BANKSOUTH SELECT GEORGIA TAX-FREE
INCOME FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
PROSPECTUS
The shares of BankSouth Select Georgia Tax-Free Income Fund (the "Fund")
offered by this Prospectus represent interests in a non-diversified
portfolio of BankSouth Select Funds (the "Trust"), an open-end management
investment company (a mutual fund). The investment objective of the Fund
is to provide current income exempt from federal income tax and the
personal income taxes imposed by the state of Georgia. The Fund invests
primarily in securities issued by and on behalf of the State of Georgia
and its political subdivisions, authorities and agencies, and securities
issued by other states, territories, and possessions of the United States
which are exempt from federal income tax and the personal income taxes
imposed by the State of Georgia ("Georgia Municipal Securities").
This Prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
January 7, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by writing to the Bank
South, N.A. (the "Bank") Mutual Funds Center or calling 1-800-282-6680
extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE NOT
ISSUED, ENDORSED OR GUARANTEED BY, THE BANK OR ANY OF ITS AFFILIATES.
SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE BANK IS INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED BY
FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE BANK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
January 7, 1994
BANKSOUTH SELECT FUNDS
TABLE OF CONTENTS
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SUMMARY OF FUND EXPENSES 1
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GENERAL INFORMATION 2
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INVESTMENT INFORMATION 2
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Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Characteristics 3
Participation Interests 3
Variable Rate Municipal Securities 3
Municipal Leases 4
Restricted and Illiquid Securities 4
When-Issued and Delayed Delivery
Transactions 4
Investing in Securities of
Other Investment Companies 4
Temporary Investments 4
Portfolio Turnover 5
Georgia Municipal Securities 5
Investment Risks 5
Non-Diversification 6
Certain Borrowing and Investment Limitations 6
BANKSOUTH SELECT FUNDS INFORMATION 7
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Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Portfolio Manager 7
Distribution of Fund Shares 8
Distribution Plan 8
Administrative Arrangements 8
Administration of the Trust 9
Administrative Services 9
Shareholder Services Plan 9
Custodian 9
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 9
Legal Counsel 9
Independent Auditors 9
Expenses of the Fund 10
NET ASSET VALUE 10
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INVESTING IN THE FUND 10
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Share Purchases 10
By Telephone 10
By Mail 10
Payment by Check 10
Payment by Wire 10
Minimum Investment Required 11
Systematic Investment Program 11
What Shares Cost 11
Purchases at Net Asset Value 11
Sales Charge Reallowance 11
Reducing the Sales Charge 12
Quantity Discounts and Accumulated
Purchases 12
Letter of Intent 12
Reinvestment Privilege 12
Concurrent Purchases 12
Certificates and Confirmations 13
Dividends and Distributions 13
Purchasing Fund Shares with Securities 13
EXCHANGE PRIVILEGE 13
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BankSouth Select Funds 13
By Telephone 14
REDEEMING SHARES 15
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By Telephone 15
By Mail 15
Signatures 16
Receiving Payment 16
Redemption Before Purchase
Instruments Clear 16
Systematic Withdrawal Program 16
Accounts with Low Balances 16
SHAREHOLDER INFORMATION 17
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Voting Rights 17
Massachusetts Partnership Law 17
EFFECT OF BANKING LAWS 17
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TAX INFORMATION 18
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Federal Income Tax 18
State of Georgia Income and Intangibles Taxes 19
Other State and Local Taxes 19
PERFORMANCE INFORMATION 19
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ADDRESSES Inside Back Cover
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BANKSOUTH SELECT GEORGIA TAX-FREE INCOME FUND
SUMMARY OF FUND EXPENSES
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<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... 2.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee............................................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)........................................................................ 0.00%
12b-1 Fees(2)........................................................................................... 0.00%
Other Expenses (after waivers)(3)....................................................................... 0.57%
Total Fund Operating Expenses(4).................................................................... 0.57%
</TABLE>
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(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee by the investment
adviser. The investment adviser can terminate this voluntary waiver at any
time in its sole discretion. The maximum management fee is 0.75%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund can pay up to 0.75% as a 12b-1 fee to the distributor.
Certain trust clients of the Bank or its affiliates, including ERISA plans,
will not be affected by the distribution plan because the distribution
plan will not be activated unless and until a second, "Trust," class of
shares of the Fund (which would not have a Rule 12b-1 plan) is created and
such trust clients' investments in the Fund are converted to such Trust
class.
(3) Total Other Expenses are estimated to be 1.16% absent the anticipated
voluntary waiver by the administrator and transfer agent.
(4) The Total Fund Operating Expenses are estimated to be 1.91% absent the
anticipated voluntary waivers by the adviser, administrator, and transfer
agent.
* Expenses are estimated based on average expenses expected to be incurred
during the fiscal year ending September 30, 1994. During the course of this
period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "BANKSOUTH SELECT FUNDS INFORMATION" AND "INVESTING IN THE FUND."
WIRE TRANSFER REDEMPTIONS MAY BE SUBJECT TO AN ADDITIONAL FEE.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fees................................................................................ $31 $43
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER
30, 1994.
GENERAL INFORMATION
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The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 22, 1993, as amended and restated dated December 20,
1993. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. This Prospectus relates only to the Trust's BankSouth Select Georgia
Tax-Free Income Fund. The Fund is designed as a convenient means of accumulating
an interest in a professionally managed, non-diversified portfolio investing
primarily in Georgia Municipal Securities. A minimum initial investment of
$1,000 is required and subsequent investments must be in amounts of at least
$100.
The Fund is not likely to be a suitable investment for non-Georgia taxpayers or
retirement plans since Georgia municipal securities are not likely to produce
competitive after-tax yields for such persons and entities when compared to
other investments. A minimum initial investment of $1,000 is required, and
subsequent investments must be in amounts of at least $100.
Fund shares are sold at net asset value plus a maximum sales charge of 2.50%,
and are redeemed at net asset value.
INVESTMENT INFORMATION
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INVESTMENT OBJECTIVE
The Fund's investment objective is to provide current income exempt from federal
income tax and the personal income taxes imposed by the State of Georgia. The
investment objective cannot be changed without the approval of the Fund's
shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this Prospectus.
Interest income of the Fund that is exempt from the income taxes described above
retains its exempt status when distributed to the Fund's shareholders. However,
income distributed by the Fund may not necessarily be exempt from state or
municipal taxes in jurisdictions other than Georgia.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in Georgia
Municipal Securities. As a matter of investment policy, which may not be changed
without shareholder approval, the Fund will invest its assets so that, under
normal circumstances, at least 80% of its annual interest income is exempt from
federal income tax (including alternative minimum tax). Unless indicated
otherwise, the other investment policies of the Fund may be changed by the Board
of Trustees without approval of shareholders. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. Under normal circumstances, the Fund will invest at
least 65% of its total assets in Georgia Municipal Securities, which are
obligations issued by and on behalf of the State of Georgia, its political
subdivisions, authorities and agencies; debt obligations of any state,
territory, or possession of the United States, including the District of
Columbia, or any political subdivision of any of these; and participation
interests, as described below, in any of the above obligations, the interest
from which is, in the opinion of bond counsel for the issuers or in the opinion
of officers of the Fund and/or the investment adviser to the Fund, exempt from
both federal income tax and the personal income tax imposed by the State of
Georgia. While the Fund intends to invest primarily in securities issued by or
on behalf of the State of Georgia, its political subdivisions, authorities and
agencies, it will invest in other securities issued by states, territories, and
possessions of the United States which are exempt from federal income tax and
the personal income taxes imposed by the State of Georgia. The Fund will invest
in such securities in instances where, in the judgment of the Fund's investment
adviser, the supply and yield of such securities would be beneficial to the
Fund's investment performance.
CHARACTERISTICS. The Georgia Municipal Securities which the Fund buys are
investment-grade bonds rated, at the time of purchase, Aaa, Aa, A, or Baa
by Moody's Investors Service, Inc. ("Moody's"), or AAA, AA, A, or BBB by
Standard and Poor's Corporation ("S&P"), Fitch Investors Service, Inc.
("Fitch"), or Duff & Phelps Credit Rating Co. ("Duff & Phelps"). In certain
cases, the Fund's investment adviser may choose bonds which are unrated if
it determines that such bonds are of comparable quality or have similar
characteristics to investment-grade bonds. Bonds rated "BBB" by S&P, Fitch,
or Duff & Phelps or "Baa" by Moody's have speculative characteristics.
Changes in economic conditions or other circumstances are more likely to
lead to weakened capacity to make principal and interest payments than
higher rated bonds. Downgrades will be evaluated on a case-by-case basis by
the investment adviser. The adviser will determine whether or not the
security continues to be an acceptable investment. If not, the security
will be sold when deemed appropriate by its adviser given the costs of such
a sale, including potential losses. A description of the rating categories
is contained in the Appendix to the Statement of Additional Information. A
credit rating is not a recommendation to buy, sell or hold securities and
is subject to change and/or withdrawal by the rating agency.
PARTICIPATION INTERESTS. The Fund may purchase participation interests
from financial institutions such as commercial banks, savings and loan
associations, and insurance companies. These participation interests give
the Fund a fractional undivided interest in Georgia Municipal Securities.
The financial institutions from which the Fund purchases participation
interests frequently provide or secure irrevocable letters of credit or
guarantees to assure that the participation interests are of high quality.
The Trustees will determine that participation interests meet the
prescribed quality standards for the Fund.
VARIABLE RATE MUNICIPAL SECURITIES. Some of the Georgia Municipal
Securities which the Fund purchases may have variable interest rates.
Variable interest rates are ordinarily stated as a percentage of the prime
rate of a bank or a similar standard, such as the 91-day U.S. Treasury bill
rate or established by a remarketing agent as the minimum rate that it
judges would be necessary on the securities prior to the next remarketing
date, having due regard for the prevailing financial markets in order to
sell such securities in a secondary market transaction. Many variable rate
municipal securities are subject to payment of principal on demand by the
Fund in not more than seven days. All variable rate municipal securities
will be selected consistent with the Fund's quality standards. The Fund's
investment adviser has been instructed by the Trustees to monitor
the pricing, quality, and liquidity of the variable rate municipal
securities, including participation interests held by the Fund, on the
basis of published financial information and reports of the rating agencies
and other analytical services.
MUNICIPAL LEASES. Municipal leases are obligations issued by state and
local governments or authorities to finance the acquisition of equipment
and facilities and some may be considered to be illiquid. They may take the
form of a lease, an installment purchase contract, a conditional sales
contract, or a certificate of participation in any of the above.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies, but which
are subject to restriction on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than seven
days after notice, to 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase securities
on a when-issued or delayed delivery basis. These transactions are arrangements
in which the Fund purchases securities with payment and delivery scheduled for a
future time. The seller's failure to complete the transaction may cause the Fund
to miss a price or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies, but will
not own more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of total assets in any one investment company, or
invest more than 10% of total assets in investment companies in the aggregate .
The Fund will invest in other investment companies primarily for the purpose of
investing short-term cash which has not yet been invested in other portfolio
instruments. It should be noted that investment companies incur certain
expenses, and therefore, any investment by the Fund in shares of another
investment company would be subject to certain duplicate expenses, particularly
transfer agent and custodian fees. The adviser will waive its investment
advisory fee on assets invested in securities of open-end investment companies.
TEMPORARY INVESTMENTS. From time to time, during periods of abnormal market
conditions, the Fund may invest in short-term tax-exempt or taxable temporary
investments. These temporary investments include: notes issued by or on behalf
of municipal or corporate issuers; obligations issued or guaranteed by the U.S.
government, its agencies or instrumentalities; other debt securities; commercial
paper; certificates of deposit of banks; securities of other investment
companies; and repurchase agreements (generally short-term arrangements in which
the Fund may buy securities subject to the seller's agreement to repurchase such
securities at a mutually agreed upon time and price such that the Fund earns
interest during the term of the agreement).
There are no rating requirements applicable to temporary investments. However,
the investment adviser will limit temporary investments to those within the
investment-grade categories described under "Acceptable
Investments--Characteristics" (if rated) or those which the investment adviser
judges to have similar characteristics as such investment-grade securities (if
unrated).
Although the Fund is permitted to make taxable, temporary investments, there is
no current intention of generating income subject to federal income tax or
personal income taxes imposed by the State of Georgia.
PORTFOLIO TURNOVER
Although the Fund does not intend to invest for the purpose of seeking
short-term profits, securities in the portfolio will be sold whenever the
Adviser believes it is appropriate to do so in light of the Fund's investment
objective, without regard to the length of time a particular security may have
been held. The Adviser does not anticipate that the Fund's annual portfolio
turnover rate will exceed 200% under normal market conditions. A high portfolio
turnover rate may lead to increased costs and may also result in higher taxes
paid by the Fund's shareholders.
GEORGIA MUNICIPAL SECURITIES
Georgia Municipal Securities are generally issued to finance public works, such
as airports, bridges, highways, housing, hospitals, mass transportation
projects, schools, streets, and water and sewer works. These are also issued to
repay outstanding obligations, to raise funds for general operating expenses,
and, under certain circumstances, to make loans for profit and non-profit public
and private entities.
The two principal classifications of municipal securities are "general
obligations" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith and credit and/or taxing power for the payment
of principal and interest. However, interest on and principal of revenue bonds
are payable only from the revenue generated by the facility financed by the bond
or other specified sources of revenue. Revenue bonds do not represent a pledge
of credit or create any debt of or charge against the general revenues of a
municipality or public authority.
A significant portion of revenue bonds issued by governmental units constitute
"private activity" bonds. Private activity bonds are issued by or on behalf of a
governmental unit, generally to finance the acquisition, construction and
equipping of facilities to be used, directly or indirectly, by private for-
profit and non-profit companies. These private activity bonds are generally
secured by a pledge of the revenues to be paid by such private companies under a
financing agreement (which usually takes the form of a lease, installment sale
or loan agreement) between a private company and a governmental unit, as well as
a security interest in the real and personal property acquired or constructed
with the proceeds of such bonds. Often the credit securing these types of
private activity bonds is enhanced through the issuance of a letter of credit or
guarantee by a credit-worthy financial institution. The credit ratings of these
so-called "credit enhanced" bond issues are based on the credit worthiness of
the financial institution issuing the credit enhancement and not the private
user of the facilities financed with the proceeds of such bonds or the
governmental unit issuing the bonds, which are not liable for the payment
thereof, other than through the assignment of revenues to be received by the
private user under the financing agreement.
INVESTMENT RISKS
Yields on Georgia Municipal Securities depend on a variety of factors,
including, but not limited to: the general conditions of the municipal bond
market; the size of the particular offering; the maturity of the obligations;
and the rating of the issue. Further, any adverse economic conditions or
developments affecting the State of Georgia or its municipalities, or companies
and financial institutions obligated under private activity bonds, could affect
the Fund's portfolio. The Fund's ability to achieve its investment objective
also depends on the continuing ability of the obligors of securities held by the
Fund to meet their obligations for the payment of interest and principal when
due. Investing in Georgia Municipal Securities which meet the Fund's quality
standards may not be possible if the State of Georgia and its municipalities do
not maintain their current credit ratings. In addition, certain Georgia
constitutional amendments, legislative measures, executive orders,
administrative regulations and voter initiatives could result in adverse
consequences affecting various Georgia Municipal Securities. A discussion of the
current economic risks associated with the purchase of Georgia Municipal
Securities is contained in the Statement of Additional Information.
NON-DIVERSIFICATION
The Fund is a non-diversified investment portfolio. As such, there is no limit
on the percentage of assets which can be invested in any single issuer. An
investment in the Fund, therefore, will entail greater risks and fluctuation in
market value of the Fund's portfolio than investments in a diversified portfolio
of securities. Any economic, political, or regulatory developments affecting the
value of the securities in the Fund's portfolio will have a greater effect on
the total value of the portfolio than would be the case if the portfolio were
diversified among more issuers. However, the Fund intends to comply with
Subchapter M of the Internal Revenue Code. This undertaking requires that at the
end of each quarter of the taxable year: (a) with regard to at least 50% of the
Fund's total assets, no more than 5% of its total assets are invested in the
securities of a single issuer and (b) no more than 25% of its total assets are
invested in the securities of a single issuer.
CERTAIN BORROWING AND INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to 33 1/3% of the value of its total assets and secure such
borrowings with up to 15% of the value of those assets at the time of
borrowing.
The above limitation cannot be changed without shareholder approval. The
following limitation however, can be changed by the Trustees without shareholder
approval. Shareholders will be notified before any material change in this
limitation becomes effective.
invest more than 5% of its total assets in industrial development bonds
where the payment of principal and interest is the responsibility of
companies (including guarantors where applicable) with less than three
years of continuous operations, including the operation of any
predecessor.
BANKSOUTH SELECT FUNDS INFORMATION
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MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the "Board" or
"Trustees"). The Board is responsible for managing the Trust's business affairs
and for exercising all the Trust's powers except those reserved for the
shareholders. The Executive Committee of the Board handles various of the
Board's delegable responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by the Bank as
the Fund's investment adviser (the "Adviser"), subject to direction by the
Board. The Adviser conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund's assets. From time to time, to the extent
consistent with the investment objective, policies and restrictions of the Fund,
the Fund may invest in securities of issuers with which the Adviser has a
lending relationship. However, at this time, the Adviser has no intention to
invest in securities of issuers that have a lending relationship with the
investment Adviser or its affiliates.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets. The fee paid by the
Fund, while higher than the advisory fee paid by certain other mutual
funds, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser has undertaken to reimburse the Fund,
up to the amount of the advisory fee, for operating expenses in excess of
limitations established by certain states. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. The Adviser, a national bank headquartered in
Atlanta, Georgia, is a wholly owned subsidiary of Bank South Corporation, a
Georgia corporation which is a registered bank holding company. The Adviser
serves consumers through its network of banking offices with a full range
of deposit and lending products, as well as investment services. The
principal executive offices of the Adviser are located at 55 Marietta
Street N.W., Atlanta, GA 30303.
The Adviser has managed discretionary assets for its consumers since 1931.
As of September 30, 1993 , the Adviser managed in excess of $1 billion of
discretionary assets. Prior to the date hereof, the Adviser has not served
as an investment adviser to mutual funds.
PORTFOLIO MANAGER. Mr. J.M. Johnston, Jr. is primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Johnston began at the
Adviser in September of 1992. Mr. Johnston directs the investment
management of the employee benefit plans, fixed income fund, and personal
trusts. He is also responsible for securities analysis for various
industries.
Mr. Johnston began his investment career in 1981. Prior to his affiliation
with the Bank, he spent six years with The Citizens & Southern National
Bank, Atlanta, Georgia as a portfolio manager.
Mr. Johnston holds a Bachelor of Science degree from the University of
Alabama and a Master of Business Administration in Finance from Georgia
State University. He is a member of the Atlanta Society of Financial
Analysts.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies. The
Distributor is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan (the "Plan") adopted in accordance
with Securities and Exchange Commission ("SEC") Rule 12b-1 under the Investment
Company Act of 1940, as amended, the Fund will pay an amount computed at an
annual rate of up to 0.75% of the average daily net asset value of the shares to
finance any activity which is principally intended to result in the sale of
shares subject to the Plan. Certain trust clients of the Bank, including ERISA
plans, will not be affected by the Plan because the Plan will not be activated
unless and until a second, "Trust" class of shares of the Fund (which would not
have a Rule 12b-1 plan) is created and such trust clients' investments in the
Fund are converted to such Trust class.
The Distributor may select other financial institutions (such as broker-dealers
or banks) to provide sales support services as agents for their clients or
customers who beneficially own shares. These financial institutions (including
the Bank) will receive fees from the Distributor based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund pays the
Distributor the fee described above as opposed to reimbursing the Distributor
for actual expenses incurred. Therefore, the Fund does not pay for amounts
expended by the Distributor in excess of amounts received by it from the Fund,
which may include interest, carrying or other financing charges in connection
with excess amounts expended, or the Distributor's overhead expenses. However,
the Distributor may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
State securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to certain states' securities laws.
ADMINISTRATIVE ARRANGEMENTS. The Distributor may also pay administrators a fee
based upon the average net asset value of shares of their customers invested in
the Trust for providing administrative services. This fee, if paid, will be
reimbursed by the Adviser and not the Trust.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides certain
administrative personnel and services necessary to operate the Fund. Such
services include certain legal and accounting services. Federated Administrative
Services provides these at the annual rates specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$100,000 per Fund. Federated Administrative Services may voluntarily choose to
waive a portion of its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to the shares. Under the Services Plan,
financial institutions will enter into shareholder service agreements with the
Fund to provide administrative support services to their customers who from time
to time may be owners of record or beneficial owners of the shares. In return
for providing these support services, a financial institution may receive
payments from the Fund at a rate not exceeding 0.25% of the average daily net
assets of the shares benefically owned by the financial institution's customers
for whom it is holder of record or with whom it has a servicing relationship.
These administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Fund reasonably requests.
Certain trust clients of the Bank, including ERISA plans, will not be affected
by the Services Plan because the Services Plan will not be activated unless and
until a second, "Trust" class of shares of the Fund (which would not have a
Services Plan) is created and such trust clients' investments in the Fund are
converted to such Trust class.
CUSTODIAN. The Bank of New York, New York, New York is custodian for the
securities and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent (the "Transfer Agent") for the shares of and
dividend disbursing agent for the Fund. It also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. The expenses borne by the Fund include, but are not limited to, the
cost of: organizing the Trust and continuing its existence; Trustees' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Trust, the Fund, and shares of
the Fund with federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Shares of the Fund may be
purchased through the Bank. In connection with the sale of Fund shares, the
Distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
BY TELEPHONE. To place an order to purchase Fund shares, call the Bank South
Mutual Funds Center toll free at 1-800-282-6680 extension 4550. Texas residents
must purchase shares of the Fund through Bank South Securities Corporation at
404-521-7063. Your purchase order will be taken directly over the telephone. The
order must be placed by 4:00 p.m. (Eastern time) for shares to be purchased at
that day's price.
BY MAIL. Provide a letter of instruction to the Fund indicating your purchase
order, including the dollar amount of your order, your account title and/or
name, and your account number, and include a check made payable to the Fund.
PAYMENT BY CHECK. Mail to BankSouth Select Georgia Tax-Free Income Fund, c/o
Bank South Mutual Funds Center, MC 16, P.O. Box 4387, Atlanta, Georgia 30302.
PAYMENT BY WIRE. To purchase shares by Federal Wire, contact your account
officer for wiring instructions. Wire orders will only be accepted on days on
which the Fund, the Bank and the Federal Reserve Banks are open for business.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000. Subsequent
investments must be in amounts of at least $100. The Fund may choose to waive
its minimum investment requirements from time to time and for accounts which
select the Systematic Investment Program.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in minimum amounts of $100, unless waived. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking or other transaction deposit account and invested in Fund shares at the
net asset value next determined after an order is received by the Bank, plus an
applicable sales charge. A shareholder may apply for participation in this
program through the Bank.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
<S> <C> <C>
Less than $100,000 2.50% 2.56%
$100,000 but less than $250,000 2.00% 2.04%
$250,000 but less than $500,000 1.50% 1.52%
$500,000 but less than $750,000 1.00% 1.01%
$750,000 but less than $1,000,000 0.50% 0.50%
$1,000,000 and more 0.00% 0.00%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which changes (if any) in the value of the Fund's
portfolio securities do not materially affect its net asset value; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; and (iii) the following holidays: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales charge, by certain trust customers of the Bank and
employees of the Bank and its affiliates and their spouses and children under
21.
SALES CHARGE REALLOWANCE. The Bank and any authorized dealer or bank will
normally receive up to 85% of the applicable sales charge as a transaction fee
from its customers, and for sales and/or administrative services performed on
behalf of its customers in connection with the initiation of customer accounts
and purchases of Fund shares. Any portion of the sales charge which is not paid
to the Bank or a dealer or other bank will be retained by the Distributor.
However, the Distributor, in its sole discretion, may uniformly offer to permit
all dealers and other institutions selling shares of the Fund, to receive all or
a portion of the amount the Distributor normally retains as a sales charge. If
accepted by the dealer, such additional payments may be in the form of cash or
other promotional incentives, and will be predicated upon the amount of shares
of the Fund or other BankSouth Select Funds sold by the dealer or other
institutions.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares of the Fund through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
previous page, larger purchases reduce the sales charge paid. The Fund will
combine purchases of shares made on the same day by the investor, his spouse,
and his children under age 21 when it calculates the sales charge.
If an additional purchase of shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
shares having a current value at the public offering price of $90,000 and
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 2.00%,
not 2.50%.
To receive the sales charge reduction, the Bank must be notified by the
shareholder in writing at the time the purchase is made that shares are already
owned or that purchases are being combined. The Fund will reduce the sales
charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Fund over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
up to 2.50% of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge. The
Bank must be notified by the shareholder in writing or by the shareholder's
financial institution of the reinvestment in order to eliminate a sales charge.
If the shareholder redeems his shares in the Fund, there may be tax
consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sale charge reduction, a
shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in one of the other
funds in the Trust with a sales charge and $70,000 in this Fund, the sales
charge would be reduced.
To receive this sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the Bank at the time the concurrent purchases are
made. The Fund will reduce the sales charge after it confirms the purchases. See
"What Shares Cost" and "Addresses".
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder of record.
Share certificates are not issued, unless requested in writing from the Fund or
the Transfer Agent.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends are sent to each shareholder.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly to all shareholders invested in
the Fund on the record date.
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months. Dividends and capital gains will be reinvested in additional
shares on payment dates at the ex-dividend date's net asset value without a
sales charge, unless a shareholder makes a written request for cash payments to
the Fund or the Bank.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values its assets. Investors wishing to use securities to purchase
Fund shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
BANKSOUTH SELECT FUNDS
All shareholders of the Fund are Shareholders of BankSouth Select Funds.
BankSouth Select Funds currently include the Fund, BankSouth Select Bond Fund,
BankSouth Select Equity Fund, BankSouth Select Prime Money Market Fund, and
BankSouth Select Government Money Market Fund. Shareholders have easy access to
each of the portfolios of BankSouth Select Funds through a telephone exchange
program. All BankSouth Select Funds are advised by the Bank and distributed by
the Distributor.
Shareholders may exchange shares of the Fund for shares of the other BankSouth
Select Funds. In addition, shares of the Fund may also be exchanged for certain
other funds designated by the Bank which are distributed by the Distributor, but
that are not advised by the Bank ("Federated Funds"). For further information on
the availability of Federated Funds for exchanges, please call the Bank South
Mutual Funds Center at 1-800-282-6680 extension 4550. Shares of funds with a
sales charge may be exchanged at net asset value for shares of other funds with
an equal sales charge or no sales charge. Shares of funds with a sales charge
may be exchanged for shares of funds with a higher sales charge at net asset
value, plus the additional sales charge. Shares of funds with no sales charge,
whether acquired by direct purchase, reinvestment of dividends on such shares,
or otherwise, may be exchanged for shares of funds with a sales charge at net
asset value, plus the applicable sales charge.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends or capital gains on such shares retain the character of
the exchanged shares for purposes of exercising further exchange privileges;
thus, an exchange of such shares for shares of a fund with a sales charge would
be at net asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the fund into which an exchange is
to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value for the
applicable fund. Written exchange instructions may require a signature
guarantee. Exercise of this privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short or long-term capital
gain or loss may be realized.
The Fund reserves the right to terminate the exchange privilege at any time on
60 days notice. Shareholders will be notified if this privilege is terminated. A
shareholder may obtain further information on the exchange privilege by calling
the Bank at 1-800-282-6680 extension 4550.
BY TELEPHONE. Instructions for exchanges between funds which are part of the
Trust may be given by telephone to the Bank South Mutual Funds Center at
1-800-282-6680 extension 4550, or to the Distributor. Shares may be exchanged by
telephone only between fund accounts having identical shareholder registrations.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the Fund's Transfer Agent by the Bank and deposited to the
shareholder's mutual fund account before being exchanged. See "Addresses".
An authorization form permitting the Fund to accept telephone exchanges must
first be completed. It is recommended that investors request this privilege at
the time of their initial application. If not completed at the time of initial
application, authorization forms and information regarding this service are
available from the Bank. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time.
Shareholders will be notified of such modification or termination. Shareholders
may have difficulty in making exchanges by telephone through the Bank during
times of drastic economic or market changes. If a shareholder cannot contact the
Bank by telephone, it is recommended that an exchange request be made in writing
and sent by overnight mail to BankSouth Select Funds, 55 Marietta Street, N.W.,
Atlanta, Georgia 30303.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form and can be made through the Bank or directly to
the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by contacting his
account officer or by calling the Bank South Mutual Funds Center to request the
redemption. Call 1-800-282-6680 extension 4550. Shares will be redeemed at the
net asset value next determined after the Fund receives the redemption request
from the Bank. Redemption requests must be received by the Bank before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value
and the Bank will promptly submit such redemption requests and provide written
redemption instructions to the Fund. If, at any time, the Fund should determine
it necessary to terminate or modify this method of redemption, shareholders
would be promptly notified.
An authorization form permitting the Fund to accept telephonic redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service are
available from the Bank. Telephone redemption instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
A shareholder may have the redemption proceeds directly deposited by electronic
funds transfer or wired directly to a domestic commercial bank previously
designated by the shareholder. Wire redemption orders will only be accepted on
days on which the Fund, the Bank and the Federal Reserve Wire System are open
for business. Wire-transferred redemptions may be subject to an additional fee.
In the event of extraordinary economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur, it
is recommended that a redemption request be made in writing and be hand
delivered or sent by overnight mail to your account officer at the Bank.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Bank. The written request should include the shareholder's name, the Fund name,
the account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request to the Bank.
Shareholders should call the Bank for assistance in redeeming shares by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption requesting payment to an address other than that on record with the
Fund, or other than to the shareholder of record must make written redemption
requests with signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the
FDIC's BIF;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are insured
by the FDIC's SAIF; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its Transfer Agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed to the
shareholder within one business day, but in no event more than seven calendar
days, after receipt of a proper written redemption request, provided that the
Transfer Agent has received payment for shares from the shareholder.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or through an Automated Clearing House
("ACH"), the proceeds from the redemption of those shares are not available, and
the shares may not be exchanged, until the Bank is reasonably certain that the
check or clearing house funds have cleared, which could take up to 10 calendar
days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments and the
amount of dividends paid with respect to Fund shares, redemptions may reduce,
and eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. To be eligible to participate in
this program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through the Bank.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum of
$1,000.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund entitles shareholders to one vote in Trustee elections
and other matters submitted to shareholders of the Trust for vote. All shares of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular Fund, only shareholders of that Fund are entitled to
vote. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances.
Any Trustee may be removed by the Board of Trustees or by the shareholders at a
special meeting. A special meeting of the shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders of the Fund for such acts
or obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to indemnify, protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder for
any act or obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from assets
of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956, as amended or any
affiliate thereof from sponsoring, organizing, controlling, or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from underwriting or
distributing securities. However, such banking laws and regulations do not
prohibit such a holding company affiliate or banks generally from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from acting as agent for their customers in purchasing securities. The Fund's
Adviser is subject to such banking laws and regulations.
The Bank believes, based on the advice of its counsel, that it may perform the
services for the Fund contemplated by its advisory agreement with the Trust
without violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their affiliates, as well as
further judicial or administrative decisions or interpretations of present or
future statutes and regulations, could prevent the Bank from continuing to
perform all or a part of the above services for its customers and/or the Fund.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of the Fund may
occur, including possible termination of any automatic or other Fund share
investment and redemption services then being provided by the Bank. It is not
expected that existing shareholders would suffer any adverse financial
consequences as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund expects to pay no federal income tax because it intends to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Shareholders are not required to include any dividends received from the Fund
that represent net interest on tax-exempt municipal bonds in gross income for
federal income tax purposes. However, under the Tax Reform Act of 1986,
dividends representing net interest income earned on some municipal bonds are
included in calculating the federal individual alternative minimum tax or the
federal alternative minimum tax for corporations.
The alternative minimum tax, equal to up to 28% of alternative minimum taxable
income for individuals and 20% for corporations, applies when it exceeds the
regular tax for the taxable year. Alternative minimum taxable income is equal to
the regular taxable income for the taxpayer increased by certain "tax
preference" items not included in regular taxable income and reduced by only a
portion of the deductions allowed in the calculation of the regular income tax.
The Tax Reform Act of 1986 treats interest on certain "private activity" bonds
issued after August 7, 1986, as a tax-preference item for both individuals and
corporations. Unlike traditional government purpose municipal bonds, which
finance roads, schools, libraries, prisons, and other public facilities, private
activity bonds provide benefits to private parties. The Fund may purchase all
types of municipal bonds, including private activity bonds. Thus, while the Fund
has no present intention of purchasing any private activity bonds that would be
treated as tax preference items, should it purchase any such bonds, a portion of
the Fund's dividends may be treated as a tax-preference item.
In addition, in the case of a corporate shareholder, dividends of the Fund which
represent interest on municipal bonds will become subject to the 20% corporate
alternative minimum tax because the dividends are included in a corporation's
"adjusted current earnings." The corporate alternative minimum tax treats 75% of
the excess of a taxpayer's pre-tax "adjusted current earnings" over the
taxpayer's alternative minimum taxable income as a tax-preference item.
"Adjusted current earnings" are based upon the concept of a corporation's
"earnings and profits." Since "earnings and profits" generally includes the full
amount of any Fund dividend, and alternative minimum taxable income does not
include the portion of the Fund's dividend attributable to municipal bonds which
are not private activity bonds, the difference will be included in the
calculation of the corporation's alternative minimum tax.
Dividends of the Fund representing net interest income earned on some temporary
investments and any realized net short-term gains are taxed as ordinary income.
These tax consequences apply whether dividends are received in cash or as
additional shares. Information on the tax status of dividends and distributions
is provided annually.
STATE OF GEORGIA INCOME AND INTANGIBLES TAXES
Under existing Georgia law, shareholders of the Fund will not be subject to
Georgia income taxes on distributions from the Fund to the extent that such
distributions represent either (1) "exempt-interest dividends" for federal
income tax purposes that are attributable to interest-bearing obligations issued
by or on behalf of the State of Georgia or its political subdivisions or (2)
dividends derived from interest on obligations of the United States or of any
other issuer whose obligations are exempt from state income taxes under federal
law. Distributions, if any, derived from capital gains or other sources
generally will be taxable for Georgia income tax purposes to shareholders of the
Fund who are subject to the Georgia income tax. The Fund, as a Massachusetts
business trust, is not expected to be required to pay the annual Georgia
intangible property tax on the securities it holds. It is, however, the current
practice of the Georgia Department of Revenue to subject trust interests similar
to the shares to the intangibles tax at a rate equal to 10 cents per $1,000 of
value if the owners of such interests reside or have their prinicipal business
location in Georgia. The Department of Revenue is currently considering whether
the taxable value of trust interests representing beneficial interests in
tax-exempt securities may be reduced to take into account the exempt nature of
such securities. Georgia law exempts the following securities from the
intangibles tax: (1) obligations of the United States (including United States
government agencies and corporations established by Acts of Congress), (2)
obligations of the State of Georgia (including its political subdivisions or
public institutions), and (3) industrial development revenue bonds issued
pursuant to the laws of Georgia.
OTHER STATE AND LOCAL TAXES
Dividends payable with respect to the shares of the Fund may or may not be
subject to state or local state income taxation in jurisdictions other than
Georgia under applicable state or local laws. Similarly, shares in the Fund may
or may not be subject to an intangible personal property tax in states other
than Georgia. Each purchaser of the shares of the Fund is urged to consult his
or her own tax adviser regarding the tax-exempt status of the Fund shares and
dividends in state or local jurisdictions other than the State of Georgia.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its total return, yield and
tax-equivalent yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated each day by dividing the net investment
income per share (as defined by the Securities and Exchange Commission) earned
by the Fund over a thirty-day period by the maximum offering price per share of
the Fund on the last day of the period. This number is then annualized using
semi-annual compounding. The tax-equivalent yield of the Fund is calculated
similarly to the yield, but is adjusted to reflect the taxable yield that the
Fund would have had to earn to equal the actual after tax yield, assuming a
specific tax rate. The yield and the tax-equivalent yield do not necessarily
reflect income actually earned by the Fund and, therefore, may not correlate to
the dividends or other distributions paid to shareholders.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BankSouth Select Georgia Tax-Free Federated Investors Tower
Income Fund Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Bank South, N.A. MC 16
P.O. Box 4387
Atlanta, Georgia 30302
- ---------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York 48 Wall Street
New York, New York 10286
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BANKSOUTH SELECT GEORGIA
TAX-FREE INCOME FUND
PROSPECTUS
A Non-Diversified Portfolio of
BankSouth Select Funds, an Open-End
Management Investment Company
(a Mutual Fund)
Prospectus dated January 7, 1994
Logo Bank South, N.A.
Investment Adviser
55 MARIETTA STREET, N.W.
ATLANTA, GA 30303
Logo FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3100503A (1/94)
BANKSOUTH SELECT GEORGIA TAX-FREE INCOME FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of BankSouth Select Georgia Tax-Free Income Fund (the
"Fund") dated January 7, 1994. This Statement is not a prospectus
itself. To receive a copy of the prospectus, call the Bank South N.A.
(the "Bank") Mutual Funds Center at 1-800-282-6680 extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE
NOT ISSUED, ENDORSED OR GUARANTEED BY THE BANK OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT ISSUED, INSURED, OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE BANK IS INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED BY
FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE BANK.
Statement dated January 7, 1994
FEDERATED SECURITIES CORP.
--------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TABLE OF CONTENTS
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GENERAL INFORMATION ABOUT THE FUND 1
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INVESTMENT OBJECTIVE AND POLICIES 1
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Types of Investments 1
Types of Acceptable Investments 1
Participation Interests 1
Variable Rate Municipal Securities 1
Municipal Leases 1
When-Issued and Delayed
Delivery Transactions 2
Temporary Investments 2
Reverse Repurchase Agreements 2
Investment Limitations 3
Georgia Investment Risks 4
BANKSOUTH SELECT FUNDS MANAGEMENT 5
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Officers and Trustees 5
The Funds 7
Fund Ownership 7
Trustee Liability 7
INVESTMENT ADVISORY SERVICES 7
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Adviser to the Fund 7
Advisory Fees 7
ADMINISTRATIVE SERVICES 8
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BROKERAGE TRANSACTIONS 8
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PURCHASING SHARES 8
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Administrative Arrangements 8
Distribution Plan 8
Purchasing Fund Shares with Securities 9
DETERMINING NET ASSET VALUE 9
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Valuing Municipal Bonds 9
EXCHANGE PRIVILEGE 9
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REDEEMING SHARES 9
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Redemption in Kind 9
TAX STATUS 9
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The Fund's Tax Status 9
Shareholders' Tax Status 10
TOTAL RETURN 10
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YIELD 10
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TAX EQUIVALENT YIELD 10
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Tax-Equivalency Table 10
PERFORMANCE COMPARISONS 11
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APPENDIX 13
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GENERAL INFORMATION ABOUT THE FUND
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BankSouth Select Georgia Tax-Free Fund (the "Fund") is a portfolio in BankSouth
Select Funds (the "Trust"), which was established as a Massachusetts business
trust under a Declaration of Trust dated September 22, 1993, as amended and
restated dated December 20, 1993.
INVESTMENT OBJECTIVE AND POLICIES
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The Fund's investment objective is to provide current income exempt from federal
income tax and the personal income taxes imposed by the state of Georgia. The
investment objective cannot be changed without shareholder approval.
TYPES OF INVESTMENTS
The Fund invests primarily in a portfolio of municipal securities which are
exempt from federal income tax and the personal income taxes imposed by the
State of Georgia. The municipal securities in which the Fund invests include
those issued by or on behalf of the State of Georgia and its political
subdivisions, authorities and agencies and securities issued by other states,
territories, and possessions of the United States which are exempt from the
federal income tax and the personal income taxes imposed by the State of Georgia
("Georgia Municipal Securities").
CHARACTERISTICS
The Georgia Municipal Securities in which the Fund invests have the
characteristics set forth in the prospectus. If ratings made by Moody's
Investors Service, Inc. ("Moody's"), Standard and Poor's Corporation
("S&P"), Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Fitch
Investors Service, Inc. ("Fitch"), change because of changes in those
organizations or in their rating systems, the Fund will try to use
comparable ratings as standards in accordance with the investment
policies described in the Fund's prospectus.
TYPES OF ACCEPTABLE INVESTMENTS
Examples of Georgia Municipal Securities include:
general obligation bonds;
governmental lease certificates of participation issued by governmental units
where payment is secured by installment payments for equipment, buildings, or
other facilities being leased by the state or municipality (Government lease
certificates purchased by the Fund will not contain nonappropriation clauses.);
municipal notes and tax-exempt commercial paper;
serial bonds;
tax anticipation notes sold to finance working capital needs of municipalities
in anticipation of receiving taxes;
bond anticipation notes sold in anticipation of the issuance of long-term bonds;
pre-refunded municipal bonds whose timely payment of interest and principal is
ensured by an escrow of U.S. government obligations; and
private activity and industrial development bonds issued to finance facilities
for use, directly and indirectly, by private for-profit and non-profit
companies.
PARTICIPATION INTERESTS
The financial institutions from which the Fund purchases participation interests
frequently provide or secure from another financial institution irrevocable
letters of credit or guarantees and give the Fund the right to demand payment of
the principal amounts of the participation interests plus accrued interest on
short notice (usually within seven days).
VARIABLE RATE MUNICIPAL SECURITIES
Variable interest rates generally reduce changes in the market value of
municipal securities from their original purchase prices. Accordingly, as
interest rates decrease or increase, the potential for capital appreciation or
depreciation is less for variable rate municipal securities than for fixed
income obligations. Many of the securities with variable interest rates
purchased by the Fund will be subject to repayment of principal (usually within
seven days) on the Fund's demand. The terms of these variable rate demand
instruments require payment of principal and accrued interest from the issuer of
the municipal obligations, the issuer of the participation interests, or a
guarantor of either issuer.
MUNICIPAL LEASES
The Fund may purchase securities in the form of participation interests which
represent undivided fractional interests in lease payments by a governmental or
non-profit entity. The lease payments and other rights under the lease provide
for and secure the payments on the certificates. Lease obligations may be
limited by municipal charter or the nature of the appropriation for the lease.
In particular, lease obligations may be subject to periodic appropriation. If
the entity does not appropriate funds for future lease payments, the entity
cannot be compelled to make such payments. Furthermore, a lease may provide
that the certificate trustee cannot accelerate lease obligations upon default.
The trustee would only be able to enforce lease payments as they became due. In
the event of a default or failure of appropriation, it is unlikely that the
trustee would be able to obtain an acceptable substitute source of payment.
In determining the liquidity of municipal lease obligations, the Fund's
investment adviser, under the authority delegated by the Trustees, will base its
determination on the following factors:
whether the lease can be terminated by the lessee;
the potential recovery, if any, from a sale of the leased property upon
termination of the lease;
the lessee's general credit strength (e.g., its debt, administrative, economic,
and financial characteristics and prospects);
the likelihood that the lessee will discontinue appropriating funding for the
leased property because the property is no longer deemed essential to its
operations (e.g., the potential for an "event of non-appropriation"); and
any credit enhancement or legal recourse provided upon an event of
non-appropriation or other termination of the lease.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with the Fund's investment objective and
policies, not for investment leverage. These transactions are made to secure
what is considered to be an advantageous price and yield for the Fund.
Settlement dates may be a month or more after entering into these transactions,
and the market values of the securities purchased may vary from the purchase
prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled.
The Fund will limit its obligations to purchase securities on a when-issued or
delayed delivery basis to no more than 20% of the value of its total assets at
any time.
TEMPORARY INVESTMENTS
The Fund may also invest in temporary investments during times of unusual market
conditions for defensive purposes.
REPURCHASE AGREEMENTS
Repurchase agreements are arrangements in which banks, securities
broker-dealers, and other financial institutions sell U.S. government and
agency securities to the Fund and agree at the time of sale to repurchase
them at a mutually agreed upon time and price including interest within
one year from the date of acquisition. As collateral for the obligation
of the seller to repurchase the securities from the Fund, the Fund or its
custodian will take possession of the securities subject to repurchase
agreements. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the
repurchase price on any sale of such securities. In the event that such a
defaulting seller filed for bankruptcy or became insolvent, disposition
of such securities by the Fund might be delayed pending court action. The
Fund believes that under the regular procedures normally in effect for
custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the
Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other financial
institutions, such as securities broker-dealers, which are found by the
Fund's investment adviser to be creditworthy pursuant to guidelines
established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash and pledging securities as collateral. In a
reverse repurchase agreement, the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution or broker-dealer,
in return for a percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as may be necessary for
the clearance of purchases and sales of portfolio securities.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
33 1/3% of the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to, for example, meet redemption requests when the liquidation
of portfolio securities is deemed to be inconvenient or disadvantageous.
The Fund will not purchase any securities while borrowings in excess of
5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets, except to
secure permitted borrowings. In those cases, it may mortgage, pledge, or
hypothecate assets having a market value not exceeding 15% of the value
of the Fund's total assets at the time of the borrowing.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities in accordance with its investment
objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not invest in real estate, including limited partnership
interests, although it may invest in municipal bonds secured by real
estate or interests in real estate.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except that it may acquire
publicly or non-publicly issued municipal bonds or temporary investments
or enter into repurchase agreements in accordance with its investment
objective, policies, and limitations or the Trust's Declaration of Trust.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry or in private activity bonds or other securities, the interest
upon which is paid from revenues of similar types of projects. However,
the Fund may invest as temporary investments more than 25% of the value
of its assets in cash or cash items, securities issued or guaranteed by
the U.S. government, its agencies or instrumentalities, or instruments
secured by these money market instruments, such as repurchase agreements.
(For purposes of this limitation, the Fund considers certificates of
deposits and demand and time deposits issued by a U.S. branch of a
domestic bank, savings and loan association or savings bank having
capital, surplus, and undivided profits in excess of $100,000,000 at the
time of investment to be "cash items.")
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in, the following limitations becomes effective.
INVESTING IN RESTRICTED SECURITIES
The Fund will not invest more than 10% of the value of its total assets
in securities subject to restrictions on resale under the Securities Act
of 1933, except for certain restricted securities which meet the criteria
for liquidity as established by the Trustees.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
securities, including repurchase agreements providing for settlement in
more than seven calendar days after notice, non-negotiable fixed time
deposits with maturities over seven days, and certain municipal leases
and restricted securities not determined by the Trustees to be liquid.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser
owning individually more than 0.50% of the issuer's securities together
own more than 5% of the issuer's securities.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
private activity bonds where the principal and interest are the
responsibility of companies (including guarantors, where applicable) with
less than three years of continuous operations, including the operation
of any predecessor.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, will not invest more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in the aggregate. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may invest in
securities of issuers which invest in or sponsor such programs.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets in the coming fiscal year.
GEORGIA INVESTMENT RISKS
Georgia's economy is based on manufacturing (textiles, food products, paper
products, electronic equipment and aircraft), trade and a growing service
sector. Atlanta, with a service-oriented economy, is a trade, service and
transportation center for the Southeast region and is the focus of economic
growth in the State. In most other cities in Georgia, manufacturing
predominates. The State economy was only mildly affected by the early 1980's
recession and grew rapidly for most of the decade, with employment and personal
income growth in excess of comparable national rates. Despite continued
population growth, personal income per capita has steadily gained relative to
the nation. The economy began to slow in 1989, with less vigorous job growth
evident and relative per capita income position slipping.
Throughout the 1980's the State's expanding economy fostered strong income and
sales tax growth. This enabled the State to record fairly strong fiscal
operations from fiscal years 1984-1989. Financial operations have suffered since
fiscal year 1990, recording operating deficits in each of the fiscal years
1990-1992. Revenue projections were overly optimistic in fiscal year 1992 and
although the State reduced general fund expenditures, a minor operating deficit
was experienced.
The 1993 budget assumes a 6.9% increase in revenue from existing levels;
however, no surpluses or reserves from 1992 remain to carry over into fiscal
year 1993. If economic recovery is delayed or weakened, revenue shortfalls could
persist.
Except for the major building projects necessary for the 1996 Summer Olympics,
it appears unlikely that areas in and around metropolitan Atlanta will
experience the building construction rates of the mid to late 1980's.
BANKSOUTH SELECT FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Bank South, Federated
Investors, Federated Securities Corp., Federated Services Company, Federated
Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee or Managing
Associates, Inc., Realtors General Partner of the Funds; formerly, President, Naples Property
3255 Tamiami Trail North Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc.;
One PNC Plaza-23rd Floor Director, Trustee, or Managing General Partner of the Funds; formerly,
Pittsburgh, PA Vice Chairman and Director, PNC Bank, N.A., and PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower Treasurer President and Treasurer, Federated Advisers, Federated Management and
Pittsburgh, PA and Trustee Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer
of the Funds.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation, and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace and RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
Charles L. Davis, Jr. Vice President Vice President, Federated Administrative Services; Vice President and
Federated Investors Tower and Assistant Assistant Treasurer of some of the Funds; formerly, Vice President and
Pittsburgh, PA Treasurer Director of Investor Relations, MNC Financial, Inc. and Vice President,
Product Management, MNC
Financial, Inc.
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; Trustee, Federated
Pittsburgh, PA Services Company; President and Director, Federated Administrative
Services; President or Vice President of the Funds; Director, Trustee,
or Managing General Partner of some of the Funds. Mr. Donahue is the son
of John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
John W. McGonigle Vice President and Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
\ Members of the Board of Trustees' Executive Committee. The Executive Committee
handles the delegable responsibilities of the Board of Trustees between
meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Intermediate Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust,
Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management; Money Market
Obligations; Money Market Trust; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet
Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for
U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
BankSouth Select Funds' Declaration of Trust provides that the Trustees are not
liable for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE FUND
The Fund's investment adviser is the Bank (the "Adviser"). The Adviser shall not
be liable to the Trust, the Fund, or any shareholder of the Fund for any losses
that may be sustained in the purchase, holding, or sale of any security or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes and extraordinary expenses) exceed
2.50% per year of the first $30 million of average net assets, 2.00% per
year of the next $70 million of average net assets, and 1.50% per year of
the remaining average net assets, the Adviser will reimburse the Fund for
its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. John A. Staley, IV, an officer of the Fund, holds approximately 15%
of the outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser and other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
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Shares are sold at their offering price on days on which the New York Stock
Exchange and Federal Reserve Wire System are open for business. The procedure
for purchasing shares of the Fund is explained in the prospectus under
"Investing in the Fund."
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission ("SEC") pursuant
to the Investment Company Act of 1940, as amended (the "Act"). The Plan provides
for payment of fees to the Distributor to finance any activity which is
principally intended to result in the sale of the Fund's shares subject to the
Plan. Such activities may include the advertising and marketing of shares of the
Fund; preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the Distributor may pay fees to
brokers and others for such services.
The Trustees expect that the adoption of the Plan will assist the Fund in
selling a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and thereby assist the
Fund in seeking to achieve its investment objective.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values it assets. Investors wishing to use securities to purchase
Fund Shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
Net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.
VALUING MUNICIPAL BONDS
The Board of Trustees uses an independent pricing service to value municipal
bonds. The independent pricing service takes into consideration yield,
stability, risk, quality, coupon rate, maturity, type of issue, trading
characteristics, special circumstances of a security or trading market, and any
other factors or market data it considers relevant in determining valuations for
normal institutional size trading units of debt securities, and does not rely
exclusively on quoted prices.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders of the Fund may exchange shares of the Fund for shares of other
funds advised by the Bank and certain other funds designated by the Bank and
distributed by the Distributor, subject to certain conditions. Exchange
procedures are explained in the Prospectus under "Exchange Privilege."
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
Prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by SEC Rule 18f-1 under the Investment
Company Act of 1940 under which each fund is obligated to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the Fund's
net asset value during any 90-day period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
No portion of any income dividend paid by the Fund is eligible for the dividends
received deduction available to corporations.
CAPITAL GAINS
Capital gains or losses may be realized by the Fund on the sale of
portfolio securities and as a result of discounts from par value on
securities held to maturity. Sales would generally be made because of:
the availability of higher relative yields;
differentials in market values;
new investment opportunities;
changes in creditworthiness of an issuer; or
an attempt to preserve gains or limit losses.
Distribution of long-term capital gains are taxed as such, whether they
are taken in cash or reinvested, and regardless of the length of time the
shareholder has owned the shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is calculated by dividing the net investment income per
share (as defined by the SEC) earned by the Fund over a 30 day period by the
maximum offering price per share of the Fund on the last day of the period. This
value is then annualized using semi-annual compounding. This means that the
amount of income generated during the 30 day period is assumed to be generated
each month over a twelve-month period and is reinvested every six months. The
yield does not necessarily reflect income actually earned by the Fund because of
certain adjustments required by the Securities and Exchange Commission and,
therefore, may not correlate to the dividends or other distributions paid to
shareholders.
To the extent that financial institutions and broker-dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
TAX-EQUIVALENT YIELD
- --------------------------------------------------------------------------------
The tax-equivalent yield is calculated similarly to the yield, but is adjusted
to reflect the taxable yield necessary to equal on an after tax basis, the
actual yield of the Fund, assuming that income from the Fund is 100% tax-exempt.
TAX-EQUIVALENCY TABLE
The Fund may also use a tax-equivalency table in advertising and sales
literature. The interest earned by the municipal bonds in the portfolio
generally remains free from federal regular income tax,* and is often free from
state and local taxes as well. As the table below indicates, a "tax-free"
investment is an attractive choice for investors, particularly in times of
narrow spreads between tax-free and taxable yields.
TAXABLE YIELD EQUIVALENT FOR 1994
STATE OF GEORGIA
<TABLE>
<S> <C> <C> <C> <C> <C>
TAX BRACKET: FEDERAL
15.00% 28.00% 31.00% 36.00% 39.60%
- ------------------------------------------------------------------------------------------------------------
COMBINED FEDERAL AND STATE
21.000% 34.000% 37.000% 42.000% 45.600%
- ------------------------------------------------------------------------------------------------------------
JOINT RETURN: $1-38,000 $38,001-91,850 $91,851-140,000 $140,001-250,000 OVER $250,000
- ------------------------------------------------------------------------------------------------------------
SINGLE RETURN: $1-22,750 $22,751-55,100 $55,101-115,000 $115,001-250,000 OVER $250,000
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
TAX-EXEMPT
YIELD TAXABLE YIELD EQUIVALENT
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
1.50% 1.90% 2.27% 2.38% 2.59% 2.76%
2.00 2.53 3.03 3.17 3.45 3.68
2.50 3.16 3.79 3.97 4.31 4.60
3.00 3.80 4.55 4.76 5.17 5.51
3.50 4.43 5.30 5.56 6.03 6.43
4.00 5.06 6.06 6.35 6.90 7.35
4.50 5.70 6.82 7.14 7.76 8.27
5.00 6.33 7.58 7.94 8.62 9.19
5.50 6.96 8.33 8.73 9.48 10.11
6.00 7.59 9.09 9.52 10.34 11.03
6.50 8.23 9.85 10.32 11.21 11.95
7.00 8.86 10.61 11.11 12.07 12.87
</TABLE>
Note: The maximum marginal tax rate for each bracket was used in
calculating the taxable yield equivalent. Furthermore, additional state
and local taxes paid on comparable taxable investments were not used to
increase federal deductions.
The chart above is for illustrative purposes only. It is not an indicator of
past or future performance of any class of shares.
* Some portion of each class's income may be subject to the federal alternative
minimum tax and state and local taxes.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The performance of the Fund depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return. From
time to time the Fund may advertise its performance using certain reporting
services and/or compare its performance to certain indices. These may include
the following:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in a specific category in
advertising and sales literature.
MORNINGSTAR, INC. an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Investors may use such indices or reporting services in addition to the
prospectus of the Fund to obtain a more complete view of the Fund's performance
before investing. Of course, when comparing the Fund's performance to any index,
factors such as composition of the index and prevailing market conditions should
be considered in assessing the significance of such comparisons. When comparing
funds using reporting services, or total return and yield, investors should take
into consideration any relevant difference in funds such as permitted portfolio
compositions and methods used to value portfolio securities and compute the
offering price.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns
represent the historic change in the value of an investment in the Fund based on
the monthly reinvestment of dividends over a specific period of time. In
addition, advertisements and sales literature for the Fund may include charts
and other illustrations which depict the hypothetical growth of an investment in
a systematic investment plan.
Advertisements may quote performance information which does not reflect the
effect of the sales load.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD AND POOR'S CORPORATION MUNICIPAL BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., MUNICIPAL BOND RATING DEFINITIONS
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
edge." 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 risks appear somewhat larger than in 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.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated AAA. Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment.
NR--NR indicates that Fitch does not rate the specific issue.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA or D categories.
DUFF & PHELPS CREDIT RATING CO. MUNICIPAL BOND RATINGS DEFINITIONS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA+, AA, AA- --High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of economic conditions.
A+, A, A- --Protection factors are average but adequate. However, risk factors
are more variable and greater in periods of economic stress.
BBB+, BBB, BBB- --Below average protection factors but still considered
sufficient for prudent investment. Considerable variability in risk during
economic cycles.
A CREDIT RATING IS NOT A RECOMMENDATION TO BUY, SELL OR HOLD SECURITIES, AND IS
SUBJECT TO CHANGE AND/OR WITHDRAWAL BY THE RATING AGENCY.
3100503B (1/94)
BANKSOUTH SELECT GOVERNMENT
MONEY MARKET FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
PROSPECTUS
The shares of BankSouth Select Government Money Market Fund (the "Fund")
offered by this Prospectus represent interests in a portfolio of
BankSouth Select Funds (the "Trust"), an open-end management investment
company (a mutual fund). The investment objective of the Fund is to
achieve current income consistent with stability of principal and
liquidity. The Fund pursues this objective by investing in a portfolio of
short-term securities of the U.S. government and its agencies and
instrumentalities.
THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
This Prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
January 7, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by writing to the Bank
South, N.A. (the "Bank") Mutual Funds Center or calling 1-800-282-6680
extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE NOT
ISSUED, ENDORSED OR GUARANTEED BY, THE BANK OR ANY OF ITS AFFILIATES.
SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE BANK IS THE INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED
BY FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE BANK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January 7, 1994.
BANKSOUTH SELECT FUNDS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objectives 2
Investment Policies 2
Acceptable Investments 2
Repurchase Agreements 3
Lending of Portfolio Securities 3
When-Issued and Delayed
Delivery Transactions 3
Investing in Securities of
Other Investment Companies 3
Certain Borrowing and Investment
Limitations 4
Regulatory Compliance 4
BANK SOUTH SELECT FUNDS INFORMATION 4
- ------------------------------------------------------
Management of the Trust 4
Board of Trustees 4
Investment Adviser 4
Advisory Fees 5
Adviser's Background 5
Distribution of Shares 5
Distribution Plan 5
Administrative Arrangements 6
Administration of the Trust 6
Administrative Services 6
Shareholder Services Plan 6
Custodian 7
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 7
Legal Counsel 7
Independent Auditors 7
Expenses of the Fund 7
NET ASSET VALUE 7
- ------------------------------------------------------
INVESTING IN THE FUND 7
- ------------------------------------------------------
Share Purchases 7
By Telephone 8
By Mail 8
Payment by Check 8
Payment by Wire 8
Minimum Investment Required 8
Systematic Investment Program 8
What Shares Cost 8
Certificates and Confirmations 9
Dividends 9
Purchasing Fund Shares with Securities 9
EXCHANGE PRIVILEGE 9
- ------------------------------------------------------
BankSouth Select Funds 9
By Telephone 10
REDEEMING SHARES 11
- ------------------------------------------------------
By Telephone 11
By Mail 11
Signatures 11
Receiving Payment 12
Redemption Before Purchase
Instruments Clear 12
Systematic Withdrawal Program 12
Accounts with Low Balances 12
SHAREHOLDER INFORMATION 13
- ------------------------------------------------------
Voting Rights 13
Massachusetts Partnership Law 13
EFFECT OF BANKING LAWS 13
- ------------------------------------------------------
TAX INFORMATION 14
- ------------------------------------------------------
Federal Income Tax 14
State and Local Taxes 14
PERFORMANCE INFORMATION 14
- ------------------------------------------------------
STATEMENT OF ASSETS AND LIABILITIES 15
- ------------------------------------------------------
REPORT OF ERNST & YOUNG, INDEPENDENT
AUDITORS 16
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
BANKSOUTH SELECT GOVERNMENT MONEY MARKET FUND
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee............................................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)........................................................................ 0.35%
12b-1 Fees(2)........................................................................................... 0.00%
Other Expenses (after waiver)(3)........................................................................ 0.15%
Total Fund Operating Expenses(4).................................................................... 0.50%
</TABLE>
- ---------
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee by the investment
adviser. The investment adviser can terminate this voluntary waiver at any
time in its sole discretion. The maximum management fee is 0.50%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund can pay up to 0.25% as a 12b-1 fee to the distributor.
Certain trust clients of the Bank or its affiliates, including ERISA plans,
will not be affected by the distribution plan because the distribution plan
will not be activated unless and until a second, "Trust," class of shares
of the Fund (which would not have a Rule 12b-1 plan) is created and such
trust clients' investments in the Fund are converted to such Trust class.
(3) Total Other Expenses are estimated to be 0.21% absent the anticipated
voluntary waiver by the transfer agent.
(4) The Total Fund Operating Expenses are estimated to be 0.71% absent the
anticipated voluntary waivers by the adviser and transfer agent.
* Expenses are estimated based on average expenses expected to be incurred
during the fiscal year ending September 30, 1994. During the course of this
period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "BANKSOUTH SELECT FUNDS INFORMATION" AND "INVESTING IN THE FUND."
WIRE TRANSFER REDEMPTIONS MAY BE SUBJECT TO AN ADDITIONAL FEE.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fees................................................................................ $5 $16
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER
30, 1994.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 22, 1993, as amended and restated dated December 20,
1993. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. This prospectus relates only to the Trust's BankSouth Select
Government Money Market Fund. The Fund is designed as a convenient means of
accumulating an interest in a professionally managed, diversified portfolio of
short-term U.S. government securities. A minimum initial investment of $1,000 is
required ($500 for Individual Retirement Accounts ("IRAs")), and subsequent
investments must be in amounts of at least $100. See "Investing in the Fund".
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to achieve current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without the approval of the Fund's shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this Prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of
short-term U.S government securities maturing in 13 months or less from the date
of acquisition unless they are purchased under a repurchase agreement that
provides for repurchase by the seller within one year from the date of
acquisition. The Fund invests only in instruments denominated and payable in
U.S. dollars. The average maturity of U.S. government securities in the Fund's
portfolio, computed on a dollar-weighted basis, will be 90 days or less. Unless
indicated otherwise, the investment policies may be changed by the Board of
Trustees without the approval of shareholders. Shareholders will be notified
before any material changes in these policies become effective.
ACCEPTABLE INVESTMENTS. The U.S. government securities in which the Fund
invests are either issued or guaranteed by the U.S. government, its agencies, or
instrumentalities. These securities include, but are not limited to:
direct obligations of the U.S. Treasury, such as U.S. Treasury bills,
notes, and bonds; and
notes, bonds, and discount notes of U.S. government agencies or
instrumentalities, such as Federal Farm Credit Banks, Federal Home Loan
Mortgage Corporation, Student Loan Marketing Association, Federal Home
Loan Banks, Government National Mortgage Association and Federal National
Mortgage Association.
Some obligations issued or guaranteed by agencies or instrumentalities of the
U.S. government, such as Government National Mortgage Association securities,
are backed by the full faith and credit of the U.S. Treasury. Other obligations
are not backed by the full faith and credit of the United States. The U.S.
government may provide financial support to such other agencies or
instrumentalities, but it is not obligated to do so. Such instrumentalities
generally are supported by:
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of an agency or instrumentality; or
the credit of the agency or instrumentality.
REPURCHASE AGREEMENTS. The U.S. government and agency securities in which the
Fund invests may be purchased pursuant to repurchase agreements. Repurchase
agreements are arrangements in which banks, broker-dealers, and other financial
institutions sell U.S. government and agency securities to the Fund and agree at
the time of sale to repurchase them at a mutually agreed upon time and price
including interest. To the extent that the original seller does not repurchase
the securities from the Fund, the Fund could receive less than the repurchase
price on any sale of such securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term basis to securities
broker-dealers, banks, or other institutional borrowers of securities. The Fund
will limit the amount of portfolio securities it may lend to not more than 50%
of its total assets. The Fund will only enter into loan arrangements with
broker-dealers, banks, or other institutions which the investment adviser has
determined are creditworthy under guidelines established by the Trust's Board of
Trustees, where loaned securities are marked to market daily and where the Fund
receives collateral at least equal to the value of the securities loaned at all
times.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase short-term
U.S. government securities on a when-issued or delayed delivery basis. These
transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The seller's failure to
complete these transactions may cause the Fund to miss a price or yield
considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies, but will
not own more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of total assets in any one investment company, or
invest more than 10% of total assets in investment companies in the aggregate.
The Fund will invest in other investment companies that are money market funds
having investment objectives and policies similar to its own and primarily for
the purpose of investing short-term cash which has not yet been invested in
other portfolio instruments. It should be noted that investment companies incur
certain expenses, and therefore, any investment by the Fund in shares of another
investment company would be subject to certain duplicate expenses, particularly
transfer agent and custodian fees. The adviser will waive its investment
advisory fee on assets invested in securities of open-end investment companies.
CERTAIN BORROWING AND INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to 33 1/3% of the value of its total assets and secure such
borrowings with up to 15% of the value of its total assets at the time of
borrowing.
The above limitation cannot be changed without shareholder approval. The
following limitation, however, may be changed by the Trustees without
shareholder approval. Shareholders will be notified before any material change
in this limitation becomes effective.
The Fund will not:
invest more than 10% of the value of its net assets in illiquid
securities, including repurchase agreements providing for settlement more
than seven days after notice.
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended (the "Act"). The Fund may
change these operational policies to reflect changes in the laws and regulations
without the approval of its shareholders.
BANKSOUTH SELECT FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the "Board" or
"Trustees"). The Board is responsible for managing the Trust's business affairs
and for exercising all the Trust's powers except those reserved for the
shareholders. The Executive Committee of the Board handles various of the
Board's delegable responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by the Bank, as
the Fund's investment adviser (the "Adviser"), subject to direction by the
Board. The Adviser conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund's assets. From time to time, to the extent
consistent with the investment objective, policies and restrictions of the Fund,
the Fund may invest in securities of issuers with which the Adviser has a
lending relationship. However, at this time, the Adviser has no intention to
invest in securities of issuers that have a lending relationship with the
investment Adviser or its affiliates.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the Fund up to the
amount of the advisory fee, for operating expenses in excess of limitations
established by certain states. The Adviser also may voluntarily choose to
waive a portion of its fee or reimburse other expenses of the Fund, but
reserves the right to terminate such waiver or reimbursement at any time at
its sole discretion.
ADVISER'S BACKGROUND. The Adviser, a national bank headquartered in
Atlanta, Georgia, is a wholly owned subsidiary of Bank South Corporation, a
Georgia corporation which is a registered bank holding company. The Adviser
serves consumers through its network of banking offices with a full range
of deposit and lending products, as well as investment services. The
principal executive offices of the Adviser are located at 55 Marietta
Street, N.W., Street, Atlanta, GA 30303.
The Adviser has managed discretionary assets for its customers since 1931.
As of September 30, 1993 the Adviser managed in excess of $1 billion of
discretionary assets. Prior to the date hereof, the Adviser has not served
as an investment adviser to mutual funds.
DISTRIBUTION OF SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies. The
Distributor is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan (the "Plan") adopted in accordance
with Securities and Exchange Commission ("SEC") Rule 12b-1 under the Investment
Company Act of 1940, as amended, the Fund will pay an amount computed at an
annual rate of up to 0.25% of the average daily net asset value of the shares to
finance any activity which is principally intended to result in the sale of
shares subject to the Plan. Certain trust clients of the Bank, including ERISA
plans, will not be affected by the Plan because the Plan will not be activated
unless and until a second, "Trust" class of shares of the Fund (which would not
have a Rule 12b-1 plan) is created and such trust clients' investments in the
Fund are converted to such Trust class.
The Distributor may select other financial institutions (such as broker-dealers
or banks) to provide sales support services as agents for their clients or
customers who beneficially own shares. These financial institutions (including
the Bank) will receive fees from the Distributor based upon shares subject to
the Plan and owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund pays the
Distributor the fee described above as opposed to reimbursing the Distributor
for actual expenses incurred. Therefore, the Fund does not pay for amounts
expended by the distributor in excess of amounts received by it from the Fund,
which may include interest, carrying or other financing charges in connection
with excess amounts expended, or the Distributor's overhead expenses. However,
the Distributor may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
State securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to certain states' securities laws.
ADMINISTRATIVE ARRANGEMENTS. The Distributor may also pay administrators a fee
based upon the average net asset value of shares of their customers invested in
the Trust for providing administrative services. This fee, if paid, will be
reimbursed by the Adviser and not the Trust.
ADMINSTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides certain
administrative personnel and services necessary to operate the Fund. Such
services include certain legal and accounting services. Federated Administrative
Services provides these at the annual rates specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$100,000 per portfolio. Federated Administrative Services may voluntarily choose
to waive a portion of its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to the shares. Under the Services Plan,
financial institutions will enter into shareholder service agreements with the
Fund to provide administrative support services to their customers who from time
to time may be owners of record or beneficial owners of the shares. In return
for providing these support services, a financial institution may receive
payments from the Fund at a rate not exceeding 0.25% of the average daily net
assets of the shares beneficially owned by the financial institution's customers
for whom it is holder of record or with whom it has a servicing relationship.
These administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Fund reasonably requests.
Certain trust clients of the Bank, including ERISA plans, will not be affected
by the Services Plan because the Services Plan will not be activated unless and
until a second, "Trust" class of shares of the Fund (which would not have a
Services Plan) is created and such trust clients' investments in the Fund are
converted to such Trust class.
CUSTODIAN. The Bank of New York, New York, New York is custodian for the
securities and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent (the "Transfer Agent") for the shares of, and
dividend disbursing agent for, the Fund. It also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, DC.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. The expenses borne by the Fund include, but are not limited to, the
cost of: organizing the Trust and continuing its existence; Trustees' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Trust, the Fund, and shares of
the Fund with federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Shares of the Fund may be
purchased through the Bank. In connection with the sale of Fund shares, the
Distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
BY TELEPHONE. To place an order to purchase Fund shares, call Bank South Mutual
Funds Center toll free at 1-800-282-6680 extension 4550. Texas residents must
purchase shares of the Fund through Bank South Securities Corporation at
404-521-7063. Your purchase order will be taken directly over the telephone. The
order must be place by 4:00 p.m. (Eastern time) for shares to be purchased at
that day's price.
BY MAIL. Provide a letter of instruction to the Fund indicating your purchase
order, including the dollar amount of your order, your account title and/or
name, and your account number, and include a check made payable to the Fund.
PAYMENT BY CHECK. Mail to BankSouth Select Government Money Market Fund, c/o
Bank South Mutual Funds Center, MC 16, P.O. Box 4387, Atlanta, Georgia 30302.
PAYMENT BY WIRE. To purchase shares by Federal Wire, contact your account
officer for wiring instructions. Wire orders will only be accepted on days on
which the Fund, the Bank and the Federal Reserve Banks are open for business.
Payment by federal funds must be received before 12:00 noon (Eastern time) on
the same day as the order to earn dividends for that day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000 ($500 for
IRAs). Subsequent investments must be in amounts of at least $100. The Fund may
choose to waive its minimum investment requirement from time to time and for
accounts which select the Systematic Investment Program.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in minimum amounts of $100, unless waived. Under this program,
funds may be withdrawn periodically from the shareholder's checking or other
transaction deposit account and invested in Fund shares at the net asset value
next determined after an order is received by the Bank. A shareholder may apply
for participation in this program through the Bank.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon (Eastern time) and 4:00 p.m.
(Eastern time), Monday through Friday, except on: (i) days on which changes (if
any) in the value of the Fund's portfolio securities do not materially affect
its net asset value; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) on the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent for the Fund maintains a share account for each shareholder
of record. Share certificates are not issued, unless requested in writing from
the Fund or the Transfer Agent.
Monthly confirmations are sent to report transactions, such as all purchases and
redemptions, as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund, unless a
shareholder makes a written request for cash payments to the Bank or the Fund.
Shares purchased by wire before 12:00 (Eastern time) begin earning dividends
that day. Shares purchased by check begin earning dividends the day after the
check is converted into available federal funds.
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values its assets. Investors wishing to use securities to purchase
Fund shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
BANKSOUTH SELECT FUNDS
All shareholders of the Fund are shareholders of BankSouth Select Funds.
BankSouth Select Funds currently includes the Fund, BankSouth Select Bond Fund,
BankSouth Select Prime Money Market Fund, BankSouth Select Equity Fund, and
BankSouth Select Georgia Tax-Free Income Fund. Shareholders have easy access to
each of the portfolios of BankSouth Select Funds through a telephone exchange
program. All BankSouth Select Funds are advised by the Bank and distributed by
the Distributor.
Shareholders may exchange shares of the Fund for shares of the other BankSouth
Select Funds. In addition, shares of the Fund may also be exchanged for certain
other funds designated by the Bank which are distributed by the Distributor, but
that are not advised by the Bank ("Federated Funds"). For further information on
the availability of Federated Funds for exchanges, please call the Bank South
Mutual Funds Center at 1-800-282-6680 extension 4550. Shares of funds with a
sales charge may be exchanged at net asset value for shares of other funds with
an equal sales charge or no sales charge. Shares of funds with a sales charge
may be exchanged for shares of funds with a higher sales charge at net asset
value, plus the additional sales charge. Shares of funds with no sales charge,
whether acquired by direct purchase, reinvestment of dividends on such shares,
or otherwise, may be exchanged for shares of funds with a sales charge at net
asset value, plus the applicable sales charge.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends or capital gains on such shares retain the character of
the exchanged shares for purposes of exercising further exchange privileges;
thus, an exchange of such shares for shares of a fund with a sales charge would
be at net asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the fund into which an exchange is
to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value for the
applicable fund. Written exchange instructions may require a signature
guarantee. Exercise of this privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short or long-term capital
gain or loss may be realized.
The Fund reserves the right to terminate the exchange privilege at any time on
60 days notice. Shareholders will be notified if this privilege is terminated. A
shareholder may obtain further information on the exchange privilege by calling
the Bank at 1-800-282-6680 extension 4550.
BY TELEPHONE. Instructions for exchanges between funds which are part of the
Trust may be given by telephone to the Bank South Mutual Funds Center at
1-800-282-6680 extension 4550; or to the Distributor. Shares may be exchanged by
telephone only between fund accounts having identical shareholder registrations.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the Transfer Agent by the Bank and deposited to the shareholder's
mutual fund account before being exchanged. (See "Addresses").
An authorization form permitting the Fund to accept telephone exchanges must
first be completed. It is recommended that investors request this privilege at
the time of their initial application. If not completed at the time of initial
application, authorization forms and information regarding this service are
available from the Bank. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through the Bank during times of drastic economic or
market changes. If a shareholder cannot contact the Bank by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to BankSouth Select Funds, 55 Marietta Street, N.W., Atlanta, Georgia
30303.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form and can be made through the Bank or directly to
the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by contacting his
account officer or by calling the Bank South Mutual Funds Center to request the
redemption. (Call 1-800-282-6680 extension 4550.) Shares will be redeemed at the
net asset value next determined after the Fund receives the redemption request
from the Bank. Redemption requests to the Bank must be received before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value,
and the Bank will promptly submit such redemption requests and provide proper
written redemption instructions to the Fund. If, at any time, the Fund should
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephonic redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service are
available from the Bank. Telephone redemption instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
A shareholder may have the redemption proceeds directly deposited by electronic
funds transfer or wired directly to a domestic commercial bank previously
designated by the shareholder. Wire redemption orders will only be accepted on
days on which the Fund, the Bank and the Federal Reserve Wire System are open
for business. Wire-transferred redemptions may be subject to an additional fee.
In the event of extraordinary economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur, it
is recommended that a redemption request be made in writing and be hand
delivered or sent by overnight mail to your account officer at the Bank.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Bank. The written request should include the shareholder's name, the Fund name,
the account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request to the Bank.
Shareholders should call the Bank for assistance in redeeming shares by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption requesting payment to an address other than that on record with the
Fund, or other than to the shareholder of record must make written redemption
requests with signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the
FDIC's BIF;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are insured
by the FDIC's SAIF; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its Transfer Agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed to the
shareholder within one business day, but in no event more than seven calendar
days, after receipt of a proper written redemption request, provided that the
Transfer Agent has received payment for shares from the shareholder.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or through an Automated Clearing House
("ACH"), the proceeds from the redemption of those shares are not available, and
the shares may not be exchanged, until the Bank is reasonably certain that the
check or clearing house funds have cleared, which could take up to 10 calendar
days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments and the
amount of dividends paid with respect to Fund shares, redemptions may reduce,
and eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. To be eligible to participate in
this program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through the Bank.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum of
$1,000.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund entitles shareholders to one vote in Trustee elections
and other matters submitted to shareholders of the Trust for vote. All shares of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular Fund, only shareholders of that Fund are entitled to
vote. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances.
Any Trustee may be removed by the Board of Trustees or by the shareholders at a
special meeting. A special meeting of the shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders of the Fund for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to indemnify, protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder for
any act or obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust itself cannot meet its
obligations to indemnify shareholders and pay judgments against it from assets
of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956, as amended or any
affiliate thereof from sponsoring, organizing, controlling or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from underwriting or
distributing securities in general. However, such banking laws and regulations
do not prohibit such a holding company affiliate or banks generally from acting
as investment adviser, transfer agent, or custodian to such an investment
company or from acting as agent for their customers in purchasing securities.
The Fund's Adviser, is subject to such banking laws and regulations.
The Bank believes, based on the advice of its counsel, that it may perform the
services for the Fund contemplated by its advisory agreement with the Fund
without violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their affiliates, as well as
further judicial or administrative decisions or interpretations of present or
future statutes and regulations, could prevent the Bank from continuing to
perform all or a part of the above services for its customers and/or the Fund.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative investment advisers and means of continuing
available investment services. In such event, changes in the operation of the
Fund may occur, including possible termination of any automatic or other Fund
share investment and redemption services then being provided by the Bank. It is
not expected that shareholders would suffer any adverse financial consequences
as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund expects to pay no federal income tax because it intends to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield and effective yield.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized dividends earned during the period on an
investment shown as a percentage of the investment. The effective yield is
calculated similarly to the yield, but when annualized, the income earned by an
investment is assumed to be reinvested daily. The effective yield will be
slightly higher than the yield because of the compounding effect of this assumed
reinvestment.
Advertisements and sales literature may also refer to total return. Total return
represents the change, over a specified period of time, in the value of an
investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
BANKSOUTH SELECT GOVERNMENT MONEY MARKET FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
STATEMENT OF ASSETS AND LIABILITIES
JANUARY 3, 1994
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS:
- -----------------------------------------------------------------------------------------------------
Cash $100,000
- -----------------------------------------------------------------------------------------------------
LIABILITIES: --
- ----------------------------------------------------------------------------------------------------- -----------
Net Assets for 100,000 shares of beneficial interest outstanding $100,000
- ----------------------------------------------------------------------------------------------------- -----------
NET ASSET VALUE, Offering Price, and Redemption Price Per Share ($100,000 / 100,000 SHARES OF
BENEFICIAL INTEREST OUTSTANDING) $1.00
- ----------------------------------------------------------------------------------------------------- -----------
</TABLE>
NOTES:
(1) BankSouth Select Funds (the "Trust"), which includes BankSouth Select
Government Money Market Fund (the "Fund"), was established as a
Massachusetts business trust under a Declaration of Trust dated September
22, 1993, as amended and restated dated December 20, 1993. The Fund has had
no operations since that date other than those relating to organizational
matters, including the issuance on January 3, 1994, of 100,000 shares at
$1.00 per share to Federated Administrative Services, the Administrator to
the Fund. Expenses of organization incurred by the Fund, $41,500, were borne
initially by the Administrator. The Fund has agreed to reimburse the
Administrator for the organization expenses initially borne by the
Administrator during the five-year period following the date the Fund's
registration statement first became effective.
REPORT OF ERNST & YOUNG, INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
To the Board of Trustees and Shareholders of
BankSouth Select Funds:
We have audited the accompanying statement of assets and liabilities of
BankSouth Select Government Money Market Fund, as of January 3, 1994. This
statement of assets and liabilities is the responsibility of the Trust's
management. Our responsibility is to express an opinion on this statement of
assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
statement of assets and liabilities presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities presents fairly, in all
material respects, the net assets of the BankSouth Select Government Money
Market Fund as of January 3, 1994 in conformity with generally accepted
accounting principles.
ERNST & YOUNG
Pittsburgh, Pennsylvania
January 5, 1994
ADDRESSES
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<TABLE>
<S> <C> <C>
BankSouth Select Government Money Federated Investors Tower
Market Fund Pittsburgh, Pennsylvania 15222-3779
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Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Investment Adviser
Bank South, N.A. MC 16
P.O. Box 4387
Atlanta, Georgia 30302
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Custodian
The Bank of New York 48 Wall Street
New York, New York 10286
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Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
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Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
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Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
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Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BANKSOUTH SELECT
GOVERNMENT MONEY MARKET
FUND
PROSPECTUS
A Portfolio of BankSouth
Select Funds, an Open-End
Management Investment Company
(a Mutual Fund)
January 7, 1994
[LOGO]
Bank South, N.A.
Investment Adviser
55 Marietta Street, N.W.
Atlanta, GA 30303
[LOGO]
FEDERATED SECURITIES CORP.
Distributor
A subsidiary of FEDERATED INVESTORS
Federated Investors Tower
Pittsburgh, PA 15222-3779
3093003A (1/94)
BANKSOUTH SELECT GOVERNMENT MONEY MARKET FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of BankSouth Select Government Money Market Fund (the
"Fund") dated January 7, 1994. This Statement is not a prospectus
itself. To receive a copy of the prospectus, write or call the Bank
South, N.A. (the "Bank") Mutual Funds Center at 1-800-282-6680
extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE
NOT ISSUED, ENDORSED OR GUARANTEED BY THE BANK OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT
IN THE FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THE BANK IS INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED
BY FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE
BANK.
Statement dated January 7, 1994
FEDERATED SECURITIES CORP.
--------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
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Types of Investments 1
When-Issued and Delayed Delivery
Transactions 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
Lending of Portfolio Securities 1
Investment Limitations 2
BANKSOUTH SELECT FUNDS MANAGEMENT 2
- ---------------------------------------------------------------
Officers and Trustees 2
The Funds 4
Fund Ownership 5
Trustee Liability 5
INVESTMENT ADVISORY SERVICES 5
- ---------------------------------------------------------------
Adviser to the Fund 5
Advisory Fees 5
ADMINISTRATIVE SERVICES 5
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 5
- ---------------------------------------------------------------
PURCHASING SHARES 6
- ---------------------------------------------------------------
Administrative Arrangements 6
Distribution Plan 6
Purchasing Fund Shares with Securities 6
DETERMINING NET ASSET VALUE 7
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Use of the Amortized Cost Method 7
EXCHANGE PRIVILEGE 7
- ---------------------------------------------------------------
Requirements for Exchange 7
Making an Exchange 8
REDEEMING SHARES 8
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Redemption in Kind 8
TAX STATUS 8
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The Fund's Tax Status 8
Shareholders' Tax Status 8
YIELD 8
- ---------------------------------------------------------------
EFFECTIVE YIELD 9
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 9
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
BankSouth Select Government Money Market Fund (the "Fund") is a portfolio of
BankSouth Select Funds (the "Trust") which was established as a Massachusetts
business trust under a Declaration of Trust dated as of September 22, 1993, as
amended and restated dated December 20, 1993.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to achieve current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests in short-term U.S. government securities.
VARIABLE RATE U.S. GOVERNMENT SECURITIES
Some of the short-term U.S. government securities the Fund may purchase
carry variable interest rates. These securities have a rate of interest
subject to adjustment at least annually. This adjusted interest rate is
ordinarily tied to some objective standard, such as the 91-day U.S.
Treasury bill rate.
Variable interest rates will reduce the changes in the market value of
such securities from their original purchase prices. Accordingly, the
potential for capital appreciation or capital depreciation should not be
greater than the potential for capital appreciation or capital
depreciation of fixed interest rate U.S. government securities having
maturities equal to the interest rate adjustment dates of the variable
rate U.S. government securities.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled. The Fund may
engage in these transactions to an extent that would cause the segregation of an
amount up to 20% of the total value of its assets at any time.
REPURCHASE AGREEMENTS
As collateral for the obligation of the seller to repurchase the securities from
the Fund, the Fund or its custodian will take possession of the securities
subject to repurchase agreements, and these securities will be marked to market
daily. In the event that such a defaulting seller filed for bankruptcy or became
insolvent, disposition of such securities by the Fund might be delayed pending
court action. The Fund believes that under the regular procedures normally in
effect for custody of the Fund's portfolio securities subject to repurchase
agreements, a court of competent jurisdiction would rule in favor of the Fund
and allow retention or disposition of such securities. The Fund will only enter
into repurchase agreements with banks and other financial institutions, such as
broker-dealers, which are deemed by the Fund's Adviser to be creditworthy
pursuant to guidelines established by the Trustees.
REVERSE REPURCHASE AGREEMENTS
The Fund may enter into reverse repurchase agreements. These transactions are
similar to borrowing cash and pledging securities as collateral. In a reverse
repurchase agreement, the Fund transfers possession of a portfolio instrument to
another person, such as a financial institution or broker-dealer, in return for
a percentage of the instrument's market value in cash, and agrees that on a
stipulated date in the future the Fund will repurchase the portfolio instrument
by remitting the original consideration plus interest at an agreed upon rate.
The use of reverse repurchase agreements may enable the Fund to avoid selling
portfolio instruments at a time when a sale may be deemed to be disadvantageous,
but the ability to enter into reverse repurchase agreements does not ensure that
the Fund will be able to avoid selling portfolio instruments at a disadvantaged
time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must 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 at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
33 1/3% of the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous. The
Fund will not purchase any securities while borrowings in excess of 5% of
the value of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In those cases, it may pledge assets having
a value not exceeding the lesser of the dollar amounts borrowed or 15% of
the value of total assets at the time of the pledge.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to 50% of the value of its total assets. This shall not prevent the Fund
from purchasing or holding bonds, debentures, notes, certificates of
indebtedness, or other debt securities, entering into repurchase
agreements, or engaging in other transactions where permitted by the
Fund's investment objective, policies, limitations, or its Declaration of
Trust.
The above investment limitations cannot be changed without shareholder approval.
The following limitations, however, may be changed by the Board of Trustees
without shareholder approval. Shareholders will be notified before any material
change in the following limitations becomes effective.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, will not invest more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in the aggregate. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven calendar days, and certain
restricted securities not determined by the Trustees to be liquid.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund does not expect to borrow money or pledge securities in excess of 5% of
the value of its net assets during its first fiscal year.
BANKSOUTH SELECT FUNDS MANAGEMENT
- --------------------------------------------------------------------------------
OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or officers are affiliated with Bank South, N.A., Federated Investors, Federated
Securities Corp., Federated Services Company, Federated Administrative Services,
or the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc. (an
One PNC Plaza-23rd Floor engineering firm); Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and PNC
Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower Treasurer President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA and Trustee Federated Research; Executive Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated Services Company;
Chairman, Treasurer, and Director, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer
of the Funds.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace and RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
Charles L. Davis, Jr. Vice President Vice President, Federated Administrative Services; Vice President and
Federated Investors Tower and Assistant Assistant Treasurer of some of the Funds; formerly, Vice President and
Pittsburgh, PA Treasurer Director of Investor Relations, MNC
Financial, Inc. and Vice President, Product Management, MNC Financial,
Inc.
John W. McGonigle Vice President and Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
\ Members of the Board's Executive Committee. The Executive Committee of the
Board of Trustees handles various of the delegable responsibilities of the
Board of Trustees between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Intermediate Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust,
Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management; Money Market
Obligations; Money Market Trust; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet
Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for
U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is Bank South, N.A. (the "Adviser"). The Adviser
shall not be liable to the Trust, the Fund, or any shareholder of the Fund for
any losses that may be sustained in the purchase, holding, or sale of any
security, or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the Prospectus.
STATE EXPENSE LIMITATIONS
The Fund has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2.50% per year of the first $30 million of average net assets,
2.00% per year of the next $70 million of average net assets, and 1.50%
per year of the remaining average net assets, the Adviser has agreed to
reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. John A. Staley, IV, an officer of the Trust, holds approximately 15%
of the outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The procedure for purchasing shares of the Fund is explained in the prospectus
under "Investing in the Funds."
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission ("SEC") pursuant
to the Investment Company Act of 1940, as amended (the "Act"). The Plan provides
for payment of fees to the Distributor to finance any activity which is
principally intended to result in the sale of the Fund's shares subject to the
Plan. Such activities may include the advertising and marketing of shares;
preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the Distributor may pay fees to
brokers and others for such services.
The Trustees expect that the adoption of the Plan will result in the sale of
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values it assets. Investors wishing to use securities to purchase
Fund shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
TAX CONSEQUENCES
Exercise of this exchange privilege is currently treated as a sale for
federal income tax purposes. Depending upon the cost basis of the
securities exchanged for Fund shares, a gain or loss may be realized by
the investor.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions of SEC Rule 2a-7 under the
Act. Under this Rule, the Trustees must establish procedures reasonably designed
to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
Under such Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by this Rule, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.50% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
Rule 2a-7 requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instruments with a remaining maturity of more than 13 months days can be
purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders of the Fund may exchange shares of the Fund for shares of other
Funds advised by the Bank and certain other funds designated by the Bank and
distributed by the Distributor, subject to certain conditions. Exchange
procedures are explained in the Prospectus under "Exchange Privilege".
REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which
shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. Further information on the
exchange privilege and prospectuses may be obtained by calling the Bank at the
number on the cover of this Statement of Additional Information.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Bank
receives the redemption request. Redemption will be made on days on which the
Fund computes its net asset value. Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price, in whole or in part, by a
distribution of securities from the Fund's portfolio. To satisfy registration
requirements in a particular state, redemption in kind will be made in readily
marketable securities to the extent that such securities are available. If such
a state's policy changes, the Fund reserves the right to redeem in kind by
delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by SEC Rule 18f-1 under the Act under which
the Fund is obligated to redeem shares for any one shareholder in cash only up
to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day
period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD
- --------------------------------------------------------------------------------
The Fund calculates its yield daily based upon the seven days ending on the day
of the calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and brokers/dealers charge fees in
connection with services and provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield is computed by compounding the unannualized base
period return by:
adding 1 to the base period return;
raising the sum of the 365/7th power; and
subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in Fund expenses; and
the relative amount of Fund cash flow.
From time to time the Fund may advertise its performance using certain reporting
services and/or compare its performance to certain indices. These may include
the following:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "short-term
U.S. government funds" category in advertising and sales literature.
MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, the Fund will quote its Money ranking in advertising and
sales literature.
SALOMON 30-DAY TREASURY BILL INDEX is a weekly quote of the most representative
yields for selected securities, issued by the U.S. Treasury, maturing in 30
days.
Investors may use such indices or reporting services in addition to the Fund's
prospectus to obtain a more complete view of the Fund's performance before
investing. Of course, when comparing Fund performance to any indices and
reporting service factors, such as composition of indices and prevailing market
conditions should be considered in assessing the significance of such
comparisons.
When comparing funds using reporting services or total return and yield,
investors should take into consideration any relevant differences in funds, such
as permitted portfolio compositions and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
3093003B (1/94)
BANKSOUTH SELECT PRIME MONEY MARKET FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
PROSPECTUS
The shares of BankSouth Select Prime Money Market Fund (the "Fund")
offered by this Prospectus represent interests in a diversified portfolio
of BankSouth Select Funds (the "Trust"), an open-end management
investment company (a mutual fund). The investment objective of the Fund
is to achieve current income consistent with stability of principal and
liquidity. The Fund pursues this objective by investing in a portfolio of
high-quality money market instruments.
THE FUND ATTEMPTS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER
SHARE; THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE TO DO SO.
This Prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
January 7, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by writing to the Bank
South, N.A. (the "Bank") Mutual Funds Center or calling 1-800-282-6680
extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE NOT
ISSUED, ENDORSED OR GUARANTEED BY, THE BANK OR ANY OF ITS AFFILIATES.
SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE BANK IS THE INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED
BY FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE BANK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January 7, 1994
BANKSOUTH SELECT FUNDS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Variable Rate Demand Notes 3
Demand Features 3
Bank Instruments 3
Asset-Backed Securities 3
Short-Term Credit Facilities 4
Ratings 4
Repurchase Agreements 4
Lending of Portfolio Securities 4
Restricted and Illiquid Securities 4
Credit Enhancement 5
When-Issued And Delayed Delivery
Transactions 5
Investing in Securities of Other
Investment Companies 5
Investment Risks 5
Certain Borrowing and Investment Limitations 6
Regulatory Compliance 6
BANKSOUTH SELECT FUNDS INFORMATION 7
- ------------------------------------------------------
Management of the Trust 7
Board of Trustees 7
Investment Adviser 7
Advisory Fees 7
Adviser's Background 7
Distribution of Shares 7
Distribution Plan 7
Administrative Arrangements 8
Administration of the Trust 8
Administrative Services 8
Shareholder Services Plan 9
Custodian 9
Transfer Agent, Dividend Disbursing
Agent and Portfolio Accounting
Services 9
Legal Counsel 9
Independent Auditors 9
Expenses of the Fund 9
NET ASSET VALUE 10
- ------------------------------------------------------
INVESTING IN THE FUND 10
- ------------------------------------------------------
Share Purchases 10
By Telephone 10
By Mail 10
Payment by Check 10
Payment by Wire 10
Minimum Investment Required 10
Systematic Investment Program 10
What Shares Cost 11
Certificates and Confirmations 11
Dividends 11
Purchasing Fund Shares with Securities 11
EXCHANGE PRIVILEGE 12
- ------------------------------------------------------
BankSouth Select Funds 12
By Telephone 12
REDEEMING SHARES 13
- ------------------------------------------------------
By Telephone 13
By Mail 14
Signatures 14
Receiving Payment 14
Redemption Before Purchase
Instruments Clear 14
Systematic Withdrawal Program 14
Accounts with Low Balances 15
SHAREHOLDER INFORMATION 15
- ------------------------------------------------------
Voting Rights 15
Massachusetts Partnership Law 15
EFFECT OF BANKING LAWS 16
- ------------------------------------------------------
TAX INFORMATION 16
- ------------------------------------------------------
Federal Income Tax 16
State and Local Taxes 16
PERFORMANCE INFORMATION 17
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
BANKSOUTH SELECT PRIME MONEY MARKET FUND
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... None
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee............................................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee (after waiver)(1)........................................................................ 0.33%
12b-1 Fees(2)........................................................................................... 0.00%
Other Expenses (after waivers)(3)....................................................................... 0.17%
Total Fund Operating Expenses(4).................................................................... 0.50%
</TABLE>
- ---------
(1) The estimated management fee has been reduced to reflect the anticipated
voluntary waiver of a portion of the management fee by the investment
adviser. The investment adviser can terminate this voluntary waiver at any
time in its sole discretion. The maximum management fee is 0.50%.
(2) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund can pay up to 0.25% as a 12b-1 fee to the distributor.
Certain trust clients of the Bank or its affiliates, including ERISA plans,
will not be affected by the distribution plan because the distribution plan
will not be activated unless and until a second, "Trust," class of shares
of the Fund (which would not have a Rule 12b-1 plan) is created and such
clients' investments in the Fund are converted to such Trust class.
(3) Total Other Expenses are estimated to be 0.23% absent the anticipated
voluntary waiver by the administrator and transfer agent.
(4) The Total Fund Operating Expenses are estimated to be 0.73% absent the
anticipated voluntary waivers by the adviser, administrator, and transfer
agent.
* Expenses are estimated based on average expenses expected to be incurred
during the fiscal year ending September 30, 1994. During the course of this
period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "BANKSOUTH SELECT FUNDS INFORMATION" AND "INVESTING IN THE FUND."
WIRE TRANSFER REDEMPTIONS MAY BE SUBJECT TO AN ADDITIONAL FEE.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fees................................................................................ $5 $16
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER
30, 1994.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 22, 1993, as amended and restated dated December 20,
1993. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. This prospectus relates only to the Trust's BankSouth Select Prime
Money Market Fund. The Fund is designed as a convenient means of accumulating an
interest in a professionally managed, diversified portfolio of high quality
money market instruments maturing in 13 months or less. A minimum initial
investment of $1,000 is required ($500 for Individual Retirement Accounts
("IRAs")), and subsequent investments must be in amounts of at least $100. See
"Investing in the Fund."
The Fund attempts to stabilize the value of a share at $1.00. Shares are
currently sold and redeemed at that price.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to achieve current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without the approval of the Fund's shareholders. While there is no assurance
that the Fund will achieve its investment objective, it endeavors to do so by
following the investment policies described in this Prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in a portfolio of high
quality money market instruments maturing in 13 months or less. The average
maturity of money market instruments in the Fund's portfolio, computed on a
dollar-weighted basis, will be 90 days or less. Unless indicated otherwise, the
investment policies may be changed by the Board of Trustees without the approval
of Fund shareholders. Shareholders will be notified before any material changes
in these policies become effective.
ACCEPTABLE INVESTMENTS. The Fund invests in high quality money market
instruments that are either rated in the highest short-term rating category by
one or more nationally recognized statistical rating organizations ("Rating
Agencies") or are deemed by the Adviser to be of comparable quality to
securities having such ratings. Examples of these instruments include, but are
not limited to:
domestic issues of corporate debt obligations, including variable rate
demand notes;
commercial paper (including Canadian Commercial Paper ("CCP") and
Europaper);
certificates of deposit, demand and time deposits, bankers' acceptances
and other instruments of domestic and foreign banks and other depository
institutions ("Bank Instruments");
short-term credit facilities;
asset-backed securities, including commercial paper;
obligations issued or guaranteed as to payment of principal and interest
by the U.S. Government or one of its agencies or instrumentalities
("Government Securities"); and
other money market instruments.
The Fund invests only in instruments denominated and payable in U.S. dollars.
VARIABLE RATE DEMAND NOTES. Variable rate demand notes are generally long-term
debt instruments that have variable or floating interest rates and provide the
Fund with the right to tender the security for repurchase at its stated
principal amount plus accrued interest. Such securities typically bear interest
at a rate that is intended to cause the securities to trade at par. The interest
rate may float or be adjusted at regular intervals (ranging from daily to
annually), and is normally based on an index or rate such as the prime rate,
LIBOR or another published rate or index. Most variable rate demand notes allow
the Fund to demand the repurchase of the security on not more than seven days
prior notice. Other notes only permit the Fund to tender the security at the
time of each interest rate adjustment or at other fixed intervals. The Fund
treats variable rate demand notes as maturing on the later of the next interest
adjustment date or the date on which the Fund may next tender the security for
repurchase. See "Demand Features."
DEMAND FEATURES. The Fund may acquire securities that are subject to puts and
standby commitments ("demand features") to purchase such securities at their
principal amount (usually with accrued interest) within a fixed period (usually
seven days) following a demand by the Fund. A demand feature may be issued by
the issuer of the underlying securities, a dealer in the securities, or by
another third party, and may not be transferred separately from the underlying
security. The Fund uses these arrangements to provide the Fund with liquidity
and not to protect against changes in the market value of the underlying
securities. The bankruptcy, receivership, or default by the issuer of the demand
feature, or a default on the underlying security or other event that terminates
the demand feature before its exercise, will adversely affect the liquidity of
the underlying security. Demand features that are exercisable even after a
payment default on the underlying security may be treated as a form of credit
enhancement.
BANK INSTRUMENTS. The Fund only invests in Bank Instruments either (i) issued
by an institution having capital, surplus and undivided profits over $100
million (an "Eligible Bank") or (ii) that are insured by the FDIC's Bank
Insurance Fund ("BIF") or Savings Association Insurance Fund ("SAIF"). Bank
Instruments may include Eurodollar Certificates of Deposit ("ECDs"), Yankee
Certificates of Deposit ("Yankee CDs") and Eurodollar Time Deposits ("ETDs")
issued by Eligible Banks. The Fund will treat securities that are credit
enhanced by an Eligible Bank's irrevocable letter of credit or unconditional
guaranty as Bank Instruments.
ASSET-BACKED SECURITIES. Asset-backed securities are securities issued
generally by special purpose entities, such as trusts, limited partnerships and
corporations whose primary assets consist of a pool of loans, leases or accounts
receivable (collectively, "Receivables"). The securities may take the form of
debt and other interests in the special purpose entities. Each special purpose
entity will be treated as a separate issuer for diversification purposes.
Although the securities often have some form of credit or liquidity enhancement,
payments on the securities depend predominantly upon collections of the
underlying Receivables and not upon the creditworthiness of the originator or
seller of the Receivables.
SHORT-TERM CREDIT FACILITIES. The Fund may enter into, or acquire
participations in, short-term borrowing arrangements with corporations, often
consisting of either a short-term revolving credit facility or a master note
payable upon demand. Under these arrangements, the borrower may reborrow funds
during the term of the facility. The Fund treats any commitments to provide such
advances as a standby commitment to purchase the borrower's notes.
RATINGS. For purposes of the Fund, a Rating Agency's highest rating category is
determined without regard for sub-categories and gradations. For example,
securities rated A-1 or A-1+ by Standard & Poor's Corporation ("S&P"), Prime-1
by Moody's Investors Service, Inc. ("Moody's"), F-1 (+ or -) by Fitch Investors
Service, Inc. ("Fitch"), Duff-1 (+ or -) by Duff & Phelps Credit Rating Co.
("Duff & Phelps") are all considered rated in the highest short-term rating
category. The Fund will follow applicable Securities and Exchange Commission
("SEC") regulations in determining whether a security rated by more than one
Rating Agency can be treated as being in the highest short-term rating category;
currently, such securities must be rated by two Rating Agencies in their highest
rating categories. See "Regulatory Compliance." A credit rating is not a
recommendation to buy, sell or hold securities, and is subject to change and/or
withdrawal by the rating agency.
REPURCHASE AGREEMENTS. Certain securities in which the Fund invests may be
purchased pursuant to repurchase agreements. Repurchase agreements are
arrangements in which banks, securities broker-dealers, and other financial
institutions sell securities to the Fund and agree at the time of sale to
repurchase them at a mutually agreed upon time and price with interest. To the
extent that the seller does not repurchase the securities from the Fund, the
Fund could receive less than the repurchase price on any sale of such
securities.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term basis to securities
broker-dealers, banks, or other institutional borrowers of securities. The Fund
will limit the amount of portfolio securities it may lend to not more than 50%
of its total assets. The Fund will only enter into loan arrangements with
broker-dealers, banks, or other institutions which the investment adviser has
determined are creditworthy under guidelines established by the Trust's Board of
Trustees, where loaned securities are marked to market daily and where the Fund
receives collateral equal to at least 100% of the value of the securities loaned
at all times.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restrictions on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Board of Trustees to be liquid, non-negotiable
time deposits, and repurchase agreements providing for settlement in more than
seven days after notice, to 10% of the Fund's net assets.
The Fund may invest in commercial paper (including asset-backed commercial
paper) issued in reliance on the exemption from registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "Securities Act"). Section
4(2) commercial paper is restricted as to disposition under the Securities Act,,
and is generally sold to institutional investors, such as the Fund, who agree
that they are purchasing the paper for investment purposes and not with a view
to public distribution. Any resale by the purchaser must be in a transaction
exempt from Securities Act registration. Section 4(2) commercial paper is
normally resold to other institutional investors like the Fund through or with
the assistance of the issuer or investment dealers who make a market in Section
4(2) commercial paper, thus providing liquidity. The Fund believes that Section
4(2) commercial paper and possibly certain other restricted securities which
meet the criteria for liquidity established by the Trustees of the Fund are
quite liquid. The Fund intends, therefore, to treat the restricted securities
which meet the criteria for liquidity established by the Trustees, including
Section 4(2) commercial paper, as determined by the Fund's investment adviser,
as liquid and not subject to the investment limitations applicable to illiquid
securities. In addition, because Section 4(2) commercial paper is liquid, the
Fund intends to not subject such paper to the limitation applicable to
restricted securities.
CREDIT ENHANCEMENT. Certain of the Fund's acceptable investments may be credit
enhanced by a guaranty, letter of credit, cash collateral accounts, or
insurance. The Fund typically evaluates the credit quality and ratings of credit
enhanced securities based upon the financial condition and ratings of the party
providing the credit enhancement (the "Credit Enhancer"), rather than the
issuer. Generally, the Fund will not treat credit enhanced securities as having
been issued by the Credit Enhancer for diversification purposes. However, under
certain circumstances, applicable regulations may require the Fund to treat the
securities as having been issued by both the issuer and the Credit Enhancer. Any
decline in the Rating Agency ratings of the Credit Enhancer, or any bankruptcy,
receivership, or default of the Credit Enhancer will adversely affect the
quality, value and marketability of the underlying security.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase portfolio
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Fund purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Fund to miss a price or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES. The Fund may invest in
the securities of other investment companies, but will not own more than 3% of
the total outstanding voting stock of any investment company, invest more than
5% of its total assets in any one investment company, or invest more than 10% of
its total assets in investment companies in the aggregate. The Fund will only
invest in other investment companies that are money market funds having
investment objectives and policies similar to its own and primarily for the
purpose of investing short-term cash which has not yet been invested in other
portfolio instruments. It should be noted that investment companies incur
certain expenses and therefore, any investment by the Fund in shares of another
investment company would be subject to certain duplicate expenses, particularly
transfer agent and custodian fees. The Adviser will waive its advisory fee on
assets invested in securities of open-end investment companies.
INVESTMENT RISKS
ECDs, ETDs, Yankee CDs, CCPs and Europaper are subject to different risks than
domestic obligations of domestic banks or corporations. Examples of these risks
include international economic and political developments, foreign governmental
restrictions that may adversely affect the payment of principal or interest,
foreign withholding and taxes on interest income, difficulties in obtaining or
enforcing a judgment against the issuing entity, and the possible impact of
interruptions in the flow of international currency transactions. Risks may also
exist for ECDs, ETDs, and Yankee CDs because the banks issuing these
instruments, or their branches, are not necessarily subject to the same
regulatory requirements that apply to domestic banks, such as reserve
requirements, loan limitations, examinations, accounting, auditing,
recordkeeping, deposit insurance and the public availability of information.
These factors will be carefully considered by the Fund's adviser in selecting
investments for the Fund.
CERTAIN BORROWING AND INVESTMENT LIMITATIONS
The Fund will not:
with respect to 75% of the value of its total assets, invest more than 5%
of the value of its total assets in securities of any one issuer (other
than cash, cash items or securities issued or guaranteed by the U.S.
government, or its agencies or instrumentalities, and repurchase
agreements collateralized by such securities), or acquire more than 10%
of the outstanding voting securities of any one issuer; or
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a money market instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to 33 1/3% of the value of its total assets and secure such
borrowings with up to 15% of the value of its total assets at the time of
borrowing.
The above limitations cannot be changed without shareholder approval. The Fund
intends also to limit its investment in restricted and illiquid securities to
10% of the Fund's net assets. See "Restricted and Illiquid Securities."
REGULATORY COMPLIANCE
The Fund may follow non-fundamental operational policies that are more
restrictive than its fundamental investment limitations, as set forth in this
Prospectus and its Statement of Additional Information, in order to comply with
applicable laws and regulations, including the provisions of and regulations
under the Investment Company Act of 1940, as amended (the "ICA"). In particular,
the Fund will comply with the various requirements of SEC Rule 2a-7 under the
ICA which regulates money market mutual funds. For example, with limited
exceptions, Rule 2a-7 prohibits the investment of more than 5% of the Fund's
total assets in the securities of any one issuer, although the Fund's investment
limitation only requires such 5% diversification with respect to 75% of its
assets. The Fund will invest more than 5% of its assets in any one issuer only
under the circumstances permitted by Rule 2a-7. The Fund will also determine the
effective maturity of its investments, as well as its ability to consider a
security as having received the requisite short-term ratings by the Rating
Agencies, according to Rule 2a-7. The Fund may change these operational policies
to reflect changes in the laws and regulations without the approval of its
shareholders.
BANKSOUTH SELECT FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the "Board" or
"Trustees"). The Board is responsible for managing the Trust's business affairs
and for exercising all the Trust's powers except those reserved for the
shareholders. The Executive Committee of the Board handles various of the
Board's delegable responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by the Bank, as
the Fund's investment adviser (the "Adviser"), subject to direction by the
Board. The Adviser conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund's assets. From time to time, to the extent
consistent with the investment objective, policies and restrictions of the Fund,
the Fund may invest in securities of issuers with which the Adviser has a
lending relationship. However, at this time, the Adviser has no intention to
invest in securities of issuers that have a lending relationship with the
investment Adviser or its affiliates.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.50% of the Fund's average daily net assets. The Adviser has
undertaken to reimburse the Fund, up to the amount of the advisory fee, for
operating expenses in excess of limitations established by certain states.
The Adviser also may voluntarily choose to waive a portion of its fee or
reimburse other expenses of the Fund, but reserves the right to terminate
such waiver or reimbursement at any time at its sole discretion.
ADVISER'S BACKGROUND. The Adviser, a national bank headquartered in
Atlanta, Georgia, is a wholly owned subsidiary of Bank South Corporation, a
Georgia corporation which is a registered bank holding company. The Adviser
serves consumers through its network of banking offices with a full range
of deposit and lending products, as well as investment services. The
principal executive offices of the Adviser are located at 55 Marietta
Street, N.W., Atlanta, GA 30303.
The Adviser has managed discretionary assets for its customers since 1931.
As of September 30, 1993, the Adviser managed in excess of $1 billion of
discretionary assets. Prior to the date hereof, the Bank has not served as
an investment adviser to mutual funds.
DISTRIBUTION OF SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies. The
Distributor is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan (the "Plan") adopted in accordance
with SEC Rule 12b-1 under the Investment Company Act of 1940, as amended, the
Fund will pay an amount computed at an annual rate of up to 0.25% of the average
daily net asset value of the shares to finance any activity which is principally
intended to result in the sale of shares subject to the Plan. Certain trust
clients of the Bank, including ERISA plans,will not be affected by the Plan
because the Plan will not be activated unless and until a second, "Trust" class
of shares of the Fund (which would not have a Rule 12b-1 plan) is created and
such trust clients' investments in the Fund are converted to such Trust class.
The Distributor may select other financial institutions (such as broker-dealers
or banks) to provide sales support services as agents for their clients or
customers who beneficially own shares.These financial institutions (including
the Bank) will receive fees from the Distributor based upon shares owned by
their clients or customers. The schedules of such fees and the basis upon which
such fees will be paid will be determined from time to time by the Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund pays the
Distributor the fee described above as opposed to reimbursing the Distributor
for actual expenses incurred. Therefore, the Fund does not pay for amounts
expended by the Distributor in excess of amounts received by it from the Fund,
which may include interest, carrying or other financing charges in connection
with excess amounts expended, or the Distributor's overhead expenses. However,
the Distributor may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
State securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to certain states' securities laws.
ADMINISTRATIVE ARRANGEMENTS. The distributor may also pay administrators a fee
based upon the average net asset value of shares of their customers invested in
the Trust for providing administrative services. This fee, if paid, will be
reimbursed by the Adviser and not the Trust.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides certain
administrative personnel and services necessary to operate the Fund. Such
services include certain legal and accounting services. Federated Administrative
Services provides these at the annual rates specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<S> <C>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$100,000 per portfolio. Federated Administrative Services may choose voluntarily
to waive a portion of its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to the shares. Under the Services Plan,
financial institutions will enter into shareholder service agreements with the
Fund to provide administrative support services to their customers who from time
to time may be owners of record or beneficial owners of the shares. In return
for providing these support services, a financial institution may receive
payments from the Fund at a rate not exceeding 0.25% of the average daily net
assets of the shares benefically owned by the financial institution's customers
for whom it is holder of record or with whom it has a servicing relationship.
These administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Fund reasonably requests.
Certain trust clients of Bank South, including ERISA plans, will not be affected
by the Services Plan because the Services Plan will not be activated unless and
until a second, "Trust" class of shares of the Fund (which would not have a
Services Plan) is created and such trust clients' investments in the Fund are
converted to such Trust class.
CUSTODIAN. The Bank of New York, New York, New York is custodian for the
securities and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent (the "Transfer Agent") for the shares of, and
dividend disbursing agent for, the Fund. It also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania and Dickstein, Shapiro & Morin, Washington, DC.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. The expenses borne by the Fund include, but are not limited to, the
cost of: organizing the Trust and continuing its existence; Trustees' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Trust, the Fund and shares of
the Fund with federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the net asset value of its shares at $1.00 by
valuing the portfolio securities using the amortized cost method. The net asset
value per share is determined by subtracting total liabilities from total assets
and dividing the remainder by the number of shares outstanding. The Fund, of
course, cannot guarantee that its net asset value will always remain at $1.00
per share.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Shares of the Fund may be
purchased through the Bank. In connection with the sale of Fund shares, the
Distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
BY TELEPHONE. To place an order to purchase Fund shares, call Bank South Mutual
Funds Center toll free at 1-800-282-6680 extension 4550. Texas residents must
purchase shares of the Fund through Bank South Securities Corporation at
404-521-7063. Your purchase order will be taken directly over the telephone. The
order must be placed by 4:00 p.m. (Eastern time) for shares to be purchased at
that day's price.
BY MAIL. Provide a letter of instruction to the Fund indicating your purchase
order, including the dollar amount of your order, your account title and/or
name, and your account number, and include a check made payable to the Fund.
PAYMENT BY CHECK. Mail to BankSouth Select Prime Money Market Fund, c/o Bank
South Mutual Funds Center, MC 16, P.O. Box 4387, Atlanta, Georgia 30302.
PAYMENT BY WIRE. To purchase shares by Federal Wire, contact your account
officer for wiring instructions. Wire orders will only be accepted on days on
which the Fund, the Bank and the Federal Reserve Banks are open for business.
Payment by federal funds must be received before 12:00 noon (Eastern time) on
the same day as the order to earn dividends for that day.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000 ($500 for
IRA accounts). Subsequent investments must be in amounts of at least $100. The
Fund may choose to waive its minimum investment requirement from time to time
and for accounts which select the Systematic Investment Program.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their investment on
a regular basis in minimum amounts of $100, unless waived. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking or other transaction deposit account and invested in Fund shares at the
net asset value next determined after an order is received by the Bank. A
shareholder may apply for participation in this program through the Bank.
WHAT SHARES COST
Fund shares are sold at their net asset value next determined after an order is
received. There is no sales charge imposed by the Fund.
The net asset value is determined at 12:00 noon (Eastern time) and 4:00 p.m.
(Eastern time), Monday through Friday, except on: (i) days on which changes (if
any) in the value of the Fund's portfolio securities do not materially affect
its net asset value; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; or (iii) on the
following holidays: New Year's Day, Martin Luther King Day, Presidents' Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans'
Day, Thanksgiving Day, and Christmas Day.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent for the Fund maintains a share account for each shareholder.
Share certificates are not issued unless requested in writing from the Fund or
the Transfer Agent.
Monthly confirmations are sent to report transactions such as purchases and
redemptions as well as dividends paid during the month.
DIVIDENDS
Dividends are declared daily and paid monthly. Dividends are automatically
reinvested on payment dates in additional shares of the Fund, unless a
shareholder makes a written request for cash payments to the Bank, or the Fund.
Shares purchased by wire before 12:00 (Eastern time) begin earning dividends
that day. Shares purchased by check begin earning dividends the day after the
check is converted into available federal funds.
The Fund does not expect to realize any capital gains or losses. If capital
gains or losses were to occur, they could result in an increase or decrease in
dividends. The Fund will distribute in cash or additional shares any realized
net long-term capital gains at least once every 12 months.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values its assets. Investors wishing to use securities to purchase
Fund shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
BANKSOUTH SELECT FUNDS
All shareholders of the Fund are shareholders of BankSouth Select Funds.
BankSouth Select Funds currently include the Fund, BankSouth Select Bond Fund,
BankSouth Select Equity Fund, BankSouth Select Georgia Tax-Free Income Fund, and
BankSouth Select Government Money Market Fund. Shareholders have easy access to
each of the portfolios of BankSouth Select Funds through a telephone exchange
program. All BankSouth Select Funds are advised by the Bank and distributed by
the Distributor.
Shareholders may exchange shares of the Fund for shares of the other BankSouth
Select Funds. In addition, shares of the Fund may also be exchanged for certain
other funds designated by the Bank which are distributed by the Distributor, but
that are not advised by the Bank ("Federated Funds"). For further information on
the availability of Federated Funds for exchanges, please call the Bank South
Mutual Funds Center at 1-800-282-6680 extension 4550. Shares of funds with a
sales charge may be exchanged at net asset value for shares of other funds with
an equal sales charge or no sales charge. Shares of funds with a sales charge
may be exchanged for shares of funds with a higher sales charge at net asset
value, plus the additional sales charge. Shares of funds with no sales charge,
whether acquired by direct purchase, reinvestment of dividends on such shares,
or otherwise, may be exchanged for shares of funds with a sales charge at net
asset value, plus the applicable sales charge.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends or capital gains on such shares retain the character of
the exchanged shares for purposes of exercising further exchange privileges;
thus, an exchange of such shares for shares of a fund with a sales charge would
be at net asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the fund into which an exchange is
to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value for the
applicable fund. Written exchange instructions may require a signature
guarantee. Exercise of this privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short or long-term capital
gain or loss may be realized.
The Fund reserves the right to terminate the exchange privilege at any time on
60 days notice. Shareholders will be notified if this privilege is terminated. A
shareholder may obtain further information on the exchange privilege by calling
the Bank at 1-800-282-6680 extension 4550.
BY TELEPHONE. Instructions for exchanges between funds which are part of the
Trust may be given by telephone to the Bank South Mutual Funds Center at
1-800-282-6680 extension 4550; or to the Distributor. Shares may be exchanged by
telephone only between fund accounts having identical shareholder registrations.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the Fund's Transfer Agent by the Bank and deposited to the
shareholder's mutual fund account before being exchanged. See "Addresses".
An authorization form permitting the Fund to accept telephone exchanges must
first be completed. It is recommended that investors request this privilege at
the time of their initial application. If not completed at the time of initial
application, authorization forms and information regarding this service are
available from the Bank. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through the Bank during times of drastic economic or
market changes. If a shareholder cannot contact the Bank by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to BankSouth Select Funds, 55 Marietta Street, N.W., Atlanta, Georgia
30303.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form and can be made through the Bank or directly to
the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by contacting his
account officer or by calling the Bank South Mutual Funds Center to request the
redemption. (Call 1-800-282-6680 extension 4550.) Shares will be redeemed at the
net asset value next determined after the Fund receives the redemption request
from the Bank. Redemption requests to the Bank must be received before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value,
and the Bank will promptly submit such redemption requests and provide proper
written redemption instructions to the Fund. If, at any time, the Fund should
determine it necessary to terminate or modify this method of redemption,
shareholders would be promptly notified.
An authorization form permitting the Fund to accept telephonic redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service are
available from the Bank. Telephone redemption instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
A shareholder may have the redemption proceeds directly deposited by electronic
funds transfer or wired directly to a domestic commercial bank previously
designated by the shareholder. Wire redemption orders will only be accepted on
days on which the Fund, the Bank and the Federal Reserve Wire System are open
for business. Wire-transferred redemptions may be subject to an additional fee.
In the event of extraordinary economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur, it
is recommended that a redemption request be made in writing and be hand
delivered or sent by overnight mail to your account officer at the Bank.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Bank. The written request should include the shareholder's name, the Fund name,
the account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request to the Bank.
Shareholders should call the Bank at 1-800-282-6680 extension 7066 for
assistance in redeeming shares by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption requesting payment to an address other than that on record with the
Fund, or other than to the shareholder of record must make written redemption
requests with signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the
FDIC's BIF;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are insured
by the FDIC's SAIF; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its Transfer Agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed to the
shareholder within one business day, but in no event more than seven calendar
days, after receipt of a proper written redemption request, provided that the
Transfer Agent has received payment for shares from the shareholder.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or through an Automated Clearing House
("ACH"), the proceeds from the redemption of those shares are not available, and
the shares may not be exchanged, until the Bank is reasonably certain that the
check or clearing house funds have cleared, which could take up to 10 calendar
days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments and the
amount of dividends paid with respect to Fund shares, redemptions may reduce,
and eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. To be eligible to participate in
this program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through the Bank.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum of
$1,000.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund entitles the shareholders to one vote in Trustee
elections and other matters submitted to shareholders of the Trust for vote. All
shares of each portfolio in the Trust have equal voting rights except that, in
matters affecting only a particular Fund, only shareholders of that Fund are
entitled to vote. As a Massachusetts business trust, the Trust is not required
to hold annual shareholder meetings. Shareholder approval will be sought only
for certain changes in the Trust's or the Fund's operation and for the election
of Trustees under certain circumstances.
Any Trustee may be removed by the Board of Trustees or by the shareholders at a
special meeting. A special meeting of the shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for obligations of the Trust. To protect its
shareholders, the Trust has filed legal documents with Massachusetts that
expressly disclaim the liability of shareholders of the Fund for such acts or
obligations of the Trust. These documents require notice of this disclaimer to
be given in each agreement, obligation, or instrument the Trust or its Trustees
enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to indemnify, protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder for
any act or obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust itself cannot meet its
obligations to indemnify shareholders and pay judgments against it from the
assets of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956, as amended or any
affiliate thereof from sponsoring, organizing, controlling or distributing a
registered, open-end investment company continuously engaged in the issuance of
its shares, and prevent banks generally from underwriting or distributing
securities in general. However, such laws and regulations do not prohibit such a
holding company affiliate from acting as investment adviser, transfer agent, or
custodian to such an investment company or from acting as agent for their
customers in purchasing securities. The Fund's Adviser is subject to such
banking laws and regulations.
The Bank believes, based on the advice of its counsel, that it may perform the
services for the Fund contemplated by its advisory agreement with the Fund
without violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their affiliates, as well as
further judicial or administrative decisions or interpretations of present or
future statutes and regulations, could prevent the Bank from continuing to
perform all or a part of the above services for its customers and/or the Fund.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative investment advisers and means of continuing
available investment services. In such event, changes in the operation of the
Fund may occur, including possible termination of any automatic or other Fund
share investment and redemption services then being provided by the Bank. It is
not expected that shareholders would suffer any adverse financial consequences
(if another adviser with equivalent abilities to the Bank is found) as a result
of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund expects to pay no federal income tax because it intends to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund advertises its yield and effective yield.
Yield represents the annualized rate of income earned on an investment over a
seven-day period. It is the annualized amount of dividends earned during the
period on an investment shown as a percentage of the investment. The effective
yield is calculated similarly to the yield, but when annualized, the income
earned by an investment is assumed to be reinvested daily. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
Advertisements and sales literature may also refer to total return. Total return
represents the change, over a specified period of time, in the value of an
investment in the Fund after reinvesting all income distributions. It is
calculated by dividing that change by the initial investment and is expressed as
a percentage.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BankSouth Select Prime Federated Investors Tower
Money Market Fund Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Bank South, N.A. MC 16
P.O. Box 4387
Atlanta, Georgia 30302
- ---------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York 48 Wall Street
New York, New York 10286
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BANKSOUTH SELECT PRIME
MONEY MARKET FUND
PROSPECTUS
A Diversified Portfolio of BankSouth
Select Funds, an Open-End
Management Investment Company
(a Mutual Fund)
January 7, 1994
(Logo)
Bank South, N.A.
Investment Adviser
55 Marietta Street, N.W.
Atlanta, GA 30303
(Logo) Federated Securities Corp.
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
3092207A (1/94)
BANKSOUTH SELECT PRIME MONEY MARKET FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of BankSouth Select Prime Money Market Fund (the "Fund")
dated January 7, 1994. This Statement is not a prospectus itself. To
receive a copy of the prospectus, write or call the Bank South, N.A.
(the "Bank") Mutual Funds Center at 1-800-282-6680 extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE
NOT ISSUED, ENDORSED OR GUARANTEED BY THE BANK OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE BANK IS INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED BY
FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE BANK.
Statement dated January 7, 1994
FEDERATED SECURITIES CORP.
--------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
U.S. Government Obligations 1
Bank Instruments 1
When-Issued and Delayed Delivery
Transactions 1
Reverse Repurchase Agreements 2
Investment Limitations 2
BANKSOUTH SELECT FUNDS MANAGEMENT 3
- ---------------------------------------------------------------
Officers and Trustees 3
The Funds 5
Fund Ownership 6
Trustee Liability 6
INVESTMENT ADVISORY SERVICES 6
- ---------------------------------------------------------------
Adviser to the Fund 6
Advisory Fees 6
ADMINISTRATIVE SERVICES 6
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 6
- ---------------------------------------------------------------
PURCHASING SHARES 7
- ---------------------------------------------------------------
Administrative Arrangements 7
Distribution Plan 7
Purchasing Fund Shares with Securities 7
DETERMINING NET ASSET VALUE 7
- ---------------------------------------------------------------
Use of the Amortized Cost Method 8
EXCHANGE PRIVILEGE 8
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Requirements for Exchange 8
Making an Exchange 9
REDEEMING SHARES 9
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Redemption in Kind 9
TAX STATUS 9
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The Fund's Tax Status 9
Shareholders' Tax Status 9
YIELD 9
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EFFECTIVE YIELD 10
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PERFORMANCE COMPARISONS 10
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APPENDIX 11
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GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
BankSouth Select Prime Money Market Fund (the "Fund") is a portfolio of
BankSouth Select Funds (the "Trust"), which was established as a Massachusetts
business trust under a Declaration of Trust dated as of September 22, 1993, as
amended and restated dated December 20, 1993.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to achieve current income consistent with
stability of principal and liquidity. The investment objective cannot be changed
without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests in money market instruments which mature in 13 months or less,
and which include, but are not limited to, commercial paper and variable amount
master demand notes, bank instruments, U.S. government obligations, and
repurchase agreements.
The instruments of banks that are members of the Federal Deposit Insurance
Corporation ("FDIC"), such as certificates of deposit, demand and time deposits,
and bankers' acceptances, are not necessarily guaranteed or insured by FDIC's
BIF or SAIF or any other governmental agency.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest generally
include direct obligations of the U.S. Treasury (such as U.S. Treasury bills,
notes, and bonds) and obligations issued or guaranteed by U.S. government
agencies or instrumentalities. These securities are backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
BANK INSTRUMENTS
In addition to domestic bank obligations, such as certificates of deposit,
demand and time deposits, and bankers' acceptances, the Fund may invest in:
Eurodollar Certificates of Deposit issued by foreign branches of U.S. or foreign
banks;
Eurodollar Time Deposits, which are U.S. dollar-denominated deposits in foreign
branches of U.S. or foreign banks;
Canadian Time Deposits, which are U.S. dollar-denominated deposits issued by
branches of major Canadian banks located in the United States; and
Yankee Certificates of Deposit, which are U.S. dollar-denominated certificates
of deposit issued by U.S. branches of foreign banks and held in the United
States.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are made to secure what is considered to be an advantageous
price and yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices.
No fees or other expenses, other than normal transaction costs, are incurred.
However, liquid assets of the Fund sufficient to make payment for the securities
to be purchased are segregated at the trade date. These securities are marked to
market daily and are maintained until the transaction is settled. The Fund may
engage in these transactions to an extent that would cause the segregation of an
amount up to 20% of the total value of its assets at any time.
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash and pledging securities as collateral. In a
reverse repurchase agreement, the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution or broker-dealer,
in return for a percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These assets are marked to market daily and
are maintained until the transaction has been settled.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin but may obtain such short-term credits as may be necessary for
clearance of transactions.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
33 1/3% of the value of its total assets, including the amounts borrowed.
The Fund will not borrow money or engage in reverse repurchase agreements
for investment leverage, but rather as a temporary, extraordinary, or
emergency measure or to facilitate management of the portfolio by
enabling the Fund to meet redemption requests when the liquidation of
portfolio securities is deemed to be inconvenient or disadvantageous.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permitted borrowings. In these cases, it may pledge assets having
a market value not exceeding the lesser of the dollar amounts borrowed or
15% of the value of total assets at the time of the pledge.
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of the value of its total assets in
any one industry. However, the Fund may invest more than 25% of the value
of its total assets in cash or cash items, (for purposes of this
limitation, the Fund considers certificates of deposit and demand and
time deposits issued by a U.S. branch of a domestic bank, savings and
loan association or savings bank having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment), securities
issued or guaranteed by the U.S. government, its agencies or
instrumentalities, or instruments secured by money market instruments,
such as repurchase agreements to be "cash items."
INVESTING IN COMMODITIES, COMMODITY CONTRACTS, OR COMMODITY FUTURES
CONTRACTS
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, although it may invest in
the securities of issuers whose business involves the purchase or sale of
real estate or in securities which are secured by real estate or interest
in real estate.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 (the
"Securities Act") in connection with the sale of securities in accordance
with its investment objective, policies, and limitations.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets, except portfolio securities up
to 50% of the value of its total assets, and except that it may purchase
or hold money market instruments, including repurchase agreements and
variable amount demand master notes, in accordance with its investment
objective, policies, and limitations.
DIVERSIFICATION OF INVESTMENTS
With respect to 75% of the value of its assets, the Fund will not
purchase securities of any one issuer (other than cash, cash items or
securities issued or guaranteed by the government of the United States or
its agencies or instrumentalities and repurchase agreements collaterlized
by U.S. government securities) if as a result more than 5% of the value
of its total assets would be invested in the securities of that issuer
and will not acquire more than 10% of the outstanding voting securities
of any one issuer.
The above investment limitations cannot be changed without shareholder approval.
The following investment limitations, however, may be changed by the Trust's
Board of Trustees ("Trustees") without shareholder approval. Shareholders will
be notified before any material change in the following limitations become
effective.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 10% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement in more than seven days after notice, non-negotiable fixed
time deposits with maturities over seven days, and certain restricted
securities not determined by the Trustees to be liquid.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN MINERALS
The Fund will not purchase interests in oil, gas, or other mineral
exploration or development programs or leases, although it may purchase
the securities of issuers which invest in or sponsor such programs.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or the Fund's investment adviser
owning individually more than .5 of 1% of the issuer's securities
together own more than 5% of the issuer's securities.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, will not invest more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in the aggregate. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
The Fund has no present intent to borrow money or pledge securities, except as a
temporary, extraordinary, or emergency measure, in excess of 5% of the value of
its net assets in its first fiscal year.
BANKSOUTH SELECT FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees of the Trust are listed with their addresses, principal
occupations, and present positions. Except as listed below, none of the Trustees
or officers are affiliated with the Bank, Federated Investors, Federated
Securities Corp., Federated Services Company, Federated Administrative Services,
or the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director, AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee, or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Naples, Property Management, Inc.
FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc. (an
One PNC Plaza-23rd Floor engineering firm); Director, Trustee, or Managing General Partner of
Pittsburgh, PA the Funds; formerly, Vice Chairman and Director, PNC Bank, N.A., and
PNC Bank Corp. and
Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds.
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower Treasurer, and President and Treasurer, Federated Advisers, Federated Management, and
Pittsburgh, PA Trustee Federated Research; Executive Vice President, Treasurer, and Director,
Federated Securities Corp.; Trustee, Federated Services Company;
Chairman, Treasurer, and Director, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer
of the Funds.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare,
5916 Penn Mall Inc.; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Learning Endowment for International Peace and RAND Corporation, Online Computer
University of Pittsburgh Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
Pittsburgh, PA Slovak Management Center; Director, Trustee, or Managing General Part-
ner of the Funds; President Emeritus, University of Pittsburgh;
formerly, Chairman, National Advisory Council for Environmental Policy
and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; President
Federated Investors Tower and Director, Federated Securities Corp.; President or Vice President
Pittsburgh, PA of the Funds; Director or Trustee of some of the Funds.
Charles L. Davis, Jr. Vice President Vice President, Federated Administrative Services; Vice President and
Federated Investors Tower and Assistant Assistant Treasurer of some of the Funds; formerly Vice President and
Pittsburgh, PA Treasurer Director of Investor Relations, MNC Financial, Inc. and Vice President,
Product Management, MNC Financial, Inc.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower and Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Com-
pany and President of its Federated Research Division.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
\ Members of the Board's Executive Committee. The Executive Committee of the
Board of Trustees handles various of the delegable responsibilities of the
Board of Trustees between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Intermediate Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust,
Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management; Money Market
Obligations; Money Market Trust; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet
Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for
U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
The Trust's Declaration of Trust provides that the Trustees are not liable for
errors of judgment or mistakes of fact or law. However, they are not protected
against any liability to which they would otherwise be subject by reason of
willful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
- --------------------------------------------------------------------------------
ADVISER TO THE FUND
The Fund's investment adviser is the Bank (the "Adviser"). The Adviser shall not
be liable to the Trust, the Fund, or any shareholder of the Fund for any losses
that may be sustained in the purchase, holding, or sale of any security, or for
anything done or omitted by it, except acts or omissions involving willful
misfeasance, bad faith, gross negligence, or reckless disregard of the duties
imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the Prospectus.
STATE EXPENSE LIMITATIONS
The Fund has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes, and extraordinary expenses)
exceed 2.50% per year of the first $30 million of average net assets,
2.00% per year of the next $70 million of average net assets, and 1.50%
per year of the remaining average net assets, the Adviser has agreed to
reimburse the Fund for its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. John A. Staley, IV, an officer of the Trust, holds approximately 15%
of the outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser exercises reasonable business judgment in selecting brokers who
offer brokerage and research services to execute securities transactions. The
Adviser determines in good faith that commissions charged by such persons are
reasonable in relationship to the value of the brokerage and research services
provided.
Research services provided by brokers and dealers may be used by the Adviser in
advising the Fund and other accounts. To the extent that receipt of these
services may supplant services for which the Adviser might otherwise have paid,
it would tend to reduce its expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and the Federal Reserve Wire System are open for business.
The procedure for purchasing shares of the Fund is explained in the prospectus
under "Investing in the Funds."
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission ("SEC") pursuant
to the Investment Company Act of 1940, as amended (the "ICA"'). The Plan
provides for payment of fees to Federated Securities Corp. (the "Distributor")
to finance any activity which is principally intended to result in the sale of
the Fund's shares subject to the Plan. Such activities may include the
advertising and marketing of shares; preparing, printing, and distributing
prospectuses and sales literature to prospective shareholders, brokers, or
administrators; and implementing and operating the Plan. Pursuant to the Plan,
the Distributor may pay fees to brokers and others for such services.
The Trustees expect that the adoption of the Plan will result in the sale of
sufficient number of shares so as to allow the Fund to achieve economic
viability. It is also anticipated that an increase in the size of the Fund will
facilitate more efficient portfolio management and assist the Fund in seeking to
achieve its investment objective.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values it assets. Investors wishing to use securities to purchase
Fund shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
DETERMINING NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund attempts to stabilize the value of a share at $1.00. The days on which
net asset value is calculated by the Fund are described in the prospectus.
USE OF THE AMORTIZED COST METHOD
The Trustees have decided that the best method for determining the value of
portfolio instruments is amortized cost. Under this method, portfolio
instruments are valued at the acquisition cost as adjusted for amortization of
premium or accumulation of discount rather than at current market value.
The Fund's use of the amortized cost method of valuing portfolio instruments
depends on its compliance with certain conditions of SEC Rule 2a-7 under the
ICA. Under this Rule, the Trustees must establish procedures reasonably designed
to stabilize the net asset value per share, as computed for purposes of
distribution and redemption, at $1.00 per share, taking into account current
market conditions and the Fund's investment objective.
Under such Rule, the Fund is permitted to purchase instruments which are subject
to demand features or standby commitments. As defined by Rule 2a-7, a demand
feature entitles the Fund to receive the principal amount of the instrument from
the issuer or a third party (1) on no more than 30 days' notice or (2) at
specified intervals not exceeding one year on no more than 30 days' notice. A
standby commitment entitles the Fund to achieve same day settlement and to
receive an exercise price equal to the amortized cost of the underlying
instrument plus accrued interest at the time of exercise.
MONITORING PROCEDURES
The Trustees' procedures include monitoring the relationship between the
amortized cost value per share and the net asset value per share based
upon available indications of market value. The Trustees will decide
what, if any, steps should be taken if there is a difference of more than
0.50% between the two values. The Trustees will take any steps they
consider appropriate (such as redemption in kind or shortening the
average portfolio maturity) to minimize any material dilution or other
unfair results arising from differences between the two methods of
determining net asset value.
INVESTMENT RESTRICTIONS
Rule 2a-7 requires that the Fund limit its investments to instruments
that, in the opinion of the Trustees, present minimal credit risks and
have received the requisite rating from one or more nationally recognized
statistical rating organizations. If the instruments are not rated, the
Trustees must determine that they are of comparable quality. The Rule
also requires the Fund to maintain a dollar-weighted average portfolio
maturity (not more than 90 days) appropriate to the objective of
maintaining a stable net asset value of $1.00 per share. In addition, no
instruments with a remaining maturity of more than 13 months can be
purchased by the Fund.
Should the disposition of a portfolio security result in a
dollar-weighted average portfolio maturity of more than 90 days, the Fund
will invest its available cash to reduce the average maturity to 90 days
or less as soon as possible.
The Fund may attempt to increase yield by trading portfolio securities to take
advantage of short-term market variations. This policy may, from time to time,
result in high portfolio turnover. Under the amortized cost method of valuation,
neither the amount of daily income nor the net asset value is affected by any
unrealized appreciation or depreciation of the portfolio.
In periods of declining interest rates, the indicated daily yield on shares of
the Fund computed by dividing the annualized daily income on the Fund's
portfolio by the net asset value computed as above may tend to be higher than a
similar computation made by using a method of valuation based upon market prices
and estimates.
In periods of rising interest rates, the indicated daily yield on shares of the
Fund computed the same way may tend to be lower than a similar computation made
by using a method of calculation based upon market prices and estimates.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders of the Fund may exchange shares of the Fund for shares of other
Funds advised by the Bank and certain other funds designated by the Bank and
distributed by the Distributor, subject to certain conditions. Exchange
procedures are explained in the Prospectus under "Exchange Privilege".
REQUIREMENTS FOR EXCHANGE
Shareholders using the exchange privilege must exchange shares having a net
asset value of at least $1,000. Before the exchange, the shareholder must
receive a prospectus of the fund for which the exchange is being made.
This privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. Upon receipt of proper instructions and
required supporting documents, shares submitted for exchange are redeemed and
the proceeds invested in shares of the other fund. Further information on the
exchange privilege and prospectuses may be obtained by calling the Bank at the
number on the cover of this Statement of Additional Information.
MAKING AN EXCHANGE
Instructions for exchanges may be given in writing. Written instructions may
require a signature guarantee.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Redemption requests cannot be executed on
days on which the New York Stock Exchange is closed or on federal holidays
restricting wire transfers. Redemption procedures are explained in the
prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price, in whole or in part, by a
distribution of securities from the Fund's portfolio. To satisfy registration
requirements in a particular state, redemption in kind will be made in readily
marketable securities to the extent that such securities are available. If such
a state's policy changes, the Fund reserves the right to redeem in kind by
delivering those securities it deems appropriate.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by SEC Rule 18f-1 under the ICA where the
Fund is obligated to redeem shares for any one shareholder in cash only up to
the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day
period.
TAX STATUS
- --------------------------------------------------------------------------------
THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends received as cash or
additional shares. No portion of any income dividend paid by the Fund is
eligible for the dividends received deduction available to corporations. These
dividends and any short-term capital gains are taxable as ordinary income.
CAPITAL GAINS
Capital gains experienced by the Fund could result in an increase in
dividends. Capital losses could result in a decrease in dividends. If,
for some extraordinary reason, the Fund realizes net long-term capital
gains, it will distribute them at least once every 12 months.
YIELD
- --------------------------------------------------------------------------------
The Fund calculates its yield daily based upon the seven days ending on the day
of the calculation, called the "base period." This yield is computed by:
determining the net change in the value of a hypothetical account with a balance
of one share at the beginning of the base period, with the net change excluding
capital changes but including the value of any additional shares purchased with
dividends earned from the original one share and all dividends declared on the
original and any purchased shares;
dividing the net change in the account's value by the value of the account at
the beginning of the base period to determine the base period return; and
multiplying the base period return by (365/7).
To the extent that financial institutions and brokers/dealers charge fees in
connection with services and provided in conjunction with an investment in the
Fund, the performance will be reduced for those shareholders paying those fees.
EFFECTIVE YIELD
- --------------------------------------------------------------------------------
The Fund's effective yield is computed by compounding the unannualized base
period return by:
adding 1 to the base period return;
raising the sum of the 365/7th power; and
subtracting 1 from the result.
PERFORMANCE COMPARISONS
- --------------------------------------------------------------------------------
The Fund's performance depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates on money market instruments;
changes in Fund expenses; and
the relative amount of Fund cash flow.
From time to time the Fund may advertise its performance using certain reporting
services and/or compare its performance to certain indices. These may include
the following:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all income dividends and capital gains distributions, if any.
From time to time, the Fund will quote its Lipper ranking in the "money market
instrument funds" category in advertising and sales literature.
MONEY, a monthly magazine, regularly ranks money market funds in various
categories based on the latest available seven-day compound (effective) yield.
From time to time, the Fund will quote its Money ranking in advertising and
sales literature.
Investors may use such a reporting service in addition to the Fund's prospectus
to obtain a more complete view of the Fund's performance before investing. Of
course, when comparing Fund performance to any index and reporting service,
factors such as portfolio composition and prevailing market conditions should be
considered in assessing the significance of such comparisons.
When comparing funds using reporting services or total return and yield,
investors should take into consideration any relevant differences in funds, such
as permitted portfolio compositions and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for the Fund may refer to total
return. Total return is the historic change in the value of an investment in the
Fund based on the monthly reinvestment of dividends over a specified period of
time.
APPENDIX
- --------------------------------------------------------------------------------
STANDARD & POOR'S CORPORATION CORPORATE BOND RATING DEFINITIONS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effect of changes in
circumstances and economic conditions than debt in higher rated categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATING DEFINITIONS
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
edge." 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 risks appear somewhat larger than in 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 sometime in the future.
STANDARD & POOR'S CORPORATION COMMERCIAL PAPER RATING DEFINITIONS
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC., COMMERCIAL PAPER RATING DEFINITIONS
P-1--Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning 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.
P-2--Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of short-term promissory 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, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC., SHORT-TERM DEBT RATING DEFINITIONS
F-1+--Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1--Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated F-1+.
F-2--Good Credit Quality. Issues carrying this rating have a satisfactory degree
of assurance for timely payment, but the margin of safety is not as great as the
F-1+ and F-1 categories.
DUFF & PHELPS' CREDIT RATING CO. SHORT-TERM DEBT RATING DEFINITIONS
DUFF 1+--Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
DUFF 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1---High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
DUFF 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
A CREDIT RATING IS NOT A RECOMMENDATION TO BUY, SELL OR HOLD SECURITIES, AND IS
SUBJECT TO CHANGE AND/OR WITHDRAWAL BY THE RATING AGENCY.
3092207B (1/94)
BANKSOUTH SELECT BOND FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
PROSPECTUS
The shares of BankSouth Select Bond Fund (the "Fund") offered by this
Prospectus represent interests in a diversified portfolio of BankSouth
Select Funds (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to achieve current
income. The Fund pursues this objective by investing primarily in a
portfolio of long-term bonds and other fixed income securities.
This prospectus contains the information you should read and know before
you invest in the Fund. Keep this prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
January 7, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this Prospectus. You may request a copy of
the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by writing to the Bank
South, N.A. (the "Bank") Mutual Funds Center or calling 1-800-282-6680
extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE NOT
ISSUED, ENDORSED OR GUARANTEED BY, THE BANK OR ANY OF ITS AFFILIATES.
SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE U.S. GOVERNMENT,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR
ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND INVOLVES CERTAIN
RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE BANK IS THE INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED
BY FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE BANK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January 7, 1994
BANKSOUTH SELECT FUNDS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Government Securities 3
Mortgage-Backed Securities 4
ARMS 4
CMOs 5
Asset-Backed Securities 5
Options and Futures 5
Obligations of Foreign Issuers 6
Foreign Government Securities 6
Repurchase Agreements 6
Restricted and Illiquid Securities 6
When-Issued and Delayed Delivery
Transactions 6
Investing in Securities of
Other Investment Companies 6
Lending of Portfolio Securities 7
Average Portfolio Maturity 7
Temporary Investments 7
Foreign Securities Risks 7
Portfolio Turnover 7
Certain Borrowing and Investment Limitations 8
BANKSOUTH SELECT FUNDS INFORMATION 8
- ------------------------------------------------------
Management of the Trust 8
Board of Trustees 8
Investment Adviser 8
Advisory Fees 8
Adviser's Background 9
Portfolio Manager 9
Distribution of Fund Shares 9
Distribution Plan 9
Administrative Arrangements 10
Administration of the Trust 10
Administrative Services 10
Shareholder Services Plan 10
Custodian 11
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 11
Legal Counsel 11
Independent Auditors 11
Expenses of the Fund 11
NET ASSET VALUE 11
- ------------------------------------------------------
INVESTING IN THE FUND 11
- ------------------------------------------------------
Share Purchases 11
By Telephone 12
By Mail 12
Payment By Check 12
Payment By Wire 12
Minimum Investment Required 12
Systematic Investment Program 12
What Shares Cost 12
Purchases at Net Asset Value 13
Sales Charge Reallowance 13
Reducing the Sales Charge 13
Quantity Discounts and Accumulated
Purchases 13
Letter of Intent 13
Reinvestment Privilege 14
Concurrent Purchases 14
Certificates and Confirmations 14
Dividends and Distributions 14
Purchasing Fund Shares with Securities 14
EXCHANGE PRIVILEGE 15
- ------------------------------------------------------
BankSouth Select Funds 15
By Telephone 16
REDEEMING SHARES 16
- ------------------------------------------------------
By Telephone 16
By Mail 17
Signatures 17
Receiving Payment 17
Redemption Before Purchase
Instruments Clear 17
Systematic Withdrawal Program 18
Accounts with Low Balances 18
SHAREHOLDER INFORMATION 18
- ------------------------------------------------------
Voting Rights 18
Massachusetts Partnership Law 18
EFFECT OF BANKING LAWS 19
- ------------------------------------------------------
TAX INFORMATION 19
- ------------------------------------------------------
Federal Income Tax 19
State and Local Taxes 20
PERFORMANCE INFORMATION 20
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
BANKSOUTH SELECT BOND FUND
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... 2.50%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds, as applicable)................................................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee............................................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee.......................................................................................... 0.75%
12b-1 Fees(1)........................................................................................... 0.00%
Other Expenses (after waiver)(2)........................................................................ ]0.27%
Total Fund Operating Expenses(3).................................................................... 1.02%
</TABLE>
- ---------
(1) As of the date of this prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund can pay up to 0.75% as a 12b-1 fee to the distributor.
Certain trust clients of the Bank or its affiliates, including ERISA plans,
will not be affected by the distribution plan because the distribution plan
will not be activated unless and until a second, "Trust," class of shares
of the Fund (which would not have a Rule 12b-1 plan) is created and such
clients' investments in the Fund are converted to such Trust class.
(2) Total Other Expenses are estimated to be 0.28% absent the anticipated
voluntary waiver by the transfer agent.
(3) The Total Fund Operating Expenses are estimated to be 1.03% absent the
anticipated voluntary waiver by the transfer agent.
* Expenses are estimated based on average expenses expected to be incurred
during the fiscal year ending September 30, 1994. During the course of this
period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "BANKSOUTH SELECT FUNDS INFORMATION" AND "INVESTING IN THE FUND."
WIRE TRANSFER REDEMPTIONS MAY BE SUBJECT TO AN ADDITIONAL FEE.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fees................................................................................ $35 $57
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER
30, 1994.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 22, 1993, as amended and restated dated December 20,
1993. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. This Prospectus relates only to the Trust's BankSouth Select Bond
Fund. The Fund is designed as a convenient means of accumulating an interest in
a professionally managed, diversified portfolio consisting primarily of
government, mortgage-backed, asset-backed and corporate securities, as well as
collateralized mortgage obligations ("CMOs") and adjustable rate mortgage
securities ("ARMS"). A minimum initial investment of $1,000 is required ($500
for Individual Retirement Accounts ("IRAs")) and subsequent investments must be
in amounts of at least $100. See "Investing in the Fund."
Fund shares are sold at net asset value plus a maximum sales charge of 2.50% and
redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to achieve current income. The investment
objective cannot be changed without the approval of the Fund's shareholders.
While there is no assurance that the Fund will achieve its investment objective,
it endeavors to do so by following the investment policies described in this
prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing primarily in a portfolio
of U.S. government, mortgage-backed, asset-backed and corporate bonds and other
securities as well as CMOs and ARMS. Under normal market conditions, the Fund
will invest at least 65% of its assets in bonds. The Fund intends to maintain a
dollar-weighted average portfolio maturity of 15 years or less. Unless indicated
otherwise, the investment policies may be changed by the Trustees without the
approval of Fund shareholders. Shareholders will be notified before any material
change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The securities in which the Fund may invest include,
but are not limited to:
domestic issues of corporate debt obligations, so long as such debt
obligations are rated by one or more nationally recognized statistical
rating organizations ("Rating Agencies") in one of the four highest
rating categories at the time of purchase (e.g., AAA, AA, A or BBB by
Standard & Poor's Corporation ("S&P"), Fitch Investors Service, Inc.
("Fitch"), or Duff & Phelps Credit Rating Co. ("Duff & Phelps") or Aaa,
Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's")) or, if
unrated, determined by Bank South, N.A. (the "Adviser") to be of
comparable quality to securities having such ratings;
commercial paper (including asset-backed commercial paper) which matures
in 270 days or less so long as at least two ratings are high quality
ratings by Rating Agencies. Such ratings would include: A-1 or A-2 by
S&P, Prime-1 or Prime-2 by Moody's, F-1 or F-2 by Fitch, or Duff-1 or
Duff-2 by Duff & Phelps;
obligations issued or guaranteed as to payment of principal and interest
by the U.S. government, or its agencies or instrumentalities ("Government
Securities");
asset-backed securities in one of the two highest ratings categories by a
Rating Agency, or if unrated, of comparable quality in the judgment of
the Adviser;
U.S. dollar denominated debt obligations of foreign issuers;
repurchase agreements;
time and savings deposits (including certificates of deposit) in
commercial or savings banks whose accounts are insured by the Bank
Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF"), which are administered by the Federal Deposit Insurance
Corporation ("FDIC"), and certificates of deposit and other time deposits
issued by foreign branches of BIF-insured banks;
bankers' acceptances; and
securities of other investment companies.
Securities rated Baa or BBB, while of investment grade, have speculative
characteristics with respect to the issuer's capacity to pay interest and repay
principal. If an investment grade security loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell the
security from its portfolio; however, the Adviser will endeavor to dispose of
the security as soon as practicable thereafter, taking into account existing
market conditions and the cost of such sale, including potential losses. A
credit rating is not a recommendation to buy, sell or hold securities, and is
subject to change and/or withdrawal by the rating agency.
The Adviser attempts to manage the Fund's total performance, which includes both
changes in principal value of the Fund's portfolio and income earned, by
anticipating opportunities in the capital markets and risks of changes in market
interest rates. When the Adviser expects that market interest rates may decline,
which would cause prices of outstanding bonds to rise, it generally extends the
average maturity of the Fund's portfolio. When the Adviser expects that market
interest rates may rise, which would cause prices of outstanding bonds to
decline, it generally shortens the average maturity of the Fund's portfolio.
Further, the Adviser attempts to improve the Fund's total return by weighing the
relative value of alternative bond issues having similar maturities in selecting
portfolio securities. By actively managing the Fund's portfolio in this manner,
the Adviser seeks to provide capital appreciation during periods of falling
interest rates and protection against capital depreciation during periods of
rising rates.
GOVERNMENT SECURITIES. The types of Government Securities in which the Fund may
invest generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by U.S.
government agencies or instrumentalities. These securities are backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which may not always receive
financial support from the U.S. government are:
Federal Home Loan Banks;
Federal Home Loan Mortgage Corporation;
Federal Farm Credit Banks;
Student Loan Marketing Association; and
Federal National Mortgage Association.
MORTGAGE-BACKED SECURITIES. Some of the U.S. Government Securities in which the
Fund will invest can represent an undivided interest in a pool of residential
mortgages or may be collateralized by a pool of residential mortgages
("Mortgage-backed securities"). Mortgage-backed securities have yield and
maturity characteristics corresponding to the underlying mortgages.
Distributions to holders of mortgage-backed securities include both interest and
principal payments. Principal payments represent the amortization of the
principal of the underlying mortgages and any prepayments of principal due to
prepayment, refinancing, or foreclosure of the underlying mortgages. Although
maturities of the underlying mortgage loans may range up to 30 years,
amortization and prepayments substantially shorten the effective maturities of
mortgage-backed securities. Due to these features, mortgage-backed securities
are less effective as a means of "locking-in" attractive long-term interest
rates than fixed-income securities which pay only a stated amount of interest
until maturity, when the entire principal amount is returned. Prepayments, which
become more likely as mortgage interest rates decline, create a need to reinvest
distribution of principal at then-current lower rates. Since comparatively high
interest rates cannot be effectively "locked in", mortgage-backed securities may
have less potential for capital appreciation during periods of declining
interest rates than other non-callable fixed-income government securities of
comparable stated maturities. However, mortgage-backed securities may experience
less pronounced declines in value during periods of rising interest rates.
Mortgage-backed securities utilizing ARMS may fluctuate less in value and suffer
fewer prepayments than mortgage-backed securities utilizing fixed rate
mortgages.
ARMS. ARMS are mortgage-backed securities representing interests in adjustable
rather than fixed interest rate mortgages. The Fund invests in ARMS issued by
the Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), the Federal Home Loan Mortgage Corporation
("FHLMC"), and by non-government and private entities and are actively traded.
The underlying mortgages which collateralize ARMS issued by GNMA are fully
guaranteed by the Federal Housing Administration ("FHA") or Veterans
Administration ("VA"), while those collateralizing ARMS issued by FHLMC or FNMA
are typically conventional residential mortgages conforming to strict
underwriting size and maturity constraints.
CMOS. CMOs are debt obligations collateralized by mortgage loans or
mortgage-backed securities. Typically, CMOs are collateralized by GNMA, FNMA or
FHLMC certificates, but may be collateralized by whole loans or private
mortgage-backed securities.
The Fund will only invest in CMOs which are rated AAA by a Rating Agency, and
which may be: (a) collateralized by pools of mortgages in which each mortgage is
guaranteed as to payment of principal and interest by an agency or
instrumentality of the U.S. government; (b) collateralized by pools of mortgages
in which payment of principal and interest is guaranteed by the issuer and such
guarantee is collateralized by U.S. Government Securities; (c) securities in
which the proceeds of the issuance are invested in mortgage securities and the
payment of the principal and interest is supported by the credit of an agency or
instrumentality of the U.S. government; or (d) collateralized by pools of
mortgages or mortgage-backed securities not guaranteed by the U.S. government or
any government agency.
ASSET-BACKED SECURITIES. Asset-backed securities are obligations of trusts or
special purpose corporations that directly or indirectly represent a
participation in, or are secured by and payable from various types of assets. At
the present time, automobile and credit card receivables are among the most
common collateral supporting asset-backed securities. In general, the collateral
supporting asset-backed securities is of shorter maturity than mortgage loans
and is less likely to experience substantial prepayments. As with
mortgage-backed securities, asset-backed securities are often backed by a pool
of assets representing the obligations of a number of different parties and use
similar credit enhancement techniques.
Asset-backed securities present certain risks that are not presented by
mortgage-backed securities. Credit card receivables are generally unsecured and
the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to set off
certain amounts owed on the credit cards, thereby reducing the balance due. Most
issuers of asset-backed securities backed by automobile receivables permit the
servicers of such receivables to retain possession of the underlying
obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of
the holders of the related asset-backed securities. In addition, because of the
large number of vehicles involved in a typical issuance and technical
requirements under state laws, the trustee for the holders of asset-backed
securities backed by automobile receivables may not have a recorded security
interest in all of the obligations backing such receivables. Therefore, there is
a possibility that recoveries on repossessed collateral may not, in some cases,
be available to support payments on these securities.
In general, issues of asset-backed securities are structured to include
additional collateral and/or additional credit support to protect against the
risk that a portion of the collateral supporting the asset-backed securities may
default and/or may suffer from these defects. In evaluating the strength of
particular issues of asset-backed securities, the Adviser considers any rating
given to such securities, the financial strength of the provider of credit
support, the type and extent of credit enhancement provided, as well as the
documentation and structure of the issue itself and the credit support.
OPTIONS AND FUTURES. The Fund may purchase and sell financial futures contracts
and purchase and sell options on financial futures contracts and on its
portfolio securities.
OBLIGATIONS OF FOREIGN ISSUERS. The Fund may invest in debt obligations of
foreign issuers including foreign governments, foreign governmental agencies, or
supranational institutions. In addition, the Fund may invest in high quality
debt securities issued by corporations subject to the credit limitations listed
above.
FOREIGN GOVERNMENT SECURITIES. The foreign government securities in which
the Fund may invest generally consist of obligations supported by national,
state or provincial governments or similar political subdivisions. Foreign
government securities also include debt obligations of supranational
entities, which include international organizations designed or supported
by governmental entities to promote economic reconstruction or development,
international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development
(the World Bank), the European Coal and Steel Community, the Asian
Development Bank and the InterAmerican Development Bank.
Foreign government securities also include debt securities of
"quasi-governmental agencies". Debt securities of quasi-governmental
agencies are either debt securities issued by entities which are owned by a
national, state or equivalent government or are obligations of a political
unit that are not backed by the national government's full faith and credit
and general taxing powers. Further, foreign government securities include
mortgage-related securities issued or guaranteed by national, state or
provincial government instrumentalities, including quasi-governmental
agencies.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker-dealers, and other financial institutions sell securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price including interest. To the extent that the seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. Repurchase agreements will be collateralized by
securities having a value equal at all times to at least 100% of the amount of
the securities subject to the repurchase agreement.
RESTRICTED AND ILLIQUID SECURITIES. The Fund intends to invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies, but which
are subject to restriction on resale under federal securities law. However, the
Fund will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than seven
days after notice, to 15% of its net assets.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase portfolio
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Fund purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Fund to miss a price or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies, but will
not own more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of total assets in any one investment company, or
invest more than 10% of total assets in investment companies in the aggregate.
The Fund will invest in other investment companies primarily for the purpose of
investing short-term cash which has not yet been invested in other portfolio
instruments. It should be noted that investment companies incure certain
expenses, and therefore, any investment by the Fund in shares of another
investment Company would be subject to certain duplicate expenses, particularly
transfer agent and custodian fees. The adviser will waive its investment
advisory fee on assets invested in securities of open-end investment companies.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, to
broker-dealers, banks, or other institutional borrowers of securities. The Fund
will limit the amount of portfolio securities it may lend to not more than 50%
of the value of its total assets at any time. The Fund will only enter into loan
arrangements with broker-dealers, banks, or other institutions which the Adviser
has determined are creditworthy under guidelines established by the Trustees,
and will receive collateral equal to at least 100% of the value of the
securities loaned at all times.
AVERAGE PORTFOLIO MATURITY. Although the Fund will not maintain a stable net
asset value, the Adviser will seek to limit, to the extent consistent with the
Fund's investment objective of current income, the magnitude of fluctuations in
the Fund's net asset value by limiting the dollar-weighted average maturity of
the Fund's portfolio to 15 years or less. Securities with shorter maturities
generally have less price movement than securities of comparable quality with
longer maturities. In periods of anticipated rising interest rates, a greater
portion of the Fund's assets may be invested in shorter term and variable rate
securities, the value of which are believed to be less sensitive to interest
rate changes.
TEMPORARY INVESTMENTS. From time to time for defensive purposes, the Fund may
invest temporarily in the securities described under "Acceptable Investments"
having short-term maturities.
FOREIGN SECURITIES RISKS. Investments in foreign securities, particularly those
of non-governmental issuers, may involve additional risks not ordinarily
associated with investments in domestic issuers. Specifically, such securities
may be affected by the strength of foreign currencies relative to the U.S.
Dollar, possible expropriation or nationalization, or by political, social,
diplomatic or economic developments and the difficulties of assessing economic
trends in foreign countries. Accounting procedures and government supervision
may be less stringent than those applicable to U.S. companies. Financial
information may be unavailable or less detailed, and interpretation of financial
information prepared under foreign accounting standards more difficult than is
the case of domestic issuers. Foreign securities and securities markets may be
less liquid or more volatile than U.S. securities markets and may offer less
protection to investors. It may also be more difficult to enforce contractual
obligations abroad than would be the case in the United States because of
differences in the legal systems. Foreign securities may be subject to foreign
taxes or tax withholding, which may reduce yield, and may be less marketable
than comparable U.S. securities. Transaction costs in foreign securities may be
higher. The Adviser will consider these and other factors before investing in
foreign securities and will not make such investments unless, in its opinion,
such investments will meet the Fund's standards and objectives.
PORTFOLIO TURNOVER. Although the Fund does not intend to invest for the purpose
of seeking short-term profits, securities in its portfolio will be sold whenever
the Adviser believes it is appropriate to do so in light of the Fund's
investment objective, without regard to the length of time a particular security
may have been held. The Adviser does not anticipate that the Fund's annual
portfolio turnover rate will exceed 200% under normal market conditions. A high
portfolio turnover rate may lead to increased costs and may also result in
higher taxes paid by the Fund's shareholders.
CERTAIN BORROWING AND INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to 33 1/3% of the value of its total assets and secure such
borrowings with up to 15% of the value of those assets at the time of
borrowing; or
with respect to 75% of its total assets, invest more than 5% of the value
of its total assets in securities of any one issuer (other than cash,
cash items, or securities issued or guaranteed by the U.S. government and
its agencies or instrumentalities, and repurchase agreements
collateralized by such securities or acquire more than 10% of the
outstanding voting securities of any one issuer).
The above investment limitations cannot be changed without shareholder approval.
BANKSOUTH SELECT FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the "Board" or
"Trustees"). The Board is responsible for managing the Trust's business affairs
and for exercising all the Trust's powers except those reserved for the
shareholders. The Executive Committee of the Board handles various of the
Board's delegable responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by the Bank as
the Fund's investment adviser (the "Adviser"), subject to direction by the
Board. The Adviser conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund's assets. From time to time, to the extent
consistent with the investment objective, policies and restrictions of the Fund,
the Fund may invest in securities of issuers with which the Adviser has a
lending relationship. However, at this time, the Adviser has no intention to
invest in securities of issuers that have a lending relationship with the
investment Adviser or its affiliates.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets. The fee paid by the
Fund, while higher than the advisory fee paid by certain other mutual
funds, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser has undertaken to reimburse the Fund,
up to the amount of the advisory fee, for operating expenses in excess of
limitations established by certain states. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. The Adviser, a national bank headquartered in
Atlanta, Georgia, is a wholly owned subsidiary of Bank South Corporation, a
Georgia corporation which is a registered bank holding company. The Adviser
serves consumers through its network of banking offices with a full range
of deposit and lending products, as well as investment services. The
principal executive offices of the Adviser are located at 55 Marietta
Street, N.W., Atlanta, GA 30303.
The Adviser has managed discretionary assets for its customers since 1931.
As of September 30, 1993 the Adviser managed in excess of $1 billion of
discretionary assets. Prior to the date hereof, the Adviser has not served
as an investment adviser to mutual funds.
PORTFOLIO MANAGER. Mr. J.M. Johnston, Jr. is primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Johnston began at the
Adviser in September of 1992. Mr. Johnston directs the investment
management of the employee benefit plans, fixed income fund, and personal
trusts. He is also responsible for securities analysis for various
industries.
Mr. Johnston began his investment career in 1981. Prior to his affiliation
with the Bank, he spent six years with The Citizens & Southern National
Bank, Atlanta, Georgia as a portfolio manager.
Mr. Johnston holds a Bachelor of Science degree from the University of
Alabama and a Master of Business Administration in Finance from Georgia
State University. He is a member of the Atlanta Society of Financial
Analysts.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies. The
Distributor is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan (the "Plan") adopted in accordance
with Securities and Exchange Commission ("SEC") Rule 12b-1 under the Investment
Company Act of 1940, as amended, the Fund will pay an amount computed at an
annual rate of up to 0.75% of the average daily net asset value of the shares to
finance any activity which is principally intended to result in the sale of
shares subject to the Plan. Certain trust clients of the Bank, including ERISA
plans, will not be affected by the Plan because the Plan will not be activated
unless and until a second, "Trust" class of shares of the Fund (which would not
have a Rule 12b-1 plan) is created and such trust clients' investments in the
Fund are converted to such Trust class.
The Distributor may select other financial institutions (such as broker-dealers
or banks) to provide sales support services as agents for their clients or
customers who beneficially own shares. These financial institutions (including
the Bank) will receive fees from the Distributor based upon shares subject to
the Plan and owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund pays the
Distributor the fee described above as opposed to reimbursing the Distributor
for actual expenses incurred. Therefore, the Fund does not pay for amounts
expended by the Distributor in excess of amounts received by it from the Fund,
which may include interest, carrying or other financing charges in connection
with excess amounts expended, or the Distributor's overhead expenses. However,
the Distributor may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
State securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to certain states' laws.
ADMINISTRATIVE ARRANGEMENTS. The Distributor may also pay administrators a fee
based upon the average net asset value of shares of their customers invested in
the Trust for providing administrative services. This fee, if paid, will be
reimbursed by the Adviser and not the Trust.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides certain
administrative personnel and services necessary to operate the Fund. Such
services include certain legal and accounting services. Federated Administrative
Services provides these at the annual rates specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$100,000 per Fund. Federated Administrative Services may voluntarily choose to
waive a portion of its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to the shares. Under the Services Plan,
financial institutions will enter into shareholder service agreements with the
Fund to provide administrative support services to their customers who from time
to time may be owners of record or beneficial owners of the shares. In return
for providing these support services, a financial institution may receive
payments from the Fund at a rate not exceeding 0.25% of the average daily net
assets of the shares benefically owned by the financial institution's customers
for whom it is holder of record or with whom it has a servicing relationship.
These administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Fund reasonably requests.
Certain trust clients of the Bank, including ERISA plans, will not be affected
by the Services Plan because the Services Plan will not be activated unless and
until a second, "Trust" class of shares of the Fund (which would not have a
Services Plan) is created and such trust clients' investments in the Fund are
converted to such Trust class.
CUSTODIAN. The Bank of New York, New York, New York is custodian for the
securities and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent (the "Transfer Agent") for the shares of, and
dividend disbursing agent for, the Fund. It also provides certain accounting and
recordkeeping services with respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. The expenses borne by the Fund include, but are not limited to, the
cost of: organizing the Trust and continuing its existence; Trustees' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Trust, the Fund, and shares of
the Fund with federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Fund shares may be purchased
through the Bank. In connection with the sale of shares of the Fund, the
distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
BY TELEPHONE. To place an order to purchase Fund shares, call the Bank South
Mutual Funds Center toll free at 1-800-282-6680 extension 4550. Texas residents
must purchase shares of the Fund through Bank South Securities Corporation at
404-521-7063. Your purchase order will be taken directly over the telephone. The
order must be place by 4:00 p.m. (Eastern time) for shares to be purchased at
that day's price.
BY MAIL. Provide a letter of instruction to the Fund indicating your purchase
order, including the dollar amount of your order, your account title and/or
name, and your account number, and include a check made payable to the Fund.
PAYMENT BY CHECK. Mail to BankSouth Select Bond Fund, c/o Bank South Mutual
Funds Center, MC 16, P.O. Box 4387, Atlanta, Georgia 30302.
PAYMENT BY WIRE. To purchase shares by Federal Wire, contact your account
officer for wiring instructions. Wire orders will only be accepted on days on
which the Fund, the Bank, and the Federal Reserve Banks are open for business.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000 ($500 for
IRAs). Subsequent investments must be in amounts of at least $100. The Fund may
choose to waive its minimum investment requirements from time to time and for
accounts which select the Systematic Investment Program.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in a minimum amount of $100, unless waived. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking or other transaction deposit account and invested in Fund shares at the
net asset value next determined after an order is received by the Bank, plus an
applicable sales charge. A shareholder may apply for participation in this
program through the Bank.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
<S> <C> <C>
Less than $100,000 2.50% 2.56%
$100,000 but less than $250,000 2.00% 2.04%
$250,000 but less than $500,000 1.50% 1.52%
$500,000 but less than $750,000 1.00% 1.01%
$750,000 but less than $1,000,000 0.50% 0.50%
$1,000,000 and more 0.00% 0.00%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which changes (if any) in the value of the Fund's
portfolio securities do not materially affect its net asset value; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; and (iii) the following holidays: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales charge, by certain trust customers of the Bank and
employees of the Bank and its affiliates and their spouses and children under
21.
SALES CHARGE REALLOWANCE. The Bank and any authorized dealer or bank will
normally receive up to 85% of the applicable sales charge as a transaction fee
from its customers, and for sales and/or administrative services performed on
behalf of its customers in connection with the initiation of customer accounts
and purchases of Fund shares. Any portion of the sales charge which is not paid
to the Bank or a dealer will be retained by the Distributor. However, the
Distributor, in its sole discretion, may uniformly offer to permit all dealers
and other institutions selling shares of the Fund, to receive all or a portion
of the amount the Distributor normally retains as a sales charge. If accepted by
the dealer, such additional payments may be in the form of cash or other
promotional incentives, and will be predicated upon the amount of shares of the
Fund or other BankSouth Select Funds sold by the dealer or other institution.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares of the Fund through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
previous page, larger purchases reduce the sales charge paid. The Fund will
combine purchases of shares made on the same day by the investor, his spouse,
and his children under age 21 when it calculates the sales charge.
If an additional purchase of shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
shares having a current value at the public offering price of $90,000 and
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 2.00%,
not 2.50%.
To receive the sales charge reduction, the Bank must be notified by the
shareholder in writing at the time the purchase is made that shares are already
owned or that purchases are being combined. The Fund will reduce the sales
charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Fund over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the custodian to hold
up to 2.50% of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge. The
Bank must be notified by the shareholder in writing or by the shareholder's
financial institution of the reinvestment in order to eliminate a sales charge.
If the shareholder redeems his shares in the Fund, there may be tax
consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in one of the other
funds in the Trust with a sales charge and $70,000 in this Fund, the sales
charge would be reduced.
To receive this sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the Bank at the time the concurrent purchases are
made. The Fund will reduce the sales charge after it confirms the purchases. See
"What Shares Cost" and "Addresses".
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent for the Fund maintains a share account for each shareholder
of record. Share certificates are not issued unless requested in writing from
the Fund or the Transfer Agent.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends are sent to each shareholder.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared daily and paid monthly to all shareholders invested in
the Fund on the record date.
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months. Dividends and capital gains will be reinvested in additional
shares on payment dates at the ex-dividend date's net asset value without a
sales charge, unless a shareholder makes written request for cash payments to
the Fund or the Bank.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values its assets. Investors wishing to use securities to purchase
Fund shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
BANKSOUTH SELECT FUNDS
All shareholders of the Fund are shareholders of BankSouth Select Funds.
BankSouth Select Funds currently include the Fund, BankSouth Select Equity Fund,
BankSouth Select Georgia Tax-Free Income Fund, BankSouth Select Prime Money
Market Fund, and BankSouth Select Government Money Market Fund. Shareholders
have easy access to each of the portfolios of BankSouth Select Funds through a
telephone exchange program. All BankSouth Select Funds are advised by the Bank
and distributed by the Distributor.
Shareholders may exchange shares of the Fund for shares of the other BankSouth
Select Funds in the Trust. In addition, shares of the Fund may also be exchanged
for certain other funds designated by the Bank which are distributed by the
Distributor, but are not advised by the Bank ("Federated Funds"). For further
information on the availability of Federated Funds for exchanges, please call
the Bank South Mutual Funds Center at 1-800-282-6680 extension 4550. Shares of
funds with a sales charge may be exchanged at net asset value for shares of
other funds with an equal sales charge or no sales charge. Shares of funds with
a sales charge may be exchanged for shares of funds with a higher sales charge
at net asset value, plus the additional sales charge. Shares of funds with no
sales charge, whether acquired by direct purchase, reinvestment of dividends on
such shares, or otherwise, may be exchanged for shares of funds with a sales
charge at net asset value, plus the applicable sales charge.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends or capital gains on such shares retain the character of
the exchanged shares for purposes of exercising further exchange privileges;
thus, an exchange of such shares for shares of a fund with a sales charge would
be at net asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the fund into which an exchange is
to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value for the
applicable fund. Written exchange instructions may require a signature
guarantee. Exercise of this privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short or long-term capital
gain or loss may be realized.
The Fund reserves the right to terminate the exchange privilege at any time on
60 days notice. Shareholders will be notified if this privilege is terminated. A
shareholder may obtain further information on the exchange privilege by calling
the Bank at 1-800-282-6680 extension 4550.
BY TELEPHONE. Instructions for exchanges between funds which are part of the
Trust may be given by telephone to the Bank South Mutual Funds Center at
1-800-282-6680 extension 4550; or to the Distributor. Shares may be exchanged by
telephone only between fund accounts having identical shareholder registrations.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the Fund's Transfer Agent by the Bank and deposited to the
shareholder's mutual fund account before being exchanged. See "Addresses".
An authorization form permitting the Fund to accept telephone exchanges must
first be completed. It is recommended that investors request this privilege at
the time of their initial application. If not completed at the time of initial
application, authorization forms and information regarding this service are
available from the Bank. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through the Bank during times of drastic economic or
market changes. If a shareholder cannot contact the Bank by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to BankSouth Select Funds, 55 Marietta Street N.W., Atlanta, Georgia 30303.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form and can be made through the Bank or directly to
the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by contacting his
account officer or by calling the Bank South Mutual Funds Center to request the
redemption. (Call 1-800-282-6680 extension 4550.) Shares will be redeemed at the
net asset value next determined after the Fund receives the redemption request
from the Bank. Redemption requests to the Bank must be received before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value,
and the Bank will promptly submit such redemption requests and provide written
redemption instructions to the Fund. If, at any time, the Fund should determine
it necessary to terminate or modify this method of redemption, shareholders
would be promptly notified.
An authorization form permitting the Fund to accept telephonic redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application.
If not completed at the time of initial application, authorization forms and
information on this service are available from the Bank. Telephone redemption
instructions may be recorded. If reasonable procedures are not followed by the
Fund, it may be liable for losses due to unauthorized or fraudulent telephone
instructions.
A shareholder may have the redemption proceeds directly deposited by electronic
funds transfer or wired directly to a domestic commercial bank previously
designated by the shareholder. Wire redemption orders will only be accepted on
days on which the Fund, the Bank and the Federal Reserve Wire System are open
for business. Wire-transferred redemptions may be subject to an additional fee.
In the event of extraordinary economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur, it
is recommended that a redemption request be made in writing and be hand
delivered or sent by overnight mail to your account officer at the Bank.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Bank. The written request should include the shareholder's name, the Fund name,
the account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request to the Bank.
Shareholders should call the Bank for assistance in redeeming shares by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption requesting payment to an address other than that on record with the
Fund, or other than to the shareholder of record must make written redemption
requests with signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the
FDIC's BIF;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are insured
by the FDIC's SAIF; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its Transfer Agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed to the
shareholder within one business day, but in no event more than seven calendar
days, after receipt of a proper written redemption request, provided that the
Transfer Agent has received payment for shares from the shareholder.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or through an Automated Clearing House
("ACH"), the proceeds from the redemption of those shares are not available, and
the shares may not be exchanged, until the Bank is reasonably certain that the
check or clearing house funds have cleared, which could take up to 10 calendar
days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments and the
amount of dividends paid with respect to Fund shares, redemptions may reduce,
and eventually deplete, the shareholder's investment in the Fund. For this
reason, payments under this program should not be considered as yield or income
on the shareholder's investment in the Fund. To be eligible to participate in
this program, a shareholder must have an account value of at least $10,000. A
shareholder may apply for participation in this program through the Bank.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum of
$1,000.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund entitles shareholders to one vote in Trustee elections
and other matters submitted to shareholders of the Trust for vote. All shares of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular Fund, only shareholders of that Fund are entitled to
vote. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances.
Any Trustee may be removed by the Board or by the shareholders at a special
meeting. A special meeting of the shareholders shall be called by the Trustees
upon the written request of shareholders owning at least 10% of the Trust's
outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders of the Fund for such acts
or obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to indemnify, protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder for
any act or obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from assets
of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956, as amended or any
affiliate thereof from sponsoring, organizing, controlling, or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from underwriting or
distributing securities. However, such banking laws and regulations do not
prohibit such a holding company affiliate or bank generally from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from acting as agent for their customers in purchasing securities. The Fund's
Adviser, the Bank, is subject to such banking laws and regulations.
The Bank believes, based on the advice of its counsel, that it may perform the
services for the Fund contemplated by its advisory agreement with the Trust
without violating the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their affiliates, as well as
further judicial or administrative decisions or interpretations of present or
future statutes and regulations, could prevent the Bank from continuing to
perform all or a part of the above services for its customers and/or the Fund.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of the Fund may
occur, including possible termination of any automatic or other Fund share
investment and redemption services then being provided by the Bank. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to the Bank is found)
as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund expects to pay no federal income tax because it intends to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated each day by dividing the net investment
income per share (as defined by the SEC) earned by the Fund over a 30-day period
by the maximum offering price per share of the Fund on the last day of the
period. This number is then annualized using semi-annual compounding. The yield
does not necessarily reflect income actually earned by the Fund and, therefore,
may not correlate to the dividends or other distributions paid to shareholders.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BankSouth Select Bond Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Bank South, N.A. MC 16
P.O. Box 4387
Atlanta, Georgia 30302
- ---------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York 48 Wall Street
New York, New York 10286
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BANKSOUTH SELECT BOND FUND
PROSPECTUS
A Diversified Portfolio of
BankSouth Select Funds, an Open-End
Management Investment Company
(a Mutual Fund)
January 7, 1994
[LOGO]
Bank South, N.A.
Investment Adviser
55 Marietta Street, N.W.
(Logo)
Federated Securities Corp.
Distributor
A subsidiary of Federated Investors
Federated Investors Tower
Pittsburgh, PA 15222-3779
3092205A (1/94)
BANKSOUTH SELECT BOND FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of BankSouth Select Bond Fund (the "Fund") dated January
7, 1994. This Statement is not a prospectus itself. To receive a
copy of the prospectus, call the Bank South, N.A. (the "Bank")
Mutual Funds Center at
1-800-282-6680 extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE
NOT ISSUED, ENDORSED OR GUARANTEED BY THE BANK OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT
IN THE FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
THE BANK IS INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED
BY FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE
BANK.
Statement dated January 7, 1994
FEDERATED SECURITIES CORP.
--------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Repurchase Agreements 1
Reverse Repurchase Agreements 1
When-Issued and Delayed Delivery
Transactions 1
Futures and Options Transactions 2
Financial Futures Contracts 2
Put Options on Financial Futures Contracts 2
Call Options on Financial Futures Contracts 2
"Margin" in Futures Transactions 3
Purchasing Put Options on Portfolio Securities 3
Writing Covered Call Options on
Portfolio Securities 3
Risks 3
Restricted and Illiquid Securities 3
Lending of Portfolio Securities 4
Weighted Average Portfolio Maturity 4
Portfolio Turnover 4
Investment Limitations 4
BANKSOUTH SELECT FUNDS MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Trustees 7
The Funds 9
Fund Ownership 9
Trustee Liability 9
INVESTMENT ADVISORY SERVICES 9
- ---------------------------------------------------------------
Adviser to the Fund 9
Advisory Fees 9
ADMINISTRATIVE SERVICES 10
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 10
- ---------------------------------------------------------------
PURCHASING SHARES 10
- ---------------------------------------------------------------
Administrative Arrangements 10
Distribution Plan 10
Puchasing Fund Shares with Securities 11
DETERMINING NET ASSET VALUE 11
- ---------------------------------------------------------------
Determining Market Value of Securities 11
EXCHANGE PRIVILEGE 11
- ---------------------------------------------------------------
REDEEMING SHARES 12
- ---------------------------------------------------------------
Redemption in Kind 12
TAX STATUS 12
- ---------------------------------------------------------------
The Fund's Tax Status 12
Shareholders' Tax Status 12
TOTAL RETURN 12
- ---------------------------------------------------------------
YIELD 12
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 13
- ---------------------------------------------------------------
APPENDIX 14
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
BankSouth Select Bond Fund (the "Fund") is a portfolio in BankSouth Select Funds
(the "Trust"), which was established as a Massachusetts business trust under a
Declaration of Trust dated as of September 22, 1993, as amended and restated
dated December 20, 1993.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to achieve current income. The investment
objective cannot be changed without approval of shareholders.
TYPES OF INVESTMENTS
The Fund invests primarily in investment grade bonds and other fixed income
securities which include:
domestic issues of corporate debt obligations (rated Baa or better by Moody's
Investors Service, Inc., or BBB or better by Standard & Poor's Corporation,
Fitch Investors Service, Inc. or Duff & Phelps Credit Rating Co.);
obligations issued or guaranteed by the U.S. government, its agencies or
instrumentalities;
mortgage-backed securities, which represent an undivided interest in a pool of
residential or other mortgages or may be collateralized by a pool of residential
mortgages;
asset-backed securities, which are obligations of trusts or special purpose
corporations that directly or indirectly represent a participation in, or are
secured by and payable from various types of assets, principally loans, leases
and other receivables and may include asset-backed commercial paper; and
CMOs, which are issued by single-purpose stand-alone finance subsidiaries or
trusts, government agencies, investment banks, or companies related to the
construction industry.
REPURCHASE AGREEMENTS
As collateral for the obligation of the seller to repurchase the securities from
the Fund, the Fund requires its custodian to take possession of the securities
subject to repurchase agreements and these securities are marked to market
daily. To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any sale
of such securities. In the event that a defaulting seller filed for bankruptcy
or became insolvent, disposition of such securities by the Fund might be delayed
pending court action. The Fund believes that, under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other financial
institutions, such as securities broker-dealers, which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the Board of
Trustees ("Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash and pledging securities as collateral. In a
reverse repurchase agreement, the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution or broker-dealer,
in return for a percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration, plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to avoid
selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases securities with
payment and delivery scheduled for a future time. The Fund engages in
when-issued and delayed delivery transactions only for the purpose of acquiring
portfolio securities consistent with its investment objective and policies, not
for investment leverage. In when-issued and delayed delivery transactions, the
Fund relies on the seller to complete the transaction. The seller's failure to
complete the transaction may cause the Fund to miss a price or yield considered
to be advantageous.
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. No fees or other expense, other
than normal transaction costs, are incurred. However, liquid assets of the Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These securities are marked to market
daily and are maintained until the transaction is settled.
As a matter of policy, the Fund does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the segregation of
more than 20% of the total value of its assets at any time.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call options
on futures contracts. The Fund may also write covered call options on portfolio
securities to attempt to increase its current income. The Fund will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed, or have expired. An option
position on financial futures contracts may be closed out only on an exchange
which provides a secondary market for options of the same series.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who agrees to
make delivery of the specific type of security called for in the contract
("going short") and the buyer who agrees to take delivery of the security
("going long") at a certain time in the future.
In the fixed income securities market, price moves inversely to interest rates.
A rise in rates means a drop in price. Conversely, a drop in rates means a rise
in price. In order to hedge its holdings of fixed income securities against a
rise in market interest rates, the Fund could enter into contracts to deliver
securities at a predetermined price (i.e., "go short") to protect itself against
the possibility that the prices of its fixed income securities may decline
during the Fund's anticipated holding period. The Fund could "go long" (agree to
purchase securities in the future at a predetermined price) to hedge against a
decline in market interest rates.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase exchange listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which requires the
purchaser to buy a financial instrument on a set date at a specified price, the
purchase of a put option on a futures contract entitles (but does not obligate)
its purchaser to decide on or before a future date whether to assume a short
position at the specified price.
Generally, if the hedged portfolio securities decrease in value during the term
of an option, the related futures contracts will also decrease in value and the
option will increase in value. In such an event, the Fund will normally close
out its option by selling an identical option. If the hedge is successful, the
proceeds received by the Fund upon the sale of the second option will be large
enough to offset both the premium paid by the Fund for the original option plus
the decrease in value of the hedged securities.
Alternatively, the Fund may exercise its put option to close out the position.
To do so, it would simultaneously enter into a futures contract of the type
underlying the option (for a price less than the strike price of the option) and
exercise the option. The Fund would then deliver the futures contract in return
for payment of the strike price. If the Fund neither closes out nor exercises an
option, the option will expire on the date provided in the option contract, and
only the premium paid for the contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write exchange
listed call options on futures contracts to hedge its portfolio. When the Fund
writes a call option on a futures contract, it is undertaking the obligation of
assuming a short futures position (selling a futures contract) at the fixed
strike price at any time during the life of the option if the option is
exercised. As market interest rates rise, causing the prices of futures to go
down, the Fund's obligation under a call option on a future (to sell a futures
contract) costs less to fulfill, causing the value of the Fund's call option
position to increase.
In other words, as the underlying futures price goes down below the strike
price, the buyer of the option has no reason to exercise the call, so that the
Fund keeps the premium received for the option. This premium can substantially
offset the drop in value of the Fund's fixed income or indexed portfolio which
is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it by the
buyer, the Fund may close out the option by buying an identical option. If the
hedge is successful, the cost of the second option will be less than the premium
received by the Fund for the initial option. The net premium income of the Fund
will then substantially offset the decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has sold or
call options it has written on futures contracts if, in the aggregate, the value
of the open positions (marked to market) exceeds the current market value of its
securities portfolio plus or minus the unrealized gain or loss on those open
positions, adjusted for the correlation of volatility between the hedged
securities and the futures contracts. If this limitation is exceeded at any
time, the Fund will take prompt action to close out a sufficient number of open
contracts to bring its open futures and options positions within this
limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or receive
money upon the purchase or sale of a futures contract. Rather, the Fund is
required to deposit an amount of "initial margin" in cash or U.S. Treasury bills
with its custodian (or the broker, if legally permitted). The nature of initial
margin in futures transactions is different from that of margin in securities
transactions in that initial margin in futures transactions does not involve the
borrowing of funds by the Fund to finance the transactions. Initial margin is in
the nature of a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming all
contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official settlement
price of the exchange on which it is traded. Each day the Fund pays or receives
cash, called "variation margin," equal to the daily change in value of the
futures contract. This process is known as "marking to market." Variation margin
does not represent a borrowing or loan by the Fund but is instead settlement
between the Fund and the broker of the amount one would owe the other if the
futures contract expired. In computing its daily net asset value, the Fund will
mark to market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes call
options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect against
price movements in particular securities in its portfolio. A put option gives
the Fund, in return for a premium, the right to sell the underlying security to
the writer (seller) at a specified price during the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As writer of a
call option, the Fund has the obligation upon exercise of the option during the
option period to deliver the underlying security upon payment of the exercise
price. The Fund may only sell call options either on securities held in its
portfolio or on securities which it has the right to obtain without payment of
further consideration (or has segregated cash in the amount of any additional
consideration).
RISKS
When the Fund uses financial futures and options on financial futures as hedging
devices, there is a risk that the prices of the securities subject to the
futures contracts may not correlate perfectly with the prices of the securities
in the Fund's portfolio. This may cause the futures contract and any related
options to react differently than the portfolio securities to market changes. In
addition, the Fund's investment adviser could be incorrect in its expectations
about the direction or extent of market factors, such as interest rate
movements. In these events, the Fund may lose money on the futures contract or
option.
It is not certain that a secondary market for positions in futures contracts or
for options will exist at all times. Although the investment adviser will
consider liquidity before entering into options transactions, there is no
assurance that a liquid secondary market on an exchange or otherwise will exist
for any particular futures contract or option at any particular time. The Fund's
ability to establish and close out futures and options positions depends on this
secondary market.
RESTRICTED AND ILLIQUID SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") Staff
position set forth in the adopting release for SEC Rule 144A ("Rule 144A") under
the Securities Act of 1933, as amended (the "1933 Act"). Rule 144A is a
nonexclusive safe-harbor for certain secondary market transactions that provides
an exemption from registration for resales of otherwise restricted securities to
qualified institutional buyers. Rule 144A was expected to further enhance the
liquidity of the secondary market for securities eligible for resale under Rule
144A. The Fund believes that the Staff of the SEC has left the question of
determining the liquidity of all restricted securities to the Trustees. The
Trustees consider the following criteria in determining the liquidity of certain
restricted securities:
the frequency of trades and quotes for the security;
the number of dealers willing to purchase or sell the security and the
number of other potential buyers;
dealer undertakings to make a market in the security; and
the nature of the security and the nature of the marketplace trades.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must 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 at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
The Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
WEIGHTED AVERAGE PORTFOLIO MATURITY
The Fund will determine its dollar-weighted average portfolio maturity by
assigning a "weight" to each portfolio security based upon the pro rata market
value of such portfolio security in comparison to the market value of the entire
portfolio. The remaining maturity of each portfolio security is then multiplied
by its weight, and the results are added together to determine the weighted
average maturity of the portfolio. For purposes of calculating its
dollar-weighted average portfolio maturity, the Fund will treat variable and
floating rate instruments as having a remaining maturity commensurate with the
period remaining until the next scheduled adjustment to the instrument's
interest rate. The Fund limits its dollar-weighted average maturity to 15 years
or less.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective. It is not anticipated that the portfolio trading
engaged in by the Fund, under normal market conditions, will result in its
annual rate of portfolio turnover exceeding 200%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for the
clearance of purchases and sales of securities. The deposit or payment by
the Fund of initial or variation margin in connection with financial
futures contracts or related options transactions is not considered the
purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money directly or through reverse repurchase agreements in amounts up to
one-third of the value of its total assets, including the amounts
borrowed, and except to the extent that the Fund may enter into futures
contracts. The Fund will not borrow money or engage in reverse repurchase
agreements for investment leverage, but rather as a temporary,
extraordinary, or emergency measure to facilitate management of the
portfolio by enabling the Fund to meet redemption requests when the
liquidation of portfolio securities is deemed to be inconvenient or
disadvantageous. The Fund will not purchase any securities while
borrowings in excess of 5% of its total assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets except to
secure permissible borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of total assets at the time of the pledge.
For purposes of this limitation, the following are not deemed to be
pledges: margin deposits for the purchase and sale of financial futures
contracts and related options, and segregation or collateral arrangements
made in connection with options activities or the purchase of securities
on a when-issued basis.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer (other
than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if, as a result,
more than 5% of the value of its total assets would be invested in the
securities of that issuer. (For purposes of this limitation, the Fund
considers certificates of deposit and demand and time deposits issued by
a U.S. branch of a domestic bank having capital, surplus, and undivided
profits in excess of $100,000,000 at the time of investment to be "cash
items.") Also, the Fund will not acquire more than 10% of the outstanding
voting securities of any one issuer.
CONCENTRATION OF INVESTMENTS
The Fund will not purchase securities if, as a result of such purchase,
25% or more of the value of its total assets would be invested in any one
industry. However, the Fund may at times invest 25% or more of the value
of its total assets in securities issued or guaranteed by the U.S.
government and its agencies or instrumentalities.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Fund may purchase put options
on portfolio securities and on financial futures contracts and related
options as a hedging strategy and not for speculative purposes. In
addition, the Fund reserves the right to hedge the portfolio by entering
into financial futures contracts and to sell calls on financial futures
contracts. The Fund will notify shareholders before such a change in its
operating policies is implemented.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of securities which the Fund may purchase
pursuant to its investment objective, policies, and limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or which represent
interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to 50% of the value of its total assets. This shall not prevent the Fund
from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objective, policies, and limitations or the
Trust's Declaration of Trust.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Except as noted, shareholders will be
notified before any material change in the following limitations becomes
effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operations of any predecessor.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, will not invest more than 5% of its total assets in any one
investment company, or invest more than 10% of its total assets in
investment companies in the aggregate. However, these limitations are not
applicable if the securities are acquired in a merger, consolidation, or
acquisition of assets.
INVESTING IN RESTRICTED SECURITIES
The Fund will not purchase restricted securities if immediately
thereafter more than 10% of the total assets of the Fund, taken at market
value, would be invested in such securities (except for commercial paper
issued under Section 4(2) of the 1933 Act). See "Restricted and Illiquid
Securities".
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement more than seven days after notice, over-the-counter options,
and certain restricted securities not determined by the Trustees to be
liquid. See "Restricted and Illiquid Securities".
INVESTING IN MINERALS
The Fund will not invest in interests in oil, gas, or other mineral
exploration or development programs or leases, except it may purchase the
securities of issuers which invest in or sponsor such programs.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Trust or its investment adviser owning
individually more than 0.50% of the issuer's securities together own more
than 5% of the issuer's securities.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities unless the
securities are held in the Fund's portfolio and not more than 5% of the
value of the Fund's net assets would be invested in premiums on open put
option positions.
The Fund has no present intention to borrow money in excess of 5% of the total
value of its net assets during its first fiscal year. The Fund has no present
intention of investing more than 5% of its net assets in foreign securities or
options and fixtures.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
Each fund of the Trust has the ability to issue more than one class of shares.
The Fund does not consider the issuance of separate classes of shares to
constitute an issue of "senior securities" within the meaning of the investment
limitations set forth below.
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 20% of its net
assets, and (3) will limit the margin deposits on futures contracts entered into
by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
BANKSOUTH SELECT FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Bank South, Federated
Investors, Federated Securities Corp., Federated Services Company, Federated
Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the father
of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee or Managing
Associates, Inc., Realtors General Partner of the Funds; formerly President, Naples Property
3255 Tamiami Trail North Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc. (an
One PNC Plaza-23rd Floor engineering firm); Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; formerly, Vice Chairman and Director, PNC Bank, N.A. and PNC Bank
Corp. and Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the Funds.
Pittsburgh, PA
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat'N Park
5916 Penn Mall Restaurants, Inc., and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower Treasurer President and Treasurer, Federated Advisers, Federated Management and
Pittsburgh, PA and Trustee Federated Research; Trustee, Federated Services Company; Executive Vice
President, Treasurer, and Director, Federated Securities Corp.;
Chairman, Treasurer, and Trustee, Federated Administrative Services;
Trustee or Director of some of the Funds; Vice President and Treasurer
of the Funds.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank and Trust Company and State Street Boston
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare, Inc.;
5916 Penn Mall Director, Eat'N Park Restaurants, Inc.; Director, Trustee, or Managing
Pittsburgh, PA General Partner of the Funds; formerly, Vice Chairman, Horizon
Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace and RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho Slovak
University of Pittsburgh Management Center; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds; President Emeritus, University of Pittsburgh; formerly, Chairman,
National Advisory Council for Environmental Policy and Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
Charles L. Davis, Jr. Vice President Vice President, Federated Administrative Services; Vice President and
Federated Investors Tower and Assistant Assistant Treasurer of some of the Funds; formerly Vice President and
Pittsburgh, PA Treasurer Director of Investor Relations, MNC Financial, Inc. and Vice President,
Product Management, MNC Financial, Inc.
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated Advisers,
Federated Investors Tower Federated Management, and Federated Research; Trustee, Federated
Pittsburgh, PA Services Company; President and Director, Federated Administrative
Services; President or Vice President of the Funds; Director, Trustee,
or Managing General Partner of some of the Funds. Mr. Donahue is the son
of John F. Donahue, Chairman and Trustee of the Trust.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of the
Pittsburgh, PA Funds; Director or Trustee of some of the Funds.
John W. McGonigle Vice President and Vice President, Secretary, General Counsel, and Trustee, Federated
Federated Investors Tower Secretary Investors; Vice President, Secretary, and Trustee, Federated Advisers,
Pittsburgh, PA Federated Management, and Federated Research; Trustee, Federated
Services Company; Executive Vice President, Secretary, and Director,
Federated Administrative Services; Executive Vice President and
Director, Federated Securities Corp.; Vice President and Secretary of
the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Compa-
ny and President of its Federated Research Division.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
\ Members of the Board's Executive Committee. The Executive Committee of the
Board of Trustees handles various of the delegable responsibilities of the
Board of Trustees between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Intermediate Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust,
Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management; Money Market
Obligations; Money Market Trust; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet
Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for
U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding shares.
TRUSTEE LIABILITY
BankSouth Select Funds' Declaration of Trust provides that the Trustees are not
liable for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE FUND
The Bank serves as the Fund's investment adviser (the "Adviser"). The Adviser
shall not be liable to the Trust, the Fund, or any shareholder of the Fund for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the Prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes and extraordinary expenses) exceed
2.50% per year of the first $30 million of average net assets, 2.00% per
year of the next $70 million of average net assets, and 1.50% per year of
the remaining average net assets, the Adviser will reimburse the Fund for
its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
- --------------------------------------------------------------------------------
Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. John A. Staley, IV, an officer of the Trust, holds approximately 15%
of the outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.
BROKERAGE TRANSACTIONS
- --------------------------------------------------------------------------------
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser and other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
- --------------------------------------------------------------------------------
Shares are sold at their offering price on days on which the New York Stock
Exchange and Federal Reserve Wire System are open for business. The procedure
for purchasing shares of the Fund is explained in the prospectus under
"Investing in the Fund."
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the SEC pursuant to the Investment Company Act of 1940,
as amended (the "Act"). The Plan provides for payment of fees to the Distributor
to finance any activity which is principally intended to result in the sale of
the Fund's shares subject to the Plan. Such activities may include the
advertising and marketing of shares of the Fund; preparing, printing, and
distributing prospectuses and sales literature to prospective shareholders,
brokers, or administrators; and implementing and operating the Plan. Pursuant to
the Plan, the Distributor may pay fees to brokers and others for such services.
The Trustees expect that the adoption of the Plan will assist the Fund in
selling a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and thereby assist the
Fund in seeking to achieve its investment objective.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values it assets. Investors wishing to use securities to purchase
Fund shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
DETERMINING NET ASSET VALUE
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Net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
Market values of the Fund's portfolio securities, other than options, are
determined as follows:
as provided by an independent pricing service;
for short-term obligations, according to the mean between the bid and asked
prices, as furnished by an independent pricing service; or
at fair value as determined in good faith by the Trustees.
Prices provided by independent pricing services may be determined without
relying exclusively on quoted prices.
Pricing services may consider:
yield;
quality;
coupon rate;
maturity;
type of issue;
trading characteristics; and
other market data.
The Fund will value futures contracts, options, put options on futures and
financial futures at their market values established by the exchanges at the
close of option trading on such exchanges unless the Trustees determine in good
faith that another method of valuing option positions is necessary to appraise
their fair value.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
Shareholders of the Fund may exchange shares of the Fund for shares of other
funds advised by the Bank and certain other funds designated by the Bank and
distributed by the Distributor, subject to certain conditions. Exchange
procedures are explained in the Prospectus under "Exchange Privilege."
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at the next computed net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
Prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by SEC Rule 18f-1 under the Act under which
each fund is obligated to redeem shares for any one shareholder in cash only up
to the lesser of $250,000 or 1% of the Fund's net asset value during any 90-day
period.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held
Fund shares.
TOTAL RETURN
- --------------------------------------------------------------------------------
The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the monthly
reinvestment of all dividends and distributions.
YIELD
- --------------------------------------------------------------------------------
The yield for the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a 30-day period by the maximum offering price per share of the Fund on the
last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the SEC and, therefore, may not correlate to the dividends or other
distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
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The performance of the Fund depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return. From
time to time the Fund may advertise its performance using certain reporting
services and/or compare its performance to certain indices. These may include
the following:
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various categories by making
comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in offering price over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "U.S. government
funds" category in advertising and sales literature.
SHEARSON LEHMAN GOVERNMENT/CORPORATE (Total) index is comprised of approximately
5,000 issues which include: non-convertible bonds publicly issued by the U.S.
government or its agencies; corporate bonds guaranteed by the U.S. government
and quasi-federal corporations; and publicly issued, fixed-rate,
non-convertible domestic bonds of companies in industry, public utilities, and
finance. The average maturity of these bonds approximates nine years. Tracked
by Shearson Lehman Hutton, Inc., the index calculates total returns for
one-month, three-month, twelve-month, and ten-year periods, and year-to-date.
SALOMON BROTHERS AAA-AA CORPORATE INDEX calculates total returns of
approximately 775 issues which include long-term high grade domestic corporate
taxable bonds, rated AAA-AA with maturities of twelve years or more and
companies in industry, public utilities, and finance.
MERRILL LYNCH CORPORATE & GOVERNMENT MASTER INDEX is an unmanaged index
comprised of approximately 4,821 issues which include corporate debt obligations
rated BBB or better and publicly issued, non-convertible domestic debt of the
U.S. government or any agency thereof. These quality parameters are based on
composites of ratings assigned by Standard and Poor's Corp. and Moody's
Investors Service. Only bonds with a minimum maturity of one year are included.
MERRILL LYNCH CORPORATE MASTER INDEX is an unmanaged index comprised of
approximately 4,356 corporate debt obligations rated BBB or better. These
quality parameters are based on composites of ratings assigned by Standard and
Poor's Corp. and Moody's Investors Service. Only bonds with a minimum maturity
of one year are included.
SALOMON BROTHERS BROAD INVESTMENT-GRADE ("BIG") BOND INDEX is designed to
provide the investment-grade bond manager with an all-inclusive universe of
institutionally traded U.S. Treasury, agency, mortgage and corporate securities
which can be used as a benchmark. The BIG Index is market
capitalization-weighted and includes all fixed rate bonds with a maturity of
one year or longer and a minimum of $50-million amount outstanding at entry
($200 million for mortgage coupons) and remain in the index until their amount
falls below $25 million.
MORNINGSTAR, INC. an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Investors may use such indices or reporting services in addition to the Fund's
prospectus to obtain a more complete view of the Fund's performance before
investing. Of course, when comparing performance of the Fund to any index,
conditions such as composition of the index and prevailing market conditions
should be considered in assessing the significance of such comparisons.
When comparing funds using reporting services or total return and yield,
investors should take into consideration any relevant differences in funds such
as permitted portfolio compositions and methods used to value portfolio
securities and compute offering price.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
monthly reinvestment of dividends over a specified period of time.
APPENDIX
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STANDARD AND POOR'S CORPORATION CORPORATE BOND RATINGS
AAA--Debt rated AAA has the highest rating assigned by Standard & Poor's
Corporation. Capacity to pay interest and repay principal is extremely strong.
AA--Debt rated AA has a very strong capacity to pay interest and repay principal
and differs from the higher rated issues only in small degree.
A--Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB--Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.
NR--NR indicates that no public rating has been requested, that there is
insufficient information on which to base a rating, or that S&P does not rate a
particular type of obligation as a matter of policy.
PLUS (+) OR MINUS (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
MOODY'S INVESTORS SERVICE, INC., CORPORATE BOND RATINGS
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
edge." 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 risks appear somewhat larger than in 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 sometime 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.
NR--Not rated by Moody's.
Moody's applies numerical modifiers 1, 2, and 3 in each generic rating
classification from Aa through B in its corporate bond rating system. The
modifier 1 indicates that the security ranks in the higher end of its generic
rating category; the modifier 2 indicates a mid-range ranking; and the modifier
3 indicates that the issue ranks in the lower end of its generic rating
category.
FITCH INVESTORS SERVICE, INC., LONG-TERM DEBT RATINGS
AAA--Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable events.
AA--Bonds considered to be investment grade and of very high credit quality. The
obligor's ability to pay interest and repay principal is very strong, although
not quite as strong as bonds rated "AAA." Because bonds rated in the AAA and AA
categories are not significantly vulnerable to foreseeable future developments,
short-term debt of these issuers is generally rated F-1+.
A--Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
BBB--Bonds considered to be investment grade and of satisfactory credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds and, therefore, impair timely
payment.
NR--NR indicates that Fitch does not rate the specific issue.
PLUS (+) OR MINUS (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the AAA category.
DUFF & PHELPS CREDIT RATING CO. LONG-TERM DEBT RATINGS
AAA--Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA--High credit quality. Protection factors are strong. Risk is modest but may
vary slightly from time to time because of economic conditions.
A--Protection factors are average but adequate. However, risk factors are more
variable and greater in periods of economic stress.
BBB--Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
COMMERCIAL PAPER RATINGS
STANDARD AND POOR'S CORPORATION
A-1--This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2--Capacity for timely payment on issues with this designation is strong.
However, the relative degree of safety is not as high as for issues designated
A-1.
MOODY'S INVESTORS SERVICE, INC.
P-1--Issuers rated PRIME-1 (for related supporting institutions) have a superior
capacity for repayment of short-term promissory obligations. PRIME-1 repayment
capacity will normally be evidenced by the following characteristics:
conservative capitalization structures with moderate reliance on debt and ample
asset protection; broad margins in earning coverage of fixed financial charges
and high internal cash generation; and well-established access to a range of
financial markets and assured sources of alternative liquidity.
P-2--Issuers rated PRIME-2 (for related supporting institutions) have a strong
capacity for repayment of short-term promissory 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, will be more subject to
variation. Capitalization characteristics, while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.
FITCH INVESTORS SERVICE, INC.
FITCH-1--(Highest Grade) Commercial paper assigned this rating is regarded as
having the strongest degree of assurance for timely payment.
FITCH-2--(Very Good Grade) Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than the strongest issues.
DUFF & PHELPS CREDIT RATING CO.
DUFF 1+--Highest certainty of timely payment. Short-term liquidity, including
internal operating factors and/or access to alternative sources of funds, is
outstanding, and safety is just below risk-free U.S. Treasury short-term
obligations.
DUFF 1--Very high certainty of timely payment. Liquidity factors are excellent
and supported by good fundamental protection factors. Risk factors are minor.
DUFF 1---High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are very small.
GOOD GRADE
DUFF 2--Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
A CREDIT RATING IS NOT A RECOMMENDATION TO BUY, SELL OR HOLD SECURITIES, AND IS
SUBJECT TO CHANGE AND/OR WITHDRAWAL BY THE RATING AGENCY.
3092205B (1/94)
BANKSOUTH SELECT EQUITY FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
PROSPECTUS
The shares of BankSouth Select Equity Fund (the "Fund") offered by this
Prospectus represent interests in a diversified portfolio of BankSouth
Select Funds (the "Trust"), an open-end management investment company (a
mutual fund). The investment objective of the Fund is to achieve
long-term growth of capital and income. The Fund pursues this objective
by investing primarily in a portfolio of common stocks of United States
issuers.
This Prospectus contains the information you should read and know before
you invest in the Fund. Keep this Prospectus for future reference.
The Fund has also filed a Statement of Additional Information dated
January 7, 1994, with the Securities and Exchange Commission. The
information contained in the Statement of Additional Information is
incorporated by reference into this prospectus. You may request a copy of
the Statement of Additional Information free of charge, obtain other
information, or make inquiries about the Fund by writing to the Bank
South, N.A. (the "Bank") Mutual Funds Center or calling 1-800-282-6680
extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE NOT
ISSUED, ENDORSED OR GUARANTEED BY, BANK SOUTH, N.A. OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL
RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN THE FUND
INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE BANK IS THE INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED
BY FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE BANK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Prospectus dated January 7, 1994
BANKSOUTH SELECT FUNDS
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
SUMMARY OF FUND EXPENSES 1
- ------------------------------------------------------
GENERAL INFORMATION 2
- ------------------------------------------------------
INVESTMENT INFORMATION 2
- ------------------------------------------------------
Investment Objective 2
Investment Policies 2
Acceptable Investments 2
Common Stocks 2
Other Corporate Securities 2
U.S. Government Securities 3
Options and Futures 3
Foreign Securities 3
Repurchase Agreements 3
When-Issued and Delayed Delivery
Transactions 3
Investing in Securities of
Other Investment Companies 3
Lending of Portfolio Securities 4
Temporary Investments 4
Restricted and Illiquid Securities 4
Certain Borrowing and Investment Limitations 4
BANKSOUTH SELECT FUNDS INFORMATION 5
- ------------------------------------------------------
Management of the Trust 5
Board of Trustees 5
Investment Adviser 5
Advisory Fees 5
Adviser's Background 5
Portfolio Manager 5
Distribution of Fund Shares 6
Distribution Plan 6
Administrative Arrangements 6
Administration of the Trust 7
Administrative Services 7
Shareholder Services Plan 7
Custodian 7
Transfer Agent, Dividend Disbursing
Agent, and Portfolio Accounting
Services 7
Legal Counsel 7
Independent Auditors 8
Expenses of the Fund 8
Brokerage Transactions 8
NET ASSET VALUE 8
- ------------------------------------------------------
INVESTING IN THE FUND 8
- ------------------------------------------------------
Share Purchases 8
By Telephone 8
By Mail 9
Payment by Check 9
Payment by Wire 9
Minimum Investment Required 9
Systematic Investment Program 9
What Shares Cost 9
Purchases at Net Asset Value 10
Sales Charge Reallowance 10
Reducing the Sales Charge 10
Quantity Discounts and Accumulated
Purchases 10
Letter of Intent 10
Reinvestment Privilege 11
Concurrent Purchases 11
Certificates and Confirmations 11
Dividends and Distributions 11
Purchasing Fund Shares with Securities 11
EXCHANGE PRIVILEGE 12
- ------------------------------------------------------
BankSouth Select Funds 12
By Telephone 12
REDEEMING SHARES 13
- ------------------------------------------------------
By Telephone 13
By Mail 14
Signatures 14
Receiving Payment 14
Redemption Before Purchase Instruments
Clear 14
Systematic Withdrawal Program 14
Accounts with Low Balances 15
SHAREHOLDER INFORMATION 15
- ------------------------------------------------------
Voting Rights 15
Massachusetts Partnership Law 15
EFFECT OF BANKING LAWS 16
- ------------------------------------------------------
TAX INFORMATION 16
- ------------------------------------------------------
Federal Income Tax 16
State and Local Taxes 16
PERFORMANCE INFORMATION 17
- ------------------------------------------------------
ADDRESSES Inside Back Cover
- ------------------------------------------------------
BANKSOUTH SELECT EQUITY FUND
SUMMARY OF FUND EXPENSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price)................................................................... 3.75%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price)................................................................... None
Deferred Sales Load (as a percentage of original
purchase price or redemption proceeds as applicable).................................................. None
Redemption Fees (as a percentage of amount redeemed, if applicable)..................................... None
Exchange Fee............................................................................................ None
ANNUAL FUND OPERATING EXPENSES*
(As a percentage of projected average net assets)
Management Fee.......................................................................................... 0.75%
12b-1 Fees(1)........................................................................................... 0.00%
Other Expenses (after waiver)(2)........................................................................ 0.25%
Total Fund Operating Expenses(3).................................................................... 1.00%
</TABLE>
(1) As of the date of this Prospectus, the Fund is not paying or accruing 12b-1
fees. The Fund can pay up to 0.75% as a 12b-1 fee to the distributor.
Certain trust clients of the Bank or its affiliates, including ERISA plans,
will not be affected by the distribution plan because the distribution plan
will not be activated unless and until a second, "Trust," class of shares
of the Fund (which would not have a Rule 12b-1 plan) is created and such
trust clients' investments in the Fund are converted to such Trust class.
(2) Total Other Expenses are estimated to be 0.27% absent the anticipated
voluntary waiver by the transfer agent.
(3) The Total Fund Operating Expenses are estimated to be 1.02% absent the
anticipated voluntary waiver by the transfer agent.
* Expenses are estimated based on average expenses expected to be incurred
during the fiscal year ending September 30, 1994. During the course of this
period, expenses may be more or less than the average amount shown.
THE PURPOSE OF THIS TABLE IS TO ASSIST AN INVESTOR IN UNDERSTANDING THE
VARIOUS COSTS AND EXPENSES THAT A SHAREHOLDER OF THE FUND WILL BEAR, EITHER
DIRECTLY OR INDIRECTLY. FOR MORE COMPLETE DESCRIPTIONS OF THE VARIOUS COSTS AND
EXPENSES, SEE "BANKSOUTH SELECT FUNDS INFORMATION" AND "INVESTING IN THE FUND."
WIRE TRANSFER REDEMPTIONS MAY BE SUBJECT TO AN ADDITIONAL FEE.
<TABLE>
<CAPTION>
EXAMPLE 1 year 3 years
<S> <C> <C>
You would pay the following expenses on a $1,000 investment assuming (1) 5% annual return and
(2) redemption at the end of each time period. As noted in the table above, the Fund charges no
redemption fees................................................................................ $47 $68
</TABLE>
THE ABOVE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN. THIS
EXAMPLE IS BASED ON ESTIMATED DATA FOR THE FUND'S FISCAL YEAR ENDING SEPTEMBER
30, 1994.
GENERAL INFORMATION
- --------------------------------------------------------------------------------
The Trust was established as a Massachusetts business trust under a Declaration
of Trust dated September 22, 1993, as amended and restated dated December 20,
1993. The Declaration of Trust permits the Trust to offer separate series of
shares of beneficial interest representing interests in separate portfolios of
securities. The shares in any one portfolio may be offered in separate classes.
This Prospectus relates only to the Trust's BankSouth Select Equity Fund. The
Fund is designed as a convenient means of accumulating an interest in a
professionally managed, diversified portfolio consisting primarily of common
stocks of United States issuers. A minimum initial investment of $1,000 is
required ($500 for Individual Retirement Accounts ("IRAs")), and subsequent
investments must be in amounts of at least $100. See "Investing in the Fund".
Fund shares are sold at net asset value plus a maximum sales charge of 3.75% and
redeemed at net asset value.
INVESTMENT INFORMATION
- --------------------------------------------------------------------------------
INVESTMENT OBJECTIVE
The Fund's investment objective is to achieve long-term growth of capital and
income. The investment objective cannot be changed without the approval of the
Fund's shareholders. While there is no assurance that the Fund will achieve its
investment objective, it endeavors to do so by following the investment policies
described in this prospectus.
INVESTMENT POLICIES
The Fund pursues its investment objective by investing in the securities of high
quality companies. Emphasis is placed on stocks where the market price of the
stock appears low when compared to present earnings. The Fund's investment
approach is based on the conviction that, over the long term, the economy will
continue to expand and develop and that this economic growth will be reflected
in the growth of the revenues and earnings of publicly-held corporations. Unless
indicated otherwise, the investment policies of the Fund may be changed by the
Trustees without the approval of shareholders. Shareholders will be notified
before any material change in these policies becomes effective.
ACCEPTABLE INVESTMENTS. The securities in which the Fund invests include, but
are not limited to:
COMMON STOCKS. The Fund invests primarily in common stocks of companies
selected by the Fund's investment adviser on the basis of traditional research
techniques, including assessment of earnings and dividend growth prospects of
the companies. Ordinarily, these companies will be in the top 30% of their
industries with regard to revenues. However, other factors such as product
position, market share, potential earnings growth, or asset values will be
considered by the investment adviser and may outweigh revenues. At least 65% of
the Fund's portfolio will be invested in common stocks, unless it is in a
defensive position.
OTHER CORPORATE SECURITIES. The Fund may invest in preferred stocks,
convertible securities, notes rated A or better by Moody's Investors Service,
Inc., Standard & Poor's Corporation, Duff & Phelps Credit Rating Co. or Fitch
Investors Service, Inc., or securities deemed by the investment adviser to be of
comparable quality to securities having such ratings, and warrants of these
companies. Corporate fixed income securities are subject to market and credit
risks. If any note invested in by the Fund loses its rating or has its rating
reduced after the Fund has purchased it, the Fund is not required to sell or
otherwise dispose of the security, but may consider doing so.
U.S. GOVERNMENT SECURITIES. The Fund may invest in U.S. government securities
and obligations of U.S. government agencies and instrumentalities.
OPTIONS AND FUTURES. The Fund may purchase and sell financial futures contracts
and purchase and sell options on financial futures contracts and on its
portfolio securities.
FOREIGN SECURITIES. The Fund may invest in foreign securities which are traded
publicly in the United States. Investments in foreign securities, particularly
those of non-governmental issuers, involve considerations which are not
ordinarily associated with investments in domestic issuers. These considerations
include the possibility of expropriation or nationalization, exchange rate
fluctuations, foreign taxation and withholding, the unavailability of financial
information or the difficulty of interpreting financial information prepared
under foreign accounting standards, less liquidity and more volatility in
foreign securities markets, the impact of political, social, or diplomatic
developments, and the difficulty of assessing economic trends in foreign
countries. It may also be more difficult to enforce contractual obligations
abroad than would be the case in the United States because of differences in the
legal systems. Transaction costs in foreign securities may be higher. The Fund's
investment adviser will consider these and other factors before investing in
foreign securities and will not make such investments unless, in its opinion,
such investments will meet the Fund's standards and objectives.
REPURCHASE AGREEMENTS. Repurchase agreements are arrangements in which banks,
broker-dealers and other financial institutions sell securities to the Fund and
agree at the time of sale to repurchase them at a mutually agreed upon time and
price including interest. To the extent that the seller does not repurchase the
securities from the Fund, the Fund could receive less than the repurchase price
on any sale of such securities. Repurchase agreements will be collateralized by
securities having a value equal at all times to at least 100% of the amount of
the securities subject to the repurchase agreement.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Fund may purchase portfolio
securities on a when-issued or delayed delivery basis. These transactions are
arrangements in which the Fund purchases securities with payment and delivery
scheduled for a future time. The seller's failure to complete these transactions
may cause the Fund to miss a price or yield considered to be advantageous.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund may invest in the securities of other investment companies, but will
not own more than 3% of the total outstanding voting stock of any investment
company, invest more than 5% of total assets in any one investment company, or
invest more than 10% of total assets in investment companies in the aggregate.
The Fund will invest in other investment companies primarily for the purpose of
investing short-term cash which has not yet been invested in other portfolio
instruments. It should be noted that investment companies incur certain
expenses, and therefore, any investment by the Fund in Shares of another
investment company would be subject to certain duplicate expenses, particularly
transfer agent and custodian fees. The adviser will waive its investment
advisory fee on assets invested in securities of open-end investment companies.
LENDING OF PORTFOLIO SECURITIES. In order to generate additional income, the
Fund may lend its portfolio securities on a short-term or long-term basis, to
broker-dealers, banks, or other institutional borrowers of securities. The Fund
will limit the amount of portfolio securities it may lend to not more than 50%
of its total assets at any time. The Fund will only enter into loan arrangements
with broker-dealers, banks, or other institutions which the adviser has
determined are creditworthy under guidelines established by the Board of
Trustees, and will receive collateral equal to at least 100% of the value of the
securities loaned at all times.
TEMPORARY INVESTMENTS. For defensive purposes only, the Fund may also invest
temporarily in cash and money market instruments during times of unusual market
conditions. These investments include the following:
prime commercial paper, including master demand notes;
instruments of domestic and U.S. dollar denominated foreign banks and
savings and loans (such as certificates of deposit, demand and time
deposits, savings shares, and bankers' acceptances);
securities issued and/or guaranteed as to payment of principal and
interest by the U.S. government, its agencies, or instrumentalities;
repurchase agreements;
securities of other investment companies; and
other short-term money market instruments.
RESTRICTED AND ILLIQUID SECURITIES. The Fund may invest in restricted
securities. Restricted securities are any securities in which the Fund may
otherwise invest pursuant to its investment objective and policies but which are
subject to restriction on resale under federal securities law. However, the Fund
will limit investments in illiquid securities, including certain restricted
securities not determined by the Trustees to be liquid, non-negotiable time
deposits, and repurchase agreements providing for settlement in more than seven
days after notice to 15% of its net assets.
CERTAIN BORROWING AND INVESTMENT LIMITATIONS
The Fund will not:
borrow money directly or through reverse repurchase agreements
(arrangements in which the Fund sells a portfolio instrument for a
percentage of its cash value with an agreement to buy it back on a set
date) or pledge securities except, under certain circumstances, the Fund
may borrow up to 33 1/3% of the value of its total assets and secure such
borrowings with up to 15% of the value of those assets at the time of
borrowing;
engage in short sales; or
with respect to 75% of its total assets, invest more than 5% in
securities of any one issuer other than cash, cash items, or securities
issued and/or guaranteed by the U.S. government, its agencies or
instrumentalities, and repurchase agreements collateralized by such
securities, or acquire more than 10% of the outstanding voting securities
of any one issuer.
The above investment limitations cannot be changed without Fund shareholder
approval.
BANKSOUTH SELECT FUNDS INFORMATION
- --------------------------------------------------------------------------------
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES. The Trust is managed by a Board of Trustees (the "Board" or
"Trustees"). The Board is responsible for managing the Trust's business affairs
and for exercising all the Trust's powers except those reserved for the
shareholders. The Executive Committee of the Board handles various of the
Board's delegable responsibilities between meetings of the Board.
INVESTMENT ADVISER. Investment decisions for the Fund are made by the Bank as
the Fund's investment adviser (the "Adviser"), subject to direction by the
Board. The Adviser conducts investment research and supervision for the Fund and
is responsible for the purchase or sale of portfolio instruments, for which it
receives an annual fee from the Fund's assets. From time to time, to the extent
consistent with the investment objective, policies and restrictions of the Fund,
the Fund may invest in securities of issuers with which the Adviser has a
lending relationship. However, at this time, the Adviser has no intention to
invest in securities of issuers that have a lending relationship with the
investment Adviser or its affiliates.
ADVISORY FEES. The Adviser receives an annual investment advisory fee
equal to 0.75% of the Fund's average daily net assets. The fee paid by the
Fund, while higher than the advisory fee paid by certain other mutual
funds, is comparable to fees paid by many mutual funds with similar
objectives and policies. The Adviser has undertaken to reimburse the Fund,
up to the amount of the advisory fee, for operating expenses in excess of
limitations established by certain states. The Adviser may voluntarily
choose to waive a portion of its fee or reimburse other expenses of the
Fund, but reserves the right to terminate such waiver or reimbursement at
any time at its sole discretion.
ADVISER'S BACKGROUND. The Adviser, a national bank headquartered in
Atlanta, Georgia, is a wholly owned subsidiary of Bank South Corporation, a
Georgia corporation which is a registered bank holding company. The Adviser
serves consumers through its network of banking offices with a full range
of deposit and lending products, as well as investment services. The
principal executive offices of the Adviser are located at 55 Marietta
Street, N.W., Atlanta, GA 30303.
The Adviser has managed discretionary assets for its customers since 1931.
As of September 30, 1993 the Adviser managed in excess of $1 billion of
discretionary assets. Prior to the date hereof, the Bank has not served as
an investment adviser to mutual funds.
PORTFOLIO MANAGER. Mr. W. Shelton Prince is primarily responsible for the
day-to-day management of the Fund's portfolio. Mr. Prince joined the
Adviser in March of 1968, and was promoted to Vice President in November
1979, and Senior Investment Manager in February 1993. He is responsible for
the management of large personal trusts, foundations, and employee benefit
accounts as well as the Adviser's equity and common trust funds for both
institutional and personal trusts. He serves on the Adviser's Portfolio
Strategy and Trust Fiduciary Committees.
Mr. Prince's educational background includes a Bachelor of Science degree
from North Georgia College and a Master of Business Administration in both
Finance and Management from Georgia State University. He is a member of the
Atlanta Society of Financial Analysts.
DISTRIBUTION OF FUND SHARES
Federated Securities Corp. (the "Distributor") is the principal distributor for
shares of the Fund. It is a Pennsylvania corporation organized on November 14,
1969, and is the principal distributor for a number of investment companies. The
Distributor is a subsidiary of Federated Investors.
DISTRIBUTION PLAN. Under a distribution plan (the "Plan") adopted in accordance
with Securities and Exchange Commission ("SEC") Rule 12b-1 under the Investment
Company Act of 1940, as amended, the Fund will pay an amount computed at an
annual rate of up to 0.75% of the average daily net asset value of the shares to
finance any activity which is principally intended to result in the sale of
shares subject to the Plan. Certain trust clients of the Bank, including ERISA
plans, will not be affected by the Plan because the Plan will not be activated
unless and until a second, "Trust" class of shares of the Fund (which would not
have a Rule 12b-1 plan) is created and such trust clients' investments in the
Fund are converted to such Trust class.
The Distributor may select other financial institutions (such as broker-dealers
or banks) to provide sales support services as agents for their clients or
customers who beneficially own shares. These financial institutions (including
the Bank ) will receive fees from the Distributor based upon shares subject to
the Plan and owned by their clients or customers. The schedules of such fees and
the basis upon which such fees will be paid will be determined from time to time
by the Distributor.
The Fund's Plan is a compensation type plan. As such, the Fund pays the
Distributor the fee described above as opposed to reimbursing the Distributor
for actual expenses incurred. Therefore, the Fund does not pay for amounts
expended by the Distributor in excess of amounts received by it from the Fund,
which may include interest, carrying or other financing charges in connection
with excess amounts expended, or the Distributor's overhead expenses. However,
the Distributor may be able to recover such amounts or may earn a profit from
future payments made by the Fund under the Plan.
The Glass-Steagall Act prohibits a depository institution (such as a commercial
bank or a savings and loan association) from being an underwriter or distributor
of most securities. In the event the Glass-Steagall Act is deemed to prohibit
depository institutions from acting in the capacities described above or should
Congress relax current restrictions on depository institutions, the Trustees
will consider appropriate changes in the services.
State securities laws on this issue may differ from the interpretations of
federal law expressed herein and banks and financial institutions may be
required to register as dealers pursuant to certain states' securities laws.
ADMINISTRATIVE ARRANGEMENTS. The Distributor may also pay administrators a fee
based upon the average net asset value of shares of their customers invested in
the Trust for providing administrative services. This fee, if paid, will be
reimbursed by the Adviser and not the Trust.
ADMINISTRATION OF THE TRUST
ADMINISTRATIVE SERVICES. Federated Administrative Services, Pittsburgh,
Pennsylvania, a subsidiary of Federated Investors, provides certain
administrative personnel and services necessary to operate the Fund. Such
services include certain legal and accounting services. Federated Administrative
Services provides these at the annual rates specified below:
<TABLE>
<CAPTION>
MAXIMUM AVERAGE AGGREGATE DAILY
ADMINISTRATIVE FEE NET ASSETS OF THE TRUST
<C> <S>
.150 of 1% on the first $250 million
.125 of 1% on the next $250 million
.100 of 1% on the next $250 million
.075 of 1% on assets in excess of $750 million
</TABLE>
The administrative fee received during any fiscal year shall be at least
$100,000 per Fund. Federated Administrative Services may voluntarily choose to
waive a portion of its fee.
SHAREHOLDER SERVICES PLAN. The Fund has adopted a Shareholder Services Plan
(the "Services Plan") with respect to the shares. Under the Services Plan,
financial institutions will enter into shareholder service agreements with the
Fund to provide administrative support services to their customers who from time
to time may be owners of record or beneficial owners of the shares. In return
for providing these support services, a financial institution may recieve
payments from the Fund at a rate not exceeding 0.25% of the average daily net
assets of the shares beneficially owned by the financial institution's customers
for whom it is holder of record or with whom it has a servicing relationship.
These administrative services may include, but are not limited to, the following
functions: providing office space, equipment, telephone facilities, and various
personnel including clerical, supervisory, and computer, as necessary or
beneficial to establish and maintain shareholder accounts and records;
processing purchase and redemption transactions and automatic investments of
client account cash balances; answering routine client inquiries regarding the
Fund; assisting clients in changing dividend options, account designations, and
addresses; and providing such other services as the Fund reasonably requests.
Certain trust clients of the Bank, including ERISA plans, will not be affected
by the Services Plan because the Services Plan will not be activated unless and
until a second, "Trust" class of shares of the Fund (which would not have a
Services Plan) is created and such trust clients' investments in the Fund are
converted to such Trust class.
CUSTODIAN. The Bank of New York, New York, New York is custodian for the
securities and cash of the Fund.
TRANSFER AGENT, DIVIDEND DISBURSING AGENT, AND PORTFOLIO ACCOUNTING SERVICES.
Federated Services Company, Pittsburgh, Pennsylvania, a subsidiary of Federated
Investors, is transfer agent for the shares of, and dividend disbursing agent
for the Fund. It also provides certain accounting and recordkeeping services
with respect to the Fund's portfolio investments.
LEGAL COUNSEL. Legal counsel is provided by Houston, Houston & Donnelly,
Pittsburgh, Pennsylvania, and Dickstein, Shapiro & Morin, Washington, D.C.
INDEPENDENT AUDITORS. The independent auditors for the Fund are Ernst & Young,
Pittsburgh, Pennsylvania.
EXPENSES OF THE FUND
The Fund pays all of its own expenses and its allocable share of the Trust's
expenses. The expenses borne by the Fund include, but are not limited to, the
cost of: organizing the Trust and continuing its existence; Trustees' fees;
investment advisory and administrative services; printing prospectuses and other
Fund documents for shareholders; registering the Trust, the Fund, and shares of
the Fund with federal and state securities authorities; taxes and commissions;
issuing, purchasing, repurchasing, and redeeming shares; fees for custodians,
transfer agents, dividend disbursing agents, shareholder servicing agents, and
registrars; printing, mailing, auditing, accounting, and legal expenses; reports
to shareholders and governmental agencies; meetings of Trustees and shareholders
and proxy solicitations therefor; insurance premiums; association membership
dues; and such nonrecurring and extraordinary items as may arise.
BROKERAGE TRANSACTIONS
When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. In selecting among firms
believed to meet these criteria, the Adviser may give consideration to those
firms which have sold or are selling shares of the Fund. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Fund's Board.
NET ASSET VALUE
- --------------------------------------------------------------------------------
The Fund's net asset value per share fluctuates. It is determined by dividing
the sum of the market value of all securities and other assets, less
liabilities, by the number of shares outstanding.
INVESTING IN THE FUND
- --------------------------------------------------------------------------------
SHARE PURCHASES
Fund shares are sold on days on which the New York Stock Exchange and the
Federal Reserve Wire System are open for business. Fund shares may be purchased
through the Bank. In connection with the sale of shares of the Fund, the
Distributor may from time to time offer certain items of nominal value to any
shareholder or investor. The Fund reserves the right to reject any purchase
request.
BY TELEPHONE. To place an order to purchase Fund shares, call Bank South Mutual
Funds Center toll free at 1-800-282-6680 extension 4550. Texas residents must
purchase shares of the Fund through Bank South Securities Corporation at
404-521-7063. Your purchase order will be taken directly over the telephone. The
order must be placed by 4:00 p.m. (Eastern time) for shares to be purchased at
that day's price.
BY MAIL. Provide a letter of instruction to the Fund indicating your purchase
order, including the dollar amount of your order, your account title and/or
name, and your account number, and include a check made payable to the Fund.
PAYMENT BY CHECK. Mail to BankSouth Select Equity Fund, c/o Bank South Mutual
Fund Center, MC 16, P.O. Box 4387, Atlanta, Georgia 30302.
PAYMENT BY WIRE. To purchase shares by Federal Wire, contact your account
officer for wiring instructions. Wire orders will only be accepted on days on
which the Fund, the Bank and the Federal Reserve Banks are open for business.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment in the Fund by an investor is $1,000 ($500 for
IRAs). Subsequent investments must be in amounts of at least $100. The Fund may
choose to waive its minimum investment from time to time and for accounts which
select the Systematic Investment Program.
SYSTEMATIC INVESTMENT PROGRAM
Once an account has been opened, shareholders may add to their investment on a
regular basis in minimum amounts of $100, unless waived. Under this program,
funds may be automatically withdrawn periodically from the shareholder's
checking or other transaction deposit account and invested in Fund shares at the
net asset value next determined after an order is received by the Bank, plus an
applicable sales charge. A shareholder may apply for participation in this
program through the Bank.
WHAT SHARES COST
Shares of the Fund are sold at their net asset value next determined after an
order is received plus a sales charge as follows:
<TABLE>
<CAPTION>
SALES CHARGE AS SALES CHARGE AS
A PERCENTAGE A PERCENTAGE
OF PUBLIC OF NET AMOUNT
AMOUNT OF TRANSACTION OFFERING PRICE INVESTED
<S> <C> <C>
Less than $100,000 3.75% 3.90%
$100,000 but less than $250,000 3.25% 3.38%
$250,000 but less than $500,000 2.75% 2.83%
$500,000 but less than $750,000 2.25% 2.30%
$750,000 but less than $1,000,000 1.00% 1.01%
$1,000,000 but less than $2,000,000 0.50% 0.50%
$2,000,000 or more 0.00% 0.00%
</TABLE>
The net asset value is determined at 4:00 p.m. (Eastern time), Monday through
Friday, except on: (i) days on which changes (if any) in the value of the Fund's
portfolio securities do not materially affect its net asset value; (ii) days
during which no shares are tendered for redemption and no orders to purchase
shares are received; and (iii) the following holidays: New Year's Day, Martin
Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Columbus Day, Veterans' Day, Thanksgiving Day and Christmas Day.
PURCHASES AT NET ASSET VALUE. Shares of the Fund may be purchased at net asset
value, without a sales charge, by certain trust customers of the Bank and
employees of the Bank and its affiliates and their spouses and children under
21.
SALES CHARGE REALLOWANCE. The Bank and any authorized dealer or bank will
normally receive up to 85% of the applicable sales charge as a transaction fee
from its customers and for sales and/or administrative services performed on
behalf of its customers in connection with the initiation of customer accounts
and purchases of Fund shares. Any portion of the sales charge which is not paid
to the Bank or a dealer will be retained by the Distributor. However, the
Distributor, in its sole discretion, may uniformly offer to permit all dealers
and other institutions selling shares of the Fund, to receive all or a portion
of the amount the Distributor normally retains as a sales charge. If accepted by
the dealer, such additional payments may be in the form of cash or other
promotional incentives, and will be predicated upon the amount of shares of the
Fund or other BankSouth Select Funds sold by the dealer or other institution.
REDUCING THE SALES CHARGE
The sales charge can be reduced on the purchase of shares of the Fund through:
quantity discounts and accumulated purchases;
signing a 13-month letter of intent;
using the reinvestment privilege; or
concurrent purchases.
QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES. As shown in the table on the
previous page, larger purchases reduce the sales charge paid. The Fund will
combine purchases of shares made on the same day by the investor, his spouse,
and his children under age 21 when it calculates the sales charge.
If an additional purchase of shares is made, the Fund will consider the previous
purchases still invested in the Fund. For example, if a shareholder already owns
shares having a current value at the public offering price of $90,000 and
purchases $10,000 more at the current public offering price, the sales charge on
the additional purchase according to the schedule now in effect would be 3.25%,
not 3.75%.
To receive the sales charge reduction, the Bank must be notified by the
shareholder in writing at the time the purchase is made that shares are already
owned or that purchases are being combined. The Fund will reduce the sales
charge after it confirms the purchases.
LETTER OF INTENT. If a shareholder intends to purchase at least $100,000 of
shares in the Fund over the next 13 months, the sales charge may be reduced by
signing a letter of intent to that effect. This letter of intent includes a
provision for a sales charge adjustment depending on the amount actually
purchased within the 13-month period and a provision for the Custodian to hold
up to 3.75% of the total amount intended to be purchased in escrow (in shares)
until such purchase is completed.
The amount held in escrow will be applied to the shareholder's account at the
end of the 13-month period unless the amount specified in the letter of intent
is not purchased. In this event, an appropriate number of escrowed shares may be
redeemed in order to realize the difference in the sales charge.
This letter of intent will not obligate the shareholder to purchase shares, but
if the shareholder does, each purchase during the period will be at the sales
charge applicable to the total amount intended to be purchased. This letter may
be dated as of a prior date to include any purchases made within the past 90
days.
REINVESTMENT PRIVILEGE. If shares in the Fund have been redeemed, the
shareholder has a one-time right, within 30 days, to reinvest the redemption
proceeds at the next-determined net asset value without any sales charge. The
Bank must be notified by the shareholder in writing or by the shareholder's
financial institution of the reinvestment in order to eliminate a sales charge.
If the shareholder redeems his shares in the Fund, there may be tax
consequences.
CONCURRENT PURCHASES. For purposes of qualifying for a sales charge reduction,
a shareholder has the privilege of combining concurrent purchases of two or more
funds in the Trust, the purchase price of which includes a sales charge. For
example, if a shareholder concurrently invested $30,000 in one of the other
funds in the Trust with a sales charge and $70,000 in this Fund, the sales
charge would be reduced.
To receive this sales charge reduction, the Distributor must be notified by the
shareholder in writing or by the Bank at the time the concurrent purchases are
made. The Fund will reduce the sales charge after if confirms the purchases. See
"What Shares Cost" and "Addresses".
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent for the Fund maintains a share account for each shareholder
of record. Share certificates are not issued unless requested in writing from
the Fund or the Transfer Agent.
Detailed statements that include account balances, information on each purchase
or redemption, and a report of dividends are sent to each shareholder.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid quarterly to all shareholders invested in the
Fund on the record date.
Capital gains realized by the Fund, if any, will be distributed at least once
every 12 months. Dividends and capital gains will be reinvested in additional
shares on payment dates at the ex-dividend date's net asset value without a
sales charge, unless a shareholder makes written request for cash payments to
the Fund or the Bank.
PURCHASING FUND SHARES FOR SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values its assets. Investors wishing to use securities to purchase
Fund shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
EXCHANGE PRIVILEGE
- --------------------------------------------------------------------------------
BANKSOUTH SELECT FUNDS
All shareholders of the Fund are shareholders of BankSouth Select Funds.
BankSouth Select Funds currently include the Fund, BankSouth Select Bond Fund,
BankSouth Select Georgia Tax-Free Income Fund, BankSouth Select Prime Money
Market Fund, and BankSouth Select Government Money Market Fund. Shareholders
have easy access to each of the portfolios of BankSouth Select Funds through a
telephone exchange program. All BankSouth Select Funds are advised by the Bank
and distributed by the Distributor.
Shareholders may exchange shares of the Fund for shares of the other BankSouth
Select Funds. In addition, shares of the Fund may also be exchanged for certain
other funds designated by the Bank which are distributed by the Distributor but
are not advised by the Bank ("Federated Funds"). For further information on the
availability of Federated Funds for exchanges, please call the Bank South Mutual
Funds Center at 1-800-282-6680 extension 4550. Shares of funds with a sales
charge may be exchanged at net asset value for shares of other funds with an
equal sales charge or no sales charge. Shares of funds with a sales charge may
be exchanged for shares of funds with a higher sales charge at net asset value,
plus the additional sales charge. Shares of funds with no sales charge, whether
acquired by direct purchase, reinvestment of dividends on such shares, or
otherwise, may be exchanged for shares of funds with a sales charge at net asset
value, plus the applicable sales charge.
When an exchange is made from a fund with a sales charge to a fund with no sales
charge, the shares exchanged and additional shares which have been purchased by
reinvesting dividends or capital gains on such shares retain the character of
the exchanged shares for purposes of exercising further exchange privileges;
thus, an exchange of such shares for shares of a fund with a sales charge would
be at net asset value.
Shareholders who exercise this exchange privilege must exchange shares having a
net asset value of at least $1,000. Prior to any exchange, the shareholder must
receive a copy of the current prospectus of the fund into which an exchange is
to be effected.
The exchange privilege is available to shareholders residing in any state in
which the fund shares being acquired may legally be sold. Upon receipt of proper
instructions and all necessary supporting documents, shares submitted for
exchange will be redeemed at the next-determined net asset value for the
applicable fund. Written exchange instructions may require a signature
guarantee. Exercise of this privilege is treated as a sale for federal income
tax purposes and, depending on the circumstances, a short or long-term capital
gain or loss may be realized.
The Fund reserves the right to terminate the exchange privilege at any time on
60 days notice. Shareholders will be notified if this privilege is terminated. A
shareholder may obtain further information on the exchange privilege by calling
the Bank.
BY TELEPHONE. Instructions for exchanges between funds which are part of the
Trust may be given by telephone to the Bank South Mutual Funds Center at
1-800-282-6680 extension 4550 or to the Distributor. Shares may be exchanged by
telephone only between fund accounts having identical shareholder registrations.
Any shares held in certificate form cannot be exchanged by telephone but must be
forwarded to the Fund's Transfer Agent by the Bank and deposited to the
shareholder's mutual fund account before being exchanged. See "Addresses".
An authorization form permitting the Fund to accept telephone exchanges must
first be completed. It is recommended that investors request this privilege at
the time of their initial application. If not completed at the time of initial
application, authorization forms and information regarding this service are
available from the Bank. Telephone exchange instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
Telephone exchange instructions must be received before 4:00 p.m. (Eastern time)
for shares to be exchanged the same day. The telephone exchange privilege may be
modified or terminated at any time. Shareholders will be notified of such
modification or termination. Shareholders may have difficulty in making
exchanges by telephone through the Bank, during times of drastic economic or
market changes. If a shareholder cannot contact the Bank, by telephone, it is
recommended that an exchange request be made in writing and sent by overnight
mail to BankSouth Select Funds, 55 Marietta Street, N.W., Atlanta, Georgia
30303.
REDEEMING SHARES
- --------------------------------------------------------------------------------
The Fund redeems shares at their net asset value next determined after the Bank
receives the redemption request. Redemptions will be made on days on which the
Fund computes its net asset value. Telephone or written requests for redemption
must be received in proper form and can be made through the Bank, or directly to
the Fund.
BY TELEPHONE. A shareholder may redeem shares of the Fund by contacting his
account officer or by calling the Bank South Mutual Funds Center to request the
redemption. Call 1-800-282-6680 extension 4550). Shares will be redeemed at the
net asset value next determined after the Fund receives the redemption request
from the Bank. Redemption requests to the Bank must be received before 4:00 p.m.
(Eastern time) in order for shares to be redeemed at that day's net asset value,
and the Bank will promptly submit such redemption requests and provide written
redemption instructions to the Fund. If, at any time, the Fund should determine
it necessary to terminate or modify this method of redemption, shareholders
would be promptly notified.
An authorization form permitting the Fund to accept telephonic redemption
requests must first be completed. It is recommended that investors request this
privilege at the time of their initial application. If not completed at the time
of initial application, authorization forms and information on this service are
available from the Bank. Telephone redemption instructions may be recorded. If
reasonable procedures are not followed by the Fund, it may be liable for losses
due to unauthorized or fraudulent telephone instructions.
A shareholder may have the redemption proceeds directly deposited by electronic
funds transfer or wired directly to a domestic commercial bank previously
designated by the shareholder. Wire redemption orders will only be accepted on
days on which the Fund, the Bank and the Federal Reserve Wire System are open
for business. Wire-transferred redemptions may be subject to an additional fee.
In the event of extraordinary economic or market changes, a shareholder may
experience difficulty in redeeming by telephone. If such a case should occur, it
is recommended that a redemption request be made in writing and be hand
delivered or sent by overnight mail to your account officer at the Bank.
BY MAIL. Shareholders may redeem shares by sending a written request to the
Bank. The written request should include the shareholder's name, the Fund name,
the account number, and the share or dollar amount requested. If share
certificates have been issued, they must be properly endorsed and should be sent
by registered or certified mail with the written request to the Bank.
Shareholders should call the Bank for assistance in redeeming shares by mail.
SIGNATURES. Shareholders requesting a redemption of $50,000 or more, a
redemption requesting payment to an address other than that on record with the
Fund, or other than to the shareholder of record must make written redemption
requests with signatures guaranteed by:
a trust company or commercial bank whose deposits are insured by the
FDIC's BIF;
a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchange;
a savings bank or savings and loan association whose deposits are insured
by the FDIC's SAIF; or
any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934, as amended.
The Fund does not accept signatures guaranteed by a notary public.
The Fund and its Transfer Agent have adopted standards for accepting signature
guarantees from the above institutions. The Fund may elect in the future to
limit eligible signature guarantors to institutions that are members of a
signature guarantee program. The Fund and its Transfer Agent reserve the right
to amend these standards at any time without notice.
RECEIVING PAYMENT. Normally, a check for the proceeds is mailed to the
shareholder within one business day, but in no event more than seven calendar
days, after receipt of a proper written redemption request, provided that the
Transfer Agent has received payment for shares from the shareholder.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or through an Automated Clearing House
("ACH"), the proceeds from the redemption of those shares are not available, and
the shares may not be exchanged, until the Bank is reasonably certain that the
check or clearing house funds have cleared, which could take up to 10 calendar
days.
SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders who desire to receive payments of a predetermined amount may take
advantage of the Systematic Withdrawal Program. Under this program, Fund shares
are redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. Depending upon the amount of the withdrawal payments and
the amount of dividends paid with respect to Fund shares, redemptions may
reduce, and eventually deplete, the shareholder's investment in the Fund. For
this reason, payments under this program should not be considered as yield or
income on the shareholder's investment in the Fund. To be eligible to
participate in this program, a shareholder must have an account value of at
least $10,000. A shareholder may apply for participation in this program
through the Bank.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, the Fund may
redeem shares in any account and pay the proceeds to the shareholder if, due to
shareholder redemptions, the account balance falls below the required minimum of
$1,000.
Before shares are redeemed to close an account, the shareholder is notified in
writing and allowed 30 days to purchase additional shares to meet the minimum
requirement.
SHAREHOLDER INFORMATION
- --------------------------------------------------------------------------------
VOTING RIGHTS
Each share of the Fund entitles shareholders to one vote in Trustee elections
and other matters submitted to shareholders of the Trust for vote. All shares of
each portfolio in the Trust have equal voting rights except that, in matters
affecting only a particular Fund, only shareholders of that Fund are entitled to
vote. As a Massachusetts business trust, the Trust is not required to hold
annual shareholder meetings. Shareholder approval will be sought only for
certain changes in the Trust's or the Fund's operation and for the election of
Trustees under certain circumstances.
Any Trustee may be removed by the Board of Trustees or by the shareholders at a
special meeting. A special meeting of the shareholders shall be called by the
Trustees upon the written request of shareholders owning at least 10% of the
Trust's outstanding shares.
MASSACHUSETTS PARTNERSHIP LAW
Under certain circumstances, shareholders may be held personally liable as
partners under Massachusetts law for acts or obligations of the Trust. To
protect shareholders, the Trust has filed legal documents with Massachusetts
that expressly disclaim the liability of shareholders of the Fund for such acts
or obligations of the Trust. These documents require notice of this disclaimer
to be given in each agreement, obligation, or instrument the Trust or its
Trustees enter into or sign on behalf of the Fund.
In the unlikely event a shareholder is held personally liable for the Trust's
obligations, the Trust is required by the Declaration of Trust to use its
property to indemnify, protect or compensate the shareholder. On request, the
Trust will defend any claim made and pay any judgment against a shareholder for
any act or obligation of the Trust. Therefore, financial loss resulting from
liability as a shareholder will occur only if the Trust cannot meet its
obligations to indemnify shareholders and pay judgments against them from assets
of the Fund.
EFFECT OF BANKING LAWS
- --------------------------------------------------------------------------------
Banking laws and regulations presently prohibit a bank holding company
registered under the federal Bank Holding Company Act of 1956, as amended or any
affiliate thereof from sponsoring, organizing, controlling, or distributing the
shares of a registered, open-end investment company continuously engaged in the
issuance of its shares, and prohibit banks generally from underwriting or
distributing securities. However, such banking laws and regulations do not
prohibit such a holding company affiliate or banks generally from acting as
investment adviser, transfer agent, or custodian to such an investment company
or from acting as agent for their customers in purchasing securities. The Fund's
Adviser, the Bank, is subject to such banking laws and regulations.
The Bank believes, based on the advice of its counsel, that it may perform the
services for the Fund contemplated by its advisory agreement with the Trust
without violating of the Glass-Steagall Act or other applicable banking laws or
regulations. Changes in either federal or state statutes and regulations
relating to the permissible activities of banks and their affiliates, as well as
further judicial or administrative decisions or interpretations of present or
future statutes and regulations, could prevent the Bank from continuing to
perform all or a part of the above services for its customers and/or the Fund.
If it were prohibited from engaging in these customer-related activities, the
Trustees would consider alternative advisers and means of continuing available
investment services. In such event, changes in the operation of the Fund may
occur, including possible termination of any automatic or other Fund share
investment and redemption services then being provided by the Bank. It is not
expected that existing shareholders would suffer any adverse financial
consequences (if another adviser with equivalent abilities to the Bank is found)
as a result of any of these occurrences.
TAX INFORMATION
- --------------------------------------------------------------------------------
FEDERAL INCOME TAX
The Fund expects to pay no federal income tax because it intends to meet
requirements of the Internal Revenue Code applicable to regulated investment
companies and to receive the special tax treatment afforded to such companies.
The Fund will be treated as a single, separate entity for federal income tax
purposes so that income (including capital gains) and losses realized by the
Trust's other portfolios will not be combined for tax purposes with those
realized by the Fund.
Unless otherwise exempt, shareholders are required to pay federal income tax on
any dividends and other distributions received. This applies whether dividends
and distributions are received in cash or as additional shares.
STATE AND LOCAL TAXES
Shareholders are urged to consult their own tax advisers regarding the status of
their accounts under state and local tax laws.
PERFORMANCE INFORMATION
- --------------------------------------------------------------------------------
From time to time the Fund may advertise its total return and yield.
Total return represents the change, over a specified period of time, in the
value of an investment in the Fund after reinvesting all income and capital
gains distributions. It is calculated by dividing that change by the initial
investment and is expressed as a percentage.
The yield of the Fund is calculated each day by dividing the net investment
income per share (as defined by the SEC) earned by the Fund over a 30-day period
by the maximum offering price per share of the Fund on the last day of the
period. This number is then annualized using semi-annual compounding. The yield
does not necessarily reflect income actually earned by the Fund and, therefore,
may not correlate to the dividends or other distributions paid to shareholders.
From time to time, the Fund may advertise its performance using certain
reporting services and/or compare its performance to certain indices.
ADDRESSES
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
BankSouth Select Equity Fund Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Distributor
Federated Securities Corp. Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Investment Adviser
Bank South, N.A. MC 16
P.O. Box 4387
Atlanta, Georgia 30302
- ---------------------------------------------------------------------------------------------------------------------
Custodian
The Bank of New York 48 Wall Street
New York, New York 10286
- ---------------------------------------------------------------------------------------------------------------------
Transfer Agent, Dividend Disbursing Agent,
and Portfolio Accounting Services
Federated Services Company Federated Investors Tower
Pittsburgh, Pennsylvania 15222-3779
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Houston, Houston & Donnelly 2510 Centre City Tower
Pittsburgh, Pennsylvania 15222
- ---------------------------------------------------------------------------------------------------------------------
Legal Counsel
Dickstein, Shapiro & Morin 2101 L Street, N.W.
Washington, D.C. 20037
- ---------------------------------------------------------------------------------------------------------------------
Independent Auditors
Ernst & Young One Oxford Centre
Pittsburgh, Pennsylvania 15219
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
BANKSOUTH SELECT
EQUITY FUND
PROSPECTUS
A Diversified Portfolio of
BankSouth Select Funds, an Open-End
Management Investment Company
(a Mutual Fund)
Prospectus dated January 7, 1994
BANK SOUTH, N.A.
(Logo)
Investment Adviser
55 Marietta Street, N.W.
Atlanta, GA 30303
FEDERATED SECURITIES CORP.
(LOGO)
Distributor
A subsidiary of FEDERATED INVESTORS
FEDERATED INVESTORS TOWER
PITTSBURGH, PA 15222-3779
3092102A (1/94)
BANKSOUTH SELECT EQUITY FUND
(A PORTFOLIO OF BANKSOUTH SELECT FUNDS)
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read with the
prospectus of BankSouth Select Equity Fund (the "Fund") dated January
7, 1994. This Statement is not a prospectus itself. To receive a copy
of the prospectus, call the Bank South, N.A. (the "Bank") Mutual Funds
Center at 1-800-282-6680 extension 4550.
SHARES OF THE FUND ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, AND ARE
NOT ISSUED, ENDORSED OR GUARANTEED BY THE BANK OR ANY OF ITS
AFFILIATES. SUCH SHARES ARE NOT ISSUED, INSURED OR GUARANTEED BY THE
U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE
FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY. AN INVESTMENT IN
THE FUND INVOLVES CERTAIN RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
THE BANK IS INVESTMENT ADVISER TO THE FUND. THE FUND IS DISTRIBUTED BY
FEDERATED SECURITIES CORP., WHICH IS NOT AFFILIATED WITH THE BANK.
Statement dated January 7, 1994
FEDERATED SECURITIES CORP.
--------------------------------------------
Distributor
FEDERATED INVESTORS TOWER
PITTSBURGH, PENNSYLVANIA 15222-3779
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND 1
- ---------------------------------------------------------------
INVESTMENT OBJECTIVE AND POLICIES 1
- ---------------------------------------------------------------
Types of Investments 1
Other Permitted Investments 1
Futures and Options Transactions 1
Temporary Investments 3
When-Issued and Delayed Delivery
Transactions 4
Restricted and Illiquid Securities 4
Repurchase Agreements 4
Reverse Repurchase Agreements 4
Lending of Portfolio Securities 5
Portfolio Turnover 5
Investment Limitations 5
BANKSOUTH SELECT FUNDS MANAGEMENT 7
- ---------------------------------------------------------------
Officers and Trustees 7
The Funds 10
Fund Ownership 10
Trustee Liability 10
INVESTMENT ADVISORY SERVICES 10
- ---------------------------------------------------------------
Adviser to the Fund 10
Advisory Fees 10
ADMINISTRATIVE SERVICES 11
- ---------------------------------------------------------------
BROKERAGE TRANSACTIONS 11
- ---------------------------------------------------------------
PURCHASING SHARES 11
- ---------------------------------------------------------------
Administrative Arrangements 11
Distribution Plan 11
Purchasing Fund Shares with Securities 12
DETERMINING NET ASSET VALUE 12
- ---------------------------------------------------------------
Determining Market Value of Securities 12
EXCHANGE PRIVILEGE 12
- ---------------------------------------------------------------
REDEEMING SHARES 12
- ---------------------------------------------------------------
Redemption in Kind 12
TAX STATUS 13
- ---------------------------------------------------------------
The Fund's Tax Status 13
Shareholders' Tax Status 13
TOTAL RETURN 13
- ---------------------------------------------------------------
YIELD 13
- ---------------------------------------------------------------
PERFORMANCE COMPARISONS 13
- ---------------------------------------------------------------
GENERAL INFORMATION ABOUT THE FUND
- --------------------------------------------------------------------------------
BankSouth Select Equity Fund (the "Fund") is a portfolio in Bank South Select
Funds (the "Trust"), which was established as a Massachusetts business trust
under a Declaration of Trust dated as of September 22, 1993, as amended and
restated dated December 20, 1993.
INVESTMENT OBJECTIVE AND POLICIES
- --------------------------------------------------------------------------------
The Fund's investment objective is to achieve long-term growth of capital and
income. The investment objective cannot be changed without shareholder approval.
TYPES OF INVESTMENTS
The Fund invests principally in common stocks of United States issuers. Although
the Fund may invest in other securities and in money market instruments, it is
the Fund's policy under normal market conditions to invest at least 65% of its
portfolio in equity securities.
OTHER PERMITTED INVESTMENTS
CONVERTIBLE SECURITIES
Convertible securities are fixed income securities which may be exchanged
or converted into a predetermined number of shares 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 or units consisting of "usable" bonds and warrants or a
combination of the features of several of these securities. The
investment characteristics of each convertible security vary widely,
which allows convertible securities to be employed for different
investment objectives.
The Fund will exchange or convert the convertible securities held in its
portfolio into shares of the underlying common stock in instances in
which, in the investment adviser's opinion, the investment
characteristics of the underlying common shares will assist the Fund in
achieving its investment objectives. Otherwise, the Fund may hold or
trade convertible securities. In selecting convertible securities for the
Fund, the Fund's adviser 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 Fund's adviser 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.
WARRANTS
Warrants are basically options to purchase common stock at a specific
price (usually at a premium above the market value of the underlying
common stock at the time of the issuance of the warrant) valid for a
specific period of time. Warrants may have a life ranging from less than
a year to twenty years or may be perpetual. However, most warrants have
expiration dates after which they are worthless. In addition, if the
market price of the common stock does not exceed the warrant's exercise
price during the life of the warrant, the warrant will expire as
worthless. Warrants have no voting rights, pay no dividends, and have no
rights with respect to the assets of the corporation issuing them. The
percentage increase or decrease in the market price of the warrant may
tend to be greater than the percentage increase or decrease in the market
price of the underlying common stock.
FUTURES AND OPTIONS TRANSACTIONS
As a means of reducing fluctuations in the net asset value of shares of the
Fund, the Fund may attempt to hedge all or a portion of its portfolio by buying
and selling financial futures contracts, buying put options on portfolio
securities and listed put options on futures contracts, and writing call options
on futures contracts. The Fund may also write covered call options on portfolio
securities to attempt to increase its current income. The Fund will maintain its
positions in securities, option rights, and segregated cash subject to puts and
calls until the options are exercised, closed, or have expired. An option
position on financial futures contracts may be closed out only on an exchange
which provides a secondary market for options of the same series.
FINANCIAL FUTURES CONTRACTS
A futures contract is a firm commitment by two parties: the seller who
agrees to make delivery of the specific type of security called for in
the contract ("going short") and the buyer who agrees to take delivery of
the security ("going long") at a certain time in the future.
Financial futures contracts may call for the delivery of shares of common
stocks represented in a particular index.
In addition, the Fund reserves the right to hedge the portfolio by
entering into financial futures contracts. The Fund will notify
shareholders before such a change in its operating policies is
implemented.
PUT OPTIONS ON FINANCIAL FUTURES CONTRACTS
The Fund may purchase exchange listed put options on financial futures
contracts. Unlike entering directly into a futures contract, which
requires the purchaser to buy a financial instrument on a set date at a
specified price, the purchase of a put option on a futures contract
entitles (but does not obligate) its purchaser to decide on or before a
future date whether to assume a short position at the specified price.
Generally, if the hedged portfolio securities decrease in value during
the term of an option, the related futures contracts will also decrease
in value and the option will increase in value. In such an event, the
Fund will normally close out its option by selling an identical option.
If the hedge is successful, the proceeds received by the Fund upon the
sale of the second option will be large enough to offset both the premium
paid by the Fund for the original option plus the decrease in value of
the hedged securities.
Alternatively, the Fund may exercise its put option to close out the
position. To do so, it would simultaneously enter into a futures contract
of the type underlying the option (for a price less than the strike price
of the option) and exercise the option. The Fund would then deliver the
futures contract in return for payment of the strike price. If the Fund
neither closes out nor exercises an option, the option will expire on the
date provided in the option contract, and only the premium paid for the
contract will be lost.
CALL OPTIONS ON FINANCIAL FUTURES CONTRACTS
In addition to purchasing put options on futures, the Fund may write
exchange listed call options on futures contracts to hedge its portfolio.
When the Fund writes a call option on a futures contract, it is
undertaking the obligation of assuming a short futures position (selling
a futures contract) at the fixed strike price at any time during the life
of the option if the option is exercised. As stock prices fall, causing
the prices of futures to go down, the Funds' obligation under a call
option on a future (to sell a futures contract) costs less to fulfill,
causing the value of the Fund's call option position to increase.
In other words, as the underlying futures price goes down below the
strike price, the buyer of the option has no reason to exercise the call,
so that the Fund keeps the premium received for the option. This premium
can substantially offset the drop in value of the Fund's fixed income or
indexed portfolio which is occurring as interest rates rise.
Prior to the expiration of a call written by the Fund, or exercise of it
by the buyer, the Fund may close out the option by buying an identical
option. If the hedge is successful, the cost of the second option will be
less than the premium received by the Fund for the initial option. The
net premium income of the Fund will then substantially offset the
decrease in value of the hedged securities.
The Fund will not maintain open positions in futures contracts it has
sold or call options it has written on futures contracts if, in the
aggregate, the value of the open positions (marked to market) exceeds the
current market value of its securities portfolio plus or minus the
unrealized gain or loss on those open positions, adjusted for the
correlation of volatility between the hedged securities and the futures
contracts. If this limitation is exceeded at any time, the Fund will take
prompt action to close out a sufficient number of open contracts to bring
its open futures and options positions within this limitation.
"MARGIN" IN FUTURES TRANSACTIONS
Unlike the purchase or sale of a security, the Fund does not pay or
receive money upon the purchase or sale of a futures contract. Rather,
the Fund is required to deposit an amount of "initial margin" in cash or
U.S. Treasury bills with its custodian (or the broker, if legally
permitted). The nature of initial margin in futures transactions is
different from that of margin in securities transactions in that initial
margin in futures transactions does not involve the borrowing of funds by
the Fund to finance the transactions. Initial margin is in the nature of
a performance bond or good faith deposit on the contract which is
returned to the Fund upon termination of the futures contract, assuming
all contractual obligations have been satisfied.
A futures contract held by the Fund is valued daily at the official
settlement price of the exchange on which it is traded. Each day the Fund
pays or receives cash, called "variation margin," equal to the daily
change in value of the futures contract. This process in known as
"marking to market." Variation margin does not represent a borrowing or
loan by the Fund but is instead settlement between the Fund and the
broker of the amount one would owe the other if the futures contract
expired. In computing its daily net asset value, the Fund will mark to
market its open futures positions.
The Fund is also required to deposit and maintain margin when it writes
call options on futures contracts.
PURCHASING PUT OPTIONS ON PORTFOLIO SECURITIES
The Fund may purchase put options on portfolio securities to protect
against price movements in particular securities in its portfolio. A put
option gives the Fund, in return for a premium, the right to sell the
underlying security to the writer (seller) at a specified price during
the term of the option.
WRITING COVERED CALL OPTIONS ON PORTFOLIO SECURITIES
The Fund may also write covered call options to generate income. As
writer of a call option, the Fund has the obligation upon exercise of the
option during the option period to deliver the underlying security upon
payment of the exercise price. The Fund may only sell call options either
on securities held in its portfolio or on securities which it has the
right to obtain without payment of further consideration (or has
segregated cash in the amount of any additional consideration).
RISKS
When the Fund uses financial futures and options on financial futures as
hedging devices, there is a risk that the prices of the securities
subject to the futures contracts may not correlate perfectly with the
prices of the securities in the Fund's portfolio. This may cause the
futures contract and any related options to react differently than the
portfolio securities to market changes. In addition, the Fund's
investment adviser could be incorrect in its expectations about the
direction or extent of market factors such as stock price movements. In
these events, the Fund may lose money on the futures contract or option.
It is not certain that a secondary market for positions in futures
contracts or for options will exist at all times. Although the investment
adviser will consider liquidity before entering into options
transactions, there is no assurance that a liquid secondary market on an
exchange or otherwise will exist for any particular futures contract or
option at any particular time. The Fund's ability to establish and close
out futures and options positions depends on this secondary market.
TEMPORARY INVESTMENTS
MONEY MARKET INSTRUMENTS
For defensive purposes only, the Fund may invest temporarily in cash and
money market instruments during times of unusual market conditions:
prime commercial paper (rated A-1 by Standard & Poor's Corporation, P-1
by Moody's Investors Service, Inc., F-1 by Fitch Investors Service, or
Duff-1 by Duff & Phelps Credit Rating Co.) and Europaper (rated A-1,
P-1, F-1 or Duff-1 or above). In the case where commercial paper or
Europaper has received different ratings from different rating services,
such commercial paper or Europaper is an acceptable temporary investment
so long as at least one rating is one of the preceding high quality
ratings and provided the Fund's investment adviser has determined that
such investment presents minimal credit risks;
instruments of domestic and foreign banks and savings and loans if they
have capital, surplus, and undivided profits of over $100,000,000
("Eligible Institutions"), or if the principal amount of the instrument
is insured by the Bank Insurance Fund ("BIF") administered by the
Federal Deposit Insurance Corporation ("FDIC") or the Savings
Association Insurance Fund ("SAIF") administered by the FDIC. Such Fund
investments may include Eurodollar Certificates of Deposit ("ECDs"),
Eurodollar Time Deposits ("ETDs"), and Canadian Time Deposits issued by
Eligible Institutions;
obligations of the U.S. government or its agencies or instrumentalities;
repurchase agreements; and
other short-term instruments which are not rated but are determined by
the investment adviser to be of comparable quality to the other
temporary obligations in which the Fund may invest.
U.S. GOVERNMENT OBLIGATIONS
The types of U.S. government obligations in which the Fund may invest
generally include direct obligations of the U.S. Treasury (such as U.S.
Treasury bills, notes, and bonds) and obligations issued or guaranteed by
U.S. government agencies or instrumentalities. These securities are
backed by:
the full faith and credit of the U.S. Treasury;
the issuer's right to borrow an amount limited to a specific line of
credit from the U.S. Treasury;
the discretionary authority of the U.S. government to purchase certain
obligations of agencies or instrumentalities; or
the credit of the agency or instrumentality issuing the obligations.
Examples of agencies and instrumentalities which are permissible
investments which may not always receive financial support from the U.S.
government are:
Federal Farm Credit Banks;
Federal Home Loan Banks;
Federal National Mortgage Association;
Student Loan Marketing Association; and
Federal Home Loan Mortgage Corporation.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS
These transactions are arrangements in which the Fund purchases and sells
securities with payment and delivery scheduled for a future time. The Fund
engages in when-issued and delayed delivery transactions only for the purpose of
acquiring portfolio securities consistent with the its investment objective and
policies, not for investment leverage. In when-issued and delayed delivery
transactions, the Fund relies on the seller to complete the transaction. The
seller's failure to complete the transaction may cause the Fund to miss a price
or yield considered to be advantageous.
These transactions are made to secure what is considered to be an advantageous
price or yield for the Fund. Settlement dates may be a month or more after
entering into these transactions, and the market values of the securities
purchased may vary from the purchase prices. No fees or other expenses, other
than normal transaction costs, are incurred. However, liquid assets of the Fund
sufficient to make payment for the securities to be purchased are segregated on
the Fund's records at the trade date. These securities are marked to market
daily and maintained until the transaction is settled.
As a matter of policy, the Fund does not intend to engage in when-issued and
delayed delivery transactions to an extent that would cause the segregation of
more than 20% of the total value of its assets at any time.
RESTRICTED SECURITIES
The ability of the Trustees to determine the liquidity of certain restricted
securities is permitted under a Securities and Exchange Commission ("SEC") Staff
position set forth in the adopting release for Rule 144A under the Securities
Act of 1933. Rule 144A is a nonexclusive safe-harbor for certain secondary
market transactions involving securities subject to restrictions on resale under
federal securities laws. Rule 144A provides an exemption from registration for
resales of otherwise restricted securities to qualified institutional buyers.
Rule 144A was expected to further enhance the liquidity of the secondary market
for securities eligible for resale under Rule 144A. The Fund believes that the
Staff of the SEC has left the question of determining the liquidity of all
restricted securities to the Trustees. The Trustees consider the following
criteria in determining the liquidity of certain restricted securities:
the frequency of trades and quotes for the security;
the number of dealers willing to purchase or sell the security and the number of
other potential buyers;
dealer undertakings to make a market in the security; and
the nature of the security and the nature of the marketplace trades.
REPURCHASE AGREEMENTS
As collateral for the obligations of the seller to repurchase the securities
from the Fund, the Fund or its custodian will take possession of the securities
subject to repurchase agreements and these securities are marked to market
daily. To the extent that the original seller does not repurchase the securities
from the Fund, the Fund could receive less than the repurchase price on any sale
of such securities. In the event that a defaulting seller filed for bankruptcy
or became insolvent, disposition of securities by the Fund might be delayed
pending court action. The Fund believes that, under the regular procedures
normally in effect for custody of the Fund's portfolio securities subject to
repurchase agreements, a court of competent jurisdiction would rule in favor of
the Fund and allow retention or disposition of such securities. The Fund will
only enter into repurchase agreements with banks and other financial
institutions, such as securities broker-dealers, which are deemed by the Fund's
adviser to be creditworthy pursuant to guidelines established by the Board of
Trustees ("Trustees").
REVERSE REPURCHASE AGREEMENTS
The Fund may also enter into reverse repurchase agreements. These transactions
are similar to borrowing cash and pledging securities as collateral. In a
reverse repurchase agreement, the Fund transfers possession of a portfolio
instrument to another person, such as a financial institution or broker-dealer,
in return for a percentage of the instrument's market value in cash, and agrees
that on a stipulated date in the future the Fund will repurchase the portfolio
instrument by remitting the original consideration, plus interest at an agreed
upon rate. The use of reverse repurchase agreements may enable the Fund to
avoid selling portfolio instruments at a time when a sale may be deemed to be
disadvantageous, but the ability to enter into reverse repurchase agreements
does not ensure that the Fund will be able to avoid selling portfolio
instruments at a disadvantageous time.
When effecting reverse repurchase agreements, liquid assets of the Fund, in a
dollar amount sufficient to make payment for the obligations to be purchased,
are segregated at the trade date. These securities are marked to market daily
and are maintained until the transaction is settled.
LENDING OF PORTFOLIO SECURITIES
The collateral received when the Fund lends portfolio securities must be valued
daily and, should the market value of the loaned securities increase, the
borrower must 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 at the option
of the Fund or the borrower. The Fund may pay reasonable administrative and
custodial fees in connection with a loan and may pay a negotiated portion of the
interest earned on the cash or equivalent collateral to the borrower or placing
broker.
The Fund would not have the right to vote securities on loan, but would
terminate the loan and regain the right to vote if that were considered
important with respect to the investment.
PORTFOLIO TURNOVER
The Fund may trade or dispose of portfolio securities as considered necessary to
meet its investment objective. It is anticipated that, under stable market
conditions, the portfolio trading engaged in by the Fund will not result in its
annual rate of portfolio turnover exceeding 100%.
INVESTMENT LIMITATIONS
SELLING SHORT AND BUYING ON MARGIN
The Fund will not sell any securities short or purchase any securities on
margin, but may obtain such short-term credits as are necessary for
clearance of purchase and sale of securities. The deposit or payment by
the Fund of initial or variation margin in connection with financial
futures contracts or related options transactions is not considered the
purchase of a security on margin.
ISSUING SENIOR SECURITIES AND BORROWING MONEY
The Fund will not issue senior securities except that the Fund may borrow
money and engage in reverse repurchase agreements in amounts up to
33 1/3% of the value of its total assets, including the amounts borrowed
except to the extent that the Fund may enter into futures contracts. The
Fund will not borrow money or engage in reverse repurchase agreements for
investment leverage, but rather as a temporary, extraordinary, or
emergency measure to facilitate management of the portfolio by enabling
the Fund to meet redemption requests when the liquidation of portfolio
securities is deemed to be inconvenient or disadvantageous. The Fund will
not purchase any securities while borrowings in excess of 5% of its total
assets are outstanding.
PLEDGING ASSETS
The Fund will not mortgage, pledge, or hypothecate any assets, except to
secure permissible borrowings. In those cases, it may pledge assets
having a market value not exceeding the lesser of the dollar amounts
borrowed or 15% of the value of the Fund's total assets at the time of
the pledge. For purposes of this limitation, the following are not deemed
to be pledges: margin deposits for the purchase and sale of financial
futures contracts and related options; and segregation or collateral
arrangements made in connection with options activities or the purchase
of securities on a when-issued basis.
DIVERSIFICATION OF INVESTMENTS
With respect to securities comprising 75% of the value of its total
assets, the Fund will not purchase securities of any one issuer (other
than cash, cash items or securities issued or guaranteed by the
government of the United States or its agencies or instrumentalities and
repurchase agreements collateralized by such securities) if as a result
more than 5% of the value of its total assets would be invested in the
securities of that issuer and will not acquire more than 10% of the
outstanding voting securities of any one issuer. (For purposes of this
limitation, the Fund considers certificates of deposit and demand and
time deposits issued by a U.S. branch of a domestic bank having capital,
surplus, and undivided profits in excess of $100,000,000 at the time of
investment to be "cash items".)
CONCENTRATION OF INVESTMENTS
The Fund will not invest 25% or more of its total assets in securities of
issuers having their principal business activities in the same industry.
INVESTING IN COMMODITIES
The Fund will not purchase or sell commodities, commodity contracts, or
commodity futures contracts except that the Fund may purchase and sell
financial futures contracts and related options.
UNDERWRITING
The Fund will not underwrite any issue of securities, except as it may be
deemed to be an underwriter under the Securities Act of 1933 in
connection with the sale of restricted or other securities which the Fund
may purchase pursuant to its investment objective, policies and
limitations.
INVESTING IN REAL ESTATE
The Fund will not purchase or sell real estate, including limited
partnership interests, although it may invest in the securities of
companies whose business involves the purchase or sale of real estate or
in securities which are secured by real estate or which represent
interests in real estate.
LENDING CASH OR SECURITIES
The Fund will not lend any of its assets except portfolio securities up
to 50% of the value of its total assets. This shall not prevent the Fund
from purchasing or holding U.S. government obligations, money market
instruments, variable rate demand notes, bonds, debentures, notes,
certificates of indebtedness, or other debt securities, entering into
repurchase agreements, or engaging in other transactions where permitted
by the Fund's investment objective, policies, and limitations or
Declaration of Trust.
Except as noted, the above investment limitations cannot be changed without
shareholder approval. The following limitations, however, may be changed by the
Trustees without shareholder approval. Except as noted, shareholders will be
notified before any material change in the following limitations becomes
effective.
INVESTING IN NEW ISSUERS
The Fund will not invest more than 5% of the value of its total assets in
securities of issuers which have records of less than three years of
continuous operations, including the operation of any predecessor.
INVESTING IN FOREIGN SECURITIES
The Fund will not invest more than 5% of its total assets in securities
of foreign issuers.
INVESTING IN RESTRICTED SECURITIES
The Fund will not purchase restricted securities if immediately
thereafter more than 10% of the total assets of the Fund, taken at market
value, would be invested in such securities, except for securities which
meet the criteria for liquidity as established by the Trustees. To comply
with certain state restrictions, the Fund will limit these transactions
to 5% of its total assets. (If state restrictions change, this latter
restriction may be revised without shareholder approval or notification.)
INVESTING IN MINERALS
The Fund will not invest in interests in oil, gas, or other mineral
exploration or development programs or leases, other than debentures or
equity stock interests.
PURCHASING SECURITIES TO EXERCISE CONTROL
The Fund will not purchase securities of a company for the purpose of
exercising control or management.
INVESTING IN WARRANTS
The Fund will not invest more than 5% of its assets in warrants,
including those acquired in units or attached to other securities. To
comply with certain state restrictions, the Fund will limit its
investment in such warrants not listed on New York or American stock
exchanges to 2% of its total assets. (If state restrictions change, this
latter restriction may be revised without notice to shareholders.) For
purposes of this investment restriction, warrants will be valued at the
lower of cost or market, except that warrants acquired by the Fund in
units with or attached to securities may be deemed to be without value.
INVESTING IN SECURITIES OF OTHER INVESTMENT COMPANIES
The Fund will limit its investment in other investment companies to no
more than 3% of the total outstanding voting stock of any investment
company, invest no more than 5% of the total assets in any investment
company, or invest more than 10% of its total assets in investment
companies in the aggregate. However, these limitations are not applicable
if the securities are acquired in a merger, consolidation, or acquisition
of assets.
INVESTING IN ILLIQUID SECURITIES
The Fund will not invest more than 15% of the value of its net assets in
illiquid securities, including repurchase agreements providing for
settlement more than seven calendar days after notice, over-the-counter
options, and restricted securities not determined by the Trustees to be
liquid.
INVESTING IN ISSUERS WHOSE SECURITIES ARE OWNED BY OFFICERS AND TRUSTEES OF
THE TRUST
The Fund will not purchase or retain the securities of any issuer if the
officers and Trustees of the Fund or the Adviser own individually more
than 0.5% of the issuer's securities or in the aggregate own more than 5%
of such issuer's securities.
ARBITRAGE TRANSACTIONS
To comply with certain state restrictions, the Fund will not enter into
transactions for the purpose of engaging in arbitrage. If state
requirements change, this restriction may be revised without shareholder
notification.
WRITING COVERED CALL OPTIONS
The Fund will not write call options on securities unless the securities
are held in the Fund's portfolio or unless the Fund is entitled to them
in deliverable form without further payment or after segregating cash in
the amount of any further payment.
INVESTING IN PUT OPTIONS
The Fund will not purchase put options on securities, other than put
options on stock indices, unless the securities are held in the Fund's
portfolio and not more than 5% of the value of the Fund's net assets
would be invested in premiums on open put option positions.
The Fund has no present intention to borrow money in excess of 5% of the total
value of its net assets during the first fiscal year.
Except with respect to borrowing money, if a percentage limitation is adhered to
at the time of investment, a later increase or decrease in percentage resulting
from any change in value or net assets will not result in a violation of such
restriction.
Each fund of the Trust has the ability to issue more than one class of shares.
The Fund does not consider the issuance of separate classes of shares to
constitute an issue of "senior securities" within the meaning of the investment
limitations set forth above.
To comply with registration requirements in certain states, the Fund (1) will
limit the aggregate value of the assets underlying covered call options or put
options written by the Fund to not more than 25% of its net assets, (2) will
limit the premiums paid for options purchased by the Fund to 20% of its net
assets, and (3) will limit the margin deposits on futures contracts entered into
by the Fund to 5% of its net assets. (If state requirements change, these
restrictions may be revised without shareholder notification.)
BANKSOUTH SELECT FUNDS MANAGEMENT
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OFFICERS AND TRUSTEES
Officers and Trustees are listed with their addresses, principal occupations,
and present positions, including any affiliation with Bank South, Federated
Investors, Federated Securities Corp., Federated Services Company, and Federated
Administrative Services, and the Funds (as defined below).
<TABLE>
<CAPTION>
POSITIONS WITH PRINCIPAL OCCUPATIONS
NAME AND ADDRESS THE TRUST DURING PAST FIVE YEARS
<S> <C> <C>
John F. Donahue*\ Chairman and Chairman and Trustee, Federated Investors; Chairman and Trustee,
Federated Investors Tower Trustee Federated Advisers, Federated Management, and Federated Research;
Pittsburgh, PA Director AEtna Life and Casualty Company; Chief Executive Officer and
Director, Trustee, or Managing General Partner of the Funds; formerly,
Director, The Standard Fire Insurance Company. Mr. Donahue is the
father of J. Christopher Donahue, Vice President of the Trust.
John T. Conroy, Jr. Trustee President, Investment Properties Corporation; Senior Vice-President,
Wood/IPC Commercial John R. Wood and Associates, Inc., Realtors; President, Northgate
Department Village Development Corporation; General Partner or Trustee in private
John R. Wood and real estate ventures in Southwest Florida; Director, Trustee or
Associates, Inc., Realtors Managing General Partner of the Funds; formerly, President, Naples
3255 Tamiami Trail North Property Management, Inc.
Naples, FL
William J. Copeland Trustee Director and Member of the Executive Committee, Michael Baker, Inc. (an
One PNC Plaza-23rd Floor engineering firm); Director, Trustee, or Manag-
Pittsburgh, PA ing General Partner of the Funds; formerly, Vice Chairman and Director,
PNC Bank, N.A. and PNC Bank Corp. and Director, Ryan Homes, Inc.
James E. Dowd Trustee Attorney-at-law; Director, The Emerging Germany Fund, Inc.; Director,
571 Hayward Mill Road Trustee, or Managing General Partner of the Funds; formerly, Director,
Concord, MA Blue Cross of Massachusetts, Inc.
Lawrence D. Ellis, M.D. Trustee Hematologist, Oncologist, and Internist, Presbyterian and Montefiore
3471 Fifth Avenue Hospitals; Clinical Professor of Medicine and Trustee, University of
Suite 1111 Pittsburgh; Director, Trustee, or Managing General Partner of the
Pittsburgh, PA Funds.
Edward L. Flaherty, Jr.\ Trustee Attorney-at-law; Partner, Meyer and Flaherty; Director, Eat 'N Park
5916 Penn Mall Restaurants, Inc, and Statewide Settlement Agency, Inc.; Director,
Pittsburgh, PA Trustee, or Managing General Partner of the Funds; formerly, Counsel,
Horizon Financial, F.A., Western Region.
Edward C. Gonzales* President, Vice President, Treasurer, and Trustee, Federated Investors; Vice
Federated Investors Tower Treasurer and President and Treasurer, Federated Trustee Advisers, Federated
Pittsburgh, PA Trustee Management and Federated Research; Trustee, Federated Services Company;
Executive Vice President, Treasurer, and Director, Federated Securities
Corp.; Chairman, Treasurer, and Trustee, Federated Administrative
Services; Trustee of some of the Funds; Vice President and Treasurer of
the Funds.
Peter E. Madden Trustee Consultant; State Representative, Commonwealth of Massachusetts;
225 Franklin Street Director, Trustee, or Managing General Partner of the Funds; formerly,
Boston, MA President, State Street Bank & Trust Company and State Street Boston
Corporation and Trustee, Lahey Clinic Foundation, Inc.
Gregor F. Meyer Trustee Attorney-at-law; Partner, Meyer and Flaherty; Chairman, Meritcare,
5916 Penn Mall Inc.; Director, Trustee, or Managing General Partner of the Funds;
Pittsburgh, PA formerly, Vice Chairman, Horizon Financial, F.A.
Wesley W. Posvar Trustee Professor, Foreign Policy and Management Consultant; Trustee, Carnegie
1202 Cathedral of Endowment for International Peace and RAND Corporation, Online Computer
Learning Library Center, Inc., and U.S. Space Foundation; Chairman, Czecho
University of Pittsburgh Slovak Management Center; Director, Trustee, or Managing General Part-
Pittsburgh, PA ner of the Funds; President Emeritus, University of Pittsburgh;
formerly, Chairman, National Advisory Council for Environmental Policy
& Technology.
Marjorie P. Smuts Trustee Public relations/marketing consultant; Director, Trustee, or Managing
4905 Bayard Street General Partner of the Funds.
Pittsburgh, PA
J. Christopher Donahue Vice President President and Trustee, Federated Investors; Trustee, Federated
Federated Investors Tower Advisers, Federated Management, and Federated Research; Trustee,
Pittsburgh, PA Federated Services Company; President and Director, Federated
Administrative Services; President or Vice President of the Funds;
Director, Trustee or Managing General Partner of some of the Funds. Mr.
Donahue is the son of John F. Donahue, Chairman and Trustee of the
Trust.
Charles L. Davis, Jr. Vice President Vice President, Federated Administrative Services; Vice President and
Federated Investors Tower and Assistant Assistant Treasurer of some of the Funds; formerly Vice President and
Pittsburgh, PA Treasurer Director of Investor Relations, MNC Financial, Inc. and Vice President,
Product Management, MNC Financial, Inc.
Richard B. Fisher Vice President Executive Vice President and Trustee, Federated Investors; Chairman and
Federated Investors Tower Director, Federated Securities Corp.; President or Vice President of
Pittsburgh, PA the Funds; Director or Trustee of some of the Funds.
John W. McGonigle Vice President Vice President, Secretary, General Counsel, and Trustee, and Secretary
Federated Investors Tower Federated Investors; Vice President, Secretary and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Trustee,
Federated Services Company; Executive Vice President, Secretary, and
Director, Federated Administrative Services; Executive Vice President
and Director, Federated Securities Corp.; Vice President and Secretary
of the Funds.
John A. Staley, IV Vice President Vice President and Trustee, Federated Investors; Executive Vice
Federated Investors Tower President, Federated Securities Corp.; President and Trustee, Federated
Pittsburgh, PA Advisers, Federated Management, and Federated Research; Vice President
of the Funds; Director, Trustee, or Managing General Partner of some of
the Funds; formerly, Vice President, The Standard Fire Insurance Com-
pany and President of its Federated Research Division.
</TABLE>
* This Trustee is deemed to be an "interested person" of the Trust as defined in
the Investment Company Act of 1940.
\ Members of the Board's Executive Committee. The Executive Committee of the
Board of Trustees handles various of the delegable responsibilities of the
Board of Trustees between meetings of the Board.
THE FUNDS
"The Funds" and "Funds" mean the following investment companies: A.T. Ohio
Tax-Free Money Fund; American Leaders Fund, Inc.; Annuity Management Series;
Automated Cash Management Trust; Automated Government Money Trust; The Boulevard
Funds; California Municipal Cash Trust; Cash Trust Series, Inc.; Cash Trust
Series II; DG Investor Series; Edward D. Jones & Co. Daily Passport Cash Trust;
FT Series, Inc.; Federated ARMs Fund; Federated Exchange Fund, Ltd.; Federated
GNMA Trust; Federated Government Trust; Federated Growth Trust; Federated High
Yield Trust; Federated Income Securities Trust; Federated Income Trust;
Federated Index Trust; Federated Intermediate Government Trust; Federated Master
Trust; Federated Municipal Trust; Federated Short-Intermediate Government Trust;
Federated Short-Intermediate Municipal Trust; Federated Short-Term U.S.
Government Trust; Federated Stock Trust; Federated Tax-Free Trust; Federated
U.S. Government Bond Fund; First Priority Funds; Fixed Income Securities, Inc.;
Fortress Adjustable Rate U.S. Government Fund, Inc.; Fortress Municipal Income
Fund, Inc.; Fortress Utility Fund, Inc.; Fund for U.S. Government Securities,
Inc.; Government Income Securities, Inc.; High Yield Cash Trust; Insurance
Management Series; Intermediate Municipal Trust; Investment Series Funds, Inc.;
Investment Series Trust; Liberty Equity Income Fund, Inc.; Liberty High Income
Bond Fund, Inc.; Liberty Municipal Securities Fund, Inc.; Liberty Term Trust,
Inc.-1999; Liberty U.S. Government Money Market Trust; Liberty Utility Fund,
Inc.; Liquid Cash Trust; Mark Twain Funds; Money Market Management; Money Market
Obligations; Money Market Trust; Municipal Securities Income Trust; New York
Municipal Cash Trust; 111 Corcoran Funds; The Planters Funds; Portage Funds;
RIMCO Monument Funds; The Shawmut Funds; Short-Term Municipal Trust; Signet
Select Funds; Star Funds; The Starburst Funds; The Starburst Funds II; Stock and
Bond Fund, Inc.; Sunburst Funds; Targeted Duration Trust; Tax-Free Instruments
Trust; Trademark Funds; Trust for Financial Institutions; Trust for Government
Cash Reserves; Trust for Short-Term U.S. Government Securities; and Trust for
U.S. Treasury Obligations.
FUND OWNERSHIP
Officers and Trustees own less than 1% of the Fund's outstanding Shares.
TRUSTEE LIABILITY
BankSouth Select Funds' Declaration of Trust provides that the Trustees are not
liable for errors of judgment or mistakes of fact or law. However, they are not
protected against any liability to which they would otherwise be subject by
reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of their office.
INVESTMENT ADVISORY SERVICES
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ADVISER TO THE FUND
The Fund's investment adviser is Bank South, N.A., (the "Adviser"). The Adviser
shall not be liable to the Trust, the Fund, or any shareholder of the Fund for
any losses that may be sustained in the purchase, holding, or sale of any
security or for anything done or omitted by it, except acts or omissions
involving willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties imposed upon it by its contract with the Trust.
ADVISORY FEES
For its advisory services, the Adviser receives an annual investment advisory
fee as described in the Prospectus.
STATE EXPENSE LIMITATIONS
The Adviser has undertaken to comply with the expense limitations
established by certain states for investment companies whose shares are
registered for sale in those states. If the Fund's normal operating
expenses (including the investment advisory fee, but not including
brokerage commissions, interest, taxes and extraordinary expenses) exceed
2.50% per year of the first $30 million of average net assets, 2.00% per
year of the next $70 million of average net assets, and 1.50% per year of
the remaining average net assets, the Adviser will reimburse the Fund for
its expenses over the limitation.
If the Fund's monthly projected operating expenses exceed this expense
limitation, the investment advisory fee paid will be reduced by the
amount of the excess, subject to an annual adjustment. If the expense
limitation is exceeded, the amount to be reimbursed by the Adviser will
be limited, in any single fiscal year, by the amount of the investment
advisory fee.
This arrangement is not part of the advisory contract and may be amended
or rescinded in the future.
ADMINISTRATIVE SERVICES
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Federated Administrative Services, a subsidiary of Federated Investors, provides
administrative personnel and services to the Fund for the fees set forth in the
prospectus. John A. Staley, IV, an officer of the Fund, holds approximately 15%
of the outstanding common stock and serves as a director of Commercial Data
Services, Inc., a company which provides computer processing services to
Federated Administrative Services.
BROKERAGE TRANSACTIONS
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When selecting brokers and dealers to handle the purchase and sale of portfolio
instruments, the Adviser looks for prompt execution of the order at a favorable
price. In working with dealers, the Adviser will generally utilize those who are
recognized dealers in specific portfolio instruments, except when a better price
and execution of the order can be obtained elsewhere. The Adviser makes
decisions on portfolio transactions and selects brokers and dealers subject to
review by the Trustees.
The Adviser may select brokers and dealers who offer brokerage and research
services. These services may be furnished directly to the Fund or to the Adviser
and may include:
advice as to the advisability of investing in securities;
security analysis and reports;
economic studies;
industry studies;
receipt of quotations for portfolio evaluations; and
similar services.
The Adviser and its affiliates exercise reasonable business judgment in
selecting brokers who offer brokerage and research services to execute
securities transactions. They determine in good faith that commissions charged
by such persons are reasonable in relationship to the value of the brokerage and
research services provided.
Research services provided by brokers may be used by the Adviser and other
accounts. To the extent that receipt of these services may supplant services for
which the Adviser or its affiliates might otherwise have paid, it would tend to
reduce their expenses.
PURCHASING SHARES
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Shares are sold at their net asset value without a sales charge on days the New
York Stock Exchange and Federal Reserve Wire System are open for business. The
procedure for purchasing shares of the Fund is explained in the prospectus under
"Investing in the Fund."
ADMINISTRATIVE ARRANGEMENTS
The administrative services include, but are not limited to, providing office
space, equipment, telephone facilities, and various personnel, including
clerical, supervisory, and computer, as is necessary or beneficial to establish
and maintain shareholders' accounts and records, process purchase and redemption
transactions, process automatic investments of client account cash balances,
answer routine client inquiries regarding the Fund, assist clients in changing
dividend options, account designations, and addresses, and providing such other
services as the Fund may reasonably request.
DISTRIBUTION PLAN
With respect to the Fund, the Trust has adopted a Plan pursuant to Rule 12b-1
which was promulgated by the Securities and Exchange Commission ("SEC") pursuant
to the Investment Company Act of 1940, as amended (the "Act"). The Plan provides
for payment of fees to the Distributor to finance any activity which is
principally intended to result in the sale of the Fund's shares subject to the
Plan. Such activities may include the advertising and marketing of shares of the
Fund; preparing, printing, and distributing prospectuses and sales literature to
prospective shareholders, brokers, or administrators; and implementing and
operating the Plan. Pursuant to the Plan, the Distributor may pay fees to
brokers and others for such services.
The Trustees expect that the adoption of the Plan will assist the Fund in
selling a sufficient number of shares so as to allow the Fund to achieve
economic viability. It is also anticipated that an increase in the size of the
Fund will facilitate more efficient portfolio management and thereby assist the
Fund in seeking to achieve its investment objectives.
PURCHASING FUND SHARES WITH SECURITIES
The Fund in its sole discretion, may sell Fund shares to investors that desire
to purchase Fund shares with certain securities or a combination of certain
securities and cash. The Fund reserves the right to determine the acceptability
of securities used to effect such purchases. On the day securities are accepted
by the Fund, they are valued based upon independent bid and in the same manner
as the Fund values it assets. Investors wishing to use securities to purchase
Fund Shares should first contact the Bank. Any such transfer of securities is
treated as a sale of the securities and will result in the recognition of any
gain or loss for federal income tax purposes by the seller of such securities,
except to the extent the seller is an ERISA plan or similar entity not subject
to tax.
DETERMINING NET ASSET VALUE
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Net asset value generally changes each day. The days on which the net asset
value is calculated by the Fund are described in the prospectus.
DETERMINING MARKET VALUE OF SECURITIES
The market values of the Fund's portfolio securities, other than options, are
determined as follows:
for equity securities, according to the last sale price on a national securities
exchange, if available;
in the absence of recorded sales for listed equity securities, according to the
mean between the last closing bid and asked prices;
for unlisted equity securities, the latest bid prices;
for bonds and other fixed income securities, as determined by an independent
pricing service;
for short-term obligations, according to the mean between the bid and asked
prices, as furnished by an independent pricing service; or
for all other securities, at fair value as determined in good faith by the
Trustees.
The Fund will value futures contracts, options, put options on futures and
financial futures at their market values established by the exchanges at the
close of option trading on such exchanges unless the Trustees determines in good
faith that another method of valuing option positions is necessary to appraise
their fair value.
EXCHANGE PRIVILEGE
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Shareholders of the Fund may exchange shares of the Fund for shares of other
funds advised by the Bank and certain other Funds designated by the Bank and
distributed by the Distributor, subject to certain conditions. Exchange
procedures are explained in the prospectus under "Exchange Privilege."
REDEEMING SHARES
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The Fund redeems shares at the next determined net asset value after the Fund
receives the redemption request. Redemption procedures are explained in the
Prospectus under "Redeeming Shares."
REDEMPTION IN KIND
Although the Fund intends to redeem shares in cash, it reserves the right under
certain circumstances to pay the redemption price in whole or in part by a
distribution of securities from the Fund's portfolio.
Redemption in kind will be made in conformity with applicable SEC rules, taking
such securities at the same value employed in determining net asset value and
selecting the securities in a manner the Trustees determine to be fair and
equitable.
The Trust has elected to be governed by SEC Rule 18f-1 under the Investment
Company Act of 1940 under which each fund is obligated to redeem shares for any
one shareholder in cash only up to the lesser of $250,000 or 1% of the fund's
net asset value during any 90-day period.
TAX STATUS
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THE FUND'S TAX STATUS
The Fund will pay no federal income tax because it expects to meet the
requirements of Subchapter M of the Internal Revenue Code applicable to
regulated investment companies and to receive the special tax treatment afforded
to such companies. To qualify for this treatment, the Fund must, among other
requirements:
derive at least 90% of its gross income from dividends, interest, and gains from
the sale of securities;
derive less than 30% of its gross income from the sale of securities held less
than three months;
invest in securities within certain statutory limits; and
distribute to its shareholders at least 90% of its net income earned during the
year.
SHAREHOLDERS' TAX STATUS
Shareholders are subject to federal income tax on dividends and capital gains
received as cash or additional shares. No portion of any income dividend paid by
the Fund is eligible for the dividends received deduction available to
corporations. These dividends, and any short-term capital gains, are taxable as
ordinary income.
CAPITAL GAINS
Long-term capital gains distributed to shareholders will be treated as
long-term capital gains regardless of how long shareholders have held
Fund shares.
TOTAL RETURN
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The average annual total return for the Fund is the average compounded rate of
return for a given period that would equate a $1,000 initial investment to the
ending redeemable value of that investment. The ending redeemable value is
computed by multiplying the number of shares owned at the end of the period by
the maximum offering price per share at the end of the period. The number of
shares owned at the end of the period is based on the number of shares purchased
at the beginning of the period with $1,000, less any applicable sales load,
adjusted over the period by any additional shares, assuming the quarterly
reinvestment of all dividends and distributions.
YIELD
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The yield for the Fund is calculated by dividing the net investment income per
share (as defined by the Securities and Exchange Commission) earned by the Fund
over a thirty-day period by the maximum offering price per share of the Fund on
the last day of the period. This value is then annualized using semi-annual
compounding. This means that the amount of income generated during the
thirty-day period is assumed to be generated each month over a twelve-month
period and is reinvested every six months. The yield does not necessarily
reflect income actually earned by the Fund because of certain adjustments
required by the Securities and Exchange Commission and therefore, may not
correlate to the dividends or other distributions paid to shareholders.
To the extent that financial institutions and broker/dealers charge fees in
connection with services provided in conjunction with an investment in the Fund,
performance will be reduced for those shareholders paying those fees.
PERFORMANCE COMPARISONS
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The performance of the Fund depends upon such variables as:
portfolio quality;
average portfolio maturity;
type of instruments in which the portfolio is invested;
changes in interest rates and market value of portfolio securities;
changes in the Fund's expenses; and
various other factors.
The Fund's performance fluctuates on a daily basis largely because net earnings
and offering price per share fluctuate daily. Both net earnings and offering
price per share are factors in the computation of yield and total return. From
time to time the Fund may advertise its performance using certain reporting
services and/or compare its performance to certain indices. These may include
the following:
STANDARD & POOR'S DAILY STOCK PRICE INDEX OF 500 COMMON STOCKS, a composite
index of common stocks in industry, transportation, financial and public utility
companies. In addition, the Standard & Poor's index assumes reinvestment of all
dividends paid by stocks listed on the index. Taxes due on any of these
distributions are not included, nor are brokerage or other fees calculated in
the Standard & Poor's figures.
DOW JONES INDUSTRIAL AVERAGE ("DJIA") represents share prices of selected large
capitalization, well-established blue-chip industrial corporations as well as
public utility and transportation companies. The DJIA indicates daily changes
in the average price of stocks in any of its categories. It also reports total
sales for each group of industries.
LIPPER ANALYTICAL SERVICES, INC., ranks funds in various fund categories by
making comparative calculations using total return. Total return assumes the
reinvestment of all capital gains distributions and income dividends and takes
into account any change in net asset value over a specific period of time. From
time to time, the Fund will quote its Lipper ranking in the "growth and income
funds" category in advertising and sales literature.
MORNINGSTAR, INC. an independent rating service, is the publisher of the
bi-weekly Mutual Fund Values. Mutual Fund Values rates more than 1,000
NASDAQ-listed mutual funds of all types, according to their risk-adjusted
returns. The maximum rating is five stars, and ratings are effective for two
weeks.
Investors may use such indices or reporting services in addition to the Fund's
prospectus to obtain a more complete view of the Fund's performance before
investing. Of course, when comparing performance of the Fund to any index,
conditions such as composition of the index and prevailing market conditions
should be considered in assessing the significance of such comparisons. When
comparing funds using reporting services, or total return and yield, investors
should take into consideration any relevant differences in funds such as
permitted portfolio compositions and methods used to value portfolio securities
and compute offering price.
Advertisements and other sales literature for the Fund may quote total returns
which are calculated on non-standardized base periods. These total returns also
represent the historic change in the value of an investment in the Fund based on
quarterly reinvestment of dividends over a specified period of time.
3092102B (1/94)
