<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 eight
of eighteen series of units of beneficial interest ("Shares") each representing
interests in one of eighteen 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. As of the date of this
Prospectus, Premier Shares of the Select Equity Fund and the Enhanced Market
Fund are not being offered. The Shares of the Capital Appreciation Funds
outstanding on August 31, 1997, were redesignated as Classic Shares.
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 80% of its total assets in
common stocks and securities convertible into common stocks such as convertible
bonds and convertible preferred stock of companies with market capitalizations
that are equivalent to the capitalization of the companies in the Russell 2000
Growth Index at the time of purchase. As of the date of this Prospectus, such
smaller companies will have a market capitalization between $50 million and $2
billion at the time of purchase.
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, preferred stock, and convertible securities will vary according to
the Fund's assessment of market and economic conditions and outlook.
AMSOUTH SELECT EQUITY FUND (the "Select Equity Fund") seeks long-term growth
of capital by investing primarily in common stocks and securities convertible
into common stocks such as convertible bonds and convertible preferred stocks.
The Fund is non-diversified concentrating on companies which possess a dominant
<PAGE> 2
market share and typically have a history of stable earnings growth. 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 with market capitalizations
that are greater than $2 billion at the time of purchase.
AMSOUTH ENHANCED MARKET FUND (the "Enhanced Market Fund") seeks long-term
growth of capital by investing primarily in a diversified portfolio of common
stock and securities convertible into common stocks such as convertible bonds
and convertible preferred stocks. Under normal market conditions the Fund will
invest at least 80% of its total assets in equity securities listed in the
Standard & Poor's 500 Index ("S&P 500"). The Fund invests primarily in S&P 500
securities that are determined, through the use of a quantitative investment
approach emphasizing technical factors, to be undervalued compared to others in
the market sector.
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. Sawgrass Asset
Management, LLC ("Sawgrass" or "Sub-Advisor") acts as the investment sub-advisor
to the Small Cap Fund. OakBrook Investments, LLC ("OakBrook" or "Sub-Advisor")
acts as the investment sub-advisor to the Enhanced Market Fund and the Select
Equity 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");
the AmSouth Institutional Prime Obligations Fund and the AmSouth Institutional
U.S. Treasury Fund (the "Institutional Money Market 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, dated December 1, 1997, as
revised September 1, 1998, is incorporated by reference in its entirety into
this Prospectus.
This Prospectus sets forth concisely the information about the Classic
Shares and Class B Shares of the Capital Appreciation Funds that a prospective
investor ought to know before investing. Investors should read this Prospectus
and retain it for future reference.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED
BY AMSOUTH OR ANY OF ITS AFFILIATES. THE TRUST'S SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR BY ANY OTHER AGENCY. AN INVESTMENT IN THE TRUST'S SHARES INVOLVES INVESTMENT
RISKS, INCLUDING LOSS OF PRINCIPAL.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Prospectus is September 1, 1998.
<PAGE> 3
FEE TABLE
<TABLE>
<CAPTION>
EQUITY REGIONAL EQUITY BALANCED CAPITAL GROWTH
FUND FUND FUND FUND
----------------- ----------------- ----------------- -----------------
CLASS B CLASS B CLASS B CLASS B
CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES
------- ------- ------- ------- ------- ------- ------- -------
<S> <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%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price).... 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%
Redemption Fees (as a percentage of
amount redeemed, if
applicable)(2)................... 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee....................... $ 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%
12b-1 Fees....................... 0.00% 1.00% 0.00% 1.00% 0.00% 1.00% 0.00% 1.00%
Shareholder Servicing Fees (after
voluntary fee reduction)(4).... 0.25% 0.00% 0.25% 0.00% 0.25% 0.00% 0.25% 0.00%
Other Expenses (after voluntary
fee reduction)(5).............. 0.22% 0.22% 0.25% 0.25% 0.24% 0.24% 0.27% 0.27%
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary fee
reduction)(6).................. 1.27% 2.02% 1.30% 2.05% 1.29% 2.04% 1.32% 2.07%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
3
<PAGE> 4
FEE TABLE -- CONTINUED
<TABLE>
<CAPTION>
SMALL CAP EQUITY INCOME ENHANCED MARKET SELECT EQUITY
FUND FUND FUND FUND
----------------- ----------------- ----------------- -----------------
CLASS B CLASS B CLASS B CLASS B
CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES CLASSIC SHARES
------- ------- ------- ------- ------- ------- ------- -------
<S> <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%
Maximum Sales Load Imposed on
Reinvested Dividends (as a
percentage of offering price).... 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%
Redemption Fees (as a percentage of
amount redeemed, if
applicable)(2)................... 0% 0% 0% 0% 0% 0% 0% 0%
Exchange Fee....................... $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
ANNUAL FUND OPERATING EXPENSES
(as a percentage of net assets)
Management Fees.................. 1.20% 1.20% 0.80% 0.80% 0.45% 0.45% 0.80% 0.80%
12b-1 Fees....................... 0.00% 1.00% 0.00% 1.00% 0.00% 1.00% 0.00% 1.00%
Shareholder Servicing Fees (after
voluntary fee reduction)(4).... 0.25% 0.00% 0.25% 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (after voluntary
fee reduction)(5).............. 0.27% 0.27% 0.27% 0.27% 0.50% 0.50% 0.50% 0.50%
---- ---- ---- ---- ---- ---- ---- ----
Total Fund Operating Expenses
(after voluntary fee
reduction)(6).................. 1.72% 2.47% 1.32% 2.07% 0.95% 1.95% 1.30% 2.30%
==== ==== ==== ==== ==== ==== ==== ====
</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 shareholder servicing fees for the Classic
Shares of the Select Equity Fund and Enhanced Market Fund, shareholder
servicing fees would be 0.25%. This voluntary fee reduction could be removed
at any time.
(5) 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 are
being waived for the Enhanced Market Fund and the Select Equity Fund until
the respective Fund has $10,000,000 in assets. Other Expenses for the
Capital Growth Fund, the Small Cap Fund, the Enhanced Market Fund and the
Select Equity Fund are based on estimates for the current fiscal year.
(6) 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 shareholder servicing fees, Total Fund Operating Expenses for the Classic
Shares would be 1.20% for the Enhanced Market Fund and 1.55% for the Select
Equity 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.
4
<PAGE> 5
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........................................... $62 $97 N/A N/A
Equity Income Fund....................................... $58 $85 N/A N/A
Enhanced Market Fund..................................... $54 $74 N/A N/A
Select Equity Fund....................................... $58 $84 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........ $75 $107 N/A N/A
Assuming no redemption................................. $25 $ 77 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
Select Equity Fund
Assuming a complete redemption at end of period........ $73 $102 N/A N/A
Assuming no redemption................................. $23 $ 72 N/A N/A
Enhanced Market Fund
Assuming a complete redemption at end of period........ $70 $ 91 N/A N/A
Assuming no redemption................................. $20 $ 61 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
CONSID-
5
<PAGE> 6
ERED 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.")
6
<PAGE> 7
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, the Small Cap Fund, the Select Equity Fund and the Enhanced Market
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, the Small Cap Fund, the Enhanced Market Fund and the
Select Equity Fund had not commenced operations as of July 31, 1997. Unaudited
financial information is also included for the Capital Appreciation Funds
(except the Small Cap Fund, Enhanced Market Fund and the Select Equity Fund) for
the six month period ended January 31, 1998. Further financial data is
incorporated by reference into the Statement of Additional Information.
<TABLE>
<CAPTION>
EQUITY FUND
-------------------------------------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 1998
------------------------
(UNAUDITED) YEAR ENDED JULY 31,
------------------------ ----------------------------------------------------
CLASSIC(A) B SHARES(A) 1997 1996 1995 1994 1993
---------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 23.35 $ 23.16 $ 17.62 $ 16.75 $ 14.82 $ 14.38 $ 13.40
------- ------- -------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income... 0.06 0.04 0.30 0.33 0.33 0.28 0.28
Net realized and
unrealized gains
(losses) from
investments........... 0.55 0.71 6.77 1.48 2.39 0.83 1.48
------- ------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 0.61 0.75 7.07 1.81 2.72 1.11 1.76
------- ------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income... (0.10) (0.06) (0.30) (0.33) (0.32) (0.28) (0.29)
Net realized gains from
investment
transactions.......... (1.25) (1.25) (1.04) (0.61) (0.47) (0.39) (0.49)
------- ------- -------- -------- -------- -------- --------
Total Distributions..... (1.35) (1.31) (1.34) (0.94) (0.79) (0.67) (0.78)
------- ------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD.................. $ 22.61 $ 22.60 $ 23.35 $ 17.62 $ 16.75 $ 14.82 $ 14.38
======= ======= ======== ======== ======== ======== ========
Total Return (excludes
sales charge)........... 2.65%(c) 2.42%(c) 42.35% 11.09% 19.27% 7.90% 13.81%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000).......... $61,808 $ 2,602 $974,985 $374,622 $275,757 $205,611 $153,074
Ratio of expenses to
average net assets.... 1.16%(b) 2.07%(b) 1.06% 1.02% 1.03% 0.94% 0.95%
Ratio of net investment
income to average net
assets................ 0.82%(b) 0.07%(b) 1.52% 1.86% 2.17% 1.93% 2.08%
Ratio of expenses to
average net assets*... 1.16%(b) 2.07%(b) 1.10% 1.11% 1.11% 1.11% 1.13%
Ratio of net investment
income to average net
assets*............... 0.82%(b) 0.07%(b) 1.48% 1.77% 2.09% 1.76% 1.90%
PORTFOLIO TURNOVER (D)... 6.25% 6.25% 24.47% 19.11% 19.46% 11.37% 15.12%
Average commission rate
paid (e).............. $0.0700 $0.0700 $ 0.0657 $ 0.0700 -- -- --
<CAPTION>
EQUITY FUND
------------------------------------------
DECEMBER 1,
YEAR ENDED JULY 31, 1988 TO
---------------------------- JULY 31,
1992 1991 1990 1989(F)
-------- ------- ------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 12.57 $ 11.99 $ 12.18 $10.00
-------- ------- ------- ------
INVESTMENT ACTIVITIES
Net investment income... 0.32 0.36 0.37 0.22
Net realized and
unrealized gains
(losses) from
investments........... 1.20 0.61 (0.17) 2.16
-------- ------- ------- ------
Total from Investment
Activities............ 1.52 0.97 0.20 2.38
-------- ------- ------- ------
DISTRIBUTIONS
Net investment income... (0.33) (0.37) (0.35) (0.20)
Net realized gains from
investment
transactions.......... (0.36) (0.02) (0.04) --
-------- ------- ------- ------
Total Distributions..... (0.69) (0.39) (0.39) (0.20)
-------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD.................. $ 13.40 $ 12.57 $ 11.99 $12.18
======== ======= ======= ======
Total Return (excludes
sales charge)........... 12.94% 8.46% 1.66% 24.06%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000).......... $107,934 $32,406 $14,383 $5,476
Ratio of expenses to
average net assets.... 1.01% 1.15% 1.11% 1.16%(b)
Ratio of net investment
income to average net
assets................ 2.50% 3.16% 3.16% 2.91%(b)
Ratio of expenses to
average net assets*... 1.15% 1.26% 1.41% 2.34%(b)
Ratio of net investment
income to average net
assets*............... 2.36% 3.04% 2.86% 1.73%(b)
PORTFOLIO TURNOVER (D)... 113.12% 15.78% 14.89% 4.03%
Average commission rate
paid (e).............. -- -- -- --
</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) Effective September 2, 1997, the Fund's existing shares, which were
previously unclassified, exchanged their shares for either the Fund's
Classic Shares or Premier Shares. For reporting purposes, past performance
numbers (prior to September 2, 1997) are being reflected as Classic Shares.
The Class B Shares also became effective on September 2, 1997.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) 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 and is calculated on the basis of the portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure is not required for periods ending prior to September 1, 1996.
(f) Period from commencement of operations.
7
<PAGE> 8
<TABLE>
<CAPTION>
REGIONAL EQUITY FUND
-------------------------------------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 1998
------------------------
(UNAUDITED) YEAR ENDED JULY 31,
------------------------ ----------------------------------------------------
CLASSIC(A) B SHARES(A) 1997 1996 1995 1994 1993
---------- ----------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 28.23 $ 28.50 $ 20.95 $ 18.94 $ 16.68 $ 16.74 $ 14.86
------- ------- -------- -------- -------- -------- --------
INVESTMENT ACTIVITIES
Net investment income
(loss)................ 0.04 (0.01) 0.24 0.26 0.23 0.23 0.19
Net realized and
unrealized gains
(losses) from
investments........... 0.27 (0.03) 7.77 2.20 2.26 0.58 2.09
------- ------- -------- -------- -------- -------- --------
Total from Investment
Activities............ 0.31 (0.04) 8.01 2.46 2.49 0.81 2.28
------- ------- -------- -------- -------- -------- --------
DISTRIBUTIONS
Net investment income... (0.05) (0.02) (0.24) (0.26) (0.23) (0.23) (0.20)
Net realized gains from
investment
transactions.......... (0.93) (0.93) (0.49) (0.19) -- (0.41) (0.20)
In excess of net
realized gains........ -- -- -- -- -- (0.23) --
------- ------- -------- -------- -------- -------- --------
Total Distributions..... (0.98) (0.95) (0.73) (0.45) (0.23) (0.87) (0.40)
------- ------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD.................. $ 27.56 $ 27.51 $ 28.23 $ 20.95 $ 18.94 $ 16.68 $ 16.74
======= ======= ======== ======== ======== ======== ========
Total Return (excludes
sales charge)........... 0.96%(c) 0.68%(c) 39.02% 13.10% 15.10% 4.87% 15.53%
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000).......... $47,966 $ 1,047 $149,838 $ 93,584 $ 68,501 $ 54,744 $ 41,347
Ratio of expenses to
average net assets.... 1.25%(b) 2.08%(b) 1.06% 1.05% 1.07% 0.79% 0.80%
Ratio of net investment
income to average net
assets................ 0.22%(b) (0.43)%(b) 0.99% 1.30% 1.35% 1.36% 1.17%
Ratio of expenses to
average net assets*... 1.25%(b) 2.08%(b) 1.10% 1.13% 1.15% 1.24% 1.28%
Ratio of net investment
income to average net
assets*............... 0.22%(b) (0.43)%(b) 0.95% 1.22% 1.27% 0.90% 0.69%
PORTFOLIO TURNOVER (D)... 3.48% 3.48% 10.30% 8.22% 14.25% 5.83% 10.22%
Average commission rate
paid (e).............. $ 0.0621 $0.0621 $ 0.0760 $ 0.0827 -- -- --
<CAPTION>
REGIONAL EQUITY FUND
------------------------------------------
DECEMBER 1,
YEAR ENDED JULY 31, 1988 TO
---------------------------- JULY 31,
1992 1991 1990 1989(F)
-------- ------- ------- -----------
<S> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD..... $ 13.44 $ 12.45 $ 11.64 $10.00
-------- ------- ------- ------
INVESTMENT ACTIVITIES
Net investment income
(loss)................ 0.23 0.26 0.23 0.14
Net realized and
unrealized gains
(losses) from
investments........... 2.34 1.20 0.84 1.64
-------- ------- ------- ------
Total from Investment
Activities............ 2.57 1.46 1.07 1.78
-------- ------- ------- ------
DISTRIBUTIONS
Net investment income... (0.23) (0.26) (0.22) (0.14)
Net realized gains from
investment
transactions.......... (0.92) (0.21) (0.04) --
In excess of net
realized gains........ -- -- -- --
-------- ------- ------- ------
Total Distributions..... (1.15) (0.47) (0.26) (0.14)
-------- ------- ------- ------
NET ASSET VALUE, END OF
PERIOD.................. $ 14.86 $ 13.44 $ 12.45 $11.64
======== ======= ======= ======
Total Return (excludes
sales charge)........... 20.66% 12.52% 9.41% 17.79%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000).......... $ 15,707 $ 7,853 $ 3,161 $2,523
Ratio of expenses to
average net assets.... 0.91% 0.79% 1.22% 1.41%(b)
Ratio of net investment
income to average net
assets................ 1.61% 2.21% 1.92% 1.98%(b)
Ratio of expenses to
average net assets*... 1.36% 1.58% 2.32% 2.65%(b)
Ratio of net investment
income to average net
assets*............... 1.16% 1.42% 0.82% 0.74%(b)
PORTFOLIO TURNOVER (D)... 24.99% 14.41% 14.00% 1.13%
Average commission rate
paid (e).............. -- -- -- --
</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) Effective September 2, 1997, the Fund's existing shares, which were
previously unclassified, exchanged their shares for either the Fund's
Classic Shares or Premier Shares. For reporting purposes, past performance
numbers (prior to September 2, 1997) are being reflected as Classic Shares.
The Class B Shares also became effective on September 2, 1997.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) 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 and is calculated on the basis of the portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure is not required for periods ending prior to September 1, 1996.
(f) Period from commencement of operations.
8
<PAGE> 9
<TABLE>
<CAPTION>
BALANCED FUND
-----------------------------------------------------------------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 1998
------------------------- DECEMBER 19,
(UNAUDITED) YEAR ENDED JULY 31, 1991 TO
------------------------- -------------------------------------------------------- JULY 31,
CLASSIC(A) B SHARES(A) 1997 1996 1995 1994 1993 1992(F)
---------- ----------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING
OF PERIOD................ $ 15.21 $ 15.03 $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12 $ 10.00
-------- -------- -------- -------- -------- -------- -------- ---------
INVESTMENT ACTIVITIES
Net investment income.... 0.18 0.16 0.48 0.47 0.47 0.42 0.44 0.27
Net realized and
unrealized gains from
investments............ 0.36 0.51 2.78 0.58 1.24 0.18 0.80 1.09
-------- -------- -------- -------- -------- -------- -------- ---------
Total from Investment
Activities............. 0.54 0.67 3.26 1.05 1.71 0.60 1.24 1.36
-------- -------- -------- -------- -------- -------- -------- ---------
DISTRIBUTIONS
Net investment income.... (0.21) (0.18) (0.50) (0.47) (0.46) (0.42) (0.45) (0.24)
Net realized gains from
investment
transactions........... (0.97) (0.97) (0.58) (0.31) (0.30) (0.23) (0.05) --
-------- -------- -------- -------- -------- -------- -------- ---------
Total Distributions...... (1.18) (1.15) (1.08) (0.78) (0.76) (0.65) (0.50) (0.24)
-------- -------- -------- -------- -------- -------- -------- ---------
NET ASSET VALUE, END OF
PERIOD................... $ 14.57 $ 14.55 $ 15.21 $ 13.03 $ 12.76 $ 11.81 $ 11.86 $ 11.12
======== ======== ======== ======== ======== ======== ======== =========
Total Return (excludes
sales charge)............ 3.72%(c) 3.37%(c) 26.42% 8.37% 15.27% 5.13% 11.47% 13.71%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of
period (000)........... $ 49,167 $ 1,614 $372,769 $338,425 $295,509 $236,306 $179,134 $ 143,813
Ratio of expenses to
average net assets..... 1.20%(b) 2.08%(b) 1.05% 0.98% 0.94% 0.84% 0.84% 0.83%(b)
Ratio of net investment
income to average net
assets................. 2.87%(b) 1.98%(b) 3.49% 3.61% 3.91% 3.56% 3.90% 4.45%(b)
Ratio of expenses to
average net assets*.... 1.20%(b) 2.08%(b) 1.10% 1.11% 1.12% 1.11% 1.12% 1.17%(b)
Ratio of net investment
income to average net
assets*................ 2.87%(b) 1.98%(b) 3.44% 3.48% 3.73% 3.28% 3.62% 4.10%(b)
PORTFOLIO TURNOVER (D).... 9.90% 9.90% 25.00% 20.47% 16.97% 14.43% 11.09% 23.18%
Average commission rate
paid (e)............... $ 0.0750 $ 0.0750 $ 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) Effective September 2, 1997, the Fund's existing shares, which were
previously unclassified, exchanged their shares for either the Fund's
Classic Shares or Premier Shares. For reporting purposes, past performance
numbers (prior to September 2, 1997) are being reflected as Classic Shares.
The Class B Shares also became effective on September 2, 1997.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) 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 and is calculated on the basis of the portfolio as
a whole without distinguishing between the classes of shares issued.
Disclosure is not required for periods ending prior to September 1, 1996.
(f) Period from commencement of operations.
9
<PAGE> 10
<TABLE>
<CAPTION>
EQUITY INCOME FUND
---------------------------------------------
SIX MONTHS ENDED
JANUARY 31, 1998
(UNAUDITED) MARCH 20, 1997
------------------------- TO
CLASSIC(A) B SHARES(A) JULY 31, 1997(F)
---------- ----------- ----------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD.............. $ 11.72 $ 11.61 $ 10.00
INVESTMENT ACTIVITIES
Net investment income (loss).................... 0.13 0.09 0.07
Net realized and unrealized gains from
investments.................................. 0.20 0.30 1.71
------- ------- -------
Total from Investment Activities................ 0.33 0.39 1.78
======= ======= =======
DISTRIBUTIONS
Net investment income........................... (0.13) (0.10) (0.06)
Net realized gains from investment
transactions................................. (0.41) (0.41) --
======= ======= =======
Total Distributions............................. (0.54) (0.51) (0.06)
------- ------- -------
NET ASSET VALUE, END OF PERIOD.................... $ 11.51 $ 11.49 $ 11.72
======= ======= =======
Total Return (excludes sales charge).............. 2.89%(c) 2.50%(c) 17.81%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)............... $23,593 $ 2,973 $22,273
Ratio of expenses to average net assets......... 1.42%(b) 2.18%(b) 1.30%(b)
Ratio of net investment income to average net
assets....................................... 2.21%(b) 1.65%(b) 2.13%(b)
Ratio of expenses to average net assets*........ 1.42%(b) 2.18%(b) 1.51%(b)
Ratio of net investment income to average net
assets*...................................... 2.21%(b) 1.65%(b) 1.92%(b)
PORTFOLIO TURNOVER(D)............................. 51.52% 51.52% 27.38%
Average commission rate paid(e)................. $0.0599 $0.0599 $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) Effective September 2, 1997, the Fund's existing shares, which were
previously unclassified, exchanged their shares for either the Fund's
Classic Shares or Premier Shares. For reporting purposes, past performance
numbers (prior to September 2, 1997) are being reflected as Classic Shares.
The Class B Shares also became effective on September 2, 1997.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) 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 and is calculated on the basis of the portfolio as
a whole without distinguishing between the classes of shares issued.
(f) Period from commencement of operations.
10
<PAGE> 11
<TABLE>
<CAPTION>
CAPITAL GROWTH FUND
----------------------------
AUGUST 4, 1997 TO
JANUARY 31, 1998(F)
(UNAUDITED)
----------------------------
CLASSIC(A) B SHARES(A)
---------- -----------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................ $ 10.00 $ 9.82
INVESTMENT ACTIVITIES
Net investment income (loss).............................. (0.02) (0.03)
Net realized and unrealized gains from investments........ 0.16 0.32
-------- --------
Total from Investment Activities.......................... 0.14 0.29
======== ========
DISTRIBUTIONS
Net investment income..................................... -- --
Net realized gains from investment transactions........... -- --
-------- --------
Total Distributions....................................... -- --
-------- --------
NET ASSET VALUE, END OF PERIOD.............................. $ 10.14 $ 10.11
======== ========
Total Return (excludes sales charge)........................ 6.18%(c) 5.86%(c)
RATIOS/SUPPLEMENTAL DATA:
Net Assets at end of period (000)......................... $ 4,838 $ 1,298
Ratio of expenses to average net assets................... 1.75%(b) 2.19%(b)
Ratio of net investment income to average net assets...... (0.69)%(b) (1.19)%(b)
Ratio of expenses to average net assets*.................. 1.89%(b) 2.33%(b)
Ratio of net investment income to average net assets*..... (0.83)%(b) (1.33)%(b)
PORTFOLIO TURNOVER (D)...................................... 39.84% 39.84%
Average commission rate paid (e).......................... $ 0.0411 $ 0.0411
</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) Effective September 2, 1997, the Fund's existing shares, which were
previously unclassified, exchanged their Shares for either the Fund's
Classic Shares or Premier Shares. For reporting purposes, past performance
numbers (prior to September 2, 1997) are being reflected as Classic Shares.
The Class B Shares also became effective on September 2, 1997.
(b) Annualized.
(c) Not annualized.
(d) Portfolio turnover is calculated on the basis of the Fund as a whole without
distinguishing between the classes of shares issued.
(e) 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 and is calculated on the basis of the portfolio as
a whole without distinguishing between the classes of shares issued.
(f) Period from commencement of operations.
11
<PAGE> 12
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 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 Capital Appreciation 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 The investment objective of the Equity Fund is to 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 production of current income is an incidental
objective of the Equity Fund.
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."
With respect to the Equity Fund, 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 Fund. In
the selection of the investments for the Fund, 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 the Fund, or (b) long delay
in investor recognition of the accuracy of the investment decisions of the Fund,
in which case invested capital of the Fund in an individual security or group of
securities may not appreciate for an extended period.
THE REGIONAL EQUITY FUND The investment objective of the Regional Equity Fund
is to 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 production of current income is an
incidental objective of the Regional Equity Fund.
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,
12
<PAGE> 13
South Carolina, Tennessee and Virginia. 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."
With respect to the Regional Equity Fund, 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
Fund. In the selection of the investments for the Regional Equity Fund, 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
the Fund, or (b) long delay in investor recognition of the accuracy of the
investment decisions of the Fund, in which case invested capital of the Fund in
an individual security or group of securities may not appreciate for an extended
period.
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 impact on the Regional Equity Fund's assets than on
similar funds whose investments are geographically more diverse.
THE BALANCED FUND The investment objective of the Balanced Fund is to seek 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 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
13
<PAGE> 14
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.
With respect to the Balanced Fund, 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 Fund. In
the selection of the investments for the Balanced Fund, 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 the Fund,
or (b) long delay in investor recognition of the accuracy of the investment
decisions of the Fund, in which case invested capital of the Fund in an
individual security or group of securities may not appreciate for an extended
period.
THE CAPITAL GROWTH FUND The investment objective of the Capital Growth Fund is
to seek 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 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."
In managing the Capital Growth Fund, the Sub-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 SMALL CAP FUND The investment objective of the Small Cap Fund is to seek
capital appreciation
14
<PAGE> 15
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 Small Cap Fund will normally invest at
least 80% of its total assets in common stocks and securities convertible into
common stocks such as convertible bonds and convertible preferred stock of
companies with market capitalizations that are equivalent to the capitalization
of the companies in the Russell 2000 Growth Index at the time of purchase. As of
the date of this Prospectus, such smaller companies will have a market
capitalization between $50 million and $2 billion at the time of purchase. Under
normal market conditions, the Small Cap Fund may invest up to 20% of the value
of its total assets in common stocks and securities convertible into common
stocks of companies with a market capitalization of greater than $2 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 20% 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.
In managing the Small Cap Fund, the Sub-Advisor seeks smaller companies with
above-average growth potential. Factors the Sub-Advisor typically considers in
selecting securities include positive changes in earnings estimates for future
growth, higher than market average profitability, a strategic position in a
specialized market and fundamental value.
THE EQUITY INCOME FUND The investment objective of the Equity Income Fund is
to seek 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.
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
15
<PAGE> 16
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.
The Sub-Advisor will seek to invest in equity securities which are believed to
represent investment value. Factors which the Sub-Advisor may consider in
selecting equity securities include industry and company fundamentals,
historical price relationships, and/or underlying asset value.
THE SELECT EQUITY FUND The investment objective of the Select Equity Fund is
to seek long-term growth of capital by investing primarily in common stocks and
securities convertible into common stocks such as convertible bonds and
convertible preferred stocks. The Fund is non-diversified.
Under normal market conditions, the Select Equity 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 market capitalizations that are greater than $2 billion at the
time of purchase. Under normal market conditions, the Select Equity 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 market
capitalizations less than $2 billion, 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 Select 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. Stock futures and option contracts, stock index futures and
index option contracts may be used to hedge cash and maintain exposure to the
U.S. equity market. See "Options" and "Futures."
The Select Equity Fund seeks to obtain its investment objective by investing
primarily in companies that possess a dominant market share and have a barrier,
such as a patent or well-known brand name, that shields its market share and
profits from competitors. These companies typically have long records of stable
earnings growth. The Sub-Advisor continuously monitors a universe of companies
that possess a dominant market share to look for opportunities to purchase such
stocks at reasonable prices.
In managing the investment portfolio for the Select Equity Fund, the
Sub-Advisor may focus on a relatively limited number of stocks (i.e., generally
25 or less). The Sub-Advisor believes that this investment strategy has the
potential for higher total returns than an investment strategy calling for
investment in a larger number of securities. However, the use of this focused
investment strategy may increase the volatility of the Fund's investment
performance. If the securities in which the Fund invests perform poorly, this
Fund could incur greater losses than it would have had it been invested in a
greater number of securities.
ENHANCED MARKET FUND The investment objective of the Enhanced Market Fund is
to seek to produce long-term growth of capital by investing primarily in a
diversified portfolio of common stock and securities convertible into common
stocks such as convertible bonds and convertible preferred stock.
Under normal market conditions, the Enhanced Market Fund will invest at least
80% of its total assets in equity securities drawn from the S&P 500 Index. Under
normal market conditions, the Enhanced Market Fund may invest up to 20% of the
value of its total assets in equity securities not held in the S&P 500,
corporate bonds, notes, and warrants, and obligations with maturities of 12
months or less such as commercial paper (including varia-
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ble 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
Enhanced Market Fund may increase its holdings in short-term obligations to over
20% of its total assets and may also hold uninvested cash pending investment.
Stock futures and option contracts, stock index futures and index option
contracts may be used to hedge cash and maintain exposure to the U.S. equity
market. See "Options" and "Futures."
The Fund seeks to obtain its investment objective by investing primarily in a
broadly diversified portfolio of S&P 500 stocks that are determined, through the
use of a quantitative investment approach emphasizing technical factors, to be
undervalued compared to others in their market sector. The Fund seeks to
maintain risk characteristics similar to that of the S&P 500.
The Sub-Advisor's stock selection process utilizes computer-aided quantitative
analysis. The Sub-Advisor's computer models use many types of data, but
emphasize technical data such as price and volume information. Applying these
models to stocks within the S&P 500, the Sub-Advisor hopes to generate more
capital growth than that of the S&P 500. The Sub-Advisor's emphasis on technical
analyses can result in significant shifts in portfolio holdings at different
times. However, stringent risk controls at the style, industry and individual
stock levels help ensure the Fund maintains risk characteristics similar to
those of the S&P 500.
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
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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 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 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 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 apprecia-
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tion. 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 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, the Enhanced Market Fund and the Select Equity Fund may
purchase put options from time to time as the Advisor or Sub-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 Funds 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 Funds 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
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any accreted 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. The Funds 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). Each Fund intends to enter into
puts only with dealers, banks, and broker-dealers which, in the Advisor's or
Sub-Advisor's opinion, present minimal credit risks.
FUTURES CONTRACTS
To the extent consistent with its investment objective, the Select Equity Fund
and the Enhanced Market Fund may also invest in futures contracts and options on
futures contracts to commit funds awaiting investment, to maintain cash
liquidity or for other hedging purposes. The value of a Fund's contracts may
equal or exceed 100% of the Fund's total assets, although a Fund will not
purchase or sell a futures contract unless immediately afterwards the aggregate
amount of margin deposits on its existing futures positions plus the amount of
premiums paid for related futures options entered into for other than bona fide
hedging purposes is 5% or less of its net assets.
Futures contracts obligate a Fund, at maturity, to take or make delivery of
securities, the cash value of a securities index or a stated quantity of a
foreign currency. A Fund may sell a futures contract in order to offset an
expected decrease in the value of its portfolio positions that might otherwise
result from a market decline or currency exchange fluctuation. A Fund may do so
either to hedge the value of its securities portfolio as a whole, or to protect
against declines occurring prior to sales of securities in the value of the
securities to be sold. In addition, a Fund may utilize futures contracts in
anticipation of changes in the composition of its holdings or in currency
exchange rates.
The Select Equity Fund and the Enhanced Market Fund may purchase and sell call
and put options on futures contracts traded on an exchange or board of trade.
When a Fund purchases an option on a futures contract, it has the right to
assume a position as a purchaser or a seller of a futures contract at a
specified exercise price during the option period. When a Fund sells an option
on a futures contract, it becomes obligated to sell or buy a futures contract if
the option is exercised. In connection with a Fund's position in a futures
contract or related option, a Fund will create a segregated account of liquid
assets or will otherwise cover its position in accordance with applicable SEC
requirements.
The risks related to the use of futures contracts include: (i) the correlation
between movements in the market price of the portfolio investments (held or
intended for purchase) being hedged and in the price of the futures contract may
be imperfect; (ii) possible lack of a liquid secondary market for closing out
futures positions; (iii) the need for additional portfolio management skills and
techniques; (iv) losses due to unanticipated market movements; and (v) a
purchaser's inability to predict correctly the direction of securities prices,
interest rates, currency exchange rates, and other economic factors. Successful
use of futures is subject to the ability correctly to predict movements in the
direction of the market. For example, if a Fund uses futures contracts as a
hedge against the possibility of a decline in the market adversely affecting
securities held by it and securities prices increase instead, the Fund will lose
part or all of the benefit of the increased value of its securities that it has
hedged because the Fund will have approximately equal offsetting losses in its
future positions. The risk of loss in trading futures contracts in some
strategies can be substantial, due both to the low margin deposits required, and
the extremely high degree of leverage involved in futures pricing. As a result,
a relatively small price movement in a futures contract may result in immediate
and substantial loss or gain to the investor. Thus, a purchase or sale of a
futures contract may result in losses or gains in excess of the amount invested
in the contract.
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A Fund's ability to engage in options and futures transactions and to sell
related securities may be limited by tax considerations.
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 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, Equity Income Fund, and Enhanced
Market 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
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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 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, Equity Income
Fund and Enhanced Market Fund is not expected to exceed 200% in the coming year.
Portfolio turnover for the Select Equity Fund is estimated not to exceed 50% 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. This investment restriction does not apply to the Select
Equity Fund.
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
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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 (33 1/3 with respect to the Select Equity
Fund); 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 (33 1/3 with respect to the Select Equity
Fund). 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.
DIVERSIFICATION
The Select Equity Fund is a non-diversified fund under the Investment Company
Act of 1940. This means it may concentrate its investments in the securities of
a limited number of issuers. Under the Internal Revenue Code of 1986, as
amended, at the end of each fiscal quarter the Fund must nevertheless diversify
its portfolio such that, with respect to 50% of its total assets, not more than
25% of its assets is invested in the securities of any one issuer (other than
U.S. Government Securities or securities of other regulated investment
companies), and with respect to the remainder of its total assets, no more than
5% of its assets is invested in the securities of any one issuer (other than
U.S. Government Securities or securities of other regulated investment
companies).
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.
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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.
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.
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<PAGE> 25
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 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
25
<PAGE> 26
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 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>
26
<PAGE> 27
- ---------------
* 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):
(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.
27
<PAGE> 28
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.
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
28
<PAGE> 29
fees under the Distribution Plan are payable to the Distributor to defray the
expenses of advance brokerage commissions and expenses related to providing
distribution-related and Shareholder services to the Fund in connection with the
sale of the Class B Shares, such as the payment of compensation to dealers and
agents selling Class B Shares. A dealer commission of 4.00% of the original
purchase price of the Class B Shares of the Fund will be paid to financial
institutions and intermediaries. However, the Distributor may, in its sole
discretion, pay a higher dealer commission.
CONTINGENT DEFERRED SALES CHARGE
If the Shareholder redeems Class B Shares prior to the sixth anniversary of
purchase, the Shareholder will pay a Contingent Deferred Sales Charge at the
rates set forth below. The Contingent Deferred Sales Charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of the
Shares being redeemed. Accordingly, no sales charge is imposed on increases in
net asset value above the initial purchase price. In addition, no charge is
assessed on Shares derived from reinvestment of dividends or capital gain
distributions.
The amount of the Contingent Deferred Sales Charge, if any, varies depending
on the number of years from the time of payment for the purchase of Class B
Shares until the time of redemption of such Shares. Solely for purposes of
determining the number of years from the time of any payment for the purchase of
Shares, all payments during a month are aggregated and deemed to have been made
on the first day of the month.
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
YEAR(S) PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- -------- -----------------
<S> <C>
0-1 5.00%
1-2 4.00%
2-3 3.00%
3-4 3.00%
4-5 2.00%
5-6 1.00%
</TABLE>
<TABLE>
<CAPTION>
CONTINGENT
DEFERRED
SALES CHARGE AS A
YEAR(S) PERCENTAGE OF
SINCE DOLLAR AMOUNT
PURCHASE SUBJECT TO CHARGE
- -------- -----------------
<S> <C>
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
29
<PAGE> 30
Agent to determine whether a retirement plan qualifies for a waiver and must
notify the Transfer Agent prior to the time of redemption if such circumstances
exist and the Shareholder is eligible for this waiver. In addition, the
following circumstances are not deemed to result in a "redemption" of Class B
Shares for purposes of the assessment of a Contingent Deferred Sales Charge,
which is therefore waived: (i) plans of reorganization of the Fund, such as
mergers, asset acquisitions and exchange offers to which the Fund is a party; or
(ii) exchanges for Class B Shares of other Funds of the Trust as described under
"Exchange Privilege."
CONVERSION FEATURE
Class B Shares include all Shares purchased pursuant to the Contingent
Deferred Sales Charge which have been outstanding for less than the period
ending eight years after the end of the month in which the shares were
purchased. At the end of this period, Class B Shares will automatically convert
to Classic Shares and will be subject to the lower distribution and Shareholder
service fees charged to Classic Shares. Such conversion will be on the basis of
the relative net asset values of the two classes, without the imposition of any
sales charge, fee or other charge. The conversion is not a taxable event to a
Shareholder.
For purposes of conversion to Classic Shares, shares received as dividends and
other distributions paid on Class B Shares in a Shareholder's Fund account will
be considered to be held in a separate sub-account. Each time any Class B Shares
in a Shareholder's Fund account (other than those in the sub-account) convert to
Classic Shares, a pro-rata portion of the Class B Shares in the sub-account will
also convert to Classic Shares.
If a Shareholder effects one or more exchanges among Class B Shares of the
Funds of the Trust during the eight-year period, the Trust will aggregate the
holding periods for the shares of each Fund of the Trust for purposes of
calculating that eight-year period. Because the per share net asset value of the
Classic Shares may be higher than that of the Class B Shares at the time of
conversion, a Shareholder may receive fewer Classic Shares than the number of
Class B Shares converted, although the dollar value will be the same.
ADDITIONAL INFORMATION REGARDING BROKER COMPENSATION
The Distributor, at its expense, will also provide additional compensation to
dealers in connection with sales of Classic Shares and Class B Shares of any of
the Funds. Such compensation will include financial assistance to dealers in
connection with conferences, sales or training programs for their employees,
seminars for the public, advertising campaigns regarding one or more Funds of
the Trust, and/or other dealer-sponsored special events. In some instances, this
compensation will be made available only to certain dealers whose
representatives have sold a significant amount of such Shares. Compensation will
include payment for travel expenses, including lodging, incurred in connection
with trips taken by invited registered representatives and members of their
families to locations within or outside 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
30
<PAGE> 31
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 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.
31
<PAGE> 32
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, 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
32
<PAGE> 33
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.
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
33
<PAGE> 34
payments upon redemption of Shares if the request for redemption is received by
the Transfer Agent before the Valuation Time on a Business Day or, if the
request for redemption is received after the Valuation Time to honor requests
for payment within two Business Days, unless it would be disadvantageous to the
Trust or the Shareholders of the particular Capital Appreciation Fund to sell or
liquidate portfolio securities in an amount sufficient to satisfy requests for
payments in that manner.
At various times, the Trust may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Trust may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by wire transfer. The Trust intends to pay cash for
all Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Trust may make payment wholly or partly in portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
Due to the relatively high cost of handling small investments, the Trust
reserves the right to redeem, at net asset value, the Shares of any Shareholder
if, because of redemptions of Shares by or on behalf of the Shareholder, the
account of such Shareholder in any Capital Appreciation Fund has a value of less
than $250. Accordingly, an investor purchasing Shares of a Capital Appreciation
Fund in only the minimum investment amount may be subject to such involuntary
redemption if he or she thereafter redeems some of his or her Shares. Before the
Trust exercises its right to redeem such Shares and to send the proceeds to the
Shareholder, the Shareholder will be given notice that the value of the Shares
of a Capital Appreciation Fund in his or her account is less than the minimum
amount and will be allowed 60 days to make an additional investment in an amount
which will increase the value of the account to at least $250.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" in the Statement of
Additional Information for examples of when the Trust may suspend the right of
redemption or redeem Shares involuntarily if it appears appropriate to do so in
light of the Trust's responsibilities under the Investment Company Act of 1940.
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
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<PAGE> 35
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.
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> 36
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 Birmingham, to present, Physician, University of
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 Services Foundation
Wendell D. Cleaver Trustee From September 3, 1993 to present, retired;
209 Lakewood Drive, from December, 1988 to August, 1993,
West 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 Carolina at Group; from July 1989 to present,
Charlotte Chancellor, The University of North
Charlotte, North Carolina 28223 Carolina at Charlotte; from April 1997 to
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> 37
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 March 31, 1998 of $19.4 billion and operated 270 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 March 31, 1998, AmSouth and its affiliates had over $8.7 billion in
assets under discretionary management and provided custody services for an
additional $21.6 billion in securities. AmSouth is the largest provider of trust
services in Alabama, 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 Equity Fund, Regional Equity
Fund and Balanced 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 the Equity Fund, Regional Equity Fund and Balanced 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 Fund, the Regional Equity Fund, the
Balanced Fund, the Equity Income Fund, the Capital Growth Fund, and the Select
Equity Fund 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 one hundred twenty one-hundredths of one percent (1.20%) 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 Advisor. The fee payable to the
Advisor by the Enhanced Market Fund for investment advisory services is the
lesser of (a) a fee computed daily and paid monthly at the annual rate of
forty-five one-hundredths of one percent (0.45%) 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 the fees are higher than the advisory fee paid
by most mutual funds, they are 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
37
<PAGE> 38
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.
INVESTMENT SUB-ADVISORS
ROCKHAVEN
Rockhaven Asset Management, LLC ("Rockhaven") serves as Sub-Advisor to the
Equity Income Fund pursuant to a Sub-Advisory Agreement with the Advisor. Under
the SubAdvisory Agreement, the Sub-Advisor manages the Fund, selects
investments, and places all 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
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 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:
38
<PAGE> 39
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.
39
<PAGE> 40
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
Peachtree Asset Management ("Peachtree" or "Sub-Advisor") serves as investment
sub-advisor 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 February 28, 1998, SBMFM had aggregate assets under
management of approximately $100 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.
SAWGRASS
Sawgrass Asset Management, LLC ("Sawgrass") serves as investment sub-advisor
to the Small Cap Fund, pursuant to a Sub-Advisory Agreement with AmSouth. The
Small Cap Fund commenced operations as of March 2, 1998. Under the Sub-Advisory
Agreement, Sawgrass 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.
Sawgrass is 50% owned by AmSouth and 50% owned by Sawgrass Asset Management,
Inc. Sawgrass Asset Management, Inc. is controlled by Mr. Dean McQuiddy, Mr.
Brian Monroe and Mr. Andrew Cantor. Sawgrass was organized in January, 1998 to
perform advisory services for investment companies and other institutional
clients and has its principal offices at 4337 Pablo Oaks Court, Jacksonville, FL
32224.
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
40
<PAGE> 41
computed daily and paid monthly at the annual rate of eighty-four one-hundredths
of one percent (0.84%) 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. Dean McQuiddy, CFA, is the portfolio manager for the Small Cap Fund, and,
as such, has the primary responsibility for the day-to-day portfolio management
of the Fund. He received his B.S. in Finance from the University of Florida. Mr.
McQuiddy holds membership in the Association of Management and Research. He has
16 years of investment experience. Mr. McQuiddy is a principal of Sawgrass. From
January, 1987 to January 4, 1994, Mr. McQuiddy was the portfolio manager of the
Employee Benefits Small Capitalization Fund, a common trust fund managed by
Barnett Bank for employee benefit plan accounts. On January 4, 1994, the
Employee Benefits Small Capitalization Fund transferred the majority of its
assets to the Emerald Small Capitalization Fund. Mr. McQuiddy was the portfolio
manager for the Emerald Small Capitalization Fund through December 31, 1997.
OAKBROOK
OakBrook Investments, LLC ("OakBrook") serves as Sub-Advisor to the Enhanced
Market Fund and the Select Equity Fund pursuant to a Sub-Advisory Agreement with
the Advisor. Under the Sub-Advisory Agreement, the Sub-Advisor manages the
Funds, 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 each Fund's investment objective, policies,
and restrictions.
OakBrook is 50% owned by AmSouth and 50% owned by Neil Wright, Janna Sampson
and Peter Jankovskis. OakBrook was organized in February, 1998 to perform
advisory services for investment companies and other institutional clients and
has its principal offices at 701 Warrenville Road, Suite 135, Lisle, IL 60532.
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 fifty-six one-hundredths of one
percent (0.56%) with respect to the Select Equity Fund and thirty-two
one-hundredths of one percent (0.32%) with respect to the Enhanced Market Fund
or such lower fee as may be agreed upon in writing by the Advisor and
Sub-Advisor.
The Select Equity Fund and the Enhanced Market Fund are managed by a team from
OakBrook Investments, LLC. Dr. Neil Wright, Ms. Janna Sampson and Dr. Peter
Jankovskis are the portfolio managers for the Select Equity Fund and the
Enhanced Market Fund. They have managed both Funds since their inception and, as
such, have the primary responsibility for the day-to-day portfolio management of
the Funds. Dr. Wright is OakBrook's President and the Chief Investment Officer.
He holds a doctorate in economics. From 1993 to 1997, Dr. Wright was the Chief
Investment Officer of ANB Investment Management & Trust Co. ("ANB"). He managed
ANB's Large Cap Growth Fund and other equity funds since 1981. Ms. Sampson is
OakBrook's Director of Portfolio Management. She holds a Master of Arts degree
in economics. From 1993 to 1997, Ms. Sampson was Senior Portfolio Manager for
ANB. She has worked in the investment field since 1981 and was a portfolio
manager at ANB since 1987. Dr. Jankovskis is OakBrook's Director of Research. He
holds a doctorate in economics. He has conducted economic research since 1988.
From August, 1992 to July, 1996, Dr. Jankovskis was an Investment Strategist for
ANB and from July, 1996 to December, 1997 was the Manager of Research for ANB.
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)
41
<PAGE> 42
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 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 share-
42
<PAGE> 43
holder services with respect to such Fund's B Shares.
All payments by the Distributor for distribution assistance or shareholder
services under the Distribution Plan will be made pursuant to an agreement (a
"Servicing Agreement") between the Distributor and such bank, other financial
institution or intermediary, broker-dealer, or affiliate or subsidiary of the
Distributor (hereinafter referred to individually as "Participating
Organizations"). A Servicing Agreement will relate to the provision of
distribution assistance in connection with the distribution of a Fund's Class B
Shares to the Participating Organization's customers on whose behalf the
investment in such Shares is made and/or to the provision of shareholder
services to the Participating Organization's customers owning a Fund's Class B
Shares. Under the Distribution Plan, a Participating Organization may include
AmSouth or a subsidiary bank or nonbank affiliates, or the subsidiaries or
affiliates of those banks. A Servicing Agreement entered into with a bank (or
any of its subsidiaries or affiliates) will contain a representation that the
bank (or subsidiary or affiliate) believes that it possesses the legal authority
to perform the services contemplated by the Servicing Agreement without
violation of applicable banking laws (including the Glass-Steagall Act) and
regulations.
The distribution fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular year
by the Distributor in connection with distribution assistance or shareholder
services rendered by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under the Distribution Plan.
If the amount of the distribution fee is greater than the Distributor's actual
expenses incurred in a particular year (and the Distributor does not waive that
portion of the distribution fee), the Distributor will realize a profit in that
year from the distribution fee. If the amount of the distribution fee is less
than the Distributor's actual expenses incurred in a particular year, the
Distributor will realize a loss in that year under the Distribution Plan and
will not recover from a Fund the excess of expenses for the year over the
distribution fee, unless actual expenses incurred in a later year in which the
Distribution Plan remains in effect were less than the distribution fee paid in
that later year.
The Glass-Steagall Act and other applicable laws prohibit banks generally from
engaging in the business of underwriting securities, but in general do not
prohibit banks from purchasing securities as agent for and upon the order of
customers. Accordingly, the Trust will require banks acting as Participating
Organizations to provide only those services which, in the banks' opinion, are
consistent with the then current legal requirements. It is possible, however,
that future legislative, judicial or administrative action affecting the
securities activities of banks will cause the Trust to alter or discontinue its
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.
43
<PAGE> 44
BANKING LAWS
AmSouth believes that it possesses the legal authority to perform the
investment advisory services for the Capital Appreciation Funds contemplated by
its investment advisory agreement with the Trust and described in this
Prospectus without violation of applicable banking laws and regulations, and has
so represented in its investment advisory agreement with the Trust. Future
changes in federal or state statutes and regulations relating to permissible
activities of banks or bank holding companies and their subsidiaries and
affiliates as well as further judicial or administrative decisions or
interpretations of present and future statutes and regulations could change the
manner in which AmSouth could continue to perform such services for the Trust.
See "MANAGEMENT OF The Trust -- Glass-Steagall Act" in the Statement of
Additional Information for further discussion of applicable banking laws and
regulations.
GENERAL INFORMATION
DESCRIPTION OF THE TRUST AND ITS SHARES
The Trust was organized as a Massachusetts business trust on October 1, 1987.
The Trust has an unlimited number of authorized shares of beneficial interest
which may, without shareholder approval, be divided into an unlimited number of
series of such shares, and which are presently divided into eighteen 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 Tax-Free Fund, the
AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, the AmSouth Equity
Income Fund, the AmSouth Enhanced Market Fund, the AmSouth Select Equity Fund,
the AmSouth Institutional Prime Obligations Fund, and the AmSouth Institutional
U.S. Treasury Fund. Each Fund, except the AmSouth Florida Tax-Free Fund and the
AmSouth Select Equity Fund, is a diversified fund under the Investment Company
Act of 1940, as amended. Each Fund, except for the U.S. Treasury Fund, the Tax
Exempt Fund, the Institutional Prime Obligations Fund and the Institutional U.S.
Treasury Fund, offers three classes of Shares: Premier, Classic and Class B
Shares. The AmSouth U.S. Treasury Fund and AmSouth Tax Exempt Fund have
authorized two classes of shares: Premier Shares and Classic Shares. The
Institutional Prime Obligations Fund and the Institutional U.S. Treasury Fund
have authorized three classes of shares: Class I shares, Class II shares and
Class III 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 and Premier Shares
were not offered in AmSouth Enhanced Market Fund and AmSouth Select Equity 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) when matters pertain to the Servicing Plan and (iv) when
matters pertain to the Distribution Plan.
Overall responsibility for the management of the Trust is vested in the Board
of Trustees. See "MANAGEMENT OF AmSouth Mutual
44
<PAGE> 45
Funds -- Trustees of the Trust." Individual Trustees are elected by the
Shareholders and may be removed by the Board of Trustees or Shareholders at a
meeting held for such purpose in accordance with the provisions of the
Declaration of Trust and the By-laws of the Trust and Massachusetts law. See
"ADDITIONAL INFORMATION -- Miscellaneous" in the Statement of Additional
Information for further information.
CUSTODIAN
AmSouth serves as custodian for the Trust ("Custodian"). Pursuant to the
Custodian Agreement with the Trust, the Custodian receives compensation from
each Fund for such services in an amount equal to an asset-based fee.
TRANSFER AGENT AND FUND ACCOUNTING
BISYS Fund Services, 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 Capi-
45
<PAGE> 46
tal Appreciation Fund will not be included in performance calculations.
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a Fund" means the consideration received by the Trust upon
the issuance or sale of Shares in that Fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or payments derived from any reinvestment of such proceeds, and any
general assets of the Trust not readily identified as belonging to a particular
Fund that are allocated to that Fund by the Trust's Board of Trustees. The Board
of Trustees may allocate such general assets in any manner it deems fair and
equitable. It is anticipated that the factor that will be used by the Board of
Trustees in making allocations of general assets to particular Funds will be the
relative net assets of the respective Funds at the time of allocation. Assets
belonging to a particular Fund are charged with the direct liabilities and
expenses in respect of that Fund, and with a share of the general liabilities
and expenses of the Trust not readily identified as belonging to a particular
Fund that are allocated to that Fund in proportion to the relative net assets of
the respective Funds at the time of allocation. The timing of allocations of
general assets and general liabilities and expenses of the Trust to particular
Funds will be determined by the Board of Trustees of the Trust and will be in
accordance with generally accepted accounting principles. Determinations by the
Board of Trustees of the Trust as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Trust or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Trust or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Trust or such Fund.
Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally 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.
46
<PAGE> 47
AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
AmSouth Bank
1901 Sixth Avenue North
Birmingham, AL 35203
INVESTMENT SUB-ADVISORS
<TABLE>
<S> <C>
(Equity Income Fund Only) (Small Cap Fund Only)
Rockhaven Asset Sawgrass Asset Management,
Management, LLC LLC
100 First Avenue, Suite 4337 Pablo Oaks Court
1050 Jacksonville, FL 32224
Pittsburgh, PA 15222
(Capital Growth Fund Only) (Select Equity Fund and
Peachtree Asset Management Enhanced Market
A Division of Smith Barney Fund Only)
Mutual OakBrook Investments, LLC
Funds Management Inc. 701 Warrenville Road,
One Peachtree Center Suite 135
Atlanta, GA 30308 Lisle, IL 60532
</TABLE>
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
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, OH 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Fee Table...................................... 3
Financial Highlights........................... 7
Investment Objective and Policies.............. 12
Investment Restrictions........................ 22
Valuation of Shares............................ 23
How to Purchase and Redeem Shares.............. 24
Dividends and Taxes............................ 34
Management of AmSouth Mutual Funds............. 36
General Information............................ 44
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.
AS3P090198
</TABLE>
<PAGE> 48
AMSOUTH MUTUAL FUNDS
AMSOUTH
AMSOUTH BANK
Investment Advisor
CAPITAL
APPRECIATION
FUNDS
AMSOUTH
MUTUAL FUNDS
Not FDIC Insured
BISYS FUND SERVICES, DISTRIBUTOR
Prospectus dated September 1, 1998
<PAGE> 49
AMSOUTH MUTUAL FUNDS
Statement of Additional Information
December 1, 1997, as revised September 1, 1998
-----------------
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, each dated
December 1, 1997, the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the
AmSouth Balanced Fund, the AmSouth Capital Growth Fund, the AmSouth Small Cap
Fund, the AmSouth Equity Income Fund, the AmSouth Select Equity Fund, and the
AmSouth Enhanced Market Fund (each a "Fund" and collectively the "Funds"), each
dated September 1, 1998. 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.
B-1
<PAGE> 50
<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...........................................................................................23
Portfolio Transactions.......................................................................................27
Glass-Steagall Act...........................................................................................29
Administrator................................................................................................30
Expenses ....................................................................................................32
Sub-Administrators...........................................................................................32
Distributor..................................................................................................33
Custodian....................................................................................................34
Transfer Agent and Fund Accounting Services..................................................................34
Auditors ....................................................................................................35
Legal Counsel................................................................................................35
PERFORMANCE INFORMATION..........................................................................................35
Yields of the Money Market Funds.............................................................................35
Yields of the Capital Appreciation Funds, the Income Funds,
and the Tax-Free Funds..............................................................................37
Calculation of Total Return..................................................................................38
Performance Comparisons......................................................................................40
</TABLE>
B-i
<PAGE> 51
<TABLE>
<CAPTION>
<S> <C>
ADDITIONAL INFORMATION...........................................................................................41
Organization and Description of Shares.......................................................................41
Shareholder Liability........................................................................................42
FINANCIAL STATEMENTS.............................................................................................45
APPENDIX.........................................................................................................46
</TABLE>
B-ii
<PAGE> 52
STATEMENT OF ADDITIONAL INFORMATION
AMSOUTH MUTUAL FUNDS
AmSouth Mutual Funds (the "Trust") is an open-end management investment
company. The Trust consists of eighteen series of units of beneficial interest
("Shares"), each representing interests in one of eighteen 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"), the AmSouth Equity Income Fund (the "Equity Income Fund"), the
AmSouth Select Equity Fund ("the "Select Equity Fund"), and the AmSouth Enhanced
Market Fund (the "Enhanced Market Fund," and these eight 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"), the AmSouth Florida
Tax-Free Fund (the "Florida Fund," and these five Funds being collectively
referred to as the "Income Funds"), the AmSouth Institutional Prime Obligations
Fund (the "Institutional Prime Obligations Fund"), and the AmSouth Institutional
U.S. Treasury Fund (the "Institutional U.S. Treasury Fund," and these two Funds
being collectively referred to as the "Institutional Money Market Funds"). The
Florida Fund and the Municipal Bond Fund are also collectively referred to
herein as the "Tax-Free Funds." The Funds offer three classes of Shares: Premier
Shares, Classic Shares, and Class B Shares, except for the U.S. Treasury Fund,
the Tax Exempt Fund, the Institutional Prime Obligations Fund, and the
Institutional U.S. Treasury Fund. The U.S. Treasury Fund and the Tax Exempt Fund
offer 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 and Premier Shares are
not being offered in the Enhanced Market Fund and the Select Equity Fund. The
Institutional Prime Obligations Fund and the Institutional U.S. Treasury Fund
offer three classes of shares: Class I shares, Class II shares, and Class III
shares. Currently, shares are not being offered in the Institutional U.S.
Treasury Fund. Much of the information contained in this Statement of Additional
Information expands on subjects discussed in the Prospectuses. This Statement of
Additional Information relates to all Funds of the Trust except the
Institutional Money Market Funds. The Institutional Money Market Funds have a
separate Statement of Additional Information. 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
B-1
<PAGE> 53
the Trust ("Advisor") to present minimal credit risks under guidelines adopted
by the Trust's Trustees.
With regard to the Prime Obligations Fund, investments will be limited
to those obligations which, at the time of purchase, (i) possess the highest
short-term ratings from at least two NRSROs; or (ii) do not possess a rating,
(i.e., are unrated) but are determined by the Advisor to be of comparable
quality to the rated instruments eligible for purchase by the Fund under
guidelines adopted by the Trustees. With regard to the Tax Exempt Fund,
investments will be limited to those obligations which, at the time of purchase,
(i) possess one of the two highest short-term ratings from an NRSRO; or (ii)
possess, in the case of multiple-rated securities, one of the two highest
short-term ratings by at least two NRSROs; or (iii) do not possess a rating,
(i.e., are unrated) but are determined by the Advisor to be of comparable
quality to the rated instruments eligible for purchase by the Fund under the
guidelines adopted by the Trustees. For purposes of these investment
limitations, a security that has not received a rating will be deemed to possess
the rating assigned to an outstanding class of the issuer's short-term debt
obligations if determined by the Advisor to be comparable in priority and
security to the obligation selected for purchase by a Fund. (The above-described
securities which may be purchased by the Prime Obligations Fund and the Tax
Exempt Fund are hereinafter referred to as "Eligible Securities.")
A security subject to a tender or demand feature will be considered an
Eligible Security only if both the demand feature and the underlying security
possess a high quality rating or, if such do not possess a rating, (i.e., are
unrated) but are determined by the Advisor to be of comparable quality;
provided, however, that where the demand feature would be readily exercisable in
the event of a default in payment of principal or interest on the underlying
security, the obligation may be acquired based on the rating possessed by the
demand feature or, if the demand feature does not possess a rating, a
determination of comparable quality by the Advisor. A security which at the time
of issuance had a maturity exceeding 397 days but, at the same time of purchase,
has a remaining maturity of 397 days or less, is not considered an Eligible
Security if it does not possess a high quality rating and the long-term rating,
if any, is not within the two highest rating categories of an NRSRO.
The Prime Obligations Fund will not invest more than 5% of its total
assets in the securities of any one issuer, except that the Fund may invest up
to 25% of its total assets in the securities of a single issuer for a period of
up to three business days. If a percentage limitation is satisfied at the time
of purchase, a later increase in such percentage resulting from a change in the
Fund's net asset value or a subsequent change in a security's qualification as
an Eligible Security will not constitute a violation of the limitation. In
addition, there is no limit on the percentage of the Fund's assets that may be
invested in obligations issued or guaranteed by the U.S. government, its
agencies, and instrumentalities and repurchase agreements fully collateralized
by such obligations.
B-2
<PAGE> 54
Under the guidelines adopted by the Trust's Trustees and in accordance
with Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), the
Advisor may be required promptly to dispose of an obligation held in a Fund's
portfolio in the event of certain developments that indicate a diminishment of
the instrument's credit quality, such as where an NRSRO downgrades an obligation
below the second highest rating category, or in the event of a default relating
to the financial condition of the issuer.
The Appendix to this Statement of Additional Information identifies
each NRSRO that may be utilized by the Advisor with regard to portfolio
investments for the Funds and provides a description of relevant ratings
assigned by each such NRSRO. A rating by an NRSRO may be utilized only where the
NRSRO is neither controlling, controlled by, or under common control with the
issuer of, or any issuer, guarantor, or provider of credit support for, the
instrument.
BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the Funds of
the Trust except the U.S. Treasury Fund may invest in bankers' acceptances,
certificates of deposit, and demand and time deposits. Bankers' acceptances are
negotiable drafts or bills of exchange typically drawn by an importer or
exporter to pay for specific merchandise, which are "accepted" by a bank,
meaning, in effect, that the bank unconditionally agrees to pay the face value
of the instrument on maturity. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank or a savings
and loan association for a definite period of time and earning a specified
return.
Bankers' acceptances will be those guaranteed by domestic and foreign
banks, if at the time of purchase, such banks have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements). Certificates of deposit and demand and
time deposits will be those of domestic and foreign banks and savings and loan
associations, if (a) at the time of purchase they have capital, surplus, and
undivided profits in excess of $100,000,000 (as of the date of their most
recently published financial statements) or (b) the principal amount of the
instrument is insured in full by the Federal Deposit Insurance Corporation.
COMMERCIAL PAPER. Each Fund, except for the U.S. Treasury Fund, may
invest in commercial paper. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return.
Each Fund except the U.S. Treasury Fund, the Tax Exempt Fund, and the
Tax-Free Funds may invest in (i) Canadian Commercial Paper, which is commercial
paper issued by a Canadian corporation or a Canadian counterpart of a U.S.
corporation, and (ii) Europaper, which is U.S. dollar-denominated commercial
paper of an issue located in Europe.
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VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Prime Obligations Fund, the Capital Appreciation Funds, and
the Income Funds may invest, are unsecured demand notes that permit the
indebtedness thereunder to vary and provide for periodic readjustments in the
interest rate according to the terms of the instrument. They are also referred
to as variable rate demand notes. Because these notes are direct lending
arrangements between a Fund and the issuer, they are not normally traded.
Although there may be no secondary market in the notes, a Fund may demand
payment of principal and accrued interest at any time or during specified
periods not exceeding one year, depending upon the instrument involved, and may
resell the note at any time to a third party. The absence of such an active
secondary market, however, could make it difficult for the Funds to dispose of a
variable amount master demand note if the issuer defaulted on its payment
obligations or during periods when the Funds are not entitled to exercise their
demand rights, and the Funds could, for this or other reasons, suffer a loss to
the extent of the default. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes must satisfy the
same criteria as set forth above for commercial paper. The Advisor or
Sub-Advisor will consider the earning power, cash flow, and other liquidity
ratios of the issuers of such notes and will continuously monitor their
financial status and ability to meet payment on demand. Where necessary to
ensure that a note is of "high quality," a Fund will require that the issuer's
obligation to pay the principal of the note be backed by an unconditional bank
letter or line of credit, guarantee or commitment to lend. In determining the
dollar-weighted average portfolio maturity, a variable amount master demand note
will be deemed to have a maturity equal to the period of time remaining until
the principal amount can be recovered from the issuer through demand.
FOREIGN INVESTMENT. All of the Funds, except the U.S. Treasury Fund and
the Tax-Free Funds, may, subject to their investment objectives, restrictions
and policies, invest in certain obligations or securities of foreign issuers.
Permissible investments include Eurodollar Certificates of Deposit ("ECDs")
which are U.S. dollar denominated certificates of deposit issued by branches of
foreign and domestic banks located outside the United States, Yankee
Certificates of Deposit ("Yankee CTDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States, Eurodollar Time Deposits ("ETD's") which are U.S. dollar
denominated deposits in a foreign branch of a U.S. bank or a foreign bank, and
Canadian Time Deposits ("CTD's") which are U.S. dollar denominated certificates
of deposit issued by Canadian offices of major Canadian Banks. Investments in
securities issued by foreign branches of U.S. banks, foreign banks, or other
foreign issuers, including American Depository Receipts ("ADRs") and securities
purchased on foreign securities exchanges, may subject the Funds to investment
risks that differ in some respects from those related to investment in
obligations of U.S. domestic issuers or in U.S. securities markets. Such risks
include future adverse political and economic developments, possible seizure,
currency blockage, nationalization or expropriation of foreign investments, less
stringent disclosure requirements, the possible establishment of exchange
controls or taxation at the source, and the adoption of other foreign
governmental restrictions. Additional risks include currency exchange risks,
less publicly available information, the risk that
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companies may not be subject to the accounting, auditing and financial reporting
standards and requirements of U.S. companies, the risk that foreign securities
markets may have less volume and therefore many securities traded in these
markets may be less liquid and their prices more volatile than U.S. securities,
and the risk that custodian and brokerage costs may be higher. Foreign issuers
of securities or obligations are often subject to accounting treatment and
engage in business practices different from those respecting domestic issuers of
similar securities or obligations. Foreign branches of U.S. banks and foreign
banks may be subject to less stringent reserve requirements than those
applicable to domestic branches of U.S. banks. A Fund will acquire such
securities only when the Advisor or Sub-Advisor believes the risks associated
with such investments are minimal.
REPURCHASE AGREEMENTS. Securities held by each 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
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unfavorable market conditions to meet redemptions. At the time a Fund enters
into a reverse repurchase agreement, it will place in a segregated custodial
account assets consistent with the Fund's investment restrictions having a value
equal to the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such equivalent value is
maintained. Such assets will include U.S. government securities or other liquid
high quality debt securities in the case of the Money Market Funds and the
Income Funds or other liquid, high-grade debt securities, in the case of the
Capital Appreciation Funds. Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the price at
which a Fund is obligated to repurchase the securities. Reverse repurchase
agreements are considered to be borrowings by a Fund under the 1940 Act.
U.S. GOVERNMENT OBLIGATIONS. The 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
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floating rate note in the event the issuer of the note defaulted on its payment
obligations and the Fund could, as a result or for other reasons, suffer a loss
to the extent of the default. Variable or floating rate notes may be secured by
bank letters of credit or drafts.
For purposes of the Tax-Exempt Fund, the Bond Fund, the Limited
Maturity Fund and the Tax-Free Funds, the maturities of the variable and
floating rate notes will be determined in accordance with Rule 2a-7 under the
1940 Act.
MUNICIPAL SECURITIES. Under normal market conditions, the Tax Exempt
Fund and the Municipal Bond Fund will be primarily invested in bonds (and in the
case of the Tax Exempt Fund, notes) issued by or on behalf of states (including
the District of Columbia), territories, and possessions of the United States and
their respective authorities, agencies, instrumentalities, and political
subdivisions, the interest on which is exempt from federal income tax
("Municipal Securities"). Under normal market conditions, the Tax Exempt Fund
will invest at least 80% of its total assets, the Municipal Bond Fund will
invest at least 80% of its net assets, and the Florida Fund may invest up to 20%
of its net assets in Municipal Securities, the interest on which is not treated
as a preference item for purposes of the federal alternative minimum tax.
Municipal Securities include debt obligations issued by governmental
entities to obtain funds for various public purposes, such as the construction
of a wide range of public facilities, the refunding of outstanding obligations,
the payment of general operating expenses, and the extension of loans to other
public institutions and facilities. Private activity bonds that are issued by or
on behalf of public authorities to finance various privately-operated facilities
are included within the term Municipal Securities if the interest paid thereon
is exempt from both federal income tax and not treated as a preference item for
individuals for purposes of the federal alternative minimum tax.
Municipal Securities may also include General Obligation Notes, Tax
Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Project
Notes, Tax-Exempt Commercial Paper, Construction Loan Notes and other forms of
short-term tax-exempt loans. Such instruments are issued with a short-term
maturity in anticipation of the receipt of tax funds, the proceeds of bond
placements or other revenues.
Project Notes are issued by a state or local housing agency and are
sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are
also secured by the full faith and credit of the United States through
agreements with the issuing authority which provide that, if required, the
federal government will lend the issuer an amount equal to the principal of and
interest on the Project Notes.
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
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"revenue" issues. A Fund permitted to invest in Municipal Securities may also
acquire "moral obligation" issues, which are normally issued by special purpose
authorities. There are, of course, variations in the quality of Municipal
Securities, both within a particular classification and between classifications,
and the yields on Municipal Securities depend upon a variety of factors,
including general money market conditions, the financial condition of the
issuer, general conditions of the municipal bond market, the size of a
particular offering, the maturity of the obligation and the rating of the issue.
The ratings of NRSROs represent their opinions as to the quality of Municipal
Securities. It should be emphasized, however, that ratings are general and are
not absolute standards of quality, and Municipal Securities with the same
maturity, interest rate and rating may have different yields, while Municipal
Securities of the same maturity and interest rate with different ratings may
have the same yield. Subsequent to purchases by the Tax Exempt Fund, an issue of
Municipal Securities may cease to be rated or its rating may be reduced below
the minimum rating required for purchase by the Tax Exempt Fund. Neither event
would under all circumstances require the elimination of such an obligation from
the Fund's investment portfolio. However, the obligation generally would be
retained only if such retention was determined by the Board of Trustees to be in
the best interests of the Fund.
An issuer's obligations under its Municipal Securities are subject to
the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the federal bankruptcy code, and laws, if
any, which may be enacted by Congress or state legislatures extending the time
for payment of principal or interest, or both, or imposing other constraints
upon the enforcement of such obligations or upon the ability of municipalities
to levy taxes. The power or ability of an issuer to meet its obligations for the
payment of interest on and principal of its Municipal Securities may be
materially adversely affected by litigation or other conditions.
HIGH YIELD SECURITIES. The Equity Income Fund may invest in high yield
convertible securities. High yield securities are securities that are rated
below investment grade by an NRSRO (e.g., "BB" or lower by S&P and "Ba" or lower
by Moody's). Other terms used to describe such securities include "lower rated
bonds," "non-investment grade bonds" and "junk bonds." Generally, lower rated
debt securities provide a higher yield than higher rated debt securities of
similar maturity, but are subject to a greater degree of risk with respect to
the ability of the issuer to meet its principal and interest obligations.
Issuers of high yield securities may not be as strong financially as those
issuing higher rated securities. The securities are regarded as predominantly
speculative. The market value of high yield securities may fluctuate more than
the market value of higher rated securities, since high yield securities tend to
reflect short-term corporate and market developments to a greater extent than
higher rated securities, which fluctuate primarily in response to the general
level of interest rates, assuming that there has been no change in the
fundamental interest rates, assuming that there has been no change in the
fundamental quality of such securities. The market prices of fixed income
securities generally fall when interest rates rise. Conversely, the market
prices of fixed-income securities generally rise when interest rates fall.
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Additional risks of high yield securities include limited liquidity
and secondary market support. As a result, the prices of high yield securities
may decline rapidly in the event that a significant number of holders decide to
sell. Changes in expectations regarding an individual issuer, an industry or
high yield securities generally could reduce market liquidity for such
securities and make their sale by the Equity Income Fund more difficult, at
least in the absence of price concessions. Reduced liquidity also could
adversely affect the Equity Income Fund's ability to accurately value high yield
securities. Issuers of high yield securities also are more vulnerable to real or
perceived economic changes (for instance, an economic downturn or prolonged
period of rising interest rates), political changes or adverse developments
specific to the issuer. Adverse economic, political or other developments may
impair the issuer's ability to service principal and interest obligations, to
meet projected business goals and to obtain additional financing, particularly
if the issuer is highly leveraged. In the event of a default, the Equity Income
Fund would experience a reduction of its income and could expect a decline in
the market value of the defaulted securities.
WHEN-ISSUED SECURITIES. As discussed in the Prospectuses, each Fund
except the Prime Obligations Fund and the U.S. Treasury Fund may purchase
securities on a when-issued basis (i.e., for delivery beyond the normal
settlement date at a stated price and yield). When a Fund agrees to purchase
securities on a when-issued basis, the Fund's custodian will set aside cash or
liquid portfolio securities equal to the amount of the commitment in a separate
account. Normally, the custodian will set aside portfolio securities to satisfy
the purchase commitment, and in such a case, the Fund may be required
subsequently to place additional assets in the separate account in order to
assure that the value of the account remains equal to the amount of the Fund's
commitment. It may be expected that the Fund's net assets will fluctuate to a
greater degree when it sets aside portfolio securities to cover such purchase
commitments than when it sets aside cash. In addition, because a Fund will set
aside cash or liquid portfolio securities to satisfy its purchase commitments in
the manner described above, a Fund's liquidity and the ability of the Advisor or
Sub-Advisor to manage it might be affected in the event its commitments to
purchase when-issued securities ever exceeded 25% of the value of its total
assets.
When a Fund engages in when-issued transactions, it relies on the
seller to consummate the trade. Failure of the seller to do so may result in the
Fund incurring a loss or missing the opportunity to obtain a price considered to
be advantageous. No Fund intends to purchase when-issued securities for
speculative purposes but only in furtherance of its investment objective.
CALLS. The Capital Appreciation Funds, 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
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of any price decline of the security involved in the option. Covered call
options will generally be written on securities which, in the Advisor's or
Sub-Advisor's opinion, are not expected to make any major price moves in the
near future but which, over the long term, are deemed to be attractive
investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him or her to deliver
the underlying security against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by repurchasing an option
identical to that previously sold. To secure his or her obligation to deliver
the underlying security in the case of a call option, a writer is required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation. The Capital Appreciation Funds, 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
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historical price volatility of the underlying security, and the length of the
option period. Once the decision to write a call option has been made, the
Advisor or Sub-Advisor, in determining whether a particular call option should
be written on a particular security, will consider the reasonableness of the
anticipated premium and the likelihood that a liquid secondary market will exist
for those options. The premium received by a Fund for writing covered call
options will be recorded as a liability in the Fund's statement of assets and
liabilities. This liability will be adjusted daily to the option's current
market value, which will be the latest sale price at the time at which the net
asset value per share of the Fund is computed (close of the New York Stock
Exchange), or, in the absence of such sale, the latest asked price. The
liability will be extinguished upon expiration of the option, the purchase of an
identical option in the closing transaction, or delivery of the underlying
security upon the exercise of the option.
Closing transactions will be effected in order to realize a profit on
an outstanding call option, to prevent an underlying security from being called,
or to permit the sale of the underlying security. Furthermore, effecting a
closing transaction will permit a Fund to write another call option on the
underlying security with either a different exercise price or expiration date or
both. If a Fund desires to sell a particular security from its portfolio on
which it has written a call option, it will seek to effect a closing transaction
prior to, or concurrently with, the sale of the security. There is, of course,
no assurance that the Fund will be able to effect such closing transactions at a
favorable price. If a Fund cannot enter into such a transaction, it may be
required to hold a security that it might otherwise have sold, in which case it
would continue to be at market risk on the security. This could result in higher
transaction costs. A Fund will pay transaction costs in connection with the
writing of options to close out previously written options. Such transaction
costs are normally higher than those applicable to purchases and sales of
portfolio securities.
Call options written by the Capital Appreciation Funds, the Bond Fund,
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 and the Enhanced Market Fund and Select Equity Fund may acquire
"puts" with respect to equity securities held in their portfolios. A put is a
right to sell a specified security (or securities) within a specified period of
time at a specified exercise price. The Tax Exempt Fund, the Tax-Free Funds, the
Bond Fund, the Balanced Fund, the Limited Maturity Fund, the Enhanced Market
Fund, and the Select Equity 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, the Limited Maturity Fund,
the Balanced Fund, the Enhanced Market Fund, and the Select Equity 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, the Limited Maturity Fund,
the Balanced Fund, the Enhanced Market Fund, and the Select Equity Fund intend
to enter into puts only with dealers, banks, and broker-dealers which, in the
Advisor's opinion, present minimal credit risks.
FUTURES CONTRACTS AND RELATED OPTIONS. The Enhanced Market Fund and
the Select Equity Fund may invest in futures contracts and options thereon
(interest rate futures contracts or index futures contracts, as applicable).
Positions in futures contracts may be closed out only on an exchange which
provides a secondary market for such futures. However, there can be no assurance
that a liquid secondary market will exist for any particular futures contract at
any specific time. Thus, it may not be possible to close a futures position. In
the event of adverse
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price movements, the Fund would continue to be required to make daily cash
payments to maintain its required margin. In such situations, if a Fund has
insufficient cash, it may have to sell portfolio securities to meet daily margin
requirements at a time when it may be disadvantageous to do so. In addition, a
Fund may be required to make delivery of the instruments underlying the futures
contracts it holds. The inability to close options and futures positions also
could have an adverse impact on a Fund's ability to effectively hedge.
Successful use of futures by the Funds is also subject to an adviser's
or sub-adviser's ability to correctly predict movements in the direction of the
market. For example, if a Fund has hedged against the possibility of a decline
in the market adversely affecting securities held by it and securities prices
increase instead, a Fund will lose part or all of the benefit to the increased
value of its securities which it has hedged because it will have approximately
equal offsetting losses in its futures positions. In addition, in some
situations, if a Fund has insufficient cash, it may have to sell securities to
meet daily variation margin requirements. Such sales of securities may be, but
will not necessarily be, at increased prices which reflect the rising market. A
Fund may have to sell securities at a time when it may be disadvantageous to do
so.
The risk of loss in trading futures contracts in some strategies can
be substantial, due both to the low margin deposits required, and the extremely
high degree of leverage involved in futures pricing. As a result, a relatively
small price movement in a futures contract may result in immediate and
substantial loss (as well as gain) to the investor. For example, if at the time
of purchase, 10% of the value of the futures contract is deposited as margin, a
subsequent 10% decrease in the value of the futures contract would result in a
total loss of the margin deposit, before any deduction for the transaction
costs, if the account were then closed out. A 15% decrease would result in a
loss equal to 150% of the original margin deposit, before any deduction for the
transaction costs, if the contract were closed out. Thus, a purchase or sale of
a futures contract may result in losses in excess of the amount invested in the
contract.
Utilization of futures transactions by a Fund involves the risk of
loss by a Fund of margin deposits in the event of bankruptcy of a broker with
whom a Fund has an open position in a futures contract or related option.
Most futures exchanges limit the amount of fluctuation permitted in
futures contract prices during a single trading day. The daily limit establishes
the maximum amount that the price of a futures contract may vary either up or
down from the previous day's settlement price at the end of a trading session.
Once the daily limit has been reached in a particular type of contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement, during a particular trading day and therefore does
not limit potential losses, because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices have occasionally moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of futures positions and subjecting some
futures traders to substantial losses.
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The trading of futures contracts is also subject to the risk of
trading halts, suspensions, exchange or clearing house equipment failures,
government intervention, insolvency of a brokerage firm or clearing house or
other disruptions of normal trading activity, which could at times make it
difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
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).
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 with respect to each Fund other than the Small Cap, Enhanced
Market and Select Equity Funds, which may purchase 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, the Equity Income Fund, the Enhanced Market Fund and the Select Equity
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
B-14
<PAGE> 66
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 (except the Enhanced Market and Select Equity
Fund) may write put options. The Prime Obligations Fund, the U.S. Treasury Fund,
the Equity Fund, the Regional Equity Fund, the Capital Growth 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. As a
non-fundamental investment restriction with respect to the Small Cap Fund only,
the Small Cap Fund may not write or purchase put options.
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.
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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, 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
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customary national business holidays of New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day.
VALUATION OF THE MONEY MARKET FUNDS
The Money Market Funds have elected to use the amortized cost method
of valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost initially and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of the impact of fluctuating
interest rates on the market value of the instrument. This method may result in
periods during which value, as determined by amortized cost, is higher or lower
than the price the Fund would receive if it sold the instrument. The value of
securities in these Funds can be expected to vary inversely with changes in
prevailing interest rates.
Pursuant to Rule 2a-7, each Money Market Fund will maintain a
dollar-weighted average portfolio maturity appropriate to its objective of
maintaining a stable net asset value per Share, provided that no Fund will
purchase any security with a remaining maturity of more than thirteen months
(securities subject to repurchase agreements may bear longer maturities) nor
maintain a dollar-weighted average portfolio maturity which exceeds 90 days. 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
B-17
<PAGE> 69
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 AmSouth
or financial institutions that provide certain support services for their
customers or account holders ("Financial Institutions"). Customers purchasing
Shares of the Trust may include officers, directors, or employees of AmSouth or
AmSouth's correspondent banks.
PURCHASE OF SHARES
As stated in the relevant Prospectuses, the public offering price of
Classic Shares of the Capital Appreciation Funds and the Income Funds is their
net asset value computed after the sale plus a sales charge which varies based
upon the quantity purchased. The public offering price of such Shares of the
Trust is calculated by dividing net asset value by the difference (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.
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<PAGE> 70
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.
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,
B-19
<PAGE> 71
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 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% threshold, 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.
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<PAGE> 72
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.
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,
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<PAGE> 73
being tax-exempt, and such dividends would be ultimately taxable to the
beneficiaries when distributed to them.
In addition, the Tax Exempt Fund and the Tax-Free Funds may not be
appropriate investments for Shareholders that may be "substantial users" of
facilities financed by private activity bonds or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business, and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds represent more than 5% of the total revenues
derived by all users of such facilities, or who occupies more than 5% of the
usable area of such facilities, or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related person"
includes certain related natural persons, affiliated corporations, a partnership
and its partners and an S Corporation and its shareholders. Each Shareholder
that may be considered a "substantial user" should consult a tax advisor with
respect to whether exempt-interest dividends would retain the exclusion under
Section 103 of the Code if the Shareholder were treated as a "substantial user"
or a "related person."
The Code permits a regulated investment company which invests at least
50% of its assets in tax-free Municipal Securities to pass through to its
investors, tax-free, net Municipal Securities interest income. The policy of the
Tax Exempt Fund and the Tax-Free Funds is to pay each year as dividends
substantially all such Fund's Municipal Securities interest income net of
certain deductions. An exempt-interest dividend is any dividend or part thereof
(other than a capital gain dividend) paid by the Tax Exempt Fund and the
Tax-Free Funds and designated as an exempt-interest dividend in a written notice
mailed to Shareholders after the close of such Fund's taxable year, but not to
exceed in the aggregate the net Municipal Securities interest received by the
Fund during the taxable year. The percentage of the total dividends paid for any
taxable year which qualifies as federal exempt-interest dividends will be the
same for all Shareholders receiving dividends from the Tax Exempt Fund and the
Tax-Free Funds during such year, regardless of the period for which the Shares
were held.
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
B-22
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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 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):
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<TABLE>
<CAPTION>
Position(s) Held Principal Occupation
Name And Address Age With The Trust During Past 5 Years
- ---------------- --- ---------------- -------------------
<S> <C> <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).
Charles Booth Treasurer From 1991 to present, employee of BISYS
Fund Services Limited Partnership.
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.
Robin Thomas Secretary From May 1997 to present, employee of
BISYS Fund Services Limited
Partnership; from April 1989 to May,
1997, employee of AmSouth Bank.
James L. Smith Assistant Secretary From October 1996 to present, employee
of BISYS Fund Services Limited
Partnership; from October, 1995 to October,
1996, employee of Davis, Graham & Stubbs;
from June, 1991 to August, 1995, Director
of Legal and Compliance, ALPS Mutual Fund
Services, Inc.
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, Booth and Smith and
Mmes. Thomas and Metz are employees of BISYS Fund Services, Limited Partnership.
B-24
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COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual from AmSouth
Name of from AmSouth As Part of Benefits Upon Mutual Funds
Position FUND EXPENSES Fund Expenses Retirement Paid to Trustee
- -------- ------------- ------------- ---------- ---------------
<S> <C> <C> <C> <C>
J. David Huber None None None None
James H. $12,239 None None $12,239
Woodward, Jr.
Homer H. $10,591 None None $10,591
Turner
Wendell D. $11,806 None None $11,806
Cleaver
Dick D. Briggs, $10,420 None None $10,420
Jr., M.D.
</TABLE>
(1) Figures are for the Trust's fiscal year ended July 31, 1997.
INVESTMENT ADVISOR
Investment advisory and management services are provided to the Money
Market Funds, the Capital Appreciation Funds, the Income Funds (except the
Limited Maturity Fund), and the Institutional Money Market Funds 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 the Equity Fund, the Balanced Fund and the
Regional Equity 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
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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; the Small Cap Fund - one hundred
twenty one-hundredths of one percent (1.20%) annually; the Select Equity Fund -
eighty one hundredths of one percent (.80%) annually; the Enhanced Market Fund -
forty-five hundredths of one percent (.45%) annually; the Institutional Prime
Obligations Fund - twenty one-hundredths of one percent (0.20%) annually; and
the Institutional U.S. Treasury Fund - twenty one-hundredths of one percent
(0.20%) annually. A fee agreed to in writing from time to time by the Trust and
the Advisor may be significantly lower than the fee calculated at the annual
rate and the effect of such lower fee would be to lower a Fund's expenses and
increase the net income of such Fund during the period when such lower fee is in
effect.
For the fiscal years ended July 31, 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 the 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
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<PAGE> 78
the Bond Fund, the Limited Maturity Fund, the Government Income Fund and the
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 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 Institutional 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, the Income Funds, and the Institutional Money Market
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.
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<PAGE> 79
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 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 ("Sub-Advisory Agreement"). Investment sub-advisory services are
provided to the Capital Growth Fund by Peachtree Asset Management ("Peachtree"
or "Sub-Advisor") pursuant to a SubAdvisory Agreement dated July 31, 1997
between the Advisor and Peachtree. Investment subadvisory services are provided
to the Small Cap Fund by Sawgrass Asset Management, LLC ("Sawgrass" or
"Sub-Advisor") pursuant to a Sub-Advisory Agreement dated as of March 2, 1998
between the Advisor and Sub-Advisor (a "Sub-Advisory Agreement"). Investment
subadvisory services are provided to the Select Equity Fund and the Enhanced
Market Fund pursuant to a Sub-Advisory Agreement dated as of September 1, 1998
between the Advisor and OakBrook Investments, LLC ("OakBrook" or "Sub-Advisor").
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 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
B-28
<PAGE> 80
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, with respect to the
Capital Growth Fund until July 31, 1999, with respect to the Small Cap Fund
until January 31, 1999, and with respect to the Select Equity Fund and Enhanced
Market Fund until January 31, 2000, and each SubAdvisory 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 a 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 a Sub-Advisor including, but not limited to, (i)
descriptions of the Sub-Advisor's operations; (ii) descriptions of certain
personnel and their functions; and (iii) statistics and rankings relating to the
Sub-Advisor's operations.
PORTFOLIO TRANSACTIONS
Pursuant to the Advisory Agreements, the Advisor or Sub-Advisor determines,
subject to the general supervision of the Board of Trustees of the Trust and in
accordance with each Fund's investment objective, policies and restrictions,
which securities are to be purchased and sold by a Fund, and which brokers are
to be eligible to execute such Fund's portfolio 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
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<PAGE> 81
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 SubAdvisor. Any such other investment company or account may also
invest in the same securities as the Trust. When a purchase or sale of the same
security is made at substantially the same time on behalf of a Fund and another
Fund, investment company or account, the transaction will be averaged as to
price and available investments will be allocated as to amount in a manner which
the Advisor or Sub-Advisor believe to be equitable to the Fund(s) and such other
investment company or account. In some instances, this investment procedure may
adversely affect the price paid or received by a Fund or the size of the
position obtained by a Fund. To the extent permitted by law, the Advisor or
Sub-Advisor may aggregate the 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.
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<PAGE> 82
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 $265,582. During the fiscal year ended
July 31, 1996, the Regional Equity Fund paid aggregate brokerage commissions in
the amount of $167,772. During the fiscal year ended July 31, 1996, the Balanced
Fund paid aggregate brokerage commissions in the amount of $489,565.
GLASS-STEAGALL ACT
In 1971, the United States Supreme Court held in INVESTMENT COMPANY
INSTITUTE V. CAMP that the Federal statute commonly referred to as the
Glass-Steagall Act prohibits a national bank from operating a mutual fund for
the collective investment of managing agency accounts. Subsequently, the Board
of Governors of the Federal Reserve System (the "Board") issued a regulation and
interpretation to the effect that the Glass-Steagall Act and such decision: (a)
forbid a bank holding company registered under the Federal Bank Holding Company
Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from
sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment advisor, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V.
INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisors to registered closed-end investment companies. In the BOARD
OF GOVERNORS case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
AmSouth believes that it possesses the legal authority to perform the
services for each Fund contemplated by the Advisory Agreements regarding that
Fund and described in the Prospectus of that Fund and this Statement of
Additional Information and has so represented in the Advisory Agreement
regarding that Fund. Future changes in either federal or state statutes 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
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<PAGE> 83
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-Advisors under the
Sub-Advisory Agreements, 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).
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-Advisors under the Sub-Advisory
Agreements, 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
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<PAGE> 84
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 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 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, 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, the 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
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<PAGE> 85
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.
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 $539,918.46 with respect to the Trust.
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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 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
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<PAGE> 87
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.
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.
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<PAGE> 88
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 PricewaterhouseCoopers LLP, 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. The address of PricewaterhouseCoopers LLP 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 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
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<PAGE> 89
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.
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% N/A N/A
U.S. Treasury Fund Premier 4.72% 4.83% N/A N/A
Tax Exempt Fund Premier 3.18% 3.23% 5.28% 5.37%
</TABLE>
B-38
<PAGE> 90
<TABLE>
<S> <C> <C> <C> <C> <C>
Prime Obligations Fund Classic 4.98% 5.10% N/A N/A
U.S. Treasury Fund Classic 4.62% 4.72% N/A N/A
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.
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.
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<PAGE> 91
For the 30-day period ending July 31, 1997, the yield and the tax
equivalent yield of the Income Funds was:
TAX
EQUIVALENT
FUND YIELD YIELD
Florida Fund 3.77% 6.26%
Municipal Bond Fund 3.49% 5.80%
Bond Fund 5.52% N/A
Government Income Fund 6.05% N/A
Limited Maturity Fund 5.19% N/A
For the 30-day period ending January 31, 1998, the yield of the Capital
Appreciation Funds was:
FUND CLASS YIELD
Equity Fund Premier 1.07%
Regional Equity Fund Premier 0.50%
Balanced Fund Premier 2.80%
Equity Income Fund Premier 2.12%
Capital Growth Fund Premier (0.12)%
Equity Fund Classic 0.80%
Regional Equity Fund Classic 0.24%
Balanced Fund Classic 2.44%
Equity Income Fund Classic 1.80%
Capital Growth Fund Classic (0.21)%
Equity Fund Class B 0.16%
Regional Equity Fund Class B (0.45)%
Balanced Fund Class B 1.85%
Equity Income Fund Class B 1.19%
Capital Growth Fund Class B (1.05)%
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<PAGE> 92
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 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> <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%
Prime Obligations Fund Classic 4.90% 4.15%
U.S. Treasury Fund Classic 4.60% 3.97%
Tax Exempt Fund Classic 3.04% 2.69%
Florida Fund N/A 2.61% N/A
Bond Fund N/A 6.05% 5.98%
Limited Maturity Fund N/A 2.96% 4.54%
Government Income Fund N/A 5.82% N/A
</TABLE>
For the one-year and five-year periods ended January 31, 1998, average
annual total return was as follows:
<TABLE>
<CAPTION>
Fund Class One-year Five-year
---- ----- -------- ---------
<S> <C> <C> <C>
Equity Fund Premier 27.84% 17.77%
Regional Equity Fund Premier 18.08% 14.28%
Balanced Fund Premier 19.55% 13.02%
Equity Fund Classic 22.06% 16.69%
Regional Equity Fund Classic 12.69% 13.21%
Balanced Fund Classic 14.14% 11.98%
</TABLE>
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<PAGE> 93
<TABLE>
<S> <C> <C> <C>
Equity Fund Class B 22.53% 17.51%
Regional Equity Fund Class B 12.65% 13.96%
Balanced Fund Class B 14.09% 12.68%
</TABLE>
For the period from commencement of operations through July 31, 1997, the
average annual total return was as follows:
<TABLE>
<CAPTION>
Commencement of Operation 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
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
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
</TABLE>
For the period from commencement of operations through January 31, 1998,
the average annual total return was as follows:
<TABLE>
<CAPTION>
Commencement of Operation Commencement
Fund Class Through January 31, 1998 Of Operations Date
---- ----- ------------------------------- ------------------
<S> <C> <C> <C>
Equity Fund Premier 15.24% December 1, 1988
Regional Equity Fund Premier 15.91% December 1, 1988
Balanced Fund Premier 13.60% December 19, 1991
Equity Income Fund Premier 21.34% March 20, 1997
Capital Growth Fund Premier 1.50% July 31, 1997
Equity Fund Class B 15.21% December 1, 1988
Regional Equity Fund Class B 15.87% December 1, 1988
Balanced Fund Class B 13.44% December 19, 1991
Equity Income Fund Class B 15.76% March 20, 1997
Capital Growth Fund Class B (3.90)% July 31, 1997
Equity Fund Classic 14.66% December 1, 1988
Regional Equity Fund Classic 15.33% December 1, 1988
Balanced Fund Classic 12.74% December 19, 1991
Equity Income Fund Classic 15.78% March 20, 1997
Capital Growth Fund Classic (3.16)% July 31, 1997
</TABLE>
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
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<PAGE> 94
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.
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.
B-43
<PAGE> 95
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 eighteen 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, the Equity Income Fund, the Select Equity Fund,
the Enhanced Market Fund, the Institutional Prime Obligations Fund, and the
Institutional U.S. Treasury 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 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) when matters pertain to the Shareholder Servicing Plan, and
(iv) when matters pertain 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'
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<PAGE> 96
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 June 4, 1998, the trustees and officers of the Trust, as a group,
owned less than 1% of the Premier Shares, of the Classic Shares and of the Class
B Shares of any of the AmSouth Funds.
As of June 4, 1998, AmSouth, 1901 Sixth Avenue-North, Birmingham, Alabama
35203 was the Shareholder of record of the outstanding voting shares of the
Premier Shares of the Funds as follows: 90.72% of the Prime Obligations Fund,
98.48% of the U.S. Treasury Fund, 99.99% of the Tax Exempt Fund, 95.01% of the
Equity Fund, 93.67% of the Regional Equity Fund, 95.27% of the Bond Fund, 98.35%
of the Limited Maturity Fund, 97.39% of the Balanced Fund, 96.55% of the Florida
Fund, 99.99% of the Government Income Fund, 99.22% of the Municipal Bond Fund,
99.99% of the Equity Income Fund, 95.70% of the Capital Growth Fund, and 100% of
the Small Cap Fund. Under the 1940 Act, AmSouth may be deemed to be a
controlling person of the Premier Class of each of the above-mentioned Funds.
The ultimate parent of AmSouth is AmSouth Bancorporation.
As of June 4, 1998 National Financial Services Corporation, One World
Financial Center, 200 Liberty Street, New York, New York 10281, was the
Shareholder of record of the outstanding voting Shares of the Classic Shares of
the Funds as follows: 98.34% of the Prime Obligations Fund, 86.98% of the
Treasury Fund, 91.83% of the Tax Exempt Fund,
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<PAGE> 97
18.12% of the Government Income Fund, 18.82% of the Bond Fund, 25.00% of the
Limited Maturity Fund, 30.84%of the Municipal Bond Fund, 75.80% of the Florida
Fund, and 33.11% of the Capital Growth Fund. As of June 4, 1998 National
Financial Services Corporation, One World Financial Center, 200 Liberty Street,
New York, New York 10281, was the Shareholder of record of the outstanding
voting Shares of the Class B Shares of the Funds as follows: 81.05% of the Bond
Fund, 6.61% of the Regional Equity Fund, and 10.59% of the Small Cap Fund.
National Financial Services Corporation under the 1940 Act may be deemed to be a
controlling person of the Classic Shares of the Prime Obligations Fund, Treasury
Fund, Tax Exempt Fund, Limited Maturity Fund, Municipal Bond Fund, Florida Fund
and Capital Growth Fund and the Class B Shares of the Bond 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 June 4,
1998:
<TABLE>
<CAPTION>
U.S. TREASURY FUND -- CLASSIC SHARES
NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE
<S> <C> <C>
Association of Edison 840,550.080 11.69%
Illumination
600 18th Street North
Birmingham, AL 35291
EQUITY FUND -- CLASSIC SHARES
Number of
Name And Address Shares Percentage
National Bank of Commerce 209,018.061 7.26%
TRST Maynard Cooper
P.O. Box 10686
Birmingham, AL 35202-0686
LIMITED MATURITY FUND -- CLASSIC SHARES
NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE
- ---------------- ------ ----------
Morgan Keegan CF Inc. 28,704.275 7.15%
Robert P. Hall DMD SEP IRA
19493 Scenic HWY 98
Fairhope, AL 36532
</TABLE>
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<PAGE> 98
Alabama Symphony Foundation 103,037.604 25.67%
Attn: Edwina Britton
C/O Alabama Symphony Orchestra
P.O. Box 2125
Birmingham, AL 35201
<TABLE>
<CAPTION>
MUNICIPAL BOND FUND -- CLASSIC SHARES
NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE
- ---------------- ------ ----------
<S> <C> <C>
Sterne Agee Leach Inc. 13,428.891 5.15%
AC 2432-0915
CMT Plaza Suite 100B
813 Shades Creek Parkway
Birmingham, AL 35209
Lynspen & Company 80,325.445 30.80%
P.O. Box 2554
Birmingham, AL 35290
JC Bradford Co Cust FBO 13,176.907 5.05%
Janet Haynes Revocable
330 Commerce St.
Nashville, TN 37201-1899
Sterne Agee Leach Inc. 17,980.206 6.89%
AC 8102-3199
CMT Plaza Suite 100B
813 Shades Creek Parkway
Birmingham, AL 35209
</TABLE>
PRIME OBLIGATIONS FUND -- CLASS B SHARES
NUMBER OF
NAME AND ADDRESS SHARES PERCENTAGE
BISYS Fund Services 10.00 100.00%
3435 Stelzer Road
Columbus, OH 43219
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<PAGE> 99
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> 100
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 Report of the AmSouth
Mutual Funds, dated as of such dates, which has been previously sent to
Shareholders of each Fund pursuant to the 1940 Act and previously filed with the
Securities and Exchange Commission. Financial Statements (unaudited) for the
AmSouth Mutual Funds, Capital Appreciation Funds (Classic Shares and Class B
Shares) for the six-month period ended January 31, 1998, are all incorporated by
reference to the Semi-Annual Report of the AmSouth Mutual Funds, dated as of
such date which has 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.
B-49
<PAGE> 101
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-50
<PAGE> 102
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-51
<PAGE> 103
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-52
<PAGE> 104
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-53
<PAGE> 105
"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-54
<PAGE> 106
AMSOUTH MUTUAL FUNDS
INSTITUTIONAL MONEY MARKET FUNDS
<TABLE>
<S> <C>
For current yield, purchase,
3435 Stelzer Road and redemption information,
Columbus, Ohio 43219 call (800) 451-8382
</TABLE>
The AmSouth Institutional Money Market Funds (the "Institutional Money
Market Funds") are two of eighteen series of units of beneficial interest
("Shares") each representing interests in one of eighteen separate investment
funds (the "Funds") of AmSouth Mutual Funds (the "Trust"), an open-end
management investment company. All securities or instruments in which the
Institutional Money Market Funds invest have remaining maturities of 397 days or
less. Each Institutional 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. Currently, shares are not being
offered in the Institutional U.S. Treasury Fund.
AMSOUTH INSTITUTIONAL PRIME OBLIGATIONS FUND (the "Institutional Prime
Obligations Fund") seeks current income with liquidity and stability of
principal. The Institutional Prime Obligations Fund invests in high quality U.S.
dollar-denominated money market instruments and other high-quality U.S.
dollar-denominated instruments.
AMSOUTH INSTITUTIONAL U.S. TREASURY FUND (the "Institutional U.S. Treasury
Fund") seeks current income with liquidity and stability of principal. The
Institutional 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 Bank, Birmingham, Alabama ("AmSouth"), acts as the investment
advisor to each Money Market Fund ("Advisor"). BISYS Fund Services, Limited
Partnership ("BISYS Fund Services"), Columbus, Ohio, acts as distributor to each
Institutional Money Market Fund ("Distributor").
Each Institutional Money Market Fund has been divided into three classes of
Shares: Class I Shares, Class II Shares and Class III Shares. Class I Shares
require a minimum initial investment of $3 million and are offered to (i)
Customers for whom AmSouth acts in a fiduciary, advisory, custodial, agency, or
similar capacity, and (ii) fiduciary Customers of other Financial Institutions
approved by the Distributor. Class II Shares and Class III Shares are offered as
a cash sweep vehicle to institutional or corporate Customers of AmSouth and of
other Financial Institutions approved by the Distributor.
This Prospectus relates only to the Institutional Money Market Funds.
Interested persons who wish to obtain a copy of the prospectuses of the AmSouth
Equity Fund, the AmSouth Regional Equity Fund, the AmSouth Balanced Fund, the
AmSouth Capital Growth Fund, the AmSouth Small Cap Fund, the AmSouth Equity
Income Fund, the AmSouth Select Equity Fund, and the AmSouth Enhanced Market
Fund (the "Capital Appreciation Funds"); the AmSouth Bond Fund, the AmSouth
Limited Maturity Fund, the AmSouth Government Income Fund, the AmSouth Municipal
Bond Fund, and the AmSouth Florida Tax-Free Fund (the "Income Funds"); the
AmSouth Prime Obligations Fund, the AmSouth U.S. Treasury Fund and the AmSouth
Tax Exempt Fund (the "Money Market Funds") may contact the Distributor at the
telephone number shown above. Additional information about the Institutional
Money Market Funds, contained in a Statement of Additional Information, has been
filed with the Securities and Exchange Commission and is available upon request
without charge by writing to the Trust at its address or by calling the Trust at
the telephone number shown above. The Statement of Additional Information bears
the same date as this Prospectus and is incorporated by reference in its
entirety into this Prospectus.
<PAGE> 107
This Prospectus sets forth concisely the information about the
Institutional Money Market Funds that a prospective investor ought to know
before investing. Investors should read this Prospectus and retain it for future
reference.
THE TRUST'S SHARES ARE NOT DEPOSITS OR OBLIGATIONS OF, OR ENDORSED OR GUARANTEED
BY AMSOUTH OR ANY OF ITS AFFILIATES. THE TRUST'S SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR BY ANY OTHER AGENCY. AN INVESTMENT IN THE TRUST'S SHARES INVOLVES INVESTMENT
RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
------------------------
AN INVESTMENT IN A FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. THERE CAN BE NO ASSURANCE THAT A FUND WILL BE ABLE TO MAINTAIN A
STABLE NET ASSET VALUE OF $1.00 PER SHARE.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS
THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION OF THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
The date of this Prospectus is September 1, 1998.
<PAGE> 108
FEE TABLE
<TABLE>
<CAPTION>
INSTITUTIONAL INSTITUTIONAL
PRIME OBLIGATIONS FUND U.S. TREASURY FUND
-------------------------------- --------------------------------
CLASS I CLASS II CLASS III CLASS I CLASS II CLASS III
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 (after voluntary fee
reductions)(3)........................... 0.07% 0.07% 0.07% 0.07% 0.07% 0.07%
12b-1 Fees................................. 0.00% 0.25% 0.50% 0.00% 0.25% 0.50%
Other Expenses(4).......................... 0.18% 0.18% 0.18% 0.18% 0.18% 0.18%
Total Fund Operating Expenses (after
voluntary fee reductions)(5)............. 0.25% 0.50% 0.75% 0.25% 0.50% 0.75%
==== ==== ==== ==== ==== ====
</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 an Institutional 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 0.20% for the Class I, Class
II and Class III Shares of the Institutional Prime Obligations Fund and the
Institutional U.S. Treasury Fund.
(4) Absent the voluntary reduction of administration fees, Other Expenses would
be 0.20% for Class I Shares of the Institutional Prime Obligations Fund,
0.20% for Class II Shares of the Institutional Prime Obligations Fund, 0.20%
for Class III Shares of the Institutional Prime Obligations Fund, 0.20% for
Class I Shares of the Institutional U.S. Treasury Fund, 0.20% for Class II
Shares of the Institutional U.S. Treasury Fund and 0.20% for Class III
Shares of the Institutional U.S. Treasury Fund. Other Expenses are based on
estimated amounts for the current fiscal year.
(5) Absent the voluntary reduction of investment advisory and administration
fees, Total Fund Operating Expenses would be 0.40% for Class I Shares of the
Institutional Prime Obligations Fund, 0.65% for Class II Shares of the
Institutional Prime Obligations Fund, 0.90% for Class III Shares of the
Institutional Prime Obligations Fund, 0.40% for Class I Shares of the
Institutional U.S. Treasury Fund, 0.65% for Class II Shares of the
Institutional U.S. Treasury Fund and 0.90% for Class III Shares of the
Institutional U.S. Treasury Fund.
3
<PAGE> 109
EXAMPLE:
You would pay the following expenses on a $1,000 investment in a Fund,
assuming (1) 5% annual return and (2) redemption at the end of each time period.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------------------------------ ------------------------------
CLASS I CLASS II CLASS III CLASS I CLASS II CLASS III
SHARES SHARES SHARES SHARES SHARES SHARES
------- -------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Institutional Prime Obligations Fund................ $3 $5 $8 $8 $16 $24
Institutional U.S. Treasury Fund.................... $3 $5 $8 $8 $16 $24
</TABLE>
The purpose of the tables above is to assist an investor in a Fund in
understanding the various costs and expenses that an investor in a Fund will
bear directly or indirectly. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS" for a more
complete discussion of annual operating expenses of the Institutional Money
Market Funds.
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
4
<PAGE> 110
INVESTMENT OBJECTIVES AND POLICIES
The investment objective of the Institutional Prime Obligations Fund and the
Institutional U.S. Treasury Fund is to seek current income with liquidity and
stability of principal. Although the Institutional Prime Obligations Fund and
the Institutional U.S. Treasury Fund have the same Advisor and the same
investment objective, their particular portfolio securities and yield will
ordinarily differ due to differences in the types of investments permitted, cash
flow, and the availability of particular portfolio investments. Market
conditions and interest rates may affect the types and yields of securities held
in each Fund. The investment objective of each Institutional Money Market Fund
is fundamental and may not be changed without a vote of the outstanding Shares
of that Fund (as defined below under "GENERAL INFORMATION -- Miscellaneous.")
There can be, of course, no assurance that either Institutional Money Market
Fund will achieve its investment objective.
Changes in prevailing interest rates may affect the yield, and possibly the
net asset value, of each Fund. Each of the Institutional Money Market Funds
invests only in those securities and instruments considered by the Advisor to
present minimal credit risks under guidelines established by the Trust's Board
of Trustees. All securities or instruments in which each of the Institutional
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
Institutional Money Market Fund will not exceed 90 days.
THE INSTITUTIONAL PRIME OBLIGATIONS FUND invests in U.S. dollar-denominated,
high-quality short-term debt instruments. All securities in which the Fund
invests will be eligible for purchase by a national bank in accordance with
federal law and regulations. 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 Institutional 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 INSTITUTIONAL 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 than
ordinary debt securities because of the manner in which their principal and
interest are returned to investors. Obligations purchased by the Institutional
U.S. Treasury Fund may be subject to repurchase agreements collateralized by the
underlying U.S. Treasury obligation.
U.S. GOVERNMENT SECURITIES
The Institutional 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
5
<PAGE> 111
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 Institutional
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.
BANK OBLIGATIONS
The Institutional 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 Institutional 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.
FOREIGN OBLIGATIONS
The Institutional Prime Obligations Fund may also invest in Eurodollar
Certificates of Deposits ("ECDs") which are U.S. dollar-denominated certificates
of deposit issued by offices of foreign and domestic banks located outside the
United States; Eurodollar Time Deposits ("ETDs") which are U.S.
dollar-denominated deposits in a foreign branch of a U.S. bank or a foreign
bank; Canadian Time Deposits ("CTDs") which are essentially the same as ETDs
except they are issued by Canadian offices of major Canadian banks; and Yankee
Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued
by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the
United States.
The Institutional 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 Institutional Prime Obligations Fund may invest in commercial paper
(including variable amount master demand notes) issued by U.S. or foreign
corporations. The Institutional 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.
Investments in ECDs, ETDs, CTDs, Yankee CDs, CCP, and Europaper may subject
the Institutional Prime Obligations Fund to investment risks that differ in some
respects from those related to investments in obligations of U.S. domestic
issuers. Such risks include future adverse political and economic developments,
the possible imposition of foreign withholding taxes on interest income,
possible seizure, currency blockage, nationalization, or expropriation of
foreign deposits, the possible establishment of exchange controls, or the
adoption of other foreign governmental restrictions which might adversely effect
the payment of principal and interest on such obligations. In addition, foreign
branches of U.S. banks and foreign banks may be subject to less stringent
reserve requirements and to different accounting, auditing, reporting, and
record keeping standards than those applicable to domestic
6
<PAGE> 112
branches of U.S. banks. The Institutional 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.
VARIABLE AMOUNT DEMAND NOTES
Variable amount master demand notes in which the Institutional 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 Institutional Prime
Obligations Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, the Institutional 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.
FUNDING AGREEMENTS
The Institutional Prime Obligations Fund may invest in funding agreements
("Funding Agreements"), also known as guaranteed investment contracts, issued by
insurance companies. Pursuant to such agreements, the Institutional Prime
Obligations Fund invests an amount of cash with an insurance company and the
insurance company credits such investment on a monthly basis with guaranteed
interest which is based on an index. The Funding Agreements provide that this
guaranteed interest will not be less than a certain minimum rate. The Funding
Agreements provide for adjustment of the interest rate monthly and are
considered variable rate instruments. The Institutional Prime Obligations Fund
will only purchase a Funding Agreement (i) when the Advisor has determined,
under guidelines established by the Board of Trustees, that the Funding
Agreement presents minimal credit risks to the Institutional Prime Obligations
Fund and is of comparable quality to instruments that are rated high quality by
an NRSRO that is not an affiliated person, as defined in the Investment Company
Act of 1940, of the issuer, or any insurer, guarantor, or provider of credit
support for the instrument and (ii) if it may receive all principal of and
accrued interest on a Funding Agreement at any time upon thirty days' written
notice. Because the Institutional Prime Obligations Fund may not receive the
principal amount of a Funding Agreement from the insurance company on seven
days' notice or less, the Funding Agreement is considered an illiquid
investment, and, together with other instruments in the Fund which are not
readily marketable, may not exceed 10% of the Fund's net assets. In determining
average weighted portfolio maturity, a Funding Agreement will be deemed to have
a maturity equal to 30 days, representing the period of time remaining until the
principal amount can be recovered through demand.
ASSET-BACKED SECURITIES
The Institutional Prime Obligations Fund may invest in securities backed by
automobile receivables and credit-card receivables and other securities backed
by other types of receivables.
Offerings of Certificates for Automobile Receivables ("CARS") are structured
either as flow-through grantor trusts or as pay-through notes. CARS structured
as flow-through instruments represent ownership interests in a fixed pool of
receivables. CARS structured as pay-through notes are
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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. The CARDS principal balance remains constant during this
period, while any cardholder repayments or new borrowings flow to the issuer's
participation. Once the principal amortization phase begins, the balance
declines with paydowns on the underlying portfolio. Cash flows on CARDS are
certain during the interest-only period. After this initial interest-only
period, the cash flow will depend on how fast cardholders repay their
borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments on
CARDS depend specifically on the method for allocating cardholder repayments to
investors. In many cases, the investor's participation is based on the ratio of
the CARDS' balance to the total credit card portfolio balance. This ratio can be
adjusted monthly or can be based on the balances at the beginning of the
amortization period. In some issues, investors are allocated most of the
repayments, regardless of the CARDS' balance. This method results in especially
fast amortization.
Credit support for asset-backed securities may be based on the underlying
assets or provided by a third party. Credit enhancement techniques include
letters of credit, insurance bonds, limited guarantees (which are generally
provided by the issuer), senior-subordinated structures and over
collateralization. Asset-backed securities purchased by the Institutional Prime
Obligations Fund will be subject to the same quality requirements as other
securities purchased by the Fund.
OTHER INVESTMENTS
The Institutional 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, as amended.
The Institutional Prime Obligations Fund may also invest in short-term
municipal obligations.
REPURCHASE AGREEMENTS
Securities held by the Institutional Money Market Funds may be subject to
repurchase agreements. If the seller under a repurchase agreement were to
default on its repurchase obligation or become insolvent, an Institutional Money
Market Fund would suffer a loss to the extent that the proceeds from a sale of
the underlying portfolio securities were less than the repurchase price under
the agreement, or to the extent that the disposition of such securities by the
Institutional Money Market Fund were delayed pending court action. Additionally,
if the seller should be involved in bankruptcy or insolvency proceedings, the
Institutional Money Market Fund may incur delays and costs in selling the
underlying security or may suffer a loss of principal and interest if the
Institutional Money Market Fund is treated as an unsecured creditor and required
to return the underlying security to the seller's estate. Except as described
below under "Investment Restrictions" there is no aggregate limitation on the
amount of any Institutional Money Market Fund's total assets that may be
invested in instruments which are subject to repurchase agreements.
REVERSE REPURCHASE AGREEMENTS
Each Institutional Money Market Fund may borrow funds for temporary purposes
by entering into
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reverse repurchase agreements in accordance with the investment restrictions
described below. Pursuant to such agreements, an Institutional Money Market Fund
would sell portfolio securities to financial institutions such as banks and
broker-dealers, and agree to repurchase them at a mutually agreed-upon date and
price. Reverse repurchase agreements involve the risk that the market value of
the securities sold by an Institutional Money Market Fund may decline below the
price at which the Institutional Money Market Fund is obligated to repurchase
the securities.
INVESTMENT RESTRICTIONS
Each Institutional Money Market 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).
INSTITUTIONAL PRIME OBLIGATIONS FUND
The Institutional 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 Institutional
Prime Obligations Fund's total assets would be invested in such issuer, except
that 25% or less of the value of the Institutional 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
Institutional Prime Obligations Fund's total assets at the time of purchase to
be invested in securities of one or more issuers conducting their principal
business activities in the same industry, provided that (a) there is no
limitation with respect to obligations issued or guaranteed by the U.S.
government or its agencies or instrumentalities, bank certificates of deposit or
bankers' acceptances issued by a domestic bank or by a U.S. branch of a foreign
bank provided that such U.S. branch is subject to the same regulation as 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.
INSTITUTIONAL U.S. TREASURY FUND
The Institutional U.S. Treasury Fund may not purchase securities other than
bills, notes, and bonds issued by the U.S. Treasury, certain of which securities
may be subject to repurchase agreements collateralized by the underlying U.S.
Treasury obligation.
INSTITUTIONAL PRIME OBLIGATIONS FUND AND INSTITUTIONAL U.S. TREASURY FUND
The Institutional Prime Obligations Fund and the Institutional U.S. Treasury
Fund may not:
1. Borrow money or issue senior securities, except that each Institutional
Money Market Fund may borrow from banks or enter into reverse repurchase
agreements for temporary purposes in amounts up to 10% of the value of its total
assets at the time of such borrowing; or mortgage, pledge, or hypothecate any
assets, except in connection with any such borrowing and in amounts not in
excess of the lesser of the dollar amounts borrowed or 10% of the value of the
Fund's total assets at the time of its borrowing. An Institutional Money Market
Fund will not purchase securities while its borrowings
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(including reverse repurchase agreements) exceed 5% of its total assets.
2. Make loans, except that each Institutional Money Market Fund may purchase
or hold debt instruments in accordance with its investment objective and
policies, may lend portfolio securities in accordance with its investment
objective and policies, and may enter into repurchase agreements.
VALUATION OF SHARES
The net asset value of the Institutional Prime Obligations Fund and the
Institutional U.S. Treasury Fund is determined and its Shares are priced as of
2:00 p.m. and 4:00 p.m., Eastern time (the "Valuation Times") on each Business
Day of such Fund. As used herein a "Business Day" constitutes any day on which
the New York Stock Exchange (the "NYSE") is open for trading and the Federal
Reserve Bank of Atlanta is open, except days on which there are not sufficient
changes in the value of the Fund's portfolio securities that the Fund's net
asset value might be materially affected, or days during which no Shares are
tendered for redemption and no orders to purchase Shares are received.
Currently, either the NYSE or the Federal Reserve Bank of Atlanta is closed on
the customary national business holidays of New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. Net asset
value per Share for purposes of pricing sales and redemptions is calculated by
dividing the value of all securities and other assets belonging to an
Institutional Money Market Fund, less the liabilities charged to that Class, by
the number of the outstanding Shares of that Class.
The assets in each Institutional 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
Institutional Money Market Fund will maintain a dollar-weighted average
portfolio maturity of 90 days or less. Although the Trust seeks to maintain each
Institutional Money Market Fund's net asset value per share at $1.00, there can
be no assurance that net asset value will not vary.
HOW TO PURCHASE AND REDEEM SHARES
DISTRIBUTOR
Shares of the Institutional Money Market Funds are sold on a continuous basis
by the Trust's distributor, BISYS Fund Services (the "Distributor"). The
principal office of the Distributor is 3435 Stelzer Road, Columbus, Ohio 43219.
If you wish to purchase Shares, contact the Trust at (800) 451-8382.
Each Institutional Money Market Fund offers three classes of Shares: Class I
Shares, Class II Shares and Class III Shares. The three classes of Shares of a
particular Fund represent interests in the same investments and are identical in
all respects except that (i) Class II Shares and Class III Shares bear the
expense of a fee under the Trust's Distribution and Shareholder Services Plan
(the "Distribution Plan"), which will cause Class II Shares and Class III Shares
to have higher expense ratios and to pay lower dividends than those of the Class
I Shares, and (ii) Class II Shares and Class III Shares have certain exclusive
voting rights with respect to the Distribution Plan.
Class I Shares require a minimum initial investment of $3 million and are
offered to (i) Customers for whom AmSouth acts in a fiduciary, advisory,
custodial, agency, or similar capacity, and (ii) fiduciary Customers of other
Financial Institutions approved by the Distributor. Class II Shares and Class
III Shares are offered as a cash sweep vehicle to institutional or corporate
Customers of
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AmSouth and of other Financial Institutions approved by the Distributor.
PURCHASES OF SHARES
Shares of the Institutional Money Market Funds may be purchased through
procedures established by the Distributor in connection with requirements of
qualified accounts maintained by or on behalf of certain persons ("Customers")
by AmSouth or by a financial institution that provides certain administrative
support services for their customers or accountholders (collectively, "Financial
Institutions"). These procedures may include instructions under which a
Customer's account is "swept" automatically no less frequently than weekly and
amounts in excess of a minimum amount agreed upon by Financial Institutions and
their Customers are invested by the Distributor in Shares of an Institutional
Money Market Fund. This Prospectus should be read in conjunction with
information received from the Financial Institutions.
Shares of the Institutional Money Market Funds sold to Financial Institutions
acting in a fiduciary, advisory, custodial, agency, or similar capacity on
behalf of Customers will normally be held of record by Financial Institutions.
With respect to Shares so sold, it is the responsibility of the particular
Financial Institution to transmit purchase or redemption orders to the
Distributor and to deliver federal funds for purchase on a timely basis.
Beneficial ownership of the Shares will be recorded by the Financial Institution
and reflected in the account statements provided by Financial Institutions to
Customers.
There is no sales charge imposed by the Trust in connection with the purchase
of Shares of an Institutional Money Market Fund.
Shares of the Institutional Money Market Funds are purchased at the
appropriate net asset value per Share (see "VALUATION OF SHARES") next
determined after receipt by the Distributor of an order in good form to purchase
Shares. An order to purchase Shares will be deemed to have been received by the
Distributor only when federal funds with respect thereto are available to the
Trust's custodian for investment. Federal funds are monies credited to a bank's
account within a Federal Reserve Bank. Payment for an order to purchase Shares
which is transmitted by federal funds wire will be available the same day for
investment by the Trust's custodian, if received prior to the last Valuation
Time (see "VALUATION OF SHARES"). Payments transmitted by other means (such as
by check drawn on a member of the Federal Reserve System) will normally be
converted into federal funds within two banking days after receipt. The Trust
strongly recommends that investors use federal funds to purchase Shares.
Each Institutional Money Market Fund has been divided into three classes of
Shares: Class I Shares, Class II Shares and Class III Shares. Class I Shares
require a minimum initial investment of $3 million and are offered to (i)
Customers for whom AmSouth acts in a fiduciary, advisory, custodial, agency, or
similar capacity, and (ii) fiduciary Customers of other Financial Institutions
approved by the Distributor; there is no minimum investment amount for
subsequent purchases.
There is no limitation on the amount of Shares that may be purchased.
Purchases of Shares of an Institutional Money Market Fund will be effected
only on a Business Day (as defined in "VALUATION OF SHARES") of such
Institutional Money Market Fund. An order received prior to a Valuation Time on
any Business Day will be executed at the net asset value determined as of the
next Valuation Time on the date of receipt. An order received after the last
Valuation Time on any Business Day will be executed at the net asset value
determined as of the next Valuation Time on the next Business Day. Shares of an
Institutional Money Market Fund purchased before 2:00 p.m., Eastern time, begin
earning dividends on the same Business Day. All Shares of an Institutional Money
Market Fund continue to earn dividends through the day before their redemption.
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
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particular Fund owned by the Shareholder. In the case of Shares held of record
by Financial Institutions but beneficially owned by a Customer, confirmations of
purchases, exchanges, and redemptions of 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.
EXCHANGE PRIVILEGE
Shares of an Institutional Money Market Fund may be exchanged for Shares of
the same Class of the other Institutional Money Market Fund. Shares of an
Institutional Money Market Fund may not be exchanged for Premier Shares, Classic
Shares or Class B Shares of the other AmSouth Mutual Funds.
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. 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.
REDEMPTION OF SHARES
Shareholders may redeem their Shares without 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, 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.
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REDEMPTION BY TELEPHONE
A Shareholder may have the payment of redemption requests wired or mailed
directly to a domestic financial institution account previously designated by
the Shareholder on the Account Registration Form. Under most circumstances, such
payments will be transmitted on the next Business Day following 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
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 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. Payment to Shareholders for Shares redeemed will be made within seven
days after receipt by the Transfer Agent of the request for redemption. However,
to the greatest extent possible, the Trust will attempt to honor requests from
Shareholders for same day payments upon redemption of Shares if the request for
redemption is received by the Transfer Agent before 2:00 p.m., Eastern time, on
a Business Day or, if the request for redemption is received after 2:00 p.m.,
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
Institutional Money Market Fund to sell or liquidate portfolio securities in an
amount sufficient to satisfy requests for payments in that manner.
At various times, the Trust may be requested to redeem Shares for which it has
not yet received good payment. In such circumstances, the Trust may delay the
forwarding of proceeds only until payment has been collected for the purchase of
such Shares which may take up to 15 days or more. To avoid delay in payment upon
redemption shortly after purchasing Shares, investors should purchase Shares by
certified or bank check or by wire transfer. The Trust intends to pay cash for
all Shares redeemed, but under abnormal conditions which make payment in cash
unwise, the Trust may make payment wholly or partly in portfolio securities at
their then market value equal to the redemption price. In such cases, an
investor may incur brokerage costs in converting such securities to cash.
The Trust reserves the right to convert, at net asset value, Class I Shares of
any Shareholder to Premier Shares if, because of redemptions of Shares by or on
behalf of the Shareholder, the account of such Shareholder in Class I Shares of
an Institutional Money Market Fund has a value of less than $3 million.
Accordingly, an investor purchasing Class I Shares of an Institutional Money
Market Fund in only the minimum investment amount may be subject to such
involuntary conversion to Premier Shares of a Money Market Fund if he or she
thereafter redeems some of his or her Shares. Before the Trust exercises its
right to convert Class I Shares to Premier Shares, the Shareholder will be given
notice that the value of the Class I Shares in his or her account is less than
the minimum amount and the Shareholder will be allowed 60 days to make an
additional investment in an
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amount which will increase the value of the account to at least $3 million.
See "ADDITIONAL PURCHASE AND REDEMPTION INFORMATION" and
"VALUATION -- Valuation of the Institutional 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, as amended.
DIVIDENDS AND TAXES
The net income of each Institutional 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.
Each Institutional Money Market Fund will be treated as a separate entity for
federal income tax purposes. Each Institutional Money Market Fund intends to
qualify for treatment as a "regulated investment company" under the Internal
Revenue Code of 1986, as amended (the "Code"). If qualified, an Institutional
Money Market Fund will not have to pay federal taxes on amounts it distributes
to Shareholders. Regulated investment companies are subject to a federal excise
tax if they do not distribute their income on a timely basis. Each Institutional
Money Market Fund intends to avoid paying federal income and excise taxes by
timely distributing all its net income and substantially all its net capital
gain income. Shareholders will be advised at least annually as to the character
for federal income tax purposes of distributions made during the year.
The amount of dividends payable with respect to Class I Shares will exceed
dividends on Class II Shares, and the amount of dividends on Class II Shares
will exceed the dividends on Class III Shares, as a result of the Distribution
and Shareholder Services Plan fee of 0.25% applicable to Class II Shares and of
0.50% applicable to Class III Shares.
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 each
Institutional Money Market Fund is expected to be interest income, it is
anticipated that no distributions will qualify for the dividends received
deduction for corporate shareholders. The Institutional Money Market Funds do
not expect to realize any long-term capital gains and, therefore, do not foresee
paying any "capital gains dividends" as described in the Code. Dividends
received by a Shareholder that are derived from the Institutional 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 exemp-
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tion 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.
Additional information regarding federal taxes is contained in the Statement
of Additional Information under "ADDITIONAL PURCHASE AND REDEMPTION
INFORMATION -- Additional Tax Information."
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
Institutional Money Market Funds and Shareholders. Potential investors are urged
to consult their tax advisors concerning their own tax situations and concerning
the application of state and local taxes which may differ from the federal
income tax consequences described above.
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MANAGEMENT OF AMSOUTH MUTUAL FUNDS
TRUSTEES OF THE TRUST
Overall responsibility for management of the Trust rests with the Board of
Trustees of the Trust, who are elected by the Shareholders of the Trust. There
are currently six Trustees, two of whom are "interested persons" of the Trust
within the meaning of that term under the Investment Company Act of 1940, as
amended. 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,
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, 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, 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
</TABLE>
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<TABLE>
<CAPTION>
POSITION(S) HELD PRINCIPAL OCCUPATION
NAME AND ADDRESS WITH THE TRUST DURING THE PAST 5 YEARS
---------------- ---------------- -----------------------
<S> <C> <C>
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 28223 Carolina at Charlotte; from April 1997 to
present, Trustee BISYS Variable Insurance
Funds; from August 1984 to July 1989,
Senior Vice President, University College,
University of Alabama at Birmingham
</TABLE>
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* Indicates an "interested person" of the Trust as defined in the Investment
Company Act of 1940, as amended.
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
providing fund accounting services to the Trust. Messrs. Landreth and Huber are
executive officers and employees of BISYS Fund Services.
INVESTMENT ADVISOR
AmSouth is the Advisor of each Fund of the Trust. AmSouth is the bank
affiliate of AmSouth Bancorporation, one of the largest banking institutions
headquartered in the mid-south region. AmSouth Bancorporation reported assets as
of March 31, 1998 of $19.4 billion and operated 270 banking offices in Alabama,
Florida, Georgia and Tennessee. AmSouth has provided investment management
services through its Trust Investment Department since 1915. As of March 31,
1998, AmSouth and its affiliates had over $8.7 billion in assets under
discretionary management and provided custody services for an additional $21.6
billion in securities. AmSouth is the largest provider of trust services in
Alabama 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
Institutional Money Market Funds, the Advisor manages the Institutional Money
Market Funds, makes decisions with respect to and places orders for all
purchases and sales of their investment securities, and maintains their records
relating to such purchases and sales.
Under an investment advisory agreement between the Trust and the Advisor, the
fee payable to the Advisor by each Institutional Money Market Fund for
investment advisory services is the lesser of (a) a fee computed daily and paid
monthly at the annual rate of twenty one-hundredths of one percent (0.20%) of
such Institutional Money Market Fund's average daily net assets or (b) such fee
as may from time to time be agreed upon in writing by the Trust and the Advisor.
A fee agreed to in writing from time to time by the Trust and the Advisor may be
significantly lower than the fee calculated at the annual rate and the effect of
such lower fee would be to lower an Institutional Money Market Fund's expenses
and increase the net income of the Fund during the period when such lower fee is
in effect.
ADMINISTRATOR
ASO Services Company ("ASO") is the administrator for each Fund of the Trust
(the "Adminis-
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<PAGE> 123
trator"). 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 Institutional Money
Market Funds' administration and operation. Under a management and
administration agreement between the Trust and the Administrator, the fee
payable by each Institutional Money Market Fund to the Administrator for
administration services is the lesser of (a) a fee computed at the annual rate
of ten one-hundredths of one percent (0.10%) of such Institutional Money Market
Fund's average daily net assets or (b) such fee as may from time to time be
agreed upon by the Trust and the Administrator. A fee agreed to from time to
time by the Trust and the Administrator may be significantly lower than the fee
calculated at the annual rate and the effect of such lower fee would be to lower
an Institutional Money Market Fund's expenses and increase the net income of the
Fund during the period when such lower fee is in effect.
SUB-ADMINISTRATORS
AmSouth serves as a Sub-Administrator to the Trust. Pursuant to its current
agreement with the Administrator, the Sub-Administrator has assumed certain of
the Administrator's duties, for which the Sub-Administrator receives a fee, paid
by the Administrator, calculated at an annual rate of up to ten one-hundredths
of one percent (0.10%) of each Institutional Money Market Fund's average daily
net assets.
BISYS Fund Services serves as a Sub-Administrator to the Trust. Pursuant to
its agreement with the Administrator, BISYS is entitled to compensation as
mutually agreed from time to time by it and the Administrator.
DISTRIBUTOR
BISYS Fund Services acts as the Trust's principal underwriter and distributor
(the "Distributor") pursuant to a Distribution Agreement under which shares are
sold on a continuous basis.
Under the Trust's Distribution and Shareholder Services Plan (the
"Distribution Plan"), Class II 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 twenty-five one-hundredths of one
percent (0.25%) of the average daily net assets of Class II Shares of each Fund;
Class III 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 fifty one-hundredths of one percent (0.50%) of
the average daily net assets of the Class III 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 Class II or Class III
Share Fee toward the following: (i) compensation for its services or expenses in
connection with distribution assistance with respect to such Fund's Class II or
Class III 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 Class II or Class III 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 Class II or Class III 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
18
<PAGE> 124
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 II Shares or Class III Shares to the Participating Organization's
customers on whose behalf the investment in such Shares is made and/or to the
provision of shareholder services to the Participating Organization's customers
owning a Fund's Class II Shares or Class III Shares. Under the Distribution
Plan, a Participating Organization may include AmSouth or a subsidiary bank or
nonbank affiliates, or the subsidiaries or affiliates of those banks. A
Servicing Agreement entered into with a bank (or any of its subsidiaries or
affiliates) will contain a representation that the bank (or subsidiary or
affiliate) believes that it possesses the legal authority to perform the
services contemplated by the Servicing Agreement without violation of applicable
banking laws (including the Glass-Steagall Act) and regulations.
The distribution fee will be payable without regard to whether the amount of
the fee is more or less than the actual expenses incurred in a particular year
by the Distributor in connection with distribution assistance or shareholder
services rendered by the Distributor itself or incurred by the Distributor
pursuant to the Servicing Agreements entered into under the Distribution Plan.
If the amount of the distribution fee is greater than the Distributor's actual
expenses incurred in a particular year (and the Distributor does not waive that
portion of the distribution fee), the Distributor will realize a profit in that
year from the distribution fee. If the amount of the distribution fee is less
than the Distributor's actual expenses incurred in a particular year, the
Distributor will realize a loss in that year under the Distribution Plan and
will not recover from a Fund the excess of expenses for the year over the
distribution fee, unless actual expenses incurred in a later year in which the
Distribution Plan remains in effect were less than the distribution fee paid in
that later year.
The Glass-Steagall Act and other applicable laws prohibit banks generally from
engaging in the business of underwriting securities, but in general do not
prohibit banks from purchasing securities as agent for and upon the order of
customers. Accordingly, the Trust will require banks acting as Participating
Organizations to provide only those services which, in the banks' opinion, are
consistent with the then current legal requirements. It is possible, however,
that future legislative, judicial or administrative action affecting the
securities activities of banks will cause the Trust to alter or discontinue its
arrangements with banks that act as Participating Organizations, or change its
method of operations. It is not anticipated, however, that any change in a
Fund's method of operations would affect its net asset value per share or result
in financial loss to any customer.
EXPENSES
AmSouth and the Administrator each bear all expenses in connection with the
performance of their services as Advisor and Administrator, respectively, other
than the cost of securities (including brokerage commissions, if any) purchased
for an Institutional Money Market Fund. No Institutional Money Market Fund will
bear, directly or indirectly, the cost of any activity primarily intended to
result in the distribution of Shares of such Institutional Money Market Fund;
such costs will be borne by the Distributor.
As a general matter, expenses are allocated to the Class I Shares, Class II
Shares and Class III 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
Class II Shares and Class III Shares other than in accordance with the relative
net asset value of the class, are expenses under the Trust's Distribution Plan
which relates only to the Class II Shares and Class III Shares.
BANKING LAWS
AmSouth believes that it possesses the legal authority to perform the
investment advisory services for the Institutional Money Market Funds
contemplated by its investment advisory agreement with
19
<PAGE> 125
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.
20
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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 eighteen series of
shares, one for each of the following Funds: the AmSouth Institutional Prime
Obligations Fund, the AmSouth Institutional U.S. Treasury Fund, the AmSouth
Prime Obligations Fund, the AmSouth U.S. Treasury Fund, the AmSouth Tax Exempt
Fund, the AmSouth Equity Fund, the AmSouth Regional Equity Fund, the AmSouth
Bond Fund, the AmSouth Municipal Bond Fund, the AmSouth Limited Maturity Fund,
the AmSouth Balanced Fund, the AmSouth Government Income Fund, the AmSouth
Florida Tax-Free Fund, the AmSouth Capital Growth Fund, the AmSouth Small Cap
Fund, the AmSouth Equity Income Fund, the AmSouth Select Equity Fund, and the
AmSouth Enhanced Market Fund. Each Fund, except the AmSouth Florida Tax-Free
Fund and the AmSouth Select Equity Fund, is a diversified fund under the
Investment Company Act of 1940, as amended. Each Fund has authorized three
classes of Shares: Premier, Classic and Class B Shares, except for the AmSouth
Institutional Prime Obligations Fund, the AmSouth Institutional U.S. Treasury
Fund, the AmSouth U.S. Treasury Fund and the AmSouth Tax-Exempt Fund. The
AmSouth U.S. Treasury Fund and the AmSouth Tax-Exempt Fund have authorized two
classes of Shares: Premier and Classic Shares. However, Class B Shares are not
currently offered in the AmSouth Limited Maturity Fund, the AmSouth Government
Income Fund, the AmSouth Florida Tax-Free Fund, and the AmSouth Municipal Bond
Fund and Premier Shares are currently not offered in the AmSouth Select Equity
Fund and the AmSouth Enhanced Market Fund. The AmSouth Institutional Prime
Obligations Fund and the AmSouth Institutional U.S. Treasury Fund have
authorized three classes of Shares: Class I Shares, Class II Shares and Class
III Shares. 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, as
amended, shares shall be voted by individual series or class, (ii) when the
Trustees have determined that the matter affects only the interests of one or
more series or class, (iii) when matters pertain to the Shareholder Servicing
Plan, and (iv) when matters pertain to the Distribution Plan.
Overall responsibility for the management of the Trust is vested in the Board
of Trustees. See "MANAGEMENT OF AMSOUTH MUTUAL FUNDS -- Trustees of the Trust."
Individual Trustees are elected by the Shareholders and may be removed by the
Board of Trustees or Shareholders at a meeting held for such purpose in
accordance with the provisions of the Declaration of Trust and the By-laws of
the Trust and Massachusetts law. See "ADDITIONAL INFORMATION -- Miscellaneous"
in the Statement of Additional Information for further information.
CUSTODIAN
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.
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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, the Institutional Money Market Funds' annualized "yield"
and "effective yield" and total return may be presented in advertisements and
sales literature.
The "yield" of an Institutional Money Market Fund is based upon the income
earned by the Institutional 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 an Institutional 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.
Total return is calculated for the past year, five years (if applicable) and
the period since the establishment of an Institutional Money Market Fund.
Average annual total return is measured by comparing the value of an investment
in an Institutional Money Market Fund at the beginning of the relevant period to
the redemption value of the investment at the end of the period (assuming
immediate reinvestment of any dividends or capital gains distributions) and
annualizing the result. Aggregate total return is calculated similarly to
average annual total return except that the return figure is aggregated over the
relevant period instead of annualized.
Yield, effective yield, tax-equivalent yield and total return will be
calculated separately for each Class of Shares. The yield and total return for
Class I Shares will be higher than that of the Class II Shares for the same
period as a result of the Distribution and Shareholder Services Plan fee of
0.25% applicable to Class II Shares. The yield and total return for Class II
Shares will be higher than that of the Class III Shares for the same period as a
result of the Distribution and Shareholder Services Plan fee of 0.25% applicable
to Class II Shares and 0.50% applicable to Class III Shares.
Investors may also judge the performance of each Institutional Money Market
Fund by comparing its performance to the performance of other mutual funds with
comparable investment objectives and policies through various mutual fund or
market indices and data such as that provided by Lipper Analytical Services,
Inc. and Donoghue's MONEY FUND REPORT. Comparisons may also be made to indices
or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal,
The New York Times, Business Week, American Banker, Fortune, Institutional
Investor, Ibbotson Associates, Inc., Morningstar, Inc., CDA/Wiesenberger,
Pensions and Investments, U.S.A. Today and local newspapers and periodicals. In
addition to performance information, general information about these Funds that
appears in a publication such as those mentioned above may be included in
advertisements, sales literature and in reports to Shareholders. Additional
performance information is contained in the Trust's Annual Report, which is
available free of charge by calling the number on the front page of the
Prospectus.
Information about performance of an Institutional Money Market Fund is based
on the Institutional Money Market Fund's record up to a certain date and is not
intended to indicate future performance. Yield and total return of any
investment is generally a function of portfolio quality and maturity, type of
investments and operating expenses. Yields and total return of each
Institutional Money Market Fund will fluctuate. Any fees charged by the
Financial Institutions to their Customers in connection with investment in a
Institutional Money Market Fund are not reflected in the Fund's performance
information.
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<PAGE> 128
MISCELLANEOUS
Shareholders will receive unaudited semi-annual reports and annual reports
audited by independent public accountants.
As used in this Prospectus and in the Statement of Additional Information,
"assets belonging to a Fund" means the consideration received by the Trust upon
the issuance or sale of Shares in that Fund, together with all income, earnings,
profits, and proceeds derived from the investment thereof, including any
proceeds from the sale, exchange, or liquidation of such investments, and any
funds or payments derived from any reinvestment of such proceeds, and any
general assets of the Trust not readily identified as belonging to a particular
Fund that are allocated to that Fund by the Trust's Board of Trustees. The Board
of Trustees may allocate such general assets in any manner it deems fair and
equitable. It is anticipated that the factor that will be used by the Board of
Trustees in making allocations of general assets to particular Funds will be the
relative net assets of the respective Funds at the time of allocation. Assets
belonging to a particular Fund are charged with the direct liabilities and
expenses in respect of that Fund, and with a share of the general liabilities
and expenses of the Trust not readily identified as belonging to a particular
Fund that are allocated to that Fund in proportion to the relative net assets of
the respective Funds at the time of allocation. The timing of allocations of
general assets and general liabilities and expenses of the Trust to particular
Funds will be determined by the Board of Trustees of the Trust and will be in
accordance with generally accepted accounting principles. Determinations by the
Board of Trustees of the Trust as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any
general assets with respect to a particular Fund are conclusive.
As used in this Prospectus and in the Statement of Additional Information, a
"vote of a majority of the outstanding Shares" of the Trust or a particular Fund
means the affirmative vote, at a meeting of Shareholders duly called, of the
lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund
present at such meeting at which the holders of more than 50% of the votes
attributable to the Shareholders of record of the Trust or such Fund are
represented in person or by proxy, or (b) the holders of more than 50% of the
outstanding votes of Shareholders of the Trust or such Fund.
Under Massachusetts law, Shareholders could, under certain circumstances, be
held personally liable for the obligations of the Trust. However, the Trust's
Declaration of Trust disclaims Shareholder liability for acts or obligations of
the Trust and requires that notice of such disclaimer be given in every
agreement, obligation or instrument entered into or executed by the Trust or the
Trustees. The Declaration of Trust provides for indemnification out of a Fund's
property for all loss and expense of any Shareholder of such Fund held liable on
account of being or having been a Shareholder. Thus, the risk of a Shareholder
incurring financial loss on account of Shareholder liability is limited to
circumstances in which a Fund would be unable to meet its obligations.
Inquiries regarding the Trust may be directed in writing to the AmSouth Mutual
Funds at P.O. Box 182733, Columbus, Ohio 43218-2733, or by calling toll free
(800) 451-8382.
23
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AMSOUTH MUTUAL FUNDS
INVESTMENT ADVISOR
AmSouth Bank
1901 Sixth Avenue North
Birmingham, AL 35203
DISTRIBUTOR
BISYS Fund Services, Limited Partnership
3435 Stelzer Road
Columbus, OH 43219
ADMINISTRATOR
ASO Services Company
3435 Stelzer Road
Columbus, OH 43219
LEGAL COUNSEL
Ropes & Gray
One Franklin Square
1301 K Street, N.W.
Suite 800 East
Washington, DC 20005-3333
TRANSFER AGENT
BISYS Fund Services, Inc.
3435 Stelzer Road
Columbus, OH 43219
AUDITORS
PricewaterhouseCoopers LLP
100 East Broad Street
Columbus, OH 43215
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
Fee Table...................................... 3
Investment Objectives and Policies............. 5
Investment Restrictions........................ 9
Valuation of Shares............................ 10
How to Purchase and Redeem Shares.............. 10
Dividends and Taxes............................ 14
Management of The AmSouth Mutual Funds......... 16
General Information............................ 21
</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.
AS5P090198
<PAGE> 130
AMSOUTH MUTUAL FUNDS
AMSOUTH
AMSOUTH BANK
Investment Advisor
INSTITUTIONAL
MONEY MARKET
FUNDS
AMSOUTH
MUTUAL FUNDS
Not FDIC Insured
BISYS FUND SERVICES, DISTRIBUTOR
Prospectus dated September 1, 1998
<PAGE> 131
AMSOUTH MUTUAL FUNDS
INSTITUTIONAL MONEY MARKET FUNDS
Statement of Additional Information
September 1, 1998
-----------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of the AmSouth Institutional Prime
Obligations Fund and the AmSouth Institutional U.S. Treasury Fund (each a "Fund"
and collectively the "Funds"), dated September 1, 1998. This Statement of
Additional Information is incorporated by reference in its entirety into the
Prospectus. A copy of the Funds' 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> 132
TABLE OF CONTENTS
-----------------
Page
----
AMSOUTH INSTITUTIONAL MONEY MARKET FUNDS...............................1
INVESTMENT OBJECTIVES AND POLICIES.....................................2
Additional Information on Portfolio Instruments...............2
Investment Restrictions.......................................6
Additional Investment Restrictions............................7
Portfolio Turnover............................................7
VALUATION..............................................................8
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION.........................9
Purchase of Shares............................................9
Matters Affecting Redemption..................................9
Additional Tax Information...................................10
MANAGEMENT OF THE TRUST...............................................12
Officers ....................................................12
Investment Advisor...........................................13
Portfolio Transactions.......................................18
Glass-Steagall Act...........................................19
Administrator................................................20
Expenses ....................................................22
Sub-Administrators...........................................22
Distributor..................................................22
Custodian....................................................24
Transfer Agent and Fund Accounting Services..................24
Auditors ....................................................24
Legal Counsel................................................24
PERFORMANCE INFORMATION...............................................24
Yields of the Institutional Money Market Funds ..............25
Calculation of Total Return..................................25
Performance Comparisons......................................26
ADDITIONAL INFORMATION................................................27
Organization and Description of Shares.......................27
Shareholder Liability........................................28
B-i
<PAGE> 133
FINANCIAL STATEMENTS..................................................32
APPENDIX .............................................................33
B-ii
<PAGE> 134
STATEMENT OF ADDITIONAL INFORMATION
AMSOUTH INSTITUTIONAL MONEY MARKET FUNDS
AmSouth Mutual Funds (the "Trust") is an open-end management investment
company. The Trust consists of eighteen series of units of beneficial interest
("Shares"), each representing interests in one of eighteen separate investment
portfolios (each a "Fund"). This Statement of Additional Information relates to
two of these Funds: the AmSouth Institutional Prime Obligations Fund (the
"Institutional Prime Obligations Fund") and the AmSouth Institutional U.S.
Treasury Fund (the "Institutional U.S. Treasury Fund," and these two Funds being
collectively referred to as the "Institutional Money Market Funds"). The Trust's
other fourteen Funds, which are offered through separate prospectuses and have a
separate Statement of Additional Information, are: 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,
collectively, with the Prime Obligations Fund and the U.S. Treasury Fund, 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"), the AmSouth Select
Equity Fund ("Select Equity Fund"), the AmSouth Enhanced Market Fund (the
"Enhanced Market Fund") and the AmSouth Equity Income Fund (the "Equity Income
Fund" and, collectively with the Equity Fund, the Regional Equity Fund, the
Balanced Fund, the Capital Growth Fund, and the Small Cap Fund, the "Capital
Appreciation Funds"), 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, collectively with the Bond Fund, the Limited Maturity Fund, the
Government Income Fund and the Municipal Bond Fund, the "Income Funds," and the
Florida Fund and the Municipal Bond Fund sometimes collectively referred to
herein as the "Tax-Free Funds.")
The Institutional Prime Obligations Fund and the Institutional U.S.
Treasury Fund offer three classes of Shares: Class I Shares, Class II Shares and
Class III Shares. Some of the information contained in this Statement of
Additional Information expands on subjects discussed in the Prospectus.
Capitalized terms not defined herein are defined in the Prospectus. No
investment in Shares of a Fund should be made without first reading that Fund's
Prospectus.
<PAGE> 135
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 Institutional Money Market Funds. As
noted in the Prospectus for the Institutional Money Market Funds, each 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 Board of Trustees.
With regard to the Institutional 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. For purposes of this investment
limitation, 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 Institutional Prime Obligations 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 Institutional 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
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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 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. The Institutional
Prime Obligation 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. The Institutional Prime Obligations 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.
The Institutional Prime Obligations Fund may invest in (i) Canadian
Commercial Paper, which is commercial paper issued by a Canadian corporation or
a Canadian counterpart
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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 Institutional Prime Obligations Fund may invest, are
unsecured demand notes that permit the indebtedness thereunder to vary and
provide for periodic readjustments in the interest rate according to the terms
of the instrument. They are also referred to as variable rate demand notes.
Because these notes are direct lending arrangements between a Fund and the
issuer, they are not normally traded. Although there may be no secondary market
in the notes, a Fund may demand payment of principal and accrued interest at any
time or during specified periods not exceeding one year, depending upon the
instrument involved, and may resell the note at any time to a third party. The
absence of such an active secondary market, however, could make it difficult for
the Fund to dispose of a variable amount master demand note if the issuer
defaulted on its payment obligations or during periods when the Fund is not
entitled to exercise its demand rights, and the Fund 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 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. The Institutional Prime Obligations Fund may,
subject to its 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
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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 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.
The Fund will acquire such securities only when the 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 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 will monitor the collateral's value
to ensure that it equals or exceeds the repurchase price (including accrued
interest). In addition, securities subject to repurchase agreements will be held
in a segregated account. If the seller were to default on its repurchase
obligation or become insolvent, the Fund holding such obligation would suffer a
loss to the extent that the proceeds from a sale of the underlying portfolio
securities were less than the repurchase price under the agreement, or to the
extent that the disposition of such securities by the Fund were delayed pending
court action. Additionally, if the seller should be involved in bankruptcy or
insolvency proceedings, a Fund may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Fund
is treated as an unsecured creditor and required to return the underlying
security to the seller's estate. Securities subject to repurchase agreements
will be held by the Trust's custodian or another qualified custodian or in the
Federal Reserve/Treasury book-entry system. Repurchase agreements are considered
to be loans by a Fund under the 1940 Act.
Reverse Repurchase Agreements. As discussed in the Prospectus, the
Funds 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
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<PAGE> 139
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 assets
consisting of U.S. government securities or other liquid high quality debt
securities having a value equal to the repurchase price (including accrued
interest), in a segregated custodial account and will subsequently monitor the
account to ensure that such equivalent value is maintained. 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 Institutional 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.
The Institutional Prime Obligations Fund 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
believes that the credit risk with respect thereto is minimal.
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).
None of the Institutional Money Market 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 the Institutional Prime Obligations Fund, in
marketable securities of companies engaged in such activities and in securities
secured by real estate or interests therein are not hereby precluded);
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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 Institutional 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
Institutional Prime Obligations 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 Institutional Prime Obligations Fund, or (iii)
securities issued by the acquired company and all other investment companies
(other than Treasury stock of the Institutional Prime Obligations Fund) having
an aggregate value in excess of 10% of the value of the Institutional Prime
Obligations 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 Institutional Money Market Funds may not buy common stocks or
voting securities, or state, municipal, or private activity bonds. The
Institutional Money Market Funds may not write or purchase put or call options.
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
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<PAGE> 141
acquisition were one year or less. Portfolio turnover with respect to each of
the Institutional Money Market Funds is expected to be zero percent for
regulatory purposes.
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. 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. 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 Prospectus, the net asset value of each
Institutional Money Market Fund is determined and the Shares of each Fund are
priced as of 2:00 p.m. 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.
The Institutional 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 Institutional Money Market Fund will
maintain a dollar-weighted average portfolio maturity appropriate to its
objective of maintaining a stable net asset value per Share, provided that no
Fund will purchase any security with a remaining maturity of more than thirteen
months (securities subject to repurchase agreements may bear longer maturities)
nor maintain a dollar-weighted average portfolio maturity which exceeds 90 days.
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
Institutional Money Market Funds for purposes
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<PAGE> 142
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.
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 Prospectus, the public offering price of the Class I,
Class II, and Class III Shares is their net asset value per Share, as next
computed after an order is received.
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.
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" above.
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Additional Tax Information
- --------------------------
It is the policy of each Fund to qualify for the favorable tax
treatment accorded regulated investment companies under Subchapter M of the
Internal Revenue Code of 1986, as amended. By following such policy, the 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 date of the Fund's first tax year, 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 quality as a regulated investment company. This 30% of gross
income test described above may restrict a Fund's ability to sell certain assets
held (or considered under Code rules to have been held) for less than three
months and to engage in certain hedging transactions (including hedging
transactions in options and futures) that in some circumstances could cause
certain Fund assets to be treated as held for less than three months.
A non-deductible 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 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
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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 Fund will be required in certain cases to withhold and remit to
the U.S. 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.
Information set forth in the Prospectus 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 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
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<PAGE> 145
with specific reference to their own tax situation. In addition, the tax
discussion in the Prospectus and this Statement of Additional Information is
based on tax laws and regulations which are in effect on the date of the
Prospectus and 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).
Chuck Booth Treasurer From 1991 to present, employee of BISYS Fund
Services Limited Partnership.
John F. Calvano President From October, 1994 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.
Robin Thomas Secretary From May, 1997 to present, employee of
BISYS Fund Services Limited Partnership;
from April 1989 to May 1997, employee of
AmSouth Bank.
James L. Smith Assistant Secretary From October, 1996 to present, employee of
BISYS Fund Services Limited Partnership; from
October, 1995 to October, 1996, employee of
Davis, Graham & Stubbs; from June, 1991 to
October, 1995, Director of Legal and Compliance,
ALPS Mutual Fund Services, Inc.
</TABLE>
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<PAGE> 146
<TABLE>
<S> <C> <C>
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. Booth, Calvano, Landreth, Grimm, and
Smith and Mme. Thomas and Metz are employees of BISYS Fund Services, Limited
Partnership.
<TABLE>
COMPENSATION TABLE (1)
----------------------
<CAPTION>
Pension or Total
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued Annual from AmSouth
Name of from AmSouth As Part of Benefits Upon Mutual Funds
Position Mutual Funds Fund Expenses Retirement Paid to Trustee
- -------- ------------ ------------- ---------- ---------------
<S> <C> <C> <C> <C>
J. David Huber None None None None
James H
Woodward, Jr 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.
Investment Advisor
- ------------------
Investment advisory and management services are provided to the Money
Market Funds, the Institutional 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
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<PAGE> 147
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, Capital Growth Fund and Small Cap 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 Institutional Prime Obligations Fund - twenty
one-hundredths of one percent (0.20%) annually; the Institutional U.S. Treasury
Fund - twenty one-hundredths of one percent (0.20%) 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; the
Small Cap Fund - one hundred twenty one-hundredths of one percent (1.20%)
annually; the Select Equity Fund - eighty one hundredths of one percent (.80%)
annually; and the Enhanced Market Fund - forty-five hundredths of one percent
(.45%) annually. A fee agreed to in writing from time to time by the Trust and
the Advisor may be significantly lower than the fee calculated at the annual
rate and the effect of such lower fee would be to lower a Fund's expenses and
increase the net income of such Fund during the period when such lower fee is in
effect.
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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 the 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 the 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 the Florida Fund,
respectively. For the fiscal year ended July 31, 1996, investment advisory fees
paid to the Advisor reflect voluntary fee reductions of $962, $165,186, $87,670,
$169,405, $61,522 and $171,316, for the Regional Equity Fund, the Bond Fund, the
Limited Maturity Fund, the Balanced Fund, the Government Income Fund and Florida
Fund, respectively.
For the fiscal year ended July 31, 1995, the Advisor received
$1,841,031, $478,789, $461,002, $253,511, $1,807,557 and $29,835 from the Equity
Fund, the Regional Equity Fund, the Bond Fund, the Limited Maturity Fund, the
Balanced Fund and the Government Income Fund, respectively. For the fiscal year
ended July 31, 1995, investment advisory fees paid to the Advisor reflect
voluntary fee reductions of $3,057, $302, $138,571, $76,328, $259,520 and
$66,952, for the Equity Fund, the Regional Equity Fund, the Bond Fund, the
Limited Maturity Fund, the Balanced Fund and the Government Income Fund. For the
period from commencement of operations (September 30, 1994) through July 31,
1995, the Advisor received $124,256 from the Florida Fund, which reflects a
voluntary reduction in fees of $111,697.
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
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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 Institutional 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
Institutional 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 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.
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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 ("Sub-Advisory Agreement"). 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 ("Sub-Advisory Agreement"). Investment
sub-advisory services are provided to the Small Cap Fund by Sawgrass Asset
Management, LLC ("Sawgrass" or "Sub-Advisor") pursuant to a Sub-Advisory
Agreement dated as of March 2, 1998 between the Advisor and Sawgrass
("Sub-Advisory Agreement"). Investment sub-advisory services are provided to the
Select Equity Fund and the Enhanced Market Fund pursuant to a Sub-Advisory
Agreement dated as of September 1, 1998 between the Advisor and OakBrook
Investments, LLC ("OakBrook" or "Sub-Advisor").
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 Sub-Advisory Agreement relates, except
that each Sub-Advisor shall be liable to the Advisor for a loss resulting from a
breach of fiduciary duty by each 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 each 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 and Small Cap Fund until January 31, 1999
and with respect to the Capital Growth Fund until July 31, 1999, and with
respect to the Select Equity Fund and Enhanced Market Fund until January 31,
2000 and shall continue in effect for successive one-year periods if such
continuance is approved at least annually by the Board of Trustees of the Trust
or by vote of the holders of a majority of the outstanding voting Shares of the
Fund (as defined under "GENERAL INFORMATION - Miscellaneous" in the Prospectus
of the Capital Appreciation Funds) and a majority of the Trustees who are not
parties to each Sub-Advisory Agreement or interested persons (as defined in the
1940 Act) of any party to each Sub-Advisory Agreement by vote cast in person at
a meeting called for such purpose. This Agreement may be terminated with respect
to the Fund by the Trust at any time without the payment of any penalty by the
Board of Trustees of the Trust, by vote of the holders of a majority of the
outstanding voting securities of the Fund, or by the Advisor or each Sub-Advisor
on 60 days written notice. This Agreement will also immediately terminate in the
event of its assignment.
From time to time, advertisements, supplemental sales literature and
information furnished to present or prospective Shareholders of the Trust may
include descriptions of each investment sub-advisor including, but not limited
to, (i) descriptions of each sub-advisor's
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<PAGE> 151
operations; (ii) descriptions of certain personnel and their functions; and
(iii) statistics and rankings relating to each sub-advisor's operations.
Portfolio Transactions
- ----------------------
Pursuant to the Advisory Agreements, the Advisor or Sub-Advisor
determines, subject to the general supervision of the Board of Trustees of the
Trust and in accordance with each Fund's investment objective, policies and
restrictions, which securities are to be purchased and sold by a Fund, and which
brokers are to be eligible to execute such Fund's portfolio transactions.
Purchases and sales of portfolio securities with respect to the Money Market
Funds, the Institutional Money Market Funds, the Income Funds and the Balanced
Fund (with respect to its debt securities) usually are principal transactions in
which portfolio securities are normally purchased directly from the issuer or
from an underwriter or market maker for the securities. Purchases from
underwriters of portfolio securities include a commission or concession paid by
the issuer to the underwriter and purchases from dealers serving as market
makers may include the spread between the bid and asked price. Transactions on
stock exchanges involve the payment of a negotiated brokerage commissions.
Transactions in over-the-counter market are generally principal transactions
with dealers. With respect to over-the-counter market, the Trust, where
possible, will deal directly with dealers who make a market in the securities
involved except in those circumstances where better price and execution are
available elsewhere. While the Advisor and Sub-Advisor generally seek
competitive spreads or commissions, the Trust may not necessarily pay the lowest
spread or commission available on each transaction, for reasons discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by the Advisor and the Sub-Advisor in their best judgment
and in a manner deemed fair and reasonable to Shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide supplemental
investment research to the Advisor or Sub-Advisor may receive orders for
transactions on behalf of the Trust. Information so received is in addition to
and not in lieu of services required to be performed by the Advisor or
Sub-Advisor and does not reduce the advisory fees payable to the Advisor or the
Sub-Advisor. Such information may be useful to the Advisor or Sub-Advisor in
serving both the Trust and other clients and, conversely, supplemental
information obtained by the placement of business of other clients may be useful
to the Advisor or Sub-Advisor in carrying out their obligations to the Trust.
The Trust will not execute portfolio transactions through, acquire
portfolio securities issued by, make savings deposits in, or enter into
repurchase or reverse repurchase agreements with the Advisor, BISYS, the
Sub-Advisor, or their affiliates, and will not give preference to AmSouth's
correspondents with respect to such transactions, securities, savings deposits,
repurchase agreements, and reverse repurchase agreements.
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<PAGE> 152
Investment decisions for each Fund of the Trust are made independently
from those for the other Funds or any other investment company or account
managed by the Advisor or Sub-Advisor. Any such other investment company or
account may also invest in the same securities as the Trust. When a purchase or
sale of the same security is made at substantially the same time on behalf of a
Fund and another Fund, investment company or account, the transaction will be
averaged as to price and available investments will be allocated as to amount in
a manner which the Advisor or Sub-Advisor believe to be equitable to the Fund(s)
and such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained by a Fund. To the extent permitted by law, the Advisor
or Sub-Advisor may aggregate the 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 $265,582. During the fiscal
year ended July 31, 1996, the Regional Equity Fund paid aggregate brokerage
commissions in the amount of $167,772. During the fiscal year ended July 31,
1996, the Balanced Fund paid aggregate brokerage commissions in the amount of
$489,565.
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
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sponsoring, organizing, or controlling a registered, open-end investment company
continuously engaged in the issuance of its shares, but (b) do not prohibit such
a holding company or affiliate from acting as investment advisor, transfer
agent, and custodian to such an investment company. In 1981, the United States
Supreme Court held in Board of Governors of the Federal Reserve System v.
Investment Company Institute that the Board did not exceed its authority under
the Holding Company Act when it adopted its regulation and interpretation
authorizing bank holding companies and their non-bank affiliates to act as
investment advisors to registered closed-end investment companies. In the Board
of Governors case, the Supreme Court also stated that if a national bank
complied with the restrictions imposed by the Board in its regulation and
interpretation authorizing bank holding companies and their non-bank affiliates
to act as investment advisors to investment companies, a national bank
performing investment advisory services for an investment company would not
violate the Glass-Steagall Act.
AmSouth believes that it possesses the legal authority to perform the
services for each Fund contemplated by the Advisory Agreements regarding that
Fund and described in the Prospectus of that Fund and this Statement of
Additional Information and has so represented in the Advisory Agreement
regarding that Fund. Future changes in either federal or state statutes 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
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performed by BISYS Fund Services, Inc. under its transfer agency and fund
accounting agreements with the Trust).
Under the Administration Agreement, the Administrator has agreed to
monitor the net asset value per Share of the Money Market Funds and the
Institutional 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 Institutional Money Market Fund equal to the lesser of (a) a fee computed
at the annual rate of (0.10%) of an Institutional Money Market Fund's average
daily net assets; or (b) such fee as may from time to time be agreed upon in
writing by the Trust and the 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.
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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<PAGE> 155
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 $1,016,191 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 $11,306
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.
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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 PricewaterhouseCoopers LLP, 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. The address of PricewaterhouseCoopers LLP 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> 158
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 Institutional Money Market Funds
- ----------------------------------------------
As summarized in the Prospectus of the Institutional 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 yield and effective yield of the Institutional Money Market Funds
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.
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 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
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<PAGE> 159
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.
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,
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<PAGE> 160
have at least one year to maturity and be rated "Baa" or higher ("investment
grade") by a nationally recognized statistical rating agency.
All Funds. Current yields or performance will fluctuate from time to time and
are not necessarily representative of future results. Accordingly, a Fund's
yield or performance may not provide for comparison with bank deposits or other
investments that pay a fixed return for a stated period of time. Yield and
performance are functions of a quality, composition, and maturity, as well as
expenses allocated to the Fund. Fees imposed upon customer accounts by Financial
Institutions for cash management services will reduce a Fund's effective yield
to Customers.
ADDITIONAL INFORMATION
Organization and Description of Shares
- --------------------------------------
The Trust was organized as a Massachusetts business trust by the
Agreement and Declaration of Trust, dated October 1, 1987, under the name "Shelf
Registration Trust IV." The Trust's name was changed to "The ASO Outlook Group"
as of April 12, 1988 and to "AmSouth Mutual Funds" as of August 19, 1993 by
amendments to the Agreement and Declaration of Trust. A copy of the Trust's
Agreement and Declaration of Trust, as amended (the "Declaration of Trust") is
on file with the Secretary of State of The Commonwealth of Massachusetts. The
Declaration of Trust authorizes the Board of Trustees to issue an unlimited
number of Shares, which are units of beneficial interest. The Trust presently
has eighteen series of Shares which represent interests in the Prime Obligations
Fund, the U.S. Treasury Fund, the Institutional Prime Obligations Fund, the
Institutional 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, the Equity Income Fund, the Select
Equity Fund, and the Enhanced Market 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.
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<PAGE> 161
As described in the text of the Prospectuses following the caption
"GENERAL INFORMATION -- Description of the Trust and its Shares," Shares of the
Trust are entitled to one vote per share (with proportional voting for
fractional shares) on such matters as Shareholders are entitled to vote.
Shareholders vote in the aggregate and not by series or class on all matters
except (i) when required by the 1940 Act, shares shall be voted by individual
series, (ii) when the Trustees have determined that the matter affects only the
interests of one or more series or class, then only Shareholders of such series
or class shall be entitled to vote thereon, (iii) when matters pertain to the
Shareholder Servicing Plan, and (iv) when matters pertain 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 May 8, 1998, the trustees and officers of the Trust, as a group,
owned less than 1% of the Premier Shares, the Classic Shares and of the Class B
Shares of any of the Prime Obligations Fund, the U.S. Treasury Fund and the Tax
Exempt Fund, and of the Equity Fund, the Regional Equity Fund, the Tax Exempt
Fund, the Bond Fund, the Limited Maturity Fund, the Balanced Fund, the Municipal
Bond Fund, the Government Income Fund, the Florida Fund, and the Equity Income
Fund.
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<PAGE> 162
As of May 11, 1998, AmSouth, 1901 Sixth Avenue North, Birmingham,
Alabama 35203, was the Shareholder of record of 91.33% of the outstanding voting
Shares of the Premier Shares of the Prime Obligations Fund, 97.42% of the
outstanding voting Shares of the Premier Shares of the U.S. Treasury Fund,
99.99% of the outstanding voting Shares of the Premier Shares of the Tax Exempt
Fund, 95.12% of the outstanding voting Shares of the Premier Shares of the
Equity Fund, 94.39% of the outstanding voting Shares of the Premier Shares of
the Regional Equity Fund, 95.27% of the outstanding voting Shares of the Premier
Shares of the Bond Fund, 98.44% of the outstanding voting Shares of the Premier
Shares of the Limited Maturity Fund, 98.46% of the outstanding voting Shares of
the Premier Shares of the Balanced Fund, 96.57% of the outstanding voting Shares
of the Premier Shares of the Florida Fund, 99.99% of the outstanding voting
Shares of the Premier Shares of the Government Income Fund, 99.22% of the
outstanding voting Shares of the Premier Shares of the Municipal Bond Fund,
98.35 % of the outstanding voting Shares of the Premier Shares of the Equity
Income Fund, 95.72% of the outstanding voting Shares of the Premier Shares of
the Capital Growth Fund and 100.00% of the outstanding voting Shares of the
Premier Shares of the Small Cap 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 U.S. Treasury Fund, the Premier Class of the Tax Exempt
Fund, the Premier Class of the Equity Fund, the Premier Class of the Regional
Equity Fund, the Premier Class of the Bond Fund, the Premier Class of the
Limited Maturity Fund, the Premier Class of the Balanced Fund, the Premier Class
of the Municipal Bond Fund, the Premier Class of the Government Income Fund, the
Premier Class of the Florida Fund, the Premier Class of the Equity Income Fund,
the Premier Class of the Capital Growth Fund and the Premier Class of the Small
Cap Fund. The ultimate parent of AmSouth is AmSouth Bancorporation.
As of May 11, 1998 National Financial Services Corporation, One World
Financial Center, 200 Liberty Street, New York, New York 10281, was the
Shareholder of record of 99.06% of the outstanding voting Shares of the Classic
Shares of the Prime Obligations Fund, 85.71 % of the outstanding Shares of the
Classic Shares of the U.S. Treasury Fund, 91.78 % of the outstanding voting
Shares of the Classic Shares of the Tax Exempt Fund, 18.04% of the Government
Income Fund, 19.08% of the outstanding voting Shares of the Classic Shares of
the Bond Fund, 49.13 % of the outstanding voting Shares of the Classic Shares of
the Limited Maturity Fund, 32.23 %of the outstanding voting Shares of the
Classic Shares of the Municipal Bond Fund, 80.84% of the outstanding voting
Shares of the Classic Shares of the Florida Fund, 36.18% of the outstanding
voting Shares of the Classic Shares of the Capital Growth Fund, 49.63% of the
outstanding voting Shares of the Classic Shares of the Small Cap Fund, 86.47% of
the outstanding voting Shares of the Class B Shares of the Bond Fund, 6.79% of
the outstanding voting Shares of the Class B Shares of the Regional Equity Fund
and 18.26% of the outstanding voting Shares of the Class B Shares of the Small
Cap 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 May
11, 1998:
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<PAGE> 163
U.S. Treasury Fund -- Classic Shares
------------------------------------
Number of
Name and Address Shares Percentage
- ---------------- ------ ----------
Association of Edison 852,328.960 12.86%
Illumination
600 18th Street North
Birmingham, AL 35291
Equity Fund - Classic Shares
----------------------------
Number of
Name and Address Shares Percentage
- ---------------- ------ ----------
National Bank of Commerce 208,401.822 7.26%
TRST Maynard Cooper
PO Box 10686
Birmingham, AL 35202-0686
Limited Maturity Fund - Classic Shares
--------------------------------------
Number of
Name and Address Shares Percentage
- ---------------- ------ ----------
Morgan Keegan CF Inc. 28,704.275 6.90%
Robert P. Hall DMD SEP IRA
19493 Scenic HWY 98
Fairhope, AL 36532
Municipal Bond Fund - Classic Shares
------------------------------------
Number of
Name and Address Shares Percentage
- ---------------- ------ ----------
Sterne Agee Leach Inc. 13,428.891 5.38%
AC 2432-0915
CMT Plaza Suite 100B
813 Shades Creek Parkway
Birmingham, AL 35209
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<PAGE> 164
Lynspen & Company 71,869.217 28.79%
PO Box 2554
Birmingham, AL 35290
JC Bradford Co. Cust. FBO 13,176.907 5.28%
Janet Haynes Findlay Revocable
330 Commerce St.
Nashville, TN 37201-1899
Sterne Agee Leach Inc. 17,980.206 7.20%
AC 8102-3199
CMT Plaza Suite 10B
813 Shares Creek Parkway
Birmingham, AL 35209
Prime Obligations Fund - Class B Shares
---------------------------------------
Number of
Name and Address Shares Percentage
- ---------------- ------ ----------
BISYS Fund Services 10.00 100.00%
3435 Stelzer Road
Columbus, OH 43219
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> 165
FINANCIAL STATEMENTS
The Independent Accountant's Report for the year ended July 31, 1997
and the 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> 166
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.
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<PAGE> 167
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.
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<PAGE> 168
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.
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<PAGE> 169
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.
B-36
