<PAGE> 1
AMSOUTH MUTUAL FUNDS
INCOME FUNDS
SUPPLEMENT DATED JUNE 30, 1997 TO
PROSPECTUS DATED NOVEMBER 30, 1996
Capitalized terms used in this Supplement and not defined have the meaning
assigned to them in the Prospectus.
The Prospectus is hereby amended as follows:
1. The FEE TABLES on pages 2 and 3 of the Prospectus are hereby restated to
read as follows:
<TABLE>
<CAPTION>
LIMITED GOVERNMENT MUNICIPAL
BOND MATURITY INCOME FLORIDA BOND
FUND FUND FUND FUND FUND
----- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION
EXPENSES(1)
Maximum Sales Load Imposed on
Purchases (as a percentage
of offering price)............. 4.00% 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%
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).... 0.50% 0.50% 0.30% 0.30% 0.40%
12b-1 Fees.................. 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (After
Voluntary Fee
Reductions)(4)............ 0.25% 0.26% 0.35% 0.29% 0.30%(5)
----- --------- ----- -------- -----
Total Fund Operating
Expenses(6)............... 0.75% 0.76% 0.65% 0.59% 0.70%
----- --------- ----- -------- -----
</TABLE>
- ---------------
(1) Amsouth Bank of Alabama and its correspondent or affiliated banks may charge
a Customer's (as defined in the Prospectus) account fees for automatic
investment and other cash management services provided in connection with
investment in the 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 of the Bond
Fund, the Limited Maturity Fund, the Government Income
<PAGE> 2
Fund, the Florida Fund and the Municipal Bond Fund. (See "MANAGEMENT OF
AMSOUTH MUTUAL FUNDS -- Investment Advisor")
(4) Absent the voluntary reduction of administration fees, Other Expenses as a
percentage of average net assets 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 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, assuming
(1) 5% annual return and (2) redemption at the end of each period:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------- -------- -------- ---------
<S> <C> <C> <C> <C>
Bond Fund..................................... $47 $ 63 $ 80 $ 129
Limited Maturity Fund......................... $47 $ 63 $ 81 $ 130
Government Income Fund........................ $46 $ 60 $ 75 $ 118
Florida Fund.................................. $46 $ 58 $ 72 $ 111
Municipal Bond Fund........................... $47 $ 61 N/A N/A
</TABLE>
The purpose of the table above is to assist an investor in the Income Funds
in understanding the various costs and expenses that an investor in an
Income Fund will bear directly or indirectly. See "MANAGEMENT OF AMSOUTH
MUTUAL FUNDS" for a more complete discussion of annual operating expenses
of the Income Funds. THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A
REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER
OR LESS THAN THOSE SHOWN.
2. On p. 16 prior to THE FLORIDA FUND-DIVERSIFICATION AND CONCENTRATION,
add the following section:
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
from both federal income tax and Alabama personal income tax and is not
treated as a preference item for purposes of the federal alternative
minimum tax for individuals ("Alabama Municipal Securities"). 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.
<PAGE> 3
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.
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 healthcare
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.
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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 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
<PAGE> 5
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.
3. The chart under SALES CHARGE on page 23 of the Prospectus is hereby
amended to read as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS DEALER ALLOWANCE AS
A PERCENTAGE OF A PERCENTAGE OF A PERCENTAGE OF
AMOUNT OF PURCHASE NET AMOUNT 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% 1.80%
$500,000 but less than
$1,000,000................... 1.01% 1.00% .90%
$1,000,000 or more............. 0% 0% 0%
</TABLE>
4. Paragraphs 5 and 6 under Investment Advisor on page 32, are amended to
read as follows: effective May 15, 1997, Dorothy E. Thomas is the
portfolio manager for the Municipal Bond Fund and the Florida Tax-Free
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.
5. The new address for the TRANSFER AGENT is AMSOUTH MUTUAL FUNDS, PO BOX
182733, COLUMBUS, OH 43218-2733.
6. The paragraph under CUSTODIAN on page 36 is hereby amended to read as
follows:
AmSouth Bank became Custodian for the Trust on April 17, 1997. 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.
INVESTORS SHOULD RETAIN THIS SUPPLEMENT WITH THE
PROSPECTUS FOR FUTURE REFERENCE
AS2S063097
