<PAGE> 1
AMSOUTH FUNDS
Statement of Additional Information
December 1, 2000
As amended January 10, 2001
-----------------
This Statement of Additional Information is not a Prospectus, but should be read
in conjunction with the Prospectus of the AmSouth Value Fund, the AmSouth Growth
Fund, the AmSouth Capital Growth Fund, the AmSouth Large Cap Fund, the AmSouth
Mid Cap Fund, the AmSouth Small Cap Fund, the AmSouth Equity Income Fund, the
AmSouth Balanced Fund, the AmSouth Select Equity Fund, the AmSouth Enhanced
Market Fund, the AmSouth International Equity Fund, the AmSouth Strategic
Portfolios: Aggressive Growth Portfolio, the AmSouth Strategic Portfolios:
Growth Portfolio, the AmSouth Strategic Portfolios: Growth and Income Portfolio,
the AmSouth Strategic Portfolios: Moderate Growth and Income Portfolio, the
AmSouth Bond Fund, the AmSouth Limited Term Bond Fund, the AmSouth Government
Income Fund, the AmSouth Limited Term U.S. Government Fund, the AmSouth
Municipal Bond Fund, the AmSouth Florida Tax-Exempt Fund, the AmSouth Tennessee
Tax-Exempt Fund, the AmSouth Limited Term Tennessee Tax-Exempt Fund, the AmSouth
Prime Money Market Fund, the AmSouth U.S. Treasury Money Market Fund, the
AmSouth Treasury Reserve Money Market Fund, the AmSouth Tax-Exempt Money Market
Fund, and the AmSouth Prime Obligations Money Market Fund (each a "Fund" and
collectively the "Funds"), each dated [December 1], 2000. 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 Funds at P.O. Box 182733, Columbus, Ohio 43218-2733, or by telephoning
toll free (800) 451-8382.
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
AMSOUTH FUNDS.....................................................................................................1
INVESTMENT OBJECTIVES AND POLICIES................................................................................2
Additional Information on Portfolio Instruments..........................................................3
Investment Restrictions.................................................................................36
Additional Investment Restrictions......................................................................40
Portfolio Turnover......................................................................................43
VALUATION........................................................................................................45
Valuation of the Money Market Funds and the Institutional Money Market Fund.............................45
Valuation of the Capital Appreciation Funds and the Income Funds........................................46
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................46
Purchase of Shares......................................................................................47
Matters Affecting Redemption............................................................................50
Taxes...................................................................................................51
Additional Tax Information..............................................................................54
Additional Tax Information Concerning the Tax-Exempt Fund, the
Tax-Free Funds, the Tennessee Tax-Exempt Fund, and the Limited Term
Tennessee Tax-Exempt Fund......................................................................57
MANAGEMENT OF THE TRUST..........................................................................................61
Officers................................................................................................63
Portfolio Transactions..................................................................................70
Glass-Steagall Act......................................................................................72
Administrator...........................................................................................73
Expenses................................................................................................75
Sub-Administrators......................................................................................76
Distributor.............................................................................................76
Custodian...............................................................................................81
Transfer Agent and Fund Accounting Services.............................................................81
Independent Accountants.................................................................................81
Legal Counsel...........................................................................................82
PERFORMANCE INFORMATION..........................................................................................82
Yields of the Money Market Funds........................................................................83
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
Yield of the Capital Appreciation Funds and the Income Funds............................................84
Calculation of Total Return.............................................................................86
Performance Comparisons.................................................................................95
ADDITIONAL INFORMATION...........................................................................................96
Organization and Description of Shares..................................................................96
Shareholder Liability...................................................................................97
Miscellaneous...........................................................................................97
FINANCIAL STATEMENTS............................................................................................128
APPENDIX........................................................................................................129
</TABLE>
-ii-
<PAGE> 4
STATEMENT OF ADDITIONAL INFORMATION
AMSOUTH FUNDS
AmSouth Funds (the "Trust") is an open-end management investment
company. The Trust consists of twenty-eight series of units of beneficial
interest ("Shares"), each representing interests in one of twenty-eight separate
investment portfolios (each a "Fund"): the AmSouth Value Fund (the "Value
Fund"), the AmSouth Growth Fund (the "Growth Fund"), the AmSouth Small Cap Fund
(the "Small Cap Fund"), the AmSouth Equity Income Fund (the "Equity Income
Fund"), the AmSouth Balanced Fund (the "Balanced Fund"), the AmSouth Select
Equity Fund (the "Select Equity Fund"), the AmSouth Enhanced Market Fund (the
"Enhanced Market Fund"), the AmSouth Capital Growth Fund (the "Capital Growth
Fund"), the AmSouth Large Cap Fund (the "Large Cap Fund"), the AmSouth Mid Cap
Fund (the "Mid Cap Fund"), and the International Equity Fund (the "International
Equity Fund" and these eleven Funds being collectively referred to as the
"Capital Appreciation Funds"), the AmSouth Strategic Portfolios: Aggressive
Growth Portfolio (the "Aggressive Growth Portfolio"), the AmSouth Strategic
Portfolios: Growth Portfolio (the "Growth Portfolio"), and the AmSouth Strategic
Portfolios: Growth and Income Portfolio (the "Growth and Income Portfolio, and
the AmSouth Strategic Portfolios: Moderate Growth and Income Portfolio (the
"Moderate Growth and Income Portfolio" and these four funds being collectively
referred to as the "Strategic Portfolios"), the AmSouth Bond Fund (the "Bond
Fund"), the AmSouth Limited Term Bond Fund (the "Limited Term Bond Fund"), the
AmSouth Government Income Fund (the "Government Income Fund"), the AmSouth
Municipal Bond Fund (the "Municipal Bond Fund"), the AmSouth Florida Tax-Exempt
Fund (the "Florida Fund"),the AmSouth Limited Term U.S. Government Fund (the
"Limited Term U.S. Government Fund"), the AmSouth Tennessee Tax-Exempt Fund (the
"Tennessee Tax-Exempt Fund"), the AmSouth Limited Term Tennessee Tax-Exempt Fund
(the "Limited Term Tennessee Tax-Exempt Fund" and these EIGHT Funds being
collectively referred to as the "Income Funds"), the AmSouth Prime Money Market
Fund (the "Prime Money Market Fund"), the AmSouth U.S. Treasury Money Market
Fund (the "U.S. Treasury Fund"), the AmSouth Tax-Exempt Money Market Fund (the
"Tax-Exempt Fund"), the AmSouth Treasury Reserve Money Market Fund (the
"Treasury Reserve Fund" and these four Funds being collectively referred to as
the "Money Market Funds"), and the AmSouth Institutional Prime Obligations Money
Market Fund (formerly the AmSouth Institutional Prime Obligations Fund)(the
"Institutional Prime Obligations Fund" or the "Institutional Money Market
Fund"). The Florida Fund and the Municipal Bond Fund are also collectively
referred to herein as the "Tax-Free Funds." The
<PAGE> 5
Funds, except for the U.S. Treasury Fund, the Tax-Exempt Fund, the Treasury
Reserve Fund, and the Institutional Prime Obligations Fund, offer three classes
of Shares: Trust Shares, Class A Shares, and Class B Shares. The U.S. Treasury
Fund, the Treasury Reserve Fund, and the Tax-Exempt Fund offer two classes of
Shares: Trust Shares and Class A Shares. 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. 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. 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
STRATEGIC PORTFOLIOS
Each Strategic Portfolio seeks to achieve its investment objective by
allocating its assets among other mutual funds ("Underlying Funds") advised by
the [Advisor], within predetermined strategy ranges, as set forth below. The
[Advisor] will make allocation decisions according to its outlook for the
economy, financial markets and relative market valuation of the Underlying
Funds.
Each Strategic Portfolio will invest its assets in the Underlying Funds
within the strategy ranges (expressed as a percentage of the Strategic
Portfolio's assets) indicated below:
<TABLE>
<CAPTION>
Strategy Ranges
---------------
Moderate
Aggressive Growth and Growth and
Growth Growth Income Income
Underlying Fund Portfolio Portfolio Portfolio Portfolio
--------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Value Fund 0-70% 0-65% 0-60% 0-50%
Large Cap Fund 0-70% 0-65% 0-60% 0-50%
Capital Growth Fund 0-45% 0-25% 0-25% 0-15%
Equity Income Fund 0% 0-25% 0-25% 0-15%
Mid Cap Fund 0-30% 0-25% 0-20% 0%
Small Cap Fund 0-30% 0-25% 0-20% 0%
International Equity Fund 0-20% 0-15% 0-15% 0%
Bond Fund 0% 0% 0% 0%
Limited Term Bond Fund 0% 0% 0-20% 0-45%
Prime Money Market Fund 0-30% 0-20% 0-20% 0-20%
</TABLE>
-2-
<PAGE> 6
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Government Income Fund 0% 0-25% 0-60% 0-70%
</TABLE>
The Strategic Portfolios' selection of the Underlying Funds in which to
invest, as well as the percentage of a Strategic Portfolio's assets which can be
invested in each Underlying Fund, are not fundamental investment policies and
can be changed without the approval of shareholders.
Changes in the net asset value of the Underlying Funds may affect cash
income, if any, derived from these investments and will affect a Strategic
Portfolio's net asset value. Because each Strategic Portfolio invests primarily
in other mutual funds, which fluctuate in value, the Strategic Portfolio's
shares will correspondingly fluctuate in value. Although the Strategic
Portfolios normally seek to remain substantially fully invested in the
Underlying Funds, each Strategic Portfolio may invest temporarily in certain
short-term obligations. Such obligations may be used to invest uncommitted cash
balances or to maintain liquidity to meet shareholder redemptions. Each
Strategic Portfolio also may borrow money for temporary or emergency purposes.
The 1940 Act permits the Strategic Portfolios to invest without
limitation in other investment companies that are part of the same "group of
investment companies" (as defined in the 1940 Act), such as the Strategic
Portfolios and the Underlying Funds, provided that the Strategic Portfolios
observe certain limitations on the amount of sales loads and
distribution-related fees that are borne by shareholders and do not invest in
other funds of funds.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
The following policies supplement the investment objectives,
restrictions and policies of each Fund as set forth in the respective Prospectus
for that Fund.
HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET FUNDS AND THE
INSTITUTIONAL MONEY MARKET FUND. As noted in the Prospectuses for the Money
Market Funds and the Institutional Money Market Fund, each such Fund may invest
only in obligations determined by AmSouth Bank, Birmingham, Alabama ("AmSouth")
the investment advisor to the Trust ("Advisor") to present minimal credit risks
under guidelines adopted by the Trust's Trustees.
With regard to the Prime Money Market Fund and 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
nationally recognized statistical ratings organizations ("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
-3-
<PAGE> 7
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 Money Market 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 Money Market Fund and 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 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.
-4-
<PAGE> 8
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,
except the U.S. Treasury Fund, the Treasury Reserve Fund, and the Limited Term
U.S. Government 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. The Prime Money Market
Fund and 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.
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, the
Treasury Reserve Fund, and the Limited Term U.S. Government 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 Treasury Reserve Fund, the
Limited Term U.S. Government 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.
HIGH YIELD SECURITIES. The Equity Income Fund, and to a limited extent
the Capital Growth Fund, may invest in high yield convertible securities. High
yield securities are
-5-
<PAGE> 9
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). The Capital Growth Fund may invest
in securities rated as low as Ba by Moody's or BB by S&P, Fitch, or Duff. Other
terms used to describe such securities include "lower rated bonds,"
"non-investment grade bonds" and "junk bonds." Generally, lower rated debt
securities provide a higher yield than higher rated debt securities of similar
maturity, but are subject to a greater degree of risk with respect to the
ability of the issuer to meet its principal and interest obligations. Issuers of
high yield securities may not be as strong financially as those issuing higher
rated securities. The securities are regarded as predominantly speculative. The
market value of high yield securities may fluctuate more than the market value
of higher rated securities, since high yield securities tend to reflect
short-term corporate and market developments to a greater extent than higher
rated securities, which fluctuate primarily in response to the general level of
interest rates, assuming that there has been no change in the fundamental
interest rates, assuming that there has been no change in the fundamental
quality of such securities. The market prices of fixed income securities
generally fall when interest rates rise. Conversely, the market prices of
fixed-income securities generally rise when interest rates fall.
Additional risks of high yield securities include limited liquidity and
secondary market support. As a result, the prices of high yield securities may
decline rapidly in the event that a significant number of holders decide to
sell. Changes in expectations regarding an individual 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.
INSURANCE COMPANY FUNDING AGREEMENTS. The [International Equity Fund,
the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund], the Bond Fund,
the Limited Term Bond Fund, the [Tennessee Tax-Exempt Fund, the Limited Term
Tennessee Tax-Exempt Fund], the Prime Money Market Fund, and 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, these Funds invest 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. These Funds will only purchase a Funding Agreement (i) when the
[Advisor] has determined,
-6-
<PAGE> 10
under guidelines established by the Board of Trustees, that the Funding
Agreement presents minimal credit risks to the Fund and is of comparable quality
to instruments that are rated high quality by a nationally recognized
statistical rating organization that is not an affiliated person, as defined in
the 1940 Act, of the issuer, on any insurer, guarantor, 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 these Funds may not receive the principal amount of a Funding
Agreement from the insurance company on seven days' notice or less, the Funding
Agreement is considered an illiquid investment, and, together with other
instruments in such Fund which are not readily marketable, will not exceed 15%
of such Fund's net assets in the case of the Bond Fund, the Limited Term Bond
Fund, the International Equity Fund, the Large Cap Fund, and the Mid Cap Fund,
and 10% of such Funds net assets in the case of the Prime Money Market Fund, the
Capital Growth Fund, the Tennessee Tax-Exempt Fund, and the Limited Term
Tennessee Tax-Exempt [Fund]. In determining average weighted portfolio maturity,
a Funding Agreement will be deemed to have a maturity equal to 30 days,
representing the period of time remaining until the principal amount can be
recovered through demand.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes, in which the Prime Money Market Fund, the Institutional 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.
-7-
<PAGE> 11
VARIABLE AND FLOATING RATE NOTES AND BONDS. The [International Equity
Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund], the
Tax-Exempt Fund, the Bond Fund, the Limited Term Bond Fund, the Tax-Free Funds,
[The Tennessee Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt Fund] may
acquire variable and floating rate notes and bonds, subject to each Fund's
investment objective, policies and restrictions. A variable rate note is one
whose terms provide "for the readjustment of its interest rate on set dates and
which, upon such readjustment, can reasonably be expected to have a market value
that approximates its par value.["] A floating rate note is one whose terms
provide for the readjustment of its interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Such notes are frequently not rated by
credit rating agencies; however, unrated variable and floating rate notes
purchased by a Fund will be determined by the [Advisor] under guidelines
established by the Trust's Board of Trustees to be of comparable quality at the
time of purchase to rated instruments eligible for purchase under the Fund's
investment policies. In making such determinations, the [Advisor] will consider
the earning power, cash flow and other liquidity ratios of the issuers of such
notes (such issuers include financial, merchandising, bank holding and other
companies) and will continuously monitor their financial condition. Although
there may be no active secondary market with respect to a particular variable or
floating rate note purchased by a Fund, the Fund may resell the note at any time
to a third party. The absence of an active secondary market, however, could make
it difficult for the Fund to dispose of a variable or floating rate note in the
event the issuer of the note defaulted on its payment obligations and the Fund
could, as a result or for other reasons, suffer a loss to the extent of the
default. Variable or floating rate notes may be secured by bank letters of
credit or drafts.
For purposes of these Funds, the maturities of the variable and
floating rate notes will be determined in accordance with Rule 2a-7 under the
1940 Act.
PARTICIPATION INTERESTS AND TRUST RECEIPTS. [(International Equity Fund, Mid Cap
Fund, Large Cap Fund, Capital Growth Fund, Tennessee Tax-Exempt Fund, Limited
Term Tennessee Tax-Exempt Fund)] Each of these Funds may purchase from financial
institutions and trusts created by such institutions participation interests and
trust receipts in securities in which it may invest and may enter into loan
participation agreements. A participation interest or receipt gives the Fund an
undivided interest in the security in the proportion that the Fund's
participation interest or receipt bears to the total principal amount of the
security. These instruments may have fixed, floating or variable rates of
interest with remaining maturities of 397 days or less. If the instrument is
unrated, or has been given a rating below that which is permissible for purchase
by the Fund, the instrument will be backed by an irrevocable letter of credit or
guarantee of a bank or other entity the debt securities of which are rated high
quality, or the payment obligation otherwise will be collateralized by U.S.
Government securities, or, in the case of unrated instruments, the [Advisor],
acting upon delegated authority
-8-
<PAGE> 12
from the Trust's Board of Trustees, must have determined that the instrument is
of comparable quality to those instruments in which the Fund may invest.
Participation interests or trust receipts with a rating below high quality that
are backed by an irrevocable letter of credit or guarantee as described above
will be purchased only if the [Advisor], acting as described above, determines
after an analysis of, among other factors, the creditworthiness of the guarantor
that such instrument is high quality, and if the rating agency did not include
the letter of credit or guarantee in its determination of the instrument's
rating. If the rating of a participation interest or trust receipt is reduced
subsequent to its purchase by the Fund, the [Advisor] will consider, in
accordance with procedures established by the Board of Trustees, all
circumstances deemed relevant in determining whether the Fund should continue to
hold the instrument. The guarantor of a participation interest or trust receipt
will be treated as a separate issuer. For certain participation interests and
trust receipts, the Fund will have the unconditional right to demand payment, on
not more than seven days' notice, for all or any part of the Fund's interest in
the security, plus accrued interest. As to these instruments, the Fund intends
to exercise its right to demand payment only upon a default under the terms of
the security, as needed to provide liquidity to meet redemptions, or to maintain
or improve the quality of its investment portfolio.
ZERO COUPON OBLIGATIONS. The Bond Fund, Limited Term Bond Fund, the
[International Equity Fund, the Mid Cap Fund, The Large Cap Fund, the Capital
Growth Fund, the Limited Term U.S. Government Fund, the Tennessee Tax-Exempt
Fund, the Limited Term Tennessee Tax-Exempt] Fund, the Treasury Reserve Fund,
and the Tax-Exempt Fund may acquire zero-coupon obligations evidencing ownership
of future interest and principal payments on U.S. Treasury bonds. Such
zero-coupon obligations pay no current interest and are typically sold at prices
greatly discounted from par value, with par value to be paid to the holder at
maturity. The return on a zero-coupon obligation, when held to maturity, equals
the difference between the par value and the original purchase price.
Zero-coupon obligations have greater price volatility than coupon obligations
and such obligations will be purchased when the yield spread, in light of the
obligation's duration, is considered advantageous. The Bond Fund will only
purchase zero-coupon obligations if, at the time of purchase, such investments
do not exceed 15% of the value of the Bond Fund's total assets, and the Limited
Term Bond Fund and the Tennessee Tax-Exempt Fund will only purchase zero-coupon
obligations if, at the time of purchase, such investments do not exceed 25% of
the value of the Limited Term Bond Fund's total assets. The [International
Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund, the
Tennessee Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt Fund] also
may invest in zero coupon securities issued by corporations and financial
institutions which constitute a proportionate ownership of the issuer's pool of
underlying U.S. Treasury securities.
An increase in interest rates will generally reduce the value of the
investments in the [Bond Fund, the Limited Term Bond Fund, the Government Income
-9-
<PAGE> 13
Fund, the Municipal Bond Fund, and the Florida Tax-Exempt Fund] and a decline in
interest rates will generally increase the value of those investments. Depending
upon prevailing market conditions, the [Advisor] may purchase debt securities at
a discount from face value, which produces a yield greater than the coupon rate.
Conversely, if debt securities are purchased at a premium over face value, the
yield will be lower than the coupon rate. In making investment decisions, the
[Advisor] will consider many factors other than current yield, including the
preservation of capital, maturity, and yield to maturity.
Foreign Investment. All of the Funds, except the U.S. Treasury Fund,
the Treasury Reserve Fund, the [Limited Term U.S. Government Fund, the Tennessee
Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt 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 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,
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, Canadian Time Deposits
("CTD's") which are U.S. dollar denominated certificates of deposit issued by
Canadian offices of major Canadian Banks, and American Depository Receipts
("ADRs") which are foreign shares of a company held by a U.S. bank which issues
a receipt evidencing ownership. Investments in securities issued by foreign
branches of U.S. banks, foreign banks, or other foreign issuers, including ADRs
and securities purchased on foreign securities exchanges, may subject the Funds
to investment risks that differ in some respects from those related to
investment in obligations of U.S. domestic issuers or in U.S. securities
markets. Such risks include future adverse political and economic developments,
possible seizure, currency blockage, nationalization or expropriation of foreign
investments, less stringent disclosure requirements, the possible establishment
of exchange controls or taxation at the source, and the adoption of other
foreign governmental restrictions. Additional risks include currency exchange
risks, less publicly available information, the risk that companies may not be
subject to the accounting, auditing and financial reporting standards and
requirements of U.S. companies, the risk that foreign securities markets may
have less volume and therefore many securities traded in these markets may be
less liquid and their prices more volatile than U.S. securities, and the risk
that custodian and brokerage costs may be higher. Foreign issuers of securities
or obligations are often subject to accounting treatment and 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.
-10-
<PAGE> 14
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, except the [International Equity Fund, the Mid Cap Fund, the Large Cap
Fund, the Capital Growth Fund, the Limited Term U.S. Government Fund, the
Tennessee Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt Fund] may
borrow funds for temporary purposes by entering into reverse repurchase
agreements in accordance with the Fund's investment restrictions. Pursuant to
such an agreement, a Fund would sell portfolio securities to financial
institutions such as banks and broker-dealers, and agree to repurchase the
securities at a mutually agreed-upon date and price. Each Fund intends to enter
into reverse repurchase agreements only to avoid otherwise selling securities
during unfavorable market conditions to meet redemptions. At the time a Fund
enters into a reverse repurchase agreement, it will place in a segregated
custodial account assets consistent with the Fund's investment restrictions
having a value equal to the repurchase price (including accrued interest), and
will subsequently monitor the account to ensure that such equivalent value is
maintained. Such assets will include U.S. government securities or other liquid
high quality debt securities in the case of the
-11-
<PAGE> 15
Money Market Funds, the Institutional Money Market Fund, and the Income Funds or
other liquid, high-grade debt securities, in the case of the [Value Fund, the
Growth Fund, the Small Cap Fund, the Equity Income Fund, the Balanced Fund, the
Select Equity Fund, and the Enhanced Market Fund]. 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 such as GNMA and the Export-Import Bank
of the United States, which are supported by the full faith and credit of the
U.S. government; others, such as those of FNMA, 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, such as those of the Federal Farm Credit Banks or
FHLMC, 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.
The principal governmental (i.e., backed by the full faith and credit
of the U.S. government) guarantor of mortgage-related securities is GNMA. GNMA
is a wholly-owned U.S. government corporation within the Department of Housing
and Urban Development. GNMA is authorized to guarantee, with the full faith and
credit of the U.S. government, the timely payment of principal and interest on
securities issued by institutions approved by GNMA (such as savings and loan
institutions, commercial banks and mortgage bankers) and backed by pools of
FHA-insured or VA-guaranteed mortgages.
Government-related (i.e., not backed by the full faith and credit of
the U.S. government) guarantors include FNMA and FHLMC. FNMA and FHLMC are
government-sponsored corporations owned entirely by private stockholders.
Pass-through securities issued by FNMA and FHLMC are guaranteed as to timely
payment of principal and interest by FNMA and FHLMC but are not backed by the
full faith and credit of the U.S. government.
WHEN-ISSUED OR FORWARD COMMITMENT SECURITIES. As discussed in the
Prospectuses, each Fund except the Prime Money Market Fund, the Institutional
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
-12-
<PAGE> 16
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. 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 [Value
Fund, the Growth Fund, the Small Cap Fund, the Equity Income Fund, the Balanced
Fund, the Select Equity Fund, and the Enhanced Market Fund] expects that
commitments to purchase "when-issued" securities will not exceed 25% of the
value of its total assets under normal market conditions, and that a commitment
to purchase "when-issued" securities will not exceed 60 days. In 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.
ASSET-BACKED SECURITIES. The Bond Fund, the Limited Term Bond Fund, the
Institutional Prime Obligations Fund, the Capital Growth Fund, and the Prime
Money Market Fund may invest in securities backed by automobile receivables and
credit-card receivables and other securities backed by other types of
receivables.
Offerings of Certificates for Automobile Receivables ("CARS") are
structured either as flow-through grantor trusts or as pay-through notes. CARS
structured as flow-through instruments represent ownership interests in a fixed
pool of receivables. CARS structured as pay-through notes are debt instruments
supported by the cash flows from the underlying assets. CARS may also be
structured as securities with fixed payment schedules which are generally issued
in multiple-classes. Cash-flow from the underlying receivables is directed first
to paying interest and then to retiring principal via paying down the two
respective classes of notes sequentially. Cash-flows on fixed-payment CARS are
certain, while cash-flows on other types of CARS issues depends on the
prepayment rate of the underlying automobile loans. Prepayments of automobile
loans are triggered mainly by automobile sales and trade-ins. Many people buy
new cars every two or three years, leading to rising prepayment rates as a pool
becomes more seasoned.
-13-
<PAGE> 17
Certificates for Amortizing Revolving Debt ("CARDS") represent
participation in a fixed pool of credit card accounts. CARDS pay "interest only"
for a specified period, typically 18 months. The CARD'S principal balance
remains constant during this period, while any cardholder repayments or new
borrowings flow to the issuer's participation. Once the principal amortization
phase begins, the balance declines with paydowns on the underlying portfolio.
CARDS have monthly payment schedules, weighted-average lives of 18-24 months and
stated final maturities ranging from 3 to 5 years. Cash flows on CARDS are
certain during the interest-only period. After this initial interest-only
period, the cash flow will depend on how fast cardholders repay their
borrowings. Historically, monthly cardholder repayment rates have been
relatively fast. As a consequence, CARDS amortize rapidly after the end of the
interest-only period. During this amortization period, the principal payments on
CARDS depend specifically on the method for allocating cardholder repayments to
investors. In many cases, the investor's participation is based on the ratio of
the CARDS' balance to the total credit card portfolio balance. This ratio can be
adjusted monthly or can be based on the balances at the beginning of the
amortization period. In some issues, investors are allocated most of the
repayments, regardless of the CARDS' balance. This method results in especially
fast amortization.
Credit support for asset-backed securities may be based on the
underlying assets or provided by a third party. Credit enhancement techniques
include letters of credit, insurance bonds, limited guarantees (which are
generally provided by the issuer), senior-subordinated structures and over
collateralization. The Bond Fund and the Limited Term Bond Fund will only
purchase an asset-backed security if it is rated at the time of purchase in one
of the three highest rating categories by an NRSRO or, if unrated, found by the
[Advisor] under guidelines established by the Trust's Board of Trustees to be of
comparable quality. 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.
MORTGAGE-RELATED SECURITIES. Mortgage-related securities have mortgage
obligations backing such securities, including among others, conventional thirty
year fixed rate mortgage obligations, graduated payment mortgage obligations,
fifteen year mortgage obligations, and adjustable rate mortgage obligations. All
of these mortgage obligations can be used to create pass-through securities. A
pass-through security is created when mortgage obligations are pooled together
and undivided interests in the pool or pools are sold. The cash flow from the
mortgage obligations is passed through to the holders of the securities in the
form of periodic payments of interest, principal and prepayments (net of a
service fee). Prepayments occur when the holder of an individual mortgage
obligation prepays the remaining principal before the mortgage obligation's
scheduled maturity date. As a result of the pass-through of prepayments of
principal on the underlying securities, mortgage-backed securities are often
subject to more rapid prepayment of principal than their stated maturity would
indicate. Because the prepayment characteristics of the underlying mortgage
obligations vary, it is not possible to predict accurately the realized yield or
average life of a particular issue of pass-through certificates. Prepayment
rates are important because of their effect on the yield
-14-
<PAGE> 18
and price of the securities. Accelerated prepayments have an adverse impact on
yields for pass-throughs purchased at a premium (i.e., a price in excess of
principal amount) and may involve additional risk of loss of principal because
the premium may not have been fully amortized at the time the obligation is
repaid. The opposite is true for pass-throughs purchased at a discount. The
Government Income Fund may purchase mortgage-related securities at a premium or
at a discount.
MORTGAGE-RELATED SECURITIES ISSUED BY NONGOVERNMENTAL ENTITIES. The
Government Income Fund and the Capital Growth Fund may invest in
mortgage-related securities issued by nongovernmental entities. Commercial
banks, savings and loan institutions, private mortgage insurance companies,
mortgage bankers and other secondary market issues also create pass-through
pools of conventional residential mortgage loans. Such issuers may also be the
originators of the underlying mortgage loans as well as the guarantors of the
mortgage-related securities. Pools created by such nongovernmental issuers
generally offer a higher rate of interest than government and government-related
pools because there are not direct or indirect government guarantees of payments
in the former pools. However, timely payment of interest and principal of these
pools is supported by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance. The insurance and guarantees
are issued by government entities, private insurers and the mortgage poolers.
Such insurance and guarantees and the creditworthiness of the issuers thereof
will be considered in determining whether a mortgage-related security meets the
Government Income Fund's investment quality standards. There can be no assurance
that the private insurers can meet their obligations under the policies. The
Government Income Fund may buy mortgage-related securities without insurance or
guarantees if through an examination of the loan experience and practices of the
poolers the [Advisor] determines that the securities meet the Government Income
Fund's quality standards. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable. The Government Income Fund and the Capital Growth Fund
will not purchase mortgage-related securities or any other assets which in the
[Advisor's] opinion are illiquid, if as a result, more than 15% of the value of
the Government Income Fund's or more than 10% of the value of the Capital Growth
Fund's net assets will be illiquid.
COLLATERALIZED MORTGAGE OBLIGATIONS. Mortgage-related securities in
which the Government Income Fund, the Limited Term U.S. Government Fund, and the
Capital Growth Fund may invest may also include collateralized mortgage
obligations ("CMOs"). CMOs are debt obligations issued generally by finance
subsidiaries or trusts that are secured by mortgage-backed certificates,
including, in many cases, certificates issued by government-related guarantors,
including GNMA, FNMA and FHLMC, together with certain funds and other
collateral. Although payment of the principal of and interest on the
mortgage-backed certificates pledged to secure the CMOs may be guaranteed by
GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the issuer and are
not insured or guaranteed by GNMA, FHLMC, FNMA or any other governmental agency,
or by any other person or entity. The issuers of the CMOs typically have no
significant assets other than those
-15-
<PAGE> 19
pledged as collateral for the obligations. The staff of the Securities and
Exchange Commission has determined that certain issuers of CMOs are investment
companies for purposes of the 1940 Act.
CMOs may include Stripped Mortgage Securities. Such securities are
derivative multiclass mortgage securities issued by agencies or
instrumentalities of the U.S. government, or by private originators of, or
investors in, mortgage loans, including savings and loan associations, mortgage
banks, commercial banks, investment banks and special purpose subsidiaries of
the foregoing. Stripped Mortgage Securities are usually structured with two
classes that receive different proportions of the interest and principal
distributions on a pool of mortgage assets. A common type of Stripped Mortgage
Security will have one class receiving all of the interest from the mortgage
assets (the interest-only or "IO" class), while the other class will receive all
of the principal (the principal-only or "PO" class). The yield to maturity on an
IO class is extremely sensitive to the rate of principal payments (including
prepayments) on the related underlying mortgage assets, and a rapid rate of
principal payments may have a material adverse effect on the securities' yield
to maturity. If the underlying mortgage assets experience greater than
anticipated prepayments of principal, the Fund may fail to fully recoup its
initial investment in these securities even if the security is rated AAA or Aaa.
The Stripped Mortgage Securities held by the Funds will be considered
liquid securities only under guidelines established by the Trust's Board of
Trustees, and the Fund will not purchase a Stripped Mortgage Security that is
illiquid if, as a result thereof, more than 15% of the value of the Fund's net
assets would be invested in such securities and other illiquid securities.
In reliance on a recent staff interpretation, the Funds' investment in
certain qualifying CMOs, including CMOs that have elected to be treated as Real
Estate Mortgage Investment Conduits (REMICs), are not subject to the 1940 Act's
limitation on acquiring interests in other investment companies. In order to be
able to rely on the staff's interpretation, the CMOs and REMICs must be
unmanaged, fixed-asset issuers, that (a) invest primarily in mortgaged-backed
securities, (b) do not issue redeemable securities, (c) operate under general
exemptive orders exempting them from all provisions of the 1940 Act, and (d) are
not registered or regulated under the 1940 Act as investment companies. To the
extent that the Funds select CMOs or REMICs that do not meet the above
requirements, the Funds' investment in such securities will be subject to the
limitations on its investment in investment company securities. See "Investment
Company Securities" in this Statement of Additional Information.
The Funds expect that governmental, government-related or private
entities may create mortgage loan pools offering pass-through investments in
addition to those described above. The mortgages underlying these securities may
be alternative mortgage instruments, that is, mortgage instruments whose
principal or interest payments may vary or whose terms to maturity may be
different from customary long-term fixed rate mortgages. As new types of
mortgage-related securities are developed and offered to investors, the
Advisor
-16-
<PAGE> 20
will, consistent with the Funds' investment objective, policies and quality
standards, consider making investments in such new types of securities.
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 Fund other than the Balanced Fund may invest in convertible
securities rated "BBB" or higher by an NRSRO at the time of investment, or if
unrated, of comparable quality. The Equity Income Fund may invest in convertible
securities rated "BB" or lower by an NRSRO at the time of investment, or if
unrated, of comparable quality. The Balanced Fund may invest in convertible
securities rated "A" or higher by an NRSRO or, if unrated, of comparable
quality. If a convertible security falls below these minimum ratings after a
Fund has purchased it, a Fund is not required to drop the convertible bond from
its portfolio, but will consider appropriate action. The investment
characteristics of each convertible security vary widely, which allows
convertible securities to be employed for different investment objectives.
Securities which are rated "BB" or lower by Standard & Poor's or "Ba"
or lower by Moody's either have speculative characteristics or are speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligations. A description of the rating categories is
contained in the Appendix to the Statement of Additional Information. There is
no lower limit with respect to rating categories for convertible securities in
which the Equity Income Fund may invest.
Corporate debt obligations that are not determined to be
investment-grade are high-yield, high-risk bonds, typically subject to greater
market fluctuations and greater risk of loss of income and principal due to an
issuer's default. To a greater extent than investment-grade securities, lower
rated securities tend to reflect short-term corporate, economic and market
developments, as well as investor perceptions or the issuer's credit quality.
Because investments in lower rated securities involve greater investment risk,
achievement of the Equity Income Fund's investment objective may be more
dependent on the Sub- [Advisor's] credit analysis than would be the case if the
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
-17-
<PAGE> 21
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 Funds will exchange or convert the convertible securities held in
portfolio into shares of the underlying common stock in instances in which, in
the opinion of the [Advisor] or Sub- [Advisor], the investment characteristics
of the underlying common shares will assist a Fund in achieving its investment
objectives. Otherwise, a Fund will hold or trade the convertible securities. In
selecting convertible securities for a Fund, the [Advisor] or Sub- [Advisor]
evaluates the investment characteristics of the convertible security as a
fixed-income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a
particular convertible security, the [Advisor] or Sub- [Advisor] considers
numerous factors, including the economic and political outlook, the value of the
security relative to other investment alternatives, trends in the determinants
of the issuer's profits, and the issuer's management capability and practices.
As with all debt securities, the market values of convertible
securities tend to increase when interest rates decline and, conversely, tend to
decline when interest rates increase.
Calls. The Capital Appreciation Funds, the Bond Fund, the Limited Term
Bond 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
-18-
<PAGE> 22
additional premium income for a Fund. This premium income will serve to enhance
the Fund's total return and will reduce the effect of any price decline of the
security involved in the option. Covered call options will generally be written
on securities which, in the [Advisor's] or Sub- [Advisor's] opinion, are not
expected to make any major price moves in the near future but which, over the
long term, are deemed to be attractive investments for the Fund.
A call option gives the holder (buyer) the "right to purchase" a
security at a specified price (the exercise price) at any time until a certain
date (the expiration date). So long as the obligation of the writer of a call
option continues, he or she may be assigned an exercise notice by the
broker-dealer through whom such option was sold, requiring him or her to deliver
the underlying security against payment of the exercise price. This obligation
terminates upon the expiration of the call option, or such earlier time at which
the writer effects a closing purchase transaction by repurchasing an option
identical to that previously sold. To secure his or her obligation to deliver
the underlying security in the case of a call option, a writer is required to
deposit in escrow the underlying security or other assets in accordance with the
rules of the Options Clearing Corporation. The Funds 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 Funds 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, these Funds 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 Funds
will consider a security covered by a call to be "pledged" as that term is used
in its policy which limits the pledging or mortgaging of its assets.
The premium received is the market value of an option. The premium a
Fund will receive from writing a call option will reflect, among other things,
the current market price of the underlying security, the relationship of the
exercise price to such market price, the historical price volatility of the
underlying security, and the length of the option period. Once 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
-19-
<PAGE> 23
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 Funds 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, the Balanced
Fund, the Bond Fund, and the Limited Term Bond Fund may acquire "puts" with
respect to debt securities held in their portfolios, and the [International
Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund], the
Enhanced Market Fund and Select Equity Fund may acquire "puts" with respect to
equity securities held in their
-20-
<PAGE> 24
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 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 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
Money Market Fund, the U.S. Treasury Fund and the Tax-Exempt Fund" in this
Statement of Additional Information.
The Limited Term Bond Fund will acquire puts solely to shorten the
maturity of the underlying debt security.
The Tax-Exempt Fund, the Tax-Free Funds, the Limited Term Bond Fund,
the [International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the
Capital Growth 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 Funds intend to enter into puts only with dealers, banks, and
broker-dealers which, in the [Advisor's] opinion, present minimal credit risks.
The [the International Equity Fund, the Mid Cap Fund, the Large Cap
Fund, and the Capital Growth Fund] may write covered put options in respect of
specific securities in which the Funds may invest and write covered call and put
option contracts. The principal reason for writing covered put options is to
realize income in the form of premiums. The writer of a covered put option
accepts the risk of a decline in the price of the underlying security. The size
of the premiums that the Fund may receive may be adversely affected as new or
existing institutions, including other investment companies, engage in or
increase their option-writing activities.
-21-
<PAGE> 25
FUTURES CONTRACTS AND RELATED OPTIONS. The Enhanced Market Fund, the
Select Equity Fund, the Small Cap Fund, the [the International Equity Fund, the
Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund, the Tennessee
Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt Fund] may invest in
futures contracts and options thereon (interest rate futures contracts or index
futures contracts, as applicable) 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.
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 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.
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.
Successful use of futures by the Funds is also subject to an
[advisor's] or sub- [advisor'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
-22-
<PAGE> 26
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.
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.
-23-
<PAGE> 27
INVESTMENT COMPANY SECURITIES. Each Capital Appreciation Fund and
Income Fund may invest up to 5% of the value of its total assets in the
securities of any one money market mutual fund including Shares of the AmSouth
Prime Money Market Fund, the AmSouth U.S. Treasury Fund and the AmSouth Treasury
Reserve Fund (the "AmSouth Money Market Funds"), and the AmSouth Institutional
Prime Obligations Fund (the "AmSouth Institutional Money Market Fund") provided
that no more than 10% of a Fund's total assets may be invested in the securities
of money market mutual funds in the aggregate; each of the International Equity
Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund, the Limited
Term U.S. Government Fund, the Tennessee Tax-Exempt Fund, the Limited Term
Tennessee Tax-Exempt Fund, and the Treasury Reserve Money Market Fund may invest
up to 5% of the value of its total assets in securities issued by other
investment companies which principally invest in securities of the type in which
such Fund invests provided that no more than 10% of a Fund's total assets may be
invested in the securities of mutual funds in the aggregate; and each of the
Prime Money Market Fund, the Institutional Prime Obligations Fund, and the
Tax-Exempt Fund may invest up to 5% of the value of its total assets in the
securities of other money market funds that have similar policies and objectives
provided that no more than 10% of a 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 Funds in the
AmSouth Money Market Funds or the AmSouth Institutional Money Market Fund, the
Advisor and the Administrator will reduce that portion of their usual service
fees from each Fund by an amount equal to their service fees from the AmSouth
Money Market Funds or the AmSouth Institutional Money Market Fund that are
attributable to those Fund investments. The Advisor and the Administrator will
promptly forward such fees to the Funds. Each Fund will incur additional
expenses due to the duplication of expenses as a result of investing in
securities of other unaffiliated money market mutual funds.
Securities Lending. In order to generate additional income, each 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 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 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 Fund. During the time
portfolio securities are on loan, the borrower pays the Fund any dividends or
interest paid on such securities. Loans are subject to termination by the Funds
or the borrower at any time. While the Funds do not have the right to vote
securities on loan, the Funds intend to terminate the loan and regain the right
to vote if that is considered important with respect to the investment. The
Funds will only enter into loan arrangements with broker-dealers, banks or other
institutions which the [Advisor] or Sub- [Advisor] has determined are
creditworthy under guidelines established by the Trust's Board of Trustees.
SHORT-TERM TRADING. Each Capital Appreciation Fund [(except the
International Equity Fund, the Mid Cap Fund, the Large Cap Fund, and the Capital
Growth Fund)] and the Government Income Fund may engage in the technique of
short-term trading. Such trading involves the selling of securities held for a
short time, ranging from several months to
-24-
<PAGE> 28
less than a day. The object of such short-term trading is to increase the
potential for capital appreciation and/or income of the 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 Fund and its transaction costs.
SHORT-SELLING. (International Equity Fund and, to a limited extent,
Capital Growth Fund, [Limited Term U.S. Government Fund, Tennessee Tax-Exempt
Fund, and Limited Term Tennessee Tax-Exempt Fund)] In these transactions the
Fund sells a security it does not own in anticipation of a decline in the market
value of the security. To complete the transaction, the Fund must borrow the
security to make delivery to the buyer. The Fund is obligated to replace the
security borrowed by purchasing it subsequently at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund, which would result in a loss or gain,
respectively. Securities will not be sold short if, after effect is given to any
such short sale, the total market value of all securities sold short would
exceed 25% of the value of the Fund's net assets. Each of these Funds, other
than the International Equity Fund, will limit its short sales to those that are
"against the box," a transaction in which the Fund enters into a short sale of a
security which it owns. The proceeds of the short sale will be held by a broker
until the settlement date at which time the Fund delivers the security to close
the short position. The Fund receives the net proceeds from the short sale. At
no time will any of these Funds have more than 15% of the value of its net
assets in deposits on short sales against the box.
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. Interest on
private activity bonds (and industrial development bonds) is fully tax-exempt
only if the bonds fall within certain defined categories of qualified
-25-
<PAGE> 29
private activity bonds and meet the requirements specified in those respective
categories. Regardless of whether they qualify for tax-exempt status, private
activity bonds may subject both individual and corporate investors to tax
liability under the alternative minimum tax. However, private activity bonds
will only be considered Municipal Securities if they do not have this effect
regarding individuals.
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, the Municipal
Bond Fund and the Florida Fund (collectively, the "Tax-Free Funds"), the two
principal classifications of Municipal Securities consist of "general
obligation" and "revenue" issues. A Fund permitted to invest in Municipal
Securities may also acquire "moral obligation" issues, which are normally issued
by special purpose authorities. If the issuer of moral obligation bonds is
unable to meet its debt service obligations from current revenues, it may draw
on a reserve fund, the restoration of which is a moral commitment but not a
legal obligation of the state or municipality that created the issuer. 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.
-26-
<PAGE> 30
Municipal Securities purchased by the Tax-Exempt Fund may include rated
and unrated variable and floating rate tax-exempt notes, which may have a stated
maturity in excess of one year but which will, in such event, be subject to a
demand feature that will permit the Tax-Exempt Fund to demand payment of the
principal of the note either (i) at any time upon not more than thirty days'
notice or (ii) at specified intervals not exceeding one year and upon no more
than thirty days' notice. There may be no active secondary market with respect
to a particular variable or floating rate note. Nevertheless, the periodic
readjustments of their interest rates tend to assure that their value to the
Tax-Exempt Fund will approximate their par value.
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.
Opinions relating to the validity of Eligible Municipal Securities and
to the exemption of interest thereon from federal income tax are rendered by
bond counsel to the respective issuers at the time of issuance. Neither the
Tax-Free Funds nor the [Advisor] will review the proceedings relating to the
issuance of Eligible Municipal Securities or the basis for such opinions.
Although the Tax-Exempt Fund and Municipal Bond Fund do not presently
intend to do so on a regular basis, each may invest more than 25% of its total
assets in Municipal Securities that are related in such a way that an economic,
business, or political development or change affecting one such security would
likewise affect the other Municipal Securities. An example of such securities
are obligations the repayment of which is dependent upon similar types of
projects. Such investments would be made only if deemed necessary or appropriate
by the [Advisor]. To the extent that the Fund's assets are concentrated in
Municipal Securities that are so related, the Fund will be subject to the
peculiar risks presented by such securities, such as negative developments in a
particular industry, to a greater extent than it would be if the Fund's assets
were not so concentrated.
The Tax-Free Funds may acquire "puts" with respect to Eligible
Municipal Securities held in their portfolios. Under a put, the Funds would have
the right to sell a specified Eligible Municipal Security within a specified
period of time at a specified price to a third party. A put would be sold,
transferred, or assigned only with the underlying Eligible Municipal Security.
The Funds will acquire puts solely to facilitate portfolio liquidity, shorten
the maturity of the underlying Eligible Municipal Securities, or permit the
investment of the Funds' at a more favorable rate of return. The Funds expect
that they will generally acquire
-27-
<PAGE> 31
puts only where the puts are available without the payment of any direct or
indirect consideration. However, if necessary or advisable, the Funds may pay
for a put separately in cash. The aggregate price of a security subject to a put
may be higher than the price which otherwise would be paid for the security
without such an option, thereby increasing the security's cost and reducing its
yield.
TAX-FREE FUNDS. The Tax-Free Funds may also invest in master demand
notes in order to satisfy short-term needs or, if warranted, as part of its
temporary defensive investment strategy. Such notes are demand obligations that
permit the investment of fluctuating amounts at varying market rates of interest
pursuant to arrangements between the issuer and a U.S. commercial bank acting as
agent for the payees of such notes. Master demand notes are callable on demand
by the Funds, but are not marketable to third parties. Master demand notes are
direct lending arrangements between the Fund and the issuer of such notes. The
[Advisor] will review the quality of master demand notes at least quarterly, and
will consider the earning power, cash flow and debt-to-equity ratios indicating
the borrower's ability to pay principal together with accrued interest on
demand. While master demand notes are not typically rated by credit rating
agencies, issuers of such notes must satisfy the same criteria for the Funds set
forth above for commercial paper.
The Tax-Free Funds may acquire rated and unrated variable and floating
rate notes. Variable and floating rate notes are frequently not rated by credit
rating agencies; however, unrated variable and floating rate notes purchased by
the Funds will be determined by the [Advisor] under guidelines established by
the Board of Trustees to be of comparable quality at the time of purchase to
rated instruments eligible for purchase under the Funds' investment policies.
There may be no active secondary market with respect to a particular variable or
floating rate note. Nevertheless, the periodic readjustments of their interest
rates tend to assure that their value to the Funds will approximate their par
value.
The Tax-Free Funds may acquire zero coupon obligations. Such
zero-coupon obligations pay no current interest and are typically sold at prices
greatly discounted from par value, with par value to be paid to the holder at
maturity. The return on a zero-coupon obligation, when held to maturity, equals
the difference between the par value and the original purchase price.
Zero-coupon obligations have greater price volatility than coupon obligations
and such obligations will be purchased when the yield spread, in light of the
obligation's duration, is considered advantageous. The Funds will only purchase
zero-coupon obligations if, at the time of purchase, such investments do not
exceed 20% of the value of the Florida Fund's total assets and 25% of the
Municipal Bond Fund's total assets.
An increase in interest rates will generally reduce the value of the
investments in the Tax-Free Funds and a decline in interest rates will generally
increase the value of those investments. Depending upon prevailing market
conditions, the [Advisor] may purchase debt securities at a discount from face
value, which produces a yield greater than the coupon rate. Conversely, if debt
securities are purchased at a premium over face value, the
-28-
<PAGE> 32
yield will be lower than the coupon rate. In making investment decisions, the
[Advisor] will consider many factors besides current yield, including the
preservation of capital, maturity, and yield to maturity.
[TENNESSEE TAX-EXEMPT FUND AND LIMITED TERM TENNESSEE TAX-EXEMPT FUND].
Municipal Securities bear fixed, floating or variable rates of interest, which
are determined in some instances by formulas under which the Municipal
Security's interest rate will change directly or inversely to changes in
interest rates or an index, or multiples thereof, in many cases subject to a
maximum and minimum. Certain Municipal Securities are subject to redemption at a
date earlier than their stated maturity pursuant to call options, which may be
separated from the related Municipal Securities and purchased and sold
separately.
Floating and variable rate demand notes and bonds are tax exempt
obligations ordinarily having stated maturities in excess of one year, but which
permit the holder to demand payment of principal at any time, or at specified
intervals. The issuer of such obligations ordinarily has a corresponding right,
after a given period, to prepay in its discretion the outstanding principal
amount of the obligations plus accrued interest upon a specified number of days'
notice to the holders thereof. The interest rate on a floating rate demand
obligation is based on a known lending rate, such as a bank's prime rate, and is
adjusted automatically each time such rate is adjusted. The interest rate on a
variable rate demand obligation is adjusted automatically at specified
intervals.
Each of these Funds may invest up to 5% of the value of its total
assets in municipal lease obligations or installment purchase contract
obligations (collectively, "lease obligations"). Lease obligations have special
risks not ordinarily associated with Municipal Securities. Although lease
obligations do not constitute general obligations of the municipality for which
the municipality's taxing power is pledged, a lease obligation ordinarily is
backed by the municipality's covenant to budget for, appropriate and make the
payments due under the lease obligation. Certain lease obligations in which
these Funds may invest may contain "non-appropriation" clauses which provide
that the municipality has no obligation to make lease payments in future years
unless money is appropriated for such purpose on a yearly basis. Although
"non-appropriation" lease obligations are secured by the leased property,
disposition of the leased property in the event of foreclosure might prove
difficult. In addition, no assurance can be given as to the liquidity of certain
lease obligations. The staff of the Securities and Exchange Commission currently
considers certain lease obligations to be illiquid. The Trust's Board of
Trustees has established guidelines for the [Advisor] to determine the liquidity
and appropriate valuation of lease obligations based on factors which include:
(1) the frequency of trades and quotes for the lease obligation or similar
securities; (2) the number of dealers willing to purchase or sell the lease
obligation or similar securities and the number of other potential buyers; (3)
the willingness of dealers to undertake to make a market in the security or
similar securities; and (4) the nature of the marketplace trades,
-29-
<PAGE> 33
including the time needed to dispose of the security, the method of soliciting
offers, and the mechanics of transfer.
Each of these Funds may purchase tender option bonds and similar
securities. A tender option bond is a Municipal Security (generally held
pursuant to a custodial arrangement) having a relatively long maturity and
bearing interest at a fixed rate substantially higher than prevailing short-term
tax exempt rates, that has been coupled with the agreement of a third party,
such as a bank, broker-dealer or other financial institution, pursuant to which
such institution grants the security holders the option, at periodic intervals,
to tender their securities to the institution and receive the face value
thereof. As consideration for providing the option, the financial institution
receives periodic fees equal to the difference between the Municipal Security's
fixed coupon rate and the rate, as determined by a remarketing or similar agent
at or near the commencement of such period, that would cause the securities,
coupled with the tender option, to trade at par on the date of such
determination. Thus, after payment of this fee, the security holder effectively
holds a demand obligation that bears interest at the prevailing short-term tax
exempt rate. The [Advisor], on behalf of the Fund, will consider on an ongoing
basis the creditworthiness of the issuer of the underlying Municipal Security,
of any custodian and of the third party provider of the tender option. In
certain instances and for certain tender option bonds, the option may be
terminable in the event of a default in payment of principal or interest on the
underlying Municipal Securities and for other reasons.
Each Fund will purchase tender option bonds only when it is satisfied
that the custodial and tender option arrangements, including the fee payment
arrangements, will not adversely affect the tax exempt status of the underlying
Municipal Securities and that payment of any tender fees will not have the
effect of creating taxable income for the Fund. Based on the tender option bond
agreement, each of these Funds expects to be able to value the tender option
bond at par; however, the value of the instrument will be monitored to assure
that it is valued at fair value.
THE MUNICIPAL BOND FUND -- CONCENTRATION IN ALABAMA ISSUERS. The
Municipal Bond Fund may invest 25% or more of its total assets in bonds, notes
and warrants generally issued by or on behalf of the State of Alabama and its
political subdivisions, the interest on which, in the opinion of the issuer's
bond counsel at the time of issuance, is exempt form both federal income tax and
Alabama personal income tax and is not treated as a preference item for purposes
of the federal alternative minimum tax for individuals ("Alabama Municipal
Securities"). Because of the relatively small number of issuers of Alabama
Municipal Securities, the Fund is more likely to invest a higher percentage of
its assets in the securities of a single issuer. This concentration involves an
increased risk of loss if the issuer is unable to make interest or principal
payments or if the market value of such securities were to decline.
Concentration of this nature may cause greater fluctuation in the net asset
value of the Fund's Shares.
-30-
<PAGE> 34
GENERAL ECONOMIC CHARACTERISTICS OF ALABAMA. Alabama ranks twenty-third
in the nation in total population, with over four million residents in 1998. Its
economy has historically been based primarily on agriculture, textiles, mineral
extraction and iron and steel production, although the state has diversified
into health care related industries and other service-oriented sectors. Overall
job growth rate was 0.2% in 1998. Alabama's per capita income in 1998 was
$21,442, 81.2% of U.S. per capita income. Currently Alabama's general
obligations are rated Aa3 by Moody's and AA by Standard and Poor's.
BALANCED BUDGET AND PRO-RATION PROCEDURES. Section 213 of the
Constitution of Alabama, as amended, requires that annual financial operations
of Alabama must be on a balanced budget. The Constitution also prohibits the
state from incurring general obligation debt unless authorized by an amendment
to the Constitution. Amendments to the Constitution have generally been adopted
through a procedure that requires each amendment to be proposed by a favorable
vote of three-fifths of all the members of each house of the Legislature and
thereafter approved by a majority of the voters of the state voting in a
statewide election.
Alabama has statutory budget provisions which create a proration
procedure in the event that estimated budget resources in a fiscal year are
insufficient to pay in full all appropriations for such fiscal year. The Alabama
state budget is composed of two funds - the General Fund and the Education Fund.
Proration of either Fund is possible in any fiscal year, and proration may have
a material adverse effect on entities dependent on state funding, including
certain issuers of Alabama Municipal Securities held in the Alabama Fund.
Court decisions have indicated that certain state expenses necessary
for essential functions of government are not subject to proration under
applicable law. The Supreme Court of Alabama has held that the debt prohibition
contained in the constitutional amendment does not apply to obligations incurred
for current operating expenses payable during the current fiscal year, debts
incurred by separate public corporations, or state debt incurred to repel
invasion or suppress insurrection. The state may also make temporary loans not
exceeding $300,000 to cover deficits in the state treasury. Limited obligation
debt may be authorized by the legislature without amendment to the Constitution.
The state has followed the practice of financing certain capital improvement
programs - principally for highways, education and improvements to the State
Docks - through the issuance of limited obligation bonds payable solely out of
certain taxes and other revenues specifically pledged for their payment and not
from the general revenues of the state.
GENERAL OBLIGATION WARRANTS. Municipalities and counties in
Alabama traditionally have issued general obligation warrants to finance various
public improvements. Alabama statutes authorizing the issuance of such
interest-bearing warrants do not require an election prior to issuance. On the
other hand, the Constitution of Alabama (Section 222) provides that general
obligation bonds may not be issued without an election.
-31-
<PAGE> 35
The Supreme Court of Alabama validated certain general obligation
warrants issued by the City of Hoover, reaffirming that such obligations did not
require an election under Section 222 of the Constitution of Alabama. In so
holding, the Court found that warrants are not "bonds" within the meaning of
Section 222. According to the Court, warrants are not negotiable instruments and
transferees of warrants cannot be holders in due course. Therefore, a transferee
of warrants is subject to all defenses that the issuer of such warrants may have
against the transferor.
County boards of education may borrow money by issuing interest-bearing
warrants payable solely out of such board's allocated or apportioned share of
specified tax. The county board's apportioned share of such tax may be
diminished upon the establishment of a city school system, which could
jeopardize the payment of the county board's warrants.
LIMITED TAXING AUTHORITY. Political subdivisions of the state
have limited taxing authority. Ad valorem taxes may be levied only as authorized
by the Alabama Constitution. In order to increase the rate at which any ad
valorem tax is levied above the limit otherwise provided in the Constitution,
the proposed increase must be proposed by the governing body of the taxing
authority after a public hearing, approved by an act of the Alabama Legislature
and approved at an election within the taxing authority's jurisdiction. In
addition, the Alabama Constitution limits the total amount of state, county,
municipal and other ad valorem taxes that may be imposed on any class of
property in any one tax year. This limitation is expressed in terms of a
specified percentage of the market value of such property.
Specific authorizing legislation is required for the levy of taxes by
local governments. In addition, the rate at which such taxes are levied may be
limited to the authorizing legislation or judicial precedent. For example, the
Alabama Supreme Court has held that sales and use taxes, which usually comprise
a significant portion of the revenues for local governments, may not be levied
at rates that are confiscatory or unreasonable. The total sales tax (state and
local) in some jurisdictions is 9%. State and local governments in Alabama are
more dependent on general and special sales taxes than are state and local
governments in many states. Because sales taxes are less stable sources of
revenue than are property taxes, state and local governments in Alabama may be
subject to shortfalls in revenue due to economic cycles.
PRIORITY FOR ESSENTIAL GOVERNMENTAL FUNCTIONS. Numerous
decisions of the Alabama Supreme Court hold that a governmental unit may first
use its taxes and other revenues to pay the expenses of providing necessary
governmental services before paying debt service on its bonds, warrants or other
indebtedness.
CHALLENGE TO EDUCATION FUNDING. On January 10, 1997, the
Alabama Supreme Court affirmed a lower court ruling which held that an
unconstitutional disparity exists among Alabama's public school districts
because, among other things, of an inequitable distribution of tax funds among
the school districts. In order to comply with the ruling, the Alabama
Legislature continues to restructure the public educational system in Alabama,
subject to
-32-
<PAGE> 36
review by the state courts. Any reallocation of funds between school districts
arising out of this restructuring could impair the ability of certain districts
to service debt.
THE FLORIDA FUND -- DIVERSIFICATION AND CONCENTRATION. The Florida Fund
is a non-diversified fund under the 1940 Act and may concentrate its investments
in the securities of a limited number of issuers. Under the Internal Revenue
Code of 1986, as amended (the "Code"), the Florida Fund generally may not invest
in a manner such that at the end of each fiscal quarter (i) more than 25% of its
total assets are represented by securities of any one issuer (other than U.S.
government securities) and (ii) with respect to 50% of its total assets, more
than 5% of its total assets are represented by the securities of any one issuer
(other than U.S. government securities). Thus, the Florida Fund generally may
invest up to 25% of its total assets in the securities of each of any two
issuers. Because of the relatively small number of issuers of Florida Municipal
Securities, the Florida Fund is more likely to invest a higher percentage of its
assets in the securities of a single issuer than an investment company that
invests in a broad range of tax-exempt securities. This concentration involves
an increased risk of loss if the issuer is unable to make interest or principal
payments or if the market value of such securities were to decline.
Concentration of this nature may cause greater fluctuation in the net asset
value of the Florida Fund's shares.
GENERAL ECONOMIC CHARACTERISTICS OF FLORIDA. Florida ranks fourth in
the nation in total population, with over 12.9 million residents in 1990, and
has been one of the fastest growing states in the nation. Historically, tourism,
agriculture, construction and manufacturing have constituted the most important
sectors of the state's economy. Construction activity slows during periods of
high interest rates or cyclical downturns. The service sector employs the
largest number of people in Florida. While wages in the service sector tend to
be lower than in manufacturing and other sectors of the economy, the service
sector traditionally has been less sensitive to business cycles. Currently,
Florida's general obligations are rated Aa3 by Moody's and AA by Standard and
Poor's.
The southern and central portions of Florida's economy, in particular,
rely heavily on tourism and are sensitive to changes in the tourism industry.
For example, tourism in Florida has been adversely affected by publicity
regarding violent crimes against tourists, particularly tourists from abroad.
Gasoline price hikes and/or shortages from an oil embargo or other oil shortage
could severely affect U.S. tourism in the state, which is heavily dependent on
automobiles as the primary form of transportation.
South Florida also is susceptible to international trade and currency
imbalances due to its geographic location as the gateway to Latin America and
its involvement in foreign trade and investment. The central portion of the
state is affected by conditions in the phosphate and agriculture industries,
especially citrus and sugar. Northern Florida's economy is more heavily tied to
military bases, some of which are closing or scaling back as a result of Federal
budget cutbacks, and the lumber and paper industries.
-33-
<PAGE> 37
The entire state can be affected by severe weather conditions including
hurricanes. The impact of severe hurricanes on the fiscal resources of the state
and local governments is difficult to assess.
SOURCES OF STATE AND LOCAL REVENUES. Florida's Constitution
prohibits deficit spending by the state for governmental operations. Florida
does not have a personal income tax. An amendment to the state's Constitution
would be required in order to institute an income tax, and passage of such an
amendment is believed to be unlikely due to the relatively large number of
retirees living in the state as well as to the general unpopularity of tax
increases in the current political climate. A two-thirds approval of voters
voting in an election is now required for the addition of any new taxes to the
Florida Constitution. The principal sources of state revenues are a 6% sales
tax, state lottery, motor fuels tax, corporate income tax, and miscellaneous
other revenue sources, including beverage tax and licenses, cigarette tax,
documentary stamp taxes and an intangible tax. Dependence on the sales tax may
subject state revenues to more volatility than would be the case if Florida had
a personal income tax, with sales tax collections adversely affected during
recessions and periods when tourism declines.
Taxation by units of government other than the state is permitted only
to the extent that Florida's legislature enacts enabling legislation. The
principal sources of county and municipal government revenues are ad valorem
property taxes, state revenue sharing, and miscellaneous other revenue sources,
including utilities services fees and local option fees. The principal sources
of revenues for Florida's school districts are ad valorem property taxes and
state revenue sharing, including revenues from a state lottery. The state
Constitution imposes millage limits, including a 10-mill limit each on county,
municipal and school ad valorem taxes. Effective January 1, 1995, Florida's
voters amended the state Constitution to limit annual increases in the assessed
value of homestead property to the lesser of 3% of the prior year's assessment
or the percentage change in the Consumer Price Index during the preceding
calendar year. The limitation on increases in assessment of homestead property
could eventually lead to ratings revisions that could have a negative impact on
the prices of obligations funded with this source of taxation. However, the
effect of the limit will be tempered by reassessments of homestead property at
market value when sold.
Units of state and local government in Florida will continue to face
spending pressures due to infrastructure needs for an expanding population,
especially in view of growth management laws enacted by Florida's legislature.
These laws include concurrency requirements that impose building moratoriums
unless roads and other infrastructure are added concurrently with additional
commercial or residential developments.
TYPES OF INDEBTEDNESS. The two principal types of indebtedness
issued by state or local units of government in Florida are "general obligation
bonds" and "revenue bonds." General obligation bonds are secured by a pledge of
the full faith, credit and taxing power of the governmental entity issuing the
bonds. They can be issued in Florida only after a
-34-
<PAGE> 38
referendum in which the voters in the jurisdictional limits of the jurisdiction
issuing the bonds approve their issuance. Revenue bonds are payable only from
the revenues derived from a facility or class of facilities or, in some cases,
from the proceeds of a special tax or other specific revenue source. Revenue
bonds are not secured by the full faith, credit and taxing power of the
governmental issuer.
MARKET RISK CAUSED BY INTANGIBLE TAX CONSIDERATIONS. As a
normal policy, on January 1 of each calendar year the Florida Fund intends to
own only assets which are exempt from the Florida Intangible Tax. Accordingly,
it is possible that the Florida Fund, in disposing of non-exempt assets to meet
this policy objective, might sustain losses which might not otherwise be
incurred absent this policy of avoiding the Florida Intangible Tax.
TENNESSEE MUNICIPAL SECURITIES. (Tennessee Tax-Exempt Fund and Limited
Term Tennessee Tax-Exempt Fund) The average dollar-weighted credit rating of the
Municipal Securities held by the Tennessee Tax-Exempt Fund and Limited Term
Tennessee Tax-Exempt Fund will be at least A- by Moody's, S&P or Fitch. To
further limit risk, each Municipal Security in which the Fund may invest must be
rated, in the case of bonds, at least Baa by Moody's or at least BBB by S&P and
Fitch. Each Fund may invest in short-term Municipal Securities which are rated
in the two highest categories by Moody's, S&P or Fitch. The average
dollar-weighted portfolio credit rating will be measured on the basis of the
dollar value of the Municipal Securities purchased and their credit rating
without reference to rating subcategories. The Tennessee Tax-Exempt Fund and
Limited Term Tennessee Tax-Exempt Fund also may invest in Municipal Securities
which, while not rated, are determined by the [Advisor] to be of comparable
quality to the rated securities in which the Fund may invest.
Investors in the Tennessee Tax-Exempt Fund and Limited Term Tennessee
Tax-Exempt Fund should consider carefully the special risks inherent in such
Funds' investment in Tennessee Municipal Securities. These risks result from the
financial condition of the State of Tennessee. The following information
constitutes only a brief summary, does not purport to be a complete description,
and is based on information drawn from official statements relating to
securities offerings of the State of Tennessee (the "State") and various local
agencies, available as of the date of the Statement of Additional Information.
While the Trust has not independently verified such information, it has no
reason to believe that such information is not correct in all material respects.
The Constitution of the State of Tennessee requires a balanced budget.
In 1978, the voters of the State of Tennessee approved an amendment to the State
Constitution requiring that (1) the total expenditures of the State for any
fiscal year may not exceed the State's revenues and reserves, including the
proceeds of debt obligations issued to finance capital expenditures and (2) in
no year may the rate of growth of appropriations from State tax revenues exceed
the estimated rate of growth of the State's economy. In the past the Governor
-35-
<PAGE> 39
and the General Assembly have had to restrict expenditures to comply with the
State Constitution.
Beginning in 1999 and throughout the remainder of that year and the
first six months of 2000, Tennessee reported that there was a significant
possibility of a large budgetary shortfall for fiscal year 2001. During this
time, Tennessee's Governor reviewed and considered several avenues to address
the possible budget shortfall, including the imposition of a broad-based state
income tax. Implementation of certain of these proposals would have raised
revenues for the State, but potentially could have impacted expenditures by
Tennessee. In June 2000, the Tennessee General Assembly passed a balanced budget
that did not make significant cuts in expenditures, but forecast increased
revenues based on one-time sources.
Also, during this time, Standard & Poor's lowered the State of
Tennessee's debt rating to AA-plus. Moody's placed Tennessee on its watch list
for a possible downgrade. Fitch and Moody's took no action regarding the State's
debt rating.
The Comprehensive Annual Financial Report ("CAFR") for the State of
Tennessee contains detailed information about the financial status of the State
of Tennessee. The fiscal year 2000 CAFR is expected to be available in December
2000 and can be found on the Internet at
http://www.state.tn.us/finance/act/cafr.html.
-36-
<PAGE> 40
INVESTMENT RESTRICTIONS - [VALUE FUND, GROWTH FUND, SMALL CAP FUND, EQUITY
INCOME FUND, BALANCED FUND, SELECT EQUITY FUND, ENHANCED MARKET FUND, BOND FUND,
LIMITED TERM BOND FUND, GOVERNMENT INCOME FUND, MUNICIPAL BOND FUND, FLORIDA
TAX-EXEMPT FUND], MONEY MARKET FUNDS (EXCEPT THE TREASURY RESERVE FUND),
INSTITUTIONAL FUND
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 "ADDITIONAL INFORMATION - Miscellaneous" in this
Statement of Additional Information).
FUNDAMENTAL POLICIES
THE PRIME MONEY MARKET FUND AND 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 Prime Money
Market Fund's or the Institutional Prime Obligations Fund's total assets would
be invested in such issuer, except that 25% or less of the value of the Prime
Money Market Fund's or 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.
-37-
<PAGE> 41
2. Purchase any securities which would cause more than 25% of the value
of the Prime Money Market Fund's or 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.
THE U.S. TREASURY FUND MAY NOT:
1. Purchase securities other than bills, notes, and bonds issued by the
U.S. Treasury, certain of which securities may be subject to repurchase
agreements collateralized by the underlying U.S. Treasury obligation.
THE TAX-EXEMPT FUND MAY NOT:
1. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities if,
immediately after such purchase, more than 5% of the value of its total assets
would be invested in such issuer (except that up to 25% of the value of the
Tax-Exempt Fund's total assets may be invested without regard to such 5%
limitation). For purposes of this limitation, a security is considered to be
issued by the government entity (or entities) whose assets and revenues back the
security; with respect to a private activity bond that is backed only by the
assets and revenues of a non-government user, a security is considered to be
issued by such non-governmental user.
2. Purchase any securities which would cause 25% or more of the
Tax-Exempt Fund's total assets at the time of purchase to be invested in the
securities of one or more issuers conducting their principal business activities
in the same industry; provided that this limitation shall not apply to Municipal
Securities; and provided, further, that for the purpose of this limitation only,
private activity bonds that are backed only by the assets and revenues of a
non-governmental user shall not be deemed to be Municipal Securities.
3. Acquire a put if, immediately after such acquisition, over 5% of the
total amortized cost value of the Tax-Exempt Fund's assets would be subject to
puts from the same institution (except that (i) up to 25% of the value of the
Tax-Exempt Fund's total assets may be subject to puts without regard to such 5%
limitation and (ii) the 5% limitation is inapplicable to puts that, by their
terms, would be readily exercisable in the event of a default in payment of
principal or
-38-
<PAGE> 42
interest on the underlying securities). For the purpose of this investment
restriction and investment restriction No. 4 below, a put will be considered to
be from the party to whom the Tax-Exempt Fund will look for payment of the
exercise price.
4. Acquire a put that, by its terms would be readily exercisable in the
event of a default in payment of principal and interest on the underlying
security or securities if, immediately after that acquisition, the amortized
cost value of the security or securities underlying that put, when aggregated
with the amortized cost value of any other securities issued or guaranteed by
the issuer of the put, would exceed 10% of the total amortized cost value of the
THE BOND FUND, THE LIMITED TERM BOND FUND, THE GOVERNMENT INCOME FUND,
THE MUNICIPAL BOND FUND, THE VALUE FUND, THE GROWTH FUND, THE SMALL CAP FUND,
THE EQUITY INCOME FUND, THE BALANCED FUND, THE SELECT EQUITY FUND, THE ENHANCED
MARKET 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 such Fund's total
assets would be invested in such issuer, or such Fund would hold more than 10%
of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to 25% of the value of each
Fund's total assets may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities. This investment restriction does not apply
to the Select Equity Fund.
THE [BOND FUND, LIMITED TERM BOND FUND, GOVERNMENT INCOME FUND,
MUNICIPAL BOND FUND, FLORIDA TAX-EXEMPT FUND, THE VALUE FUND, THE GROWTH FUND,
THE SMALL CAP FUND, THE EQUITY INCOME FUND, THE BALANCED FUND, THE SELECT EQUITY
FUND, THE ENHANCED MARKET FUND] MAY NOT:
1. Purchase any securities which would cause more than 25% of the value
of such Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, and repurchase agreements secured by obligations of the U.S.
government or its agencies or instrumentalities; (b) for the Bond Fund, the
Limited Term Bond Fund, the Florida Fund, and the Municipal Bond Fund there is
no limitation with respect to Municipal Securities, which, for purposes of this
limitation only, do not include private activity bonds that are backed only by
the assets and revenues of a non-governmental user; (c) wholly-owned finance
companies will be considered to be in the industries of their parents if their
activities are primarily related to financing the activities of their parents;
and (d) utilities will be divided according to their services. For
-39-
<PAGE> 43
example, gas, gas transmission, electric and gas, electric, and telephone
will each be considered a separate industry.
THE TAX-FREE FUNDS MAY NOT:
1. Write or sell puts, calls, straddles, spreads, or combinations
thereof except that the Funds may acquire puts with respect to Eligible
Municipal Securities and sell those puts in conjunction with a sale of those
Eligible Municipal Securities.
THE MONEY MARKET FUNDS, THE INSTITUTIONAL MONEY MARKET FUND, THE [BOND
FUND, THE LIMITED TERM BOND FUND, THE GOVERNMENT INCOME FUND, THE MUNICIPAL BOND
FUND, THE FLORIDA TAX-EXEMPT FUND, THE VALUE FUND, THE GROWTH FUND, THE SMALL
CAP FUND, THE EQUITY INCOME FUND, THE BALANCED FUND, THE SELECT EQUITY FUND, THE
ENHANCED MARKET FUND] MAY NOT:
1. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
emergency purposes in amounts up to 10% of the value of its total assets at the
time of such borrowing (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 Fund's total assets at the time of its
borrowing (33 1/3% with respect to the Select Equity Fund). A Fund will not
purchase securities while borrowings (including reverse repurchase agreements)
in excess of 5% of its total assets are outstanding.
2. Make loans, except that each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, may lend
Fund securities in accordance with its investment objective and policies, and
may enter into repurchase agreements.
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
-40-
<PAGE> 44
investment trusts are permitted for the 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 [Value Fund, the Growth
Fund, The Small Cap Fund, the Equity Income Fund, the Balanced Fund, the Select
Equity Fund, the Enhanced Market Fund, the Bond Fund, the Limited Term Bond
Fund, the Government Income Fund, the Municipal Bond Fund, the Florida
Tax-Exempt Fund] may purchase securities of a money market fund, including
securities of both the Prime Money Market 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, the Institutional Prime Obligations Fund, and the Prime Money
Market Fund may purchase securities of a money market fund which invests
primarily in high quality short-term obligations exempt from federal income tax,
if, with respect to each such Fund, immediately after such purchase, the
acquiring Fund, does not own in the aggregate (i) more than 3% of the acquired
company's outstanding voting securities, (ii) securities issued by the acquired
company having an aggregate value in excess of 5% of the value of the total
assets of the acquiring Fund, or (iii) securities issued by the acquired company
and all other investment companies (other than Treasury stock of the acquiring
Fund) having an aggregate value in excess of 10% of the value of the acquiring
Fund's total assets;
4. Invest in any issuer for purposes of exercising control or
management;
5. Purchase or retain securities of any issuer if the officers or
Trustees of the Trust or the officers or directors of its investment [advisor]
owning beneficially more than one-half of 1% of the securities of such issuer
together own beneficially more than 5% of such securities; and
6. Invest more than 10% of total assets in the securities of issuers
which together with any predecessors have a record of less than three years of
continuous operation.
The Prime Money Market Fund, the Institutional 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, the
Institutional Money Market Fund, 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 Money Market Fund, the U.S.
Treasury Fund, the Value Fund, the Institutional Prime Obligations Fund, the
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
-41-
<PAGE> 45
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.
NONFUNDAMENTAL POLICIES
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.
INVESTMENT RESTRICTIONS - [INTERNATIONAL EQUITY FUND, MID CAP FUND, LARGE CAP
FUND, CAPITAL GROWTH FUND], STRATEGIC PORTFOLIOS, [LIMITED TERM U.S. GOVERNMENT
FUND, TENNESSEE TAX-EXEMPT FUND, LIMITED TERM TENNESSEE TAX-EXEMPT FUND],
TREASURY RESERVE FUND
Each Fund's investment objective is a fundamental policy, which cannot
be changed without approval by the holders of a majority (as defined in the 1940
Act) of the Fund's outstanding voting shares. In addition, each Fund has adopted
investment restrictions numbered 1 through 5 as fundamental policies, and only
the Funds so indicated have adopted investment restrictions numbered 6 through 9
as additional fundamental policies. These restrictions cannot be changed, as to
a Fund, without approval by the holders of a majority (as defined in the 1940
Act) of such Fund's outstanding voting securities. Each Fund, except as
otherwise indicated, has adopted investment restrictions numbered 10 through 13
as non-fundamental policies which may be changed by vote of a majority of the
Trust's Trustees at any time.
FUNDAMENTAL POLICIES
NO FUND MAY:
1. Purchase or sell commodities, commodity contracts (including futures
contracts with respect to each Fund other than the International Equity, Mid
Cap, Capital Growth, Large Cap, Limited Term U.S. Government, Tennessee
Tax-Exempt, and Limited Term Tennessee Tax-Exempt 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 Treasury
Reserve Money Market 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 Mid Cap, Capital Growth, and Large Cap Funds).
-42-
<PAGE> 46
2. Borrow money or issue senior securities, except that each Fund may
borrow from banks or enter into reverse repurchase agreements for temporary
emergency purposes in amounts up to 33_% 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 33_% of the value of such Fund's total assets
at the time of its borrowing. A Fund will not purchase securities while
borrowings (including reverse repurchase agreements) in excess of 5% of its
total assets are outstanding.
3. Make loans, except that each Fund may purchase or hold debt
instruments in accordance with its investment objective and policies, may lend
Fund securities in accordance with its investment objective and policies, and
may enter into repurchase agreements.
4. 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.
5. Issue any senior security (as such term is defined in Section 18(f)
of the 1940 Act). A Fund's permitted borrowings and transactions in futures and
options, to the extent permitted under the 1940 Act, are not considered senior
securities for purposes of this investment restriction.
The following investment restriction numbered 6 is a fundamental policy
which applies only to the Treasury Reserve Money Market Fund. The Treasury
Reserve Money Market Fund may not:
6. Invest in securities other than those issued or guaranteed by the
U.S. Government or its agencies or instrumentalities or repurchase agreements
related thereto.
The following investment restriction numbered 7 is a fundamental policy
which applies to each of the Tennessee Tax-Exempt and Tennessee Limited Term
Tax-Exempt Funds. Neither of these Funds may:
7. Purchase any securities which would cause 25% or more of the Fund's
total assets at the time of purchase to be invested in the securities of one or
more issuers conducting their principal business activities in the same
industry; provided that this limitation shall not apply to Municipal Securities;
and provided, further, that for the purpose of this limitation only, private
activity bonds that are backed only by the assets and revenues of a
non-governmental user shall not be deemed to be Municipal Securities.
-43-
<PAGE> 47
The following investment restriction numbered 8 is fundamental for the
Treasury Reserve Money Market, International Equity Fund, Mid Cap Fund, Capital
Growth, Large Cap Equity Fund, Limited Term U.S. Government Fund, Aggressive
Growth Portfolio, Growth Portfolio, Growth and Income Portfolio, and Moderate
Growth and Income Portfolio. None of these Funds may:
8. Purchase any securities which would cause more than 25% of the value
of such Fund's total assets at the time of purchase to be invested in securities
of one or more issuers conducting their principal business activities in the
same industry, provided that (a) there is no limitation with respect to
obligations issued or guaranteed by the U.S. government or its agencies or
instrumentalities, and repurchase agreements secured by obligations of the U.S.
government or its agencies or instrumentalities; (b) for the Aggressive Growth
Portfolio, Growth Portfolio, Growth and Income Portfolio, and Moderate Growth
and Income Portfolio, there is no limitation with respect to registered
investment companies; (c) wholly-owned finance companies will be considered to
be in the industries of their parents if their activities are primarily related
to financing the activities of their parents; and (d) utilities will be divided
according to their services. For example, gas, gas transmission, electric and
gas, electric, and telephone will each be considered a separate industry.
The following investment restriction numbered 9 is fundamental for the
Mid Cap Fund, Large Cap Equity Fund, Limited Term U.S. Government Fund, Treasury
Reserve Money Market Fund, Aggressive Growth Portfolio, Growth Portfolio, Growth
and Income Portfolio, and Moderate Growth and Income Portfolio. No such fund
may:
9. Purchase securities of any one issuer, other than obligations issued
or guaranteed by the U.S. government or its agencies or instrumentalities, if,
immediately after such purchase, more than 5% of the value of such Fund's total
assets would be invested in such issuer, or such Fund would hold more than 10%
of any class of securities of the issuer or more than 10% of the outstanding
voting securities of the issuer, except that up to 25% of the value of each
Fund's total assets may be invested without regard to such limitations. There is
no limit to the percentage of assets that may be invested in U.S. Treasury
bills, notes, or other obligations issued or guaranteed by the U.S. government
or its agencies or instrumentalities or securities of other investment
companies.
* * *
NONFUNDAMENTAL POLICIES
NONE OF THE FUNDS MAY:
-44-
<PAGE> 48
10. Invest in the securities of a company for the purpose of exercising
management or control.
11. Enter into repurchase agreements providing for settlement in more
than seven days after notice or purchase securities which are illiquid, if, in
the aggregate, more than 15% of the value of the Fund's net assets would be so
invested.
12. Purchase securities of other investment companies, except to the
extent permitted under the 1940 Act.
NONE OF THE INTERNATIONAL EQUITY, CAPITAL GROWTH, TENNESSEE TAX-EXEMPT,
AND LIMITED TERM TENNESSEE TAX-EXEMPT FUNDS WILL:
13. Purchase securities of any one issuer, other than obligations
issued or guaranteed by the U.S. government or its agencies or instrumentalities
if, immediately after such purchase, more than 5% of the value of its total
assets would be invested in such issuer (except that up to 50% of the value of
the Fund's total assets may be invested without regard to such 5% limitation).
For purposes of this limitation, a security is considered to be issued by the
government entity (or entities) whose assets and revenues back the security;
with respect to a private activity bond that is backed only by the assets and
revenues of a non-government user, a security is considered to be issued by such
non-governmental user.
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 and the
Institutional Money Market Fund is expected to be zero percent for regulatory
purposes.
For the fiscal years ended July 31, [2000] and July 31, [1999], the
portfolio turnover rate for the Balanced Fund was [10.17%] and [13.51%],
respectively, for the common stock portion of its portfolio and [12.48%] and
[17.15%], respectively, for the other portion of its portfolio.
For the other AmSouth Funds, each Fund's portfolio turnover rate for
the fiscal year ended July 31, [2000 and July 31, 1999 (the period ending July
31, 2000 and the years ending] December 31, 1999 and December 31, 1998 in the
case of Funds participating in the ISG/AmSouth combination) were as follows:
Fund [2000] 1999
---- ------ ----
-45-
<PAGE> 49
Balanced Fund [11.39%] 23.24%
Growth Fund [110.65%] 79.30%
Enhanced Market Fund [30.43%] 36.03%
Value Fund [17.25%] 17.65%
Equity Income Fund [167.53%] 133.74%
Select Equity Fund [24.88%] 9.72%
Small Cap Fund [318.40%] 208.13%
Bond Fund [27.18%] 18.26%
Government Income Fund [41.6%] 26.85%
Limited Term Bond Fund [45.85%] 39.15%
Florida Tax-Exempt Fund [11.05%] 34.33%
Municipal Bond Fund [8.68%] 20.74%
---------
<TABLE>
<CAPTION>
[Period Ending] December 31 December 31
--------------- ----------- -----------
[July 31, 2000 1999] 1998
-------------- ----- ----
<S> <C> <C>
International Equity Fund 31.88% 39.97% 62.47%
Mid Cap Fund 38.84% 19.71% N/A
Capital Growth Fund 91.63% 178.49% 152.00%
Large Cap Fund 9.60% 14.92% 2.79%
Limited Term U.S. Government Fund 3.63% 16.91% 86.00%
Tennessee Tax-Exempt Fund 23.19% 63.97% [154 86%]
Limited Term Tennessee Tax-Exempt Fund 20.04% 52.09% 167.48%
Aggressive Growth Portfolio 22.19% 94.78% N/A
Growth Portfolio 93.18% 82.83% N/A
Growth and Income Portfolio 20.94% 61.90% N/A
Moderate Growth and Income Portfolio 21.37% 133.91% N/A
</TABLE>
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, the Tax-Free
Funds, [the Tennessee Tax-Exempt Fund and the Limited Term Tennessee Tax-Exempt
Fund], 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, the Tennessee Tax-Exempt Fund and the Limited Term
Tennessee Tax-Exempt Fund 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
-46-
<PAGE> 50
[Advisor] believes investment considerations warrant such sale or purchase.
However, the portfolio turnover rate for each of the Tax-Free Funds [the
Tennessee Tax-Exempt Fund and the Limited Term Tennessee Tax-Exempt 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 to the Funds
and may result in higher levels of taxable realized gains to the Funds'
Shareholders. To the extent portfolio turnover results in the realization of
short-term capital gains, such gains will generally be taxed to shareholders at
ordinary income tax rates.
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
(and also as of 1:00 p.m., Eastern time for the Treasury Reserve Fund and as of
2:00 p.m., Eastern time for the Institutional Prime Obligations Fund) (the
"Valuation Time") on each Business Day of the Fund. As used herein a "Business
Day" constitutes any day on which the New York Stock Exchange (the "NYSE") is
open for trading and the Federal Reserve Bank of Atlanta is open, except days on
which there are not sufficient changes in the value of the Fund's portfolio
securities that the Fund's net asset value might be materially affected, or days
during which no Shares are tendered for redemption and no orders to purchase
Shares are received. Currently, either the NYSE or the Federal Reserve Bank of
Atlanta is closed on the customary national business holidays of New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and
Christmas Day.
VALUATION OF THE MONEY MARKET FUNDS AND THE INSTITUTIONAL MONEY MARKET FUND
These 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, these Funds 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
-47-
<PAGE> 51
per Share of the 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 THE INCOME FUNDS
The value of the portfolio securities held by each of the Funds for
purposes of determining such Fund's net asset value per Share will be
established on the basis of current valuations provided by Muller Data
Corporation or Kenny S&P Evaluation Services, whose procedures shall be
monitored by the Administrator, and which valuations shall be the fair market
value of such securities.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares in each Fund 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 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
Class A Shares of the Capital Appreciation Funds, the Strategic Portfolios, 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 Class B and Trust Shares is their net asset value computed after the sale.
The public offering price of such Shares is calculated by dividing net asset
value by the difference (expressed as a decimal) between 100% and the sales
charge percentage of the
-48-
<PAGE> 52
offering price applicable to the purchase (see "Shareholder Information -Pricing
of Fund Shares" in the relevant Prospectuses). 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.
SALES CHARGES. 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 made at one time
by any purchaser (a "Purchaser"), which includes: (i) an individual, his or her
spouse and children under the age of 18; (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.
A Purchaser may qualify for a reduced sales charge by combining
concurrent purchases of Class A Shares of a Capital Appreciation Fund and one or
more of the other Class A Shares of a Fund or by combining a current purchase of
Class A Shares of a Fund with prior purchases of Class A Shares of any Fund. 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 dollar
amount of purchases of the Purchaser's combined holdings of all Class A Shares
in any Fund. The "Purchaser's combined holdings" described in the preceding
sentence shall include the combined holdings of the Purchaser, the Purchaser's
spouse, children under the age of 18, the Purchaser's retirement plan accounts
and sole proprietorship accounts that the Purchaser may own. 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.
Class A 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 Class A 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 Money Market 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
Money Market Fund.
Class A Shares purchased with proceeds from redemptions from another
mutual fund complex within 30 days after redemption, if the Shareholder paid a
front end sales charge for those shares, qualify for a waiver of the AmSouth
sales charge. Certain other sales of Class A 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.
-49-
<PAGE> 53
ADDITIONAL INFORMATION REGARDING BROKER COMPENSATION. As the
Trust's principal underwriter, BISYS acts as principal in selling Class A 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 Class A Shares and Class B Shares Prospectuses (see
"Shareholder Information - Pricing of Fund 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.
From time to time dealers who receive dealer discounts and broker
commissions from the Distributor may reallow all or a portion of such dealer
discounts and broker commissions to other dealers or brokers.
The Distributor, at its expense, will also provide additional
compensation to dealers in connection with sales of Class A 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. 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.
PURCHASES THROUGH FINANCIAL INSTITUTIONS. Shares of the Funds
may be purchased through procedures established by the Distributor in connection
with requirements of qualified accounts maintained by or on behalf of certain
persons ("Customers") by AmSouth or 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 a Money Market Fund or the Institutional Money Market Fund. These
procedures may also include transactions whereby AmSouth as agent purchases
Shares of the Funds in amounts that correspond to the market value of securities
sold to the Funds by AmSouth as agent.
-50-
<PAGE> 54
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.
There is no sales charge imposed by the Trust in connection with the
purchase of Shares of the Institutional Money Market Fund.
Shares of the Institutional Money Market Fund are purchased at the
appropriate net asset value per Share 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. 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.
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 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.
If an Account Registration Form has been previously received by the
Distributor, investors may also purchase Class A 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
-51-
<PAGE> 55
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.
AUTOMATIC INVESTMENT PLAN
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).
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 and the Institutional Money Market
Fund" above.
The Trust reserves the right to convert, at net asset value, Class I
Shares of any Shareholder to Trust Shares if, because of redemptions of Shares
by or on behalf of the Shareholder, the account of such Shareholder in Class I
Shares of the Institutional Money Market Fund has a value of less than $3
million. Accordingly, an investor purchasing Class I Shares of the Institutional
Money Market Fund in only the minimum investment amount may be subject to such
involuntary conversion to Trust 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 Trust 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 amount which will increase the value of the account
to at least $3 million.
-52-
<PAGE> 56
TAXES
THE MONEY MARKET FUNDS AND THE INSTITUTIONAL MONEY MARKET FUND
The net income of each Money Market Fund is declared daily as a
dividend to Shareholders of record at the close of business on the day of
declaration. 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. For each Fund, dividends
are paid in cash not later than seven Business Days after a Shareholder's
complete redemption of his or her Shares. Dividends are generally taxable when
received. However, dividends declared in October, November, or December to
Shareholders of record during those months and paid during the following January
are treated for tax purposes as if they were received by each Shareholder on
December 31 of the prior year.
INFORMATION SPECIFIC TO THE PRIME MONEY MARKET FUND, THE INSTITUTIONAL
PRIME OBLIGATIONS FUND, THE TREASURY RESERVE FUND, AND THE U.S. TREASURY FUND.
Dividends will generally be taxable to a Shareholder as ordinary income to the
extent of the Shareholder's ratable share of each Fund's earnings and profits as
determined for tax purposes. Because all of the net investment income of each
Fund is expected to be interest income, it is anticipated that no distributions
will qualify for the dividends-received deduction for corporate shareholders.
These 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 U.S. Treasury
Fund's, the Treasury Reserve Fund's, and the Institutional Prime Obligations
Fund's investments in U.S. government obligations may not be eligible for
exemption from state and local taxes even though the income on such investments
would have been exempt from state and local taxes if the Shareholder directly
held such investments. In addition, the state and local tax exemption for
interest earned on U.S. government obligations may not extend to income earned
on U.S. government obligations that are subject to a repurchase agreement.
Shareholders are advised to consult their own tax [Advisors] concerning their
own tax situation and the application of state and local taxes.
THE INCOME FUNDS
A dividend for each Income Fund will be declared monthly at the close
of business on the day of declaration consisting of an amount of accumulated
undistributed net income of the Fund as determined to be necessary or
appropriate by the appropriate officers of the Trust.
-53-
<PAGE> 57
Dividends will generally be paid monthly. Distributable net realized capital
gains are distributed annually to Shareholders of record. A Shareholder will
automatically receive all income dividends and capital gains distributions in
additional full and fractional Shares unless the Shareholder elects to receive
such dividends or distributions in cash. Dividends and distributions are
reinvested without a sales charge as of the ex-dividend date using the net asset
value determined on that date and are credited to a Shareholder's account on the
payment date. Reinvested dividends and distributions receive the same tax
treatment as dividends and distributions paid in cash. Dividends are generally
taxable when received. However, dividends declared in October, November, or
December to Shareholders of record during those months and paid during the
following January are treated for tax purposes as if they were received by each
Shareholder on December 31 of the prior year. Elections to receive dividends or
distributions in cash, or any revocation thereof, must be made in writing to the
Transfer Agent at P.O. Box 182733, Columbus, Ohio 43218-2733, and will become
effective with respect to dividends and distributions having record dates after
its receipt by the Transfer Agent.
INFORMATION SPECIFIC TO THE BOND FUND, THE LIMITED TERM BOND FUND AND
THE GOVERNMENT INCOME FUND. Distributions by the Bond Fund, the Limited Term
Bond Fund and the Government Income Fund of ordinary income and/or an excess of
net short-term capital gain over net long-term loss are taxable to shareholders
as ordinary income. It is not expected that the dividends-received deduction for
corporations will apply to these distributions.
Distributions designated by the Bond Fund, the Limited Term Bond Fund
and the Government Income Fund as derived from net gains on securities held for
more than one year are taxable to Shareholders as such regardless of how long
the Shareholder has held Shares in such Fund. Such distributions are not
eligible for the dividends-received deduction.
Prior to purchasing Shares of the Bond Fund, the Limited Term Bond Fund
or the Government Income Fund, the impact of dividends or capital gains
distributions which are expected to be declared or have been declared, but not
paid, should be carefully considered. Dividends or capital gains distributions
paid after a purchase of Shares are subject to federal income taxes, although in
some circumstances the dividends or distributions may be, as an economic matter,
a return of capital. A Shareholder should consult his or her own [Advisor] for
any special advice.
Dividends received by a Shareholder that are derived from the Bond
Fund's, the Limited Term Bond Fund's or the Government Income Fund's investments
in U.S. government obligations may not be entitled to the exemptions from state
and local income taxes that would be available if the Shareholder had purchased
U.S. government obligations directly.
A Shareholder will generally recognize long-term capital gain or loss
on the sale or exchange of shares in an Income Fund held by the Shareholder for
more than twelve months.
-54-
<PAGE> 58
If a Shareholder receives a capital gain dividend with respect to a Share of the
Bond Fund, Limited Term Bond Fund, and Government Income Fund and such Share is
held for six months or less, any loss on the sale or exchange of such Share
shall be treated as a long-term capital loss to the extent of the capital gain
dividend.
The holder of a security issued with "original issue discount"
(including a zero-coupon U.S. Treasury security) is required to accrue as income
each year a portion of the discount at which the security was purchased, even
though the holder does not currently receive the interest payment in cash. A
security has original issue discount if its redemption price exceeds its issue
price by more than a de minimis amount. Accordingly, the Bond Fund, the Limited
Term Bond Fund and the Government Income Fund may be required to distribute each
year an amount which is greater than the total amount of cash interest the Fund
actually received. Such distributions may be made from the cash assets of the
Fund or by liquidation of its portfolio securities, if necessary. The Fund may
realize gains or losses from such liquidations. In the event the Fund realizes
net capital gains from such transactions, its shareholders may receive a larger
capital gain distribution than they would have in the absence of such
transactions.
INFORMATION SPECIFIC TO THE TAX-EXEMPT FUND, THE FLORIDA FUND, THE
MUNICIPAL BOND FUND, THE TENNESSEE TAX-EXEMPT FUND, AND THE LIMITED TERM
TENNESSEE TAX-EXEMPT FUND. Shareholders of these Funds may treat as
exempt-interest and exclude from gross income for federal income tax purposes
dividends derived from net exempt-interest income and designated by the Funds as
exempt-interest dividends. However, such dividends may be taxable to
shareholders under state or local law as ordinary income even though all or a
portion of the amounts may be derived from interest on tax-exempt obligations
which, if realized directly, would be exempt from such taxes.
Dividends from these Funds attributable to exempt-interest dividends
may cause the social security and railroad retirement benefits of individual
Shareholders to become taxable, or increase the amount that is taxable. Interest
on indebtedness incurred by a Shareholder to purchase or carry Shares is not
deductible for federal income tax purposes to the extent the Funds distribute
exempt-interest dividends during the Shareholder's taxable year. The amount of
the disallowed interest deduction is the total amount of interest paid or
accrued on the indebtedness multiplied by a fraction, the numerator of which is
the amount of exempt-interest dividends received by the Shareholder and the
denominator of which is the sum of the exempt-interest dividends and taxable
dividends received by the Shareholder (excluding capital gain dividends received
by the Shareholder and capital gains required to be included in the
Shareholder's computation of long-term capital gains under Section 852(b)(3)(D)
of the Code). It is anticipated that distributions from these Funds will not be
eligible for the dividends-received deduction for corporate shareholders.
Because Fund expenses attributable to earning tax-exempt income do not
reduce the Fund's current earnings and profits, a portion of any distribution in
excess of the Fund's net tax-exempt and taxable income may be considered as paid
out of the Fund's earnings and profits and therefore may be treated as a taxable
dividend (even though that portion represents a return of the Fund's capital).
Gains on the sale of Shares in the Funds will be subject to federal,
state, and local taxes. If a Shareholder receives an exempt-interest dividend
with respect to any Share of the
-55-
<PAGE> 59
Fund and such Share is held for six months or less, any loss on the sale or
exchange of such Share will be disallowed to the extent of the amount of such
exempt-interest dividend. In addition, any loss not already disallowed as
provided in the preceding sentence will be treated as a long-term capital loss
to the extent of any capital gain dividends received with respect to such
Shares. For purposes of determining whether Shares have been held for six months
or less, the holding period is suspended for any periods during which a
shareholder's risk of loss is diminished as a result of holding one or more
other positions in substantially similar or related property, or through certain
options or short sales.
The Funds may at times purchase Municipal Securities at a discount from
the price at which they were originally issued. For federal income tax purposes,
some or all of this market discount will be included in a Fund's ordinary income
and will be taxable to Shareholders as such when it is distributed to them.
To the extent dividends paid to Shareholders are derived from taxable
income (for example, from interest on certificates of deposit, market discount
or repurchase agreements) or from long-term or short-term capital gains, such
dividends will be subject to federal income tax and may be subject to state and
local tax. A Shareholder should consult his or her own tax [Advisor] for any
special advice.
Dividends attributable to interest on certain private activity bonds
issued after August 7, 1986 must be included in the alternative minimum taxable
income of individual and corporate Shareholders for the purpose of determining
liability (if any) for the applicable alternative minimum tax. All tax-exempt
interest dividends will be required to be taken into account in calculating the
alternative minimum taxable income of corporate Shareholders.
ADDITIONAL 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 (the "Code"). By following such
policy, the Trust's Funds expect to eliminate or reduce to a nominal amount the
federal income taxes to which such Fund may be subject.
In order to qualify for the special tax treatment accorded regulated
investment companies and their Shareholders, a Fund must, among other things,
(a) derive at least 90% of its gross income from dividends, interest, payments
with respect to certain securities loans, and gains from the sale or other
disposition of stock, securities, and foreign currencies, or other income
(including but not limited to gains from options, futures, or forward contracts)
derived with respect to its business of investing in such stock, securities, or
currencies; (b) each year distribute at least 90% of the sum of its taxable net
investment company income, its net tax-exempt income, and the excess, if any, of
its net short-term capital gains over its net long-term capital losses; and (c)
diversify its holdings so that, at the end of each fiscal quarter (i) at least
50% of the market value of its total assets is represented by cash, cash items
(including receivables), U.S. Government securities, securities of other
regulated investment companies, and other securities, limited in respect of any
one issuer to a value not greater than 5% of the value of the Fund's total
assets and 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its total assets is invested in the securities
(other than those of the U.S. government or other regulated investment
companies) of any one
-56-
<PAGE> 60
issuer or of two or more issuers which the Fund controls and which are engaged
in the same, similar, or related trades or businesses.
Dividends and distributions on a Fund's shares are generally subject to
federal income tax as described herein to the extent they do not exceed the
Fund's realized income and gains, even though such dividends and distributions
may economically represent a return of a particular shareholder's investment.
Such distributions are likely to occur in respect of shares purchased at a time
when the Fund's net asset value reflects gains that are either unrealized, or
realized but not distributed.
Any loss realized on the sale or exchange of Shares will be disallowed
to the extent that a Shareholder replaces the disposed of Shares with other
Shares within a period of 61 days beginning 30 days before and ending 30 days
after the date of disposition. In such an event, a Shareholder's basis in the
replacement Shares will be adjusted to reflect the disallowed loss.
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 at least equal to the sum of
98% of their "ordinary income" (as defined) for the calendar year, 98% of their
capital gain net income for the 1-year period ending on October 31 of such
calendar year, and 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 excise tax 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 Fund 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."
The Internal Revenue Service recently revised its regulations affecting
the application to foreign investors of the back-up withholding and withholding
tax rules described above. The new regulations will generally be effective for
payments made after December 31, 2000. In some circumstances, the new rules will
increase the certification and filing requirements imposed on foreign investors
in order to qualify for exemption from the 31% back-up withholding tax and for
reduced withholding tax rates under income tax treaties. Foreign investors in a
Fund should consult their tax [Advisors] with respect to the potential
application of these new regulations.
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
-57-
<PAGE> 61
into long-term capital losses, convert long-term capital gains into short-term
capital gains, and otherwise affect the character of the Fund's income. These
rules could therefore affect the amount, timing, and character of distributions
to Shareholders. Income earned as a result of these transactions would, in
general, not be eligible for the dividends-received deduction or for treatment
as exempt-interest dividends when distributed to Shareholders. The Funds will
endeavor to make any available elections pertaining to these transactions in a
manner believed to be in the best interest of the Funds.
The Funds each expect to qualify to be taxed 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 may 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.
The International Equity Fund may qualify for and may make an election
permitted under Section 853 of the Code so that shareholders may be eligible to
claim a credit or deduction on their Federal income tax returns for, and will be
required to treat as part of the amounts distributed to them, their pro rata
portion of qualified taxes paid or incurred by the Fund to foreign countries
(which taxes relate primarily to investment income). The International Equity
Fund may make an election under Section 853 of the Code, provided more than 50%
of the value of the Fund's total assets at the close of the taxable year
consists of securities in foreign corporations, and the Fund satisfies the
applicable distribution provisions of the Code. The foreign tax credit available
to shareholders is subject to certain limitations imposed by the Code.
-58-
<PAGE> 62
If the International Equity Fund invests in an entity that is
classified as a "passive foreign investment company" ("PFIC") for Federal income
tax purposes, the operation of certain provisions of the Code applying to PFICs
could result in the imposition of certain federal income taxes on the Fund. In
addition, gain realized from the sale or other disposition of PFIC securities
may be treated as ordinary income under Section 1291 of the Code and gain
realized with respect to PFIC securities that are marked-to-market will be
treated as ordinary income under Section 1296 of the Code.
ADDITIONAL TAX INFORMATION CONCERNING THE TAX-EXEMPT FUND, THE TAX-FREE FUNDS,
THE TENNESSEE TAX-EXEMPT FUND, AND THE LIMITED TERM TENNESSEE TAX-EXEMPT FUND
As indicated in the Prospectuses of the Tax-Exempt Fund and the
Tax-Free Funds, these Funds are designed to provide Shareholders with current
tax-exempt interest income. The Funds are not intended to constitute a balanced
investment program and are not designed for investors seeking capital
appreciation or maximum tax-exempt income irrespective of fluctuations in
principal. Shares of the Tax-Exempt Fund and the Tax-Free Funds would not be
suitable for tax-exempt institutions and may not be suitable for retirement
plans qualified under Section 401 of the Code, so-called Keogh or H.R. 10 plans,
and individual retirement accounts. Such plans and accounts are generally
tax-exempt and, therefore, would not gain any additional benefit from the
dividends of the Tax-Exempt Fund and the Tax-Free Funds, being tax-exempt, and
such dividends would be ultimately taxable to the beneficiaries when distributed
to them.
In addition, the Tax-Exempt Fund and the Tax-Free Funds may not be
appropriate investments for Shareholders that may be "substantial users" of
facilities financed by private activity bonds or "related persons" thereof.
"Substantial user" is defined under U.S. Treasury Regulations to include a
non-exempt person who regularly uses a part of such facilities in his trade or
business, and whose gross revenues derived with respect to the facilities
financed by the issuance of bonds represent more than 5% of the total revenues
derived by all users of such facilities, or who occupies more than 5% of the
usable area of such facilities, or for whom such facilities or a part thereof
were specifically constructed, reconstructed or acquired. "Related person"
includes certain related natural persons, affiliated corporations, a partnership
and its partners and an S Corporation and its shareholders. Each Shareholder
that may be considered a "substantial user" should consult a tax [advisor] with
respect to whether exempt-interest dividends would retain the exclusion under
Section 103 of the Code if the Shareholder were treated as a "substantial user"
or a "related person."
The Code permits a regulated investment company which invests at least
50% of its assets in tax-free Municipal Securities to pass through to its
investors, tax-free, net Municipal Securities interest income. The policy of the
Tax-Exempt Fund and the Tax-Free Funds is to pay each year as dividends
substantially all such Fund's Municipal Securities interest income net of
certain deductions. An exempt-interest dividend is any dividend or part thereof
(other than a capital gain dividend) paid by the Tax-Exempt Fund and the
Tax-Free Funds and
-59-
<PAGE> 63
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, regardless of how long a Shareholder has held the Shares
of the Funds. Such distributions will be designated as a capital gains dividend
in a written notice mailed by the Tax-Exempt Fund and the Tax-Free Funds to
Shareholders after the close of the Fund's taxable year.
While the Tax-Exempt Fund and the Tax-Free Funds do not expect to earn
any significant amount of investment company taxable income, taxable income
earned by the Funds will be distributed to Shareholders. In general, the
investment company taxable income will be the taxable income of the Fund
(including, the excess of short-term capital gains for such year over net
long-term capital losses for such year) subject to certain adjustments and
excluding the excess, if any, of any net long-term capital gains for the taxable
year over any net short-term capital loss 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.
-60-
<PAGE> 64
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.
All distributions from the Tennessee Tax-Exempt Fund or Tennessee
Limited Term Tax-Exempt Fund, regardless of source, will be subject to the
Tennessee corporate excise tax. Shares of these Funds may be subject to the
Tennessee inheritance tax and the Tennessee estate tax if owned by a Tennessee
decedent at the time of death.
ALABAMA TAXES
Section 40-18-14(3)f of the Alabama Code specifies that interest on
obligations of the State of Alabama and any county, municipality or other
political subdivision thereof is exempt from personal income tax. Section
40-18-14(3)d provides similar tax-exempt treatment for interest on obligations
of the United States or its Possessions (including Puerto Rico, Guam and the
Virgin Islands). Regulation Section 810-3-14-.02(4)(a) extends the exclusion to
agencies of the United States or corporations owned by the United States and
lists as examples of exempt obligations, U.S. savings bonds, U.S. Treasury notes
or bills, obligations of the Bank for Cooperation, Federal Land Bank, Federal
Intermediate Credit Bank, Federal Home Loan Bank, Production Credit
Associations, Federal Financing Bank, and the Tennessee Valley Authority. In
addition, Regulation Section 810-3-14-.02(4)(b)2 and an Administrative ruling of
the Alabama Department of Revenue dated March 1, 1990 extend these exemptions
for interest to distributions from a regulated investment company to the extent
that they are paid out of interest earned on such exempt obligations. Tax-exempt
treatment is not available on distributions from income earned on securities
that are merely guaranteed by the federal government (GNMAs, FNMAs, etc.), for
repurchase agreements collateralized by U.S. government obligations or for
obligations of other states to the extent such investments are made by the Fund
for temporary or defensive purposes. Such interest will be taxable on a pro rata
basis.
Any distributions of net short-term and net long-term capital gain
earned by the Fund are fully includable in each Shareholder's Alabama taxable
income as dividend income and long-term capital gain, respectively. Both types
of income are currently taxed at ordinary rates.
-61-
<PAGE> 65
The foregoing discussion is based on tax laws and regulations which are
in effect as of the date of this Statement of Additional Information; such laws
and regulations may be changed by legislative or administrative actions. The
foregoing is also intended only as a brief summary of some of the important
Alabama tax considerations generally affecting the Municipal Fund and its
Shareholders. Potential investors are urged to consult their tax [Advisors]
concerning their own tax situation and concerning the application of state and
local (as well as federal) taxes.
FLORIDA TAXES
The State of Florida does not impose an income tax on individuals.
Therefore, distributions of the Florida Fund to individuals will not be subject
to personal income taxation in Florida. Corporations and other entities subject
to the Florida income tax will be subject to tax on distributions of investment
income and capital gains by the Fund. Distributions attributable to interest on
obligations of any state (including Florida), the District of Columbia, U.S.
possessions, or any political subdivision thereof, will be taxable to
corporations and other entities for Florida income tax purposes even though such
interest income is exempt from federal income tax. Similarly, distributions
attributable to interest on obligations of the United States and its territories
will be taxable to corporations and other entities under the Florida income tax.
For individuals and other entities subject to taxation in states and localities
other than Florida, distributions of the Fund will be subject to applicable
taxes imposed by such other states and localities.
In the opinion of special Florida tax counsel to the Fund, shareholders
of the Florida Fund who are subject to the Florida Intangible Personal Property
Tax (the "Intangible Tax") will not be subject to the Intangible Tax on shares
of the Florida Fund if, on the first day of the applicable calendar year, the
assets of the Florida Fund consist solely of obligations of Florida or its
political subdivisions; obligations of the United States, Puerto Rico, the
Virgin Islands or Guam; or bank deposits, cash or other assets which would be
exempt from the Intangible Tax if directly held by the shareholder. A Technical
Assistance Advisement confirming this tax treatment has been obtained from the
Florida Department of Revenue. As described above, it is the Florida Fund's
policy to invest at least 80% of its net assets in Florida Municipal Securities
exempt from the Intangible Tax under normal market conditions. The Florida Fund
intends to insure that, absent abnormal market conditions, all of its assets
held on January 1 of each year are exempt from the Intangible Tax. Accordingly,
the value of the Florida Fund shares held by a shareholder should ordinarily be
exempt from the Intangible Tax. However, if on any January 1 the Florida Fund
holds investments that are not exempt from the Intangible Tax, the Florida
Fund's shares could be wholly or partially subject to the Intangible Tax for
that year.
The foregoing discussion is intended only as a brief summary of the
Florida tax laws currently in effect which would generally affect the Florida
Fund and its shareholders.
-62-
<PAGE> 66
Potential investors are urged to consult with their Florida tax counsel
concerning their own tax situation.
TENNESSEE TAXES
The Tennessee Hall Income Tax imposes a tax on income received by way
of dividends from stock or interest on bonds. Dividends from a qualified
regulated investment company are exempt from the Hall Income Tax, but only to
the extent such dividends are attributable to interest on bonds or securities of
the U.S. Government or any agency or instrumentality thereof or on bonds of the
State of Tennessee or any country or any municipality or political subdivision
thereof, including any agency, board, authority or commission of any of the
above.
Generally, bonds of the type comprising the Fund, and the interest
thereon, may be subject to inheritance, transfer, and estate taxes under
Tennessee law. Further, bonds in the Fund may be indirectly taxed to the extent
the bonds and the interest derived therefrom are included within the measure of
certain franchise and excise taxes imposed under Tennessee law on organizations
and entities doing business in Tennessee (other than general partnerships and
sole proprietorships).
The foregoing discussion is intended only as a brief summary of the
Tennessee tax laws currently in effect which would generally affect the
Tennessee Tax-Exempt Fund and the Limited Term Tennessee Tax-Exempt Fund and
their shareholders. Potential investors are urged to consult with their
Tennessee tax counsel concerning their own tax situation.
MANAGEMENT OF THE TRUST
TRUSTEES
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, one of whom is an "interested person" 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 Age With the Trust During the Past 5 Years
---------------- --- ---------------- -----------------------
<S> <C> <C> <C>
J. David Huber* [54] Chairman, Trustee From June 1987 to present, employee of
3435 Stelzer Road BISYS Fund Services Limited Partnership
Columbus, Ohio 43219
Dick D. Briggs, Jr., M.D. [66] Trustee From [March 1997 to present, Chief
459 DER Building Medical Officer, Best Doctors (TM)
1808 7th Avenue South Worldwide Healthcare Services; from]
UAB Medical Center September 1989 to present, Emeritus
Birmingham, Alabama 35294 Professor and Eminent Scholar Chair,
Univ. of Alabama at Birmingham; from
October [1973] to present, Physician,
University of 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
</TABLE>
-63-
<PAGE> 67
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Wendell D. Cleaver [66] Trustee From September 3, 1993 to present,
[225] Lakewood Drive, West retired; from December 1988 to August,
Mobile, Alabama 36608 1993, Executive Vice President, Chief
Operating Officer and Director, Mobile
Gas Service Corporation
Homer H. Turner, Jr. [72] 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. [61] Trustee] From 1996 to present, Trustee, The
The University of North Sessions Group; from July 1989 to
Carolina at Charlotte present, Chancellor, The University of
[Charlotte, North Carolina 28223 North 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
Norma A. Coldwell 75 Trustee [International Economist and Consultant;
3330 Southwestern Blvd. Executive Vice President of Coldwell
Dallas, Texas 75225 Financial Consultants; Trustee and
Treasurer of Meridian International Center
(International Education and Cultural
Group); Member of the Board of Advisors of
Meridian International Center and Emerging
Capital Markets, SA (Montevideo, Uruguay);
formerly, Chief International Economist of
Riggs National Bank, Washington, D.C.
</TABLE>
--------------------------]
* Indicates an "interested person" of the Trust as defined in the 1940
Act.
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.
-64-
<PAGE> 68
OFFICERS
The officers of each Fund, their current addresses, their age, and
principal occupation 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 Age With the Trust During Past 5 Years
---------------- --- ---------------- --------------------
<S> <C> <C> <C>
John F. Calvano 40 President From September 1999 to present, Senior
Vice President, AmSouth Bank; from October
1994 to September 1999, 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.
Walter B. Grimm 55 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
1990, President of Leigh Investments
Consulting (investments firm).
Charles L. Booth 40 Treasurer From 1988 to present, employee of BISYS
Fund Services Limited Partnership.
Rodney L. Ruehle 32 Secretary From August 1990 to August 1995, Assistant
Treasurer of the Cardinal Group of Funds; from
August 1995 to present, Director Administration
Services, BISYS Fund Services, Inc.
Jeffrey C. Cusick 41 Assistant Secretary
Vice President An employee of BISYS Fund Services, Inc.
since July 1995, and an officer of other
investment companies administered by the
Administrator or its affiliates. From
September 1993 to July 1995, he was
Assistant Vice President of Federated
Administrative Services.
</TABLE>
-65-
<PAGE> 69
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Alaina V. Metz 33 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. Cusick, Grimm, Ruehle, and Booth and
Ms. Metz are employees of BISYS Fund Services Limited Partnership.
<TABLE>
<CAPTION>
COMPENSATION TABLE (1)
------------------
Pension or
Retirement Total
Aggregate Benefits Estimated Compensation
Compensation 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. $21,250 None $21,250
Woodward, Jr. None
Homer H. Turner $21,250 None $21,250
None
Wendell D. Cleaver $21,250 None $21,250
None
Dick D. Briggs, $21,250 None $21,250
Jr., M.D. None
[Norma A. Coldwell] $ 9,000 [NONE] None $ 9,000
</TABLE>
(1) Figures are for the Trust's fiscal year ended July 31, [2000].
CODE OF ETHICS
Each Fund, AmSouth Bank, [BISYS Fund Services, Sawgrass Asset
Management, LLC, Lazard Asset Management, Oakbrook Investments, LLC, Rockhaven
Asset Management, LLC, Peachtree Asset Management Code of Ethics, and Bennett
Lawrence Management, LLC] have adopted codes of ethics ("Codes") under Rule
17j-1 of the Investment Company Act, and these Codes permit personnel subject to
the Codes to invest in securities, including securities that may be purchased or
held by each Fund.
INVESTMENT [ADVISOR]
--------------------
-66-
<PAGE> 70
Investment advisory and management services are provided to each
Fund (except the Limited Term Bond 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 Term Bond 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 Value Fund and the Balanced 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 Money Market 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%); the Institutional U.S. Treasury Fund -
twenty one-hundredths of one percent (0.20%); the Value 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 Term Bond 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
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 (0.45%)
annually; the International Equity Fund - one hundred twenty five
-67-
<PAGE> 71
one-hundredths of one percent (1.25%) annually; the Mid Cap Fund - one hundred
one-hundredths of one percent (1.00%) annually; the Capital Growth Fund -
eighty one-hundredths of one percent (0.80%) annually; the Large Cap Fund -
eighty one-hundredths of one percent (0.80%) annually; the Limited Term U.S.
Government Fund - sixty-five one-hundredths of one percent (0.65%) annually;
Tennessee Tax-Exempt Fund - sixty-five one-hundredths of one percent (0.65%)
annually; Limited Term Tennessee Tax-Exempt Fund - sixty-five one-hundredths of
one percent (0.65%) annually; Treasury Reserve Fund - forty one-hundredths of
one percent (0.40%) annually; Aggressive Growth Portfolio - twenty
one-hundredths of one percent (0.20%) annually; Growth Portfolio - twenty
one-hundredths of one percent (0.20%) annually; Growth and Income Portfolio -
twenty one-hundredths of one percent (0.20%) annually; Moderate Growth and
Income Portfolio - 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, 2000, July 31, 1999, and July
31, 1998, the Advisor received the following investment advisory fees(1):
Fiscal Year Ended
<TABLE>
<CAPTION>
[July 31, 2000] July 31, 1999 July 31, 1998
-------------------- --------------------- ---------------------------
Amount Amount Amount
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund 2,283,895 -- $3,046,371 -- $3,005,940 --
Growth Fund 390,511 207,326 -- 70,873 --
Enhanced Market Fund 264,084 -- 78,331 -- -- --
Value Fund 6,419,275 -- 8,292,490 -- 7,981,703 --
Select Equity Fund 106,759 -- 129,762 -- -- --
Florida Fund 453,352 198,628 460,845 248,147 369,000 199,000]
U.S. Treasury Fund 1,155,683 54,406 1,261,718 -- 1,256,351 --
Institutional Prime
Obligations Fund 513,326 333,601 198,365 128,935 -- --
</TABLE>
<TABLE>
<CAPTION>
Period Ended Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended
July 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997
------------------ ------------------- --------------------- -------------------
Amount Amount Amount Amount
Earned Waived Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund(1) 747,052 -- 324,890 -- 267,522 -- 36,130 --
Small Cap Fund(1) 999,755 62,982 127,255 -- 33,202 -- -- --
Bond Fund(1) 2,810,891 648,672 2,319,255 $ 535,215 2,056,000 475,000 969,000 $ 224,000
Government Income Fund(1) 963,864 232,231 61,967 33,367 69,000 37,000 90,000 48,000
Limited Term Bond Fund(1) 912,393 210,554 734,542 169,510 774,000 179,000 322,000 74,000
</TABLE>
-68-
<PAGE> 72
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Municipal Bond Fund(1) 2,322,455 893,250 2,120,841 815,707 2,170,000 835,000 181,117 70,000
Prime Money Market [Fund(1)] 3,941,129 272,524 2,765,375 -- 2,515,690 -- 2,366,707 --
Tax-Exempt Fund(1) 541,030 232,648 383,340 191,672 354,000 176,963 321,570 160,785
International Equity Fund(1a) 542,118 100,088 236,272 91,551 239,978 77,837 95,011 47,505
Mid Cap Fund(1) 424,952 -- 102,860 745 N/A N/A N/A N/A
Capital Growth Fund(1) 1,355,361 -- 1,501,646 25,355 105,152 10,125 783,646 141,465
Large Cap Fund(1) 3,676,555 157,613 6,578,349 809,287 4,767,781 0 4,445,559 0
Limited Term
U.S. Government [Fund(1)] 153,673 39,468 161,658 76,077 108,195(1b) 35,572 81,110 41,559
Tennessee Tax-Exempt [Fund(1)] 258,016 41,800 453,208 7,254 497,352 5,617 502,268 423,799
Limited Term [Tennessee(1)]
Tax-Exempt Fund 61,432 13,967 79,230 22,677 112,873 25,811 93,669(1b) 59,000
Treasury Reserve [Fund(1)] 929,047 86,576 1,426,081 215,483 N/A N/A N/A N/A
Aggressive Growth [Portfolio(1)] 24,193 12,096 111,136 111,136 N/A N/A N/A N/A
Growth [Portfolio(1)] 22,898 11,448 111,326 111,326 N/A N/A N/A N/A
Growth and Income [Portfolio(1)] 105,777 52,887 102,659 102,659 N/A N/A N/A N/A
Moderate Growth and
Income [Portfolio(1)] 25,872 12,936 109,442 212,101 N/A N/A N/A N/A
</TABLE>
------------------------------------
(1) With respect to Funds participating in the ISG/AmSouth combination,
the figures reflect the investment advisory fee paid to the former [Advisor for
the periods ended July 31, 2000 and for the fiscal years ended December 31,
1998, and December 31, 1997.
(1a) The International Equity [Fund] commenced operations 12/14/98.
(1b) For the period February 28, 1997 (commencement of operations)
through December 31, 1997.
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.
-69-
<PAGE> 73
Unless sooner terminated, the First Investment Advisory Agreement will
continue in effect until January 31, 2001 as to each of the Money Market
Funds, the Capital Appreciation Funds, the Income Funds, the Strategic
Portfolios, the Tax-Free Funds, [the Tennessee Tax-Exempt Fund, the Limited Term
Tennessee Tax-Exempt Fund,] 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, 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 Term Bond Fund until January 31, 2001
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 Term Bond Fund, 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 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. 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 Sub- [Advisor] (a "Sub-Advisory Agreement").
Investment
-70-
<PAGE> 74
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 Agreement relates, except that a Sub-
[Advisor] shall be liable to the [Advisor] for a loss resulting from a breach of
fiduciary duty by the Sub- [Advisor] under the 1940 Act with respect to the
receipt of compensation for services or a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Sub- [Advisor] in
the performance of its duties or from reckless disregard by it of its
obligations or duties thereunder.
Unless sooner terminated, the Sub-Advisory Agreement shall continue
with respect to the Equity Income Fund until January 31, 2001, with respect
to the Growth Fund until July 31, 2001, with respect to the Small Cap Fund
until January 31,2001, and with respect to the Select Equity Fund and
Enhanced Market Fund until January 31,2001, and each Sub-Advisory Agreement
shall continue in effect for successive one-year periods if such continuance is
approved at least annually by the Board of Trustees or by vote of the holders of
a majority of the outstanding voting Shares of the respective Fund 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, 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.
With respect to the International Equity Fund, the [Advisor] has
entered into a Sub-Investment Advisory Agreement (the "Lazard Sub-Advisory
Agreement") with Lazard Asset Management ("Lazard") dated as of March 13, 2000.
As to such Fund, the Lazard Sub-Advisory Agreement is subject to annual approval
by (i) the Board or (ii) vote of a majority (as defined in the 1940 Act) of the
Fund's outstanding voting securities, provided that in either event the
continuance also is approved by a majority of the Board members who are not
"interested persons" (as defined in the 1940 Act) of the Fund or Lazard, by vote
cast in person at a meeting called for the purpose of voting on such approval.
The Lazard Sub-Advisory Agreement is terminable without penalty, (i) by the
[Advisor] on 60 days' notice, (ii) by the Fund's Board or by vote of the holders
of a majority of the Fund's outstanding voting securities on 60 days' notice, or
(iii) upon not less than 90 days' notice, by Lazard. The Lazard Sub-Advisory
Agreement will terminate automatically in the event of its assignment (as
defined in the 1940 Act). Under the terms of the Lazard Sub-Advisory
-71-
<PAGE> 75
Agreement, the [Advisor] has agreed to pay Lazard a monthly fee at the annual
rate of .50% of the value of the International Equity Fund's average daily net
assets.
With respect to the Mid-Cap Fund, the [Advisor] has entered into a
Sub-Investment Advisory Agreement (the "Bennett Lawrence Sub-Advisory
Agreement") with Bennett Lawrence Management, LLC ("Bennett Lawrence") dated as
of March 13, 2000. As to such Fund, the Bennett Lawrence Sub-Advisory Agreement
is subject to annual approval by (i) the Board or (ii) vote of a majority (as
defined in the 1940 Act) of the Fund's outstanding voting securities, provided
that in either event the continuance also is approved by a majority of the Board
members who are not "interested persons" (as defined in the 1940 Act) of the
Fund or Bennett Lawrence, by vote cast in person at a meeting called for the
purpose of voting on such approval. The Bennett Lawrence Sub-Advisory Agreement
is terminable without penalty, (i) by the [Advisor] on 60 days' notice, (ii) by
the Fund's Board or by vote of the holders of a majority of the Fund's
outstanding voting securities on 60 days' notice, or (iii) upon not less than 90
days' notice, by Bennett Lawrence. The Bennett Lawrence Sub-Advisory Agreement
will terminate automatically in the event of its assignment (as defined in the
1940 Act). Under the terms of the Bennett Lawrence Sub-Advisory Agreement, the
[Advisor] has agreed to pay Bennett Lawrence a monthly fee at the annual rate
set forth below as a percentage of the average daily net assets of the Mid-Cap
Fund:
Annual Rate of Sub-
Average Daily New Advisory Fee Payable
Assets of Mid-Cap Fund By the [Advisor]
on the first $25 million .75%
on the next $50 million .625%
on assets in excess of $75 million .50%
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 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
-72-
<PAGE> 76
securities are normally purchased directly from the issuer or from an
underwriter or market maker for the securities. Purchases from underwriters of
portfolio securities include a commission or concession paid by the issuer to
the underwriter and purchases from dealers serving as market makers may include
the spread between the bid and asked price. Transactions on stock exchanges
involve the payment of negotiated brokerage commissions. Transactions in
over-the-counter market are generally principal transactions with dealers. With
respect to over-the-counter market, the Trust, where possible, will deal
directly with dealers who make a market in the securities involved except in
those circumstances where better price and execution are available elsewhere.
While the [Advisor] and Sub- [Advisor] generally seek competitive spreads or
commissions, the Trust may not necessarily pay the lowest spread or commission
available on each transaction, for reasons discussed below.
Allocation of transactions, including their frequency, to various
dealers is determined by the [Advisor] and the Sub- [Advisor] in their best
judgment and in a manner deemed fair and reasonable to Shareholders. The primary
consideration is prompt execution of orders in an effective manner at the most
favorable price. Subject to this consideration, dealers who provide supplemental
investment research to the [Advisor] or Sub- [Advisor] may receive orders for
transactions on behalf of the Trust. Information so received is in addition to
and not in lieu of services required to be performed by the [Advisor] or Sub-
[Advisor] and does not reduce the advisory fees payable to the [Advisor] or the
Sub- [Advisor]. Such information may be useful to the [Advisor] or Sub-
[Advisor] in serving both the Trust and other clients and, conversely,
supplemental information obtained by the placement of business of other clients
may be useful to the [Advisor] or Sub- [Advisor] in carrying out their
obligations to the Trust.
Investment decisions for each Fund 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
-73-
<PAGE> 77
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 following fiscal years, the Funds listed below paid the
following aggregate brokerage commissions:
<TABLE>
<CAPTION>
Fiscal Year Ended
JULY 31, 2000 July 31, 1999 July 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
Balanced Fund $209,891 $132,669 $365,522
Growth Fund 78,155 34,442 --
Enhanced Market Fund 36,153 20,125* --
Value Fund 1,085,225 534,115 592,269
Equity Income Fund 247,409 119,234 615,317
Select Equity Fund 13,067 13,150* --
Small Cap Fund 576,420 108,710 --
</TABLE>
* For the period September 1, 1998 to July 31, 1999.
<TABLE>
<CAPTION>
PERIOD ENDED
JULY 31, 2000 Dec. 31, 1999 Dec. 31, 1998
------------- ------------- -------------
<S> <C> <C> <C>
International Equity Fund $161,303 $52,129 $68,007
Mid Cap Fund 85,996 16,260 N/A
Capital Growth Fund 500,022 656,419 494,130
Large Cap Fund 97,800 312,254 76,036
Limited Term U.S. Government Fund 0 0 0
Tennessee Tax-Exempt Fund 0 0 0
Limited Term Tennessee Tax-Exempt Fund 0 0 0
Treasury Reserve Fund 0 0 0
Aggressive Growth Portfolio N/A N/A N/A
Growth Portfolio N/A N/A N/A
Growth and Income Portfolio N/A N/A N/A
Moderate Growth and Income Portfolio N/A N/A N/A
</TABLE>
To the extent permitted by applicable rules and regulations, either
AmSouth or the Sub-Advisers may execute portfolio transactions on behalf of the
Funds through an affiliate of AmSouth. As required by Rule 17e-1 under the 1940
Act, the Funds have adopted procedures which provide that commissions paid to
such affiliate must be fair and reasonable compared to the commission, fees or
other remuneration paid to other brokers in connection with comparable
transactions. The procedures also provide that the Board will review reports of
such affiliated brokerage transactions in connection with the foregoing
standard.
During the following fiscal years, listed below are the following brokerage
commissions paid to AmSouth Investment Services and/or Invest/Fidelity Capital
Markets, both affiliates of AmSouth Bank, and the percentage of the aggregate
brokerage commissions and dollars for each Fund.
<TABLE>
<CAPTION>
Fiscal Year Ended
% of Aggregate Brokerage % of Aggregate Dollar
Broker Commissions Commissions Amount of Transactions
Name of Fund 1998 1999 2000 1998 1999 2000 1998 1999 2000
-------------------- ------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balanced Fund n/a $29,236 $ 20,829 n/a 22.04% 9.92% n/a 29.81% 9.67%
Value Fund n/a $87,718 $110,931 n/a 16.42% 10.22% n/a 17.48% 8.98%
Select Equity Fund n/a $ 30 n/a n/a 0.23% n/a n/a 0.24% n/a
<CAPTION>
1998* 1999* 2000** 1998* 1999* 2000** 1998* 1999* 2000**
------- ------- -------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital Growth Fund $34,567 $23,236 $ 15,090 6.99% 3.54% 3.02% 0.10% 2.94% 2.40%
Large Cap Fund n/a $17,200 $ 10,200 n/a 5.51% 10.43% n/a 5.07% 4.98%
Equity Income Fund $17,821 $ 360 $ 4,500 5.67% 0.12% 1.82% 0.12% 0.11% 0.65%
</TABLE>
* For the fiscal year ended December 31.
** For the period January 1, 2000 through July 31, 2000.
-74-
<PAGE> 78
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 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 would review the Trust's relationship with AmSouth and consider taking
all action necessary in the circumstances.
-75-
<PAGE> 79
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 fund accounting
agreement and BISYS Fund Services Ohio, Inc. under its transfer agency agreement
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 (except the Institutional Money Market 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. Under
the Administration Agreement for expenses assumed and services provided as
manager and administrator, the Administrator receives a fee from the
Institutional Money Market Fund equal to the lesser of (a) a fee computed at the
annual rate of (0.10%) of
-76-
<PAGE> 80
the 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.
For its services as administrator and expenses assumed pursuant to the
Administration Agreement, the Administrator received the following [fees(2)]:
<TABLE>
<CAPTION>
Fiscal Year or Period Ended
July 31, [2000] July 31, [1999] July 31, [1998]
---------------- ---------------- ----------------
Amount Amount Amount
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund 570,976 42,241 $761,600 -- $751,492 --
Growth Fund 97,628 44,788 51,832 $51,832 18,000 $16,000
Enhanced Market Fund 120,009 54,133 35,097 35,097 -- --
Value Fund 1,604,826 -- 2,073,141 -- 1,995,442 --
Select Equity Fund 28,172 16,569 32,564 32,564 -- --
Florida Fund 139,493 69,745 141,800 70,899 114,000 57,000]
U.S. Treasury Fund 577,841 -- 630,865 -- 628,179 --
Institutional Prime
Obligations Fund 256,613 179,635 99,181 69,427 -- --
</TABLE>
<TABLE>
<CAPTION>
July 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997
------------- ----------------- ----------------- -----------------
Amount Amount Amount Amount
Earned Waived Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund(1) 186,764 31,665 81,223 -- 66,881 -- 9,033 --
Small Cap Fund(1) 166,626 55,962 21,209 21,209 6,000 6,000 -- --
Bond Fund(1) 864,890 287,813 713,624 285,450 633,000 475,000 298,000 119,000
Government Income Fund(1) 296,574 76,592 19,067 9,450 21,000 10,000 28,000 14,000
Limited Term Bond Fund(1) 280,736 90,001 226,015 90,406 238,000 95,000 99,000 40,000
Municipal Bond Fund(1) 714,602 240,613 652,573 261,029 668,000 267,000 55,000 22,000
Prime Money Market Fund(1) 1,970,564 545,049 1,382,700 -- 1,257,853 -- 1,183,357 --
Tax-Exempt Fund(1) 270,515 -- 191,672 -- 176,963 -- 160,785 --
International Equity Fund(1) 85,626 17,234 49,045 0 68863 0 -- --
Mid Cap Fund(1) 79,192 15,448 15,317 0 -- -- -- --
Capital Growth Fund(1) 332,131 62,899 340,631 0 231,959 0 180,842 0
Large Cap Fund(1) 861,408 157,613 1,153,818 0 630,646 0 -- --
Limited Term(1)
U.S. Government Fund 46,938 8,368 71,320 1,485 32,459 23,803 24,333 17,844
Tennessee Tax-Exempt Fund(1) 78,798 13,933 133,786 0 149,206 0 150,681
Limited Term Tennessee(1) 18,752 10,737 30,297 22,218 33,862 24,832 28,101 20,607
</TABLE>
-77-
<PAGE> 81
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Tax-Exempt Fund
Treasury Reserve [Fund(1)] 440,879 173,152 484,234 0 192,322 0 189,650 0
Aggressive Growth [Portfolio(1)] 22,251 8,210 9,656 0 -- -- -- --
Growth [Portfolio(1)] 20,885 7,422 5,547 0 -- -- -- --
Growth and Income [Portfolio(1)] 3,070 -- 37,323 0 -- -- -- --
Moderate Growth and
Income [Portfolio(1)] 23,639 8,469 9,525 0 -- -- -- --
</TABLE>
------------------------------------
(1) For former ISG Funds, the figures reflect fees received by the
[current Administrator for the period ended July 31, 2000 and by the] former
Administrator for the fiscal year ended December 31, 1999, December 31, 1998,
and December 31, 1997.
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.
AmSouth and the Administrator each bear all expenses in connection with
the performance of their services as [Advisor] and Administrator, respectively,
other than the cost of securities (including brokerage commissions, if any)
purchased for a Fund.
-78-
<PAGE> 82
No Fund will bear, directly or indirectly, the cost of any activity primarily
intended to result in the distribution of Shares of such Fund; such costs will
be borne by the Distributor.
As a general matter, expenses are allocated to the Trust, Class A,
Class B, Class I, Class II 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 A, Class B Shares, Class II and Class III, other than
in accordance with the relative net asset value of the class, are expenses under
the Servicing Plan which relates only to the Class A Shares and the Distribution
Plan which relates only to the Class B Shares.
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 years ended
July 31, [2000, July 31,] 1999 and July 31, 1998, AmSouth received [$1,562,664,]
$2,184,291 and $1,924,684, respectively, 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, 2001, 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 1940 Act) 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.
Class A 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
-79-
<PAGE> 83
rate of twenty-five one-hundredths of one percent (0.25%) of the average daily
net assets of the Class A Shares of each Fund.
The Servicing Plan 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 Servicing Plan (the "Independent
Trustees"). The Servicing Plan reflects the creation of the Class A Shares, and
provides for fees only upon that Class.
The 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 Class A Shares of that Fund. The 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 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 Class A 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 Servicing Plan (including amounts expended by the Distributor to
Participating Organizations pursuant to the Servicing Agreements entered into
under the Servicing Plan) indicating the purposes for which such expenditures
were made.
Under the Trust's Distribution and Shareholder Services Plan (the
"Distribution Plan"), all Class B Shares pay a shareholder servicing fee of
0.25% of average daily net assets. [This] fee is in the form of a separate
non-Rule 12b-1 fee. [All Funds bear] a Rule 12b-1 fee of 0.75%. 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 B, 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 B, Class II or Class
III Shares; (ii) payments to financial institutions and intermediaries (such as
banks, savings and loan associations, insurance
-80-
<PAGE> 84
companies, and investment counselors) as brokerage commissions in connection
with the sale of such Fund's Class B, 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 B, Class II or Class III Shares.
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").
In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan
may be terminated with respect to the Class B, Class II or Class III Shares of
any Fund by a vote of a majority of the Independent Trustees, or by a vote of a
majority of the outstanding Class B, Class II or Class III 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 the Class B,
Class II or Class III Shares of a Fund requires the approval of the holders of
that Fund's Class B, Class II or Class III 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.
For the fiscal year ended July 31, [2000], July 31, [1999] and July 31,
[1998] the Distributor received the following servicing fees with respect to the
Class A Shares and the following distribution fees with respect to the Class B,
Class II and Class III Shares from the following [Funds(3)]:
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, [2000] July 31, [1999] July 31, [1998]
--------------- --------------- ---------------
Class A Shares Class A Shares Class A Shares
-------------- -------------- --------------
Amount Amount Amount
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund -- -- $113,423 -- $113,853 $341
Growth Fund -- -- 28,262 -- 12,190 37
Enhanced Market Fund -- -- 27,092 $9,055 -- --
Value Fund -- -- 178,812 -- 145,774 437
Select Equity Fund -- -- 28,366 10,391 -- --
Florida Fund -- -- 24,979 14,987 13,848 8,325]
U.S. Treasury Fund -- -- 16,054 9,633 19,155 11,498
</TABLE>
-81-
<PAGE> 85
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
198,365 128,935 -- --
</TABLE>
<TABLE>
<CAPTION>
JULY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997
-------------------- ----------------- ----------------- ---------------
CLASS A SHARES CLASS A SHARES CLASS A SHARES CLASS A SHARES
AMOUNT AMOUNT AMOUNT AMOUNT
EARNED WAIVED EARNED WAIVED EARNED WAIVED EARNED WAIVED
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund -- -- 58,845 -- 55,674 167 -- --
Small Cap Fund -- -- 3,080 -- 1,091 7 -- --
Bond Fund -- -- 7,330 -- 15,851 9,530 -- --
Government Income Fund -- -- 6,909 -- 21,290 12,799 -- --
Limited Term Bond Fund -- -- 7,521 4,513 8,171 4,912 -- --
Municipal Bond Fund -- -- 5,843 -- 4,831 2,904 -- --
Prime Money Market Fund -- -- 336,424 201,863 305,250 183,129 $305,882 $182,913
Tax-Exempt Fund -- -- 62,542 37,562 58,152 34,888 50,267 31,033
International Equity Fund(1) 565 565 1,031 1,031 0 0 -- --
Mid Cap Fund(1) 2,299 -- 1,503 0 -- -- -- --
Capital Growth Fund(1) 5,174 -- 18,891 0 6,073 0 214,963 214,887
Large Cap Fund (1) 37,907 37,907 172,705 172,705 0 0 -- --
Limited Term U.S. 7,305 7,305 48,533 48,533 40,554 40,554
Government Fund(1) 1,752 1,752
Tennessee Tax-Exempt 7,736 0 6,387 0 189,842 189,623
Fund(1) 1,560 --
Limited Term Tennessee 48,523 48,523 55,168 55,168 46,847 46,847
Tax-Exempt Fund(1) 9,450 9,450
Treasury Reserve Fund(1) -- -- 0 0 -- -- -- --
Aggressive Growth 524 0 -- -- -- --
Portfolio(1) 232 --
Growth Portfolio(1) 119 -- 266 0 -- -- -- --
Growth and Income 755 0 -- -- -- --
Portfolio(1) 256 --
Moderate Growth and 291 0 -- -- -- --
Income Portfolio(1) 68 --
</TABLE>
(1) For [Funds] participating in the ISG/AmSouth combination, the
figures reflect fees received by the former Distributor for the [period ended
July 31, 2000 and] fiscal year ended December 31, 1999, December 31, 1998, and
December 31, 1997.
<TABLE>
<CAPTION>
Fiscal Year Ended
July 31, [2000] July 31, [1999] July 31, [1998]
--------------- --------------- ---------------
Class B Shares Class B Shares Class B Shares
Amount Amount Amount
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balanced Fund -- -- $78,669 -- $21,204 --
Growth Fund -- -- 51,893 -- 15,982 --
Enhanced Market Fund -- -- 20,045 -- -- --
Value Fund -- -- 102,305 -- 33,233 --
Select Equity Fund -- -- 8,018 -- -- --
Florida Fund -- -- 1,086 -- -- --]
U.S. Treasury Fund -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
July 31, 2000 July 31, 1999 July 31, 1998 July 31, 1997
Class B Shares Class B Shares Class B Shares Class B Shares
<S> <C> <C> <C> <C>
</TABLE>
-82-
<PAGE> 86
<TABLE>
<CAPTION>
AMOUNT AMOUNT AMOUNT AMOUNT
EARNED WAIVED EARNED WAIVED EARNED WAIVED EARNED WAIVED
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Equity Income Fund 69,803 -- 77,644 -- 35,433 -- -- --
Small Cap Fund 6,524 -- 8,620 -- 2,093 -- -- --
Bond Fund 10,498 -- 16,859 -- 1,542 -- -- --
Government Income Fund 1,427 -- -- -- -- -- ] -- --
Limited Term Bond Fund 5,693 -- 4,053 -- -- -- -- --
Municipal Bond Fund 2,150 -- -- -- -- -- -- --
Prime Money Market Fund 2,555 -- 1,468 -- -- -- -- --
Tax-Exempt Fund -- -- -- -- -- -- -- --
International Equity Fund(1) 2,029 -- 416 0 0 0 -- --
Mid Cap Fund(1) 36,596 -- 2,945 0 0 -- -- --
Capital Growth Fund(1) 36,520 -- 40,157 0 8,089 0 -- --
Large Cap Fund(1) 95,346 -- 74,774 0 23 23 -- --
Limited Term U.S. 1,822 -- 3,735 0 1,398 0 -- --
Government Fund(1)
Tennessee Tax-Exempt 4,824 -- 10,630 0 5,131 0 -- --
Fund(1)
Limited Term Tennessee 2,037 -- 5,915 0 3,332 0 -- --
Tax-Exempt Fund(1)
Treasury Reserve Fund(1) -- -- 0 0 -- -- -- --
Aggressive Growth 2,038 -- 2,179 0 -- -- -- --
Portfolio(1)
Growth Portfolio(1) 4,917 -- 3,954 0 -- -- -- --
Growth and Income 7,746 -- 8,688 0 -- -- -- --
Portfolio(1)
Moderate Growth and 3,732 -- 4,809 0 -- -- -- --
Income
</TABLE>
--------------------------------
[(1)For Funds] participating in the ISG/AmSouth combination, the
figures reflect fees received by the former Distributor for the [period ended
July 31, 2000 and] fiscal [years] ended December 31, 1999, December 31, 1998,
and December 31, 1997.
-83-
<PAGE> 87
<TABLE>
<CAPTION>
Fiscal Year Ended
[July 31, 2000] July 31, 1999 July 31, 1998
--------------------- ------------------------- -----------------------
Class II Shares Class II Shares Class II Shares
Amount Amount Amount
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Institutional Prime
Obligations Fund -- -- $17,200 -- -- --
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
[July 31, 2000] July 31, 1999 July 31, 1998
--------------------- ------------------------- -----------------------
Class III Shares Class III Shares Class III Shares
Amount Amount Amount
Earned Waived Earned Waived Earned Waived
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Institutional Prime
Obligations Fund -- -- $15,473 -- -- --
</TABLE>
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, 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 B Shares, 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,
-84-
<PAGE> 88
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.
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 Ohio, 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.
BISYS Fund Services, Inc. ("Fund Accountant") provides fund accounting
services to each of the Funds pursuant to a Fund Accounting Agreement with the
Trust. Under the Fund Accounting Agreement, the Fund Accountant 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.
INDEPENDENT ACCOUNTANTS
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 Ernst & Young, LLP, independent accountants for the Trust,
or other independent accountants, as set forth in Ernst & Young LLP's 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. Ernst &
Young LLP'S address is 1100 Huntington Center, 41 South High Street,
-85-
<PAGE> 89
Columbus, OH 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.
Investors may also judge the performance of each Fund by comparing its
performance to the performance of other mutual funds with comparable investment
objectives and policies through various mutual fund or market indices and data
such as that provided by Lipper Analytical Services, Inc. and Donoghue's Money
Fund Report. Comparisons may also be
-86-
<PAGE> 90
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 Fund is based on the Fund's
record up to a certain date and is not intended to indicate future performance.
Yield and total return are functions of the type and quality of instruments held
in a Fund, operating expenses, and marketing conditions. Any fees charged by a
Financial Institution with respect to customer accounts investing in Shares of a
Fund will not be included in performance calculations.
YIELDS OF THE MONEY MARKET FUNDS
The "yield" of each Money Market Fund for a seven-day period (a "base
period") will be computed by determining the "net change in value" (calculated
as set forth below) of a hypothetical account having a balance of one share at
the beginning of the period, dividing the net change in account value by the
value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by 365/7 with the
resulting yield figure carried to the nearest hundredth of one percent. Net
changes in value of a hypothetical account will include the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares, but will not include
realized gains or losses or unrealized appreciation or depreciation on portfolio
investments. Yield may also be calculated on a compound basis (the "effective
yield") which assumes that net income is reinvested in Fund shares at the same
rate as net income is earned for the base period.
The Tax-Exempt Fund may also advertise a "tax equivalent yield" and a
"tax equivalent effective yield." Tax equivalent yield will be computed by
dividing that portion of the Tax-Exempt Fund's yield which is tax-exempt by the
difference between one and a stated income tax rate and adding the product to
that portion, if any, of the yield of the Fund that is not tax-exempt. The tax
equivalent effective yield for the Tax-Exempt Fund is computed by dividing that
portion of the effective yield of the Tax-Exempt Fund which is tax-exempt by the
difference between one and a stated income tax rate and adding the product to
that portion, if any, of the effective yield of the Fund that is not tax-exempt.
The yield and effective yield of each of the Money Market Funds and the
tax equivalent yield and the tax equivalent effective yield of the Tax-Exempt
Fund will vary in response to fluctuations in interest rates and in the expenses
of the Fund. For comparative purposes the current and effective yields should be
compared to current and effective yields offered by
-87-
<PAGE> 91
competing financial institutions for that base period only and calculated by the
methods described above.
For the seven-day period ended July 31, [2000], the yield, effective
yield, the tax equivalent yield and the tax equivalent effective yield of the
Trust Shares and Class A Shares of each Money Market Fund, calculated as
described, above was as follows:
<TABLE>
<CAPTION>
Effective Tax Equivalent Tax Equivalent
Fund Class Yield Yield Yield Effective Yield
---- ----- ----- --------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Prime
Money Market Fund Trust 6.02% 6.20% -- --
U.S. Treasury Fund Trust 5.50% 5.65% -- --
Tax-Exempt Fund Trust 3.56% 3.62% 5.79% 5.99%
Treasury Reserve Fund Trust 5.71% 5.87% -- --
Prime
Money Market Fund Class A 5.87% 6.04% -- --
U.S. Treasury Fund Class A 5.35% 5.50% -- --
Tax-Exempt Fund Class A 3.41% 3.47% 5.65% 5.75%
Treasury Reserve Fund Class A 5.55% 5.71% -- --
Institutional
Prime Obligations Fund Class I 6.47% 6.68% -- --
Institutional
Prime Obligations Fund Class II 6.22% 6.42% -- --
Institutional
Prime Obligations Fund Class III 5.97% 6.15% -- --
Prime Money Market Fund Class B 5.12% 5.25% -- --
</TABLE>
YIELD OF THE CAPITAL APPRECIATION FUNDS, [AND] THE INCOME FUNDS
The yield of each of the 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 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 Funds.
-88-
<PAGE> 92
The Tax-Free Funds [, the Tennessee Tax-Exempt Fund, and the Limited
Term Tennessee 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 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 Funds is computed by dividing that portion of the
effective yield of the Fund which is tax-exempt by the difference between one
and a stated income tax rate and adding the product to that portion, if any, of
the effective yield of the Fund that is not tax-exempt.
At any time in the future, yields and total return may be higher or
lower than past yields and there can be no assurance that any historical results
will continue.
Investors in the Capital Appreciation Funds and the Income Funds are
specifically advised that share prices, expressed as the net asset values per
share, will vary just as yields will vary.
For the 30-day period ending July 31, [2000], the yield and the tax
equivalent yield of the Income Funds:
Tax Equivalent
Fund Class Yield Yield
---- ----- ----- -----
Florida Tax-Exempt Fund Class A 4.24% 7.02%
Trust 4.55% 7.53%
Municipal Bond Fund Class A 3.93% 6.51%
Trust 4.24% 7.02%
Bond Fund Class A 5.72% --
Trust 6.11% --
Class B 5.21% --
Government Income Fund Class A 5.43% --
Trust 5.80% --
Limited Term Bond Fund Class A 5.93% --
Trust 6.33% --
Limited Term U.S. Class A 5.29% --
Government Fund Trust 5.92% --
Tennessee Tax-Exempt Class A 4.18% 6.92%
Fund Trust 4.50% 7.45%
Limited Term Tennessee Class A 3.49% 5.78%
Tax-Exempt Fund Trust N/A --
For the 30-day period ending July 31, [2000], the yield of the Capital
Appreciation Funds was:
-89-
<PAGE> 93
Fund Class Yield
---- ----- -----
Value Fund Trust 1.20%
Balanced Fund Trust 3.75%
Equity Income Fund Trust 0.79%
Growth Fund Trust -0.42%
Small Cap Fund Trust -0.96%
Enhanced Market Fund Trust 0.41%
Select Equity Fund Trust -0.14%
International Equity Fund Trust 0%
Mid Cap Fund Trust -1.20%
Capital Growth Fund Trust -0.29%
Large Cap Fund Trust -0.11%
Value Fund Class A 1.00%
Balanced Fund Class A 3.43%
Equity Income Fund Class A 0.62%
Growth Fund Class A -0.57%
Small Cap Fund Class A -0.92%
Enhanced Market Fund Class A 0.15%
Select Equity Fund Class A -0.04%
International Equity Fund Class A 0.90%
Mid Cap Fund Class A -1.28%
Capital Growth Fund Class A -0.48%
Large Cap Fund Class A -0.47%
Value Fund Class B 0.31%
Balanced Fund Class B 2.86%
Equity Income Fund Class B -0.03%
Growth Fund Class B -0.59%
Small Cap Fund Class B -2.01%
Enhanced Market Fund Class B -0.46%
Select Equity Fund Class B -0.71%
International Equity Fund Class B 0%
Mid Cap Fund Class B -2.09%
Capital Growth Fund Class B -1.14%
Large Cap Fund Class B -0.98%
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.
-90-
<PAGE> 94
For the one-year and five-year periods ended July 31, [2000], average
annual total return was as follows:
Fund Class One-Year Five-Year
---- ----- -------- ---------
Prime Money Market Fund Trust 5.31% 5.02%
U.S. Treasury Fund Trust 4.86% 4.69%
Tax-Exempt Fund Trust 3.23% 3.08%
Prime Money Market Fund Class A 5.20% 4.93%
U.S. Treasury Fund Class A 4.73% 4.59%
Tax-Exempt Fund Class A 3.11% 2.99%
Florida Tax-Exempt Fund Class A -0.21% 3.47%
Bond Fund Class A 0.93% 5.10%
Limited Term Bond Fund Class A 0.40% 4.45%
Government Income Fund Class A 1.34% 5.28%
Municipal Bond Class A -0.51% 3.25%
Institutional
Prime Obligations Fund Class I 5.82% N/A
Institutional
Prime Obligations Fund Class II 5.55% N/A
Institutional
Prime Obligations Fund Class III 5.29% N/A
Prime Money Market Fund Class B 4.31% N/A
-91-
<PAGE> 95
Fund Class One-Year Five-Year
---- ----- -------- ---------
Limited Term U.S. Class A -0.08% 3.88%
Government Fund
Tennessee Tax-Exempt Fund Class A -1.30% 2.92%
Limited Term Tennessee Class A -1.44% 2.36%
Tax-Exempt Fund
Treasury Reserve Class A 5.03% 4.79%
Money Market Fund
Limited Term U.S. Class B -1.65% 3.48%
Government Fund
Tennessee Tax-Exempt Fund Class B -2.80% 2.60%
Limited Term Tennessee Class B -3.15% 1.85%
Tax-Exempt Fund
Limited Term U.S. Trust 4.20% 4.74%
Government Fund
Tennessee Tax-Exempt Fund Trust 3.04% 3.89%
Limited Term Tennessee Trust N/A N/A
Tax-Exempt Fund
Treasury Reserve Trust 5.06% 4.93%
Money Market Fund
------------------------------
-92-
<PAGE> 96
For the one-year and five-year periods ended July 31, [2000], average
annual total return was as follows:
Fund Class One-Year Five-Year
---- ----- -------- ---------
Value Fund Trust -8.11% 13.53%
Balanced Fund Trust -0.90% 10.33%
Growth Fund Trust 10.51% N/A
Equity Income Fund Trust 19.55% N/A
Small Cap Fund Trust 49.41% N/A
Value Fund Class A -12.32% 12.35%
Balanced Fund Class A -5.48% 9.19%
Growth Fund Class A 5.32% N/A
Equity Income Fund Class A 13.73% N/A
Small Cap Fund Class A 42.27% N/A
Value Fund Class B -12.72% 12.19%
Balanced Fund Class B -5.97% 8.97%
Growth Fund Class B 4.46% N/A
Equity Income Fund Class B 13.24% N/A
Small Cap Fund Class B 43.13% N/A
-93-
<PAGE> 97
Fund Class One-Year Five-Year
---- ----- -------- ---------
AmSouth Capital Growth Class A 13.73% 22.66%
Fund
AmSouth Large Cap Fund Class A 7.76% 22.63%
AmSouth Mid Cap Fund Class A 42.36% N/A
AmSouth International Class A 2.99% N/A
Equity Fund
AmSouth Aggressive Class A 8.83% N/A
Growth Portfolio
AmSouth Growth Portfolio Class A 2.55% N/A
AmSouth Growth and Class A 2.47% N/A
Income Portfolio
AmSouth Moderate Growth Class A 1.10% N/A
Income Portfolio
AmSouth Capital Growth Class B 13.36% 22.34%
Fund
AmSouth Large Cap Fund Class B 7.06% 22.44%
AmSouth Mid Cap Fund Class B 42.90% N/A
AmSouth International Class B 2.01% N/A
Equity Fund
AmSouth Aggressive Class B 8.17% N/A
Growth Portfolio
AmSouth Growth Portfolio Class B 1.69% N/A
AmSouth Growth and Class B 1.50% N/A
Income Portfolio
AmSouth Moderate Growth Class B 0.09% N/A
Income Portfolio
AmSouth Capital Growth Trust 19.36% 23.73%
Fund
AmSouth Large Cap Fund Trust 12.88% 23.76%
AmSouth Mid Cap Fund Trust 49.24% N/A
AmSouth International Trust 7.92% N/A
Equity Fund
AmSouth Aggressive Trust 14.04% N/A
Growth Portfolio
AmSouth Growth Portfolio Trust 7.83% N/A
AmSouth Growth and Trust 7.34% N/A
Income Portfolio
AmSouth Moderate Growth Trust 6.04% N/A
Income Portfolio
-94-
<PAGE> 98
For the period from commencement of operations through July 31, [2000],
the average annual total return was as follows:
<TABLE>
<CAPTION>
Commencement of Operations Commencement
Fund Class through July 31, 2000 of Operations Date
---- ----- ------------------------ ------------------
<S> <C> <C> <C>
Prime Money Market Fund Trust 5.33% 8-Aug-88
U.S. Treasury Fund Trust 5.06% 8-Sep-88
Tax-Exempt Fund Trust 3.08% 27-Jun-88
Florida Tax-Exempt Fund Trust 4.87% 2-Sep-97
Municipal Bond Fund Trust 5.82% 2-Sep-97
Bond Fund Trust 7.71% 2-Sep-97
Limited Term Bond Fund Trust 6.60% 2-Sep-97
Government Income Fund Trust 5.72% 2-Sep-97
Prime Money Market Fund Class A 5.29% 1-Apr-96
U.S. Treasury Fund Class A 5.02% 1-Apr-96
Tax-Exempt Fund Class A 3.03% 1-Apr-96
Florida Tax-Exempt Fund Class A 4.08% 30-Sep-94
Municipal Bond Fund Class A 5.64% 1-Jul-97
Bond Fund Class A 7.30% 1-Dec-88
Limited Term Bond Fund Class A 6.19% 1-Feb-88
Government Income Fund Class A 5.03% 1-Oct-93
Bond Fund Class B 6.65% 2-Sep-97
Prime Money Market Fund Class B 3.94% 15-Jun-98
Institutional
Prime Obligations Fund Class I 5.40% 15-Sep-98
Institutional
Prime Obligations Fund Class II 5.14% 19-Feb-99
Institutional
Prime Obligations Fund Class III 4.88% 22-Feb-99
</TABLE>
-95-
<PAGE> 99
Fund Class Since Inception
---- ----- ---------------
AmSouth Limited Term Class A 5.66%
U.S. Government Fund
AmSouth Tennessee Tax- Class A 6.06%
Exempt Fund
AmSouth Limited Term Class A 3.88%
Tennessee Tax-Exempt
Fund
AmSouth Treasury Reserve Class A 4.38%
Money Market Fund
AmSouth Limited Term Class B 4.97%
U.S. Government Fund
AmSouth Tennessee Tax- Class B 5.28%
Exempt Fund
AmSouth Limited Term Class B 3.17%
Tennessee Tax-Exempt
Fund
AmSouth Limited Term Trust 5.97%
U.S. Government Fund
AmSouth Tennessee Tax- Trust 6.31%
Exempt Fund
AmSouth Limited Term Trust N/A
Tennessee Tax-Exempt
Fund
AmSouth Treasury Reserve Trust 4.46%
Money Market Fund
------------------------------
-96-
<PAGE> 100
For the period from commencement of operations through July 31, [2000],
the average annual total return was as follows:
<TABLE>
<CAPTION>
Commencement of Operations Commencement
Fund Class through July 31, 2000 of Operations Date
---- ----- -------------------------- ------------------
<S> <C> <C> <C>
Value Fund Trust 13.25% December 1, 1988
Balanced Fund Trust 11.27% December 19, 1991
Equity Income Fund Trust 17.76% March 20, 1997
Growth Fund Trust 16.32% July 31, 1997
Small Cap Fund Trust 10.09% March 2, 1998
Enhanced Market Fund Trust 25.22% September 1, 1998
Select Equity Fund Trust -2.10% September 1, 1998
Value Fund Class B 12.14% December 1, 1988
Balanced Fund Class B 10.19% December 19, 1991
Equity Income Fund Class B 15.92% March 20, 1997
Growth Fund Class B 14.47% August 3, 1997
Small Cap Fund Class B 7.88% March 2, 1998
Enhanced Market Fund Class B 22.28% September 1, 1990
Select Equity Fund Class B -4.89% September 1, 1998
Value Fund Class A -12.32% December 1, 1988
Balanced Fund Class A 10.60% December 19, 1991
Equity Income Fund Class A 15.88% March 20, 1997
Growth Fund Class A 14.28% August 3, 1997
Small Cap Fund Class A 7.83% March 2, 1998
Enhanced Market Fund Class A 22.01% September 1, 1998
Select Equity Fund Class A -4.58% September 1, 1998
</TABLE>
-97-
<PAGE> 101
Fund Class Since Inception
---- ----- ---------------
AmSouth Capital Growth Class A 13.28%
Fund
AmSouth Large Cap Fund Class A 18.36%
AmSouth Mid Cap Fund Class A 45.46%
AmSouth International Class A 2.99%
Equity Fund
AmSouth Aggressive Class A 7.45%
Growth Portfolio
AmSouth Growth Portfolio Class A 2.36%
AmSouth Growth and Class A 1.52%
Income Portfolio
AmSouth Moderate Growth Class A 0.78%
Income Portfolio
AmSouth Capital Growth Class B 12.42%
Fund
AmSouth Large Cap Fund Class B 17.92%
AmSouth Mid Cap Fund Class B 46.92%
AmSouth International Class B 6.25%
Equity Fund
AmSouth Aggressive Class B 7.30%
Growth Portfolio
AmSouth Growth Portfolio Class B 3.12%
AmSouth Growth and Class B 2.18%
Income Portfolio
AmSouth Moderate Growth Class B -0.31%
Income Portfolio
AmSouth Capital Growth Trust 13.54%
Fund
AmSouth Large Cap Fund Trust 19.05%
AmSouth Mid Cap Fund Trust 51.17%
AmSouth International Trust 8.01%
Equity Fund
AmSouth Aggressive Trust 10.58%
Growth Portfolio
AmSouth Growth Portfolio Trust 5.47%
AmSouth Growth and Trust 6.80%
Income Portfolio
AmSouth Moderate Growth Trust 4.20%
Income Portfolio
-------------------------------
-98-
<PAGE> 102
PERFORMANCE COMPARISONS
YIELD AND TOTAL RETURN. From time to time, performance information for
the Funds showing their average annual total return and/or yield may be included
in advertisements or in information furnished to present or prospective
Shareholders and the ranking of those performance figures relative to such
figures for groups of mutual funds categorized by Lipper Analytical Services as
having the same investment objectives may be included in advertisements.
Total return and/or yield may also be used to compare the performance
of the Funds against certain widely acknowledged standards or indices for stock
and bond market performance. The Standard & Poor's Composite Index of 500 Stocks
(the "S&P 500") is a market value-weighted and unmanaged index showing the
changes in the aggregate market value of 500 Stocks relative to the base period
1941-43. The S&P 500 is composed almost entirely of common stocks of companies
listed on the New York Stock Exchange, although the common stocks of a few
companies listed on the American Stock Exchange or traded over-the-counter are
included. The 500 companies represented include 400 industrial, 60
transportation and 40 financial services concerns. The S&P 500 represents about
80% of the market value of all issues traded on the New York Stock Exchange.
The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market
value-weighted and unmanaged index showing the changes in the aggregate market
value of approximately 3,500 stocks relative to the base measure of 100.00 on
February 5, 1971. The NASDAQ Index is composed entirely of common stocks of
companies traded over-the-counter and often through the National Association of
Securities Dealers Automated Quotations ("NASDAQ") system. Only those
over-the-counter stocks having only one market maker or traded on exchanges are
excluded.
The Shearson Lehman Government Bond Index (the "SL Government Index")
is a measure of the market value of all public obligations of the U.S. Treasury;
all publicly issued debt of all agencies of the U.S. government and all
quasi-federal corporations; and all corporate debt guaranteed by the U.S.
government. Mortgage backed securities, flower bonds and foreign targeted issues
are not included in the SL Government Index.
The Shearson Lehman Government/Corporate Bond Index (the "SL
Government/ Corporate Index") is a measure of the market value of approximately
5,300 bonds with a face value currently in excess of $1.3 trillion. To be
included in the SL Government/Corporate Index, an issue must have amounts
outstanding in excess of $1 million, have at least one year to maturity and be
rated "Baa" or higher ("investment grade") by a nationally recognized
statistical rating agency.
-99-
<PAGE> 103
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, to "AmSouth Mutual Funds" as of August 19, 1993 and to
"AmSouth Funds" as of November 30, 1999 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 twenty-eight series of Shares which
represent interests in the Value Fund, the Growth Fund, the Capital Growth Fund,
the Large Cap Fund, the Mid Cap Fund, the Small Cap Fund, the Equity Income
Fund, the Balanced Fund, the Select Equity Fund, the Enhanced Market Fund, the
International Equity Fund, the Strategic Portfolios: Aggressive Growth
Portfolio, the Strategic Portfolios: Growth Portfolio, the Strategic Portfolios:
Growth and Income Portfolio, the Strategic Portfolios: Moderate Growth and
Income Portfolio, the Bond Fund, the Limited Term Bond Fund, the Government
Income Fund, the Limited Term U.S. Government Fund, the Municipal Bond Fund, the
Florida Tax-Exempt Fund, the Tennessee Tax-Exempt Fund, the Limited Term
Tennessee Tax-Exempt Fund, the Prime Money Market Fund, the U.S. Treasury Money
Market Fund, the Treasury Reserve Money Market Fund, the Tax-Exempt Money Market
Fund, and the Prime Obligations Money 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.
-100-
<PAGE> 104
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 pertaining to the Shareholder Servicing Plan, and (iv) when pertaining 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.
MISCELLANEOUS
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 used in this Statement of Additional Information, "assets belonging
to a Fund" means the consideration received by the Fund upon the issuance or
sale of Shares in that Group, together with all income, earnings, profits, and
proceeds derived from the investment thereof, including any proceeds from the
sale, exchange, or liquidation of such investments, and any funds or payments
derived from any reinvestment of such proceeds, and any general assets of the
Trust not readily identified as belonging to a particular Fund that are
allocated to that Fund by the Trust's Board of Trustees. The Board of Trustees
may allocate such general assets in any manner it deems fair and equitable. It
is anticipated that the factor that will be
-101-
<PAGE> 105
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 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.
As of November 6, 2000, the trustees and officers of the Trust, as a
group, owned less than 1% of the Trust Shares, of the Class A Shares and of the
Class B Shares of any of the AmSouth Funds. The information in the following
table shows, to the best of the knowledge of AmSouth Funds, the shareholders who
owned of record or beneficially 5% or more of the indicated Fund and Class.
Those shareholders who beneficially own 25% or more of the outstanding shares of
a Fund may be deemed to be controlling persons of that Fund under the 1940 Act.
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
VALUE FUND
Kenneburt & Company 47.6789% (Trust Shares) 47.6789%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 23.9037% (Trust Shares) 23.9037%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 11.8315 % (Trust Shares) 11.8315%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
GROWTH FUND
Kenneburt & Company 6.9025% (Trust Shares) 6.9025%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 28.0379% (Trust Shares) 28.0379%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 61.7134% (Trust Shares) 61.7134%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 7.4674% (Trust Shares) 7.4674%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
CAPITAL GROWTH FUND
Charles Schwab Co., Inc. 5.1565% (A Shares) 5.1565%
FBO Account Number 32949426
101 Montgomery Street
San Francisco, CA 94104
Kenneburt & Company 16.9404% (A Shares) 16.9404%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kenneburt & Company 18.6651% (A Shares) 18.6651%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
</TABLE>
-102-
<PAGE> 106
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Prudential Securities Inc. FBO 6.4001%(A Shares) 6.4001%
Ms. Lisa Alther TTEE
1334 Watauga St.
Kingsport, TN 37660
Kenneburt & Company 16.6687% (Trust Shares) 15.9773%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 14.0725% (Trust Shares) 12.0460%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 6.2008% (Trust Shares) 5.3078%
FEE'D Reinvestment
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 12.5300% (Trust Shares) 10.7256%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 19.5686% (Trust Shares) 16.7507%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 24.1544% (Trust Shares) 20.6761%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
MID CAP FUND
48.8802% (Trust Shares) 41.8414%
Kenneburt & Company
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 28.5950% (Trust Shares) 24.4773%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 12.9519% (Trust Shares) 11.0868%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
SMALL CAP FUND
NFSC FEBO 09G-349097 5.3716% (A Shares) 5.3716%
Donald B. Quarlesand
702 Waterview Lane
Tarpon Springs, FL 34689
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Kenneburt & Company 5.1589% (A Shares) 4.4160%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Donaldson Lufkin Jenrette 5.7026%(B Shares) 4.8814%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
Kenneburt & Company 47.78996%(Trust Shares) 40.9082%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 31.5736%(Trust Shares) 27.0270%
Small Cap Premier Fund Reinvestment
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 14.9934%(Trust Shares) 12.8343%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
EQUITY INCOME FUND
Kenneburt & Company 40.8667%(Trust Shares) 34.9818%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 12.9686%(Trust Shares) 11.1011%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 36.3508%(Trust Shares) 31.1248%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
BALANCED FUND
Kenneburt & Company 66.4655%(Trust Shares) 56.8944%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 26.8603%(Trust Shares) 22.9924%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
SELECT EQUITY FUND
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC-FEBO 010-564125 9.4437%(A Shares) 9.4437%
Juanelles Family Partnership
P.O. Box 130842
Birmingham, AL 35213
NFSC-FEBO 010-663085 6.8212%(B Shares) 6.8212%
Don E. Gutscher
2316 County Road 7
Clanton, AL 35045
Kenneburt & Company 94.8706%(Trust Shares) 81.2092%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
ENHANCED MARKET FUNDS
NFSC FEBO 010-626350 5.4977%(A Shares) 5.4977%
NFSC FMTC IRA Rollover
2608 NE 24th St.
Lighthouse Point, FL 33604
Kenneburt & Company 57.1704%(Trust Shares) 48.9378%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 36.3262%(Trust Shares) 31.0952%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 6.5009%(Trust Shares) 5.5647%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
INTERNATIONAL EQUITY FUND
NFSC FEBO 010-564974 5.8448%(A Shares) 5.8448%
Jose A. Valencia
341 Trace Ridge Rd.
Birmingham, AL 35244
Kenneburt & Company 31.4435% (A Shares) 26.9156%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 14.6566%(A Shares) 12.5460%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
</TABLE>
<PAGE> 109
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC FEBO GC1-619019 7.4226%(B Shares) 7.4226%
Willie B. Southern Jr.
P.O. Box 9251
Jackson, MS 39286
Legg Mason Wood Walker Inc. 5.5586%(B Shares) 5.5585%
284-07011-10
P.O. Box 1476
Baltimore, MD 21202
Kenneburt & Company 44.5562%(Trust Shares) 38.1401%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 30.2673%(Trust Shares) 25.9088%
FEE'D Reinvestment
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 19.2740%(Trust Shares) 16.4985%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
STRATEGIC PORTFOLIOS AGGRESSIVE GROWTH
NFSC FEBO FR1-113727 15.6092% (A Shares) 15.6092%
NFSC FMTC IRA SEPP
1710 First American Center
Nashville, TN 37237
NFSC FEBO FR2-011800 6.3286% (A Shares) 6.3286%
NFSC FMTC IRA
2095 Puryears Bend Road
Hartsville, TN 37074
NFSC FEBO GC1-186350 5.8009% (A Shares) 5.8009%
Debra G. Biedenharn
2205 Wilson Street
Vicksburg, MS 39180
NFSC FEBO FC2-060364 11.8624% (A Shares) 11.8624%
Solomon Aladmah
830 Brentwood Point
Brentwood, TN 37027
NFSC FEBO FC2059480 8.7355% (A Shares) 8.7355%
Wassim Hossari
King Faisal Spec Hosp & RC
P.O. Box 3354 MBC 27
Brooklyn, NY 11211
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC FEBO 010-509043 7.1193% (A Shares) 7.1193%
AmSouth Bk of Fla Rollover Cust
15054 West String St.
Pensacola, FL 32501
NFSC FEBO FC1-208965 16.2047% (A Shares) 16.2047%
Mary Jane Nguyen
2939 Old Sams Creek Rd.
Pegram, TN 37143
NFSC FEBO 04J-146200 5.7558% (A Shares) 5.7558%
Eric C. Biedenharn Jr.
2205 Wilson St.
Vicksburg, MS 39180
NFSC FEBO 09G-400483 6.5194% (B Shares) 6.5194%
Russell M. Lamb
17 Notasulga Drive DW
Rome, GA 30161
NFSC FEBO 010-820660 12.1993% (B Shares) 12.1993%
Rick A. Gray and
1401 Eastwood Drive
Dothan, AL 36301
NFSC FEBO FR2-008931 10.9135%% (B Shares) 10.9135%
NFSC FMTC IRA
1105 Newcastle Drive
Old Hickory, TN 37138
NFSC FEBO FR2-008923 5.1802% (B Shares) 5.1802%
NFSC FMTC IRA
921 Stuart Lane
Brentwood, TN 37027
NFSC FEBO FR2-001991 5.1490% (B Shares) 5.1490%
NFSC FMTC IRA
921 Stuart Lane
Brentwood, TN 37027
NFSC FEBO FR2-012475 5.3684% (B Shares) 5.3684%
NFSC FMTC IRA
121 Lavender Road
Max Meadows, VA 24360
BISYS Fund Services, Inc. 40.1940% (Trust Shares) 40.1940%
NFSC FMTC IRA
16 Coach Circle Road
Concord, CA 94524
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Kenneburt & Company 24.5647% (Trust Shares) 21.0273%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 33.9330% (Trust Shares) 29.0466%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
GROWTH PORTFOLIO
NFSC FEBO 010-795089 8.2053% (A Shares) 8.2053%
NFSC FMTC IRA
1817 Echo Pond Place
Wesley Chapel, FL 33543
NFSC FEBO 010-703702 21.6000% (A Shares) 21.6000%
NFSC FMTC IRA
5023 Arapahoe Avenue
Jacksonville, FL 32210
NFSC FEBO 09G-144363 51.8082% (A Shares) 51.8082%
Sandra A. Palmer
5023 Arapahoe Avenue
Jacksonville, FL 32210
NFSC FEBO 010-728160 8.2875% (B Shares) 8.2875%
Lucas Living Trust
5453 Woodford Drive
Birmingham, AL 35242
NFSC FEBO 010-696102 12.6962% (B Shares) 12.6962%
NFSC FMTC IRA
155 Sunset Lane
Trion, GA 30753
NFSC FEBO 010-834149 8.0419% (B Shares) 8.0419%
Melanie C. McClenny
933 Dillard Road
Pansey, AL 36370
NFSC FEBO FC2-051845 5.3507% (B Shares) 5.3507%
Frank L. Jayakody
440 Naron Road
Shelbyville, TN 37160
NFSC FEBO GC1-562793 16.7136% (B Shares) 16.7136%
Velma S. Hamilton
1329 Robert Drive
Jackson, MS 39211
</TABLE>
<PAGE> 112
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC FEBO 010-833037 5.3682% (B Shares) 5.3682%
NFSC FMTC IRA Rollover
1220 Jamestown Street
Prattville, AL 36067
BISYS Fund Services Inc. 25.8811% (Trust Shares) 25.881%
NFSC FMTC IRA
16 Coach Circle Rd.
Concord, CA 94524
Kenneburt & Company 26.0048% (Tust Shares) 22.2601%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
Kenneburt & Company 44.4584% (Trust Shares) 38.0563%
P.O. Box 11426 CSTDY Unity
Birmingham, AL 35202
GROWTH & INCOME PORTFOLIO
NFSC FEBRO GR1-178713 38.7894% (A Shares) 38.7894%
NFSC FMTC IRA
719 S. Spring Lake Circle
Terry, MS 39170
NFSC FEBO FC2-059110 38.3608% (A Shares) 38.3608%
Kathy B. Boyd GDN
2195 Leevillepike
Lebanon, TN 37090
NFSC FEBO FR1-466379 9.4980% (A Shares) 9.4980%
NFSC FMTC IRA
1526 Woodcrest Cove
Greenville, MS 38701
NFSC FEBO 010-695980 9.7412% (B Shares) 9.7412%
NFSC FMTC IRA Rollover
20 Pine Grove Circle
Adairsville, GA 30103
NFSC FEBO FR2-01097 7.0892% (B Shares) 7.0892%
NFSC FMTC IRA
542 Lovedale Drive
Kingsport, TN 37660
Legg Mason Wood Walker Inc. 9.4008% (B Shares) 9.4008%
495-00061-16
P.O. Box 1476
Baltimore, MD 21202
</TABLE>
<PAGE> 113
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Bisys BD Services Inc. 19.5796% (Trust Shares) 19.5796%
NFSC FMTC IRA
16 Coach Circle Road
Concord, CA 94524
Kenneburt & Company 12.3978% (Trust Shares) 10.6125%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 66.1240% (Trust Shares) 56.6021%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
MODERATE GROWTH & INCOME
Bernard M. Ziehlsdors 11.3677% (A Shares) 11.3677%
513 Terry Lane
Lebanon, TN 37087
Michael W. Doran 24.4143% (A Shares) 24.4143%
102 Lexington Drive
Lebanon, TN 37087
Stephen D. Piercey 11.1773% (A Shares) 11.1773%
1180 Taylorsville Road
Lebanon, TN 37087
NFSC FEBO GR2-912611 19.3466% (A Shares) 19.3466%
NFSC FMTC IRA
1131 Mountain Brook Circle
Shreveport, LA 71118
NFSC FEBO GC1-178896 22.6515% (A Shares) 22.6515%
Tulane Baptist Church
P.O. Box 41
Yazoo City, MS 39194
NFSC FEBO FR2-042412 6.3524% (B Shares) 6.3524%
NFSC FMTC ROTH IRA
2306 Dundee Lane
Nashville, TN 37214
NFSC FEBO FC2-052140 12.0957% (B Shares) 12.0957%
Marshall E. Rasnake
College Hill
LaFollette, TN 37766
</TABLE>
<PAGE> 114
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC FEBO GC1-173878 8.5750% (B Shares) 8.5750%
Noelie L. Cook
2300 Seven Spring Road Apt. B-312
Raymond, MS 39154
NFSC FEBO GR1-372153 7.4217% (B Shares) 7.4217%
NFSC FMTC IRA
2736 Newport Street
Jackson, MS 39213
NFSC FEBO 010-923660 8.9837% (B Shares) 8.9837%
NFSC FMTC IRA ROLLOVER
600 Cedar Pine Road
Mathews, AL 36052
Donaldson Lufkin Jenrette 5.8590% (B Shares) 5.8590%
Securities Corporation Inc.
P.O. Box 2052
Jersey City, NJ 07303
NFSC FEBO 010-944033 6.7682% (B Shares) 6.7682%
NFSC FMTC IRA ROLLOVER
6363 Covina Street
Montgomery, AL 36117
Legg Mason Wood Walker Inc. 5.0194% (B Shares) 5.0194%
284-07121-17
P.O. Box 1476
Baltimore, MD 21202
Bisys Bd Services Inc. 24.296% (Trust Shares) 24.2967%
NFSC FMTC IRA
16 Coach Circle Road
Concord, CA 94524
Kenneburt & Company 9.3245% (Trust Shares) 7.9817%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 65.3854% (Trust Shares) 55.9699%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
</TABLE>
<PAGE> 115
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
BOND FUND
NFSC FEBO 010-445851 7.9920% (A Shares) 7.9920%
First Ala Bk as Successor-TTEE
P.O. Box 2527
Mobile, AL 36622
NFSC FEBO 010-445878 6.2613% (A Shares) 6.2613%
First Ala BK as Successor-TTEE
P.O. Box 2527
Mobile, AL 36652
Bisys Bd Services Inc. 12.1659% (A Shares) 12.1659%
FBO Health Plan Services Inc.
P.O. Box 4054
Concord, CA 94524
Kenneburt & Company 5.9924% (A Shares) 5.1294%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kenneburt & Company 14.2538% (A Shares) 12.2012%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
NFSC FEBO 09g-359173 5.1976% (B Shares) 5.1976%
Lillian F. Kinzel TTEE
880 Highlands Blvd-- 3406
Palm Harbor, FL 34684
NFSC FEBO 09G-440477 5.5406% (B Shares) 5.5406%
Edward Sidlasky
4315 Harbor Watch Lane
Lutz, FL 33549
</TABLE>
<PAGE> 116
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Kenneburt & Company 7.6800% (Trust Shares) 6.5740%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 30.8871% (Trust Shares) 26.4393%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 25.4704% (Trust Shares) 21.8026%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 21.1186% (Trust Shares) 18.0775%
Fee'd Reinvestment
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 5.6516% (Trust Shares) 4.8377%
Non-Fee'd Reinvestment
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 9.0046% (Trust Shares) 7.7079%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
LIMITED TERM BOND FUND
Bisys Bd Services Inc. 15.1760% (A Shares) 15.1760%
P.O. Box 4054
Concord, CA 94524
TrustLynx & Co. 19.1291% (A Shares) 19.1291%
P.O. Box 173736
Denver, CO 80217
Kenneburt & Company 8.8167% (A Shares) 7.5470%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kenneburt & Company 7.1119% (A Shares) 6.0877%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kenneburt & Company 23.3919% (A Shares) 20.0234%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
NFSC FEBO 010-452009 5.6041% (B Shares) 5.6041%
Caroline Smith Kenan
702 West Dallas Avenue
Selma, AL 36701
</TABLE>
<PAGE> 117
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC FEBO HE5-011010 5.9904% (B Shares) 5.9904%
Cecilia Odio
1170 Mandalay Point
Clearwater, FL 33767
NFSC FEBO 09G-432407 6.2638% (B Shares) 6.2638%
Pauline C. Bearden
2745 Executive Park NW
Cleveland, TN 37312
Kenneburt & Company 15.4502% (Trust Shares) 13.2253%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 34.1446% (Trust Shares) 29.2277%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 12.0825% (Trust Shares) 12.0825%
Non Fee'd Reinvestment
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
AmSouth Growth & Income Portfolio 6.7832% (Trust Shares) 6.7832%
3435 Stelzer Road
Columbus, OH 43219
Kenneburt & Company 12.6878% (Trust Shares) 10.8607%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 11.6082% (Trust Shares) 9.9366%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
GOVERNMENT INCOME FUND
NFSC FEBO 09G-098418 5.9805% (A Shares) 5.9805%
Gulf Coast Health Cooperative
P.O. Box 17500
Pensacola, FL 32522
City Bank & Trust 5.4000% (A Shares) 5.4000%
Eldoark Company C
101 W. Main Street
Eldorado, AR 71730
</TABLE>
<PAGE> 118
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Kenneburt & Company 13.6030% (A Shares) 11.6441%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kenneburt & Company 5.2334% (A Shares) 4.4797%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
NFSC FEBO 09G-348589 6.8956% (B Shares) 6.8956%
Frances Boccia
1624 Indiana Avenue
Palm Harbor, FL 34683
NFSC FEBO 09G-500658 6.6953% (B Shares) 6.6953%
Sandra M. Napier
5048 Farmsworth Lane
New Port Richey, FL 34653
NFSC FEBO 09G-117064 10.1734% (B Shares) 10.1734%
Mary Speers
6331 Summer Lakes Lane
Pensacola, FL 32504
NFSC FEBO FC1-180114 13.4238% (B Shares) 13.4238%
Stephanie L. Wilson
215 Heatner Court
Florence, AL 35630
NFSC FEBO GR2-013854 14.2096% (B Shares) 14.2096%
NFSC FMTC IRA ROLLOVER
217 Williamsburg
Monroe, LA 71203
NFSC FEBO FC1-088340 16.3798% (B Shares) 16.3798%
Frances T. Harris
6045 Sunrise Circle
Franklin, TN 37067
NFSC FEBO FC1-180432 7.6884% (B Shares) 7.6884%
Lee Ensign Johnson
4612 Skymont Drive
Nashville, TN 37215
Kenneburt & Company 14.7305% (Trust Shares) 12.6093%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
Kenneburt & Company 27.9331% (Trust Shares) 23.9107%
P.O. Box 11426 Cstdy Unity
Birmingham, AL 35202
</TABLE>
<PAGE> 119
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
AmSouth Growth & Income Portfolio 10.1263% (Trust Shares) 10.1263%
3435 Stelzer Road
Columbus, OH 43219
Kenneburt & Company 5.1290% (Trust Shares) 4.3904%
P.O. Box 11426
Birmingham, AL 35202
Kenneburt & Company 32.0541% (Trust Shares) 27.4383%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
LIMITED TERM U.S. GOVERNMENT
NFSC FEBO GC2-314196 8.0444% (A Shares) 8.0444%
Rasberry Commercial Properties L
800 Spring Street Suite 201
Shreveport, LA 71101
Kennebert & Co. 30.9298% (A Shares) 26.4759%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kennebert & Co. 14.0942% (A Shares) 12.0646%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kennebert & Co. 12.0811% (A Shares) 10.3414%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
NFSC FEBO FR1-058025 12.9513% (B Shares) 12.9513%
NFSC FMTC IRA
308 Dye Rd.
Bell Buckle, TN 37020
NFSC FEBO FC1-107280 19.9037% (B Shares) 19.9037
Mary M McGavock
115 Woodmont Blvd Apt. 220
Nashville, TN 37205
NFSC FEBO FC1-180432 12.3624% (B Shares) 12.3624%
Lee Ensign Johnson
4612 Skymont Drive
Nashville, TN 37215
NFSC FEBO FC2-027316 5.8561% (B Shares) 5.8561%
Frances M. Cox
70 Brookwood Terrace
Nashville, TN 37205
</TABLE>
<PAGE> 120
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC FEBO FC1-166804 13.1322% (B Shares) 13.1322%
Helen Frankenbach
173 Boxwood Dr.
Franklin, TN 37069
NFSC FEBO FR1-118770 7.9950% (B Shares) 7.9950%
NFSC FMTC IRA
302 Colonial Street
Woodbury, TN 37190
NFSC FEBO FC1-092312 8.0820% (B Shares) 8.0820%
Lois B Hoge
20 Ridge Road
Westminster, MD 21157
NFSC FEBO FC1-088340 13.3205% (B Shares) 13.3205%
Frances T Harris
6045 Sunrise Circle
Franklin, TN 37067
Kennebert & Co. 10.7989% (Trust Shares) 9.2438%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 40.5407% (Trust Shares) 34.7028%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 36.4207% (Trust Shares) 31.1761%
FEE'D Reinvestment
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 7.8855% (Trust Shares) 6.7499%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
MUNICIPAL BOND FUND
NFSC FEBO 010-563811 6.1342% (A Shares) 6.1342%
Richard C Hassinger Jr.
1100 Beacon Pkwy E V-304
Birmingham, AL 35209
NFSC FEBO 010-006483 7.2774% ( A Shares) 7.2774%
Helen Crow Mills
4604 Dolly Ridge Road
Birmingham, AL 35243
NFSC FEBO FC1-089877 7.8479% (B Shares) 7.8479%
Mildred Evelyn Piper Cons
</TABLE>
<PAGE> 121
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
102 Morton Mill Cir
Nashville, TN 37221
NFSC FEBO GC1-170470 10.5019% (B Shares) 10.5019%
CL Womack
1302 Delawares Ave.
McComb MS 39648
NFSC FEBO 09G-151157 11.1608% (B Shares) 11.1608%
Carolyn K Tinley
1147 16th Avenue N
St Petersburg, FL 33704
NFSC FEBO 09G-349321 7.9851% (B Shares) 7.9851%
Joseph J Cervenka LLC
1529 53rd Street S
Gulfport, FL 33707
NFSC FEBO 09G-384038 16.1741(B Shares) 16.1741%
R L Tony Munger
4024 N Woodbine Street
Harvey, LA 70058
NFSC FEBO 09G492892 12.2297 % (B Shares) 12.2297%
Edith V. Jackson TTEE
1150 8th Ave. SW 203
Largo, FL 33770
NFSC FEBO 09G-493031 5.2802% (B Shares) 5.8202%
Virginia Z Stocker TTEE
1651 Patlin Circle S
Largo, FL 33770
Legg Mason Wood Walker Inc. 5.4608% (B Shares) 5.4608%
495-00024-12
P.O. Box 1476
Baltimore, MD 21202
Kennebert & Co. 30.3497% (Trust Shares) 25.9793%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 48.3217% (Trust Shares) 41.3633%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 11.6965% (Trust Shares) 10.0122%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 7.3728% (Trust Shares) 6.3111%
P.O. Box 11426 CSTDY Unit
</TABLE>
<PAGE> 122
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Birmingham, AL 35202
FLORIDA TAX-EXEMPT FUND
NFSC FEBO 09G-349631 31.5703% (A Shares) 31.5703%
Emil J Wirth Jr.
19720 Mustang Drive
Dunnellon, FL 34432
NFSC FEBO 09G-349682 31.5703% (A Shares) 31.5703%
Radelle M. Wirth
19720 Mustang Drive
Dunnellon, FL 34432
NFSC FEBO 09G-418587 7.0444% (A Shares) 7.0444%
Alfred S Austin And
4617 San Miguel St
Tampa, FL 33629
NFSC FEBO 09G-505501 9.0934% (A Shares) 9.0934%
Robert G Packard And
823 Wood Street
Dunedin, FL 34698
NFSC FEBO 09G-402257 13.9031% (B Shares) 13.9031%
George C Jenkins and
16416 US HWY 19N
Clearwater, FL 33764
NFSC FEBO 09GF-373753 11.2830% (B Shares) 11.2830%
Nicholas and Anne J. Busch Trus
1900 59th Ave North Oasis 312
St. Petersburg, FL 33714
NFSC FEBO 09G-381578 14.6231% (B Shares) 14.6231%
Joseph J. Kress
2384 Tahitian Lane Apt. 24
Clearwater, FL 33763
NFSC FEBO 09G-413054 7.1120% (B Shares) 7.1120%
Phyllis A Wlater TTEE
1587 Jonathan Court
Largo, FL 33770
NFSC FEBO 09G-413569 28.4287% (B Shares) 28.4287%
Joseph Mary Wollitz Trust
3808 NE 17th Street
Ocala, FL 34470
NFSC FEBO 09G-402273 5.0210% (B Shares) 5.0210%
James E Phillips Trust
Harbor Bluffs
</TABLE>
<PAGE> 123
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Largo, FL 33770
NFSC FEBO 09G-349321 10.7789% (B Shares) 10.7789%
Joseph J. Cervenka LLC
1520 53rd Street S
Gulfport, FL 33707
Kennebert & Co. 91.0447% (Trust Shares) 83.0702%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 6.7185% (Trust Shares) 5.7510%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
TENNESSEE TAX-EXEMPT FUND
NFSC FEBO FC1-071587 5.1596% ( A Shares) 5.1596%
Janet Meyers Trent
Apt. 12R
Knoxville, TN 37919
Kennebert & Co. 19.0761% (A Shares) 16.3291%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kennebert & Co. 7.0112% (A Shares) 6.0015%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
NFSC FEBO U31-055857 19.4432% (A Shares) 19.4432%
FABCO
P.O. Box 105870 CTR 3144
Atlanta, GA 30348
NFSC FEBO U31-055883 18.7177% (A Shares) 18.7177%
FABCO
P.O. Box 105870 CTR 3144
Atlanta, GA 30348
NFSC FEBO FC1-152552 10.3046% (B Shares) 10.3046%
Brenda K Brasher
8244 Spring Ridge Drive
Nashville, TN 37221
NFSC FEBO FC2-025950 5.7962% (B Shares) 5.7962%
Charles J. Elder
115 Woodmont Blvd. Apt. 601
Nashville, TN 37205
NFSC FEBO FC1--128732 7.3964% (B Shares) 7.3964%
Emily Fay Penley
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Apt. 303 Kingsport, TN 37660
NFSC FEBO FC1-059579 5.8244% (B Shares) 5.8244%
Beatrice A Rhew
5009 D Camelot Drive
Columbia, TN 38401
NFSC FEBO FC1-111287 7.0790% (B Shares) 7.0790%
Martha H Sircy
1155 Park Dr.
Cookeville, TN 38501
NFSC FEBO FC1-059560 5.1544% (B Shares) 5.1544%
Floyd W. Rhew
5009 D Camelot Drive
Columbia, TN 38401
NFSC FEBO FC10267880 15.3369% (B Shares) 15.3369%
Bobby L. Jones
9 Abbeywood Court
Nashville, TN 37215
NFSC FEBO FC1-520837 8.1482% (B Shares) 8.1482%
Bobbe Nell Crisafulli TTEE
910 Ironworkers Road
Clarksville, TN 37043
Kennebert & Co. 16.0188% (Trust Shares) 13.7120%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 15.3117% (Trust Shares) 13.1068%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 64.2768% (Trust Shares) 55.0209%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
LIMITED TERM TENNESSEE TAX EXEPMT
Kennebert & Co. 21.2030% (A Shares) 18.1497%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kennebert & Co. 32.2302% (A Shares) 27.5890%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kennebert & Co. 36.7427% (A Shares) 31.4517%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
</TABLE>
<PAGE> 125
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC FEBO 0LE-958115 6.4045% (B Shares) 6.4045%
Neil Rhodes Jr.
509 White Limm Road
Maryville, TN 37803
NFSC FEBO FC1-059560 19.5510% (B Shares) 19.5510%
Floyd W Rhew
5009 Camelot Drive
Columbia, TN 38401
NFSC FEBO FC1-116858 8.0256% (B Shares) 8.0256%
Murn Griffith
3957 Gamble Ln
Maryville, TN 37804
NFSC FEBO 059579 22.0591% (B Shares) 22.0591%
Beatrice A Rhew
5009 Camelot Drive
Columbia, TN 38401
NFSC FEBO FC1-135410 7.9775% (B Shares) 7.9775%
James W Stafford and
1548 Cherry Park Dr.
Memphis, TN 38120
NFSC FEBO FC1-101605 9.0643% (B Shares) 9.0643%
Helen L Eatherly
2035 Hickjory Ridge Rd.
Lebanon, TN 37087
NFSC FEBO FC1-101621 22.0050% (B Shares) 22.0050%
Julie K Tuerff
205 Powell Place
Brentwood, TN 37027
PRIME MONEY MARKET SHARES
National Financial Services Corp 89.2224% (A Shares) 89.2224%
The Benefit of out Customers
P.O. Boxd 3752
New York, NY 10008
Kennebert & Co. 7.8211% (A Shares) 6.6948%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
NFSC FEBO 010-882399 5.2752% (B Shares) 5.2757%
NFSC FMTC IRA Rollover
1827 Poplar Drive
Gardendale, AL 35071
</TABLE>
<PAGE> 126
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
NFSC FEBO 010-491101 7.7421% (B Shares) 7.7421%
NFSC FMTC IRA Rollover
3943 14 Ave North
St. Petersburg, FL 33713
NFSC FEBO 09G-489336 14.2840% (B Shares) 12.2840%
Roseanne L Madril
6511 Frank Reeder Rd.
Pensacola, FL 32526
Kennebert & Co. 55.3054% (Trust Shares) 47.3414%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 31.6837% (Trust Shares) 27.1212%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
U.S. TREASURY MONEY MARKET
National Financial Services Corp 93.6736% (A Shares) 93.6736%
The Benefit of our Customers
P.O. Box 3752
New York, NY 10008
Bear Stearns Securities Corp 5.4983% (A Shares) 5.4983%
1 Metrotech Center North
Brooklyn, NY 11201
Kennebert & Co. 23.5841% (Trust Shares) 20.1879%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 38.1861% (Trust Shares) 32.6873%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Hare & Co 38.1681% (Trust Shares) 38.1681%
One Wall Street 2nd Floor
New York, NY 10286
TREASURY RESERVE MONEY MARKET
Hare & Co 55.5413% (A Shares) 55.5413%
One Wall Street 2nd Floor
New York, NY 10286
National Financial Services Corp 11.1798% (A Shares) 11.1798%
The Benefit of our Customers
200 Liberty Street
New York, NY 10281
</TABLE>
<PAGE> 127
<TABLE>
<CAPTION>
PERCENT OF RECORD OWNERSHIP PERCENT OF BENEFICIAL
NAME AND ADDRESS OWNERSHIP
<S> <C> <C>
Kennebert & Co. 31.0691% (A Shares) 26.5951%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kennebert & Co. 61.1461% (Trust Shares) 52.3410%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
Kennebert & Co. 35.3513% (Trust Shares) 30.2607%
P.O. Box 11426 Proprietary Funds
Birmingham, AL 35202
TAX EXEMPT MONEY MARKET
National Financial Services Corp 90.5337% (A Shares) 90.5337%
The Benefit of our Customers
P.O. Box 3752
New York, NY 10008
National Financial Services Corp 7.0459% (A Shares) 7.0459%
The Benefit of our Customers
200 Liberty Street
New York, NY 10281
Kennebert & Co. 24.2106% (Trust Shares) 20.7242%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
Kennebert & Co. 74.0514% (Trust Shares) 63.3879%
P.O. Box 11426 CSTDY Unit
Birmingham, AL 35202
</TABLE>
<PAGE> 128
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.
-112-
<PAGE> 129
FINANCIAL STATEMENTS
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 Ernst & Young LLP, independent accountants for the Trust,
or other independent accountants, as set forth in Ernst & Young LLP's 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.
-113-
<PAGE> 130
APPENDIX
The nationally recognized statistical rating organizations (individually, an
"NRSRO") that may be utilized by the Funds with regard to portfolio investments
for the Funds include Moody's Investors Service, Inc. ("Moody's"), Standard &
Poor's Corporation ("S&P"), Fitch IBCA, Duff & Phelps ("Fitch IBCA"), and
Thomson Bank Watch, Inc. ("Thomson"). Set forth below is a description of the
relevant ratings of each such NRSRO. The NRSROs that may be utilized by the
Funds and the description of each NRSRO's ratings is as of the date of this
Statement of Additional Information, and may subsequently change.
LONG-TERM DEBT RATINGS (may be assigned, for example, to corporate and municipal
bonds)
Description of the five highest long-term debt ratings by Moody's (Moody's
applies numerical modifiers (1,2, and 3) in each rating category to indicate
the security's ranking within the category):
Aaa Bonds which are rated Aaa 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.
Aa Bonds which 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 risk appear somewhat larger than the Aaa securities.
A Bonds which are rated A 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.
Baa Bonds which are rated Baa are considered as medium-grade obligations
(i.e., 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.
-114-
<PAGE> 131
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.
Description of the five highest long-term debt ratings by S&P (S&P may
apply a plus (+) or minus (-) to a particular rating classification to show
relative standing within that classification);
AAA An obligation rated 'AAA' has the highest rating assigned by Standard
& Poor's. The obligor's capacity to meet its financial commitment on
the obligation is extremely strong.
AA An obligation rated 'AA' differs from the highest rated obligations
only in small degree. The obligor's capacity to meet its financial
commitment on the obligation is very strong.
A An obligation rated 'A' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
obligations in higher rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB An obligation rated 'BBB' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to
lead to a weakened capacity of the obligor to meet its financial commitment
on the obligation. Obligations rated 'BB', 'B', 'CCC', 'CC', and 'C' are
regarded as having significant speculative characteristics. 'BB' indicates
the least degree of speculation and 'C' the highest. While such obligations
will likely have some quality and protective characteristics, these may be
outweighed by large uncertainties or major exposures to adverse conditions.
BB An obligation rated 'BB' is less vulnerable to nonpayment than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions which could
lead to the obligor's inadequate capacity to meet its financial commitment
on the obligation.
Description of the three highest long-term debt ratings by Fitch IBCA;
AAA Highest credit quality. 'AAA' ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of
-115-
<PAGE> 132
financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events.
AA Very high credit quality. 'AA' ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment
of financial commitments. This capacity is not significantly vulnerable
to foreseeable events.
A High credit quality. 'A' ratings denote a low expectation of credit risk.
The capacity for timely payment of financial commitments is considered
strong. This capacity may, nevertheless, be more vulnerable to changes in
circumstances or in economic conditions than is the case for higher
ratings.
SHORT-TERM DEBT RATINGS (may be assigned, for example, to commercial paper,
master demand notes, bank instruments, and letters of credit)
Moody's description of its three highest short-term debt ratings:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
- Leading market positions in well-established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well-established access to a range of financial markets and
assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above 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 alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term obligations.
The effect of industry characteristics and market compositions may be
more pronounced. Variability in earnings and profitability may result
in changes in the level of debt protection
-116-
<PAGE> 133
measurements and may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
S&P's description of its three highest short-term debt ratings:
A-1 A short-term obligation rated 'A-1' is rated in the highest category
by Standard & Poor's. The obligor's capacity to meet its financial
commitment on the obligation is strong. Within this category, certain
obligations are designated with a plus sign (+). This indicates that the
obligor's capacity to meet its financial commitment on these obligations
is extremely strong.
A-2 A short-term obligation rated 'A-2' is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions than
obligations in higher rating categories. However, the obligor's capacity to
meet its financial commitment on the obligation is satisfactory.
A-3 A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances
are more likely to lead to a weakened capacity of the obligor to meet its
financial commitment on the obligation.
Fitch IBCA's description of its three highest short-term debt ratings:
F1 Highest credit quality. Indicates the Best capacity for timely payment of
financial commitments; may have an added "+" to denote any exceptionally
strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in the
case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could result in
a reduction to non-investment grade.
Short-Term Loan/Municipal Note Ratings
Moody's description of its two highest short-term loan/municipal note ratings:
MIG 1/VMIG 1 This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity
support, or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 This designation denotes strong credit quality. Margins of
protection are ample, although not as large as in the preceding group.
Short-Term Debt Ratings
-117-
<PAGE> 134
Thomson BankWatch, Inc. ("TBW") ratings are based upon a qualitative
and quantitative analysis of all segments of the organization including,
where applicable, holding company and operating subsidiaries.
BankWatch(TM) Ratings do not constitute a recommendation to buy or
sell securities of any of these companies. Further, BankWatch does not
suggest specific investment criteria for individual clients.
The TBW Short-Term Ratings apply to commercial paper, other senior
short-term obligations and deposit obligations of the entities to which the
rating has been assigned.
The TBW Short-Term Rating apply only to unsecured instruments that have a
maturity of one year or less.
The TBW Short-Term Ratings specifically assess the likelihood of an
untimely payment of principal or interest.
TBW-1 The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2 The second-highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the
relative degree of safety is not as high as for issues rated
TBW-1.
TBW-3 The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both
internal and external) than those with higher ratings, the
capacity to service principal and interest in a timely fashion
is considered adequate.
TBW-4 The lowest rating category; this rating is regarded as non investment
grade and therefore speculative.
-118-
