<PAGE> 1
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. The Fund
seeks to achieve growth of income over the long term.
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> 2
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" or "Sub-Advisor") acts as the investment
sub-advisor to the Equity Income Fund. Peachtree Asset Management ("Peachtree"
or "Sub-Advisor") acts as the investment sub-advisor to the Capital Growth 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"); 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");
and the Premier Shares of the Capital Appreciation Funds, the Money Market Funds
and 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 December 1, 1997.
<PAGE> 3
FEE TABLE
<TABLE>
<CAPTION>
EQUITY REGIONAL CAPITAL GROWTH SMALL CAP EQUITY INCOME
FUND EQUITY 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.......... 0.80% 0.80% 0.80% 0.80% 0.80%(3) 0.80%(3) 0.80% 0.80% 0.90% 0.90% 0.80% 0.80%
12b-1 Fees...... 0.00% 1.00% 0.00% 1.00% 0.00% 1.00% 0.00% 1.00% 0.00% 1.00% 0.00% 1.00%
Shareholder
Servicing
Fees.......... 0.25% 0.00% 0.25% 0.00% 0.25% 0.00% 0.25% 0.00% 0.25% 0.00% 0.25% 0.00%
Other Expenses
(after
voluntary fee
reduction)(4)... 0.22% 0.22% 0.25% 0.25% 0.24% 0.24% 0.27% 0.27% 0.27% 0.27% 0.27% 0.27%
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------- -------
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, 0.31% for
the Balanced Fund and 0.27% for the Equity Income Fund. Other Expenses for
the Capital Growth Fund and the Small Cap 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, 1.36% for the Balanced Fund and
1.32% for the Equity Income 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,
2.11% for the Balanced Fund and 2.07% for the Equity Income Fund.
3
<PAGE> 4
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> 5
FINANCIAL HIGHLIGHTS
The tables below set forth certain financial information concerning the
investment results for each of the Funds (with the exception of the Capital
Growth Fund) for the period from commencement of operations to July 31, 1997.
The information from the commencement of operations to July 31, 1997 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, 1997 appears in the Statement of Additional Information.
The Capital Growth Fund and the Small Cap Fund had not commenced operations as
of July 31, 1997. Unaudited financial information is also included for the
Capital Growth Fund for the period from August 4, 1997 (commencement of
operations) to October 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,
1997 1996 1995 1994 1993 1992 1991 1990 1989(A)
-------- -------- -------- -------- -------- -------- ------- ------- -----------
<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............. 0.30 0.33 0.33 0.28 0.28 0.32 0.36 0.37 0.22
Net realized and
unrealized gains
from investments... 6.77 1.48 2.39 0.83 1.48 1.20 0.61 (0.17) 2.16
-------- -------- -------- -------- -------- -------- ------- ------- -----
Total from Investment
Activities......... 7.07 1.81 2.72 1.11 1.76 1.52 0.97 0.20 2.38
-------- -------- -------- -------- -------- -------- ------- ------- -----
DISTRIBUTIONS
Net investment
income............. (0.30) (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...... (1.34) (0.94) (0.79) (0.67) (0.78) (0.69) (0.39) (0.39) (0.20)
-------- -------- -------- -------- -------- -------- ------- ------- -----
NET ASSET VALUE, END
OF PERIOD............ $ 23.35 $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 $ 11.99 $ 12.18
Total Return
(excludes sales
charge)............ 42.35% 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)....... $974,985 $374,622 $275,757 $205,611 $153,074 $107,934 $32,406 $14,383 $ 5,476
Ratio of expenses to
average net
assets............. 1.06% 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............. 1.52% 1.86% 2.17% 1.93% 2.08% 2.50% 3.16% 3.16% 2.91%(b)
Ratio of expenses to
average net
assets*............ 1.10% 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*.............. 1.48% 1.77% 2.09% 1.76% 1.90% 2.36% 3.04% 2.86% 1.73%(b)
PORTFOLIO TURNOVER.... 24.47% 19.11% 19.46% 11.37% 15.12% 113.12% 15.78% 14.89% 4.03%
Average commission
rate paid(d)......... $ 0.0657 $ 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 dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for which
commissions were charged. Disclosure is not required for periods ending
prior to September 1, 1996.
5
<PAGE> 6
<TABLE>
<CAPTION>
REGIONAL EQUITY FUND
----------------------------------------------------------------------------------------------
DECEMBER 1,
YEAR ENDED JULY 31, 1988 TO
------------------------------------------------------------------------------ JULY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989(A)
-------- ------- ------- ------- ------- ------- ------- ------- -----------
<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........ 0.24 0.26 0.23 0.23 0.19 0.23 0.26 0.23 0.14
Net realized and unrealized
gains from investments..... 7.77 2.20 2.26 0.58 2.09 2.34 1.20 0.84 1.64
-------- ------- ------- ------- ------- ------- ------- ------- -----------
Total from Investment
Activities................. 8.01 2.46 2.49 0.81 2.28 2.57 1.46 1.07 1.78
-------- ------- ------- ------- ------- ------- ------- ------- -----------
DISTRIBUTIONS
Net investment income........ (0.24) (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.......... (0.73) (0.45) (0.23) (0.87) (0.40) (1.15) (0.47) (0.26) (0.14)
-------- ------- ------- ------- ------- ------- ------- ------- -----------
NET ASSET VALUE, END OF
PERIOD....................... $ 28.23 $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $ 13.44 $ 12.45 $ 11.64
======== ======= ======= ======= ======= ======= ======= ======= ===========
Total Return (excludes sales
charge).................... 39.02% 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)...................... $149,838 $93,584 $68,501 $54,744 $41,347 $15,707 $ 7,853 $ 3,161 $ 2,523
Ratio of expenses to average
net assets................. 1.06% 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..................... 0.99% 1.30% 1.35% 1.36% 1.17% 1.61% 2.21% 1.92% 1.98%(b)
Ratio of expenses to average
net assets*................ 1.10% 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*.................... 0.95% 1.22% 1.27% 0.90% 0.69% 1.16% 1.42% 0.82% 0.74%(b)
PORTFOLIO TURNOVER............. 10.30% 8.22% 14.25% 5.83% 10.22% 24.99% 14.41% 14.00% 1.13%
Average commission rate
paid(d)...................... $ 0.0760 $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 dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for which
commissions were charged. Disclosure is not required for periods ending
prior to September 1, 1996.
6
<PAGE> 7
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------------
DECEMBER 19,
YEAR ENDED JULY 31, 1991 TO
------------------------------------------------------------ JULY 31,
1997 1996 1995 1994 1993 1992(A)
-------- -------- -------- -------- -------- ------------
<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.................. 0.48 0.47 0.47 0.42 0.44 0.27
Net realized and unrealized gains from
investments.......................... 2.78 0.58 1.24 0.18 0.80 1.09
-------- -------- -------- -------- -------- --------
Total from Investment Activities....... 3.26 1.05 1.71 0.60 1.24 1.36
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income.................. (0.50) (0.47) (0.46) (0.42) (0.45) (0.24)
Net realized gain...................... (0.58) (0.31) (0.30) (0.23) (0.05) --
-------- -------- -------- -------- -------- --------
Total Distributions.................... (1.08) (0.78) (0.76) (0.65) (0.50) (0.24)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD........... $ 15.21 $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12
======== ======== ======== ======== ======== ========
Total Return (excludes sales charge)... 26.42% 8.37% 15.27% 5.13% 11.47% 13.71%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)...... $372,769 $338,425 $295,509 $236,306 $179,134 $143,813
Ratio of expenses to average net
assets............................... 1.05% 0.98% 0.94% 0.84% 0.84% 0.83%(b)
Ratio of net investment income to
average net assets................... 3.49% 3.61% 3.91% 3.56% 3.90% 4.45%(b)
Ratio of expenses to average net
assets*.............................. 1.10% 1.11% 1.12% 1.11% 1.12% 1.17%(b)
Ratio of net investment income to
average net assets*.................. 3.44% 3.48% 3.73% 3.28% 3.62% 4.10%(b)
PORTFOLIO TURNOVER....................... 25.00% 20.47% 16.97% 14.43% 11.09% 23.18%
Average commission rate paid(d)........ $ 0.0734 $ 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 dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for which
commissions were charged. Disclosure is not required for periods ending
prior to September 1, 1996.
7
<PAGE> 8
<TABLE>
<CAPTION>
EQUITY INCOME FUND
------------------
MARCH 20, 1997 TO
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................................................ --
--------
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.......................... 1.30%(b)
Ratio of net investment income to average net assets............. 2.13%(b)
Ratio of expenses to average net assets*......................... 1.51%(b)
Ratio of net investment income to average net assets*............ 1.92%(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 dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for which
commissions were charged.
8
<PAGE> 9
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND
-------------------------------------------
AUGUST 4, 1997 TO SEPTEMBER 3, 1997 TO
OCTOBER 31, 1997 OCTOBER 31, 1997
(UNAUDITED) (UNAUDITED)
CLASSIC (A) CLASS B (E)
-------------------- --------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD......... $10.00 $ 9.80
========
INVESTMENT ACTIVITIES
Net investment income...................... (0.01) (0.01)
Net realized and unrealized gains (losses)
from investments........................ (0.37) (0.19)
--------
Total from Investment Activities........... (0.38) (0.20)
========
DISTRIBUTIONS
Net investment income...................... 0.00 0.00
Net realized gains......................... 0.00 0.00
--------
Total Distributions........................ 0.00 0.00
========
NET ASSET VALUE, END OF PERIOD............... $ 9.62 $ 9.60
========
Total Return (excludes sales charge)......... (3.80%)(b) (4.00%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000).......... $2,975 $ 815
Ratio of expenses to average net assets.... 1.86%(c) 2.68%(c)
Ratio of net investment income to
average net assets...................... (0.82%)(c) (1.84%)(c)
Ratio of expenses to average net assets*... 2.55%(c) 3.37%(c)
Ratio of net investment income to
average net assets*..................... (1.51%)(c) (2.53%)(c)
PORTFOLIO TURNOVER........................... 21.82% 21.82%
Average commissions rate paid(d)........... 0.0416 0.0416
</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) On September 1, 1997 the Shareholders of the Fund exchanged their Shares for
either the Fund's Classic Shares or Premier Shares. For the period ended
October 31, 1997, the Financial Highlights ratios of expenses, ratios of
net investment income, total return and the per share investment activities
and distributions are presented on a basis whereby the Fund's net
investment income, expenses and distributions for the period August 4, 1997
through August 31, 1997 were allocated to each Class of Shares based upon
the relative net assets of each Class of Shares as of September 1, 1997,
and the results combined with the results of operations and distributions
for each applicable Class for the period September 1, 1997 through October
31, 1997.
(b) Not annualized.
(c) Annualized.
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for which
commissions were charged.
(e) Period from September 3, 1997 (commencement of offering of Class B Shares)
to October 31, 1997.
9
<PAGE> 10
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 Fund seeks to achieve growth of income over
the long term.
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
10
<PAGE> 11
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 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 eco-
11
<PAGE> 12
nomic 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 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 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
Sub-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
12
<PAGE> 13
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.
13
<PAGE> 14
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-
14
<PAGE> 15
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 value of its total
15
<PAGE> 16
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.
REVERSE REPURCHASE AGREEMENTS
Each of the Capital Appreciation Funds may borrow funds for temporary purposes
by entering
16
<PAGE> 17
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 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
17
<PAGE> 18
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).
The Capital Appreciation Funds may not:
1. Purchase securities of any one issuer, other than obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of such 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.
18
<PAGE> 19
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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<PAGE> 20
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
20
<PAGE> 21
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
21
<PAGE> 22
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% 0.90%
$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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<PAGE> 23
(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
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 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). BISYS Fund Services, Inc. (the "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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<PAGE> 24
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
24
<PAGE> 25
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.
25
<PAGE> 26
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, subject to a minimum initial investment. 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, during a
twelve month period, a Shareholder acquires Classic Shares of a Money Market
Fund from an exchange involving Shares of a Variable NAV Fund, then such Shares
of the Money Market Fund may be exchanged back for Shares of a Variable NAV Fund
without the payment of any additional sales load. 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
26
<PAGE> 27
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 not apply to exchanges of Class B Shares for Premier Shares.
ADDITIONAL INFORMATION ABOUT EXCHANGES
An exchange from one Fund to another Fund is considered to be a taxable event
for federal income tax purposes on which a Shareholder may realize a capital
gain or loss. If a Shareholder exchanges Capital Appreciation Fund Shares for
Shares of another Fund without paying a sales charge on the exchange, 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 original Shares if they
were held less than 91 days. The sales charge will instead be added to the basis
of the Fund Shares acquired in the exchange. This treatment will increase the
gain or reduce the loss that the Shareholder would otherwise recognize on the
exchange.
Before exchanging Shares, a Shareholder must receive a current prospectus
describing the Shares to be acquired. 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
may legally be sold, and may be amended or terminated at any time upon sixty
(60) days' prior notice to Shareholders.
The Exchange Privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Excessive exchange transactions
may potentially disrupt the management of the Trust and increase transaction
costs. Accordingly, in order to prevent excessive use of the Exchange Privilege,
the Trust has established a policy of prohibiting excessive exchange activity.
Exchange activity will not be deemed excessive if limited to four substantive
exchange redemptions from a Fund during a 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,
27
<PAGE> 28
Columbus, OH 43218-2733. The Auto Exchange may be amended or terminated without
notice at any time by the Distributor.
REINSTATEMENT PRIVILEGE
The Reinstatement Privilege enables investors who have redeemed Classic Shares
to repurchase, within 90 days of such redemption, Classic Shares in an amount
not to exceed the redemption proceeds received at a purchase price equal to the
then-current net asset value determined after a reinstatement request and
payment are received by the Transfer Agent. This privilege also enables
investors to reinstate their account for the purpose of exercising the Exchange
Privilege. To use the Reinstatement Privilege, you must submit a written
reinstatement request to the Transfer Agent. The reinstatement request and the
payment must be received within 90 days of the trade date of the redemption.
DIRECTED DIVIDEND OPTION
Shareholders can elect to have dividend distributions (capital gains and
dividends) 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 at
AmSouth Mutual Funds, 3435 Stelzer Road, Columbus, Ohio 43219, 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 previously
designated bank account. There is no charge for having redemption requests
mailed to a designated bank account.
28
<PAGE> 29
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 the receipt of a
valid request for redemption. Wire redemption requests may be made by the
Shareholder by telephone to the Transfer Agent. The wire redemption charge is
currently $7.00, however, such charge may be reduced by the Transfer Agent.
There is no charge for having payment of redemption requests mailed or 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 PURCHASE AND 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
29
<PAGE> 30
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
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 AmSouth Mutual Funds,
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 capital gain income.
A distribution to a Shareholder of net investment income (generally a 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 that meet the holding period requirements in the
Code 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 designated by a Capital Appreciation Fund as deriving from net
gains on securities held for more than one year but not more than 18 months or
from net gains on securities held for more than 18 months is taxable to
Shareholders as such, 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.
30
<PAGE> 31
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 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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<PAGE> 32
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.
Dick D. Briggs, Jr., M.D. Trustee From September 1989 to present, Emeritus
459 DER Building Professor and Eminent Scholar Chair, Univ.
1808 7th Avenue South of Alabama at Birmingham; from October 1979
UAB Medical Center to present, Physician, University of
Birmingham, Alabama 35294 Alabama Health Services Foundation; from
1981 to 1995, Professor and Vice Chairman,
Dept. of Medicine, Univ. of Alabama at
Birmingham School of Medicine; from 1988 to
1992, President, CEO and Medical Director,
Univ. of Alabama Health 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
751 Cary Drive June 1991, Vice President, Birmingham
Auburn, Alabama 36830-2505 Division, Alabama Power Company
James H. Woodward, Jr. Trustee From 1996 to present, Trustee, The Sessions
The University of North Group; from July 1989 to present,
Carolina at Charlotte Chancellor, The University of North
Charlotte, North Carolina Carolina at Charlotte; from April 1997 to
28223 present, Trustee, BISYS Variable Insurance
Funds; from August 1984 to July 1989,
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> 33
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, 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, 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 mid-south region. AmSouth Bancorporation reported assets as
of September 30, 1997 of $18.1 billion and operated 272 banking offices and over
600 ATM locations in Alabama, Florida, Georgia and Tennessee. AmSouth has
provided investment management services through its Trust Investment Department
since 1915. As of September 30, 1997, AmSouth and its affiliates had over $8.2
billion in assets under discretionary management and provided custody services
for an additional $20.5 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 (0.80%) 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 (0.90%) 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, 1997, the Advisor received
investment advisory fees amounting to 0.80% of the Equity Fund's average daily
net assets, 0.80% of the Regional Equity Fund's average daily net assets and
0.80% of the Balanced Fund's average daily net assets. For the period from March
20, 1997 to July 31, 1997, the Advisor received investment advisory fees
amounting to 0.80% of the Equity Income Fund's average daily net assets.
33
<PAGE> 34
INVESTMENT SUB-ADVISOR
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 Sub-Advisory Agreement, the Sub-Advisor manages the Fund, selects
investments, and places all orders 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
Sub-Advisor 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 (0.48%) 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 Class A Shares of the Federated Equity
Income Fund from August 1, 1991 through January 31, 1997 was 139.82%, absent the
imposition of a sales charge. The cumulative total return for the same period
for the Standard & Poor's Composite Stock Price Index ("S&P 500 Index") was
135.09%. The cumulative total return for the Class B Shares of the Federated
Equity Income Fund from September 27, 1994 (date of initial public offering)
through January 31, 1997 was 62.64%, absent the imposition of a contingent
deferred sales charge. The cumulative total return for the same period for the
S&P 500 Index was 79.69%. At January 31, 1997, the Federated Equity Income 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 total 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 the Class A Shares of the Federated
Equity Income Fund and for the one-year and since inception period for the Class
B Shares of the Federated Equity Income Fund compared with the performance of
the S&P 500 Index and the Lipper Equity Income Fund Index were:
34
<PAGE> 35
PRIOR PERFORMANCE OF CLASS A SHARES AND
CLASS B SHARES OF THE FEDERATED EQUITY INCOME FUND
<TABLE>
<CAPTION>
FEDERATED S&P 500 LIPPER EQUITY
EQUITY INCOME FUND+* INDEX@ INCOME FUND INDEX#
-------------------- ------- ------------------
<S> <C> <C> <C>
CLASS A SHARES (absent imposition of sales charge)
One Year.......................................... 23.26% 26.34% 19.48%
Three Years....................................... 17.03% 20.72% 15.09%
Five Years........................................ 16.51% 17.02% 14.73%
August 1, 1991 through January 31, 1997........... 17.25% 16.78% 14.99%
CLASS A SHARES (assuming imposition of the
Federated Equity Income Fund's maximum sales
charge)
One Year.......................................... 16.48%
Three Years....................................... 14.85%
Five Years........................................ 15.20%
August 1, 1991 through January 31, 1997........... 16.05%
CLASS B SHARES (absent imposition of contingent
deferred sales charge)
One Year.......................................... 22.26% 26.34% 19.48%
September 27, 1994 through January 31, 1997....... 23.15% 28.44% 20.65%
CLASS B SHARES (assuming imposition of the
Federated Equity Income Fund's maximum
contingent deferred sales charge)
One Year.......................................... 16.76%
September 27, 1994 through January 31, 1997....... 22.79%
</TABLE>
- ---------------
+ Average annual total return reflects changes in share prices and reinvestment
of dividends and distributions and is net of fund expenses.
* During the period from August 1, 1991 through January 31, 1997, the operating
expense ratio of the Class A Shares (the shares most similar to the Classic
Shares of the AmSouth Equity Income Fund) of the Federated Equity Income Fund
ranged from 0.95% to 1.05% of the fund's average daily net assets. During the
period from September 27, 1994 through January 31, 1997 the operating expense
ratio for the Class B Shares of the Federated Equity Income Fund ranged from
1.80% to 1.87% of the fund's average daily net assets. The operating expenses
of the Class A Shares and Class B Shares of the Federated Equity Income Fund
were lower than the projected operating expenses of the Classic Shares and
Class B Shares, respectively, of the AmSouth Equity Income Fund. If the
actual operating expenses of the AmSouth Equity Fund are higher than the
historical operating expenses of the Federated Equity Income Fund, this could
negatively affect performance.
@ 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.
# 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.
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<PAGE> 36
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.
Peachtree Asset Management ("Peachtree" or "Sub-Advisor") serves as investment
sub-adviser to the Capital Growth Fund, pursuant to a Sub-Advisory Agreement
with AmSouth. The Capital Growth Fund commenced operations on August 4, 1997.
Under the Sub-Advisory Agreement, Peachtree manages the Fund, selects
investments, and places all orders for purchases and sales of securities,
subject to the general supervision of the Trust's Board of Trustees and AmSouth
in accordance with the Fund's investment objectives, policies and restrictions.
Peachtree is a division of Smith Barney Mutual Funds Management Inc.
("SBMFM"), a wholly-owned subsidiary of Smith Barney Holdings Inc., which in
turn is a wholly-owned subsidiary of Travelers Group Inc. Peachtree has
performed advisory services since 1994 for institutional clients, and has its
principal offices at 303 Peachtree Street, N.E., Atlanta, GA 30308. SBMFM and
its predecessors have been providing investment advisory services to mutual
funds since 1968. As of December 31, 1996, SBMFM had aggregate assets under
management of approximately $80 billion.
For its services and expenses incurred under the Sub-Advisory Agreement,
Peachtree is entitled to a fee payable by AmSouth, computed daily and paid
monthly at the annual rate of forty-eight one-hundredths of one percent (0.48%)
of the Fund's average daily net assets or such lower fee as may be agreed upon
in writing by AmSouth and Peachtree.
Dennis A. Johnson is the portfolio manager for the Capital Growth Fund, and,
as such has the primary responsibility for the day-to-day portfolio management
of the Fund. Mr. Johnson, who has been employed by Peachtree since 1994, is
President and Chief Investment Officer of Peachtree. From 1989 to 1994, Mr.
Johnson was Vice President and Portfolio Manager at Trusco Capital, the
investment management subsidiary of Trust Company Bank, Atlanta, Georgia.
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 (0.20%) 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
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<PAGE> 37
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, 1997, ASO received
administration fees, after voluntary fee reductions, amounting to 0.11% of the
Equity Fund's average daily net assets, 0.12% of the Regional Equity Fund's
average daily net assets and 0.11% of the Balanced Fund's average daily net
assets. For the period from March 20, 1997 to July 31, 1997, ASO received
administration fees amounting to 0.20% of the Equity Income 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 (0.10%) 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 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 Shareholder
Servicing fee of 0.25% 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 Organiza-
37
<PAGE> 38
tion'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 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.
38
<PAGE> 39
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 AmSouth 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 AmSouth Government Income Fund, AmSouth
Limited Maturity Fund, AmSouth Florida Fund and AmSouth 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, 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 November 7, 1997, AmSouth Bank, 1901 Sixth Avenue North, Birmingham, AL
35203, was the Shareholder of record of approximately 99.98% of the outstanding
Premier Shares of the Equity Fund, 99.97% of the outstanding Premier Shares of
the Regional Equity Fund, 99.99% of the outstanding Premier Shares of the
Balanced Fund, 99.98% of the outstanding Premier Shares of the Equity Income
Fund and 99.99% of the outstanding Premier Shares of the Capital Growth Fund. As
of November 19, 1997, AmSouth Bank was the beneficial owner of approximately
74.63% of the outstanding Premier Shares of the Equity Fund, 79.11% of the
outstanding Premier Shares of the Regional Equity Fund and 93.98% of the
outstanding Premier Shares of the Capital Growth 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
AmSouth serves as custodian for the Trust ("Custodian"). Pursuant to the
Custodian Agreement with the Trust, the Custodian receives com-
39
<PAGE> 40
pensation from each Fund for such services in an amount equal to an asset-based
fee.
TRANSFER AGENT AND FUND ACCOUNTING
BISYS Fund Services, 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 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
40
<PAGE> 41
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 AmSouth Mutual
Funds at P.O. Box 182733, Columbus, Ohio 43218-2733, or by calling toll free
(800) 451-8382.
41
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<PAGE> 43
AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
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
Mutual Funds Management, 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, 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.............. 10
Investment Restrictions........................ 18
Valuation of Shares............................ 19
How to Purchase and Redeem Shares.............. 19
Dividends and Taxes............................ 30
Management of AmSouth Mutual Funds............. 32
General Information............................ 39
</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.
AS3P120197
<PAGE> 44
AMSOUTH MUTUAL FUNDS
--------------------
AMSOUTH(R)
AMSOUTH BANK
INVESTMENT ADVISOR
CAPITAL
APPRECIATION
FUNDS
AMSOUTH
MUTUAL FUNDS
NOT FDIC INSURED
BISYS FUND SERVICES, DISTRIBUTOR
Prospectus dated December 1, 1997
<PAGE> 45
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 "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 U.S.
dollar-denominated money market instruments and other high-quality U.S. dollar-
denominated instruments.
AMSOUTH U.S. TREASURY FUND seeks current income with liquidity and stability
of principal. The 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 U.S. corporations and debt securities issued or guaranteed
by the U.S. 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 U.S.
corporations and debt securities issued or guaranteed by the U.S. 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> 46
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. The Fund seeks to achieve growth of income over
the long term.
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" or "Sub-Advisor") acts as the investment sub-advisor to the Equity
Income Fund. Peachtree Asset Management ("Peachtree" or "Sub-Advisor") acts as
the investment sub-advisor to the Capital Growth Fund. 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 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 December 1, 1997.
<PAGE> 47
FEE TABLE FOR THE MONEY MARKET FUNDS
<TABLE>
<CAPTION>
PRIME
OBLIGATIONS U.S. TREASURY TAX
FUND FUND EXEMPT FUND
----------- ------------- -----------
PREMIER PREMIER PREMIER
SHARES SHARES SHARES
<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........................................................ 0.00% 0.00% 0.00%
---- ---- ----
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 0.40% 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 0.74%.
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
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> 48
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).... 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 reduction)(4)..... 0.25% 0.26% 0.35% 0.29% 0.30%(5)
---- ---- ---- ---- ----
Total Fund Operating Expenses (after voluntary fee
reduction)(6)....................................... 0.75% 0.76% 0.65% 0.59% 0.70%
==== ==== ==== ==== ====
</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 0.65% 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> 49
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................................. 0.80% 0.80% 0.80%(3) 0.80% 0.90% 0.80%
---- ---- ---- ---- ---- ----
12b-1 Fees...................................... 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%
---- ---- ---- ---- ---- ----
Other Expenses (after voluntary fee
reduction)(4)................................. 0.22% 0.25% 0.24% 0.27% 0.27% 0.27%
---- ---- ---- ---- ---- ----
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> 50
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 July 31, 1997. The information from the commencement of operations
to July 31, 1997 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, 1997 appears in the
Statement of Additional Information. The Capital Growth Fund and the Small Cap
Fund had not commenced operations as of July 31, 1997. Unaudited financial
information is also included for the Capital Growth Fund for the period from
August 4, 1997 (commencement of operations) to October 31, 1997. In addition,
unaudited financial information in included for the Municipal Bond Fund for the
period from August 1, 1997 through October 31, 1997. Further financial data is
incorporated by reference into the Statement of Additional Information.
<TABLE>
<CAPTION>
PRIME OBLIGATIONS FUND
------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
----------- ---------- -------- -------- -------- -------- -------- --------
PREMIER(b) PREMIER(b)
----------- ----------
<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........... 0.049 0.050 0 .050 0.029 0.027 0.042 0.067 0.079
-------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income........... (0.049) (0.050) (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..................... 5.00% 5.10% 5.14% 2.94% 2.76% 4.28% 6.87% 8.16%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)......................... $ 416,966 $478,542 $617,673 $577,331 $456,428 $457,511 $307,873 $298,498
Ratio of expenses to average net
assets........................ 0.68% 0.71% 0.69% 0.70% 0.71% 0.71% 0.72% 0.70%
Ratio of net investment income
to average net assets......... 4.89% 5.00% 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<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> 51
<TABLE>
<CAPTION>
U.S. TREASURY FUND
------------------------------------------------------------------------------------------
SEPTEMBER 8,
YEAR ENDED JULY 31, 1988 TO
------------------------------------------------------------------------------------------ JULY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989(A)
----------- ---------- -------- -------- -------- -------- -------- -------- ------------
PREMIER(b) PREMIER(b)
----------- ----------
<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............ 0.046 0.048 0.048 0.028 0.027 0.041 0.064 0.077 0.075
--------- -------- -------- -------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment
income............ (0.046) (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......... 4.70% 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)...... $ 309,361 $368,162 $322,939 $300,603 $404,473 $339,666 $343,967 $239,291 $131,956
Ratio of expenses to
average net
assets............ 0.69% 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............ 4.60% 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> 52
<TABLE>
<CAPTION>
TAX EXEMPT FUND
-----------------------------------------------------------------------------
JUNE 27,
YEAR ENDED JULY 31, 1988 TO
----------------------------------------------------------------------------- JULY 31,
1997 1996 1995 1994 1993 1992 1991 1990(a)
----------- ------- ------- ------- ------- ------- ------- --------
PREMIER(b) PREMIER(b)
----------- -------
<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................ 0.031 0.031 0.032 0.019 0.021 0.030 0.046 0.011
------- ------- ------- ------- ------- ------- ------- -------
DISTRIBUTIONS
Net investment income................ (0.031) (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.......................... 3.15% 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).... $55,429 $43,611 $57,640 $60,923 $48,151 $38,392 $25,400 $28,246
Ratio of expenses to average net
assets............................. 0.52% 0.54% 0.54% 0.57% 0.49% 0.65% 0.52% 0.21%(c)
Ratio of net investment income to
average net assets................. 3.10% 3.11% 3.15% 1.93% 2.12% 2.98% 4.59% 5.70%(c)
Ratio of expenses to average net
assets*............................ 0.72% 0.74% 0.74% 0.77% 0.78% 0.77% 0.77% 0.81%(c)
Ratio of net investment income to
average net assets*................ 2.90% 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> 53
<TABLE>
<CAPTION>
BOND FUND
-------------------------------------------------------------------------------
DECEMBER 1,
YEAR ENDED JULY 31, 1988 TO
------------------------------------------------------------------------------- JULY 31,
1997 1996 1995 1994 1993 1992 1991 1990 1989(a)
-------- -------- ------- ------- ------- ------- ------- ------- -----------
<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............ 0.65 0.65 0.69 0.69 0.71 0.74 0.74 0.77 0.50
Net realized and unrealized gains
(losses) from investments...... 0.42 (0.18) 0.28 (0.66) 0.33 0.91 0.05 (0.21) 0.56
-------- -------- ------- ------- ------- ------- ------- ------- ------
Total from Investment
Activities..................... 1.07 0.47 0.97 0.03 1.04 1.65 0.79 0.56 1.06
-------- -------- ------- ------- ------- ------- ------- ------- ------
DISTRIBUTIONS
Net investment income............ (0.69) (0.65) (0.69) (0.70) (0.71) (0.73) (0.74) (0.75) (0.45)
Net realized gains............... -- (0.11) (0.04) (0.03) (0.33) (0.05) (0.02) (0.03) --
-------- -------- ------- ------- ------- ------- ------- ------- ------
Total Distributions.............. (0.69) (0.76) (0.73) (0.73) (1.04) (0.78) (0.76) (0.78) (0.45)
-------- -------- ------- ------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD.... $ 10.92 $ 10.54 $ 10.83 $ 10.59 $ 11.29 $ 11.29 $ 10.42 $ 10.39 $ 10.61
======== ======== ======= ======= ======= ======= ======= ======= ======
Total Return (excludes sales
charge).......................... 10.48% 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).......................... $311,881 $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% 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............. 6.10% 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% 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*............ 5.87% 5.89% 6.40% 6.08% 6.14% 6.75% 7.09% 7.45% 6.29%(b)
PORTFOLIO TURNOVER................ 34.62% 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> 54
<TABLE>
<CAPTION>
LIMITED MATURITY FUND
-------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------- ------- ------- ------
<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................ 0.58 0.58 0.58 0.54 0.60 0.70 0.73 0.72
Net realized and unrealized gains
(losses) from investments.......... 0.14 (0.10) 0.17 (0.45) 0.09 0.45 0.17 (0.05)
-------- ------- ------- ------- ------- ------- ------- ------
Total from Investment Activities..... 0.72 0.48 0.75 0.09 0.69 1.15 0.90 0.67
-------- ------- ------- ------- ------- ------- ------- ------
DISTRIBUTIONS
Net investment income................ (0.61).. (0.57) (0.57) (0.54) (0.61) (0.69) (0.73) (0.70)
Net realized gains................... -- (0.01) -- -- (0.08) (0.09) (0.02) (0.03)
In excess of net realized gains...... -- -- -- (0.13) -- -- -- --
-------- ------- ------- ------- ------- ------- ------- ------
Total Distributions................... (0.61) (0.58) (0.57) (0.67) (0.69) (0.78) (0.75) (0.73)
-------- ------- ------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF PERIOD........ $ 10.42 $ 10.31 $ 10.41 $ 10.23 $ 10.81 $ 10.81 $ 10.44 $10.29
======== ======= ======= ======= ======= ======= ======= ======
Total Return (excludes sales
charge).............................. 7.25% 4.74% 7.65% 0.77% 6.72% 11.48% 9.06% 6.80%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000).... $138,675 $46,005 $59,798 $51,660 $53,933 $38,206 $11,112 $5,983
Ratio of expenses to average net
assets............................. 0.77% 0.76% 0.80% 0.79% 0.69% 0.68% 0.85% 1.02%
Ratio of net investment income to
average net assets................. 5.65% 5.48% 5.69% 5.05% 5.67% 6.78% 7.19% 7.23%
Ratio of expenses to average net
assets*............................ 1.02% 0.99% 1.03% 1.02% 1.03% 1.03% 1.20% 1.45%
Ratio of net investment income to
average net assets*................ 5.40% 5.25% 5.46% 4.82% 5.33% 6.43% 6.84% 6.80%
PORTFOLIO TURNOVER.................... 64.89% 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<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)
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.
10
<PAGE> 55
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND
-----------------------------
YEAR ENDED
JULY 31, OCTOBER 1, 1993
----------------------------- TO JULY 31,
1997 1996 1995 1994(a)
------- ------- ------- ---------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD............. $ 9.40 $ 9.54 $ 9.48 $ 10.00
------- ------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.......................... 0.58 0.66 0.68 0.54
Net realized and unrealized gains (losses) from
investments................................. 0.35 (0.20) 0.08 (0.57)
------- ------- ------- -------
Total from Investment Activities............... 0.93 0.46 0.76 (0.03)
------- ------- ------- -------
DISTRIBUTIONS
Net investment income.......................... (0.58) (0.59) (0.70) (0.33)
Tax return of capital.......................... -- (0.01) -- (0.16)
------- ------- ------- -------
Total Distributions............................ (0.58) (0.60) (0.70) (0.49)
------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD................... $ 9.75 $ 9.40 $ 9.54 $ 9.48
======= ======= ======= =======
Total Return (excludes sales charge)............. 10.21% 4.91% 8.43% (0.26)%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000).............. $11,622 $15,752 $16,679 $15,465
Ratio of expenses to average net assets........ 0.69% 0.65% 0.58% 0.37%(b)
Ratio of net investment income to average net
assets...................................... 5.98% 6.81% 7.18% 6.56%(b)
Ratio of expenses to average net assets*....... 1.29% 1.10% 1.19% 1.22%(b)
Ratio of net investment income to average net
assets*..................................... 5.38% 6.36% 6.57% 5.71%(b)
PORTFOLIO TURNOVER............................... 2.96% 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> 56
<TABLE>
<CAPTION>
MUNICIPAL BOND FUND
---------------------------------------------
AUGUST 1, 1997 JULY 1, 1997
TO OCTOBER 31, 1997(A) TO JULY 31, 1997(b)
---------------------- -------------------
(UNAUDITED)
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD................. $ 10.15 $ 10.00
--------- ---------
INVESTMENT ACTIVITIES
Net investment income.............................. 0.11 0.04
Net realized and unrealized gains (losses) from
investments..................................... (0.04) 0.15
--------- ---------
Total from Investment Activities................ 0.07 0.19
--------- ---------
DISTRIBUTIONS
Net investment income.............................. (0.11) (0.04)
Net realized gains................................. (0.00) (0.00)
--------- ---------
Total Distributions................................ (0.11) (0.04)
--------- ---------
NET ASSET VALUE, END OF PERIOD....................... $ 10.11 $ 10.15
========= =========
Total Return (excludes sales charge)................. 2.57%(c) 1.86%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000).................. $333,813 $ 337,933
Ratio of expenses to average net assets............ 0.61%(d) 0.71%(d)
Ratio of net investment income to average net
assets.......................................... 4.30%(d) 4.31%(d)
Ratio of expenses to average net assets*........... 0.94%(d) 1.04%(d)
Ratio of net investment income to average net
assets*......................................... 3.97%(d) 3.98%(d)
PORTFOLIO TURNOVER................................... 8.14% 1.59%
</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) On September 1, 1997 the Shareholders of the Fund exchanged their Shares for
either the Fund's Classic Shares or Premier Shares. For the period ended
October 31, 1997 the Financial Highlights ratios of expenses, ratios of net
investment income, total return and the per share investment activities and
distributions are presented on a basis whereby the Fund's net investment
income, expenses, and distributions for the period July 1, 1997 through
August 31, 1997 were allocated to each Class of Shares based upon the
relative net assets of each Class of Shares as of September 1, 1997 and the
results combined therewith the results of operations and distributions for
each applicable Class for the period September 1, 1997 through October 31,
1997.
(b) Period from commencement of operations.
(c) Not annualized.
(d) Annualized.
12
<PAGE> 57
<TABLE>
<CAPTION>
FLORIDA TAX-FREE FUND
----------------------------------------
YEAR ENDED
JULY 31, SEPTEMBER 30, 1994
------------------ TO JULY 31,
1997 1996 1995(a)
------- ------- ------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD..................... $ 10.30 $ 10.32 $ 10.00
------- ------- -------
INVESTMENT ACTIVITIES
Net investment income.................................. 0.45 0.45 0.34
Net realized and unrealized gains (losses) from
investments......................................... 0.24 (0.01) 0.30
------- ------- -------
Total from Investment Activities....................... 0.69 0.44 0.64
------- ------- -------
DISTRIBUTIONS
Net investment income.................................. (0.48) (0.45) (0.32)
Net realized gains..................................... (0.01) (0.01) --
------- ------- -------
Total Distributions.................................... (0.49) (0.46) (0.32)
------- ------- -------
NET ASSET VALUE, END OF PERIOD........................... $ 10.50 $ 10.30 $ 10.32
======= ======= =======
Total Return (excludes sales charge)..................... 6.89% 4.24% 6.53%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Asset at end of period (000)....................... $53,688 $48,869 $ 48,333
Ratio of expenses to average net assets................ 0.57% 0.59% 0.70%(b)
Ratio of net investment income to average net assets... 4.36% 4.33% 4.16%(b)
Ratio of expenses to average net assets*............... 1.06% 1.04% 1.01%(b)
Ratio of net investment income to average net
assets*............................................. 3.87% 3.88% 3.86%(b)
PORTFOLIO TURNOVER....................................... 24.05% 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.
13
<PAGE> 58
<TABLE>
<CAPTION>
EQUITY FUND
-------------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- ------- -------
<S> <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
-------- -------- -------- -------- -------- -------- ------- -------
INVESTMENT ACTIVITIES
Net investment income........ 0.30 0.33 0.33 0.28 0.28 0.32 0.36 0.37
Net realized and unrealized
gains from investments..... 6.77 1.48 2.39 0.83 1.48 1.20 0.61 (0.17)
-------- -------- -------- -------- -------- -------- ------- -------
Total from Investment
Activities................. 7.07 1.81 2.72 1.11 1.76 1.52 0.97 0.20
-------- -------- -------- -------- -------- -------- ------- -------
DISTRIBUTIONS
Net investment income........ (0.30) (0.33) (0.32) (0.28) (0.29) (0.33) (0.37) (0.35)
Net realized gains........... (1.04) (0.61) (0.47) (0.39) (0.49) (0.36) (0.02) (0.04)
-------- -------- -------- -------- -------- -------- ------- -------
Total Distributions.......... (1.34) (0.94) (0.79) (0.67) (0.78) (0.69) (0.39) (0.39)
-------- -------- -------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF
PERIOD....................... $ 23.35 $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40 $ 12.57 $ 11.99
======== ======== ======== ======== ======== ======== ======= =======
Total Return (excludes sales
charge)...................... 42.35% 11.09% 19.27% 7.90% 13.81% 12.94% 8.46% 1.66%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)...................... $974,985 $374,622 $275,757 $205,611 $153,074 $107,934 $32,406 $14,383
Ratio of expenses to average
net assets................. 1.06% 1.02% 1.03% 0.94% 0.95% 1.01% 1.15% 1.11%
Ratio of net investment
income to average net
assets..................... 1.52% 1.86% 2.17% 1.93% 2.08% 2.50% 3.16% 3.16%
Ratio of expenses to average
net assets*................ 1.10% 1.11% 1.11% 1.11% 1.13% 1.15% 1.26% 1.41%
Ratio of net investment
income to average net
assets*.................... 1.48% 1.77% 2.09% 1.76% 1.90% 2.36% 3.04% 2.86%
PORTFOLIO TURNOVER............ 24.47% 19.11% 19.46% 11.37% 15.12% 113.12% 15.78% 14.89%
Average commission rate paid
(d)........................ $ 0.0657 $ 0.0700 -- -- -- -- -- --
<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........ 0.22
Net realized and unrealized
gains from investments..... 2.16
-------
Total from Investment
Activities................. 2.38
-------
DISTRIBUTIONS
Net investment income........ (0.20)
Net realized gains........... --
-------
Total Distributions.......... (0.20)
-------
NET ASSET VALUE, END OF
PERIOD....................... $ 12.18
=======
Total Return (excludes sales
charge)...................... 24.06%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)...................... $ 5,476
Ratio of expenses to average
net assets................. 1.16%(b)
Ratio of net investment
income to average net
assets..................... 2.91%(b)
Ratio of expenses to average
net assets*................ 2.34%(b)
Ratio of net investment
income to average net
assets*.................... 1.73%(b)
PORTFOLIO TURNOVER............ 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.
14
<PAGE> 59
<TABLE>
<CAPTION>
REGIONAL EQUITY FUND
------------------------------------------------------------------------------------------
YEAR ENDED JULY 31,
------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991 1990
-------- ------- ------- ------- ------- ------- ------ ------
<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........ 0.24 0.26 0.23 0.23 0.19 0.23 0.26 0.23
Net realized and unrealized
gains from investments..... 7.77 2.20 2.26 0.58 2.09 2.34 1.20 0.84
-------- ------- ------- ------- ------- ------- ------ ------
Total from Investment
Activities................. 8.01 2.46 2.49 0.81 2.28 2.57 1.46 1.07
-------- ------- ------- ------- ------- ------- ------ ------
DISTRIBUTIONS
Net investment income........ (0.24) (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.......... (0.73) (0.45) (0.23) (0.87) (0.40) (1.15) (0.47) (0.26)
-------- ------- ------- ------- ------- ------- ------ ------
NET ASSET VALUE, END OF
PERIOD....................... $ 28.23 $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86 $13.44 $12.45
======== ======= ======= ======= ======= ======= ====== ======
Total Return (excludes sales
charge)...................... 39.02% 13.10% 15.10% 4.87% 15.53% 20.66% 12.52% 9.41%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period
(000)...................... $149,838 $93,584 $68,501 $54,744 $41,347 $15,707 $7,853 $3,161
Ratio of expenses to average
net assets................. 1.06% 1.05% 1.07% 0.79% 0.80% 0.91% 0.79% 1.22%
Ratio of net investment
income to average net
assets..................... 0.99% 1.30% 1.35% 1.36% 1.17% 1.61% 2.21% 1.92%
Ratio of expenses to average
net assets* 1.10% 1.13% 1.15% 1.24% 1.28% 1.36% 1.58% 2.32%
Ratio of net investment
income to average net
assets*.................... 0.95% 1.22% 1.27% 0.90% 0.69% 1.16% 1.42% 0.82%
PORTFOLIO TURNOVER............ 10.30% 8.22% 14.25% 5.83% 10.22% 24.99% 14.41% 14.00%
Average commission rate paid
(d)........................ $ 0.0760 $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.
15
<PAGE> 60
<TABLE>
<CAPTION>
BALANCED FUND
--------------------------------------------------------
DECEMBER 19,
YEAR ENDED JULY 31, 1991 TO
-------------------------------------------------------- JULY 31,
1997 1996 1995 1994 1993 1992(a)
-------- -------- -------- -------- -------- ------------
<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........................ 0.48 0.47 0.47 0.42 0.44 0.27
Net realized and unrealized gains from
investments................................ 2.78 0.58 1.24 0.18 0.80 1.09
-------- -------- -------- -------- -------- --------
Total from Investment Activities............. 3.26 1.05 1.71 0.60 1.24 1.36
-------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income........................ (0.50) (0.47) (0.46) (0.42) (0.45) (0.24)
Net realized gain............................ (0.58) (0.31) (0.30) (0.23) (0.05) --
-------- -------- -------- -------- -------- --------
Total Distributions.......................... (1.08) (0.78) (0.76) (0.65) (0.50) (0.24)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD................. $ 15.21 $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12
======== ======== ======== ======== ======== ========
Total Return (excludes sales charge)........... 26.42% 8.37% 15.27% 5.13% 11.47% 13.71%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)............ $372,769 $338,425 $295,509 $236,306 $179,134 $143,813
Ratio of expenses to average net assets...... 1.05% 0.98% 0.94% 0.84% 0.84% 0.83%(b)
Ratio of net investment income to average net
assets..................................... 3.49% 3.61% 3.91% 3.56% 3.90% 4.45%(b)
Ratio of expenses to average net assets*..... 1.10% 1.11% 1.12% 1.11% 1.12% 1.17%(b)
Ratio of net investment income to average net
assets*.................................... 3.44% 3.48% 3.73% 3.28% 3.62% 4.10%(b)
PORTFOLIO TURNOVER............................. 25.00% 20.47% 16.97% 14.43% 11.09% 23.18%
Average commission rate paid (d)............. $ 0.0734 $ 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.
16
<PAGE> 61
<TABLE>
<CAPTION>
EQUITY INCOME FUND
------------------
MARCH 20, 1997
TO
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....................................................... --
--------
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................................. 1.30%(b)
Ratio of net investment income to average net assets.................... 2.13%(b)
Ratio of expenses to average net assets*................................ 1.51%(b)
Ratio of net investment income to average net assets*................... 1.92%(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.
17
<PAGE> 62
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND
----------------------
AUGUST 4, 1997
TO OCTOBER 31, 1997(A)
----------------------
(UNAUDITED)
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.................................... $ 10.00
-------
INVESTMENT ACTIVITIES
Net investment income................................................. (0.01)
Net realized and unrealized gains (losses) from investments........... (0.37)
-------
Total from Investment Activities...................................... (0.38)
-------
DISTRIBUTIONS
Net investment income................................................. 0.00
Net realized gains.................................................... 0.00
-------
Total Distributions................................................... 0.00
-------
NET ASSET VALUE, END OF PERIOD.......................................... $ 9.62
=======
Total Return (excludes sales charge).................................... (3.80%)(b)
RATIOS/SUPPLEMENTAL DATA:
Net assets at end of period (000)..................................... $ 2,046
Ratio of expenses to average net assets............................... 1.70%(c)
Ratio of net investment income to average net assets.................. (0.62%)(c)
Ratio of expenses to average net assets*.............................. 2.38%(c)
Ratio of net investment income to average net assets*................. (1.30%)(c)
PORTFOLIO TURNOVER...................................................... 21.82%
Average commissions rate paid (d)..................................... 0.0416
</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) On September 1, 1997 the Shareholders of the Fund exchanged their Shares for
either the Fund's Classic Shares or Premier Shares. For the period ended
October 31, 1997, the Financial Highlights ratios of expenses, ratios of net
investment income, total return and the per share investment activities and
distributions are presented on a basis whereby the Fund's net investment
income, expenses and distributions for the period August 4, 1997 through
August 31, 1997 were allocated to each Class of Shares based upon the
relative net assets of each Class of Shares as of September 1, 1997, and the
results combined therewith the results of operations and distributions for
each applicable Class for the period September 1, 1997 through October 31,
1997.
(b) Not annualized.
(c) Annualized.
(d) Represents the dollar amount of commissions paid on portfolio transactions
divided by the total number of portfolio shares purchased and sold for
which commissions were charged.
18
<PAGE> 63
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 U.S. TREASURY FUNDS
The investment objective of the Prime Obligations Fund and the U.S. Treasury
Fund is to seek current income with liquidity and stability of principal.
Although the Prime Obligations Fund and the 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.
19
<PAGE> 64
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 U.S. TREASURY FUND invests exclusively in short-term U.S.
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 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 U.S. corporations or issued or guaranteed by the U.S. 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.
20
<PAGE> 65
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, U.S. 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 U.S. corporations or issued or guaranteed by the U.S. 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 maturities of less
than 1 year. There is no way to
21
<PAGE> 66
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 U.S. 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 U.S. 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 Funds and a
22
<PAGE> 67
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
U.S. government) guarantor of mortgage-related securities is GNMA. GNMA is a
wholly-owned U.S. government corpo-
23
<PAGE> 68
ration 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 U.S.
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 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
24
<PAGE> 69
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 AND
POLICIES -- Investment Restrictions" in the Statement of Additional Information.
25
<PAGE> 70
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, as is consistent with the preservation of capital. The
Municipal Bond Fund invests primarily in Munici-
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pal 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 multiplerated
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
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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 advisable, 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
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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 U.S. 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 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 Mu-
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nicipal 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 1995 was $19,209, 82.8% of U.S. per
capita income. 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 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.
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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 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
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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 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
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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 Sub-Advisor and
Advisor respectively, 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 po-
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tential 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 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
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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 Fund seeks to achieve growth of income over
the long term. 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 Sub-Advisor 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."
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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. 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
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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 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
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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
("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.
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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 U.S. 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 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, 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
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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 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
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 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.
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INVESTMENT TECHNIQUES
OPTIONS
The Bond Fund, the Limited Maturity Fund, the 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 transaction so as to close out any existing call option on that
security. If a Fund is unable to effect 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, 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.
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
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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 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 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. 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
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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 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'
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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 U.S. 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 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. 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.
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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 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 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
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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, except the U.S. Treasury Fund and the Tax Exempt Fund, has been
divided into three classes of Shares: Premier Shares, Classic Shares and Class B
Shares. Class B Shares are not currently offered in the Limited Maturity Fund,
Government Income Fund, Florida Fund and Municipal Bond Fund. The U.S. Treasury
Fund and the Tax Exempt Fund are divided into two classes of Shares: Premier
Shares and Classic Shares. The three classes of a particular Fund (or two
classes with respect to the U.S. Treasury Fund and the Tax Exempt 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 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 Am-
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South 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 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 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.
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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
EXCHANGES BETWEEN CLASSES OF A FUND
Premier Shares of a Fund may be exchanged for Classic Shares of the same Fund,
if the Shareholder ceases to be eligible to purchase Premier Shares. Premier
Shares of a Fund may not be exchanged for Class B Shares. A sales charge is not
imposed when Premier Shares are exchanged for Classic Shares of the same Fund.
An exchange of Premier Shares for Classic Shares of the same Fund will not be a
taxable event for a Shareholder.
EXCHANGES BETWEEN FUNDS
Premier Shares of a Fund may be exchanged for Premier Shares of another Fund,
provided that the Shareholder making the exchange is eligible on the date of the
exchange to purchase Premier Shares. Alternatively, Premier Shares of a Fund may
be exchanged for Classic Shares of another Fund if a Shareholder is no longer
eligible to purchase Premier Shares.
An exchange of Premier Shares of one Fund for Premier or Classic Shares of
another Fund is considered to be a taxable event for federal income tax purposes
on which a Shareholder may realize a capital gain or loss.
ADDITIONAL INFORMATION ABOUT EXCHANGES
The Trust does not impose a charge for processing exchanges of its Premier
Shares. All exchanges will be effected based on the relative net asset value
next determined after the exchange order is received. Before exchanging Shares,
a Shareholder must receive a current prospectus describing the Shares to be
acquired. 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 the Funds may legally be sold,
and may be amended or terminated at any time upon sixty (60) days' prior notice
to Shareholders.
The Exchange Privilege is not intended to afford shareholders a way to
speculate on short-term movements in the market. Excessive exchange transactions
may potentially disrupt the management of the Trust and increase transaction
costs. Accordingly, in order to prevent excessive use of the Exchange Privilege,
the Trust has established a policy of prohibiting excessive exchange activity.
Exchange activity will not be deemed excessive if limited to four substantive
exchange redemptions from a Fund during a calendar year.
DIRECTED DIVIDEND OPTION
Shareholders can elect to have dividend distributions (capital gains and
dividends) 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
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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 at
AmSouth Mutual Funds, 3435 Stelzer Road, Columbus, OH 43219, 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 previously
designated bank account. 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. Wire redemption requests may be made by the
Shareholder by telephone to the Transfer Agent. The wire redemption charge is
currently $7.00, however, such charge may be reduced by the Transfer Agent.
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
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PURCHASE AND 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 or Capital Appreciation
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 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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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 Internal Revenue Code of 1986, as amended (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 it distributes 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.
THE MONEY MARKET FUNDS
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.
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.
INFORMATION SPECIFIC TO THE PRIME OBLIGATIONS FUND AND THE 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 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 U.S. Treasury Fund do not expect to realize any long-term capital
gains and, therefore, do not foresee paying any
51
<PAGE> 96
"capital gains dividends" as described in the Code. Dividends received by a
Shareholder that are derived from the 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.
INFORMATION SPECIFIC TO THE BOND FUND, THE LIMITED MATURITY FUND AND THE
GOVERNMENT INCOME FUND
Distributions by the Bond Fund, the Limited Maturity Fund and the 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 to
these distributions.
Distributions designated by the Bond Fund, the Limited Maturity Fund and the
Government Income Fund as derived from net gains on securities held for more
than one year, but not more than 18 months, or, from net gains on securities
held for more than 18 months, are taxable to Shareholders as such 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, the Limited Maturity Fund or the
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's, the
Limited Maturity Fund's or the Government Income 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.
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<PAGE> 97
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 U.S. 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, the Limited Maturity Fund
and the 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.
INFORMATION SPECIFIC TO THE TAX EXEMPT FUND, THE FLORIDA FUND AND THE MUNICIPAL
BOND FUND
Shareholders of the Tax Exempt Fund and the Tax-Free Funds 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 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
53
<PAGE> 98
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, 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
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<PAGE> 99
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 that meet the holding period requirements in the
Code 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 designated by a Capital Appreciation Fund as deriving from net
gains on securities held for more than one year but not more than 18 months or
from net gains on securities held for more than 18 months is taxable to
Shareholders as such, 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
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.
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<PAGE> 100
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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<PAGE> 101
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.
Dick D. Briggs, Jr., M.D. Trustee From September 1989 to present, Emeritus
459 DER Building Professor and Eminent Scholar Chair, Univ.
1808 7th Avenue South of Alabama at Birmingham; from October 1979
UAB Medical Center to present, Physician, University of
Birmingham, Alabama 35294 Alabama Health Services Foundation; from
1981 to 1995, Professor and Vice Chairman,
Department of Medicine, University of
Alabama at Birmingham School of Medicine;
from June 1988 to October 1992, President,
Chief Executive Officer and Medical
Director, University of Alabama Health
Services Foundation
Wendell D. Cleaver Trustee From 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
751 Cary Drive June 1991, Vice President, Birmingham
Auburn, Alabama 36830 Division, Alabama Power Company
James H. Woodward, Jr. Trustee From 1996 to present, Trustee, The Sessions
The University of North Group; from July 1989 to present,
Carolina at Charlotte Chancellor, The University of North
Charlotte, North Carolina Carolina at Charlotte; from April 1997 to
28223 present, Trustee, BISYS Variable Insurance
Funds; from August 1984 to July 1989,
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> 102
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 , 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
, 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 mid-south region. AmSouth Bancorporation reported assets as
of September 30, 1997 of $18.1 billion and operated 272 banking offices and over
600 ATM locations in Alabama, Florida, Georgia and Tennessee. AmSouth has
provided investment management services through its Trust Investment Department
since 1915. As of September 30, 1997, AmSouth and its affiliates had over $8.2
billion in assets under discretionary management and provided custody services
for an additional $20.5 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, has been 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 (0.40%) of each Money Market Fund's average daily
net assets; sixty-five
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<PAGE> 103
one-hundredths of one percent (0.65%) of each
Income Fund's average daily net assets; eighty one-hundredths of one percent
(0.80%) 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 (0.90%) 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, 1997, the Advisor received
investment advisory fees amounting to 0.40% of the Prime Obligation Fund's
average net assets, 0.40% of the U.S. Treasury Fund's average net assets and
0.20% 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, 1997, after voluntary fee
reductions, the Advisor received investment advisory fees amounting to 0.50% of
the Bond Fund's average net assets, 0.50% of the Limited Maturity Fund's average
net assets, 0.30% of the Government Income Fund's average net assets, and 0.30%
of the Florida Fund's average net assets. During the period from July 1, 1997 to
July 31, 1997, after voluntary fee reductions, the Advisor received investment
advisory fees amounting to 0.40% of the Municipal Bond Fund's average net
assets.
During the Trust's fiscal year ended July 31, 1997, the Advisor received
investment advisory fees amounting to 0.80% of the Equity Fund's average daily
net assets, 0.80% of the Regional Equity Fund's average daily net assets and
0.80% of the Balanced Fund's average daily net assets. For the period from March
20, 1997 to July 31, 1997, the Advisor received investment advisory fees
amounting to 0.80% of the Equity Income Fund's average daily net assets.
During the Trust's fiscal year ended July 31, 1996, the Advisor received
investment advisory fees amounting to 0.40% of the Prime Obligation Fund's
average net assets, 0.40% of the U.S. Treasury Fund's average net assets and
0.20% 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, 0.50% of the Limited Maturity Fund's average
net assets, 0.30% of the Government Income Fund's average net assets, and 0.30%
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 0.80% of the Equity Fund's average daily
net assets, 0.80% of the Regional Equity Fund's average daily net assets and
0.75% of the Balanced Fund's average daily net assets after voluntary fee
reductions with respect to the Balanced Fund.
INVESTMENT SUB-ADVISOR
Rockhaven Asset Management, LLC ("Rockhaven" or "Sub-Advisor") serves as sub-
advisor to the Equity Income Fund pursuant to a Sub-Advisory Agreement with the
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.
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<PAGE> 104
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 (0.48%) 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 139.82%, absent the imposition of a sales
charge. 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 Federated Equity Income 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 total 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 and the Lipper
Equity Income Fund Index were:
PRIOR PERFORMANCE OF THE CLASS A
SHARES OF THE FEDERATED EQUITY INCOME FUND
<TABLE>
<CAPTION>
S&P
FEDERATED 500 LIPPER EQUITY
EQUITY INCOME FUND+* INDEX@ INCOME FUND INDEX#
-------------------- ------ ------------------
<S> <C> <C> <C>
CLASS A SHARES (absent imposition of sales
charge)
One Year......................................... 23.26% 26.34% 19.48%
Three Years...................................... 17.03% 20.72% 15.09%
Five Years....................................... 16.51% 17.02% 14.73%
August 1, 1991 through January 31, 1997.......... 17.25% 16.78% 14.99%
CLASS A SHARES (assuming imposition of the
Federated Equity Income Fund's maximum sales
charge)
One Year......................................... 16.48%
Three Year....................................... 14.85%
Five Year........................................ 15.20%
August 1, 1991 through January 31, 1997.......... 16.05%
</TABLE>
- ------------
+ Average annual total return reflects changes in share prices and
reinvestment of dividends and distributions and is net of fund expenses.
* During the period from August 1, 1991 through January 31, 1997, the
operating expense ratio of the Class A Shares of the Federated Equity Income
Fund ranged from 0.95% to 1.05 of the fund's average daily net assets. These
operating expenses were lower than the projected operating expenses of the
Premier Shares of the AmSouth Equity Income Fund. If the actual operating
expenses of the Premier Shares of the AmSouth Equity Income Fund are higher
than the historical operating expenses of the Class A Shares of the
Federated Equity Income Fund, this could negatively affect performance.
60
<PAGE> 105
@ The S&P 500 Index is an unmanaged index of common stocks that is considered
to be generally representative of the U.S. stock market. The Index is
adjusted to reflect reinvestment of dividends.
# 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.
The Federated Equity Income Fund does not offer Premier Shares, therefore the
performance data is shown for the Class A Shares, the shares most similar to
Premier Shares. However, since the Premier Shares of the AmSouth Equity Income
Fund do not impose a sales charge, the Federated Equity Income Fund performance
data, absent the imposition of a sales charge, reflects the most comparable past
performance.
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.
Peachtree Asset Management ("Peachtree" or "Sub-Advisor") serves as investment
sub-adviser to the Capital Growth Fund, pursuant to a Sub-Advisory Agreement
with AmSouth. The Capital Growth Fund commenced operations on August 4, 1997.
Under the Sub-Advisory Agreement, Peachtree manages the Fund, selects
investments, and places all orders for purchases and sales of securities,
subject to the general supervision of the Trust's Board of Trustees and AmSouth
in accordance with the Fund's investment objectives, policies and restrictions.
Peachtree is a division of Smith Barney Mutual Funds Management Inc.
("SBMFM"), a wholly-owned subsidiary of Smith Barney Holdings Inc., which in
turn is a wholly-owned subsidiary of Travelers Group Inc. Peachtree has
performed advisory services since 1994 for institutional clients, and has its
principal offices at 303 Peachtree Street, N.E., Atlanta, GA 30308. SBMFM and
its predecessors have been providing investment advisory services to mutual
funds since 1968. As of December 31, 1996, SBMFM had aggregate assets under
management of approximately $80 billion.
For its services and expenses incurred under the Sub-Advisory Agreement,
Peachtree is entitled to a fee payable by AmSouth, computed daily and paid
monthly at the annual rate of forty-eight one-hundredths of one percent (0.48%)
of the Fund's average daily net assets or such lower fee as may be agreed upon
in writing by AmSouth and Peachtree.
Dennis A. Johnson is the portfolio manager for the Capital Growth Fund, and,
as such has the primary responsibility for the day-to-day portfolio management
of the Fund. Mr. Johnson, who has been employed by Peachtree since 1994, is
President and Chief Investment Officer of Peachtree. From 1989 to 1994, Mr.
Johnson was Vice President and Portfolio Manager at Trusco Capital, the
investment management subsidiary of Trust Company Bank, Atlanta, Georgia.
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
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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 (0.20%) of such 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 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, 1997, ASO received
administration fees amounting to 0.20% of each Money Market Fund's average daily
net assets. During the Trust's fiscal year ended July 31, 1997, ASO received
administration fees, after voluntary fee reductions, amounting to 0.12% of the
Bond Fund's average daily net assets; 0.12% of the Limited Maturity Fund's
average daily net assets; 0.10% of the Government Income Fund's average daily
net assets; 0.10% of the Florida Fund's average daily net assets; 0.11% of the
Equity Fund's average daily net assets, 0.12% of the Regional Equity Fund's
average daily net assets, and 0.11% of the Balanced Fund's average daily net
assets. For the period from March 20, 1997 (commencement of operations) through
July 31, 1997, ASO received administration fees amounting to 0.20% of the Equity
Income Fund's average daily net assets. For the period from July 1, 1997
(commencement of operations) through July 31, 1997, after voluntary fee
reductions, ASO received administration fees amounting to 0.12% of the Municipal
Bond 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 (0.10%) 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 a 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 regula-
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tions 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 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 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.
As of November 7, 1997, AmSouth, 1901 Sixth Avenue North, Birmingham, AL
35203, was the Shareholder of record of 98.89% of the outstanding Premier Shares
of the Prime Obligations Fund, 99.88% of the outstanding Premier Shares of the
U.S. Treasury Fund, and 99.97% of the outstanding Premier Shares of the Tax
Exempt Fund. As of November 19, 1997, AmSouth was the beneficial owner of
approximately 56.18% of the outstanding Premier Shares of the Prime Obligations
Fund, 64.62% of the outstanding Premier Shares of the U.S. Treasury Fund and
57.56% of the outstanding 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
63
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and the Tax Exempt Fund within the meaning of
the Investment Company Act of 1940.
As of November 7, 1997, AmSouth, 1901 Sixth Avenue North, Birmingham, AL
35203, was the Shareholder of record of 99.94% of the outstanding Premier Shares
of the Bond Fund, 99.98% of the outstanding Premier Shares of the Limited
Maturity Fund, 99.99% of the outstanding Premier Shares of the Florida Fund,
99.72% of the outstanding Premier Shares of the Municipal Bond Fund and 99.99%
of the outstanding Premier Shares of the Government Income Fund. As of November
19, 1997, AmSouth was the beneficial owner of approximately 76.79% of the
outstanding Premier Shares of the Bond Fund 90.60% of the outstanding Premier
Shares of the Florida Tax-Free Fund and 94.52% of the outstanding Premier Shares
of the Municipal Bond Fund and may be deemed to be a "controlling person" of the
Bond Fund and Florida Tax-Free Fund and Municipal Bond Fund within the meaning
of the Investment Company Act of 1940.
As of November 7, 1997, AmSouth Bank, 1901 Sixth Avenue North, Birmingham, AL
35203, was the Shareholder of record of approximately 99.98% of the outstanding
Premier Shares of the Equity Fund, 99.97% of the outstanding Premier Shares of
the Regional Equity Fund, 99.99% of the outstanding Premier Shares of the
Balanced Fund, 99.98% of the outstanding Premier Shares of the Equity Income
Fund and 99.99% of the outstanding Premier Shares of the Capital Growth Fund. As
of November 19, 1997, AmSouth Bank was the beneficial owner of approximately
74.63% of the outstanding Premier Shares of the Equity Fund, 79.11% of the
outstanding Premier Shares of the Regional Equity Fund, 14.56% of the
outstanding Premier Shares of the Balanced Fund and 93.98% of the outstanding
Premier Shares of the Capital Growth 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
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, 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.
64
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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 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
maxi-
65
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mum 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.
Each of 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, 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
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<PAGE> 111
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 AmSouth Mutual
Funds at P.O. Box 182733, Columbus, Ohio 43218-2733, or by calling toll free
(800) 451-8382.
67
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<PAGE> 115
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 Mutual
Funds Management 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, 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.............. 19
Investment Techniques.......................... 41
Investment Restrictions........................ 43
Valuation of Shares............................ 45
How to Purchase and Redeem Shares.............. 46
Dividends and Taxes............................ 51
Management of the AmSouth Mutual Funds......... 57
General Information............................ 63
</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.
AS4P120197
<PAGE> 116
AMSOUTH MUTUAL FUNDS
--------------------
[AMSOUTH LOGO]
AMSOUTH BANK
INVESTMENT ADVISOR
PREMIER
SHARES
[AMSOUTH MUTUAL FUNDS LOGO]
NOT FDIC INSURED
BISYS FUND SERVICES, DISTRIBUTOR
Prospectus dated December 1, 1997
<PAGE> 117
AMSOUTH MUTUAL FUNDS
Statement of Additional Information
December 1, 1997
-----------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of the AmSouth Prime Obligations Fund, the
AmSouth U.S. Treasury Fund, the AmSouth Tax Exempt Fund, the AmSouth Government
Income Fund, the AmSouth Bond Fund, the AmSouth Limited Maturity Fund, the
AmSouth Municipal Bond Fund, the AmSouth Florida Tax-Free Fund, 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, (each a "Fund" and collectively the "Funds"), each dated December
1, 1997. This Statement of Additional Information is incorporated by reference
in its entirety into each Prospectus. A copy of each Fund's Prospectus may be
obtained by writing to AmSouth Mutual Funds at P.O. Box 182733, Columbus, Ohio
43218-2733, or by telephoning toll free (800) 451-8382.
<PAGE> 118
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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...........................................................................................24
Portfolio Transactions.......................................................................................28
Glass-Steagall Act...........................................................................................29
Administrator................................................................................................30
Expenses ....................................................................................................33
Sub-Administrators...........................................................................................33
Distributor..................................................................................................33
Custodian....................................................................................................35
Transfer Agent and Fund Accounting Services..................................................................35
Auditors ....................................................................................................35
Legal Counsel................................................................................................35
PERFORMANCE INFORMATION..........................................................................................35
Yields of the Money Market Funds.............................................................................36
Yield of the Capital Appreciation Funds, the Income Funds and the
Tax-Free Funds......................................................................................37
Calculation of Total Return..................................................................................38
</TABLE>
B-i
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<TABLE>
<S> <C>
Performance Comparisons......................................................................................40
ADDITIONAL INFORMATION...........................................................................................41
Organization and Description of Shares.......................................................................41
Shareholder Liability........................................................................................42
FINANCIAL STATEMENTS.............................................................................................45
APPENDIX.........................................................................................................46
</TABLE>
B-ii
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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 (each a "Fund"): the AmSouth Prime Obligations Fund (the "Prime
Obligations Fund"), the AmSouth U.S. Treasury Fund (the "U.S. Treasury Fund"),
the AmSouth Tax Exempt Fund (the "Tax Exempt Fund," and these three Funds being
collectively referred to as the "Money Market Funds"), 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," and
these six Funds being collectively referred to as the "Capital Appreciation
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 Municipal Bond Fund (the "Municipal Bond
Fund"), and the AmSouth Florida Tax-Free Fund (the "Florida Fund" and these five
Funds being collectively referred to as the "Income Funds"). The Florida Fund
and the Municipal Bond Fund are also 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 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 the Trust ("Advisor") to present minimal credit risks
under guidelines adopted by the Trust's Trustees.
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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.
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
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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 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.
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
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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 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 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
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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 Fund 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 each Prospectus, each
Fund may borrow funds for temporary purposes by entering into reverse repurchase
agreements in accordance with the Fund's investment restrictions. Pursuant to
such an agreement, 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 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
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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 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 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.
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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.
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
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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 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
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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, the Bond Fund, the Limited
Maturity Fund and the 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 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
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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, the
Bond Fund, the Limited Maturity Fund and the 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
, the Bond Fund, the Limited Maturity Fund and the 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 when a Fund owns securities not subject to an option, the Capital
Appreciation Funds , the Bond Fund, the Limited Maturity Fund and the Government
Income Fund will not 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,
the Limited Maturity Fund and the 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.
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
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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,
the Limited Maturity Fund and the 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.
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
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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).
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None of the Funds 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 Fund, the Small Cap Fund and the Equity Income Fund);
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 the 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
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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 Fund 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, 1997, portfolio turnover for the
Equity Fund, the Regional Equity Fund, the Equity Income Fund, the Limited
Maturity Fund, the Government Income Fund, the Bond Fund and the Florida Fund
was 24.47%, 10.30%, 27.38%, 64.89%, 2.96%, 34.62% and 24.05%, respectively. For
the one month period ended July 31, 1997, portfolio turnover for the Municipal
Bond Fund was 0.31%. In the fiscal year ended July 31, 1997, the portfolio
turnover rate for the Balanced Fund was 15.80% with respect to the common stock
portion of its portfolio and 18.62% with respect to the other portion of its
portfolio.
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.
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,
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in the case of the Tax Exempt Fund and the Tax-Free Funds, by requirements which
enable these Funds to receive certain favorable tax 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
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<PAGE> 135
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. 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
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<PAGE> 136
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 (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.
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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 Internal Revenue Code of 1986, as amended (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) each year distribute at least 90% of the sum of its taxable net
investment company income, its net tax-exempt income, and the excess, if any, of
its net short-term capital gains over its net long-term capital losses; and (c)
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.
In addition, until the start of the Fund's first tax year beginning
after August 5, 1997, the Fund must derive less than 30% of its gross income
from the sale or other disposition of certain assets (including stock or
securities and certain options, futures contracts, forward contracts and foreign
currencies) held for less than three months in order to qualify as a regulated
investment company. This 30% of gross income test 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 4% 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
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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
distributions during a calendar year by a Fund did not meet the 98% thresholds,
the Fund would be subject to the 4% excise tax on the undistributed amounts.
Each Fund intends generally to make distributions sufficient to avoid imposition
of this 4% excise tax.
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," "constructive 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 tax consequences of certain hedging transactions have been modified
by the Taxpayer Relief Act of 1997 (the "1997 Act").
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.
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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 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
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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.
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 net gains on securities held
for more than one year but not more than 18 months and from net gains on
securities held for more than 18 months, 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 any 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
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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 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).
Thresa Dewar Treasurer From March 1997 to present, employee of BISYS
Fund Services; from September 1994 to March 1997,
Independent Consultant; from April 1975 to
September 1994, employee of Federated Investors,
Inc.
John F. Calvano President 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.
</TABLE>
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<PAGE> 142
<TABLE>
<CAPTION>
Robin Thomas Secretary
<S> <C> <C>
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
Partnership; from May, 1989 to June, 1995,
Supervisor, Mutual Fund Legal Department,
Alliance Capital Management.
</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 , Inc. receives fees
from the Trust for acting as Transfer Agent for and for providing fund
accounting services to the Trust. Messrs. Calvano, Landreth, Grimm and Martinez
and Mme. Dewar, Thomas and Metz are employees of BISYS Fund Services, Limited
Partnership.
COMPENSATION TABLE 1
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Annual from AmSouth
Name of from AmSouth Accrued Benefits Upon Mutual Funds
Position Fund Expenses As Part of Retirement Paid to Trustee
- -------- ------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
J. David Huber None None None None
James H. Woodward, Jr. $12,239 None None $12,239
Homer H. Turner $10,591 None None $10,591
Wendell D. Cleaver $11,806 None None $11,806
Dick D. Briggs, Jr., M.D. $10,420 None None $10,420
</TABLE>
1 Figures are for the Trust's fiscal year ended July 31, 1997.
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<PAGE> 143
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, 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"). The First Investment Advisory Agreement and the Second
Investment Advisory Agreement are collectively referred to as the "Advisory
Agreements."
In selecting investments for each of the Capital Appreciation Funds
(except for the Equity Income Fund and the Capital Growth 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 investments 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
(0.40%) annually; the U.S. Treasury Fund - forty one-hundredths of one percent
(0.40%) annually; the Equity Fund - eighty one-hundredths of one percent (0.80%)
annually; the Regional Equity Fund - eighty one-hundredths of one percent
(0.80%) annually; the Tax Exempt Fund - forty one-hundredths of one percent
(0.40%) annually; the Bond Fund - sixty-five one-hundredths of one percent
(0.65%) annually; the Limited Maturity Fund - sixty-five one-hundredths of one
percent (0.65%) annually; the Balanced Fund - eighty one-hundredths of one
percent (0.80%) annually; the Government Income Fund - sixty-five one-hundredths
of one percent (0.65%) annually; the Florida Fund -sixty-five one-hundredths of
one percent (0.65%) annually; the Municipal Bond Fund - sixty-five
one-hundredths of one percent (0.65%) annually; the Equity Income Fund - eighty
one-hundredths of one percent (0.80%) annually; the Capital Growth Fund - eighty
one-hundredths of one percent (0.80%) annually; and the Small Cap Fund - ninety
one-hundredths of one percent (0.90%) annually. A fee agreed to in writing from
time to
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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, 1997, July 31, 1996, and July 31,
1995, the Advisor received $2,366,707, $2,459,885 and $2,184,158,
respectively, from the Prime Obligations Fund. For the fiscal years ended July
31, 1997, July 31, 1996, and July 31, 1995, the Advisor received $1,325,127,
$1,588,850 and $1,245,378, respectively, from the U.S. Treasury Fund. For the
fiscal years ended July 31, 1997, July 31, 1996, and July 31, 1995, the Advisor
received $160,785, $133,336 and $125,213 for the Tax Exempt Fund. For the
fiscal years ended July 31, 1997, July 31, 1996, and July 31, 1995, investment
advisory fees paid to the Advisor reflect voluntary reductions in investment
advisory fees of $160,785, $133,340 and $125,213, respectively, for the Tax
Exempt Fund.
For the fiscal year ended July 31, 1997, the Advisor received
$3,733,019, $953,375, $745,426, $247,500, $2,855,190, $41,620, and $156,820 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 period ended July 31, 1997, the Advisor received $111,117
and $36,130 from the Municipal Bond Fund and the Equity Income Fund,
respectively. For the fiscal year ended July 31, 1997, investment advisory fees
paid to the Advisor reflect voluntary fee reductions of $224,000, $74,000,
$48,000, and $183,000, for the Bond Fund, the Limited Maturity Fund, the
Government Income Fund, and Florida Fund, respectively. For the period ended
July 31, 1997, investment advisory fees paid to the Advisor reflect voluntary
fee reductions of $70,000 for the Municipal Bond 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
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<PAGE> 145
received $124,256 from the Florida Fund, which reflects a voluntary reduction in
fees of $111,697.
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 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, 1999 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, 1999 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.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective shareholders of the Funds may
include descriptions of the
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<PAGE> 146
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.
AmSouth also serves as Sub-Administrator for the Trust. See
"Sub-Administrator" below.
Investment Sub-Advisors
Investment sub-advisory services are provided to the Equity Income Fund
by Rockhaven Asset Management, LLC ("Rockhaven" or "Sub-Advisor") pursuant to a
Sub-Advisory Agreement dated as of March 12, 1997 between the Advisor and
Rockhaven. Investment sub-advisory services are provided to the Capital Growth
Fund by Peachtree Asset Management ("Peachtree" or "Sub-Advisor") pursuant to a
Sub-Advisory Agreement dated July 31, 1997 between the Advisor and Peachtree.
The Sub-Advisors 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 each Agreement relates, except that a
Sub-Advisor shall be liable to the Advisor for a loss resulting from a breach of
fiduciary duty by the 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 the 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, 1999 and with respect
to the Capital Growth Fund until July 31, 1998 and each Sub-Advisory Agreement
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 respective
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. Each Sub-Advisory 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. Each Sub-Advisory 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.
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<PAGE> 147
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 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
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
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<PAGE> 148
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
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, 1997, the Equity Fund paid
aggregate brokerage commissions in the amount of $397,271. During the fiscal
year ended July 31, 1997, the Regional Equity Fund paid aggregate brokerage
commissions in the amount of $98,747. During the fiscal year ended July 31,
1997, the Balanced Fund paid aggregate brokerage commissions in the amount of
$145,513. During the period from March 20, 1997 to July 31, 1997, the Equity
Income Fund paid aggregate brokerage commissions in the amount of $28,462.
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
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<PAGE> 149
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 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"). 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 , Inc. under its transfer agency and fund accounting
agreements with the Trust).
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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 , 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.
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 (0.20%) 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 year ended July 31, 1997, ASO received $1,183,357, for
the fiscal years ended July 31, 1996 and July 31, 1995, BISYS and ASO received,
$1,229,842 and $1,092,079 , respectively, from the Prime Obligations Fund. For
the fiscal year ended July 31, 1997, ASO received $662,565; for the fiscal years
ended July 31, 1996 and July 31, 1995, BISYS and ASO received $794,425 and
$622,689, respectively, from the U.S. Treasury Fund. For the fiscal year ended
July 31, 1997, ASO received $160,785, for the fiscal years ended July 31, 1996
and July 31, 1995, BISYS and ASO received, $133,336 and $125,213 , 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, 1997, ASO received $745,786,
$187,612, $178,921, $59,376, $549,167, $13,872 and $52,277 from the Equity Fund,
the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the Balanced
Fund, the Government Income Fund and the Florida Fund respectively. For the
period ended July 31, 1997, ASO received $33,335 and $9,033 from the Municipal
Bond Fund and the Equity Income Fund, respectively. For the fiscal year ended
July 31, 1997, management and administration fees reflect voluntary fee
reductions of $188,000, $51,000, $119,000, $40,000, $165,000, $14,000 and
$53,000 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
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<PAGE> 151
period ended July 31, 1997, management and administration fees reflect voluntary
fee reductions of $22,000 for the Municipal Bond 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.
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.
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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 ASO 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 (0.10%) ten one-hundredths
of one percent of each Fund's average net assets. For the fiscal year ended July
31, 1997, AmSouth received [$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, 1999, 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
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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 0.25% 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 July 31, 1997, BISYS received $11,036
with respect to the Classic Shares of the U.S. Treasury Fund (which reflects a
fee reduction of $17,000); $122,328 with respect to the Classic Shares of
the Prime Obligations Fund (which reflects a fee reduction of $183,000); and
$20,128 with respect to the Classic Shares of the Tax-Exempt Fund (which
reflects a fee reduction of $30,000).
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.
B-34
<PAGE> 154
Custodian
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 , Inc. ("Transfer Agent") serves as transfer agent
to each Fund of the Trust pursuant to a Transfer Agency and Shareholder Service
Agreement with the Trust. The Transfer Agent is a wholly-owned subsidiary of The
BISYS Group, Inc.
The Transfer Agent also provides fund accounting services to each of
the Funds pursuant to a Fund Accounting Agreement with the Trust. Under the Fund
Accounting Agreement, the Transfer Agent receives a fee from each Fund at the
annual rate of 0.03% of such Fund's average daily 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.
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.
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
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<PAGE> 155
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 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.
B-36
<PAGE> 156
For the seven-day period ended July 31, 1997, the yield, effective
yield, the tax equivalent yield and the tax equivalent effective yield of the
Premier Shares and Classic Shares of each Money Market Fund, calculated as
described, above was as follows:
<TABLE>
<CAPTION>
Tax
Effective Equivalent Tax Equivalent
Fund Class Yield Yield Yield Effective Yield
<S> <C> <C> <C> <C> <C>
Prime Obligations Fund Premier 5.08% 5.21%
U.S. Treasury Fund Premier 4.72% 4.83%
Tax Exempt Fund Premier 3.18% 3.23% 5.28% 5.37%
</TABLE>
<TABLE>
<CAPTION>
Tax
Effective Equivalent Tax Equivalent
Fund Class Yield Yield Yield Effective Yield
<S> <C> <C> <C> <C> <C>
Prime Obligations Fund Classic 4.98% 5.10%
U.S. Treasury Fund Classic 4.62% 4.72%
Tax Exempt Fund Classic 3.08% 3.13% 5.12% 5.20%
</TABLE>
Yield of the Capital Appreciation Funds, the Income Funds and the Tax-Free Funds
As summarized in the Prospectuses under the heading "General
Information Performance Information," the yield of each 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 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.
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<PAGE> 157
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 July 31, 1997, the yield and the tax
equivalent yield of the Capital Appreciation Funds, the Income Funds and the Tax
Free Funds was:
<TABLE>
<CAPTION>
Tax
Equivalent
Fund Class Yield Yield
<S> <C> <C> <C>
Equity Fund Premier 1.11% N/A
Regional Equity Fund Premier 0.59% N/A
Balanced Fund Premier 2.85% N/A
Equity Income Fund Premier 1.55% N/A
Florida Fund Premier 3.77% 6.26%
Municipal Bond Fund Premier 3.49% 5.80%
</TABLE>
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> 158
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 and five-year periods ended July 31, 1997, average
annual total return was as follows:
<TABLE>
<CAPTION>
Fund Class One-Year Five-Year
<S> <C> <C>
Prime Obligations Fund Premier 5.00% 4.18%
U.S. Treasury Fund Premier 4.70% 4.00%
Tax Exempt Fund Premier 3.15% 2.72%
Equity Fund N/A 35.95% 17.21%
Regional Equity Fund N/A 32.75% 15.93%
Balanced Fund N/A 20.77% 12.07%
Florida Fund N/A 2.61% --
Bond Fund N/A 6.05% 5.98%
Limited Maturity Fund N/A 2.96% 4.54%
Government Income Fund N/A 5.82% --
Prime Obligations Fund Classic 4.90% --
U.S. Treasury Fund Classic 4.60% --
Tax Exempt Fund Classic 3.04% --
</TABLE>
For the period from commencement of operations through July 31, 1997,
the average annual total return was as follows:
<TABLE>
<CAPTION>
Commencement of Operations Commencement
Fund Class through July 31, 1997 of Operations Date
<S> <C> <C> <C>
Prime Obligations Fund Premier 5.43% August 8, 1988
U.S. Treasury Fund Premier 5.21% September 8, 1988
Tax Exempt Fund Premier 3.09% June 27, 1988
Equity Fund N/A 15.23% December 1, 1988
Regional Equity Fund N/A 16.16% December 1, 1988
Balanced Fund N/A 13.22% December 19, 1991
Equity Income Fund N/A 12.52% March 20, 1997
Florida Fund N/A 4.70% September 30, 1994
Municipal Bond Fund N/A (2.25%) July 1, 1997
Bond Fund N/A 8.11% December 1, 1988
Limited Maturity Fund N/A 6.67% February 1, 1988
Government Income Fund N/A 4.87% October 1, 1993
Prime Obligations Fund Classic 5.41% April 1, 1996
U.S. Treasury Fund Classic 5.20% April 1, 1996
Tax Exempt Fund Classic 3.07% April 1, 1996
</TABLE>
B-39
<PAGE> 159
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 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.
B-40
<PAGE> 160
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 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.
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
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<PAGE> 161
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 November 7, 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.
As of November 7, 1997, AmSouth, 1901 Sixth Avenue-North, Birmingham,
Alabama 35203 was the Shareholder of record of 98.89% of the outstanding voting
Shares of the Premier Shares of the Prime Obligations Fund, 99.88% of the
outstanding voting Shares of the Premier Shares of the U.S. Treasury Fund,
99.97% of the outstanding voting
B-42
<PAGE> 162
Shares of the Premier Shares of the Tax Exempt Fund, 99.98% of the outstanding
voting Shares of the Equity Fund, 99.97% of the outstanding voting Shares of the
Regional Equity Fund, 99.94% of the outstanding voting Shares of the Bond Fund,
99.98% of the outstanding voting Shares of the Limited Maturity Fund, 99.99% of
the outstanding voting Shares of the Balanced Fund, 99.99% of the outstanding
voting Shares of the Florida Fund, 99.99% of the outstanding voting Shares of
the Premier Shares of the Government Income Fund, 99.72% of the outstanding
voting Shares of the Premier Shares of the Municipal Bond Fund, 99.98% of the
outstanding voting Shares of the Premier Class of the Equity Income Fund and
99.99% of the outstanding voting Shares of the Premier Class of the Capital
Growth Fund. 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 November 7, 1997 National Financial Services Corporation, One
World Financial Center, 200 Liberty Street, New York, New York 10281, was the
Shareholder of record of 94.65% of the outstanding voting Shares of the Classic
Shares of the Prime Obligations Fund, 86.62% of the outstanding Shares of the
Classic Shares of the Treasury Fund, 92.08% of the outstanding voting Shares of
the Classic Shares of the Tax Exempt Fund, 36.21% of the Government Income Fund,
19.85% of the outstanding voting Shares of the Classic Shares of the Bond Fund,
6.18% of the outstanding voting Shares of the Classic Shares of the Equity Fund,
41.48% of the outstanding voting Shares of the Classic Shares of the Balanced
Fund, 90.34% of the outstanding voting Shares of the Classic Shares of the
Municipal Bond Fund, 84.65% of the outstanding voting Shares of the Classic
Shares of the Florida Tax Free Fund, 25.44% of the outstanding voting Shares of
the Classic Shares of the Equity Income Fund, 47.10% of the outstanding voting
Shares of the Classic Shares of the Capital Growth Fund, 99.96% of the
outstanding voting Shares of the Class B Shares of the Bond Fund, 49.15% of the
outstanding voting Shares of the Class B Shares of the Equity Fund, 79.82% of
the outstanding voting Shares of the Class B Shares of the Regional Equity Fund,
86.05% of the outstanding voting Shares of the Class B Shares of the Balanced
Fund, 58.76% of the outstanding voting Shares of the Class B Shares of the
Equity Income Fund and 73.16% of the outstanding voting Shares of the Class B
Shares of the Capital Growth 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
November 7, 1997:
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<PAGE> 163
U.S. Treasury Fund -- Classic Shares
<TABLE>
<CAPTION>
Number of
Name and Address Shares Percentage
<S> <C> <C>
Association of Edison 695,838.94 10.01%
Illumination
600 18th Street North
Birmingham, AL 35291
Equity Fund -- Classic Shares
National Bank of Commerce 181,876.638 7.84%
Trust Maynard Cooper
P.O. Box 10686
Birmingham, AL 35202-0686
Municipal Bond Fund -- Classic Shares
Sterling Agee Leach Inc. 13,122.159 9.62%
AC 2432-0915
CMT Plaza Suite 100B
813 Shades Creek Parkway
Birmingham, AL 35209
</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> 164
FINANCIAL STATEMENTS
The Independent Accountant's Report for the year ended July 31, 1997,
Financial Statements for the AmSouth Mutual Funds for the period ended July 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> 165
The following Financial Statements (unaudited) regarding the Municipal Bond Fund
are filed herewith:
-- Statement of Assets and Liabilities for the Municipal Bond Fund at
October 31, 1997.
-- Statement of Operations for the period August 1, 1997 to October 31,
1997.
-- Statement of Changes in Net Assets for the period August 1, 1997 to
October 31, 1997.
-- Schedule of Portfolio Investments at October 31, 1997.
-- Notes to Financial Statements dated October 31, 1997.
-- Financial Highlights for the period August 1, 1997 to October 31, 1997.
The following financial statements (unaudited) regarding the Capital Growth Fund
are filed herewith:
-- Statement of Assets and Liabilities for the Capital Growth Fund at
October 31, 1997.
-- Statement of Operations for the period August 4, 1997 to October 31,
1997.
-- Statement of Changes in Net Assets for the period August 4, 1997 to
October 31, 1997.
-- Schedule of Portfolio Investments at October 31, 1997.
-- Notes to Financial Statements dated October 31, 1997.
-- Financial Highlights for the period August 4, 1997 to October 31, 1997.
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<PAGE> 166
AMSOUTH MUTUAL FUNDS
<TABLE>
<CAPTION>
Statements of Assets and Liabilities
October 31, 1997
(Unaudited)
Municipal Capital
Bond Growth
Fund Fund
------------ ------------
<S> <C> <C>
ASSETS:
Investments, at value $335,721,036 $ 5,519,850
------------ ------------
Total Investments (cost $324,557,370 and $5,672,492, 335,721,036 5,519,850
respectively)
Cash - 396,159
Interest and dividends receivable 4,811,156 2,738
Receivable from brokers for investments sold - 24,612
Receivable for capital shares issued - 118,310
Prepaid expenses 91,607 34,498
------------ ------------
Total Assets 340,623,799 6,096,167
------------ ------------
LIABILITIES:
Payable to brokers for investments purchased 5,246,191 247,836
Payable for capital shares redeemed - 1,707
Accrued expenses and other payables:
Investment advisory fees 119,031 3,809
Administration fees 3,343 94
12b-1 fees (B shares) - 525
Shareholder service fees (Classic shares) 84 571
Accounting fees 580 2,930
Transfer agent fees 10,184 36
Trustee fees 588 -
Legal fees 1,048 1,747
Audit fees 6,635 282
Custodian fees 1,217 -
Printing fees 14,987 -
Other 31,789 268
------------ ------------
Total Liabilities 5,435,677 259,805
------------ ------------
NET ASSETS:
Paid-in capital 323,211,509 6,037,795
Accumulated undistributed (distributions in excess of) net
investment income (10,589) (8,358)
Net unrealized appreciation/(depreciation) from investments 11,163,666 (152,642)
Accumulated undistributed net realized gains/(losses) from investments
transactions 823,536 (40,433)
------------ ------------
Net Assets $335,188,122 $ 5,836,362
============ ============
NET ASSETS
Classic $ 1,374,955 $ 2,974,949
Premier 333,813,167 2,046,372
Class B - 815,041
------------ ------------
$335,188,122 $ 5,836,362
============ ============
Outstanding units of beneficial interest (shares)
Classic 136,061 309,403
Premier 33,022,290 212,777
Class B - 84,908
------------ ------------
33,158,351 607,088
============ ============
Net asset value - offering and redemption price per share
Classic $ 10.11 $ 9.62
Premier $ 10.11 $ 9.62
Class B - $ 9.60
Maximum Sales Charge (Classic) 4.00% 4.50%
Maximum Offering Price (100%/(100% - Maximum Sales Charge)
of net asset value adjusted to nearest cent) per share (Classic) $ 10.53 $ 10.07
</TABLE>
See notes to financial statements.
B-47
<PAGE> 167
AMSOUTH MUTUAL FUNDS
<TABLE>
<CAPTION>
Statements of Operations
For the period ended October 31, 1997
(Unaudited)
Municipal Capital
Bond Growth
Fund * Fund **
----------- -----------
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 4,114,843 $ -
Dividend income 79,825 10,983
----------- -----------
Total Income 4,194,668 10,983
----------- -----------
EXPENSES:
Investment advisory fees 555,375 8,292
Administration fees 170,884 2,073
12b-1 fees (B Shares) - 647
Shareholder service fees (Classic Shares) 140 983
Accounting fees 27,593 10,424
Custodian fees 3,312 -
Legal fees 6,348 1,780
Audit fees 4,876 712
Organization costs 957 816
Trustees' fees and expenses 736 10
Transfer agent fees 20,831 348
Registration and filing fees 9,309 445
Printing costs 3,036 -
----------- -----------
Total Expenses 803,397 26,530
----------- -----------
Less: Expenses voluntarily reduced/waived (282,956) (7,189)
----------- -----------
Net Expenses 520,441 19,341
----------- -----------
Net Investment Income/(Loss) 3,674,227 (8,358)
----------- -----------
REALIZED/UNREALIZED GAINS
(LOSSES) FROM INVESTMENTS:
Net realized gains/(losses) from investment transactions 802,792 (40,433)
Net change in unrealized appreciation/(depreciation)
from investments (2,297,323) (152,642)
----------- -----------
Net realized and unrealized gains/(losses)
from investments (1,494,531) (193,075)
----------- -----------
Change in net assets resulting
from operations $ 2,179,696 $ (201,433)
=========== ===========
<FN>
* For the period from August 1, 1997 through October 31, 1997
** For the period from August 4, 1997 (commencement of operations) through October 31, 1997.
</TABLE>
See notes to financial statements.
B-48
<PAGE> 168
AMSOUTH MUTUAL FUNDS
<TABLE>
<CAPTION>
Statements of Changes in Net Assets
(Unaudited)
Municipal Capital
Bond Growth
Fund Fund
------------- -------------
August 1, August 4,
1997 to 1997 to
October 31, October 31,
1997 1997*
------------- -------------
<S> <C> <C>
FROM INVESTMENT ACTIVITIES:
OPERATIONS:
Net investment income/(loss) $ 3,674,227 $ (8,358)
Net realized gains/(losses) from investment transactions 802,792 (40,433)
Net change in unrealized appreciation/(depreciation)
from investments (2,297,323) (152,642)
------------- -------------
Change in net assets
resulting from operations 2,179,696 (201,433)
------------- -------------
DISTRIBUTIONS TO CLASSIC SHAREHOLDERS:
From net investment income (7,979) -
In excess of net investment income (2,052) -
DISTRIBUTIONS TO PREMIER SHAREHOLDERS:
From net investment income (3,666,249) -
In excess of net investment income (3,212) -
------------- -------------
Change in net assets from shareholder
distributions (3,679,492) -
------------- -------------
CAPITAL TRANSACTIONS:
Proceeds from shares issued 16,825,049 6,192,695
Dividends reinvested 11,496 -
Cost of shares redeemed (18,081,290) (154,900)
------------- -------------
Change in net assets from
capital transactions (1,244,745) 6,037,795
------------- -------------
Change in net assets (2,744,541) 5,836,362
NET ASSETS:
Beginning of period 337,932,663 -
------------- -------------
End of period $ 335,188,122 $ 5,836,362
============= =============
SHARE TRANSACTIONS:
Issued 1,667,007 622,515
Reinvested 1,139 -
Redeemed (1,789,171) (15,427)
------------- -------------
Change in shares (121,025) 607,088
============= =============
<FN>
* Period from commencement of operations.
</TABLE>
See notes to financial statements.
B-49
<PAGE> 169
AMSOUTH MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- -------------------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
MUNICIPAL BONDS (97.49%):
ALABAMA (56.06%):
3,700,000 Alabama State Judicial Building Authority, 4.75%, 1/1/05 $ 3,751,393
3,880,000 Alabama State Judicial Building Authority, 4.85%, 1/1/06 3,950,461
2,640,000 Alabama State Mental Health Finance Authority, 4.88%, 5/1/03 2,703,254
1,000,000 Alabama State Industrial Access Road & Bridge Corp., Series A, 4.40%, 6/1/02 1,000,300
1,520,000 Alabama State Industrial Access Road & Bridge Corp., Series A, 4.60%, 6/1/03 1,528,862
3,000,000 Alabama State Municipal Electric Authority, 5.75%, 9/1/01 3,165,030
7,000,000 Alabama State Public School & College Authority, 4.50%, 12/1/01 7,090,930
7,350,000 Alabama State Public School & College Authority, 4.75%, 12/1/03 7,505,379
5,000,000 Alabama State Public School & College Authority, 4.75%, 11/1/06 5,062,100
3,340,000 Alabama State Public School & College Authority, 5.00%, 12/1/05 3,447,414
2,445,000 Alabama State Water Pollution Control Authority, 4.60%, 8/15/02 2,481,577
1,760,000 Alabama State Water Pollution Control Authority, 5.25%, 8/15/08 1,819,946
1,350,000 Alabama State Water Pollution Control Authority, 5.38%, 8/15/10 1,387,476
2,495,000 Alabama State Water Pollution Control Authority, 5.40%, 8/15/11 2,552,260
5,000,000 Alabama State Water Pollution Control Authority, 5.50%, 8/15/16 5,079,650
1,000,000 Auburn University, 5.25%, 6/1/06 1,041,180
1,500,000 Birmingham GO, 4.90%, 7/1/06 1,533,930
1,040,000 Birmingham, Series B, GO, 4.80% , 10/1/08 1,042,590
2,000,000 Birmingham, Series B, GO, 5.65%, 4/1/00 2,070,100
3,465,000 Birmingham Industrial Water Board, Industrial Water Supply, 6.20%, 7/1/08 3,743,933
1,100,000 Birmingham Industrial Water Board, Industrial Water Supply, 5.30%, 3/1/04 1,152,525
1,000,000 Birmingham Industrial Water Board, Industrial Water Supply, 5.40%, 3/1/05 1,056,390
1,300,000 Birmingham Industrial Water Board, Industrial Water Supply, 5.50%, 3/1/06 1,380,353
500,000 Birmingham Medical Clinic Board, 8.30%, 7/1/08 603,755
1,375,000 Birmingham Waterworks & Sewer Board, 5.90%, 1/1/03 1,470,604
1,045,000 Clarke & Mobile County Gas District, 5.60%, 12/1/17 1,073,445
9,500,000 Daphne Special Care Facilities Financing Authority, 7.30%, 8/15/18 10,478,880
655,000 Decatur, Warrants, Series E, Limited GO, 4.85%, 8/1/03 669,456
685,000 Decatur, Warrants, Series E, Limited GO, 5.00%, 8/1/04 704,296
720,000 Decatur, Warrants, Series E, Limited GO, 5.10%, 8/1/05 741,478
760,000 Decatur, Warrants, Series E, Limited GO, 5.20%, 8/1/06 784,814
750,000 Decatur, Warrants, Series E, Limited GO, 5.25%, 8/1/08 768,773
750,000 Decatur, Warrants, Series E, Limited GO, 5.30%, 8/1/09 766,140
1,020,000 Florence, Warrants, Series B, GO, 4.45%, 9/1/02 1,029,659
1,065,000 Florence, Warrants, Series B, GO, 4.55%, 9/1/03 1,076,907
2,845,000 Florence Warrants, Series A, GO, 4.65%, 9/1/03 2,884,005
4,700,000 Gadsden East Alabama Medical Clinic, 7.80%, 11/1/21 5,383,568
9,455,000 Hoover, Warrants, Series B, GO, 8.00%, 3/1/20 10,449,950
1,000,000 Houston County, Warrants, Series A, Limited GO, 5.00%, 7/1/02 1,029,260
2,500,000 Huntsville, Warrants, Limited GO, 6.95%, 2/1/02 2,697,075
6,545,000 Huntsville, Warrants, Series A, GO, 4.50%, 2/1/02 6,607,636
2,780,000 Huntsville Water System, Warrants, 5.00%, 5/1/02 2,857,701
3,125,000 Huntsville Water System, Warrants, 5.05%, 5/1/03 3,221,750
1,370,000 Jefferson County, Warrants, GO, 6.75%, 4/1/00 1,446,843
1,000,000 Jefferson County, Warrants, GO, 6.80%, 4/1/01 1,056,770
5,000,000 Jefferson County, Warrants, GO, 5.00%, 4/1/04 5,126,600
4,000,000 Jefferson County, Warrants, GO, 5.30%, 4/1/09 4,085,840
1,000,000 Jefferson County Board of Education Outlay, Warrants, 5.40%, 2/15/10 1,026,310
2,400,000 Jefferson County Sewer Revenue, Warrants, 5.40%, 9/1/04 2,570,160
2,500,000 Mobile, Warrants, GO, 7.13%, 8/15/20 2,743,925
1,685,000 Mobile, Warrants, GO, 6.50%, 2/15/06 1,905,904
3,250,000 Mobile Water & Sewer Commissioners, 5.00%, 1/1/05 3,338,400
1,000,000 Mobile County, Warrants, Series A, Limited GO, 5.00%, 2/1/04 1,027,460
1,350,000 Mobile County, Series A, GO, 5.00%, 2/1/04 1,387,071
5,000,000 Mobile County, Warrants, Series A, Limited GO, 5.10%, 2/1/05 5,164,750
continued
</TABLE>
B-50
<PAGE> 170
AMSOUTH MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- -------------------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
1,000,000 Mobile County, Warrants, GO, 6.35%, 2/1/04 $ 1,066,070
1,850,000 Mobile County, Warrants, GO, 6.55%, 2/1/06 1,980,092
2,670,000 Mobile County Board of School Commissioners, Warrants, 4.80%, 3/1/02 2,727,405
1,040,000 Montgomery, Warrants, Series A, GO, 5.00%, 5/1/05 1,067,466
1,000,000 Montgomery, Warrants, Series A, GO, 5.00%, 5/1/06 1,023,220
1,000,000 Montgomery Waterworks & Sanitary Sewer Board, 7.20%, 9/1/02 1,085,490
1,410,000 Montgomery Waterworks & Sanitary Sewer Board, Series B, 5.60%, 3/1/01 1,468,938
1,000,000 Montgomery Waterworks & Sanitary Sewer Board, Series B, 5.70%, 9/1/02 1,058,660
2,500,000 Montgomery Waterworks & Sanitary Sewer Board, Series B, 6.25%, 9/1/08 2,715,750
3,565,000 Montgomery Waterworks & Sanitary Sewer Board, Series B, 6.30%, 9/1/10 3,846,421
3,000,000 Montgomery Waterworks & Sanitary Sewer Board, 5.50%, 9/1/08 3,174,930
1,500,000 Montgomery County, Warrants, GO, 5.00%, 11/1/04 1,549,155
1,510,000 Shelby County, Warrants, Series A, 5.60%, 2/1/02 1,589,592
1,990,000 Shelby County, Warrants, Series A, 5.60%, 8/1/02 2,106,076
1,830,000 Shelby County, Warrants, Series A, 5.70%, 2/1/03 1,946,479
335,000 Talladega County, Industrial Development Board, 9.75%, 12/1/13 340,453
600,000 Tuscaloosa County, Warrants, GO, 5.50%, 10/1/03 635,952
740,000 Tuscaloosa County, Warrants, GO, 5.60%, 10/1/04 790,609
1,200,000 University of Alabama, 4.60%, 6/1/09 1,169,040
1,300,000 University of Alabama, 4.70%, 6/1/10 1,271,205
1,500,000 University of Alabama, 4.75%, 6/1/11 1,458,960
2,185,000 University of South Alabama, 4.70%, 11/15/08 2,172,698
------------
187,970,879
------------
FLORIDA (3.11%):
6,500,000 Florida State Board of Education, Series A, 5.00%, 6/1/08 6,693,700
3,625,000 Florida State Board of Education, Series A, 5.00%, 6/1/09 3,714,610
------------
10,408,310
------------
GEORGIA (4.76%):
4,390,000 Cobb County Detention Buildings & Facilities, GO, 5.30%, 1/1/07 4,589,130
3,500,000 Cobb County School District, GO, 5.00%, 2/1/03 3,613,820
5,000,000 Georgia Municipal Electric Authority, Series Z, 4.50%, 1/1/00 5,025,350
2,500,000 Georgia State Tollway Authority, 6.50%, 7/1/04 2,726,450
------------
15,954,750
------------
MARYLAND (1.71%):
3,000,000 Anne Arudel County, GO, 4.70%, 4/1/04 3,049,740
2,500,000 Montgomery County, Series A, GO, 5.50%, 10/1/04 2,670,050
------------
5,719,790
------------
MASSACHUSETTS (0.38%):
1,150,000 Massachusetts State, Series C, GO, 6.75%, 8/1/06 1,271,199
------------
1,271,199
------------
MINNESOTA (0.70%):
2,175,000 Centennial Independent School District No. 12, Series A, GO, 5.60%, 2/1/07 2,337,190
------------
2,337,190
------------
continued
</TABLE>
B-51
<PAGE> 171
AMSOUTH MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- -------------------- ------------------------------------------------------------------------------------------- ------------
<S> <C> <C>
MISSOURI (2.32%):
7,535,000 Missouri State, Series B, GO, 5.00%, 8/1/07 $ 7,783,655
------------
7,783,655
------------
NEW JERSEY (1.54%):
5,000,000 New Jersey State, Series E, GO, 5.00%, 7/15/04 5,175,200
------------
5,175,200
------------
NEW YORK (0.35%):
1,150,000 Hempstead Town, GO, 5.00%, 2/15/09 1,165,617
------------
1,165,617
------------
NORTH CAROLINA (4.30%):
9,875,000 North Carolina State, Series A, GO, 4.70%, 2/1/06 10,056,898
4,250,000 Wake County, GO, 4.90%, 3/1/08 4,349,450
------------
14,406,348
------------
SOUTH CAROLINA (1.30%):
4,325,000 Beaufort County, Series B, GO, 4.90%, 3/1/09 4,352,940
------------
4,352,940
------------
TENNESSEE (3.86%):
3,000,000 Metropolitan Government, Nashville & Davidson County, GO, 5.25%, 5/15/06 3,151,500
1,000,000 Shelby County, Series A, GO, 5.60%, 5/1/04 1,020,350
5,495,000 Tennessee State, Series B, GO, 4.60%, 5/1/07 5,521,871
3,000,000 Tennessee State, Series B, GO, 6.40%, 6/1/02 3,258,180
------------
12,951,901
------------
TEXAS (5.20%):
655,000 Dallas Independent School District, GO, 5.60%, 8/15/05 696,867
1,845,000 Dallas Independent School District, GO, 5.60%, 8/15/05 1,943,449
4,000,000 Mesquite Independent School District, Series A, GO, 4.70%, 8/15/08 3,980,320
5,000,000 Texas State, Series B, GO, 5.25%, 10/1/08 5,127,450
2,000,000 Texas State, Series A, GO, 5.60%, 10/1/02 2,121,320
3,575,000 University of Texas, 4.60%, 7/1/08 3,545,649
------------
17,415,055
------------
UTAH (3.07%):
3,810,000 Jordan School District, GO, 4.80%, 6/15/08 3,836,098
6,000,000 Utah State, Series F, GO, 5.50%, 7/1/07 6,456,000
------------
10,292,098
------------
VIRGINIA (4.69%):
3,200,000 Chesapeake, GO, 5.00%, 5/1/04 3,303,872
5,165,000 Fairfax County, Series A, GO, 4.75%, 6/1/04 5,276,047
2,000,000 Virginia College Building Authority, Series A, 5.00%, 9/1/12 1,987,440
5,000,000 Virginia State, GO, 5.00%, 6/1/08 5,149,500
------------
15,716,859
------------
continued
</TABLE>
B-51
<PAGE> 172
AMSOUTH MUNICIPAL BOND FUND
SCHEDULE OF PORTFOLIO INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- -------------------- ------------------------------------------------------------------------------------------- -----------
<S> <C> <C>
WASHINGTON (2.68%):
1,785,000 Washington State, Series B, GO, 6.40%, 6/1/03 $ 1,912,467
6,500,000 Washington State, GO, 5.75%, 9/1/08 7,062,250
------------
8,974,717
------------
WISCONSIN (1.46%):
4,650,000 Wisconsin State, Series 1, GO, 5.30%, 11/1/03 4,881,105
------------
4,881,105
------------
TOTAL MUNICIPAL BONDS 326,777,613
============
INVESTMENT COMPANIES (2.67%):
337,224 Federated Tax Free Fund 337,224
8,606,199 Goldman Sachs Tax Free Fund 8,606,199
------------
8,943,423
------------
TOTAL INVESTMENT COMPANIES 8,943,423
------------
TOTAL (COST - $324,557,370) (a) $ 335,721,036
============
<FN>
----------------------------------
Percentages indicated are based on net assets of $335,188,122
(a) Represents cost for federal income tax purposes and
differs from value by net unrealized appreciation of
securities as follows:
Unrealized appreciation................................... $ 11,241,269
Unrealized depreciation................................... (77,603)
------------
Net unrealized appreciation............................... $ 11,163,666
============
GO - General Obligations
</TABLE>
See notes to financial statements.
B-53
<PAGE> 173
AMSOUTH CAPITAL GROWTH FUND
SCHEDULE OF PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- --------------- -------------------------------------------------------------------------------- ----------
COMMON STOCKS (94.6%):
AIRLINES (1.5%):
<S> <C> <C> <C>
1,500 Northern Trust Corp. 87,750
----------
APPAREL (2.3%):
2,600 Jones Apparel(b) 132,274
----------
BANKS (9.8%):
2,900 First American Corp.-Tenn 137,750
8,300 Hibernia Corp. 147,843
3,150 MBNA Corp. 82,884
1,400 Nationsbank Corp. 83,825
2,500 Southtrust Corp. 120,000
----------
572,302
----------
CHEMICALS - GENERAL (3.3%):
1,400 Air Products And Chemicals, Inc. 106,400
3,000 Vlsi Technology(b) 88,875
----------
195,275
----------
CONSTRUCTION (1.8%):
1,800 Centex Corp. 105,300
----------
COMPUTERS & PERIPHERALS (1.0%):
3,400 Apple Computer, Inc.(b) 57,906
----------
CONSUMER GOODS (3.2%):
7,000 Premark International, Inc. 189,437
----------
DIVERSIFIED - CONGLOMERATES, HOLDING COMPANIES (1.2%):
900 Philips N.V. 70,538
----------
ELECTRONIC COMPUTING EQUIPMENT (2.7%):
2,500 Compaq Computer Corp. 159,374
----------
ELECTRICAL EQUIPMENT (1.8%):
1,600 General Electric Co. 103,300
----------
ELECTRONIC & ELECTRICAL - GENERAL (1.5%):
800 Texas Instruments, Inc. 85,350
----------
ENGINEERING, ACCOUNTING, MANAGEMENT SERVICES (2.0%):
2,700 HBO & Co.(b) 117,450
----------
FINANCIAL SERVICES (3.1%):
1,100 American Express Co. 85,800
1,200 Comerica, Inc. 94,875
----------
180,675
----------
FOOD PROCESSING & PACKAGING (9.9%):
2,500 Campbell Soup Co. 128,906
4,600 Coca Cola Enterprises, Inc. 129,375
2,000 H.J. Heinz Co. 92,875
4,700 Quaker Oats Co. 225,012
----------
576,168
----------
HEAVY MACHINERY - INDUSTRIAL, FARM, CONSTRUCTION (1.8%):
2,800 Tyco International Ltd. 105,700
----------
HOUSEHOLD GOODS - APPLIANCES, FURNISHINGS, ELECTRIC (2.6%):
3,400 Sunbeam Oster, Inc. 154,063
----------
</TABLE>
continued
B-54
<PAGE> 174
AMSOUTH CAPITAL GROWTH FUND
SCHEDULE OF PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- --------------- -------------------------------------------------------------------------------- ----------
INSURANCE (8.2%):
<S> <C> <C> <C>
1,200 Allstate 99,525
1,100 American International Group, Inc. 112,269
2,500 Conseco, Inc. 109,063
4,000 Torchmark Corp. 159,500
----------
480,357
----------
MACHINERY (1.9%):
3,400 Applied Materials(b) 113,475
----------
MANUFACTURING-CAPITAL GOODS (4.4%):
4,000 Crane Co. 166,250
2,150 Parker-Hannifin Corp. 89,897
----------
256,147
----------
MEDICAL SERVICES - HOSPITAL, HOSPITAL MANAGEMENT, NURSING HOME (0.8%):
2,000 Quorum Health Group, Inc.(b) 48,500
----------
OIL & GAS PRODUCTION (2.1%):
3,000 Sun Company, Inc. 120,188
----------
OIL - INTEGRATED COMPANIES (3.8%):
1,900 Exxon Corp. 116,731
1,800 Texaco, Inc. 102,488
----------
219,219
----------
PHARMACEUTICALS (3.1%):
1,600 Eli Lilly & Co. 107,000
500 Warner-Lambert Co. 71,594
----------
178,594
----------
RADIO & TELEVISION (2.4%):
2,100 Clear Channel Communications, Inc.(b) 138,600
----------
RETAIL (1.9%):
1,800 Dayton Hudson Corp. 113,063
----------
RETAIL - SPECIALTY STORES (2.2%):
4,300 Tjx Companies, Inc. 127,388
----------
SOAPS & CLEANING AGENTS (4.8%):
1,400 Clorox Co. 98,000
1,300 Colgate Palmolive, Inc. 84,175
1,400 Procter & Gamble Co. 95,200
----------
277,375
----------
SOFTWARE & COMPUTER SERVICES (1.6%):
700 Microsoft Corp.(b) 91,000
----------
TELECOMMUNICATIONS (2.8%):
1,100 Lucent Technologies, Inc. 90,681
1,400 Tellabs, Inc.(b) 75,600
----------
166,281
----------
</TABLE>
continued
B-55
<PAGE> 175
AMSOUTH CAPITAL GROWTH FUND
SCHEDULE OF PORTFOLIO OF INVESTMENTS
OCTOBER 31, 1997
<TABLE>
<CAPTION>
SHARES
OR
PRINCIPAL SECURITY
AMOUNT DESCRIPTION VALUE
- --------------- -------------------------------------------------------------------------------- ----------
<S> <C> <C> <C>
TOBACCO & TOBACCO PRODUCTS (1.4%):
2,100 Philip Morris Cos., Inc. 83,213
----------
UTILITIES - NATURAL GAS (1.8%):
1,700 Coastal Corp. 102,213
----------
WIRELESS EQUIPMENT (1.9%):
9,000 Paging Network, Inc.(b) 111,375
----------
TOTAL COMMON STOCKS 5,519,850
----------
TOTAL (COST-$ 5,672,492) (a) 5,519,850
----------
-------------------------------
Percentages indicated are based on net assets of $5,836,362
(a) Represents cost for federal income tax purposes and
differs from value by net unrealized depreciation of
securities as follows:
Unrealized appreciation.............................. $ 123,383
Unrealized depreciation.............................. (276,025)
-----------
Net unrealized depreciation $ (152,642)
=========
(b) Represents non-income producing security.
</TABLE>
See notes to financial statements.
B-56
<PAGE> 176
AMSOUTH MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS
October 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 Municipal
Bond Fund and the AmSouth Capital Growth Fund. The AmSouth Capital
Growth Fund commenced operations as of August 1, 1997. Sales of shares
of the Funds may be made to customers of AmSouth Bank, ("AmSouth") and
its affiliates, to all accounts of correspondent banks of AmSouth and
to the general public.
The Municipal Bond Fund (the "variable fund") which was previously
unclassified, was designated Premier Shares and commenced offering
Classic Shares. The Class B Shares also became effective on September
2, 1997 in the AmSouth Capital Growth Fund. Each class of shares in a
Fund has identical rights and privileges except with respect to fees
paid under shareholder servicing or distribution plans, expenses
allocable exclusively to each class of shares, voting rights on matters
affecting a single class of shares, and the exchange privilege of each
class of shares.
The AmSouth Municipal Bond Fund seeks a high level of current
income exempt from federal income taxes. The AmSouth Capital Growth
Fund seeks long-term capital appreciation and growth of income.
2. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed
by the Funds in the preparation of their 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.
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
-CONTINUED-
B-57
<PAGE> 177
AMSOUTH MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
October 31, 1997 (Unaudited)
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 Funds 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
Funds 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 Funds' 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.
DIVIDENDS TO SHAREHOLDERS:
Dividends from net investment income are declared and paid monthly
for the AmSouth Municipal Bond Fund and the AmSouth Capital Growth
Fund. Distributable net realized gains, if any, are declared and
distributed annually.
The amounts of dividends from net investment income and of
distributions from net realized gains are determined in accordance
with federal income tax regulations which may differ from generally
accepted accounting principles. These "book/tax" differences are
either considered temporary or permanent in nature. To the extent
these differences are permanent in nature, such amounts are
reclassified within the composition of net assets based on their
federal tax-basis treatment; temporary differences do not require
reclassification. Dividends and distributions to shareholders which
exceed net investment income and realized capital gains for financial
reporting purposes but not for tax purposes are reported as dividends
in excess of net investment income or distributions in excess of net
realized gains. To the extent they exceed net investment income and
net realized gains for tax purposes, they are reported as
distributions of capital.
FEDERAL INCOME TAXES:
It is the policy of each Fund to qualify or 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.
OTHER:
Expenses that are directly related to one of the Funds are charged
directly to that Fund. Other operating expenses for the Trust are
prorated to the Funds on the basis of relative net assets. Fees paid
under a Fund's shareholder servicing or distribution plans are borne
by the specific class of shares to which they apply.
-CONTINUED-
B-58
<PAGE> 178
AMSOUTH MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
October 31, 1997 (Unaudited)
UNAMORTIZED ORGANIZATIONAL COSTS:
Costs incurred by the Municipal Bond Fund and the Capital Growth Fund
in connection with their 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 Funds.
3. PURCHASES AND SALES OF SECURITIES:
Purchases and sales of securities (excluding short-term securities) for
the period ended October 31, 1997 were as follows:
<TABLE>
<CAPTION>
PURCHASE SALES
-------- -----
<S> <C> <C>
Municipal Bond Fund (a) $31,795,362 $26,188,140
Capital Growth Fund (b) 6,420,330 707,405
</TABLE>
(a) For the period from 8/1/97 to 10/31/97
(b) For the period from 8/4/97 (commencement of operations) to 10/31/97
4. CAPITAL SHARE TRANSACTIONS:
Transactions in capital shares for the Funds which offer multiple
classes of shares for the period ended October 31, 1997 were as
follows:
<TABLE>
<CAPTION>
MUNICIPAL BOND FUND CAPITAL GROWTH FUND
Period Ended Period Ended
October 31, October 31,
1997 * 1997 **
------ -------
<S> <C> <C>
Capital Transactions:
Classic Shares:
Proceeds from shares issued 1,326,459 3,123,338
Dividends reinvested 6,359 --
Shares redeemed (508,300) (44,421)
----------- -----------
Change in net assets from investor
share transactions 824,518 3,078,917
----------- -----------
Premier Shares:
Proceeds from shares issued 15,498,590 1,970,893
Dividends reinvested 5,137 --
Shares redeemed (17,572,990) --
----------- -----------
Change in net assets from investor
share transactions (2,069,263) 1,970,893
----------- -----------
</TABLE>
-CONTINUED-
B-59
<PAGE> 179
AMSOUTH MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
October 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Class B Shares:
Proceeds from shares issued -- 962,012
Dividends reinvested -- --
Shares redeemed -- (110,479)
----------- -----------
Change in net assets from investor
share transactions -- 851,533
----------- -----------
Share Transactions:
Classic Shares:
Issued 131,384 313,917
Reinvested 632 --
Redeemed (50,173) (4,514)
----------- -----------
Change in Classic Shares 81,843 309,403
----------- -----------
Premier Shares:
Issued 1,535,623 212,777
Reinvested 507 --
Redeemed (1,738,998) --
----------- -----------
Change in Premier Shares (202,868) 212,777
----------- -----------
Class B Shares:
Issued -- 95,821
Reinvested -- --
Redeemed -- (10,913)
----------- -----------
Change in Class B Shares -- 84,908
----------- -----------
<FN>
* For the period from August 1, 1997 through October 31, 1997
** For the period from August 4, 1997 (commencement of operations) through October 31, 1997.
</TABLE>
5. RELATED PARTY TRANSACTIONS:
Investment advisory services are provided to each of the Funds by
AmSouth. Under the terms of the investment advisory agreement, AmSouth
is entitled to receive fees based on a percentage of the average net
assets of each of the Funds.
BISYSFund 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.
ASO Services Company, a wholly-owned subsidiary of The BISYS Group,
Inc., serves the Funds as administrator.
-CONTINUED-
B-60
<PAGE> 180
AMSOUTH MUTUAL FUNDS
NOTES TO FINANCIAL STATEMENTS, CONTINUED
October 31, 1997 (Unaudited)
ASO Services Company's fees are computed daily as 0.20% of the average
net assets of each of the Funds. AmSouth and BISYS, with whom certain
officers and trustees of the Trust are affiliated, serve as the Funds
sub-administrator. Such officers and trustees are paid no fees directly
by the Funds for serving as officers and trustees of 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 net assets. Pursuant to its agreement with the Administrator,
BISYS, as sub-administrator, is entitled to compensation as mutually
agreed from time to time by it and the Administrator. BISYS also serves
as the Funds' distributor and is entitled to receive commissions on
sales of shares of the variable net asset value funds. For the period
ended October 31, 1997, BISYS received $66 from commissions earned on
sales of shares of the Funds' variable net asset value funds of which
the entire amount was reallowed to AmSouth Investment Services, an
investment dealer of the Funds' shares and other dealers of the Funds'
shares. BISYS receives no fees from the Funds for providing
distribution services to the Funds. 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.
Fees may be voluntarily reduced to assist the Funds in maintaining
competitive expense ratios. Information regarding these transactions is
as follows for the three months ended October 31, 1997 (Annual fee as a
% of Daily Net Assets):
<TABLE>
<CAPTION>
Shareholder Fund T/A and
Advisory Admin Service Accounting Custody
Fees Fees Fees Fees Fees
-------- ----- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Municipal Bond Fund: 65 20 3 $ 24,143
(Classic shares): 10
Voluntary fee reductions: $214,373 $ 68,583 -- -- --
Capital Growth Fund: 80 20 3 $ 348
(Classic shares): 25
(B-shares): 100
</TABLE>
6. ACQUISITION OF AMSOUTH BANK FUNDS
On July 1, 1997, the Municipal Bond Fund issued shares to acquire the
assets and liabilities of AmSouth Bank Tax Exempt Bond Fund. The
following is a summary of the shares issued, net assets acquired, net
asset value per share and unrealized appreciation as of the date
acquired:
<TABLE>
<CAPTION>
<S> <C>
Shares...................................................................................... 33,487,807
Net assets .................................................................................$ 334,878,065
Net asset value.............................................................................$ 10.00
Unrealized appreciation.....................................................................$ 8,309,234
</TABLE>
B-61
<PAGE> 181
AMSOUTH MUTUAL FUNDS
MUNICIPAL BOND FUND
<TABLE>
<CAPTION>
Financial Highlights
(Unaudited)
For the period ended October 31, 1997
Classic (a) Premier (a)
----------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.15 $ 10.15
----------- -----------
INVESTMENT ACTIVITIES:
Net investment income 0.10 0.11
Net realized and unrealized gains from investments (0.03) (0.04)
----------- -----------
Total from Investment Activities 0.07 0.07
DIVIDENDS AND DISTRIBUTIONS:
From net investment income (0.11) (0.11)
----------- -----------
NET ASSET VALUE, END OF PERIOD $ 10.11 $ 10.11
=========== ===========
Total Return (excludes sales and redemption charges) 2.56(b) 2.57%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $ 1,375 $ 333,813
Ratio of expenses to average
net assets 0.69%(c) 0.61%(c)
Ratio of net investment income to
average net assets 4.23%(c) 4.30%(c)
Ratio of expenses to average
net assets* 1.02%(c) 0.94%(c)
Ratio of net investment income to
average net assets* 3.90%(c) 3.97%(c)
Portfolio turnover 8.14% 8.14%
-------------------
<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) On September 1, 1997 the shareholders of the Fund exchanged their shares for either the
Fund's Classic shares or Premier shares. For the period ended October 31, 1997 the
Financial Highlights ratios of expenses, ratios of net investment income, total return
and the per share investment activities and distributions are presented on a basis
whereby the Fund's net investment income, expenses, and distributions for the period July
1, 1997 through August 31, 1997 were allocated to each class of shares based upon the
relative net assets of each class of shares as of September 1, 1997 and the results
combined therewith the results of operations and distributions for each applicable class
for the period September 1, 1997 through October 31, 1997.
(b) Not annualized.
(c) Annualized.
</TABLE>
See notes to financial statements.
B-62
<PAGE> 182
AMSOUTH MUTUAL FUNDS
CAPITAL GROWTH FUND
<TABLE>
<CAPTION>
Financial Highlights
(Unaudited)
For the period ended October 31, 1997
Classic (a) Premier (a) Class B (e)
----------- ----------- -----------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 10.00 $ 9.80
----------- ----------- -----------
INVESTMENT ACTIVITIES:
Net investment income (loss) (0.01) (0.01) (0.01)
Net realized and unrealized gains (losses) (0.37) (0.37) (0.19)
from investments -- -- --
Total from Investment Activities (0.38) (0.38) (0.20)
DIVIDENDS AND DISTRIBUTIONS:
----------- ----------- -----------
NET ASSET VALUE, END OF PERIOD $ 9.62 $ 9.62 $ 9.60
=========== =========== ===========
Total Return (excludes sales and redemption charges) -3.80%(b) -3.80%(b) -4.00%(b)
RATIOS/SUPPLEMENTARY DATA:
Net assets at end of period (000) $ 2,975 $ 2,046 $ 815
Ratio of expenses to average
net assets 1.86%(c) 1.70%(c) 2.68%(c)
Ratio of net investment income to
average net assets -0.82%(c) -0.62%(c) -1.84%(c)
Ratio of expenses to average
net assets* 2.55%(c) 2.38%(c) 3.37%(c)
Ratio of net investment income to
average net assets* -1.51%(c) -1.30%(c) -2.53%(c)
Portfolio turnover 21.82% 21.82% 21.82%
Average commissions rate paid (d) $ 0.0416 $ 0.0416 $ 0.0416
- -------------------
<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) On September 1, 1997 the shareholders of the Fund exchanged their shares for either the
Fund's Classic shares or Premier shares. For the period ended October 31, 1997 the
Financial Highlights ratios of expenses, ratios of net investment income, total return
and the per share investment activities and distributions are presented on a basis
whereby the Fund's net investment income, expenses, and distributions for the period
August 4, 1997 through August 31, 1997 were allocated to each class of shares based upon
the relative net assets of each class of shares as of September 1, 1997 and the results
combined therewith the results of operations and distributions for each applicable class
for the period September 1, 1997 through October 31, 1997.
(b) Not annualized.
(c) Annualized.
(d) Represents the dollar amount of commissions paid on portfolio transactions divided by the
total number of portfolio shares purchased and sold for which commissions were charged.
(e) Period from September 3, 1997 (commencement of offering of Class B shares) to October 31,
1997.
</TABLE>
See notes to financial statements.
B-63
<PAGE> 183
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 having an original maturity of no more than 365 days. 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 with a plus sign (+) designation. 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 adequate 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 unless Standard & Poor's believes such payments will be made during such
grace period.
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 a very strong 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-64
<PAGE> 184
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.
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.
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.
CC -- The rating "CC" is currently highly vulnerable to nonpayment.
C -- The "C" rating may be used to cover a situation where a
bankruptcy petition has been filed, but debt service payments are continued.
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 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.
B-65
<PAGE> 185
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.
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.
B-66
<PAGE> 186
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.
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.
B-67
<PAGE> 187
"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-68
