and in accordance with each Fund's investment objective, policies and
restrictions, which securities are to be purchased and sold by a Fund, and which
brokers are to be eligible to execute such Fund's portfolio
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<PAGE> 226
transactions. Purchases and sales of portfolio securities with respect to the
Money Market Funds, the Income Funds and the Balanced Fund (with respect to its
debt securities) usually are principal transactions in which portfolio
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asked price. Transactions on stock exchanges
involve the payment of a negotiated brokerage commissions. Transactions in
over-the-counter market are generally principal transactions with dealers. With
respect to over-the-counter market, the Trust, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances where better price and execution are available elsewhere.
While the Advisor and Sub-Advisor generally seek competitive spreads or
commissions, the Trust may not necessarily pay the lowest spread or commission
available on each transaction, for reasons discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by the Advisor and the Sub-Advisor in their best judgment
and in a manner deemed fair and reasonable to Shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide supplemental
investment research to the Advisor or Sub-Advisor may receive orders for
transactions on behalf of the Trust. Information so received is in addition to
and not in lieu of services required to be performed by the Advisor or
Sub-Advisor and does not reduce the advisory fees payable to the Advisor or the
Sub-Advisor. Such information may be useful to the Advisor or Sub-Advisor in
serving both the Trust and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to the Advisor or Sub-Advisor in carrying out their obligations to the Trust.
The Trust will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with the Advisor, BISYS, the
Sub-Advisor, or their affiliates, and will not give preference to AmSouth's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
Investment decisions for each Fund of the Trust are made independently
from those for the other Funds or any other investment company or account
managed by the Advisor or Sub-Advisor. Any such other investment company or
account may also invest in the same securities as the Trust. When a purchase or
sale of the same security is made at substantially the same time on behalf of a
Fund and another Fund, investment company or account, the transaction will be
averaged as to price and available investments will be allocated as to amount in
a manner which the Advisor or Sub-Advisor believe to be equitable to the Fund(s)
and such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained by a Fund. To the extent permitted by law, the Advisor
or Sub-Advisor may aggregate the
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<PAGE> 227
securities to be sold or purchased for a Fund with those to be sold or purchased
for the other Funds or for other investment companies or accounts in order to
obtain best execution. As provided by each of the Advisory Agreements and the
Sub-Advisory Agreement, in making investment recommendations for the Trust, the
Advisor or Sub-Advisor will not inquire or take into consideration whether an
issuer of securities proposed for purchase or sale by the Trust is a customer of
the Advisor or Sub-Advisor, its parent or its subsidiaries or affiliates and, in
dealing with its customers, the Advisor or Sub-Advisor, its parent,
subsidiaries, and affiliates will not inquire or take into consideration whether
securities of such customers are held by the Trust.
During the fiscal year ended July 31, 1996, the Equity Fund paid
aggregate brokerage commissions in the amount of $265,581.82. During the fiscal
year ended July 31, 1996, the Regional Equity Fund paid aggregate brokerage
commissions in the amount of $167,771.64. During the fiscal year ended July 31,
1996, the Balanced Fund paid aggregate brokerage commissions in the amount of
$489,564.65.
Glass-Steagall Act
- ------------------
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment advisor, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisors to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
AmSouth believes that it possesses the legal authority to perform the
services for each Fund contemplated by the Advisory Agreements regarding that
Fund and described in the Prospectus of that Fund and this Statement of
Additional Information and has so represented in the Advisory Agreement
regarding that Fund. Future changes in either federal or state statutes
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<PAGE> 228
and regulations relating to the permissible activities of banks or bank holding
companies and the subsidiaries or affiliates of those entities, as well as
further judicial or administrative decisions or interpretations of present and
future statutes and regulations, could prevent or restrict AmSouth from
continuing to perform such services for the Trust. Depending upon the nature of
any changes in the services which could be provided by AmSouth, the Board of
Trustees of the Trust would review the Trust's relationship with AmSouth and
consider taking all action necessary in the circumstances.
Should future legislative, judicial, or administrative action prohibit
or restrict the proposed activities of AmSouth in connection with customer
purchases of Shares of the Trust, AmSouth might be required to alter materially
or discontinue the services offered by them to customers. It is not anticipated,
however, that any change in the Trust's method of operations would affect its
net asset value per Share or result in financial losses to any customer.
Administrator
- -------------
ASO Services Company ("ASO") serves as administrator (the
"Administrator") to each Fund of the Trust pursuant to the Management and
Administration Agreement dated as of April 1, 1996 (the "Administration
Agreement"). During the Trust's fiscal year ended July 31, 1996 ASO succeeded
BISYS Fund Services LP ("BISYS") as Administrator on April 1, 1996. ASO is a
wholly-owned subsidiary of BISYS which is a wholly-owned subsidiary of BISYS
Group, Inc., a publicly held company which is a provider of information
processing, loan servicing and 401(k) administration and record-keeping services
to and through banking and other financial organizations. The Administrator
assists in supervising all operations of each Fund (other than those performed
by the Advisor under the Advisory Agreements, the Sub-Advisor under the
Sub-Advisory Agreement, those performed by AmSouth under its custodial services
agreement with the Trust and those performed by BISYS Fund Services Ohio, Inc.
under its transfer agency and fund accounting agreements with the Trust).
Under the Administration Agreement, the Administrator has agreed to
monitor the net asset value per Share of the Money Market Funds, to maintain
office facilities for the Trust, to maintain the Trust's financial accounts and
records, and to furnish the Trust statistical and research data and certain
bookkeeping services, and certain other services required by the Trust. The
Administrator prepares annual and semi-annual reports to the Securities and
Exchange Commission, prepares federal and state tax returns, prepares filings
with state securities commissions, and generally assists in supervising all
aspects of the Trust's operations (other than those performed by the Advisor
under the Advisory Agreements, the Sub-Advisor under the Sub-Advisory Agreement,
those by AmSouth under its custodial services agreement with the Trust and those
performed by BISYS Fund Services Ohio, Inc. under its transfer agency and fund
accounting agreements with the Trust). Under the Administration Agreement, the
Administrator may delegate all or any part of its responsibilities thereunder.
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<PAGE> 229
Under the Administration Agreement for expenses assumed and services
provided as manager and administrator, the Administrator receives a fee from
each Fund equal to the lesser of (a) a fee computed at the annual rate of twenty
one-hundredths of one percent (.20%) of such 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 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 a Fund's expenses and
increase the net income of such Fund during the period when such lower fee is in
effect. Each Fund also bears expenses incurred in pricing securities owned by
the Fund.
For the fiscal years ended July 31, 1996, July 31, 1995 and July 31,
1994, BISYS and ASO received $1,229,842, $1,092,079 and $988,262, respectively,
from the Prime Obligations Fund. For the fiscal years ended July 31, 1996, July
31, 1995 and July 31, 1994, BISYS and ASO received $794,425, $622,689, and
$612,904, respectively, from the U.S. Treasury Fund. For the fiscal years ended
July 31, 1996, July 31, 1995 and July 31, 1994, BISYS and ASO received $133,336,
$125,213 and $126,354, respectively, from the Tax Exempt Fund. For the fiscal
year ended July, 1996, management and administration fees reflect voluntary
reductions in management and administration fees of $1,000 for the Tax Exempt
Fund.
For the fiscal year ended July 31, 1996, BISYS and ASO received
$406,464, $100,491, $131,382, $70,255, $389,624, $17,620 and $48,936 from the
Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund,
the Balanced Fund and the Government Income Fund, and the Florida Fund
respectively. For the fiscal year ended July 31, 1996, management and
administration fees reflect voluntary fee reductions of $309,086, $67,125,
$87,790, $46,757, $259,990, $17,567, and $48,938 for the Equity Fund, the
Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced
Fund, Government Income Fund and the Florida Fund, respectively.
For the fiscal year ended July 31, 1995, BISYS received $276,383,
$71,818, $110,640, $60,867, $308,216, and $6,300 from the Equity Fund, the
Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced
Fund and the Government Income Fund, respectively. For the fiscal year ended
July 31, 1995, management and administration fees paid to BISYS reflect
voluntary fee reductions of $184,639, $47,954, $73,844, $40,622, $208,553, and
$23,481 for the Equity Fund, the Regional Equity Fund, the Bond Fund, the
Limited Maturity Fund, the Balanced Fund and the Government Income Fund,
respectively. For the period from commencement of operations (September 30,
1994) through July 31, 1995, BISYS received $50,848 from the Florida Fund, which
reflects a voluntary reduction in fees of $21,753.
For the fiscal year ended July 31, 1994, BISYS received $212,573,
$58,991, $84,589, $67,244, and $252,259 from the Equity Fund, the Regional
Equity Fund, the Bond Fund, the Limited Maturity Fund and the Balanced Fund,
respectively. For the fiscal year ended
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<PAGE> 230
July 31, 1994, management and administration fees paid to BISYS reflect
voluntary fee reductions of $142,003, $39,401, $56,467, $44,817 and $168,486 for
the Equity Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity
Fund and the Balanced Fund, respectively. For the period from commencement of
operations (October 1, 1993) through July 31, 1994, BISYS received $0 from the
Government Income Fund, which reflects a voluntary reduction in fees of $36,020.
The Administration Agreement shall, unless sooner terminated as
provided in the Administration Agreement (described below), continue until
December 31, 2000. Thereafter, the Administration Agreement shall be renewed
automatically for successive five-year terms, unless written notice not to renew
is given by the non-renewing party to the other party at least 60 days' prior to
the expiration of the then-current term. The Administration Agreement is
terminable with respect to a particular Fund only upon mutual agreement of the
parties to the Administration Agreement and for cause (as defined in the
Administration Agreement) by the party alleging cause, on not less than 60 days'
notice by the Trust's Board of Trustees or by the Administrator.
The Administration Agreement provides that the Administrator shall not
be liable for any loss suffered by the Trust in connection with the matters to
which the Administration Agreement relates, except a loss resulting from willful
misfeasance, bad faith, or gross negligence in the performance of its duties, or
from the reckless disregard by the Administrator of its obligations and duties
thereunder.
Expenses
- --------
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,
advisory and administration fees, fees and out-of-pocket expenses of the
custodian and the transfer agent, dividend disbursing agents fees, 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 its operation.
Sub-Administrators
- ------------------
AmSouth is retained by BISYS as the Sub-Administrator to the Trust
pursuant to an agreement between the Administrator and AmSouth. On April 1,
1996, AmSouth entered into an Agreement with ASC as the Sub-Administrator of the
Trust. 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 (.10%) ten one-hundredths
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<PAGE> 231
of one percent of each Fund's average net assets. For the fiscal year ended July
31, 1996, AmSouth received $1,125,000 with respect to the Trust.
BISYS is retained by the Administrator as a Sub-Administrator to the
Trust. Pursuant to its agreement with the Administrator, BISYS Fund Services is
entitled to compensation as mutually agreed upon from time to time by it and the
Administrator.
Distributor
- -----------
BISYS serves as distributor to each Fund of the Trust pursuant to the
Distribution Agreement dated as of July 16, 1997 (the "Distribution Agreement").
The Distribution Agreement provides that, unless sooner terminated it will
continue in effect [until January 31, 1998], and from year to year thereafter if
such continuance is approved at least annually (i) by the Trust's Board of
Trustees or by the vote of a majority of the outstanding Shares of the Funds or
Fund subject to such Distribution Agreement, and (ii) by the vote of a majority
of the Trustees of the Trust who are not parties to such Distribution Agreement
or interested persons (as defined in the Investment Company Act of 1940) of any
party to such Distribution Agreement, cast in person at a meeting called for the
purpose of voting on such approval. The Distribution Agreement may be terminated
in the event of any assignment, as defined in the 1940 Act.
A Shareholder Servicing Plan regarding the Classic Shares for the Trust
was initially approved on December 6, 1995 by the Trust's Board of Trustees,
including a majority of the trustees who are not interested persons of the Trust
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the Shareholder Servicing Plan (the "Independent Trustees"). The
Shareholder Servicing Plan reflects the creation of the Classic Shares, and
provides for fees only upon that Class.
The Shareholder Servicing Plan may be terminated with respect to any
Fund by a vote of a majority of the Independent Trustees, or by a vote of a
majority of the outstanding Classic Shares of that Fund. The Shareholder
Servicing Plan may be amended by vote of the Trust's Board of Trustees,
including a majority of the Independent Trustees, cast in person at a meeting
called for such purpose, except that any change in the Shareholder Servicing
Plan that would materially increase the shareholder servicing fee with respect
to a Fund requires the approval of the holders of that Fund's Classic Class. The
Trust's Board of Trustees will review on a quarterly and annual basis written
reports of the amounts received and expended under the Shareholder Servicing
Plan (including amounts expended by the Distributor to Participating
Organizations pursuant to the Servicing Agreements entered into under the
Shareholder Servicing Plan) indicating the purposes for which such expenditures
were made.
The fee of .25% of average daily net assets of the Classic Shares of
each Fund payable under the Trust's Shareholder Servicing Plan, to which Classic
Shares of each Fund of the Trust are subject, is described in the Classic Shares
Prospectuses. For the fiscal year ended
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<PAGE> 232
July 31, 1996 BISYS received $4,607 with respect to the Classic Shares of the
AmSouth U.S. Treasury Fund (which reflects a fee reduction of $6,912); $41,777
with respect to the Classic Shares of the Prime Obligations Fund (which reflects
a fee reduction of $62,669); and $4,960 with respect to the Classic Shares of
the Tax-Exempt Fund (which reflects a fee reduction of $7,440). For the fiscal
year ended July 31, 1995 no fees were paid by any Money Market Fund under the
Shareholder Servicing Plan.
The Shareholder Servicing and Distribution Plan regarding the Class B
Shares of the Funds (the "Distribution Plan") was initially approved on March
12, 1997 by the Trust's Board of Trustees, including a majority of the trustees
who are not interested persons of the Fund (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the Distribution Plan (the
"Independent Trustees"). The Distribution Plan provides for fees only upon the
Class B Shares of each Fund, as described in the Class B Shares Prospectuses.
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan
may be terminated with respect to any Fund by a vote of a majority of the
Independent Trustees, or by a vote of a majority of the outstanding Class B
Shares of that Fund. The Distribution Plan may be amended by vote of the Fund's
Board of Trustees, including a majority of the Independent Trustees, cast in
person at a meeting called for such purpose, except that any change in the
Distribution Plan that would materially increase the distribution fee with
respect to a Fund requires the approval of the holders of that Fund's Class B
Shares. The Trust's Board of Trustees will review on a quarterly and annual
basis written reports of the amounts received and expended under the
Distribution Plan (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Distribution Plan) indicating the purposes for which such expenditures
were made.
Custodian
- ---------
As of April 17, 1997, AmSouth serves as custodian of the Trust pursuant
to a Custodial Services Agreement with the Trust (the "Custodian"). The
Custodian's responsibilities include safeguarding and controlling the Trust's
cash and securities, handling the receipt and delivery of securities, and
collecting interest and dividends on the Trust's investments.
Transfer Agent and Fund Accounting Services.
- --------------------------------------------
BISYS Fund Services Ohio, Inc. ("BISYS Ohio") serves as transfer agent
to each Fund of the Trust pursuant to a Transfer Agency and Shareholder Service
Agreement with the Trust. BISYS Ohio is a wholly-owned subsidiary of The BISYS
Group, Inc.
BISYS Ohio also provides fund accounting services to each of the Funds
pursuant to a Fund Accounting Agreement with the Trust. Under the Fund
Accounting Agreement, BISYS Ohio receives a fee from each Fund at the annual
rate of 0.03% of such Fund's average daily
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<PAGE> 233
net assets, plus out-of-pocket expenses, subject to a minimum annual fee of
$40,000 for each tax exempt fund and $30,000 for each taxable Fund and the Money
Market Funds may be subject to an additional fee of $10,000 for each Class. For
the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994, BISYS
Ohio received $254,753 and $289,092, respectively, from the Prime Obligations
Fund. For the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994,
BISYS Ohio received $147,544 and $179,572, respectively, from the U.S. Treasury
Fund. For the fiscal years ended July 31, 1996, July 31, 1995 and July 31, 1994,
BISYS Ohio received $32,145 and $59,090, respectively, from the Tax Exempt Fund.
For the fiscal years ended July 31, 1996, July 31, 1995, and July 31, 1994,
BISYS Ohio received $145,583, $114,437, and $120,225 respectively, from the
Equity Fund. For the fiscal years ended July 31, 1996, July 31, 1995, and July
31, 1994, BISYS Ohio received $36,049, $30,766, and $79,071, respectively, from
the Regional Equity Fund. For the fiscal years ended July 31, 1996, July 31,
1995, and July 31, 1994, BISYS Ohio received $46,931, $50,807, and $64,501,
respectively, from the Bond Fund. For the fiscal years ended July 31, 1996, July
31, 1995, and July 31, 1994, BISYS Ohio received $26,388, $28,353, and $58,805,
respectively, from the Limited Maturity Fund. For the fiscal years ended July
31, 1996, July 31, 1995, and July 31, 1994, BISYS Ohio received $141,803,
$128,452, and $133,846, respectively, from the Balanced Fund for fund accounting
services and reimbursement of expenses. For the fiscal year ended July 31, 1996,
July 31, 1995 and for the period from commencement of operations (October 1,
1993) through July 31, 1994, BISYS Ohio received $7,849, $12,846 and $28,546,
respectively, from the Government Income Fund for fund accounting services and
reimbursement of expenses. For the fiscal year ended July 31, 1996 and for the
period from commencement of operations (September 30, 1994) through July 31,
1995, BISYS Ohio received $21,614 and $22,258 from the Florida Fund for fund
accounting services and reimbursement of expenses.
Auditors
- --------
The financial information appearing in the Prospectuses under
"FINANCIAL HIGHLIGHTS" has been derived from financial statements of the Trust
incorporated by reference into this Statement of Additional Information which
have been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their report incorporated by reference herein, and are included in
reliance upon such report and on the authority of such firm as experts in
auditing and accounting. Coopers & Lybrand L.L.P.'s address is 100 East Broad
Street, Columbus, Ohio 43215.
Legal Counsel
- -------------
Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East,
Washington, DC 20005-3333 are counsel to the Trust.
B-35
<PAGE> 234
PERFORMANCE INFORMATION
General
- -------
From time to time, the Trust may include the following types of
information in advertisements, supplemental sales literature and reports to
Shareholders: (1) discussions of general economic or financial principals (such
as the effects of inflation, the power of compounding and the benefits of
dollar-cost averaging); (2) discussions of general economic trends; (3)
presentations of statistical data to supplement such discussions; (4)
descriptions of past or anticipated portfolio holdings for one or more of the
Funds within the Trust; (5) descriptions of investment strategies for one or
more of such Funds; (6) descriptions or comparisons of various investment
products, which may or may not include the Funds; (7) comparisons of investment
products (including the Funds) with relevant market or industry indices or other
appropriate benchmarks; and (8) discussions of fund rankings or ratings by
recognized rating organizations.
Yields of the Money Market Funds
- --------------------------------
As summarized in the Prospectus of the Money Market Funds under the
heading "Performance Information," the "yield" of each of those Funds for a
seven-day period (a "base period") will be computed by determining the "net
change in value" (calculated as set forth below) of a hypothetical account
having a balance of one share at the beginning of the period, dividing the net
change in account value by the value of the account at the beginning of the base
period to obtain the base period return, and multiplying the base period return
by 365/7 with the resulting yield figure carried to the nearest hundredth of one
percent. Net changes in value of a hypothetical account will include the value
of additional shares purchased with dividends from the original share and
dividends declared on both the original share and any such additional shares,
but will not include realized gains or losses or unrealized appreciation or
depreciation on portfolio investments. Yield may also be calculated on a
compound basis (the "effective yield") which assumes that net income is
reinvested in Fund shares at the same rate as net income is earned for the base
period.
The Tax Exempt Fund may also advertise a "tax equivalent yield" and a
"tax equivalent effective yield." Tax equivalent yield will be computed by
dividing that portion of the Tax Exempt Fund's yield which is tax-exempt by the
difference between one and a stated income tax rate and adding the product to
that portion, if any, of the yield of the Fund that is not tax-exempt. The tax
equivalent effective yield for the Tax Exempt Fund is computed by dividing that
portion of the effective yield of the Tax Exempt Fund which is tax-exempt by the
difference between one and a stated income tax rate and adding the product to
that portion, if any, of the effective yield of the Fund that is not tax-exempt.
The yield and effective yield of each of the Money Market Funds and the
tax equivalent yield and the tax equivalent effective yield of the Tax Exempt
Fund will vary in response to
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<PAGE> 235
fluctuations in interest rates and in the expenses of the Fund. For comparative
purposes the current and effective yields should be compared to current and
effective yields offered by competing financial institutions for that base
period only and calculated by the methods described above.
For the seven-day period ended January 31, 1997, the yield and
effective yield of the Premier Class of each Money Market Fund calculated as
described above was as follows:
<TABLE>
<CAPTION>
Effective
Fund Yield Yield
---- ----- -----
<S> <C> <C>
Prime Obligations Fund 4.88% 5.00%
U.S. Treasury Fund 4.62% 4.72%
Tax Exempt Fund 3.22% 3.28%
</TABLE>
For the seven-day period ending January 31, 1997, the tax equivalent
yield and the tax equivalent effective yield of the Premier Class of the Tax
Exempt Fund were 5.33% and 5.43%, respectively, and the tax equivalent yield and
the tax-equivalent effective yield of the Classic Class of the Tax Exempt Fund
was 5.17% and 5.25% respectively, which reflect the amount of income subject to
federal income taxation that a taxpayer in a 39.6% tax bracket would have to
earn in order to obtain the same after-tax income as that derived from the
"yield" and "effective yield," respectively, of the Tax Exempt Fund.
For the seven-day period ended January 31, 1997, the yield and
effective yield of the Classic Class of each Money Market Fund calculated as
described above was as follows:
<TABLE>
<CAPTION>
Effective
Fund Yield Yield
---- ----- -----
<S> <C> <C>
Prime Obligations Fund 4.78% 4.89%
U.S. Treasury Fund 4.52% 5.62%
Tax Exempt Fund 3.12% 3.17%
</TABLE>
Yields of the Capital Appreciation Funds, the Income Funds, and the Tax-free
- ----------------------------------------------------------------------------
Funds
- -----
As summarized in the Prospectuses under the heading "Performance
Information," yields of the Capital Appreciation Funds, the Income Funds and the
Tax-Free Funds will be computed by annualizing net investment income per share
for a recent 30-day period and dividing that amount by the maximum offering
price per share (reduced by any undeclared
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<PAGE> 236
earned income expected to be paid shortly as a dividend) on the last trading day
of that period. Net investment income will reflect amortization of any market
value premium or discount of fixed-income securities (except for obligations
backed by mortgages or other assets) and may include recognition of a pro rata
portion of the stated dividend rate of dividend paying portfolio securities. The
yield of each of the Capital Appreciation Funds and the Income Funds will vary
from time to time depending upon market conditions, the composition of the
Fund's portfolios and operating expenses of the Trust allocated to each Fund.
These factors and possible differences in the methods used in calculating yield
should be considered when comparing a Fund's yield to yields published for other
investment companies and other investment vehicles. Yield should also be
considered relative to changes in the value of the Fund's shares and to the
relative risks associated with the investment objectives and policies of the
Capital Appreciation Funds and the Income Funds.
The Tax-Free Funds may also advertise a "tax equivalent yield" and a
"tax equivalent effective yield." Tax equivalent yield will be computed by
dividing that portion of each Fund's yield which is tax-exempt by the difference
between one and a stated income tax rate and adding the product to that portion,
if any, of the yield of the Fund that is not tax-exempt. The tax equivalent
effective yield for the Tax-Free Funds is computed by dividing that portion of
the effective yield of the Fund which is tax-exempt by the difference between
one and a stated income tax rate and adding the product to that portion, if any,
of the effective yield of the Fund that is not tax-exempt.
At any time in the future, yields and total return may be higher or
lower than past yields and there can be no assurance that any historical results
will continue.
Investors in the Capital Appreciation Funds and the Income Funds are
specifically advised that share prices, expressed as the net asset values per
share, will vary just as yields will vary.
For the 30-day period ending January 31, 1997, the Equity Fund had a
yield of 4.53%, the Regional Equity Fund had a yield of 1.03%, the Balanced Fund
had a yield of 3.42%, the Bond Fund had a yield of 5.85%, the Limited Maturity
Fund had a yield of 5.35%, the Government Income Fund had a yield of 6.32%, the
Florida Fund had a yield of 3.97% and for the 30-day period ended July 31, 1997,
the Equity Income Fund had a yield of 1.61% and the Municipal Bond Fund had a
yield of 3.49%.
Calculation of Total Return
- ---------------------------
Total Return is a measure of the change in value of an investment in a
Fund over the period covered, assuming the investor paid the current maximum
applicable sales charge on the investment and that any dividends or capital
gains distributions were reinvested in the Fund immediately rather than paid to
the investor in cash. The formula for calculating Total Return includes four
steps: (1) adding to the total number of shares purchased by a hypothetical
$1,000 investment in the Fund all additional shares which would have been
purchased if all
B-38
<PAGE> 237
dividends and distributions paid or distributed during the period had been
immediately reinvested; (2) calculating the value of the hypothetical initial
investment of $1,000 as of the end of the period by multiplying the total number
of shares owned at the end of the period by the net asset value per share on the
last trading day of the period; (3) assuming redemption at the end of the
period; and (4) dividing this account value for the hypothetical investor by the
initial $1,000 investment and annualizing the result for periods of less than
one year.
For the one-year period ended January 31, 1997, annual total return was
4.90%, 4.67% and 3.04% for the Premier Shares and 4.82%, 4.58% and 2.96% for the
Classic Shares of the Prime Obligations Fund, the U.S. Treasury Fund, and the
Tax Exempt Fund, respectively.
For the one-year period ended January 31, 1997, annual total return was
14.32%, 18.96%, 4.53%, 3.29%, 9.73%, 4.95% and 2.71% for the Equity Fund, the
Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced
Fund, Government Income Fund, and the Florida Fund, respectively. For the period
from March 20, 1997 (commencement of operations of the Equity Income Fund)
average annual total return was 17.81%.
For the five-year period ended January 31, 1997, the average annual
total return was 4.04% for the Premier Shares and 4.02% for the Classic Shares
of the Prime Obligations Fund; 2.66% for the Premier Shares and 2.65% for the
Classic Shares of the U.S. Treasury Fund; and 3.89% for the Premier Shares and
3.87% for the Classic Shares of the Tax Exempt Fund.
For the five-year period ended January 31, 1997, the average annual
total return was 13.65%, 6.46%, 4.94%, 13.50% and 10.33% for the Equity Fund,
the Bond Fund, the Limited Maturity Fund, the Regional Equity Fund, and the
Balanced Fund, respectively.
For the period from December 1, 1988 (commencement of operations of the
Equity Fund, the Regional Equity Fund and the Bond Fund) through January 31,
1997, average annual total return was 13.15%, 15.00% and 8.03% for the Equity
Fund, the Regional Equity Fund and the Bond Fund, respectively. For the period
from February 1, 1989 (commencement of operations) through January 31, 1997, the
average annual total return for the Limited Maturity Fund was 6.74%. For the
period from August 8, 1988 (commencement of operations) through January 31,
1997, average annual total return was 5.45% for the Premier Shares and 5.44% for
the Classic Shares of the Prime Obligations Fund. For the period from September
8, 1988 (commencement of operations) through January 31, 1997, average annual
total return was 5.24% for the Premier Shares and 5.23% for the Classic Shares
of the U.S. Treasury Fund. For the period from June 27, 1990 (commencement of
operations) through January 31, 1997, average annual total return was 3.08% for
the Premier Shares and 3.07% for the Classic Shares of the Tax Exempt Fund. For
the period from December 19, 1991 (commencement of operations) through January
31, 1997, average annual
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<PAGE> 238
total return for the Balanced Fund was 11.47%. For the period from October 1,
1993 (commencement of operations) through January 31, 1997, average annual total
return was 4.41% for the Government Income Fund. For the period from September
30, 1994 (commencement of operations) through January 31, 1997, average annual
total return was 4.41% for the Florida Fund.
Performance Comparisons
- -----------------------
YIELD AND TOTAL RETURN. From time to time, performance information for
the Funds showing their average annual total return and/or yield may be included
in advertisements or in information furnished to present or prospective
Shareholders and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives may be included in advertisements.
Total return and/or yield may also be used to compare the performance
of the Funds against certain widely acknowledged standards or indices for stock
and bond market performance. The Standard & Poor's Composite Index of 500 Stocks
(the "S&P 500") is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 Stocks relative to the base period
1941-43. The S&P 500 is composed almost entirely of common stocks of companies
listed on the New York Stock Exchange, although the common stocks of a few
companies listed on the American Stock Exchange or traded over-the-counter are
included. The 500 companies represented include 400 industrial, 60
transportation and 40 financial services concerns. The S&P 500 represents about
80% of the market value of all issues traded on the New York Stock Exchange.
The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.
The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. Government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
Government. Mortgage backed securities, flower bonds and foreign targeted issues
are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL
B-40
<PAGE> 239
Government/Corporate Index, an issue must have amounts outstanding in excess of
$1 million, have at least one year to maturity and be rated "Baa" or higher
("investment grade") by a nationally recognized statistical rating agency.
ALL FUNDS. Current yields or performance will fluctuate from time to time and
are not necessarily representative of future results. Accordingly, a Fund's
yield or performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of a quality, composition, and maturity, as well as
expenses allocated to the Fund. Fees imposed upon customer accounts by Financial
Institutions for cash management services will reduce a Fund's effective yield
to Customers.
ADDITIONAL INFORMATION
Organization and Description of Shares
- --------------------------------------
The Trust was organized as a Massachusetts business trust by the
Agreement and Declaration of Trust, dated October 1, 1987, under the name "Shelf
Registration Trust IV." The Trust's name was changed to "The ASO Outlook Group"
as of April 12, 1988 and to "AmSouth Mutual Funds" as of August 19, 1993 by
amendments to the Agreement and Declaration of Trust. A copy of the Trust's
Agreement and Declaration of Trust, as amended (the "Declaration of Trust") is
on file with the Secretary of State of The Commonwealth of Massachusetts. The
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of Shares, which are units of beneficial interest. The Trust presently
has fourteen series of Shares which represent interests in the Prime Obligations
Fund, the AmSouth U.S. Treasury Fund, the Tax Exempt Fund, the Equity Fund, the
Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced
Fund, the Municipal Bond Fund, the Government Income Fund, the Florida Fund, the
Capital Growth Fund, the Small Cap Fund, and the Equity Income Fund. The Trust's
Declaration of Trust authorizes the Board of Trustees to divide or redivide any
unissued Shares of the Trust into one or more additional series.
Shares have no subscription or preemptive rights and only such
conversion or exchange rights as the Board of Trustees may grant in its
discretion. When issued for payment as described in the Prospectuses and this
Statement of Additional Information, the Trust's Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Trust,
Shareholders of a Fund are entitled to receive the assets available for
distribution belonging to that Fund, and a proportionate distribution, based
upon the relative asset values of the respective Funds, of any general assets
not belonging to any particular Fund which are available for distribution.
B-41
<PAGE> 240
As described in the text of the Prospectuses following the caption
"GENERAL INFORMATION -- Description of the Trust and its Shares," Shares of the
Trust are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the 1940 Act, shares shall be voted by individual
series, (ii) when the Trustees have determined that the matter affects only the
interests of one or more series or class, then only Shareholders of such series
or class shall be entitled to vote thereon, (iii) only the holders of Classic
Shares will be entitled to vote on matters submitted to Shareholder vote with
regard to the Shareholder Servicing Plan, and (iv) only the holders of Class B
Shares will be entitled to vote on matters submitted to Shareholder vote with
regard to the Distribution Plan. There will normally be no meetings of
Shareholders for the purposes of electing Trustees unless and until such time as
less than a majority of the Trustees have been elected by the Shareholders, at
which time the Trustees then in office will call a Shareholders' meeting for the
election of Trustees. In addition, Trustees may be removed from office by a
written consent signed by the holders of two-thirds of the outstanding voting
Shares of the Trust and filed with the Trust's custodian or by vote of the
holders of two-thirds of the outstanding voting Shares of the Trust at a meeting
duly called for the purpose, which meeting shall be held upon the written
request of the holders of not less than 10% of the outstanding voting Shares of
any Fund. Except as set forth above, the Trustees shall continue to hold office
and may appoint their successors.
Shareholder Liability
- ---------------------
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.
The Trust is registered with the Securities and Exchange Commission as
a management investment company. Such registration does not involve supervision
by the Securities and Exchange Commission of the management or policies of the
Trust.
As of [August 21], 1997, the trustees and officers of the Trust, as a
group, owned less than 1% of the Premier Shares and of the Classic Shares of any
of the Prime Obligations Fund, the U.S. Treasury Fund and the Tax Exempt Fund,
and of the Equity Fund, the Regional Equity Fund, the Tax Exempt Fund, the Bond
Fund, the Limited Maturity Fund, the Balanced Fund, the Municipal Bond Fund, the
Government Income Fund, the Florida Fund, and the Equity Income Fund.
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<PAGE> 241
As of August 21, 1997, AmSouth, 1901 Sixth Avenue-North, Birmingham,
Alabama, was the Shareholder of record of 98.81% of the outstanding voting
Shares of the Premier Shares of the Prime Obligations Fund, 98.98% of the
outstanding voting Shares of the Premier Shares of the U.S. Treasury Fund,
98.98% of the outstanding voting Shares of the Premier Shares of the Tax Exempt
Fund, 94.92% of the outstanding voting Shares of the Equity Fund, 68.22% of the
outstanding voting Shares of the Regional Equity Fund, 98.01% of the
outstanding voting Shares of the Bond Fund, 97.51% of the outstanding voting
Shares of the Limited Maturity Fund, and 86.78% of the outstanding voting
Shares of the Balanced Fund, 88.18% of the outstanding voting Shares of the
Florida Fund, 76.79% of the outstanding voting Shares of the Premier Class of
the Prime Obligations Fund, 11.55% of the outstanding voting Shares of the
Premier Class of the U.S. Treasury Fund, 69.27% of the outstanding voting
Shares of the Premier Class of the Tax Exempt Fund, 61.73% of the outstanding
voting Shares of the Equity Fund, 54.67% of the outstanding voting Shares of
the Regional Equity Fund, 72.49% of the outstanding voting Shares of the Bond
Fund, 57.28% of the outstanding voting Shares of the Limited Maturity Fund, and
81.58% of the outstanding voting Shares of the Balanced Fund were also owned
beneficially by AmSouth because it possessed or shared investment or voting
power with respect to such Shares. Under the 1940 Act, AmSouth may be deemed to
be a controlling person of the Premier Class of the Prime Obligations Fund, the
Premier Class of the Tax Exempt Fund, the Equity Fund, the Regional Equity
Fund, the Bond Fund, the Limited Maturity Fund, and the Balanced Fund. The
ultimate parent of AmSouth is AmSouth Bancorporation.
As of August 21, 1997 National Financial Services Corporation, One
World Financial Center, 200 Liberty Street, New York, New York 10281, was the
Shareholder of record of 95.15% of the outstanding voting Shares of the Classic
Shares of the Prime Obligations Fund, 82.60% of the outstanding Shares of the
Classic Shares of the Treasury Fund, 92.49% of the outstanding voting Shares of
the Classic Shares of the Tax Exempt Fund, and 35.22% of the Government Income
Fund.
The following table indicates each additional person known by the group
to own beneficially 5% or more of the Shares of a Fund of the Trust as of
August 21, 1997:
B-43
<PAGE> 242
U.S. TREASURY FUND -- CLASSIC SHARES
------------------------------------
<TABLE>
<CAPTION>
Number of
Name and Address Shares Percentage
- ---------------- ------ ----------
<S> <C> <C>
Association of Edison 796,869.05 8.22%
Illumination
600 18th Street North
Birmingham, AL 35291
Shredders Inc. 636,611.57 6.53%
3353 27th Avenue N.
Birmingham, AL 35202
</TABLE>
The Prospectuses of the Funds and this Statement of Additional
Information omit certain of the information contained in the Registration
Statement filed with the Securities and Exchange Commission. Copies of such
information may be obtained from the Securities and Exchange Commission upon
payment of the prescribed fee.
The Prospectuses of the Funds and this Statement of Additional
Information are not an offering of the securities herein described in any state
in which such offering may not lawfully be made. No salesman, dealer, or other
person is authorized to give any information or make any representation other
than those contained in the Prospectuses of the Funds and this Statement of
Additional Information.
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<PAGE> 243
FINANCIAL STATEMENTS
The Independent Accountant's Report for the year ended July 31, 1996,
Financial Statements for the AmSouth Mutual Funds for the period ended July 31,
1996, and Financial Statements for the period ended January 31, 1997, are all
incorporated by reference to the Annual and Semi-Annual Reports of the AmSouth
Mutual Funds, dated as of such dates, which have been previously sent to
Shareholders of each Fund pursuant to the 1940 Act and previously filed with the
Securities and Exchange Commission. A copy of each such report may be obtained
without charge by contacting the Distributor, BISYS Fund Services at 3435
Stelzer Road, Columbus, Ohio 43219 or by telephone toll-free at 800-451-8382.
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<PAGE> 244
APPENDIX
COMMERCIAL PAPER RATINGS. Commercial paper ratings of Standard & Poor's
Corporation ("S&P") are current assessments of the likelihood of timely payment
of debt considered short-term in the relevant market. Commercial paper rated A-1
by S&P indicates that the degree of safety regarding timely payment is strong.
Those issues determined to possess extremely strong safety characteristics are
denoted A-1+. Commercial paper rated A-2 by S&P indicates that capacity for
timely payment on issues is satisfactory. However, the relative degree of safety
is not as high as for issues designated A-1. Commercial paper rated A-3
indicates capacity for timely payment. It is, however, more vulnerable to the
adverse effects of changes in circumstances than obligations carrying the higher
designations. Commercial paper rated B is regarded as having only speculative
capacity for timely payment. Commercial paper rated C is assigned to short-term
debt obligations with a doubtful capacity for payment. Commercial paper rated D
represents an issue in default or when interest payments or principal payments
are not made on the date due, even if the applicable grace period has not
expired.
The rating Prime-1 is the highest commercial paper rating assigned by
Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or related
supporting institutions) are considered to have a superior ability for repayment
of senior short-term debt obligations. Issuers rated Prime-2 (or related
supporting institutions) have a strong ability for repayment of senior
short-term promissory obligations. This will normally be evidenced by many of
the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be more affected by
external conditions. Ample alternative liquidity is maintained. Issuers rated
Prime-3 (or related supporting institutions) have an acceptable ability for
repayment of short-term obligations. The effect of industry characteristics and
market composition may be more pronounced. Variability in earnings and
profitability may result in changes in the level of debt protection measurements
and may require relatively high financial leverage. Adequate alternate liquidity
is maintained. Issuers rated Not Prime do not fall within any of the Prime
rating categories.
Commercial paper rated F-1 by Fitch Information Service ("Fitch") is
regarded as having the strongest degree of assurance for timely payments.
Commercial paper rated F-2 by Fitch is regarded as having a satisfactory degree
of assurance of timely payment, but that margin of safety is not as great as for
issues assigned F-1+ and F-1 ratings. Commercial paper rated F-3 has an adequate
degree of assurance for timely payment but near-term adverse changes could cause
these securities to be rated below investment grade. Issues rated F-S have
characteristics suggesting a minimal degree of assurance for timely payment and
are vulnerable to near term adverse changes in financial and economic
conditions. The plus (+) sign is used after a rating symbol to designate the
relative position of an issuer within the rating category.
B-46
<PAGE> 245
Corporate Debt and State and Municipal Bond Ratings.
- ----------------------------------------------------
STANDARD & POOR'S CORPORATION. Debt rated AAA has the highest rating
assigned by S&P. Capacity to pay interest and repay principal is extremely
strong. Debt rated AA has a very strong capacity to pay interest and to repay
principal and differs from the highest rated issues only in small degree. Debt
rated A has a strong capacity to pay interest and repay principal although it is
somewhat more susceptible to adverse effects of changes in circumstances and
economic conditions than debt in higher rated categories. Debt rated BBB is
regarded as having an adequate capacity to pay interest and repay principal.
Whereas it normally exhibits adequate protection parameters, adverse economic
conditions or changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this category than in
the higher rated categories.
BB -- Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could lead
to inadequate capacity to meet timely interest and principal payments. The "BB"
rating category is also used for debt subordinated to senior debt that is
assigned an actual or implied "BBB-" rating.
B -- Debt rated "B" has a greater vulnerability to default but
currently has the capacity to meet interest payments and principal repayments.
Adverse business, financial, or economic conditions will likely impair capacity
or willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual or
implied "BB" or "BB-" rating.
CCC -- Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal. In the
event of adverse business, financial, or economic conditions, it is not likely
to have the capacity to pay interest and repay principal. The "CCC" rating
category is also used for debt subordinated to senior debt that is assigned an
actual or implied "B" or "B-" rating.
CC -- The rating "CC" typically is applied to debt subordinated to
senior debt that is assigned an actual or implied "CCC" debt rating.
C -- The rating "C" typically is applied to debt subordinated to senior
debt which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been filed, but
debt service payments are continued.
C1 -- The rating "C1" is reserved for income bonds on which no interest
is being paid.
D -- Debt rated "D" is in payment default. The "D" rating category is
used when interest payments or principal payments are not made on the date due
even if the applicable
B-47
<PAGE> 246
grace period has not expired, unless S&P believes that such payments will be
made during such grace period. The "D" rating also will be used upon the filing
of a bankruptcy petition if debt service payments are jeopardized.
To provide more detailed indications of credit quality, the ratings
from AA to A may be modified by the addition of a plus or minus sign to show
relative standing within this major rating category.
MOODY'S INVESTOR SERVICES. Bonds that are rated Aaa by Moody's are
judged to be of the best quality. They carry the smallest degree of investment
risk and are generally referred to as "gilt edged." Interest payments are
protected by a large or by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues. Bonds that are rated Aa are judged to be of high
quality by all standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may be
other elements present which make the long-term risks appear somewhat larger
than in Aaa securities. Bonds that are rated A by Moody's possess many favorable
investment attributes and are to be considered as upper-medium-grade
obligations. Factors giving security to principal and interest are considered
adequate but elements may be present which suggest a susceptibility to
impairment some time in the future. Bonds that are rated Baa are considered
medium-grade obligations; they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate, and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B -- Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.
Caa -- Bonds which are rated Caa are of poor standing. Such issues may
be in default or there may be present elements of danger with respect to
principal or interest.
Ca -- Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have other
marked shortcomings.
B-48
<PAGE> 247
C -- Bonds which are rated C are the lowest rated class of bonds, and
issues so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing.
Those bonds within the Aa, A, and Baa categories that Moody's believes
possess the strongest credit attributes within those categories are designated
by the symbols Aa1, A1, and Baa1.
Other Ratings of Municipal Obligations
- --------------------------------------
The following summarizes the two highest ratings used by Moody's
ratings for state and municipal short-term obligations. Obligations bearing
MIG-1 and VMIG-1 designations are of the best quality, enjoying strong
protection by established cash flows, superior liquidity support or demonstrated
broad-based access to the market for refinancing. Obligations rated "MIG-2" or
"VMIG-2" denote high quality with ample margins of protection although not so
large as in the preceding rating group.
S&P SP-1 and SP-2 municipal note rating (the two highest ratings
assigned) are described as follows:
"SP-1" Strong capacity to pay principal and interest. Issues determined
to possess very strong characteristics are given a plus (+)
designation.
"SP-2" Satisfactory capacity to pay principal and interest with some
vulnerability to adverse financial and economic changes over the term
of the notes.
Preferred Stock Ratings
- -----------------------
The following summarizes the ratings used by Moody's for preferred
stock:
"aaa" An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
"aa" An issue which is rated "aa" is considered a high-grade preferred
stock. This rating indicates that there is a reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
"a" An issue which is rated "a" is considered to be an upper-medium
grade preferred stock. While risks are judged to be somewhat greater
than in the "aaa" and "aa" classification, earnings and asset
protection are, nevertheless, expected to be maintained at adequate
levels.
B-49
<PAGE> 248
The following summarizes the ratings used by Standard & Poor's for
preferred stock:
"AAA" This is the highest rating that may be assigned by Standard &
Poor's to a preferred stock issue and indicates an extremely strong
capacity to pay the preferred stock obligations.
"AA" A preferred stock issue rated "AA" also qualifies as a
high-quality, fixed income security. The capacity to pay preferred
stock obligations is very strong, although not as overwhelming as for
issues rated "AAA."
"A" An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
"BBB" An issue rated "BBB" is regarded as backed by an adequate
capacity to pay the preferred stock obligations. Whereas it normally
exhibits adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to make payments for a preferred stock in this category than for issues
in the "A" category.
"BB," "B," "CCC" Preferred stock rated "BB," "B," and "CCC" are
regarded, on balance, as predominantly speculative with respect to the
issuer's capacity to pay preferred stock obligations. "BB" indicates
the lowest degree of speculation and "CCC" the highest. While such
issues will likely have some quality and protective characteristics,
these are outweighed by large uncertainties or major risk exposures to
adverse conditions.
"CC" The rating "CC" is reserved for a preferred stock issue in arrears
on dividends or sinking fund payments but that is currently paying.
"C" A preferred stock rated "C" is a nonpaying issue.
"D" A preferred stock rated "D" is a nonpaying issue with the issuer in
default on debt instruments.
"N.R." This indicates that no rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does
not rate a particular type of obligation as a matter of policy.
"Plus (+) or minus (-)" To provide more detailed indications of
preferred stock quality, ratings from "AA" to "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within
the major rating categories.
B-50
<PAGE> 249
<TABLE>
<CAPTION>
AMSOUTH MUTUAL FUNDS
Statements of Assets and Liabilities
July 31, 1997
(Unaudited)
Equity
Income
----------------
<S> <C>
ASSETS:
Investments, at value (Cost $20,222,462) $22,364,071
Interest and dividends receivable 76,283
Receivable for capital shares issued 92,121
Unamortized organizational costs 12,376
Prepaid expenses and other assets 7,294
-----------
TOTAL ASSETS 22,552,145
-----------
LIABILITIES:
Payable for capital shares redeemed 269
Dividends payable 36,283
Payable to brokers for investments purchased 223,012
Accrued expenses and other payables:
Investment advisory fees 13,955
Administration fees 719
Accounting and transfer agent fees 336
Other 4,785
-----------
TOTAL LIABILITIES 279,359
-----------
NET ASSETS:
Capital 19,867,101
Undistributed net investment income 15,724
Net unrealized appreciation
from investments 2,141,609
Accumulated undistributed net realized
gains from investment transactions 248,352
-----------
NET ASSETS $22,272,786
===========
Outstanding units of beneficial interest (shares) 1,899,621
===========
Net asset value - redemption price
per share $ 11.72
===========
Maximum sales charge 4.50%
-----------
Maximum offering price (100%/(100%-maximum
sales charge) of net asset value rounded
to the nearest cent) per share $ 12.27
===========
</TABLE>
See notes to financial statements.
<PAGE> 250
AMSOUTH MUTUAL FUNDS
EQUITY INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
July 31, 1997
Amounts in Thousands (except Shares)
(Unaudited)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------- ------
<S> <C> <C>
COMMON STOCKS (67.1%):
Aerospace/Defense (1.7%):
4,400 General Dynamics Corp. $ 389
-------
Automobiles (1.6%):
8,500 Ford Motor Co. 347
-------
Aluminum (1.5%):
4,300 Reynolds Metals Co. 335
-------
Banking (8.6%):
13,300 Banc One Corp. 747
4,200 Bankers' Trust New York 425
3,200 J.P. Morgan & Co., Inc. 371
7,200 Mellon Bank Corp. 363
-------
1,906
-------
Chemicals - Specialty (2.2%):
7,800 PPG Industries, Inc. 499
-------
Computers & Peripherals (1.5%):
4,700 Hewlett-Packard Co. 329
-------
Electronic - Semiconductors (1.3%):
9,200 National Semiconductor Corp. (b) 290
-------
Diversified (2.0%):
6,400 General Electric Co. 449
-------
Electrical Equipment (2.5%):
9,400 Emerson Electric Co. 555
-------
Electronic & Electrical (1.7%):
5,800 Avnet, Inc. 382
-------
Financial Services (0.5%):
2,500 Fannie Mae 118
-------
Food Processing & Packaging (3.3%):
6,500 General Mills, Inc. 449
6,200 H.J. Heinz Co. 286
-------
735
-------
Food Distributors & Wholesalers (0.6%):
5,000 International Multifoods Corp. 141
-------
Health Care (2.2%):
7,700 Johnson & Johnson 480
-------
Household Goods - Appliances, Furnishings, Etc. (2.6%):
19,700 Maytag Corp. 575
-------
Office Equipment & Supplies (2.7%):
8,100 Pitney Bowes, Inc. 609
-------
Oil - Integrated (4.6%):
4,250 Amoco Corp. 400
5,100 Equitable Resources, Inc. 152
7,400 Exxon Corp. 475
-------
1,027
-------
Pharmaceuticals (7.2%):
7,900 American Home Products Corp. 651
3,500 Glaxo Wellcome PLC ADR 149
4,200 Merck & Co., Inc. 437
9,900 Pharmacia & Upjohn, Inc. 374
-------
1,611
-------
</TABLE>
<PAGE> 251
AMSOUTH MUTUAL FUNDS
EQUITY INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
July 31, 1997
Amounts in Thousands (except Shares)
(Unaudited)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------- ------
<S> <C> <C>
COMMON STOCKS, CONTINUED:
Restaurants (1.6%):
6,750 McDonald's Corp. $ 363
-------
Railroad (1.3%):
3,900 Union Pacific Corp. 280
-------
Retail (4.4%):
7,500 J.C. Penney Co., Inc. 439
9,700 May Department Stores Co. 542
-------
981
-------
Soaps & Cleaning Agents (0.6%):
1,700 Colgate-Palmolive, Inc. 129
-------
Steel (1.6%):
11,500 Allegheny Teledyne, Inc. 358
-------
Tobacco & Tobacco Products (1.7%):
8,450 Philip Morris Cos., Inc. 381
-------
Utilities - Electric & Gas (2.3%):
3,335 Duke Energy Corp. 169
10,100 Pacific Enterprises 338
-------
507
-------
Utilities - Telecommunications (5.3%):
3,099 SBC Communications, Inc. 183
12,700 Sprint Corp. 629
10,000 U.S. WEST Communications Group 366
-------
1,178
-------
Total Common Stocks 14,954
-------
CONVERTIBLE PREFERRED STOCKS (20.9%):
Banking (3.2%):
24,400 National Australia Bank, Callable 3/19/07 @ $25 717
-------
Computers - Software (2.1%):
5,200 Microsoft Corp., Series A 459
-------
Financial Services (6.3%):
4,400 Jefferson Pilot (ACES) * 535
4,900 MCN Financing III 268
12,800 Merrill Lynch & Co., Inc. (STRYPES) ** 449
1,700 Merrill Lynch & Co., Inc. (STRYPES) *** 151
-------
1,403
-------
Food Processing & Packaging (4.3%):
12,900 Dole Food (TRACES) 522
7,000 Ralston-Ralston Purina Group 436
-------
958
-------
Machinery - Construction (1.6%):
2,400 Case Corp., Series A, Callable 7/1/99 @ $51.29 (c) 360
-------
Oil Refining & Marketing (1.5%):
5,600 Tosco Financial Trust (c) 325
-------
Publishing - Newspapers (1.9%):
37,500 Hollinger International, Inc., Callable 8/1/99 @ $9.99 436
-------
Total Convertible Preferred Stocks 4,658
-------
</TABLE>
<PAGE> 252
AMSOUTH MUTUAL FUNDS
EQUITY INCOME FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
July 31, 1997
Amounts in Thousands (except Shares)
(Unaudited)
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY MARKET
AMOUNT DESCRIPTION VALUE
--------- ----------- ------
<S> <C> <C>
CONVERTIBLE BONDS (10.1%):
Electronic Components (3.9%):
$120 SCI Systems, Inc., 5.00%, 5/1/06,
Callable 5/1/99 @ 103.5 (c) $ 209
490 Solectron Corp., 6.00%, 3/1/06,
Callable 3/3/99 @ 104.2 (c) 658
-------
867
-------
Electronic - Semiconductors (1.2%):
260 National Semiconductor Corp., 6.50%,
10/1/02, Callable 10/3/98 @ 103.71 (c) 274
-------
Medical - Hospitals (1.9%):
350 Tenet Healthcare Corp., 6.00%, 12/1/05,
Callable 1/15/99 @ 103**** 424
-------
Oilfield Equipment & Services (3.1%):
270 Diamond Offshore Drilling, Inc., 3.75%,
2/15/07, Callable 2/22/01 @ 102.08 352
300 Parker Drilling Corp., 5.50%, 8/1/04,
Callable 8/1/00 @ 103.14 330
-------
682
-------
Total Convertible Bonds 2,247
-------
INVESTMENT COMPANY (2.3%):
504,942 AmSouth Prime Obligations Fund 505
-------
Total Investment Company 505
-------
Total (Cost-$20,222)(a) $22,364
=======
</TABLE>
- -----------------------
Percentages indicated are based on net assets of $22,273.
(a) Represents cost for federal income tax purposes and differs from value by
net unrealized appreciation of securities as follows:
Unrealized appreciation $ 2,223
Unrealized depreciation (81)
--------
Net unrealized appreciation $ 2,142
========
(b) Represents non-income producing security.
(c) Section 144A security.
* At maturity, convertible to shares of NationsBank common stock.
** At maturity, convertible to shares of IMC Global, Inc. common stock.
*** At maturity, convertible to shares of MGIC Investment Corp. common stock.
**** Convertible beginning 11/6/97 into common shares of Vencor, Inc.
ACES - Advanced Computerized Execution System
ADR - American Depository Receipt
PLC - Public Liability Co.
STRYPES - Structured Yield Product Exchangeable for Stock.
TRACES - Trust Automatic Common Exchange Securities.
See notes to financial statements.
<PAGE> 253
<TABLE>
<CAPTION>
AMSOUTH MUTUAL FUNDS
Statements of Operations
For the period ended July 31, 1997
(Unaudited)
Equity
Income
Fund (a)
----------
<S> <C>
INVESTMENT INCOME:
Interest income 59,397
Dividend income 95,735
----------
Total Income 155,132
----------
EXPENSES:
Investment advisory fees 36,131
Administration fees 9,033
Custodian and accounting fees 14,230
Legal and audit fees 5,092
Organizational fees 1,064
Trustees' fees and expenses 26
Transfer agent fees 1,742
Registration and filing fees 536
Printing fees 536
Other 16
----------
Total Expenses 68,406
Expenses voluntarily reduced (9,659)
----------
Net Expenses 58,747
----------
Net Investment Income 96,385
----------
REALIZED/UNREALIZED GAINS
FROM INVESTMENTS:
Net realized gains from
investment transactions 248,352
Change in unrealized appreciation
(depreciation) from investments 2,141,609
----------
Net realized/unrealized gains
from investments 2,389,961
----------
Change in net assets
resulting from operations 2,486,346
==========
</TABLE>
(a) For the period March 20, 1997 (commencement of operations) through July 31,
1997
See notes to financial statements.
<PAGE> 254
AMSOUTH MUTUAL FUNDS
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Equity Income
Fund
------------
For the
period ended
July 31,
1997 (a)
------------
(Unaudited)
<S> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income $ 96,385
Net realized gains from investment transactions 248,352
Net change in unrealized appreciation
(depreciation) from investments 2,141,609
------------
Change in net assets
resulting from operations 2,486,346
------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (80,661)
In excess of net investment income
From net realized gains from investment transactions
In excess of net realized gains
------------
Change in net assets from shareholder
distributions (80,661)
------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 20,122,059
Dividends reinvested 36,896
Cost of shares redeemed (291,854)
------------
Change in net assets
from share transactions 19,867,101
------------
Change in net assets 22,272,786
NET ASSETS:
Beginning of period --
------------
End of period $ 22,272,786
============
SHARE TRANSACTIONS:
Issued 1,923,102
Reinvested 3,450
Redeemed (26,931)
------------
Change in shares 1,899,621
============
</TABLE>
(a) For the period March 20, 1997 (commencement of operations) through July 31,
1997
See notes to financial statements.
<PAGE> 255
<TABLE>
<CAPTION>
Equity Income
Fund
-------------
March 20, 1997
July 31,
1997 (a)
-------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
------------
INVESTMENT ACTIVITIES
Net investment income 0.07
Net realized and unrealized
gains from investments 1.71
------------
Total from Investment Activities 1.78
------------
DISTRIBUTIONS
Net investment income (0.06)
Net realized gain 0.00
------------
Total Distributions (0.06)
------------
NET ASSET VALUE, END OF PERIOD 11.72
============
Total Return (excludes sales charge) 17.81(b)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000) $ 22,273
Ratio of expenses to
average net assets 1.28(c)
Ratio of net investment income
to average net assets 2.11(c)
Ratio of expenses to
average net assets * 1.49(c)
Ratio of net investment
income to average net assets * 1.89(c)
Portfolio turnover 27.38%
Average commission rate paid (d) $ 0.0600
- --------
<FN>
* During the period, certain 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) Not annualized.
(c) Annualized
(d) Represents the total dollar amount of commissions paid on portfolio
transactions divided by total number of shares purchased and sold by the
Fund for which commissions were charged.
</TABLE>
See notes to financial statements.
<PAGE> 256
AMSOUTH MUTUAL FUNDS
Equity Income Fund
Notes to Financial Statements
July 31, 1997
(Unaudited)
1. Organization:
AmSouth Mutual Funds (the "Trust") was organized on August 5, 1988, and
is registered under the Investment Company Act of 1940, as amended,
("the 1940 Act") as a diversified, open-end investment company
established as a Massachusetts business trust. Between the date of
organization and the dates of commencement of operations, the Trust had
no operations other than incurring organizational expenses and the sale
of initial units of beneficial interest ("shares").
The Trust is authorized to issue an unlimited number of shares without
par value. The Trust currently offers shares of the AmSouth Prime
Obligations Fund, the AmSouth U.S. Treasury Fund, the AmSouth
Tax-Exempt Fund, the AmSouth Bond Fund, the AmSouth Limited Maturity
Fund, the AmSouth Government Income Fund, the AmSouth Florida Tax-Free
Fund, the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the
AmSouth Balanced Fund, the Amsouth Equity Income Fund and the Amsouth
Municipal Bond Fund (collectively, "the Funds"). The AmSouth Alabama
Tax-Free Fund has not yet commenced operations. Sales of shares of the
Funds may be made to customers of AmSouth Bank of Alabama, ("AmSouth")
and its affiliates, to all accounts of correspondent banks of AmSouth
and to the general public. The accompanying financial statements relate
only to the Amsouth Equity Income Fund ("the Fund"), which commenced
operations on March 20, 1997.
The Equity Income fund seeks above average income and capital
appreciation consistent with the preservation of captial.
2. Significant Accounting Policies:
The following is a summary of significant accounting policies followed
by the Trust in the preparation of its financial statements. The
policies are in conformity with generally accepted accounting
principles.The preparation of financial statements requires management
to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the
reported amounts of income and expenses for the period. Actual results
could differ from those estimates.
-continued-
<PAGE> 257
AMSOUTH MUTUAL FUNDS
Equity Income Fund
Notes to Financial Statements, Continued
July 31, 1997
(Unaudited)
Securities Valuation:
Investments in common stocks, corporate bonds, municipal
bonds, commercial paper and U.S. Government securities of the
variable net asset value funds are valued at their market
values determined on the basis of the mean between the latest
available bid and asked prices in the principal market
(closing sales prices if the principal market is an exchange)
in which such securities are normally traded. Investments in
investment companies are valued at their net asset values as
reported by such companies. The differences between cost and
market values of such investments are reflected as unrealized
appreciation or depreciation.
Securities Transactions and Related Income:
Securities transactions are accounted for on the date the
security is purchased or sold (trade date). Interest income is
recognized on the accrual basis and includes, where
applicable, the pro rata amortization of premium or discount.
Dividend income is recorded on the ex-dividend date. Realized
gains or losses from sales of securities are determined by
comparing the identified cost of the security lot sold with
the net sales proceeds.
Repurchase Agreements:
The Fund may acquire repurchase agreements from member banks
of the Federal Deposit Insurance Corporation and from
registered broker/dealers which AmSouth deems creditworthy
under guidelines approved by the Board of Trustees, subject to
the seller's agreement to repurchase such securities at a
mutually agreed-upon date and price. The repurchase price
generally equals the price paid by the Fund plus interest
negotiated on the basis of current short-term rates, which may
be more or less than the rate on the underlying portfolio
securities. The seller, under a repurchase agreement, is
required to maintain the value of collateral held pursuant to
the agreement at not less than the repurchase price (including
accrued interest). Securities subject to repurchase agreements
are held by the Fund's custodian or another qualified
custodian or in the Federal Reserve/Treasury book-entry
system. Repurchase agreements are considered to be loans by a
Fund under the 1940 Act.
-continued-
<PAGE> 258
AMSOUTH MUTUAL FUNDS
Equity Income Fund
Notes to Financial Statements, Continued
July 31, 1997
(Unaudited)
Dividends to Shareholders:
Dividends from net investment income are declared and paid
monthly for the variable net asset value funds. Distributable
net realized gains, if any, are declared and distributed
annually.
Dividends from net investment income and from net realized
capital gains are determined in accordance with income tax
regulations which may differ from generally accepted
accounting principles. These differences are primarily due to
differing treatments for mortgage-backed securities, expiring
capital loss carryforwards and deferrals of certain losses.
Permanent book and tax basis differences are reflected in the
components of net assets.
Federal Income Taxes:
It is the policy of the Fund to continue to qualify as a
regulated investment company by complying with the provisions
available to certain investment companies, as defined in
applicable sections of the Internal Revenue Code, and to make
distributions of net investment income and net realized
capital gains sufficient to relieve it from all, or
substantially all, federal income taxes.
Organizational Costs:
Costs incurred by the Trust in connection with its
organization and registration of shares have been deferred and
are amortized using the straight-line method over a period of
five years from the commencement of the public offering of
shares of the Fund.
Other:
Expenses that are directly related tothe Fund are charged
directly to the Fund. Other operating expenses for the Trust
are prorated to the Funds on the basis of relative net assets.
-continued-
<PAGE> 259
AMSOUTH MUTUAL FUNDS
Equity Income Fund
Notes to Financial Statements, Continued
July 31, 1997
(Unaudited)
3. Purchases and Sales of Securities:
Purchases and sales of securities (excluding short-term securities) for
the period ended July 31, 1997:
<TABLE>
<CAPTION>
Purchases Sales
--------- -----
<S> <C> <C>
Equity Income Fund $22,750,880 $3,493,221
</TABLE>
4. Related Party Transactions:
Investment advisory services are provided tothe Fund by AmSouth. Under
the terms of the investment advisory agreement, AmSouth is entitled to
receive .80% of the average net assets of the Fund.
BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services
("BISYS"), an Ohio Limited Partnership, and BISYS Fund Services Ohio,
Inc. ("BISYS Ohio") are subsidiaries of the BISYS Group, Inc.
BISYS, with whom certain officers and trustees of the Trust are
affiliated, serves the Funds as administrator. Such officers and
trustees are paid no fees directly by the Funds for serving as officers
and trustees of the Trust. Under the terms of the administration
agreement, BISYS' fees are computed daily as 0.20% of the average net
assets of the Fund. BISYS also serves as the Fund's distributor and is
entitled to receive commissions on sales of shares of the variable net
asset value funds. For the year ended July 31, 1997, BISYS received
$257,930 from commissions earned on sales of shares of the Fund all of
which was reallowed to dealers of the Fund's shares. BISYS Ohio serves
the Funds as Transfer Agent and Mutual Fund Accountant. Under the terms
of the Transfer Agent and Accounting Agreement, the Company's fees are
based on the number of shareholders and as a percentage of average net
assets, respectively.
Amsouth Bank serves as the custodian of the Fund. For their services
Amsouth Bank receives fees based on the number of assets and number of
transactions in the Fund.
-continued-
<PAGE> 260
AMSOUTH MUTUAL FUNDS
Equity Income Fund
Notes to Financial Statements, Continued
July 31, 1997
(Unaudited)
Fees may be voluntarily reduced to assist the Fund in maintaining
competitive expense ratios. Information regarding these transactions
follows for the period ended July 31, 1997 (amounts in thousands):
<TABLE>
<CAPTION>
Gross Fees Actual Fees Waiver
---------- ----------- ------
<S> <C> <C> <C>
Fund Accounting Fees $11,014 $1,355 $9,659
</TABLE>
<PAGE> 261
Part C of Post-Effective Amendment No. 24
to
Registration Statement
of
AMSOUTH MUTUAL FUNDS
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
---------------------------------
(a) Financial Statements.
Included in Part A:
-- Financial Highlights.
Included in Part B:
The following financial statements have been incorporated into the
Statement of Additional Information by reference to AmSouth Mutual
Funds' Annual Report to Shareholders, dated July 31, 1996 and
Semi-Annual Report to Shareholders, dated January 31, 1997:
-- Report of Independent Accountants for AmSouth Mutual Funds
dated September 23, 1996.
-- Statements of Assets and Liabilities at July 31,
1996 (audited).
-- Statements of Assets and Liabilities at January
31, 1997 (unaudited).
-- Statements of Operations for the year ended July
31, 1996 (audited).
-- Statements of Operations for the six months
ended January 31, 1997 (unaudited).
-- Statements of Changes in Net Assets for the year
ended July 31, 1996 (audited).
-- Statements of Changes in Net Assets for the six
months ended January 31, 1997 (unaudited).
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<PAGE> 262
-- Schedules of Portfolio Investments at July 31,
1996 (audited).
-- Schedules of Portfolio Investments at January
31, 1997 (unaudited).
-- Notes to Financial Statements dated July 31,
1996 (audited).
-- Notes to Financial Statements dated January 31,
1997 (unaudited).
-- Financial Highlights for the six months ended
January 31, 1997 (unaudited) and for the periods
or years ended July 31, 1992, July 31, 1993,
July 31, 1994, July 31, 1995 and July 31, 1996
(audited).
The following Financial Statements (unaudited) regarding the
Equity Income Fund are filed herewith:
-- Statement of Assets and Liabilities for the Fund
at July 31, 1997.
-- Statement of Operations for the period March 20,
1997 to July 31, 1997.
-- Statement of Changes in Net Assets for the
period March 20, 1997 to July 31, 1997.
-- Schedule of Portfolio Investments at July 31,
1997.
-- Notes to Financial Statements dated July 31,
1997.
-- Financial Highlights for the period March 20,
1997 to July 31, 1997.
(b) Exhibits:
(1) Amended Declaration of Trust, dated as of June
25, 1993 and filed on August 19, 1993 --
incorporated by reference to Post-Effective
Amendment No. 11 to the Registrant's
Registration Statement on
Form N-1A (File No. 33-21660).
(2) (a) By-laws -- incorporated by reference to
the Registrant's initial Registration
Statement on Form N-1A (File No.
33-21660).
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<PAGE> 263
(b) Amendment No. 1 to By-laws --
incorporated by reference to
Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(3) None.
(4) (a) Article III, Sections 4 and 5; Article
IV, Sections 1 and 6; Article V; Article
VIII, Section 4; and Article IX, Sections
1, 4 and 7 of the Amended Declaration of
Trust -- incorporated by reference to
Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(b) Article 11 of the By-laws -- incorporated
by reference to the Registrant's initial
Registration Statement on Form N-1A (File
No. 33-21660).
(c) Amendment No. 1 to By-laws --
incorporated by reference to
Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(5) (a) Investment Advisory Agreement dated as of
August 1, 1988 between the Registrant and
AmSouth Bank N.A. -- incorporated by reference
to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form N-1A
(File No. 33-21660).
(b) Amendment No. 1 dated as of December 5,
1989 to Investment Advisory Agreement
dated as of August 1, 1988 between the
Registrant and AmSouth Bank N.A. --
incorporated by reference to
Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(c) Amended Schedule A to the Investment
Advisory Agreement between the Registrant
and AmSouth Bank, N.A. -- incorporated by
reference to Exhibit 5(c) to
Post-Effective Amendment No. 23 to the
Registrant's Registration Statement filed
on July 3, 1997 on Form N-1A (File No.
33-21660).
(d) Investment Advisory Agreement between the
Group and
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<PAGE> 264
AmSouth Bank N.A. dated as of January 20,
1989 with respect to The ASO Outlook
Group Limited Maturity Fund --
incorporated by reference to
Post-Effective Amendment No. 2 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(e) Amendment No. 1 dated as of December 5,
1989 to the Investment Advisory Agreement
dated as of January 20, 1989 between the
Registrant and AmSouth Bank, N.A. --
incorporated by reference to
Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on
Form N-1A (File
No. 33-21660).
(f) Investment Sub-Advisory Agreement dated
as of March 12, 1997 between AmSouth Bank
and Rockhaven Asset Management --
incorporated by reference to Exhibit 5(f)
to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement filed
on July 3, 1997 on Form N-1A
(File No. 33-21660).
(6) (a) Distribution Agreement dated as of July
16, 1997 between the Registrant and BISYS
Fund Services, LP is filed herewith.
(b) Dealer Agreement between The Winsbury
Company and AmSouth Investment Services,
Inc. -- incorporated by reference to
Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(c) Dealer Agreement between The Winsbury
Company and National Financial Services
Corporation -- incorporated by reference
to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(d) Dealer Agreement between The Winsbury
Company and AmSouth Bank N.A. --
incorporated by reference to Post-
Effective Amendment No. 5 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(7) None.
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<PAGE> 265
(8) (a) Custodian Agreement dated as of April 17,
1997 between the Registrant and AmSouth
Bank -- incorporated by reference to
Exhibit 8(a) to Post-Effective Amendment
No. 23 to the Registrant's Registration
Statement filed on July 3, 1997 on Form
N-1A (File No. 33-21660).
(9) (a) Management and Administration Agreement
dated as of April 1, 1996 between the
Registrant and ASO Services Company --
incorporated by reference to
Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(b) Amended Schedule A to the Management and
Administration Agreement between the
Registrant and ASO Services Company --
incorporated by reference to Exhibit 9(b)
to Post-Effective Amendment No. 23 to
the Registrant's Registration Statement
filed on July 3, 1997 on Form N-1A (File
No. 33-21660).
(c) Sub-Administration Agreement between ASO
Services Company and AmSouth Bank --
incorporated by reference to
Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(d) Amended Schedules A and B to the
Sub-Administration Agreement between ASO
Services Company and AmSouth Bank --
incorporated by reference to Exhibit 9(c)
to Post-Effective Amendment No. 23 to
the Registrant's Registration Statement
filed on July 3, 1997 on Form N-1A (File
No. 33-21660).
(e) Sub-Administration Agreement between ASO
Services Company and BISYS Fund Services,
LP -- incorporated by reference to
Post-Effective Amendment No. 19 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(f) Amended Schedules A and B to the
Sub-Administration Agreement between ASO
Services Company and BISYS Fund Services,
LP -- incorporated by reference to
Exhibit 5(f) to Post-Effective Amendment
No. 23 to the Registrant's
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<PAGE> 266
Registration Statement filed on July 3,
1997 on Form N-1A (File No. 33-21660).
(g) Transfer Agency and Shareholder Service
Agreement dated as of January 16, 1989
between the Registrant and BISYS Fund
Services Ohio, Inc. (formerly, The
Winsbury Service Corporation) --
incorporated by reference to
Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(h) Amended Schedule D dated as of April 5,
1993 to the Transfer Agency and
Shareholder Services Agreement between
the Registrant and BISYS Fund Services
Ohio, Inc. (formerly, The Winsbury
Service Corporation) -- incorporated by
reference to Post-Effective Amendment No.
13 to the Registrant's Registration
Statement on Form N-1A (File No.
33-21660).
(i) Amended Schedule A to the Transfer Agency
and Shareholder Services Agreement
between Registrant and BISYS Fund
Services Ohio, Inc. (formerly, The
Winsbury Service Corporation) --
incorporated by reference to Exhibit 9(i)
to Post-Effective Amendment No. 23 to the
Registrant's Registration Statement filed
on July 3, 1997 on Form N-1A (File No.
33-21660).
(j) Fund Accounting Agreement dated as of
April 1, 1996 between the Registrant and
BISYS Fund Services -- incorporated by
reference to Post-Effective Amendment No.
19 to the Registrant's Registration
Statement on Form N-1A (File No.
33-21660).
(k) Amended Schedule A to the Fund Accounting
Agreement between the Registrant and
BISYS Fund Services -- incorporated by
reference to Exhibit 9(k) to
Post-Effective Amendment No. 23 to the
Registrant's Registration Statement filed
on July 3, 1997 on Form N-1A (File No.
33-21660).
(10) Opinion of Ropes & Gray is filed herewith.
(11) (a) Consent of Coopers & Lybrand L.L.P. is
filed herewith.
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<PAGE> 267
(b) Consent of Ropes & Gray is filed
herewith.
(12) None.
(13) (a) Purchase Agreement between the Registrant
and Winsbury Associates incorporated by
reference to Post-Effective Amendment No.
1 to the Registrant's Registration
Statement on Form N-1A (File No.
33-21660).
(b) Purchase Agreement between the Registrant
and Winsbury Associates dated October 31,
1991 incorporated by reference to
Post-Effective Amendment No. 7 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(c) Purchase Agreement between the Registrant
and Winsbury Associates relating to the
Alabama Tax-Free Fund and the Government
Income Fund is incorporated by reference
to Post-Effective Amendment No. 11 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(d) Purchase Agreement between the Registrant
and Winsbury Service Corporation relating
to the Florida Tax-Free Fund is
incorporated by reference to
Post-Effective Amendment No. 13 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(14) None.
(15) None.
(16) (a) Performance Calculation Schedules are
incorporated by reference to
Post-Effective Amendment No. 16 to the
Registrant's Registration Statement on
Form N-1A (File No. 33-21660).
(b) Performance Calculation Schedules for the
Municipal Bond Fund and Equity Income
Fund are filed herewith.
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<PAGE> 268
(c) Performance Calculation Schedule for the
Capital Growth Fund is filed herewith.
(17) (a) Financial Data Schedule for the AmSouth
Prime Obligations Fund - Premier Shares
(b) Financial Data Schedule for the AmSouth
U.S. Treasury Fund - Premier Shares
(c) Financial Data Schedule for the AmSouth
Tax Exempt Fund - Premier Shares
(d) Financial Data Schedule for the AmSouth
Prime Obligations Fund -- Classic Shares
(e) Financial Data Schedule for the AmSouth
U.S. Treasury Fund -- Classic Shares
(f) Financial Data Schedule for the AmSouth
Tax-Exempt Fund -- Classic Shares
(g) Financial Data Schedule for the AmSouth
Equity Fund
(h) Financial Data Schedule for the AmSouth
Regional Equity Fund
(i) Financial Data Schedule for the AmSouth
Balanced Fund
(j) Financial Data Schedule for the AmSouth
Bond Fund
(k) Financial Data Schedule for the AmSouth
Limited Maturity Fund
(l) Financial Data Schedule for the AmSouth
Government Income Fund
(m) Financial Data Schedule for the AmSouth
Florida Tax-Free Fund
(n) Financial Data Schedule for the AmSouth
Equity Income Fund
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<PAGE> 269
(18) (a) Multiple Class Plan for AmSouth Mutual
Funds adopted by the Board of Trustees on
December 6, 1995, as amended and restated
as of July 16, 1997 is filed herewith.
(b) Shareholder Servicing Plan for AmSouth
Mutual Funds adopted by the Board of
Trustees on December 6, 1995 is
incorporated by reference to Exhibit
18(b) to Post-Effective Amendment No. 18
to the Registrant's Registration
Statement on Form N-1A (File No.
33-21660).
(c) Amended Schedule I to the Shareholder
Servicing Plan -- incorporated by
reference to Exhibit 18(d) to
Post-Effective Amendment No. 23 to the
Registrant's Registration Statement filed
on July 3, 1997 on Form N-1A (File No.
33-21660).
(d) Model Shareholder Servicing Agreement for
AmSouth Mutual Funds adopted by the Board
of Trustees on December 6, 1995 is
incorporated by reference to Exhibit
18(c) to Post-Effective Amendment No. 18
to the Registrant's Registration
Statement on Form N-1A (File No.
33-21660).
(e) Distribution and Shareholder Services
Plan between the Registrant and BISYS
Fund Services, LP, dated as of March 12,
1997 -- incorporated by reference to
Exhibit 18(f) to Post-Effective Amendment
No. 23 to the Registrant's Registration
Statement filed on July 3, 1997 on Form
N-1A (File No. 33-21660).
(f) Amended Schedule A to the Distribution
and Shareholder Services Plan between the
Registrant and BISYS Fund Services, LP,
dated as of March 12, 1997, is filed
herewith.
- -------------
Item 25. Persons Controlled By or Under Common Control with
--------------------------------------------------
Registrant
----------
As of the effective date of this Registration Statement,
there are no persons controlled by or under common control
with the Registrant's Prime Obligations Fund, Equity Fund,
Regional Equity Fund, U.S. Treasury Fund, Tax Exempt Fund,
Bond Fund, Limited Maturity Fund, Municipal Bond Fund,
Government Income Fund, Florida Tax-Free Fund, Balanced
Fund, Equity Income Fund, and Capital Growth Fund.
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<PAGE> 270
Item 26. Number of Holders of Securities
-------------------------------
As of August 1, 1997, the number of record holders of the
Registrant's respective series of shares were as follows:
<TABLE>
<CAPTION>
Number of
Title of Series Record Holders
--------------- --------------
<S> <C>
Prime Obligations Fund -- Premier Shares 9
U.S. Treasury Fund -- Premier Shares 8
Tax Exempt Fund -- Premier Shares 4
Prime Obligations Fund -- Classic Shares 20
U.S. Treasury Fund -- Classic Shares 12
Tax-Exempt Fund -- Classic Shares 16
Equity Fund 3,199
Regional Equity Fund 3,436
Equity Income Fund 845
Bond Fund 336
Limited Maturity Fund 129
Municipal Bond Fund 4
Balanced Fund 2,626
Government Income Fund 434
Florida Tax-Free Fund 53
Capital Growth Fund 1
</TABLE>
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<PAGE> 271
Item 27. Indemnification
---------------
Article VIII, Sections 1 and 2 of the Registrant's Declaration
of Trust provides as follows:
"Trustees, Officers, etc.
-------------------------
Section 1. The Trust shall indemnify each of its Trustees and
officers (including persons who serve at the Trust's request
as directors, officers or trustees of another organization in
which the Trust has any interest as a shareholder, creditor or
otherwise) (hereinafter referred to as a "Covered Person")
against all liabilities and expenses, including but not
limited to amounts paid in satisfaction of judgments, in
compromise or as fines and penalties, and counsel fees
reasonably incurred by any Covered Person in connection with
the defense or disposition of any action, suit or other
proceeding, whether civil or criminal, before any court or
administrative or legislative body, in which such Covered
Person may be or may have been involved as a party or
otherwise or with which such Covered Person may be or may have
been threatened, while in office or thereafter, by reason of
being or having been such a Covered Person except with respect
to any matter as to which such Covered Person shall have been
finally adjudicated in any such action, suit or other
proceeding to be liable to the Trust or its Shareholders by
reason of wilful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of
such Covered Person's office. Expenses, including counsel fees
so incurred by any such Covered Person (but excluding amounts
paid in satisfaction of judgments, in compromise or as fines
or penalties), shall be paid from time to time by the Trust in
advance of the final disposition of any such action, suit or
proceeding upon receipt of an undertaking by or on behalf of
such Covered Person to repay amounts so paid to the Trust if
it is ultimately determined that indemnification of such
expenses is not authorized under this Article, provided,
however, that either (a) such Covered Person shall have
provided appropriate security for such undertaking, (b) the
Trust shall be insured against losses arising from any such
advance payments or (c) either a majority of the disinterested
Trustees acting on the matter (provided that a majority of the
disinterested Trustees then in office act on the matter), or
independent legal counsel in a written opinion, shall have
determined, based upon a review of readily available facts (as
opposed to a full trial type inquiry) that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Article.
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<PAGE> 272
Compromise Payment
------------------
Section 2. As to any matter disposed of (whether by a
compromise payment, pursuant to a consent decree or otherwise)
without an adjudication by a court, or by any other body
before which the proceeding was brought, that such Covered
Person either (a) did not act in good faith in the reasonable
belief that his action was in the best interests of the Trust
or (b) is liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her
office, indemnification shall be provided if (a) approved as
in the best interests of the Trust, after notice that it
involves such indemnification, by at least a majority of the
disinterested Trustees acting on the matter (provided that a
majority of the disinterested Trustees then in office act on
the matter) upon a determination, based upon a review of
readily available facts (as opposed to a full trial type
inquiry) that such Covered Person acted in good faith in the
reasonable belief that his action was in the best interests of
the Trust and is not liable to the Trust or its Shareholders
by reasons of wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of
his or her office, or (b) there has been obtained an opinion
in writing of independent legal counsel, based upon a review
of readily available facts (as opposed to a full trial type
inquiry) to the effect that such Covered Person appears to
have acted in good faith in the reasonable belief that his
action was in the best interests of the Trust and that such
indemnification would not protect such Person against any
liability to the Trust to which he would otherwise be subject
by reason of wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of
his office. Any approval pursuant to this Section shall not
prevent the recovery from any Covered Person of any amount
paid to such Covered Person in accordance with this Section as
indemnification if such Covered Person is subsequently
adjudicated by a court of competent jurisdiction not to have
acted in good faith in the reasonable belief that such Covered
Person's action was in the best interests of the Trust or to
have been liable to the Trust or its Shareholders by reason of
wilful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of such
Covered Person's office."
Insofar as indemnification for liability arising under the
Securities Act of 1933 may be permitted to trustees, officers,
and controlling persons of Registrant pursuant to the
foregoing provisions, or otherwise, Registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such
liabilities (other than the payment by Registrant of expenses
incurred or
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<PAGE> 273
paid by a trustee, officer, or controlling person of
Registrant in the successful defense of any action, suit, or
proceeding) is asserted by such trustee, officer, or
controlling person in connection with the securities being
registered, Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
Indemnification for the Group's principal underwriter is
provided for in the Distribution Agreement incorporated herein
by reference as Exhibits 6(a).
In addition, the Trust maintains a directors and officer
liability insurance policy with a maximum coverage of
$3,000,000.
Item 28. Business and Other Connections of Investment Advisor and
--------------------------------------------------------
Investment Sub-Advisor.
-----------------------
AmSouth Bank ("AmSouth") is the investment advisor of each
Fund of the Trust. AmSouth is the bank affiliate of AmSouth
Bancorporation, one of the largest banking institutions
headquartered in the mid-south region. AmSouth Bancorporation
reported assets as of December 31, 1996 of $18.4 billion and
operated 272 banking offices in Alabama, Florida, Georgia and
Tennessee. AmSouth has provided investment management services
through its Trust Investment Department since 1915. As of
December 31, 1996, AmSouth and its affiliates had over $7.1
billion in assets under discretionary management and provided
custody services for an additional $13.4 billion in
securities. AmSouth is the largest provider of trust services
in Alabama. AmSouth serves as administrator for over $12
billion in bond issues, and its Trust Natural Resources and
Real Estate Department is a major manager of timberland,
mineral, oil and gas properties and other real estate
interests.
There is set forth below information as to any other business,
vocation or employment of a substantial nature (other than
service in wholly-owned subsidiaries or the parent corporation
of AmSouth Bank) in which each director or senior officer of
the Registrant's investment advisor is, or at any time during
the past two fiscal years has been, engaged for his own
account or in the capacity of director, officer, employee,
partner or trustee.
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<PAGE> 274
<TABLE>
<CAPTION>
Name and Position with Other business, profession,
AmSouth Bank AmSouth Bank vocation, or employment
- ------------ ------------------------------------
<S> <C>
George W. Barber, Jr. Chairman of the Board, Barber Dairies, Inc.,
Director 39 Barber Ct., Birmingham, Alabama
William D. Biggs Real Estate Investments
Director
William J. Cabaniss, Jr. President, Precision Grinding Inc.,
Director P.O. Box 19925, Birmingham, Alabama
M. Miller Gorrie President and Chief Executive Officer, Brasfield
Director and Gorrie General Contractor Inc., 729 30th
Street South, Birmingham, Alabama
James I. Harrison, Jr. President and Chief Executive Officer, Harco,
Director Inc., 3925 Rice Mine Road, Tuscaloosa,
Alabama
Mrs. H. Taylor Morrisette HTM Investment & Development, Inc., 3 Taylor
Director Place, Mobile, Alabama
C. Dowd Ritter None
Director, Chairman, President and
Chief Executive Officer
Michael C. Baker None
Senior Executive Vice President
David B. Edmonds None
Executive Vice President
James W. Emison None
Executive Vice President
Sloan D. Gibson, IV None
Senior Executive Vice President
O.B. Grayson Hall, Jr. None
Executive Vice President
</TABLE>
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<PAGE> 275
<TABLE>
<S> <C>
Kristen M. Hudak None
Senior Executive Vice President
and Chief Financial Officer
John D. Kottmeyer None
Executive Vice President
and Treasurer
W. Charles Mayer, III None
Director and Senior Executive Vice
President
Candice W. Rogers None
Senior Executive Vice President
Robert R. Windelspecht None
Executive Vice President
and Controller
Stephen A. Yoder None
Executive Vice President
and General Counsel
</TABLE>
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<PAGE> 276
Rockhaven Asset Management, LLC ("Rockhaven") is the sub-advisor of the
AmSouth Equity Income Fund. Rockhaven is jointly owned by Christopher H. Wiles
(50%) and AmSouth Bank (50%), and is headquartered in Pittsburgh, Pennsylvania.
As of May, 1997, the AmSouth Equity Income Fund is by far the predominate client
of Rockhaven. In the future, Rockhaven intends to advise on other mutual funds
and separate accounts.
There is set forth below information as to any other business, vocation
or employment of a substantial nature (other than service in wholly-owned
subsidiaries or the parent corporation of AmSouth Bank) in which each director
or senior officer of the Registrant's sub-advisor is, or at any time during the
past two fiscal years has been, engaged for his own account or in the capacity
of director, officer, employee, partner or trustee.
<TABLE>
<CAPTION>
Name and Position with Other business, profession,
Rockhaven Asset Management vocation, or employment
- -------------------------- -----------------------
<S> <C>
Christopher H. Wiles. Prior to February 7, 1997, Senior Vice
President, Chief President, Federated Investors, Pittsburgh, PA
Investment Officer and
Managing Partner
Michael C. Baker Senior Executive Vice President,
Managing Partner AmSouth Bank, Birmingham, Alabama
</TABLE>
Item 29. Principal Underwriter.
----------------------
(a) BISYS Fund Services, Limited Partnership ("BISYS Fund Services")
acts as distributor for the Registrant. BISYS Fund Services also
distributes the securities of HighMark Funds, The Parkstone Group of
Funds, The Victory Portfolios, The Sessions Group, the American
Performance Funds, The Arch Fund, Inc., the BB&T Mutual Funds Group,
the Marketwatch Funds, The Coventry Group, The Pacific Capital Funds,
the MMA Praxis Mutual Funds, The Riverfront Funds, Inc., the Qualivest
Funds and the Summit Investment Trust, the Barr Rosenberg Funds, the
BNY Hamilton Funds, the Century Funds, the Emerald Funds, the Empire
Builder, ESC Strategic Funds, Evergreen Funds, First Choice Funds, Five
Arrows Funds, Fountain Square Funds, Gabelli Funds, the HSBC Funds,
Hirtle Callaghan, IBS Funds, Infinity Funds, Intrust Funds, Kent Funds,
Key Mutual Funds, Lifecycle Funds, Magna Funds, Meyers Sheppard Funds,
the Minerva Funds, The One Group(R), the Pacific Horizon Funds, The
Performance Funds, the Pegasus Funds, the Republic Funds, the Sessions
Funds, the Sefton Funds, the Summit Group, the Treasurers Funds, the
Vista Funds, and the Westwood Fund each of which is a management
investment company. The parent of BISYS Fund Services is The BISYS
Group, Inc.
(b) Partners of BISYS Fund Services as of the date of this filing are
as follows:
C-16
<PAGE> 277
<TABLE>
<CAPTION>
Positions and Offices with Positions and
Name and Principal BISYS Fund Services, Offices with
Business Addresses Limited Partnership The Registrant
- ------------------ ------------------- --------------
<S> <C> <C>
BISYS Fund Services, Sole General None
Limited Partnership Partner
3435 Stelzer Road
Columbus, OH 43219
WC Subsidiary Sole Limited None
Corporation Partner
150 Clove Road
Little Falls, NJ 07424
The BISYS Group, Inc. Sole Shareholder None
150 Clove Road
Little Falls, NJ 07424
</TABLE>
Item 30. Location of Accounts and Records
--------------------------------
Persons maintaining physical possession of accounts, books and
other documents required to be maintained by Section 31(a) of
the Investment Company Act of 1940 and the rules promulgated
thereunder are as follows:
(1) AmSouth Mutual Funds
3435 Stelzer Road
Columbus, Ohio 43219
Attention: Secretary
(Registrant)
(2) AmSouth Bank
1901 Sixth Avenue - North
Birmingham, Alabama 35203
Attention: Trust Investments
(Investment Advisor and Custodian)
(3) BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, Ohio 43219
(Distributor)
C-17
<PAGE> 278
(4) ASO Services Company
3435 Stelzer Road
Columbus, Ohio 43219
(Administrator)
(5) Rockhaven Asset Management, LLC
100 First Avenue, Suite 1050
Pittsburgh, Pennsylvania 15222
(Sub-Advisor to the Equity Income Fund)
(6) BISYS Fund Services Ohio, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
(Transfer and Shareholder Servicing Agent, Provider
of Fund Accounting Services)
Item 31. Management Services
-------------------
None.
Item 32. Undertakings
------------
The Registrant hereby undertakes to call a meeting of
shareholders for the purpose of voting upon the question
of removal of one or more trustees when requested to do so
by the holders of at least 10% of the outstanding voting
shares of any series of the Trust and will assist in
shareholder communication in connection with calling a
meeting for the purpose of removing one or more trustees.
The Registrant undertakes to furnish to each person to
whom a prospectus is delivered a copy of the Registrant's
latest annual report to shareholders upon request and
without charge.
C-18
<PAGE> 279
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant certifies that it meets all the
requirements for effectiveness of this Post-Effective Amendment pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Amendment No.
24 to the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Washington, District of Columbia on
the 26th day of August, 1997.
AMSOUTH MUTUAL FUNDS,
Registrant
*/s/ George R. Landreth
--------------------------
George R. Landreth
Chairman
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
24 to the Registration Statement of AmSouth Mutual Funds has been signed below
by the following persons in the capacities indicated on the 26th day of August,
1997.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
*/s/George R. Landreth Chairman August 26, 1997
---------------------------------
George R. Landreth
*/s/ J. David Huber Trustee August 26, 1997
---------------------------------
J. David Huber
*/s/ Thomas E. Line Treasurer August 26, 1997
---------------------------------
Thomas E. Line
*/s/ James H. Woodward, Jr. Trustee August 26, 1997
---------------------------------
James H. Woodward, Jr.
*/s/ Homer H. Turner, Jr. Trustee August 26, 1997
---------------------------------
Homer H. Turner, Jr.
*/s/ Wendell D. Cleaver Trustee August 26, 1997
---------------------------------
Wendell D. Cleaver
*/s/ Dick D. Briggs, Jr. Trustee August 26, 1997
---------------------------------
Dick D. Briggs, Jr.
* By /s/ Alan G. Priest August 26, 1997
---------------------------------
Alan G. Priest,
Attorney-in-fact, pursuant to Powers of Attorney filed herewith
</TABLE>
C-19
<PAGE> 280
POWER OF ATTORNEY
-----------------
Dick D. Briggs, Jr. whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A.
Sheehan, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee Dick D. Briggs, Jr. and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: 12 October 1993 /s/ Dick D. Briggs, Jr.
---------------------------------- -----------------------
Dick D. Briggs, Jr.
<PAGE> 281
POWER OF ATTORNEY
-----------------
Wendell D. Cleaver whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A.
Sheehan, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee Wendell D. Cleaver and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: October 7, 1993 /s/ Wendell Cleaver
-------------------------
Wendell D. Cleaver
<PAGE> 282
POWER OF ATTORNEY
J. David Huber whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A. Sheehan, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable AmSouth Mutual
Funds (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee J. David Huber and/or officer of the Trust any and all
such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: 9/25/92 /s/ J. David Huber
-------------------------------
J. David Huber
<PAGE> 283
POWER OF ATTORNEY
-----------------
George R. Landreth whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Maryellen M.
Lundquist, each individually, his true and lawful attorneys and agents, with
power of substitution or resubstitution, to do any and all acts and things and
to execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee George R. Landreth and/or officer of the Trust any and
all such amendments filed with the Securities and Exchange Commission under said
Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: 6/10/97 /s/ George R. Landreth
---------------------- -----------------------------
George R. Landreth
<PAGE> 284
POWER OF ATTORNEY
-----------------
James H. Woodward, Jr. whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A.
Sheehan, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee James H. Woodward, Jr. and/or officer of the Trust any
and all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: 9/25/92 /s/ James H. Woodward, Jr.
------------------------------- --------------------------
James H. Woodward, Jr.
<PAGE> 285
POWER OF ATTORNEY
-----------------
Homer H. Turner, Jr. whose signature appears below, does hereby
constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A.
Sheehan, each individually, his true and lawful attorneys and agents, with power
of substitution or resubstitution, to do any and all acts and things and to
execute any and all instruments which said attorneys and agents, each
individually, may deem necessary or advisable or which may be required to enable
AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of
1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any
rules, regulations or requirements of the Securities and Exchange Commission in
respect thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee Homer H. Turner, Jr. and/or officer of the Trust any
and all such amendments filed with the Securities and Exchange Commission under
said Acts, and any other instruments or documents related thereto, and the
undersigned does hereby ratify and confirm all that said attorneys and agents,
or either of them, shall do or cause to be done by virtue thereof.
Dated: September 25, 1992 /s/ Homer H. Turner, Jr.
---------------------------------- ------------------------
Homer H. Turner, Jr.
<PAGE> 286
POWER OF ATTORNEY
-----------------
Thomas E. Line whose signature appears below, does hereby constitute
and appoint Martin E. Lybecker, Alan G. Priest, and Francoise M. Haan, each
individually, his true and lawful attorneys and agents, with power of
substitution or resubstitution, to do any and all acts and things and to execute
any and all instruments which said attorneys and agents, each individually, may
deem necessary or advisable or which may be required to enable AmSouth Mutual
Funds (the "Trust"), to comply with the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended ("Acts"), and any rules,
regulations or requirements of the Securities and Exchange Commission in respect
thereof, in connection with the filing and effectiveness of any and all
amendments to the Trust's Registration Statement on Form N-1A pursuant to said
Acts, including specifically, but without limiting the generality of the
foregoing, the power and authority to sign in the name and on behalf of the
undersigned as a trustee and/or officer of the Trust any and all such amendments
filed with the Securities and Exchange Commission under said Acts, and any other
instruments or documents related thereto, and the undersigned does hereby ratify
and confirm all that said attorneys and agents, or either of them, shall do or
cause to be done by virtue thereof.
Dated: 3/25/97 /s/ Thomas E. Line
----------------------- -------------------------
Thomas E. Line
<PAGE> 287
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
6(a) Distribution Agreement
10 Opinion of Ropes & Gray
11(a) Consent of Coopers & Lybrand L.L.P.
11(b) Consent of Ropes & Gray
16(b) Performance Calculation Schedule for the Municipal
Bond Fund and Equity Income Fund
16(c) Performance Calculation Schedule for the Capital Growth
Fund
18(a) Multiple Class Plan for AmSouth Mutual Funds
18(f) Amended Schedule A to the Distribution and Shareholder
Services Plan
27(a) Financial Data Schedule for the AmSouth Prime Obligations
Fund -- Premier Shares
27(b) Financial Data Schedule for the AmSouth U.S. Treasury Fund
-- Premier Shares
27(c) Financial Data Schedule for the AmSouth Tax Exempt Fund --
Premier Shares
27(d) Financial Data Schedule for the AmSouth Prime Obligations
Fund -- Classic Shares
27(e) Financial Data Schedule for the AmSouth U.S. Treasury
Fund -- Classic Shares
27(f) Financial Data Schedule for the AmSouth Tax-Exempt
Fund -- Classic Shares
27(g) Financial Data Schedule for the AmSouth Equity Fund
</TABLE>
-1-
<PAGE> 1
EXHIBIT 6(a)
DISTRIBUTION AGREEMENT
As of July 16, 1997
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, Ohio 43219
Gentlemen:
This is to confirm that, in consideration of the agreements hereinafter
contained, the undersigned, AmSouth Mutual Funds (the "Trust"), a Massachusetts
business trust, has agreed that BISYS Fund Services Limited Partnership d/b/a
BISYS Fund Services (the "Distributor") shall be, for the period of this
Agreement, the distributor of the units of beneficial interest of the investment
portfolios of the Trust identified on Schedule A hereto (the "Funds"). Such
units of beneficial interest are hereinafter called "Shares."
1. Services as Distributor.
------------------------
1.1 Distributor will act as agent for the distribution of the Shares
covered by the registration statement and prospectuses of the Trust then in
effect under the Securities Act of 1933 as amended.
1.2 Distributor agrees to use appropriate efforts to solicit orders for
the sale of the Shares and will undertake such advertising and promotion as it
believes reasonable in connection with such solicitation. The Trust understands
that Distributor may, in the future, be the distributor of the shares of several
investment companies or series (together, "Companies") including Companies
having investment objectives similar to those of the Trust. The Trust further
understands that investors and potential investors in the Trust may invest in
shares of such other Companies. The Trust agrees that Distributor's duties to
such Companies shall not be deemed in conflict with its duties to the Trust
under this paragraph 1.2.
Distributor shall, at its own expense, finance appropriate activities
which it deems reasonable which are primarily intended to result in the sale of
the Shares, including, but not limited to, advertising, compensation of
underwriters, dealers and sales personnel, the printing and mailing of
prospectuses to other than current Shareholders, and the printing and mailing of
sales literature.
1.3 All activities by Distributor and its partners, agents, and
employees as distributor of the Shares shall comply with all applicable laws,
rules and regulations, including, without limitation, all rules and regulations
made or adopted pursuant to the Investment Company Act of 1940 (the "1940 Act")
by the Securities and Exchange Commission or any securities association
registered under the Securities Exchange Act of 1934.
<PAGE> 2
1.4 Distributor will provide one or more persons, during normal
business hours, to respond to telephone questions with respect to the Trust.
1.5 Distributor will transmit any orders received by it for purchase or
redemption of the Shares to the transfer agent and custodian for the Funds.
1.6 Whenever in their judgment such action is warranted by unusual
market, economic or political conditions, or by abnormal circumstances of any
kind, the Trust's officers may decline to accept any orders for, or make any
sales of the Shares until such time as those officers deem it advisable to
accept such orders and to make such sales.
1.7 Distributor will act only on its own behalf as principal if it
chooses to enter into selling agreements with selected dealers or others.
1.8 The Trust agrees at its own expense to execute any and all
documents and to furnish any and all information and otherwise to take all
actions that may be reasonably necessary in connection with the qualification of
the Shares for sale in such states as Distributor may designate.
1.9 The Trust shall furnish from time to time, for use in connection
with the sale of the Shares, such information with respect to the Funds and the
Shares as Distributor may reasonably request; and the Trust warrants that the
statements contained in any such information shall fairly show or represent what
they purport to show or represent. The Trust shall also furnish Distributor upon
request with: (a) unaudited semi-annual statements of the Fund's books and
accounts prepared by the Trust, (b) quarterly earnings statements prepared by
the Trust, (c) a monthly itemized list of the securities in the Funds, (d)
monthly balance sheets as soon as practicable after the end of each month, and
(e) from time to time such additional information regarding the financial
condition of the Funds as Distributor may reasonably request.
1.10 The Trust represents to Distributor that all registration
statements and prospectuses filed by the Trust with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, with respect to the
Shares have been carefully prepared in conformity with the requirements of said
Act and rules and regulations of the Securities and Exchange Commission
thereunder. As used in this agreement the terms "registration statement" and
"prospectus" shall mean any registration statement and any prospectus and
Statement of Additional Information relating to the Funds filed with the
Securities and Exchange Commission and any amendments and supplements thereto
which at any time shall have been filed with the same Commission. The Trust
represents and warrants to Distributor that any registration statement and
prospectus, when such registration statement becomes effective, will contain all
statements required to be stated therein in conformity with said Act and the
rules and regulations of said Commission; that all statements of fact contained
in any such registration statement and prospectus will be true and correct when
such registration statement becomes effective; and that neither any registration
statement nor any prospectus when such registration statement becomes effective
will include an untrue statement of a
- 2 -
<PAGE> 3
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading to a purchaser of the
Shares. The Trust may but shall not be obligated to propose from time to time
such amendment or amendments to any registration statement and such supplement
or supplements to any prospectus as, in the light of future developments, may,
in the opinion of the Trust's counsel, be necessary or advisable. If the Trust
shall not propose such amendment or amendments and/or supplement or supplements
within fifteen days after receipt by the Trust of a written request from
Distributor to do so, Distributor may, at its option, terminate this agreement.
The Trust shall not file any amendment to any registration statement or
supplement to any prospectus without giving Distributor reasonable notice
thereof in advance; provided, however, that nothing contained in this agreement
shall in any way limit the Trust's right to file at any time such amendments to
any registration statement and/or supplements to any prospectus, of whatever
character, as the Trust may deem advisable, such right being in all respects
absolute and unconditional.
1.11 The Trust authorizes Distributor and dealers to use any prospectus
in the form furnished from time to time in connection with the sale of the
Shares. The Trust agrees to indemnify, defend and hold Distributor, its several
partners and employees, and any person who controls Distributor within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which
Distributor, its partners and employees, or any such controlling person, may
incur under the Securities Act of 1933, as amended, or under common law or
otherwise, arising out of or based upon any untrue statement, or alleged untrue
statement, of a material fact contained in any registration statement or any
prospectus or arising out of or based upon any omission, or alleged omission, to
state a material fact required to be stated in either any registration statement
or any prospectus or necessary to make the statements in either thereof not
misleading; provided, however, that the Trust's agreement to indemnify
Distributor, its partners or employees, and any such controlling person shall
not be deemed to cover any claims, demands, liabilities or expenses arising out
of any statements or representations as are contained in any prospectus and in
such financial and other statements as are furnished in writing to the Trust by
Distributor and used in the answers to the registration statement or in the
corresponding statements made in the prospectus, or arising out of or based upon
any omission or alleged omission to state a material fact in connection with the
giving of such information required to be stated in such answers or necessary to
make the answers not misleading; and further provided that the Trust's agreement
to indemnify Distributor and the Trust's representations and warranties
hereinbefore set forth in paragraph 1.10 shall not be deemed to cover any
liability to the Trust or its Shareholders to which Distributor would otherwise
be subject by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties, or by reason of Distributor's reckless disregard
of its obligations and duties under this agreement. The Trust's agreement to
indemnify Distributor, its partners and employees, and any such controlling
person, as aforesaid, is expressly conditioned upon the Trust's being notified
of any action brought against Distributor, its partners or employees, or any
such controlling person, such notification to be given by letter or by telegram
addressed to the Trust at its principal office in Columbus, Ohio and sent to the
Trust by the person against whom such
- 3 -
<PAGE> 4
action is brought, within 10 days after the summons or other first legal process
shall have been served. The failure to so notify the Trust of any such action
shall not relieve the Trust from any liability which the Trust may have to the
person against whom such action is brought by reason of any such untrue, or
allegedly untrue, statement or omission, or alleged omission, otherwise than on
account of the Trust's indemnity agreement contained in this paragraph 1.11. The
Trust will be entitled to assume the defense of any suit brought to enforce any
such claim, demand or liability, but, in such case, such defense shall be
conducted by counsel of good standing chosen by the Trust and approved by
Distributor, which approval shall not be unreasonably withheld. In the event the
Trust elects to assume the defense of any such suit and retain counsel of good
standing approved by Distributor, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel retained by any of them;
but in case the Trust does not elect to assume the defense of any such suit, or
in case Distributor reasonably does not approve of counsel chosen by the Trust,
the Trust will reimburse Distributor, its partners and employees, or the
controlling person or persons named as defendant or defendants in such suit, for
the fees and expenses of any counsel retained by Distributor or them. The
Trust's indemnification agreement contained in this paragraph 1.11 and the
Trust's representations and warranties in this agreement shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of Distributor, its partners and employees, or any controlling person,
and shall survive the delivery of any Shares. This agreement of indemnity will
inure exclusively to Distributor's benefit, to the benefit of its several
partners and employees, and their respective estates, and to the benefit of the
controlling persons and their successors. The Trust agrees promptly to notify
Distributor of the commencement of any litigation or proceedings against the
Trust or any of its officers or Trustees in connection with the issue and sale
of any Shares.
1.12 Distributor agrees to indemnify, defend and hold the Trust, its
several officers and Trustees and any person who controls the Trust within the
meaning of Section 15 of the Securities Act of 1933, as amended, free and
harmless from and against any and all claims, demands, liabilities and expenses
(including the costs of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Trust, its officers or Trustees or any such controlling person, may incur under
the Securities Act of 1933, as amended, or under common law or otherwise, but
only to the extent that such liability or expense incurred by the Trust, its
officers or Trustees or such controlling person resulting from such claims or
demands, shall arise out of or be based upon any untrue, or alleged untrue,
statement of a material fact contained in information furnished in writing by
Distributor to the Trust and used in the answers to any of the items of the
registration statement or in the corresponding statements made in the
prospectus, or shall arise out of or be based upon any omission, or alleged
omission, to state a material fact in connection with such information furnished
in writing by Distributor to the Trust required to be stated in such answers or
necessary to make such information not misleading. Distributor's agreement to
indemnify the Trust, its officers and Trustees, and any such controlling person,
as aforesaid, is expressly conditioned upon Distributor's being notified of any
action brought against the Trust, its officers or Trustees, or any such
controlling person, such notification to be given by letter or telegram
addressed to Distributor at its principal office in Columbus, Ohio, and sent to
Distributor by the person against whom such action is brought, within 10 days
after the
- 4 -
<PAGE> 5
summons or other first legal process shall have been served. Distributor shall
have the right of first control of the defense of such action, with counsel of
its own choosing, satisfactory to the Trust, if such action is based solely upon
such alleged misstatement or omission on Distributor's part, and in any other
event the Trust, its officers or Trustees or such controlling person shall each
have the right to participate in the defense or preparation of the defense of
any such action. The failure to so notify Distributor of any such action shall
not relieve Distributor from any liability which Distributor may have to the
Trust, its officers or Trustees, or to such controlling person by reason of any
such untrue or alleged untrue statement, or omission or alleged omission,
otherwise than on account of Distributor's indemnity agreement contained in this
paragraph 1.12.
1.13 No Shares shall be offered by either Distributor or the Trust
under any of the provisions of this agreement and no orders for the purchase or
sale of Shares hereunder shall be accepted by the Trust if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the
Securities Act of 1933, as amended, or if and so long as a current prospectus as
required by Section 10(b)(2) of said Act, as amended, is not on file with the
Securities and Exchange Commission; provided, however, that nothing contained in
this paragraph 1.13 shall in any way restrict or have an application to or
bearing upon the Trust's obligation to repurchase Shares from any Shareholder in
accordance with the provisions of the Trust's prospectus, Declaration of Trust,
or By-laws.
1.14 The Trust agrees to advise Distributor as soon as reasonably
practical by a notice in writing delivered to Distributor or its counsel:
(a) of any request by the Securities and Exchange Commission
for amendments to the registration statement or prospectus then in
effect or for additional information;
(b) in the event of the issuance by the Securities and
Exchange Commission of any stop order suspending the effectiveness of
the registration statement or prospectus then in effect or the
initiation by service of process on the Trust of any proceeding for
that purpose;
(c) of the happening of any event that makes untrue any
statement of a material fact made in the registration statement or
prospectus then in effect or which requires the making of a change in
such registration statement or prospectus in order to make the
statements therein not misleading; and
(d) of all action of the Securities and Exchange Commission
with respect to any amendment to any registration statement or
prospectus which may from time to time be filed with the Securities and
Exchange Commission.
For purposes of this section, informal requests by or acts of the Staff
of the Securities and Exchange Commission shall not be deemed actions of or
requests by the Securities and Exchange Commission.
- 5 -
<PAGE> 6
1.15 Distributor agrees on behalf of itself and its partners and
employees to treat confidentially and as proprietary information of the Trust
all records and other information relative to the Trust and its prior, present
or potential Shareholders, and not to use such records and information for any
purpose other than performance of its responsibilities and duties hereunder,
except after prior notification to and approval in writing by the Trust, which
approval shall not be unreasonably withheld and may not be withheld where
Distributor may be exposed to civil or criminal contempt proceedings for failure
to comply, when requested to divulge such information by duly constituted
authorities, or when so requested by the Trust.
1.16 This agreement shall be governed by the laws of the Commonwealth
of Massachusetts.
2. Fees
----
2.1 The Distributor shall receive from certain classes of the Funds
identified on Schedule B hereto a distribution fee or a shareholder services fee
at the rate and upon the terms and conditions set forth in the Distribution and
Shareholder Servicing Plan dated March 12, 1997 (the "Distribution Plan"), or
the Shareholder Servicing Plan dated March 20, 1996 (the "Servicing Plan")
entered into between the Group and the Distributor on behalf of such classes.
The distribution fee shall be accrued daily and shall be paid on the first
business day of each month, or at such time(s) as the Distributor shall
reasonably request.
3. Front-End Load Shares -- Sale and Payment
-----------------------------------------
Pursuant to the Declaration of Trust, dated June 25, 1993, as amended,
each Fund may be divided into separate classes of Shares in which case the
Shares of one or more classes may be subject to a front-end sales load and may
be subject to the imposition of a shareholder services fee pursuant to the
Servicing Plan referred to above. To the extent that all Shares of a Fund are
sold at an offering price which includes a sales load or that Shares of one or
more classes of a Fund are sold at such an offering price, such Shares shall
hereinafter be referred to collectively as "Front-End Load Shares" and
individually as a "Front-End Load Share." Funds that contain Front-End Load
Shares shall hereinafter be referred to collectively as "Front-End Load Funds"
and individually as a "Front-End Load Fund." Under this Agreement, the following
provisions shall apply with respect to the sale of, and payment for, Front-End
Load Shares of the Front-End Load Funds identified on Schedule C hereto.
(a) The Distributor shall have the right, as principal, to purchase
Front-End Load Shares at their net asset value and to sell such Front-End Load
Shares to the public against orders therefor at the applicable public offering
price, as defined in Section 4 hereof. The Distributor shall also have the
right, as principal, to sell Front-End Load Shares to dealers against orders
therefor at the public offering price less a concession determined by the
Distributor, which concession shall not exceed the amount of the sales charge or
underwriting discount, if any, referred to in Section 4 below.
- 6 -
<PAGE> 7
(b) Prior to the time of delivery of any Front-End Load Shares by a
Front-End Load Fund to, or on the order of, the Distributor, the Distributor
shall pay or cause to be paid to the Front-End Load Fund or to its order an
amount in Boston or New York clearing house funds equal to the applicable net
asset value of such Shares. The Distributor may retain so much of any sales
charge or underwriting discount as is not allowed by the Distributor as a
concession to dealers.
4. Front-End Load Shares -- Public Offering Price
----------------------------------------------
The public offering price of a Front-End Load Share shall be the asset
value of such Front-End Load Share, plus any applicable sales charge, all as set
forth in the current prospectus of the Front-End Load Fund. The net asset value
of Shares shall be determined in accordance with the provisions of the Agreement
and Declaration of Trust and By-Laws of the Trust and the then current
prospectus of the Front-End Load Fund.
5. Front-End Load Shares -- Issuance of Shares
-------------------------------------------
The Trust reserves the right to issue, transfer or sell Front-End Load
Shares at net asset value (a) in connection with the merger or consolidation of
the Trust or the Front-End Load Fund(s) with any other investment company or the
acquisition by the Trust or the Front- End Load Fund(s) of all or substantially
all of the assets or of the outstanding Shares of any other investment company;
(b) in connection with a pro rata distribution directly to the holders of Shares
in the nature of a stock dividend or split; (c) upon the exercise of
subscription rights granted to the holders of Shares on a pro rata basis; (d) in
connection with the issuance of Front-End Load Shares pursuant to any exchange
and reinvestment privileges described in any then current prospectus of the
Front-End Load Fund; and (e) otherwise in accordance with any then current
prospectus of the Front-End Load Fund.
6. Sale of Shares Subject to a Contingent Deferred Sales Charge
------------------------------------------------------------
6.1. The Trust may offer Shares of a class subject to both a
contingent deferred sales charge (a "CDSC") and a Distribution Plan (a "CDSC
Class"). Additionally, shares of a class generally subject to a front-end load
may be offered by the Trust without the imposition of a front end sales load
under circumstances described in the Trust's prospectuses (hereinafter, "Front
End Load Exempt Shares"). Front End Load Exempt Shares may be subject to a CDSC
under circumstances described in the Trust's prospectuses. The Distributor may
pay brokers, dealers and other financial institutions and intermediaries
commissions with regard to the sale of CDSC and Front End Load Exempt Shares.
Under this Agreement, the following provisions shall apply with respect to
Shares of a CDSC Class as described in the prospectus(es) of the Funds and
identified on Schedule D hereto, as well as to Front End Load Exempt Shares.
(a) The Distributor shall be entitled to receive all CDSC payments on
Front End Load Exempt Shares and Shares of a CDSC Class. The Distributor may
assign or sell to a third party (a "CDSC Financing Entity") all or a part of
the CDSC payments that the
- 7 -
<PAGE> 8
Distributor is entitled to receive under this Agreement. The Distributor's right
to payment on such Shares, if assigned or sold to a CDSC Financing Entity, shall
continue after termination of this Agreement.
(b) (i) The Distributor shall be entitled to receive all distribution
and service fees at the rate and under the terms and conditions set forth in
the Distribution Plan adopted by a CDSC Class on all Shares of such CDSC Class
so long as the Plan is in effect. The Distributor may assign or sell to a CDSC
Financing Entity all or a part of the distribution fees the Distributor is
entitled to receive from the Trust under the Distribution Plan. The
Distributor's right to payment of distribution fees on such Shares, if assigned
or sold to a CDSC Financing Entity, shall continue after termination of this
Agreement. Otherwise, the right to receive all distribution and service fee
payments in respect of periods subsequent to the termination of this Agreement
shall terminate upon termination of this Agreement. In the event Distributor
assigns or sells all or a part of the CDSC payments or the distribution and
service fees referenced above to a CDSC Financing Entity and this Agreement is
subsequently terminated, Distributor shall have no obligation to assist the
CDSC Financing Entity in connection with such Entity's right to receive such
payments or fees subsequent to such termination.
(ii) The Distributor shall not be required to offer or sell
Shares of a CDSC Class unless and until it has received a binding commitment
from a CDSC Financing Entity (a "Commitment") satisfactory to the Distributor
which Commitment shall cover all expenses and fees related to the offer and sale
of such Shares of the CDSC Class including but not limited to dealer
reallowances, financing commitment fees, and legal fees. If at any time during
the term of this Agreement the then-current CDSC financing is terminated through
no fault of the Distributor, the Distributor shall have the right to immediately
cease offering or selling CDSC Shares until substitute financing becomes
effective.
(c) The Distributor and the Trust hereby agree that the terms and
conditions set forth herein regarding the offer and sale of Shares of a CDSC
Class may be amended upon approval of both parties in order to comply with the
terms and conditions of any agreement with a CDSC Financing Entity to finance
the costs for the offer and sale of Shares of a CDSC Class so long as such
terms and conditions are in compliance with the Plan.
7. Term and Matters Relating to the Trust as a
-------------------------------------------
Massachusetts Business Trust.
----------------------------
This agreement shall become effective on the date above first written
and, unless sooner terminated as provided herein, shall continue until January
31, 1998 and thereafter shall continue automatically for successive annual
periods ending on January 31 of each year, provided such continuance is
specifically approved at least annually by (i) the Trust's Board of Trustees or
(ii) by "vote of a majority of the outstanding Shares" (as defined below) of the
Fund, PROVIDED, HOWEVER, that in either event the continuance is also approved
by the majority of the Trust's Trustees who are not parties to the agreement or
interested persons (as defined in the 1940 Act) of any party to this agreement,
by vote cast in person at a meeting called for
- 8 -
<PAGE> 9
the purpose of voting on such approval. This agreement is terminable without
penalty, on not less than sixty days' notice, by the Trust's Board of Trustees,
by "vote of a majority of the outstanding Shares" (as defined below) of the Fund
or by Distributor. This agreement will also terminate automatically in the event
of its assignment (as defined in the 1940 Act). For purposes of this Agreement,
the term "vote of a majority of the outstanding Shares" shall mean the approval,
at a meeting of Shareholders duly called, of the lesser of (i) the holders of
67% or more of the votes present at any such meeting, if the holders of more
than 50% of the outstanding votes are present or represented by proxy thereat;
or (ii) the holders of more than 50% of the outstanding votes.
The names "AmSouth Mutual Funds" and "Trustees of AmSouth Mutual Funds"
refer respectively to the Trust created and the Trustees, as trustees but not
individually or personally, acting from time to time under a Declaration of
Trust dated as of October 1, 1987 to which reference is hereby made and a copy
of which is on file at the office of the Secretary of State of The Commonwealth
of Massachusetts and elsewhere as required by law, and to any and all amendments
thereto so filed or hereafter filed. The obligations of "AmSouth Mutual Funds"
entered into in the name or on behalf thereof by any of the Trustees,
representatives or agents are made not individually, but in such capacities, and
are not binding upon any of the Trustees, Shareholders or representatives of the
Trust personally, but bind only the assets of the Trust, and all persons dealing
with any series of Shares of the Trust must look solely to the assets of the
Trust belonging to such series for the enforcement of any claims against the
Trust.
Please confirm that the foregoing is in accordance with your
understanding by indicating your acceptance hereof at the place below indicated,
whereupon it shall become a binding agreement between us.
Yours very truly,
AMSOUTH MUTUAL FUNDS
By:
Name: _______________________
Title: ______________________
Accepted:
BISYS FUND SERVICES LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc., General Partner
By: ___________________________
Name:___________________________
Title:___________________________
- 9 -
<PAGE> 10
SCHEDULE A
TO THE DISTRIBUTION AGREEMENT
BETWEEN
AMSOUTH MUTUAL FUNDS
AND
BISYS FUND SERVICES, INC.
DATED JULY 16, 1997
NAME OF FUND
- ---------------------
AmSouth Prime Obligations Fund
AmSouth U.S. Treasury Fund
AmSouth Tax Exempt Fund
AmSouth Equity Fund
AmSouth Regional Equity Fund
AmSouth Bond Fund
AmSouth Limited Maturity Fund
AmSouth Municipal Bond Fund
AmSouth Balanced Fund
AmSouth Government Income Fund
AmSouth Florida Tax-Free Fund
AmSouth Capital Growth Fund
AmSouth Small Cap Fund
AmSouth Equity Income Fund
AMSOUTH MUTUAL FUNDS
By:__________________________
Name: _______________________
Title:_______________________
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:__________________________
Name: _______________________
Title:_______________________
<PAGE> 11
SCHEDULE B
TO THE DISTRIBUTION AGREEMENT
BETWEEN
AMSOUTH MUTUAL FUNDS
AND
BISYS FUND SERVICES, INC.
DATED JULY 16, 1997
Servicing Plan Funds Distribution Plan Funds
-------------------- -----------------------
Class A Shares of the AmSouth Class B Shares of the AmSouth
Prime Obligations Fund Prime Obligations Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
U.S. Treasury Fund Equity Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Tax Exempt Fund Regional Equity Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Equity Fund Bond Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Regional Equity Fund Limited Maturity Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Bond Fund Municipal Bond Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Limited Maturity Fund Balanced Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Municipal Bond Fund Government Income Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Balanced Fund Florida Tax-Free Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Government Income Fund Capital Growth Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Florida Tax-Free Fund Small Cap Fund
Class A Shares of the AmSouth Class B Shares of the AmSouth
Capital Growth Fund Equity Income Fund
<PAGE> 12
Servicing Plan Funds
--------------------
Class A Shares of the AmSouth
Small Cap Fund
Class A Shares of the AmSouth
Equity Income Fund
AMSOUTH MUTUAL FUNDS
By:_________________________
Name: _______________________
Title:_______________________
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:__________________________
Name: _______________________
Title:_______________________
<PAGE> 13
SCHEDULE C
TO THE DISTRIBUTION AGREEMENT
BETWEEN
AMSOUTH MUTUAL FUNDS
AND
BISYS FUND SERVICES, INC.
DATED JULY 16, 1997
Class A Shares of the AmSouth
Equity Fund
Class A Shares of the AmSouth
Regional Equity Fund
Class A Shares of the AmSouth
Bond Fund
Class A Shares of the AmSouth
Limited Maturity Fund
Class A Shares of the AmSouth
Municipal Bond Fund
Class A Shares of the AmSouth
Balanced Fund
Class A Shares of the AmSouth
Government Income Fund
Class A Shares of the AmSouth
Florida Tax-Free Fund
Class A Shares of the AmSouth
Capital Growth Fund
Class A Shares of the AmSouth
Small Cap Fund
Class A Shares of the AmSouth
Equity Income Fund
<PAGE> 14
AMSOUTH MUTUAL FUNDS
By:_________________________
Name: ______________________
Title:______________________
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:_________________________
Name: ______________________
Title:______________________
<PAGE> 15
SCHEDULE D
TO THE DISTRIBUTION AGREEMENT
BETWEEN
AMSOUTH MUTUAL FUNDS
AND
BISYS FUND SERVICES, INC.
DATED JULY 16, 1997
Class B Shares of the AmSouth
Prime Obligations Fund
Class B Shares of the AmSouth
Equity Fund
Class B Shares of the AmSouth
Regional Equity Fund
Class B Shares of the AmSouth
Bond Fund
Class B Shares of the AmSouth
Limited Maturity Fund
Class B Shares of the AmSouth
Municipal Bond Fund
Class B Shares of the AmSouth
Balanced Fund
Class B Shares of the AmSouth
Government Income Fund
Class B Shares of the AmSouth
Florida Tax-Free Fund
Class B Shares of the AmSouth
Capital Growth Fund
Class B Shares of the AmSouth
Small Cap Fund
Class B Shares of the AmSouth
Equity Income Fund
<PAGE> 16
AMSOUTH MUTUAL FUNDS
By:__________________________
Name: _______________________
Title:_______________________
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By:__________________________
Name: _______________________
Title:_______________________
<PAGE> 1
Exhibit 10
[ROPES & GRAY LETTERHEAD]
August 26, 1997
AmSouth Mutual Funds
3435 Stelzer Road
Columbus, Ohio 43219
Gentlemen:
You have registered under the Securities Act of 1933, as amended (the
"1933 Act") an indefinite number of shares of beneficial interest of the
AmSouth Mutual Funds ("Trust"), as permitted by Rule 24f-2 under the
Investment Company Act of 1940, as amended (the "1940 Act"). You propose to
file a post-effective amendment of Form N-1A (the "Post-Effective Amendment")
to your Registration Statement as required by Section 10(a)(3) with respect to
certain units of beneficial interest of the Trust ("Shares").
We have examined your Agreement and Declaration of Trust on file in
the office of the Secretary of The Commonwealth of Massachusetts and the
Clerk of the City of Boston. We have also examined a copy of your Bylaws and
such other documents, receipts and records as we have deemed necessary for the
purpose of this opinion.
Based upon the forgoing, we are of the opinion that the issue and sale
of the Shares have been duly authorized under Massachusetts law. Upon the
original issue and sale of the Shares and upon receipt of the authorized
consideration therefor in an amount not less than the net asset value of the
Shares established and in force at the time of their sale, the Shares will be
validly issued, fully paid and non-assessable.
The AmSouth Mutual Funds is an entity of the type commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders could,
under certain circumstances, be held personally liable for the obligations of
the Trust. However, the Agreement and Declaration of Trust provides for
indemnification out of the property of a particular series of Shares for all
loss and expenses of any shareholder of that series held personally liable
solely by reason of his being or having been a shareholder. Thus, the risk of
<PAGE> 2
ROPES AND GRAY
AmSouth Mutual Funds
August 26, 1997
Page 2
shareholder liability is limited to circustances in which the series of Shares
itself would be unable to meet its obligations.
We understand that this opinion is to be used in connection with the
filing of the Post-Effective Amendment. We consent to the filing of this
opinion with and as part of your Post-Effective Amendment.
Sincerely,
/s/ Ropes & Gray
Ropes & Gray
<PAGE> 1
Exhibit 11(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Post-Effective Amendment
No. 24 to the Registration Statement on Form N-1A (File No. 33-21660) of
AmSouth Mutual Funds of our report dated September 23, 1996 on our audits of
the financial statements and financial highlights of the Prime Obligations
Fund, the U.S. Treasury Fund, the Tax-Exempt Fund, the Bond Fund, the Limited
Maturity Fund, the Government Income Fund, the Florida Tax-Free Fund, the
Equity Fund, the Regional Equity Fund, and the Balanced Fund constituting the
AmSouth Mutual Funds as of July 31, 1996 and for the periods then ended
referred to in our report included in the Statement of Additional Information.
We also consent to the references to our firm under the caption "Financial
Highlights" in the Prospectuses for the Classic Shares and Class B Shares of
the Capital Appreciation Funds, the Income Funds and the Municipal Bond Funds,
in the Prospectus for Premier Shares, and under the caption "Auditors" in the
Statement of Additional Information of AmSouth Mutual Funds incorporated by
reference in Post-Effective Amendment No. 24 to the Registration Statement on
Form N-1A (File No. 33-21660).
COOPERS & LYBRAND L.L.P.
Columbus, Ohio
August 26, 1997
<PAGE> 1
Exhibit (11)(b)
------------
Consent of Ropes & Gray
<PAGE> 2
CONSENT OF COUNSEL
------------------
We hereby consent to the use of our name and the references to our firm
under the caption "Legal Counsel" included in or made a part of Post-Effective
Amendment No. 24 to the Registration Statement of the Amsouth Mutual Funds on
Form N-1A (File No. 33-21660) under the Securities Act of 1933, as amended.
Ropes & Gray
Washington, D.C.
August 26, 1997
<PAGE> 1
AMSOUTH MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
DATE AS OF: 07/31/97
AMSOUTH EQUITY INCOME FUND
AGGREGATE TOTAL RETURN
----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 03/20/97 TO 07/31/97 ):
( 1178.14 /1,000) - 1 = 17.81%
QUARTERLY: ( 04/30/97 TO 07/31/97 ):
( 1,157.83 /1,000) - 1 = 15.78%
MONTHLY: ( 07/01/97 TO 07/31/97 ):
( 1,062.36 /1,000) - 1 = 6.24%
<PAGE> 2
AMSOUTH MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
DATE AS OF: 07/31/97
AMSOUTH EQUITY INCOME FUND
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
--------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE PERIOD OF A
HYPOTHETICAL $1,000 INVESTMENT MADE AT THE BEGINNING OF
THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
SINCE INCEPTION: ( 03/20/97 TO 07/31/97 ):
( 1125.24 /1,000) - 1 = 12.52%
QUARTERLY: ( 04/30/97 TO 07/31/97 ):
( 1,105.61 /1,000) - 1 = 10.56%
MONTHLY: ( 07/01/97 TO 07/31/97 ):
( 1,014.61 /1,000) - 1 = 1.46%
<PAGE> 3
AMSOUTH MUTUAL FUNDS
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
DATE AS OF: 07/31/97
AMSOUTH EQUITY INCOME FUND
* ACTUAL(WITH WAIVERS)
(a-b)
-------------
30-Day S.E.C. Yield Equation= 2 *{[( (cd) +1)to the 6th power]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The offering price (without CDSC) or the maximum redemption
price (with CDSC) per share on the last day of the period
* MAXIMUM FEES (without waivers)
(a-b)
-------------
30-Day S.E.C. Yield Equation= 2 *{[( (cd) +1)to the 6th power]-1} =
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (without waivers)
c = The average daily number of shares outstanding during the
period that were entitled to receive dividends
d = The offering price (without CDSC) or the maximum redemption
price (with CDSC) per share on the last day of the period
* ACTUAL(WITH WAIVERS)
<TABLE>
<S> <C>
( 48,775.49 - 19,709.70 )
30-Day S.E.C. Yield = 2 *{[(------------------------- +1)to the 6th power]-1} = 1.61%
( 1,766,729.844 * 12.27)
</TABLE>
The performance was computed based on the thirty day period ending
July 31, 1997
* MAXIMUM FEES (without waivers)
( 48,775.49 - 21,679.86 )
= 2 *{[(------------------------------ +1)to the 6th power]-1} = 1.50%
( 1,766,729.844 * 12.27 )
The performance was computed based on the thirty day period ending
July 31, 1997
<PAGE> 4
AMSOUTH MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
DATE AS OF: 06/30/97
AMSOUTH MUNICIPAL BOND FUND
Premier Shares
AGGREGATE TOTAL RETURN
-----------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 12/31/96 TO 06/30/97):
( 1,019.87/1,000) - 1 = 1.99%
QUARTERLY: ( 04/01/97 TO 06/30/97):
( 1,025.38/1,000) - 1 = 2.54%
MONTHLY: ( 05/31/97 TO 06/30/97):
( 1,011.12/1,000) - 1 = 1.11%
AVERAGE ANNUAL TOTAL RETURN
---------------------------
T = ((ERV/P) to the (1/N)th power) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 08/01/75 TO 06/30/97):
((3,637.23/1,00 to the(1/( 8005 /365))power-1) = 6.06%
1 YEAR ( 06/30/96 TO 06/30/97):
((1,054.54/1,00 to the(1/( 365 /365))power-1) = 5.45%
2 YEAR ( 06/30/95 TO 06/30/97):
((1,097.18/1,00 to the(1/( 730 /365))power-1) = 4.75%
3 YEAR ( 06/30/94 TO 06/30/97):
((1,164.44/1,00 to the(1/( 1095 /365))power-1) = 5.21%
5 YEAR ( 06/30/92 TO 06/30/97):
((1,257.62/1,00 to the(1/( 1825 /365))power-1) = 4.69%
10 YEAR ( 06/30/87 TO 06/30/97):
((1,777.54/1,00 to the(1/( 3650 /365))power-1) = 5.92%
<PAGE> 5
AMSOUTH MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
AMSOUTH MUNICIPAL BOND FUND
Classic Shares
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.00%
------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 12/31/96 TO 06/30/97):
( 977.90 /1,000) - 1 = -2.21%
QUARTERLY: ( 04/01/97 TO 06/30/97):
( 983.78 /1,000) - 1 = -1.62%
MONTHLY: ( 05/31/97 TO 06/30/97):
( 970.46 /1,000) - 1 = -2.95%
AVERAGE ANNUAL TOTAL RETURN
WITH SALES LOAD OF: 4.00%
-----------------------------
T = ((ERV/P) to the(1/N)th power) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 08/01/75 TO 06/30/97):
((3,313.68/1,00 to the(1/( 8005 /365))power-1) = 5.61%
1 YEAR ( 06/30/96 TO 06/30/97):
((1,009.95/1,00 to the(1/( 365 /365))power-1) = 1.00%
2 YEAR ( 06/30/95 TO 06/30/97):
((1,048.27/1,00 to the(1/( 730 /365))power-1) = 2.39%
3 YEAR ( 06/30/94 TO 06/30/97):
((1,109.88/1,00 to the(1/( 1095 /365))power-1) = 3.54%
5 YEAR ( 06/30/92 TO 06/30/97):
((1,192.98/1,00 to the(1/( 1825 /365))power-1) = 3.59%
10 YEAR ( 06/30/87 TO 06/30/97):
((1,666.18/1,00 to the(1/( 3650 /365))power-1) = 5.24%
<PAGE> 6
AMSOUTH MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
DATE AS OF: 06/30/97
AMSOUTH MUNICIPAL BOND FUND
Classic Shares
AGGREGATE TOTAL RETURN
--------------------------------
T = (ERV/P) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
EXAMPLE:
YEAR TO DATE: ( 12/31/96 TO 06/30/97):
( 1,018.64/1,000) - 1 = 1.86%
QUARTERLY: ( 04/01/97 TO 06/30/97):
( 1,024.77/1,000) - 1 = 2.48%
MONTHLY: ( 05/31/97 TO 06/30/97):
( 1,010.90/1,000) - 1 = 1.09%
AVERAGE ANNUAL TOTAL RETURN
---------------------------
T = ((ERV/P) to the(1/N)th power) - 1
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END
OF THE PERIOD OF A HYPOTHETICAL
$1,000 INVESTMENT MADE AT THE
BEGINNING OF THE PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
N = NUMBER OF YEARS
EXAMPLE:
SINCE INCEPTION: ( 08/01/75 TO 06/30/97):
((3,451.75/1,00 to the(1/( 8005 /365))power-1) = 5.81%
1 YEAR ( 06/30/96 TO 06/30/97):
((1,052.03/1,00 to the(1/( 365 /365))power-1) = 5.20%
2 YEAR ( 06/30/95 TO 06/30/97):
((1,091.95/1,00 to the(1/( 730 /365))power-1) = 4.50%
3 YEAR ( 06/30/94 TO 06/30/97):
((1,156.13/1,00 to the(1/( 1095 /365))power-1) = 4.95%
5 YEAR ( 06/30/92 TO 06/30/97):
((1,242.68/1,00 to the(1/( 1825 /365))power-1) = 4.44%
10 YEAR ( 06/30/87 TO 06/30/97):
((1,735.60/1,00 to the(1/( 3650 /365))power-1) = 5.67%
<PAGE> 7
AMSOUTH MUTUAL FUNDS
EXHIBIT 16
30-DAY S.E.C. YIELD CALCULATIONS
DATE AS OF: 07/31/97
AMSOUTH MUNICIPAL BOND FUND
ACTUAL(WITH WAIVERS)
(a-b)
-------------------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1) 6]-1} =
<TABLE>
<S> <C> <C>
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
</TABLE>
MAXIMUM FEES (WITHOUT WAIVERS)
(a-b)
-------------------------
30-Day S.E.C. Yield Equation = 2 *{[( (cd) +1) 6]-1} =
<TABLE>
<S> <C> <C>
WHERE a = Dividends and interest earned during the period
b = Expenses accrued for the period (without waivers)
c = The average daily number of shares outstanding during
the period that were entitled to receive dividends
d = The maximum offering price (NAV for No Load) per
share on the last day of the period
</TABLE>
================================================================================
ACTUAL
<TABLE>
<S> <C> <C>
( 1,215,484.69- 195,733.20)
-----------------------------------------------------
30-Day S.E.C. Yield 2 *{[( +1) 6]-1} = 3.49%
( 33,427,586.695* 10.57)
</TABLE>
The performance was computed based on the thirty day period ending
July 31, 1997
FULL FEES (WITHOUT WAIVERS)
<TABLE>
<S> <C> <C>
( 1,215,484.69- 287,404.45)
-----------------------------------------------------
2 *{[( +1) 6]-1} = 3.17%
( 33,427,586.695* 10.57)
</TABLE>
The performance was computed based on the thirty day period ending
July 31, 1997
<PAGE> 1
AMSOUTH MUTUAL FUNDS
EXHIBIT 16
TOTAL RETURN
DATE AS OF: 08/26/97
AMSOUTH CAPITAL GROWTH FUND
AGGREGATE TOTAL RETURN
--------------------------------
T = (ERV/P) - 1
<TABLE>
<S> <C> <C>
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
</TABLE>
EXAMPLE:
SINCE INCEPTION: ( 08/01/97 TO 08/26/97):
( 960.00/1,000) - 1 = -4.00%
AGGREGATE TOTAL RETURN
WITH SALES LOAD OF: 4.50%
--------------------------------
T = (ERV/P) - 1
<TABLE>
<S> <C> <C>
WHERE: T = TOTAL RETURN
ERV = REDEEMABLE VALUE AT THE END OF THE
PERIOD OF A HYPOTHETICAL $1,000
INVESTMENT MADE AT THE BEGINNING OF THE
PERIOD.
P = A HYPOTHETICAL INITIAL INVESTMENT OF $1,000.
</TABLE>
EXAMPLE:
SINCE INCEPTION: ( 08/01/97 TO 08/26/97):
( 916.91/1,000) - 1 = -8.31%
<PAGE> 1
EXHIBIT 18(a)
Multiple Class Plan for AmSouth Mutual Funds
<PAGE> 2
MULTIPLE CLASS PLAN
FOR AMSOUTH MUTUAL FUNDS
This constitutes a MULTIPLE CLASS PLAN (the "Plan") of AmSouth Mutual
Funds, a Massachusetts business trust (the "Trust"), adopted pursuant to Rule
18f-3(d) under the Investment Company Act of 1940, as amended (the "1940 Act").
The Plan is applicable to each series of the Trust's units of beneficial
interest (each a "Fund" and collectively the "Funds") set forth in Schedule I,
as amended from time to time.
WHEREAS, it is desirable to enable the Trust to have flexibility in
meeting the investment and shareholder servicing needs of its current and
future investors; and
WHEREAS, the Board of Trustees of the Trust (the "Board of Trustees"),
including a majority of the Trustees who are not "interested persons" of the
Trust, as such term is defined by the 1940 Act, mindful of the requirements
imposed by Rule 18f-3(d) under the 1940 Act, has determined to adopt this Plan
to enable the Funds to provide appropriate services to certain designated
classes of shareholders of the Funds;
NOW, THEREFORE, the Trust designates the Plan as follows:
1. DESIGNATION OF CLASSES. Each Fund shall offer its units of
beneficial interest ("Shares") in three classes: Premier Shares, Classic
Shares, and Class B Shares except for the AmSouth U.S. Treasury Fund and Tax
Exempt Fund shall offer only two classes: Premier Shares and Classic Shares.
2. REDESIGNATION OF EXISTING SHARES. The Shares of the AmSouth Prime
Obligations Fund, AmSouth U.S. Treasury Fund, and AmSouth Tax Exempt Fund of
the Trust outstanding as of April 1, 1996 were redesignated as of that date as
Premier Shares. The Shares of the remaining series of the Trust existing as of
March 12, 1997 were redesignated as Classic Shares effective as of September 1,
1997.
3. PURCHASES. Classic Shares and Class B Shares are distributed to the
general public pursuant to procedures outlined in the Trust's Registration
Statement. Premier Shares may be purchased through procedures established by
the distributor in connection with the requirements of fiduciary, advisory,
agency, custodial and other similar accounts maintained by or on behalf of
Customers of AmSouth Bank or one of its affiliates, as outlined in the Trust's
Registration Statement. Classic Shares and Class B Shares are subject to a
minimum initial purchase amount. A minimum initial purchase amount does not
apply to purchases of Premier Shares.
<PAGE> 3
4. SHAREHOLDER SERVICES. Classic and Class B Shareholders may make
automatic investments in a Fund from their bank accounts. Classic and Class B
Shareholders may also make regular exchanges and redemptions of Classic or
Class B Shares. These services are not offered to Shareholders of Premier
Shares.
5. SALES CHARGES.
Premier Shares
- --------------
Premier Shares are not subject to a sales charge at the time of
purchase or upon redemption.
Classic Shares
- --------------
Classic Shares, except Classic Shares of any money market funds, are
subject to a sales charge at the time of purchase. The sales charge is based on
a percentage of the offering price and may vary based on the amount of
purchase. Sales charges may be waived for certain purchasers or inapplicable to
purchases over a designated level in accordance with the current Registration
Statement. A contingent deferred sales charge may be assessed on redemptions
within twelve months of purchase of Classic Shares sold without a sales charge
in accordance with the current Registration Statement. The charge will be
assessed on an amount equal to the lesser of the then current market value or
the cost of the Shares being redeemed. Accordingly, no contingent deferred
sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on Shares derived from the
reinvestment of dividends or capital gain distributions.
Class B Shares
- --------------
If a Shareholder redeems Class B Shares prior to the sixth anniversary
of purchase, the Shareholder will pay a contingent deferred sales charge
assessed on an amount equal to the lesser of the then current market value or
the cost of the Shares being redeemed. Accordingly, no contingent deferred
sales charge is imposed on increases in net asset value above the initial
purchase price. In addition, no charge is assessed on Shares derived from the
reinvestment of dividends or capital gain distributions. The amount of the
contingent deferred sales charge, if any, varies depending on the number of
years from the time of payment for the purchase of Class B Shares until the
time of redemption of such Shares. The schedule of contingent deferred sales
charges shall be disclosed in the Trust's Registration Statement and may be
waived in accordance with the Registration Statement.
-2-
<PAGE> 4
6. Shareholder Services Fee.
------------------------
Premier Shares
- --------------
Premier Shares are not subject to a shareholder services fee.
Classic Shares
- --------------
Classic Shares are subject to a shareholder services fee assessed in
accordance with the Shareholder Services Plan adopted by the Trust (the
"Services Plan") (the "Classic Share Fee").
7. Distribution and Shareholder Services Fee.
------------------------------------------
Class B Shares
--------------
Class B Shares of the Fund are subject to a distribution and
shareholder services fee assessed in accordance with the Distribution and
Shareholder Services Plan adopted by the Trust (the "Distribution Plan") (the
"B Share Fee"). The Classic Share Fee is lower than the B Share Fee.
8. Exchanges
---------
Premier Shares
- --------------
Premier Shares of a Fund may be exchanged for Premier Shares of
another Fund. Premier Shares may also be exchanged for Classic Shares, if the
Shareholder ceases to be eligible to purchase Premier Shares.
Classic Shares
- --------------
Classic Shares may be exchanged for Classic Shares of another Fund.
Classic Shares may be exchanged for Premier Shares only if the Shareholder
becomes eligible to purchase Premier Shares.
Class B Shares
- --------------
Class B Shares of a Fund may be exchanged for Class B Shares of
another Fund. Class B Shares may not be exchanged for Classic Shares and may be
exchanged for Premier Shares only if the Shareholder becomes eligible to
purchase Premier Shares.
9. REDEMPTIONS. Premier Shares and Classic Shares may be redeemed
without charge. Class B Shares may be subject to a Contingent Deferred Sales
Charge as outlined in Section 5.
-3-
<PAGE> 5
10. VOTING RIGHTS. Each Share held entitles the Shareholder of record
to one vote. Each Fund will vote separately on matters relating solely to that
Fund. Each class of a Fund shall have exclusive voting rights on any matter
submitted to Shareholders that relates solely to that class, and shall have
separate voting rights on any matter submitted to Shareholders in which the
interests of one class differ from the interests of any other class. However,
all Fund Shareholders will have equal voting rights on matters that affect all
Fund Shareholders equally.
11. EXPENSE ALLOCATION. Classic Shares shall pay the expenses
associated with the Services Plan and Class B Shares shall pay the expenses
associated with the Distribution Plan. Each class may, at the Board's
discretion, also pay a different share of other expenses, not including
advisory or custodial fees or other expenses related to the management of the
Trust's assets, if these expenses are actually incurred in a different amount
by that class, or if the class receives services of a different kind or to a
different degree than other classes. All other expenses will be allocated to
each class on the basis of the relative net asset value of that class in
relation to the net asset value of the Fund.
12. DIVIDENDS. The amount of dividends payable on Premier Shares may
be more than the dividends payable on Classic Shares or B Shares because of the
respective Classic Share Fee or B Share Fee charged as outlined in Section 6.
13. TERMINATION AND AMENDMENT. This Plan may be terminated or amended
pursuant to the requirement of Rule 18f-3(d) under the 1940 Act.
14. The names "AmSouth Mutual Funds" and "Trustees of AmSouth Mutual
Funds" refer respectively to the Trust created and the Trustees, as trustees
but not individually or personally, acting from time to time under an Agreement
and Declaration of Trust dated June 25, 1993 to which reference is hereby made
and a copy of which is on file at the office of the Secretary of State of the
Commonwealth of Massachusetts and elsewhere as required by law, and to any and
all amendments thereto so filed or hereafter filed. The obligations of AmSouth
Mutual Funds entered into in the name or on behalf thereof by any of the Trust,
representatives or agents are made not individually, but in such capacities,
and are not binding upon any of the Trustees, Shareholders or representatives
of the Trust personally, but bind only the assets of the Trust, and all persons
dealing with any series and/or class of Shares of the Trust must look solely to
the assets of the Trust belonging to such series and/or class for the
enforcement of any claims against the Trust.
Adopted by the Board of Trustees on December 6, 1995, as amended and
restated July 16, 1997.
-4-
<PAGE> 6
SCHEDULE I
MULTIPLE CLASS PLAN
FOR AMSOUTH MUTUAL FUNDS
(as amended and restated July 16, 1997)
AmSouth Prime Obligations Fund
AmSouth U.S. Treasury Fund
AmSouth Tax Exempt Fund
AmSouth Equity Fund
AmSouth Regional Equity Fund
AmSouth Balanced Fund
AmSouth Capital Growth Fund
AmSouth Small Cap Fund
AmSouth Equity Income Fund
AmSouth Bond Fund
AmSouth Limited Maturity Fund
AmSouth Government Income Fund
AmSouth Florida Tax-Free Fund
AmSouth Municipal Bond Fund
<PAGE> 1
EXHIBIT 18(f)
Amended Schedule A to the Distribution and Shareholder Services Plan
<PAGE> 2
Dated: July 16, 1997
Schedule A to the
Distribution and Shareholder Services Plan
dated March 12, 1997
<TABLE>
<CAPTION>
Name of Funds Compensation*
- ------------- -------------
<S> <C>
The AmSouth Prime Obligations Fund -- Annual rate of one percent (1.00%) of the
B Shares average daily net assets of the AmSouth Prime
Obligations Fund
The AmSouth Limited Maturity Fund -- B Annual rate of one percent (1.00%) of the
Shares average daily net assets of the AmSouth
Limited Maturity Fund.
The AmSouth Bond Fund -- B Shares Annual rate of one percent (1.00%) of the
average daily net assets of the AmSouth Bond
Fund.
The AmSouth Government Income Fund -- Annual rate of one percent (1.00%) of the
B Shares average daily net assets of the AmSouth
Government Income Fund.
The AmSouth Florida Tax-Free Fund -- B Annual rate of one percent (1.00%) of the
Shares average daily net assets of the AmSouth
Florida Tax-Free Fund.
The AmSouth Municipal Bond Fund -- B Annual rate of one percent (1.00%) of the
Shares average daily net assets of the AmSouth
Municipal Bond Fund.
The AmSouth Equity Fund -- B Shares Annual rate of one percent (1.00%) of the
average daily net assets of the AmSouth Equity
Fund.
The AmSouth Regional Equity Fund -- B Annual rate of one percent (1.00%) of the
Shares average daily net assets of the AmSouth
Regional Equity Fund.
</TABLE>
A-1
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
The AmSouth Balanced Fund-- B Shares Annual rate of one percent (1.00%) of the
average daily net assets of the AmSouth
Balanced Fund.
The AmSouth Capital Growth Fund -- B Annual rate of one percent (1.00%) of the
Shares average daily net assets of the AmSouth
Capital Growth Fund.
The AmSouth Small Cap Fund -- B Shares Annual rate of one percent (1.00%) of the
average daily net assets of the AmSouth Small
Cap Fund.
The AmSouth Equity Income Fund -- B Annual rate of one percent (1.00%) of the
Shares average daily net assets of the AmSouth Equity
Income Fund.
</TABLE>
[SEAL] AMSOUTH MUTUAL FUNDS
By: /s/ John Calvano
------------------------
Name: John Calvano
Title: Secretary
BISYS FUND SERVICES
LIMITED PARTNERSHIP
By: BISYS Fund Services, Inc.
General Partner
By: /s/ J. David Huber
-------------------------
_________________
* All fees are computed and paid monthly.
A-2
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
<SERIES>
<NUMBER> 012
<NAME> AMSOUTH MUTUAL FUNDS PRIME OBLIGATIONS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 508919
<INVESTMENTS-AT-VALUE> 509819
<RECEIVABLES> 3554
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 562674
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2822
<TOTAL-LIABILITIES> 2822
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 559861
<SHARES-COMMON-STOCK> 450885<F1>
<SHARES-COMMON-PRIOR> 478542<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 9
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 559852
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 16722
<OTHER-INCOME> 0
<EXPENSES-NET> 2130
<NET-INVESTMENT-INCOME> 14592
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 14592
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 11785<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 519650<F1>
<NUMBER-OF-SHARES-REDEEMED> 548163<F1>
<SHARES-REINVESTED> 838<F1>
<NET-CHANGE-IN-ASSETS> (43765)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1213
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2219
<AVERAGE-NET-ASSETS> 483803<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> 0.024<F1>
<PER-SHARE-GAIN-APPREC> 0.000<F1>
<PER-SHARE-DIVIDEND> 0.024<F1>
<PER-SHARE-DISTRIBUTIONS> 0.000<F1>
<RETURNS-OF-CAPITAL> 0.000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> 0.68<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Premier Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
<SERIES>
<NUMBER> 022
<NAME> AMSOUTH MUTUAL FUNDS U.S. TREASURY FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 231966
<INVESTMENTS-AT-VALUE> 231966
<RECEIVABLES> 3842
<ASSETS-OTHER> 13
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 325948
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1460
<TOTAL-LIABILITIES> 1460
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 324487
<SHARES-COMMON-STOCK> 312928<F1>
<SHARES-COMMON-PRIOR> 368162<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 324488
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 9077
<OTHER-INCOME> 0
<EXPENSES-NET> 1206
<NET-INVESTMENT-INCOME> 7871
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 7871
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 7595<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 459408<F1>
<NUMBER-OF-SHARES-REDEEMED> 514873<F1>
<SHARES-REINVESTED> 232<F1>
<NET-CHANGE-IN-ASSETS> (55937)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 688
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1215
<AVERAGE-NET-ASSETS> 328768<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> 0.023<F1>
<PER-SHARE-GAIN-APPREC> 0.000<F1>
<PER-SHARE-DIVIDEND> 0.023<F1>
<PER-SHARE-DISTRIBUTIONS> 0.000<F1>
<RETURNS-OF-CAPITAL> 0.000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> 0.700<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Premier Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
<SERIES>
<NUMBER> 072
<NAME> AMSOUTH MUTUAL FUNDS TAX EXEMPT
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 82883
<INVESTMENTS-AT-VALUE> 82883
<RECEIVABLES> 738
<ASSETS-OTHER> 1
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 83622
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 258
<TOTAL-LIABILITIES> 258
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 83364
<SHARES-COMMON-STOCK> 66974<F1>
<SHARES-COMMON-PRIOR> 43611<F1>
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 83364
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1319
<OTHER-INCOME> 0
<EXPENSES-NET> 198
<NET-INVESTMENT-INCOME> 1121
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1121
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 857<F1>
<DISTRIBUTIONS-OF-GAINS> 0<F1>
<DISTRIBUTIONS-OTHER> 0<F1>
<NUMBER-OF-SHARES-SOLD> 83634<F1>
<NUMBER-OF-SHARES-REDEEMED> 60286<F1>
<SHARES-REINVESTED> 15<F1>
<NET-CHANGE-IN-ASSETS> 22637
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 148
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 285
<AVERAGE-NET-ASSETS> 55423<F1>
<PER-SHARE-NAV-BEGIN> 1.000<F1>
<PER-SHARE-NII> 0.015<F1>
<PER-SHARE-GAIN-APPREC> 0.000<F1>
<PER-SHARE-DIVIDEND> 0.015<F1>
<PER-SHARE-DISTRIBUTIONS> 0.000<F1>
<RETURNS-OF-CAPITAL> 0.000<F1>
<PER-SHARE-NAV-END> 1.000<F1>
<EXPENSE-RATIO> 0.51<F1>
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>Premier Shares
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
<SERIES>
<NUMBER> 011
<NAME> AMSOUTH MUTUAL FUNDS PRIME OBLIGATIONS FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JAN-31-1997
<INVESTMENTS-AT-COST> 508919
<INVESTMENTS-AT-VALUE> 509819
<RECEIVABLES> 3554
<ASSETS-OTHER> 7
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 562674
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2822
<TOTAL-LIABILITIES> 2822
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 559861
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<F1>Classic Shares
</FN>
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<TABLE> <S> <C>
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<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
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<NAME> AMSOUTH MUTUAL FUNDS U.S. TREASURY FUND
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<F1>Classic Shares
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
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<NAME> AMSOUTH MUTUAL FUNDS TAX EXEMPT
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<F1>Classic Shares
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</TABLE>
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<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
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<NAME> AMSOUTH MUTUAL FUNDS EQUITY FUND
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<NAME> AMSOUTH MUTUAL FUNDS
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<NAME> AMSOUTH MUTUAL FUNDS
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<NAME> AMSOUTH MUTUAL FUNDS BALANCED FUND
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<TABLE> <S> <C>
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<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
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<NAME> AMSOUTH MUTUAL FUNDS
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<NAME> AMSOUTH MUTUAL FUNDS LIMITED MATURITY
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<CIK> 0000832544
<NAME> AMSOUTH MUTUAL FUNDS
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<NAME> AMSOUTH MUTUAL FUNDS GOVERNMENT INCOME FUND
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