N-14AE 1 a509244.txt JUNE 27, 2002 As filed with the Securities and Exchange Commission on June 27, 2002 Registration No. 333- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ____ PRE-EFFECTIVE AMENDMENT NO.__ ____ POST-EFFECTIVE AMENDMENT NO.__ (Check appropriate box or boxes) --------------- AMSOUTH FUNDS (Exact Name of Registrant as Specified in Charter) 3435 Stelzer Road Columbus, OH 43219 (Address of principal executive offices) Registrant's telephone number, including area code: 1-800-451-8382 --------------- Name and address of agent for service: J. David Huber AmSouth Funds 3435 Stelzer Road Columbus, OH 43219 Copies to: Clifford J. Alexander, Esq. Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, N.W. Washington, D.C. 20036 --------------- Approximate Date of Proposed Public Offering: As soon as practicable after this Registration Statement becomes effective. It is proposed that this filing will become effective on July 27, 2002 pursuant to Rule 488. Title of securities being offered: Units of beneficial interest. No filing fee is due because the Registrant is relying on Section 24(f) of the Investment Company Act of 1940, as amended, pursuant to which it has previously registered an indefinite number of securities. AMSOUTH FUNDS CONTENTS OF REGISTRATION STATEMENT ON FORM N-14 This Registration Statement consists of the following papers and documents: Cover Sheet Contents of Registration Statement on Form N-14 Letter to Shareholders Notice of Special Meeting of Shareholders Part A - Combined Prospectus and Proxy Statement Part B - Statement of Additional Information Part C - Other Information Signature Pages Exhibits AMSOUTH FUNDS [Logo] AMSOUTH EQUITY INCOME FUND AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND 3435 Stelzer Road Columbus, OH 43219 August __, 2002 To the Shareholders: Enclosed you will find several documents being provided to you in connection with a special meeting of the shareholders of the AmSouth Equity Income Fund ("Equity Income Fund"), the AmSouth Limited Term U.S. Government Fund ("Limited Term U.S. Government Fund"), and the AmSouth Limited Term Tennessee Tax-Exempt Fund ("Limited Term Tennessee Tax-Exempt Fund") to be held on October 15, 2002, at 10:00 a.m., Eastern time, at the offices of BISYS Fund Services, L.P., 3435 Stelzer Road, Columbus, OH 43219. We hope this material will receive your immediate attention and that, if you cannot attend the meeting in person, you will vote your proxy promptly. The Trustees of AmSouth Funds are recommending that: o Equity Income Fund shareholders approve a reorganization in which the Equity Income Fund will transfer all of its assets to the AmSouth Value Fund ("Value Fund") in return for Class A, Class B, and Trust shares of the Value Fund; o Limited Term U.S. Government Fund shareholders approve a reorganization in which the Limited Term U.S. Government Fund will transfer all of its assets to the AmSouth Government Income Fund ("Government Income Fund") in return for Class A, Class B, and Trust shares of the Government Income Fund; and o Limited Term Tennessee Tax-Exempt Fund shareholders approve a reorganization in which the Limited Term Tennessee Tax-Exempt Fund will transfer all of its assets to the AmSouth Tennessee Tax-Exempt Fund ("Tennessee Tax-Exempt Fund") in return for Class A and Class B shares of the Tennessee Tax-Exempt Fund. The Value Fund, the Government Income Fund, and the Tennessee Tax-Exempt Fund (each, an "Acquiring Fund") will assume all of the liabilities of the Equity Income Fund, the Limited Term U.S. Government Fund, and the Limited Term Tennessee Tax-Exempt Fund (each, an "Acquired Fund"), respectively (each of the Acquired Funds and the Acquiring Funds, a "Fund"). Shares of each Acquiring Fund will be distributed to the corresponding Acquired Fund shareholders tax-free in liquidation of the Acquired Fund. As a result of these transactions, your shares of an Acquired Fund will, in effect, be exchanged at net asset value and on a tax-free basis for shares of an Acquiring Fund. Acquired Fund shareholders holding Class A, Class B, or Trust shares will receive Class A, Class B, or Trust shares, respectively, of the corresponding Acquiring Fund. AmSouth Investment Management Company, LLC ("Advisor") has advised AmSouth Funds' Trustees that it believes that the reorganizations offer shareholders of the Acquired Funds the opportunity to pursue comparable investment objectives and strategies with lower expenses. The costs of each reorganization will be borne equally by the Funds and the Advisor. THE TRUSTEES BELIEVE THAT THE PROPOSED REORGANIZATIONS ARE IN THE BEST INTERESTS OF THE ACQUIRED FUNDS AND THEIR SHAREHOLDERS AND RECOMMEND THAT YOU VOTE IN FAVOR OF THE PROPOSAL THAT APPLIES TO YOUR FUND. The Notice of Special Meeting of Shareholders, the accompanying Combined Prospectus/Proxy Statement, and the form of proxy are enclosed. Please read them carefully. If you are unable to attend the meeting in person, we urge you to sign, date, and return the proxy card (or vote by telephone or the Internet) so that your Shares may be voted in accordance with your instructions. WE URGE YOU TO GIVE THE ENCLOSED MATERIAL YOUR PROMPT ATTENTION SO AS TO AVOID THE EXPENSE OF ADDITIONAL MAILINGS AND TELEPHONE SOLICITATIONS. Your vote is important to us. Thank you for taking the time to consider this important proposal. Sincerely yours, John F. Calvano President AmSouth Funds 2 AMSOUTH FUNDS [Logo] AMSOUTH EQUITY INCOME FUND AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND NOTICE OF SPECIAL MEETING OF SHAREHOLDERS OCTOBER 15, 2002 To the Shareholders: NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders ("Meeting") of the AmSouth Equity Income Fund ("Equity Income Fund"), the AmSouth Limited Term U.S. Government Fund ("Limited Term U.S. Government Fund"), and the AmSouth Limited Term Tennessee Tax-Exempt Fund ("Limited Term Tennessee Tax-Exempt Fund"), each a separate series of AmSouth Funds, will be held at BISYS Fund Services, L.P., 3435 Stelzer Road, Columbus, OH, on October 15, 2002, at 10:00 a.m., Eastern time, for the following purposes: 1. FOR EQUITY INCOME FUND SHAREHOLDERS ONLY. To approve a Plan of Reorganization and Termination adopted by AmSouth Funds, which provides for the transfer of the Equity Income Fund's assets to the AmSouth Value Fund ("Value Fund") in exchange solely for Class A, Class B, and Trust shares of the Value Fund and the Value Fund's assumption of the Equity Income Fund's liabilities, followed by the Equity Income Fund's dissolution and liquidation and the distribution of those Value Fund shares to Equity Income Fund shareholders. 2. FOR LIMITED TERM U.S. GOVERNMENT FUND SHAREHOLDERS ONLY. To approve a Plan of Reorganization and Termination adopted by AmSouth Funds, which provides for the transfer of the Limited Term U.S. Government Fund's assets to the AmSouth Government Income Fund ("Government Income Fund") in exchange solely for Class A, Class B, and Trust shares of the Government Income Fund and the Government Income Fund's assumption of the Limited Term U.S. Government Fund's liabilities, followed by the Limited Term U.S. Government Fund's dissolution and liquidation and the distribution of those Government Income Fund shares to Limited Term U.S. Government Fund shareholders. 3. FOR LIMITED TERM TENNESSEE TAX-EXEMPT FUND SHAREHOLDERS ONLY. To approve a Plan of Reorganization and Termination adopted by AmSouth Funds, which provides for the transfer of the Limited Term Tennessee Tax-Exempt Fund's assets to the AmSouth Tennessee Tax-Exempt Fund ("Tennessee Tax-Exempt Fund") in exchange solely for Class A and Class B shares of the Tennessee Tax-Exempt Fund and the Tennessee Tax-Exempt Fund's assumption of the Limited Term Tennessee Tax-Exempt Fund's liabilities, followed by the Limited Term Tennessee Tax-Exempt Fund's dissolution and liquidation and the distribution of those Tennessee Tax-Exempt Fund shares to Limited Term Tennessee Tax-Exempt Fund shareholders. 4. To transact other business that may properly come before the Meeting or any adjournment or adjournments thereof. The proposed reorganizations are described in the attached Combined Prospectus/Proxy Statement. A copy of a form of the Plan of Reorganization and Termination is appended as Appendix A thereto. Pursuant to instructions of the Board of Trustees of AmSouth Funds, the close of business on July 31, 2002 has been designated as the record date for determination of shareholders entitled to notice of, and to vote at, the Meeting. SHAREHOLDERS ARE REQUESTED TO PROMPTLY VOTE BY TELEPHONE OR THE INTERNET OR TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD, WHICH IS BEING SOLICITED BY AMSOUTH FUNDS' BOARD OF TRUSTEES. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO AMSOUTH FUNDS A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE MEETING AND VOTING IN PERSON. By Order of the Board of Trustees, Rodney L. Ruehle Secretary AmSouth Funds Columbus, OH August __, 2002 2 -------------------------------------------------------------------------------- YOUR VOTE IS IMPORTANT NO MATTER HOW MANY SHARES YOU OWN WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE ASK THAT YOU PLEASE PROMPTLY VOTE BY FOLLOWING THE INSTRUCTIONS ON THE ENCLOSED PROXY CARD(S). IF YOU SIGN, DATE AND RETURN THE PROXY CARD(S) BUT GIVE NO VOTING INSTRUCTIONS, YOUR SHARES WILL BE VOTED "FOR" THE PROPOSAL NOTICED ABOVE. IN ORDER TO AVOID ADDITIONAL EXPENSE FOR FURTHER SOLICITATION, MANAGEMENT REQUESTS YOUR COOPERATION IN VOTING PROMPTLY. AS AN ALTERNATIVE TO MAILING YOUR PAPER PROXY CARD(S) TO US TO VOTE, YOU MAY VOTE BY TELEPHONE OR VIA THE INTERNET. TO VOTE IN THIS MANNER, PLEASE REFER TO THE ENCLOSED PROXY CARD(S) FOR THE TOLL-FREE NUMBER AND THE INTERNET ADDRESS. UNLESS PROXIES ARE SIGNED BY THE APPROPRIATE PERSON, THEY WILL NOT BE VOTED. IF WE DO NOT RECEIVE YOUR VOTE PROMPTLY, WE MAY CONTACT YOU. -------------------------------------------------------------------------------- 3 AMSOUTH FUNDS [Logo] AMSOUTH EQUITY INCOME FUND AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND 3435 Stelzer Road Columbus, OH 43219 Tel. No. 1-800-451-8382 COMBINED PROSPECTUS/PROXY STATEMENT _____, 2002 This Combined Prospectus/Proxy Statement is furnished in connection with the solicitation of proxies from the holders of units of beneficial interest ("Shares") in the AmSouth Equity Income Fund ("Equity Income Fund"), the AmSouth Limited Term U.S. Government Fund ("Limited Term U.S. Government Fund"), and the AmSouth Limited Term Tennessee Tax-Exempt Fund ("Limited Term Tennessee Tax-Exempt Fund") (each, an "Acquired Fund") for use at a Special Meeting of Shareholders ("Meeting"). As more fully described in this Combined Prospectus/Proxy Statement, the purpose of the Meeting is to vote on the proposed reorganizations (each, a "Reorganization") in which: o the AmSouth Value Fund ("Value Fund") would acquire all the assets and assume all the liabilities of the Equity Income Fund; o the AmSouth Government Income Fund ("Government Income Fund") would acquire all the assets and assume all the liabilities of the Limited Term U.S. Government Fund; and o the AmSouth Tennessee Tax-Exempt Fund ("Tennessee Tax-Exempt Fund") would acquire all the assets and assume all the liabilities of the Limited Term Tennessee Tax-Exempt Fund. Hereinafter, each of the Value Fund, the Government Income Fund, and the Tennessee Tax-Exempt Fund is referred to as an "Acquiring Fund." Each Acquired Fund and Acquiring Fund may be referred to as a "Fund." In connection with the Reorganizations, the assets and liabilities of each Acquired Fund will be acquired and assumed, respectively, by the corresponding Acquiring Fund, in exchange for Shares of the Acquiring Fund. Thereafter, the Acquired Funds will be dissolved and liquidated and Shares of the Acquiring Funds be distributed to the Acquired Funds' shareholders. As a result of the Reorganizations, each Acquired Fund shareholder will receive, on a tax-free basis, a number of full and fractional Shares of the corresponding Acquiring Fund equal in value, on the date of the Reorganization, to the value of the net assets of the Acquired Fund transferred to the Acquiring Fund that are attributable to the shareholder's Acquired Fund Shares. Acquired Fund shareholders holding Class A, Class B, or Trust Shares will receive Class A, Class B, or Trust Shares, respectively, of the corresponding Acquiring Fund. Each Fund is a portfolio ("series") of AmSouth Funds, which is an open-end management investment company consisting of separate series of Shares. This Combined Prospectus/Proxy Statement explains concisely what you should know before investing in the Acquiring Funds. Please read it carefully and keep it for future reference. A Statement of Additional Information ("SAI") dated [___, 2002], relating to the Reorganizations, has been filed with the Securities and Exchange Commission ("SEC") and is incorporated into this Combined Prospectus/Proxy Statement by this reference. AmSouth Funds' current Prospectus for Class A Shares and Class B Shares and current Prospectus for Trust Shares (collectively, "AmSouth Funds Prospectus"), each dated December 1, 2001, as supplemented on March 1, 2002, March 26, 2002, and June 21, 2002 accompany and are incorporated by this reference into (and are legally a part of) this Combined Prospectus/Proxy Statement. The AmSouth Funds' current SAI dated December 1, 2001, as supplemented on February 8, 2002 and June 21, 2002 ("AmSouth Funds SAI"), is on file with the SEC and is also incorporated by this reference into this Combined Prospectus/Proxy Statement. The AmSouth Funds' Annual Report to Shareholders for the fiscal year ended July 31, 2001 ("AmSouth Funds Annual Report"), and the AmSouth Funds' Semi-Annual Report to Shareholders for the six months ended January 31, 2002 ("AmSouth Funds Semi-Annual Report"), also are on file with the SEC and are incorporated by this reference into this Combined Prospectus/Proxy Statement. These documents may be obtained without charge, and further inquiries may be made, by writing AmSouth Funds, 3435 Stelzer Road, Columbus, Ohio 43219 or by calling 1-800-451-8382. In addition, the SEC maintains a Website (HTTP://WWW.SEC.GOV) that contains the AmSouth Funds Prospectus and SAI and other material incorporated by reference, together with other information regarding the Funds. AS WITH ALL MUTUAL FUNDS, THE SEC HAS NOT APPROVED OR DISAPPROVED THE SHARES OR DETERMINED WHETHER THIS COMBINED PROSPECTUS/PROXY STATEMENT IS TRUTHFUL OR COMPLETE. ANYONE WHO TELLS YOU OTHERWISE IS COMMITTING A CRIME. LIKE OTHER INVESTMENTS, YOU COULD LOSE MONEY ON YOUR INVESTMENT IN A FUND. YOUR INVESTMENT IN A FUND IS NOT A DEPOSIT OR AN OBLIGATION OF AMSOUTH BANK, ITS AFFILIATES, OR ANY BANK. IT IS NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY GOVERNMENT AGENCY. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT IN CONNECTION WITH THE OFFERING MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AMSOUTH 2 FUNDS. THIS COMBINED PROSPECTUS/PROXY STATEMENT DOES NOT CONSTITUTE AN OFFERING BY AMSOUTH FUNDS IN ANY JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. 3 TABLE OF CONTENTS Page THE REORGANIZATIONS........................................................1 SUMMARY ..................................................................1 About the Proposed Reorganizations................................1 Comparative Fee Tables............................................2 COMPARISON OF THE FUNDS...................................................10 COMPARISON OF PRINCIPAL RISK FACTORS......................................17 MANAGEMENT AND OPERATION OF THE FUNDS.....................................20 Investment Advisor...............................................20 Investment Sub-Advisors..........................................20 Form of Organization.............................................21 Operating Procedures.............................................21 Share Classes and Sales Charges..................................22 Purchase Procedures..............................................23 Exchange Privilege...............................................23 Redemption Procedures............................................23 Net Asset Value..................................................24 Distributions....................................................24 Federal Tax Considerations.......................................24 Financial Highlights and Fund Performance........................25 INFORMATION ABOUT THE REORGANIZATIONS.....................................35 Plan of Reorganization...........................................35 Reasons for the Reorganizations..................................35 Federal Income Tax Considerations ...............................38 Description of the Securities to Be Issued.......................39 CAPITALIZATION............................................................40 LEGAL MATTERS.............................................................41 INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION.............41 EXPERTS ..................................................................42 SPECIAL MEETING OF SHAREHOLDERS...........................................42 Voting Information...............................................42 Required Vote....................................................44 i APPENDIX A - Form of Plan of Reorganization and Termination..............A-1 APPENDIX B - Management Discussion of Funds' Performance.................B-1 B-1 - Annual Report for period ended July 31, 2001 B-2 - Semi-Annual Report for period ended January 31, 2002 ii THE REORGANIZATIONS PROPOSAL 1. FOR EQUITY INCOME FUND SHAREHOLDERS ONLY. To approve a Plan of Reorganization and Termination adopted by AmSouth Funds ("Plan"), which provides for the transfer of the Equity Income Fund's assets to the Value Fund in exchange solely for Class A, Class B, and Trust shares of the Value Fund and the Value Fund's assumption of the Equity Income Fund's liabilities, followed by the Equity Income Fund's dissolution and liquidation and the distribution of those Value Fund shares to Equity Income Fund's shareholders. PROPOSAL 2. FOR LIMITED TERM U.S. GOVERNMENT FUND SHAREHOLDERS ONLY. To approve the Plan, which provides for the transfer of the Limited Term U.S. Government Fund's assets to the Government Income Fund in exchange solely for Class A, Class B, and Trust shares of the Government Income Fund and the Government Income Fund's assumption of the Limited Term U.S. Government Fund's liabilities, followed by the Limited Term U.S. Government Fund's dissolution and liquidation and the distribution of those Government Income Fund shares to Limited Term U.S. Government Fund shareholders. PROPOSAL 3. FOR LIMITED TERM TENNESSEE TAX-EXEMPT FUND SHAREHOLDERS ONLY. To approve the Plan, which provides for the transfer of the Limited Term Tennessee Tax-Exempt Fund's assets to the Tennessee Tax-Exempt Fund in exchange solely for Class A and Class B shares of the Tennessee Tax-Exempt Fund and the Tennessee Tax-Exempt Fund's assumption of the Limited Term Tennessee Tax-Exempt Fund's liabilities, followed by the Limited Term Tennessee Tax-Exempt Fund's dissolution and liquidation and the distribution of those Tennessee Tax-Exempt Fund shares to Limited Term Tennessee Tax-Exempt Fund shareholders. SUMMARY The following is a summary of certain information relating to the proposed Reorganizations. As discussed more fully below, the AmSouth Funds' Board of Trustees ("Trustees") believes that the Reorganizations will benefit the shareholders of the Acquired Funds. This summary is qualified in its entirety by reference to the additional information contained elsewhere in this Combined Prospectus/Proxy Statement, the SAI dated [____, 2002], the AmSouth Funds Prospectus and the AmSouth Funds SAI, the AmSouth Funds Annual Report, and the AmSouth Funds Semi-Annual Report, and the Plan, the form of which is attached to this Combined Prospectus/Proxy Statement as Appendix A. ABOUT THE PROPOSED REORGANIZATIONS At a meeting held on June 18, 2002, the Trustees considered and unanimously approved the Plan, pursuant to which the Equity Income Fund would be merged with and into the Value Fund on or about November 8, 2002, the Limited Term U.S. Government Fund would be merged with and into the Government Income Fund on or about November 1, 2002, and the Limited Term Tennessee Tax-Exempt Fund would be merged with and into the Tennessee Tax-Exempt Fund on or about November 1, 2002 (each, a "Closing Date"). On the Closing Date, for a Reorganization, the participating Acquired Fund will transfer all of its assets and liabilities to the corresponding Acquiring Fund in exchange solely for Shares of the Acquiring Fund having an aggregate net asset value ("NAV") equal to the aggregate value of the net assets acquired from the Acquired Fund. The value of the assets of each Acquired Fund, the amount of its liabilities, and the NAV per Share of each Acquiring Fund will be determined as of the close of trading on the New York Stock Exchange on the applicable Closing Date. Following the Reorganizations, each Acquired Fund will be liquidated and the Acquiring Funds' Shares received by the Acquired Funds will be distributed to their shareholders. As a result of the Reorganizations, each Acquired Fund shareholder will receive, on a tax-free basis, a number of full and fractional Shares of the corresponding Acquiring Fund equal in value, on the Closing Date, to the value of the net assets of the Acquired Fund transferred to the Acquiring Fund attributable to the shareholder's Acquired Fund Shares. Each Acquired Fund shareholder will receive Shares of the Acquiring Fund class (Class A, Class B, or Trust) that corresponds to the class of Acquired Fund Shares that he, she, or it holds. For the reasons set forth below under "Reasons for the Reorganizations," the Trustees, including the Trustees who are not "interested persons," as defined in the Investment Company Act of 1940, as amended ("1940 Act"), of AmSouth Funds ("Independent Trustees"), unanimously concluded that the proposed Reorganizations are in the best interests of the Funds and their existing shareholders. In reaching this conclusion, the Trustees determined that the economic interests of shareholders of the Funds will not be diluted as a result of the proposed Reorganizations. The Trustees also considered, among other things, the comparability of the investment objectives and investment strategies of the Acquiring Funds and the corresponding Acquired Funds; the expense ratios of the Acquiring Funds compared to those of the Acquired Funds; the performance of the Acquiring Funds as compared to that of the Acquired Funds; the potential economies of scale that could be realized as a result of the increase in the asset size of each Acquiring Fund; the fact that the Reorganizations will be free of federal income tax; the recommendation of AmSouth Investment Management Company, LLC ("Advisor") in favor of the Reorganizations; the fact that the costs of the Reorganizations would be borne equally by the Funds and the Advisor; and alternatives to the Reorganizations. COMPARATIVE FEE TABLES Like all mutual funds, the Funds incur certain expenses in their operations and, as a shareholder, you pay these expenses indirectly. The tables below compare annual operating expenses for the Funds for the fiscal year ended July 31, 2001, and estimated PRO FORMA expenses based on those annual operating expenses for the Acquiring Funds assuming the proposed Reorganizations are approved and effected. The tables indicate that the expense ratios of each Acquiring Fund generally are lower than the expense ratios of each Acquired Fund. In the case of the Limited Term U.S. Government Fund/Government Income Fund and the Limited 2 Term Tennessee Tax-Exempt Fund/Tennessee Tax-Exempt Fund, the Advisor voluntarily capped "other expenses" of each class of an Acquiring Fund's Shares at a lower level than "other expenses" of the Acquired Funds, and the advisory fees paid by the Acquired Funds and the Acquiring Funds are the same. As a result of the Reorganizations, on a PRO FORMA basis, the tables project that the expenses of each class of the Acquiring Funds' Shares will remain the same or decline. In addition, the Advisor intends to continue to cap expenses of the Acquiring Funds at a level lower than expenses of the Acquired Funds. Accordingly, the tables project that the Reorganizations will result in lowering the expenses paid by shareholders of the Acquired Funds and either have no impact upon or lower the expenses paid by shareholders of the Acquiring Funds. Before expense reimbursements, for all classes of Shares, the expense ratios of the Value Fund are lower than the expense ratios of the Equity Income Fund. The Advisor also voluntarily capped "other expenses" of these Funds. However, the expense cap for the Class A Shares and Class B Shares of the Value Fund was three basis points higher than the expense cap for the Class A shares and Class B Shares of the Equity Income Fund, and the expense cap for the Trust Shares of the Value Fund was two basis points higher than the expense cap for the Trust Shares of the Equity Income Fund. The advisory fees paid by each Fund are the same. As a result of the Reorganization, on a PRO FORMA basis, the tables project that the expenses of each class of Value Fund Shares will remain the same. However, the Advisor currently does not intend to change the expense cap for the Value Fund. Accordingly, the tables project that the expense ratio for the Class A Shares and Class B Shares of the Equity Income Fund will increase by three basis points and the expense ratio for the Trust Shares of the Equity Income Fund will increase by two basis points. The tables project that the Reorganization will not impact the expenses paid by shareholders of the Value Fund. EQUITY INCOME FUND/VALUE FUND
Equity Income Fund Value Fund Combined Fund Pro Forma ------------------ ---------- ----------------------- Class A Class B Trust Class A Class B Trust Class A Class B Trust -------- -------- ------ -------- -------- ------ -------- -------- ----- SHAREHOLDER TRANSACTION EXPENSES (EXPENSES PAID BY YOU DIRECTLY)(1) Maximum Sales Charge 5.50% None None 5.50% None None 5.50% None None Imposed on Purchases (2) (2) (2) (as a percentage of offering price) Maximum Deferred None 5.00% None None 5.00% None None 5.00% None Sales Charge (Load) (3) (6) (6) Redemption Fees(4) None None None None None None None None None 3 Equity Income Fund Value Fund Combined Fund Pro Forma ------------------ ---------- ----------------------- Class A Class B Trust Class A Class B Trust Class A Class B Trust -------- -------- ------ -------- -------- ------ -------- -------- ----- ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Management Fees .80% .80% .80% .80% .80% .80% .80% .80% .80% Distribution and/or None .75% None None .75% None None .75% None Service (12b-1) Fee Other Expenses(5)(7) .58% .58% .48% .55% .55% .45% .55% .55% .45% Total Fund Operating 1.38% 2.13% 1.28% 1.35% 2.10% 1.25% 1.35% 2.10% 1.25% Expenses (5) (5) (5) (7) (7) (7) (8) (8) (8)
(1) AmSouth Bank or other financial institutions may charge their customers account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Sales charges may be reduced depending upon the amount invested or, in certain circumstances, waived. Class A Shares bought as part of an investment of $1 million or more are not subject to an initial sales charge, but may be charged a CDSC of 1.00% if sold within one year of purchase. See "Distribution Arrangements" in the AmSouth Funds Prospectus. (3) For B Shares acquired in the combination of AmSouth Funds with ISG Funds, waivers are in place on the CDSC charged if such Class B Shares are sold within six years of purchase, which will decline as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh year following purchase. For all other B Shares held continuously, the CDSC declines over a six-year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth years. Approximately eight years after purchase (seven years in the case of Shares acquired in the ISG combination), Class B Shares automatically convert to Class A Shares. (4) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (5) Other expenses are being limited to 0.51% for Class A Shares, 0.51% for Class B Shares, and 0.37% for Trust Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares 1.31%, Class B Shares 2.06%, and Trust Shares 1.17%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) A CDSC on Class B Shares held continuously declines over six years, starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%, to 0% in the seventh year. Approximately eight years after purchase, Class B Shares automatically convert to Class A Shares. (7) Other expenses are being limited to 0.54% for Class A Shares, 0.54% for Class B Shares, and 0.39% for Trust Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares 1.34%, Class B Shares 2.09%, and Trust Shares 1.19%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (8) Because other expenses are limited to 0.54% for Class A Shares, 0.54% for Class B Shares, and 0.39% for Trust Shares, total expenses after fee waivers and expense reimbursements for each class will be: Class A Shares 1.34%, Class B Shares 2.09%, and Trust Shares 1.19%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. 4 EXPENSE EXAMPLE EXAMPLE: An investor would pay the following expenses on a $10,000 investment, assuming: (1) 5% annual return, (2) no changes in the Fund's operating expenses, and (3) redemption at the end of each time period. 1 YEAR 3 YEARS 5 YEARS 10 YEARS** EQUITY INCOME FUND Class A Shares $ 683 $ 963 $ 1,264 $ 2,116 Class B Shares $ 716 $ 967 $ 1,334 $ 2,271 Trust Shares $ 130 $ 406 $ 702 $ 1,545 VALUE FUND Class A Shares $ 680 $ 954 $ 1,249 $ 2,085 Class B Shares $ 713 $ 958 $ 1,329 $ 2,240 Trust Shares $ 127 $ 397 $ 686 $ 1,511 COMBINED FUND PRO FORMA Class A Shares $ 680 $ 954 $ 1,249 $ 2,085 Class B Shares $ 713 $ 958 $ 1,329 $ 2,240 Trust Shares $ 127 $ 397 $ 686 $ 1,511 ** Class B Shares of the Equity Income Fund, the Value Fund and the Combined Fund automatically convert to Class A Shares after approximately eight years. Therefore, the "10 Years" example above reflects these conversions. EXAMPLE: Assuming no redemption of Class B Shares at the end of the period, the dollar amounts in the above example would be as follows: 1 YEAR 3 YEARS 5 YEARS 10 YEARS** EQUITY INCOME FUND $ 216 $ 667 $ 1,144 $ 2,271 Class B Shares VALUE FUND $ 213 $ 658 $ 1,129 $ 2,240 Class B Shares COMBINED FUND PRO FORMA $ 213 $ 658 $ 1,129 $ 2,240 Class B Shares ------------------ ** Class B Shares of the Equity Income Fund, the Value Fund, and the Combined Fund automatically convert to Class A Shares after approximately eight years. Therefore, the "10 Years" example above reflects these conversions. 5 LIMITED TERM U.S. GOVERNMENT FUND/GOVERNMENT INCOME FUND
Limited Term U.S. Government Combined Fund Fund Government Income Fund Pro Forma ----------------------------- ----------------------------- --------------------------- Class A Class B Trust Class A Class B Trust Class A Class B Trust -------- -------- ------ -------- -------- ------ -------- -------- ----- SHAREHOLDER TRANSACTION EXPENSES (EXPENSES PAID BY YOU DIRECTLY)(1) Maximum Sales Charge 4.00% None None 4.00% None None 4.00% None None Imposed on Purchases (2) (2) (2) (as a percentage of offering price) Maximum Deferred Sales None 5.00% None None 5.00% None None 5.00% None Charge (Load) (3) (3) (3) Redemption Fees(4) None None None None None None None None None ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Management Fees .65% .65% .65% .65% .65% .65% .65% .65% .65% Distribution and/or None .75% None None .75% None None .75% None Service (12b-1) Fee Other Expenses(5)(6) .77% .77% .67% .55% .55% .45% .55% .55% .55% Total Fund Operating 1.42% 2.17% 1.32% 1.20% 1.95% 1.10% 1.20% 1.95% 1.10% Expenses (5) (5) (5) (6) (6) (6) (7) (7) (7)
(1) AmSouth Bank or other financial institutions may charge their customers account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Sales charges may be reduced depending upon the amount invested or, in certain circumstances, waived. Class A Shares bought as part of an investment of $1 million or more are not subject to an initial sales charge, but may be charged a CDSC of 1.00% if sold within one year of purchase. See "Distribution Arrangements" in the AmSouth Funds Prospectus. (3) For B Shares acquired in the combination of AmSouth Funds with ISG Funds, waivers are in place on the CDSC charged if such Class B Shares are sold within six years of purchase, which will decline as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh year following purchase. For all other B Shares held continuously, the CDSC declines over a six-year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth years. Approximately eight years after purchase (seven years in the case of Shares acquired in the ISG combination), Class B Shares automatically convert to Class A Shares. (4) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (5) Other expenses are being limited to 0.50% for Class A Shares, 0.50% for Class B Shares, and 0.35% for Trust Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares 1.15%, Class B Shares 1.90%, and Trust Shares 1.00%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. 6 (6) Other expenses are being limited to 0.34% for Class A Shares, 0.34% for Class B Shares, and 0.19% for Trust Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares 0.99%, Class B Shares 1.74%, and Trust Shares 0.84%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (7) Because other expenses are limited to 0.34% for Class A Shares, 0.34% for Class B Shares, and 0.19% for Trust Shares, total expenses after fee waivers and expense reimbursements for each class will be: Class A Shares 0.99%, Class B Shares 1.74%, and Trust Shares 0.84%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. EXPENSE EXAMPLE EXAMPLE: An investor would pay the following expenses on a $10,000 investment, assuming: (1) 5% annual return, (2) no changes in the Fund's operating expenses, and (3) redemption at the end of each time period. 1 YEAR 3 YEARS 5 YEARS 10 YEARS** LIMITED TERM U.S. GOVERNMENT FUND Class A Shares $ 539 $ 831 $ 1,145 $ 2,034 Class B Shares $ 720 $ 979 $ 1,364 $ 2,313 Trust Shares $ 134 $ 418 $ 723 $ 1,590 GOVERNMENT INCOME FUND Class A Shares $ 517 $ 766 $ 1,033 $ 1,796 Class B Shares $ 698 $ 912 $ 1,252 $ 2,080 Trust Shares $ 112 $ 350 $ 606 $ 1,340 COMBINED FUND PRO FORMA Class A Shares $ 517 $ 766 $ 1,033 $ 1,796 Class B Shares $ 698 $ 912 $ 1,252 $ 2,080 Trust Shares $ 112 $ 350 $ 606 $ 1,340 ** Class B Shares of the Limited Term U.S. Government Fund, the Government Income Fund and the Combined Fund automatically convert to Class A Shares after approximately eight years. Therefore, the "10 Years" example above reflects these conversions. EXAMPLE: Assuming no redemption of Class B Shares at the end of the period, the dollar amounts in the above example would be as follows: 1 YEAR 3 YEARS 5 YEARS 10 YEARS** LIMITED TERM U.S. $ 200 $ 618 $ 1,062 $ 2,102 GOVERNMENT FUND Class B Shares GOVERNMENT INCOME FUND $ 198 $ 612 $ 1,052 $ 2,080 Class B Shares COMBINED FUND PRO FORMA $ 198 $ 612 $ 1,052 $ 2,080 Class B Shares ------------------ ** Class B Shares of the Limited Term U.S. Government Fund, the Government Income Fund, and the Combined Fund automatically convert to Class A Shares after approximately eight years. Therefore, the "10 Years" example above reflects these conversions. 7 LIMITED TERM TENNESSEE TAX-EXEMPT FUND/TENNESSEE TAX-EXEMPT FUND
Limited Term Tennessee Tax-Exempt Fund Tennessee Tax-Exempt Fund Combined Fund Pro Forma --------------------------- ------------------------------ ----------------------------- Class A Class B Trust Class A Class B Trust Class A Class B Trust ------- ------- ----- ------- ------- ----- ------- ------- ----- SHAREHOLDER TRANSACTION EXPENSES (EXPENSES PAID BY YOU DIRECTLY)(1) Maximum Sales Charge Imposed 4.00% None None 4.00% None None 4.00% None None on Purchases (as a (2) (2) (2) percentage of offering price) Maximum Deferred Sales None 5.00% None None 5.00% None None 5.00% None Charge (Load) (3) (3) (3) Redemption Fees(4) None None None None None None None None None ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE DAILY NET ASSETS) Management Fees .65% .65% .65% .65% .65% .65% .65% .65% .65% Distribution and/or Service None .75% None None .75% None None .75% None (12b-1) Fee Other Expenses(5)(6) 1.01% 1.01% .91% .68% .68% .58% .67% .67% .57% Total Fund Operating 1.66%(5) 2.41%(5) 1.56%(5) 1.33%(6) 2.08%(6) 1.23%(6) 1.32%(7) 2.07%(7) 1.22%(7) Expenses
(1) AmSouth Bank or other financial institutions may charge their customers account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Sales charges may be reduced depending upon the amount invested or, in certain circumstances, waived. Class A Shares bought as part of an investment of $1 million or more are not subject to an initial sales charge, but may be charged a CDSC of 1.00% if sold within one year of purchase. See "Distribution Arrangements" in the AmSouth Funds Prospectus. (3) For B Shares acquired in the combination of AmSouth Funds with ISG Funds, waivers are in place on the CDSC charged if such Class B Shares are sold within six years of purchase, which will decline as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh year following purchase. For all other B Shares held continuously, the CDSC declines over a six-year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth years. Approximately eight years after purchase (seven years in the case of Shares acquired in the ISG combination), Class B Shares automatically convert to Class A Shares. (4) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (5) Other expenses are being limited to 0.63% for Class A Shares, 0.63% for Class B Shares, and 0.53% for Trust Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares 1.28%, Class B Shares 2.03%, and Trust Shares 1.18%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) Other expenses are being limited to 0.44% for Class A Shares, 0.44% for Class B Shares, and 0.29% for Trust Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares 1.09%, Class B Shares 1.84%, and Trust Shares 0.94%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. 8 (7) Because other expenses are limited to 0.43% for Class A Shares, 0.43% for Class B Shares, and 0.28% for Trust Shares, total expenses after fee waivers and expense reimbursements for each class will be: Class A Shares 1.08%, Class B Shares 1.83%, and Trust Shares 0.93%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. EXPENSE EXAMPLE EXAMPLE: An investor would pay the following expenses on a $10,000 investment, assuming: (1) 5% annual return, (2) no changes in the Fund's operating expenses, and (3) redemption at the end of each time period. 1 YEAR 3 YEARS 5 YEARS 10 YEARS** LIMITED TERM TENNESSEE TAX-EXEMPT FUND Class A Shares $ 562 $ 902 $ 1,266 $ 2,287 Class B Shares $ 744 $ 1,051 $ 1,485 $ 2,561 Trust Shares $ 159 $ 493 $ 350 $ 1,856 TENNESSEE TAX-EXEMPT FUND Class A Shares $ 530 $ 805 $ 1,110 $ 1,937 Class B Shares $ 711 $ 952 $ 1,319 $ 2,219 Trust Shares $ 125 $ 390 $ 676 $ 1,489 COMBINED FUND PRO FORMA Class A Shares $ 529 $ 802 $ 1,095 $ 1,927 Class B Shares $ 710 $ 949 $ 1,314 $ 2,208 Trust Shares $ 124 $ 387 $ 670 $ 1,477 ** Class B Shares of the Limited Term Tennessee Tax-Exempt Fund, the Tennessee Tax-Exempt Fund and the Combined Fund automatically convert to Class A Shares after approximately eight years. Therefore, the "10 Years" example above reflects these conversions. Assuming no redemption of Class B Shares at the end of the period, the dollar amounts in the above example would be as follows: 1 YEAR 3 YEARS 5 YEARS 10 YEARS** LIMITED TERM TENNESSEE TAX-EXEMPT FUND Class B Shares $ 244 $ 751 $ 1,285 $ 2,561 TENNESSEE TAX-EXEMPT FUND Class B Shares $ 211 $ 652 $ 1,119 $ 2,219 COMBINED FUND PRO FORMA Class B Shares $ 210 $ 649 $ 1,114 $ 2,208 ------------------ ** Class B Shares of the Limited Term Tennessee Tax-Exempt Fund, the Tennessee Tax-Exempt Fund, and the Combined Fund automatically convert to Class A Shares after approximately eight years. Therefore, the "10 Years" example above reflects these conversions. 9 COMPARISON OF THE FUNDS The investment objectives and certain strategies of each Fund are summarized below. Generally, the investment objectives and/or strategies of each Acquired Fund are substantially similar or comparable to those of the corresponding Acquiring Fund, except as differences are noted. For a more detailed description of the Funds' investment strategies, policies, and restrictions, please see the AmSouth Funds Prospectus and the AmSouth Funds SAI. The tables below also show the performance of the Funds' Shares over time. In each case, the historical performance of the Acquiring Fund's shares has been superior to the historical performance of the Acquired Fund's shares. Past performance does not indicate how a Fund will perform in the future. For information concerning the risks associated with investments in the various Funds, see "Comparison of Principal Risk Factors" below.
--------------------------------------------------------------------------------------------------------------------------------- EQUITY INCOME FUND VALUE FUND --------------------------------------------------------------------------------------------------------------------------------- Investment Objective Seeks above average income and capital Seeks capital growth by investing primarily in a appreciation by investing primarily in a diversified portfolio of common stock and securities diversified portfolio of common stocks, convertible into common stock. The production of preferred stocks, and securities that are current income is a secondary objective. convertible into common stocks, such as convertible bonds and convertible preferred stock. --------------------------------------------------------------------------------------------------------------------------------- Investment Strategies Invests primarily in income-producing equity Invests primarily in common stocks that the portfolio securities such as common stocks, ADRs, and manager believes to be undervalued. securities convertible into common stocks, including convertible bonds and convertible preferred stocks. --------------------------------------------------------------------------------------------------------------------------------- Under normal circumstances, the Fund invests The Fund normally invests at least 80% of its total at least 80% of its assets in equity assets in common stocks and securities convertible securities. The Fund invests its assets into common stocks, such as convertible bonds and primarily in income-producing equity convertible preferred stocks. The Fund may also securities such as common stocks, preferred invest up to 20% of the value of its total assets in stock, and securities convertible into common preferred stocks, corporate bonds, notes and stocks, such as convertible bonds and warrants, and short-term money market instruments. convertible preferred stocks. The Fund may also invest up to 20% of its assets in corporate bonds, notes, and warrants, and short-term money market instruments or conducting substantial business. --------------------------------------------------------------------------------------------------------------------------------- In managing the Fund's portfolio, the In managing the Fund's portfolio, the portfolio portfolio manager seeks equity securities manager uses a variety of economic projections, believed to represent investment value. In quantitative techniques, and earnings projections in choosing individual securities, the portfolio formulating individual stock purchase and sale manager emphasizes those common stocks in each decisions. The portfolio manager selects investments sector that have good value, attractive yield, believed to have basic investment value, which will and dividend growth potential. The portfolio eventually be recognized by other investors, thus manager will also consider higher valued increasing their value to the Fund. companies that show the potential for growth. 10 --------------------------------------------------------------------------------------------------------------------------------- EQUITY INCOME FUND VALUE FUND --------------------------------------------------------------------------------------------------------------------------------- Factors that the portfolio manager considers in selecting equity securities include industry and company fundamentals, historical price relationships, and/or underlying asset value. --------------------------------------------------------------------------------------------------------------------------------- Same as Value Fund. If deemed appropriate under the circumstances, the Fund may increase its holding in short-term money market instruments to over 20% of its total assets. The Fund also may hold cash pending investment. --------------------------------------------------------------------------------------------------------------------------------- Investment Advisor Advisor Advisor --------------------------------------------------------------------------------------------------------------------------------- Investment Sub-Advisor Rockhaven Asset Management, LLC Five Points Capital Investment Advisors --------------------------------------------------------------------------------------------------------------------------------- Primary Portfolio Manager Christopher H. Wiles Richard H. Calvert ---------------------------------------------------------------------------------------------------------------------------------
The Equity Income Fund seeks above average income and capital appreciation. The Value Fund seeks capital growth; the production of income is an incidental objective. Both Funds seek to achieve their objectives by investing in a diversified portfolio of common stocks and convertible securities. Each Fund normally invests at least 80% of its total assets in common stocks, such as convertible bonds and preferred stocks. In each case, the Funds' portfolio managers use a variety of economic projections and analyses to select portfolio securities that represent investment value. If deemed appropriate under the circumstances, both Funds also may increase their holding in short-term money market instruments to over 20% of their total assets. There are three principal differences between the Funds. The production of income is a primary objective of the Equity Income Fund and an incidental objective of the Value Fund. In addition, the Equity Income Fund's investment portfolio is comprised of a blend of growth securities and securities that represent investment value, while the Value Fund is primarily comprised of undervalued securities. Also, the Equity Income Fund holds a large portion of its assets in convertible securities, while the Value Fund holds none. --------------------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDING APRIL 30, 2002(1) ---------------------------------------------------------------------------------------------------------------------------------
1-YEAR 3-YEARS 5-YEARS 10-YEARS ------------------------------------------------ -------------- -------------- -------------- --------------- EQUITY INCOME FUND(2) ------------------------------------------------ -------------- -------------- -------------- --------------- Class A Shares -12.12% -1.10% 6.44% N/A (with 5.50% sales charge) ------------------------------------------------ -------------- -------------- -------------- --------------- Class B Shares (with applicable CDSC)(3) -12.30% -0.90% 6.50% N/A ------------------------------------------------ -------------- -------------- -------------- --------------- Trust Shares -6.82% 1.00% 7.88% N/A ------------------------------------------------------------------------------------------------------------- VALUE FUND(4) ------------------------------------------------ -------------- -------------- -------------- --------------- 11 ------------------------------------------------ -------------- -------------- -------------- --------------- Class A Shares (with 5.50% sales charge) -8.74% -0.23% 9.19% 11.88% ------------------------------------------------ -------------- -------------- -------------- --------------- Class B Shares (with applicable CDSC)(5) -8.50% 0.22% 9.34% 11.54% ------------------------------------------------ -------------- -------------- -------------- --------------- Trust Shares -3.28% 1.77% 10.59% 12.60% ------------------------------------------------ -------------- -------------- -------------- ---------------
(1) Assumes the reinvestment of dividends and other distributions. (2) The Equity Income Fund commenced operations on March 20, 1997. (3) Performance of the Class B Shares, which were initially offered on September 3, 1997, is based on the historical performance of the Class A Shares (without sales charge) prior to that date. The historical performance of the Class B Shares has been adjusted to reflect the higher distribution (12b-1) fees and the CDSC. (4) The Value Fund commenced operations on December 1, 1988. (5) Performance of the Class B Shares, which were initially offered on September 3, 1997, is based on the historical performance of the Class A Shares (without sales charge) prior to that date. The historical performance of the Class B Shares has been adjusted to reflect the higher distribution (12b-1) fees and the CDSC. 12
----------------------------- --------------------------------------------- ------------------------------------------------------- LIMITED TERM U.S. GOVERNMENT FUND GOVERNMENT INCOME FUND ----------------------------- --------------------------------------------- ------------------------------------------------------- Investment Objective Seeks to provide investors with high Seeks current income consistent with the preservation current income without assuming undue risk. of capital. ----------------------------- --------------------------------------------- ------------------------------------------------------- Investment Invests primarily in fixed income Invests primarily in securities issued or guaranteed Strategies securities with maturities of five years or by the U.S. Government, its agencies or less issued or guaranteed as to payment of instrumentalities. These investments are principally principal and interest by the U.S. mortgage-related securities, U.S. Treasury Government, its agencies or obligations, and U.S. Government agency obligations. instrumentalities, and enters into repurchase agreements in respect of such securities. ----------------------------- --------------------------------------------- ------------------------------------------------------- Under normal circumstances, the Fund Under normal circumstances, the Fund invests at invests at least 80% of its assets in least 80% of its assets primarily in obligations securities issued or guaranteed by the U.S. issued or guaranteed by the U.S. Government or its Government or its agencies or agencies and instrumentalities, including instrumentalities and repurchase agreements mortgage-related securities issued or guaranteed by that have a stated or remaining maturity of the Government National Mortgage Association, the five years or less or that have an Federal National Mortgage Association, and the Federal unconditional redemption feature that will Home Loan Mortgage Corporation, and mortgage-related permit the Fund to require the issuer of securities issued by non-governmental entities that the security to redeem the security within are rated, at the time of purchase, in one of the five years from the date of purchase by the three highest rating categories by an NRSRO or, if Fund. The remainder of the Fund's assets unrated, determined by its portfolio manager to be of may be invested in bonds (including comparable quality. Up to 20% of the Fund's total debentures), notes, and other debt assets may be invested in other types of debt instruments that have a stated or remaining securities, preferred stocks, and options. maturity of greater than five years, cash, cash equivalents, and money-market instruments. ----------------------------- --------------------------------------------- ------------------------------------------------------- In managing the Fund's portfolio, the Same manager sets, and periodically adjusts, a target for the interest rate sensitivity of the Fund based upon expectations about interest rates and other economic factors. The manager then selects individual securities whose maturities fit this target and that the manager believes offer the best relative value. ----------------------------- --------------------------------------------- ------------------------------------------------------- Investment Advisor Advisor Advisor ----------------------------- --------------------------------------------- ------------------------------------------------------- Investment Sub-Advisor None None ----------------------------- --------------------------------------------- ------------------------------------------------------- Primary Portfolio Manager(s) John Mark McKenzie John Mark McKenzie and John P. Boston ----------------------------- --------------------------------------------- -------------------------------------------------------
The Limited Term U.S. Government Fund seeks to provide investors with high current income without assuming undue risk. The Government Income Fund seeks current income consistent with the preservation of capital. Although stated differently, there is, in effect, no distinction between the Funds' 13 investment objectives. Both Funds pursue their investment objectives by investing in securities issued or guaranteed by the U.S. Government. In each case, the manager sets, and periodically adjusts, a target for the interest rate sensitivity of the Fund based upon expectations about interest rates. The manager then selects individual securities whose maturities fit this target and that the manager believes are the best relative values. The Limited Term U.S. Government Fund's portfolio manager is one of the two portfolio managers who manage the Government Income Fund. The principal difference between the Funds is the average duration of the securities in their investment portfolios. At least 80% of the investment portfolio of the Limited Term U.S. Government Fund includes securities with a stated or remaining maturity of five years or less. There are no restrictions on the maturity of the securities that comprise the Government Income Fund's investment portfolio. Therefore, the Government Income Fund is subject to greater prepayment risk than the Limited Term U.S. Government Fund. ---------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDING APRIL 30, 2002(1) ----------------------------------------------------------------------------------------------------------------------
1-YEAR 3-YEARS 5-YEARS 10-YEARS -------------------------------------------------------- --------------- --------------- ------------- --------------- LIMITED TERM U.S. GOVERNMENT FUND(2) -------------------------------------------------------- --------------- --------------- ------------- --------------- Class A Shares 0.64% 3.64% 4.62% 4.95% (with 5.50% sales charge) -------------------------------------------------------- --------------- --------------- ------------- --------------- Class B Shares (with applicable CDSC)(3) -1.03% 3.31% 4.30% 4.44% -------------------------------------------------------- --------------- --------------- ------------- --------------- Trust Shares 4.96% 5.17% 5.55% 5.40% -------------------------------------------------------- --------------- --------------- ------------- --------------- GOVERNMENT INCOME FUND(4) -------------------------------------------------------- --------------- --------------- ------------- --------------- Class A Shares (with 5.50% sales charge) 2.27% 4.99% 6.16% N/A -------------------------------------------------------- --------------- --------------- ------------- --------------- Class B Shares (with applicable CDSC)(5) 0.81% 4.69% 5.82% N/A -------------------------------------------------------- --------------- --------------- ------------- --------------- Trust Shares 6.74% 6.57% 7.17% N/A -------------------------------------------------------- --------------- --------------- ------------- ---------------
(1) Assumes the reinvestment of dividends and other distributions. (2) The Limited Term U.S. Government Fund commenced operations on February 28, 1997, through a transfer of assets from collective trust fund accounts managed by the Advisor, using materially equivalent investment objectives, policies, and methodologies as the Fund. The quoted performance of the Fund includes the performance of these trust accounts for periods prior to the Fund's commencement of operations, as adjusted to reflect the expenses associated with the Fund. The trust accounts were not registered with the SEC and were not subject to the investment restrictions imposed by law on registered mutual funds. If these trust accounts had been registered, their returns may have been lower. (3) Performance of the Class B Shares, which were initially offered on March 3, 1998, is based on the historical performance of the Class A Shares (without sales charge) prior to that date. The historical performance of the Class B Shares has been adjusted to reflect the higher distribution (12b-1) fees and the CDSC. (4) The Government Income Fund commenced operations on October 1, 1993. 14 (5) Performance of the Class B Shares, which were initially offered on March 13, 2000, is based on the historical performance of the Class A Shares (without sales charge) prior to that date. The historical performance of the Class B Shares has been adjusted to reflect the higher distribution (12b-1) fees and the CDSC.
--------------------------- ----------------------------------------------- ----------------------------------------------------- LIMITED TERM TENNESSEE TAX-EXEMPT FUND TENNESSEE TAX-EXEMPT FUND --------------------------- ----------------------------------------------- ----------------------------------------------------- Investment Objective Seeks to provide investors with current Same income exempt from federal and Tennessee income taxes without assuming undue risk. --------------------------- ----------------------------------------------- ----------------------------------------------------- Investment Invests substantially all of its assets in Same Strategies municipal obligations of the State of Tennessee, its political subdivisions, authorities, and corporations that provide income exempt from federal and Tennessee personal income taxes. --------------------------- ----------------------------------------------- ----------------------------------------------------- The Fund invests, as a fundamental policy, at Same least 80% of its net assets (except when maintaining a temporary defensive position) in municipal obligations. As a matter of fundamental policy, the Fund invests, under normal circumstances, at least 80% of its assets in securities, the interest from which is exempt from federal and Tennessee personal income taxes. The remainder of the Fund's assets may be invested in securities that are not Tennessee municipal obligations and therefore may be subject to Tennessee income tax. --------------------------- ----------------------------------------------- ----------------------------------------------------- The Fund normally invests 65% of its total No Comparable Strategy assets in bonds (including debentures), notes, and other debt securities that have a stated or remaining maturity of five years or less or that have an unconditional redemption feature that will permit the Fund to require the issuer of the security to redeem the security within five years from the date of purchase by the Fund. The remainder of the Fund's assets may be invested in bonds (including debentures), notes, and other debt instruments that have a stated or remaining maturity of greater than five years, cash, cash equivalents, and money market instruments. --------------------------- ----------------------------------------------- ----------------------------------------------------- 15 --------------------------- ----------------------------------------------- ----------------------------------------------------- LIMITED TERM TENNESSEE TAX-EXEMPT FUND TENNESSEE TAX-EXEMPT FUND --------------------------- ----------------------------------------------- ----------------------------------------------------- The average dollar-weighted credit rating of Same the municipal obligations held by the Fund will be at least A-. To further limit credit risk, the Fund invests only in investment grade municipal obligations or the unrated equivalent as determined by the portfolio manager. The portfolio manager evaluates municipal obligations based on credit quality, financial outlook, and yield potential. Although the Fund concentrates its assets in Tennessee municipal obligations, the portfolio manager strives to diversify the portfolio across sectors and issuers within Tennessee. --------------------------- ----------------------------------------------- ----------------------------------------------------- Investment Advisor Advisor Advisor --------------------------- ----------------------------------------------- ----------------------------------------------------- Investment Sub-Advisor None None --------------------------- ----------------------------------------------- ----------------------------------------------------- Primary Portfolio Manager Dorothy E. Thomas Dorothy E. Thomas --------------------------- ----------------------------------------------- -----------------------------------------------------
The investment objectives of the Limited Term Tennessee Tax-Exempt Fund and the Tennessee Tax-Exempt Fund are identical. The Funds' investment strategies are also identical, except for the average maturity of their portfolio securities as described below. Both Funds seek to provide investors with current income exempt from federal and Tennessee income taxes without assuming undue risk. To pursue their investment objectives, both Funds invest substantially all their assets in Tennessee tax-exempt municipal obligations with an average dollar-weighted credit rating of at least A-. The Funds are managed by the same portfolio manager. The principal difference between the Funds is the average maturity of the securities in their investment portfolios. At least 65% of the Limited Term Tennessee Tax-Exempt Fund's investment portfolio is comprised of notes and other debt securities with a stated or remaining maturity of five years or less, or that have an unconditional redemption feature that will permit the Fund to redeem the security within five years from the date of purchase by the Fund. There are no restrictions on the maturity of the securities that comprise the Tennessee Tax-Exempt Fund's investment portfolio. 16 ---------------------------------------------------------------------------------------------------------------------- AVERAGE ANNUAL TOTAL RETURNS FOR THE PERIOD ENDING APRIL 30, 2002(1) -------------------------------------------------------- --------------- --------------- ------------- ---------------
1-YEAR 3-YEARS 5-YEARS 10-YEARS -------------------------------------------------------- --------------- --------------- ------------- --------------- LIMITED TERM TENNESSEE TAX-EXEMPT FUND(2) -------------------------------------------------------- --------------- --------------- ------------- --------------- Class A Shares -0.04% 1.90% 3.04% 3.39% (with 5.50% sales charge) -------------------------------------------------------- --------------- --------------- ------------- --------------- Class B Shares (with applicable CDSC)(3) -1.57% 1.55% 2.64% 2.86% -------------------------------------------------------- --------------- --------------- ------------- --------------- Trust Shares N/A N/A N/A N/A -------------------------------------------------------- --------------- --------------- ------------- --------------- TENNESSEE TAX-EXEMPT FUND(4) -------------------------------------------------------- --------------- --------------- ------------- --------------- Class A Shares (with 5.50% sales charge) 1.43% 2.23% 3.77% 3.90% -------------------------------------------------------- --------------- --------------- ------------- --------------- Class B Shares (with applicable CDSC)(5) -0.26% 1.91% 3.61% 3.42% -------------------------------------------------------- --------------- --------------- ------------- --------------- Trust Shares 5.78% 3.81% 4.82% 4.42% -------------------------------------------------------- --------------- --------------- ------------- ---------------
(1) Assumes the reinvestment of dividends and other distributions. (2) The Limited Term Tennessee Tax-Exempt Fund commenced operations on February 28, 1997, through a transfer of assets from collective trust fund accounts managed by the Advisor, using materially equivalent investment objectives, policies, and methodologies as the Fund. The quoted performance of the Fund includes the performance of these trust accounts for periods prior to the Fund's commencement of operations, as adjusted to reflect the expenses associated with the Fund. The trust accounts were not registered with the SEC and were not subject to the investment restrictions imposed by law on registered mutual funds. If these trust accounts had been registered, their returns may have been lower. (3) Performance of the Class B Shares, which were initially offered on February 3, 1998, is based on the historical performance of the Class A Shares (without sales charge) prior to that date. The historical performance of the Class B Shares has been adjusted to reflect the higher distribution (12b-1) fees and the CDSC. (4) The Tennessee Tax-Exempt Fund commenced operations on March 28, 1994, through a transfer of assets from collective trust fund accounts managed by the Advisor, using materially equivalent investment objectives, policies, and methodologies as the Fund. The quoted performance of the Fund includes the performance of these trust accounts for periods prior to the Fund's commencement of operations, as adjusted to reflect the expenses associated with the Fund. The trust accounts were not registered with the SEC and were not subject to the investment restrictions imposed by law on registered mutual funds. If these trust accounts had been registered, their returns may have been lower. (5) Performance of the Class B Shares, which were initially offered on February 24, 1998, is based on the historical performance of the Class A Shares (without sales charge) prior to that date. The historical performance of the Class B Shares has been adjusted to reflect the higher distribution (12b-1) fees and the CDSC. COMPARISON OF PRINCIPAL RISK FACTORS Risk is the chance that you will lose money on your investment or that it will not earn as much as you expect. In general, the greater the risk, the more money your investment can earn for you and the more money you can lose. Like other investment companies, the value of each Fund's Shares may be affected by its investment objective(s), principal investment strategies, and particular risk factors. Consequently, the risks of an investment in an Acquiring Fund are 17 similar to the risks of an investment in the corresponding Acquired Fund. Some of the principal risks of investing in each Fund are discussed below. However, other factors may also affect a Fund's value. There is no guarantee that a Fund will achieve its investment objective or that it will not lose principal value. In the following summary, we describe the principal risks that may affect the Funds. Additional information and more detailed descriptions of the risks that may affect each Fund can be found in the AmSouth Funds Prospectus and the AmSouth Funds SAI. CHART OF PRINCIPAL RISKS BY FUND The following chart summarizes the principal risks of each Acquired Fund and Acquiring Fund. Risks not marked for a particular Fund may, however, still apply to some extent to that Fund at various times. Each risk is explained in more detail in the discussion following the chart. State Non- Portfolio Market Investment Interest Prepayment Income Specific Credit Liquidity Diversified Turnover Fund Risk Style Risk Rate Risk Risk Risk Risk Risk Risk Risk Risk ------------------------------------------------------------------------------------------------------------------------------------ Equity Income Fund X X X Value Fund X X X ==================== ======= =========== ========== ============= ========== ========== ======== =========== ============ ========== Limited Term U.S. X X X Government Fund Government Income X X X X Fund ==================== ======= =========== ========== ============= ========== ========== ======== =========== ============ ========== Limited Term X X X X X X X Tennessee Tax-Exempt Fund Tennessee Tax-Exempt Fund X X X X X X X
MARKET RISK: Market risk is the possibility that a Fund's stock holdings will decline in price because of a broad stock market decline. Markets generally move in cycles, with periods of rising prices followed by periods of falling prices. The value of your investment will tend to increase or decrease in response to these movements. INVESTMENT STYLE RISK: Investment style risk is the possibility that the market segment on which a Fund focuses will underperform other kinds of investments or market averages. The Equity Income Fund is subject to investment style risk with respect to its blended investment style, which does not focus exclusively either 18 on growth or value. The Value Fund is subject to investment style risk with respect to its focus on under-valued stocks. INTEREST RATE RISK: Interest rate risk is the possibility that the value of a Fund's investments will decline due to an increase in interest rates. Interest rate risk is usually greater for fixed-income securities with longer maturities or durations. Accordingly, interest rate risk is generally high for longer-term bonds and low for shorter-term bonds. PREPAYMENT RISK: If a significant number of mortgages underlying a mortgage-backed security are refinanced, the security may be "prepaid." In this case, investors receive their principal back and are typically forced to reinvest it in securities that pay lower interest rates. Rapid changes in prepayment rates can cause bond prices and yields to be volatile. INCOME RISK: Income risk is the possibility that a Fund's income will decline due to a decrease in interest rates. Income risk is generally high for shorter-term bonds and low for longer-term bonds. Prices of U.S. Government securities tend to move inversely with changes in interest rates. The most immediate effect of a rise in rates is usually a drop in the prices of such securities and, therefore, in a Fund's share price as well. STATE SPECIFIC RISK: State specific risk is the risk that by concentrating investments in securities issued by Tennessee and its municipalities, the Limited Term Tennessee Tax-Exempt Fund and the Tennessee Tax-Exempt Fund may be more vulnerable to unfavorable developments in Tennessee than Funds that are more geographically diversified. CREDIT RISK: Credit risk is the possibility that an issuer cannot make timely interest and principal payments on its debt securities, such as bonds. The lower a security's rating, the greater its credit risk. LIQUIDITY RISK: Liquidity risk is the possibility that certain securities may be difficult or impossible to sell at the time and the price that would normally prevail in the market. NON-DIVERSIFIED RISK: Non-diversified risk is the risk that a non-diversified Fund, which may invest a greater percentage of its assets in a particular issuer compared with other Funds, may be more sensitive to changes in the market value of a single issuer or industry. PORTFOLIO TURNOVER RISK: The Funds may trade securities actively, which could increase transaction costs (thereby lowering performance) and may increase the amount of taxes that you pay. If a Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. 19 MANAGEMENT AND OPERATION OF THE FUNDS INVESTMENT ADVISOR The Advisor, which is located at 1901 6th Avenue North, Suite 620, Birmingham, Alabama 35203, serves as the Funds' investment advisor. As of March 31, 2002, the Advisor had nearly $7.1 billion in assets under management. On May 12, 2001, AmSouth Bank reorganized its investment advisory services and created the Advisor, a separate wholly owned subsidiary of AmSouth Bank. The Advisor replaced AmSouth Bank as the investment advisor to the Funds. AmSouth Bank has provided investment management services through its Trust Division since 1915 and is the largest provider of trust services in Alabama. In addition, its Trust Natural Resources and Real Estate Department is a major manager of timberland, mineral, oil, and gas properties and other real estate interests. As of March 31, 2002, AmSouth Bank had over $7.8 billion in assets under discretionary management and provided custody services for nearly $25.2 billion in securities. AmSouth is the bank affiliate of AmSouth Bancorporation, which reported assets as of March 31, 2002, of $38.2 billion and operated more than 600 banking offices in Alabama, Florida, Georgia, Mississippi, Louisiana, and Tennessee. The Advisor continuously reviews, supervises, and administers the Funds' investment programs. For these advisory services, the Advisor is paid a fee equal to the lesser of (a) the fee from time to time agreed upon in writing by AmSouth Funds and the Advisor and (b) a fee computed daily and paid monthly based on the average daily net assets of each Fund as follows: the Equity Income Fund and the Value Fund - .80% annually; and the Limited Term U.S. Government Fund, the Government Income Fund, the Limited Term Tennessee Tax-Exempt Fund and the Tennessee Tax-Exempt Fund - .65% annually. For the fiscal year ended July 31, 2001, each Fund paid an advisory fee of .80% or .65%, as applicable. The Advisor may be deemed to have an interest in each Reorganization because future growth of assets of AmSouth Funds can be expected to increase the total amount of fees payable to the Advisor and to reduce the amount of fees required to be waived to maintain total fees of the Funds at agreed upon levels. INVESTMENT SUB-ADVISORS Five Points Capital Investment Advisors ("Five Points") serves as investment sub-advisor to the Value Fund pursuant to an investment sub-advisory agreement with the Advisor. Under the sub-advisory agreement, Five Points manages the Value Fund, selects investments, and places all orders for purchases and sales of securities, subject to the general supervision of the Trustees and the Advisor, in accordance with the Value Fund's investment objective, policies and restrictions. Five Points was organized as a separate wholly owned subsidiary of AmSouth Bank on August 28, 1996, and has served as investment sub-adviser to the Value Fund since December 1, 2001. The same investment personnel who provided 20 advisory services to the Value Fund as employees of the Advisor currently do so as employees of Five Points. Five Points will continue to serve as investment sub-advisor to the Value Fund after the Reorganization. Rockhaven Asset Management, LLC ("Rockhaven") serves as investment sub-advisor to the Equity Income Fund pursuant to an investment sub-advisory agreement with the Advisor. Under the sub-advisory agreement, Rockhaven manages the Equity Income Fund, selects investments, and places all orders for purchases and sales of securities, subject to the general supervision of the Trustees and the Advisor, in accordance with the Equity Income Fund's investment objective, policies and restrictions. Rockhaven is 50% owned by AmSouth Bank. The sub-advisory agreement with Rockhaven will be terminated on or before the Closing Date. If the sub-advisory agreement with Rockhaven is terminated before the Closing Date, the Advisor will manage the Equity Income Fund for the period from the date the sub-advisory agreement is terminated to the Closing Date. FORM OF ORGANIZATION Each Fund is a series of AmSouth Funds, an open-end management investment company that was organized as a Massachusetts business trust on October 1, 1987. The AmSouth Funds' Amended and Restated Declaration of Trust ("Declaration of Trust") authorizes the Trustees to issue an unlimited number of units of beneficial interest (i.e., Shares) in multiple series. The Fund does not, and is not required to, hold annual shareholder meetings. OPERATING PROCEDURES Based on its review of the investment portfolio of each Fund, the Advisor believes that most of the assets held by each Acquired Fund are consistent with the investment strategies of the corresponding Acquiring Fund and thus can be transferred to and held by each Acquiring Fund if the Reorganization is approved. If, however, an Acquired Fund has any assets that may not be held by the corresponding Acquiring Fund, those assets will be sold prior to the Reorganization. The proceeds of such sales will be held in temporary investments or reinvested in assets that qualify to be held by the Acquiring Fund. The possible need for an Acquired Fund to dispose of assets prior to the Reorganization could result in its selling securities at a disadvantageous time and its realizing losses that would otherwise not have been realized. Alternatively, these sales could result in an Acquired Fund's realizing gains that otherwise would not have been realized, the net proceeds of which would be included in a taxable distribution to the Acquired Fund's shareholders prior to the Reorganization. As discussed above, the Advisor serves as investment advisor to each of the Acquired Funds and the Acquiring Funds. After the Reorganization, the Trustees and the Acquiring Funds' distributor, investment sub-advisor, as applicable, and other outside agents will continue to serve the Acquiring Funds in their current capacities. 21 SHARE CLASSES AND SALES CHARGES Each Fund offers three classes of Shares: Class A Shares, Class B Shares, and Trust Shares. Each Share class has its own fee structure, as described below, which is the same for both Funds. In some cases, a sales charge may not be assessed on purchases or sales of Shares. Investors should consult with their financial representatives to determine whether this may apply to them. o CLASS A SHARES may be appropriate for investors who prefer to pay a Fund's sales charges upfront. Class A Shares are subject to a maximum front-end sales charge of 5.50% of the offering price. The sales charge applicable to Class A Shares may be reduced or waived under certain circumstances as described in the AmSouth Funds Prospectus that accompanies this Combined Prospectus/Proxy Statement. Class A Shares also pay an annual shareholder servicing fee of 0.25% of average daily net assets. o CLASS B SHARES may be appropriate for investors who wish to avoid a front-end sales charge and put all the money invested to purchase Fund Shares immediately. Class B Shares automatically convert to Class A Shares of the same Fund after eight years from the end of the month of purchase. A contingent deferred sales charge ("CDSC") of up to 5% is imposed on redemptions of Class B Shares made within six years of purchase. The CDSC may be waived under certain circumstances as described in the AmSouth Funds Prospectus that accompanies this Combined Prospectus/Proxy Statement. For Class B Shares acquired in the combination of AmSouth Funds with ISG Funds, waivers are in place on the CDSC charged if such Class B Shares are sold within six years of purchase, which will decline as follows: 4%, 3%, 3%, 2%, 2%, 1% to 0% in the seventh year following purchase. These Shares will automatically convert to Class A Shares of the same Fund after seven years from the end of the month of purchase. Class B Shares pay a shareholder servicing fee of 0.25% of average daily net assets and a Rule 12b-1 fee of 0.75% of those assets. o TRUST SHARES may be purchased through procedures established by BISYS Fund Services, L.P., the distributor ("Distributor"), in connection with the requirements of fiduciary, advisory, agency, custodial, and other similar accounts maintained by or on behalf of customers of AmSouth Bank or one of its affiliates or other financial service providers approved by the Distributor. Investors may sell Trust Shares at any time. No sales charges or CDSCs are imposed on Trust Shares. Trust Shares pay a shareholder servicing fee of 0.15% of average daily net assets. THE FRONT-END SALES CHARGES AND CDSCS DESCRIBED ABOVE WILL NOT BE IMPOSED IN CONNECTION WITH THE ISSUANCE OF ACQUIRING FUND SHARES TO ACQUIRED FUND SHAREHOLDERS IN THE REORGANIZATIONS. HOWEVER, WHERE APPLICABLE, THE CDSCS WILL APPLY ON REDEMPTION OF ACQUIRING FUND SHARES RECEIVED IN A REORGANIZATION 22 AND THE FRONT-END SALES CHARGES WILL APPLY TO SUBSEQUENT PURCHASES OF ACQUIRING FUND SHARES. PURCHASE PROCEDURES Purchase orders for Shares of the Funds are executed at a per Share price equal to the NAV next determined after the purchase order is effective (plus any applicable sales charge). Shares of each Fund are sold on a continuous basis by the Distributor either by mail, by wire, through an Automatic Investment Plan, or through financial institutions. The Funds have a minimum investment requirement of $1,000 for Class A and Class B accounts and $250 for Automatic Investment Plan accounts. The Funds have no subsequent minimum investment requirement for Class A and Class B accounts but impose a $50 subsequent minimum investment requirement on Automatic Investment Plan accounts. Purchases and redemptions of Fund Shares may be made on days on which the New York Stock Exchange ("NYSE") is open for trading ("Business Day"). EXCHANGE PRIVILEGE A shareholder may exchange the Shares of a Fund for Shares of the corresponding class of another series of AmSouth Funds, so long as the shareholder maintains the applicable minimum account balance and satisfies the minimum initial and subsequent investment requirements. A shareholder may convert his or her Class A Shares to Trust Shares of the same Fund if the shareholder becomes eligible to purchase Trust Shares. When converting Trust Shares of a Fund to Class A Shares of that Fund, the shareholder will be exempt from any applicable sales charge. However, a shareholder who exchanges Class A Shares of a Fund that has no sales charge or a lower sales charge for Class A Shares of another Fund with a higher sales charge will be required to pay the difference. The exchange privilege (including automatic exchanges) may be changed or eliminated at any time upon a 60-day notice to shareholders. Exchanges are made on the basis of the relative NAVs of the Shares exchanged plus any applicable sales charge. No transaction fees are currently charged for exchanges. Exchange privileges are available only in states where the Shares of a Fund may be legally sold. Exercise of the exchange privilege is generally treated as a sale for federal income tax purposes and, depending on the circumstances, a short- or long-term capital gain or loss will be realized. REDEMPTION PROCEDURES Each Fund redeems Shares at the NAV next determined after receipt by the Distributor of the redemption request. Redemptions will be made on any Business Day without charge. There is presently a $7 charge for wiring redemption proceeds to a shareholder's designated account. Shares may be redeemed by mail, by telephone, or through a pre-arranged systematic withdrawal plan. 23 Each Fund reserves the right to make redemption payments in securities rather than cash. If a shareholder's account balance falls below $50, a Fund may ask the shareholder to increase that balance. If the account balance remains below $50 after 60 days, the Fund may close the account and send the proceeds to the shareholder at the then-current NAV. NET ASSET VALUE The NAVs of the Funds' Shares are determined daily at the close of regular trading on the NYSE (normally as of 4:00 p.m.) Eastern time, each Business Day. In addition, each Fund may elect, in its discretion, if it is determined to be in its shareholders' best interests, to be open on days when the NYSE is closed due to an emergency. A shareholder's order for purchase, sale, or exchange of Shares is priced at the NAV next calculated after the order is accepted by the Fund, less any applicable sales charge. This is what is known as the offering price. The Funds' securities are generally valued at current market prices. If market quotations are not available, prices will be based on fair value as determined by the AmSouth Funds' Trustees. DISTRIBUTIONS Each Fund distributes net investment income monthly and net realized capital gains at least once each year. Shareholders automatically receive all income dividends and capital gain distributions in additional full and fractional Shares of the distributing class at NAV, as of the date of payment, unless the shareholder has elected to receive such dividends or distributions in cash. Dividends and other distributions, when received in Shares, are reinvested without a sales charge as of the ex-distribution date, using the NAV determined on that date, and are credited to a shareholder's account on the payment date. Distributions paid in additional Shares receive the same tax treatment as distributions paid in cash. The dividends payable on Trust Shares of a Fund generally are more than the dividends payable on Class A and Class B Shares of that Fund because of the distribution expenses charged to Class A and Class B Shares but not charged to Trust Shares. FEDERAL TAX CONSIDERATIONS Consummation of the Reorganizations is subject to the condition that AmSouth Funds receive an opinion of Kirkpatrick & Lockhart LLP, its counsel, to the effect that, based on certain representations and assumptions and subject to certain qualifications, the Reorganizations will not result in the recognition of gain or loss for federal income tax purposes for the Funds or the shareholders of the Acquired Funds. SEE "Information About the Reorganizations - Federal Income Tax Considerations." However, any sales of the assets of an Acquired Fund (described under "Operating Procedures" above) could result in the realization of net gains that would have to be distributed to, and thus taxed to, its shareholders. 24 FINANCIAL HIGHLIGHTS AND FUND PERFORMANCE Management's discussion and analysis of the Funds' performance and the related information included in the Funds' most recent Annual and Semi-Annual Reports to shareholders are provided in Appendix B-1 and Appendix B-2, respectively. The following information was provided in the AmSouth Funds Semi-Annual Report to shareholders for the period ended January 31, 2002. The financial highlights table is intended to help you understand each Fund's financial performance for the past five years or, if shorter, the period of the Fund's operations. Certain information reflects financial results for a single Fund Share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in a Fund (assuming reinvestment of all dividends and other distributions). The information for the data from the fiscal years ended July 31, 2000 and July 31, 2001 has been audited by Ernst & Young LLP. The information for the fiscal year ended July 31, 1999 and prior years has been audited by other auditors. Ernst & Young LLP's report is incorporated by reference in the AmSouth Funds SAI. The information for the six months ended January 31, 2002 is unaudited. 25 A SHARES Selected data for a share outstanding throughout the period indicated.
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ VALUE FUND Six Months Ended January 31, 2002 # $20.38 0.05 (1.23) (1.18) (0.05) (1.61) (1.66) $17.54 (5.68)%^ Year Ended July 31, 2001 + $19.54 0.11 3.64 3.75 (0.14) (2.77) (2.91) $20.38 21.10% Year Ended July 31, 2000 $25.25 0.23 (2.21) (1.98) (0.23) (3.50) (3.73) $19.54 (8.19)% Year Ended July 31, 1999 $24.60 0.20 3.11 3.31 (0.19) (2.47) (2.66) $25.25 14.92% Year Ended July 31, 1998 (a) $23.35 0.21 2.54 2.75 (0.25) (1.25) (1.50) $24.60 12.34% Year Ended July 31, 1997 $17.62 0.30 6.77 7.07 (0.30) (1.04) (1.34) $23.35 42.35% EQUITY INCOME FUND Six Months Ended January 31, 2002 # $12.50 0.07 (0.27) (0.20) (0.09) -- (0.09) 12.21 (1.60)%^ Year Ended July 31, 2001 + $14.56 0.17 (2.05) (1.88) (0.18) -- (0.18) 12.50 (12.96)% Period Ended July 31, 2000 $13.10 0.17 2.26 2.43 (0.16) (0.81) (0.97) 14.56 19.12% Year Ended July 31, 1999 $11.89 0.17 1.46 1.63 (0.16) (0.26) (0.42) 13.10 14.17% Year Ended July 31, 1998 (a) $11.72 0.24 0.59 0.83 (0.25) (0.41) (0.66) 11.89 7.29% Period Ended July 31, 1997 (b) $10.00 0.07 1.71 1.78 (0.06) -- (0.06) 11.72 17.81%^
# Unaudited. + Net investment income (loss) is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) Effective September 2, 1997, the fund's existing shares, which were previously unclassified, were designated either Class A shares or Trust shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as Class A shares. (b) For the period from March 20, 1997 (commencement of operations) through July 31, 1997. See notes to financial statements. 26 A SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- VALUE FUND Six Months Ended January 31, 2002 # 0.46%^^ 1.36%^^ 1.36%^^ 26% $128,135 Year Ended July 31, 2001 + 0.53% 1.34% 1.35% 43% $113,164 Year Ended July 31, 2000 1.07% 1.35% 1.35% 17% $ 45,255 Year Ended July 31, 1999 0.82% 1.33% 1.34% 18% $ 70,740 Year Ended July 31, 1998 (a) 0.89% 1.19% 1.19% 17% $ 73,165 Year Ended July 31, 1997 1.52% 1.06% 1.10% 24% $974,985 EQUITY INCOME FUND Six Months Ended January 31, 2002 # 1.17%^^ 1.36%^^ 1.43%^^ 84% $36,884 Year Ended July 31, 2001 + 1.22% 1.31% 1.38% 209% $42,699 Period Ended July 31, 2000 1.22% 1.38% 1.45% 168% $39,201 Year Ended July 31, 1999 1.37% 1.41% 1.58% 134% $21,526 Year Ended July 31, 1998 (a) 2.03% 1.42% 1.57% 83% $26,686 Period Ended July 31, 1997 (b) 2.13%^^ 1.30%^^ 1.51%^^ 27% $22,273
# Unaudited. + Net investment income (loss) is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) Effective September 2, 1997, the fund's existing shares, which were previously unclassified, were designated either Class A shares or Trust shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as Class A shares. (b) For the period from March 20, 1997 (commencement of operations) through July 31, 1997. 26A A SHARES Selected data for a share outstanding throughout the period indicated.
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ GOVERNMENT INCOME FUND Six Months Ended January 31, 2002 # $10.10 0.24 0.03 0.27 (0.26) -- (0.26) $10.11 2.70%^ Year Ended July 31, 2001 + $ 9.60 0.55 0.50 1.05 (0.55) -- (0.55) $10.10 11.25% Year Ended July 31, 2000 $ 9.62 0.56 (0.04) 0.52 (0.54) -- (0.54) $ 9.60 5.55% Year Ended July 31, 1999 $ 9.88 0.54 (0.28) 0.26 (0.52) -- (0.52) $ 9.62 2.62% Year Ended July 31, 1998 (a) $ 9.75 0.63 0.09 0.72 (0.59) -- (0.59) $ 9.88 7.58% Year Ended July 31, 1997 $ 9.40 0.58 0.35 0.93 (0.58) -- (0.58) $ 9.75 10.21% LIMITED TERM U.S. GOVERNMENT FUND Six Months Ended January 31, 2002 # $10.26 0.17 0.03 0.20 (0.17) -- (0.17) $10.29 1.99%^ Year Ended July 31, 2001 + $ 9.89 0.47 0.37 0.84 (0.47) -- (0.47) $10.26 8.71% Period Ended July 31, 2000 (b) $ 9.85 0.28 0.02 0.30 (0.26) -- (0.26) $ 9.89 3.11%^ Year Ended December 31, 1999 $10.25 0.50 (0.39) 0.11 (0.50) (0.01) (0.51) $ 9.85 1.08% Year Ended December 31, 1998 $10.12 0.53 0.14 0.67 (0.53) (0.01) (0.54) $10.25 6.69% Period Ended December 31, 1997 (c) $10.00 0.42 0.12 0.54 (0.42) -- (0.42) $10.12 5.54%^
# Unaudited. + Net investment income (loss) is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) Effective September 2, 1997, the fund's existing shares, which were previously unclassified, were designated either Class A shares or Trust shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as Class A shares. (b) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the fund changed its fiscal year end to July 31. (c) For the period from February 28, 1997 (commencement of operations) through December 31, 1997. See notes to financial statements. 27 A SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- GOVERNMENT INCOME FUND Six Months Ended January 31, 2002 # 4.73%^^ 1.01%^^ 1.22%^^ 5% $6,951 Year Ended July 31, 2001 + 5.47% 0.99% 1.20% 25% $5,672 Year Ended July 31, 2000 5.77% 0.85% 1.30% 42% $5,879 Year Ended July 31, 1999 5.35% 0.70% 1.90% 27% $5,436 Year Ended July 31, 1998 (a) 5.95% 0.71% 1.77% 35% $ 8,176 Year Ended July 31, 1997 5.98% 0.69% 1.29% 3% $11,622 LIMITED TERM U.S. GOVERNMENT FUND Six Months Ended January 31, 2002 # 3.48%^^ 1.12%^^ 1.37%^^ 19% $3,561 Year Ended July 31, 2001 + 4.63% 1.15% 1.42% 31% $3,003 Period Ended July 31, 2000 (b) 4.89%^^ 1.09%^^ 1.36%^^ 4% $3,791 Year Ended December 31, 1999 4.93% 0.98% 1.40% 17% $3,571 Year Ended December 31, 1998 5.16% 1.02% 1.54% 86% $2,437 Period Ended December 31, 1997 (c) 5.34%^^ 1.00%^^ 1.62%^^ 52% $20,103
# Unaudited. + Net investment income (loss) is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) Effective September 2, 1997, the fund's existing shares, which were previously unclassified, were designated either Class A shares or Trust shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as Class A shares. (b) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the fund changed its fiscal year end to July 31. (c) For the period from February 28, 1997 (commencement of operations) through December 31, 1997. See notes to financial statements. 27A A SHARES Selected data for a share outstanding throughout the period indicated.
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ TENNESSEE TAX-EXEMPT FUND (c) Six Months Ended January 31, 2002 # $10.10 0.15 0.02 0.17 (0.15) -- (0.15) $10.12 1.73%^ Year Ended July 31, 2001 + $ 9.74 0.36 0.36 0.72 (0.36) -- (0.36) $10.10 7.55% Period Ended July 31, 2000 (a) $ 9.55 0.21 0.18 0.39 (0.20) -- (0.20) $ 9.74 4.15%^ Year Ended December 31, 1999 $10.19 0.33 (0.64) (0.31) (0.33) -- (0.33) $ 9.55 (3.07)% Year Ended December 31, 1998 $10.18 0.35 0.08 0.43 (0.35) (0.07) (0.42) $10.19 4.25% Year Ended December 31, 1997 $ 9.90 0.44 0.25 0.69 (0.41) -- (0.41) $10.18 7.13% LIMITED TERM TENNESSEE TAX-EXEMPT FUND (d) Six Months Ended January 31, 2002 # $10.12 0.13 0.03 0.16 (0.13) -- (0.13) $10.15 1.60%^ Year Ended July 31, 2001 + $ 9.81 0.30 0.31 0.61 (0.30) -- (0.30) $10.12 6.28% Period Ended July 31, 2000 (a) + $ 9.69 0.19 0.11 0.30 (0.18) -- (0.18) $9.81 3.12%^ Year Ended December 31, 1999 $10.11 0.30 (0.40) (0.10) (0.30) (0.02) (0.32) $9.69 (1.00)% Year Ended December 31, 1998 $10.13 0.32 0.06 0.38 (0.32) (0.08) (0.40) $10.11 3.76% Period Ended December 31, 1997 (b) $10.00 0.29 0.13 0.42 (0.29) -- (0.29) $10.13 4.26%^
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the fund changed its fiscal year end to July 31. (b) For the period from February 28, 1997 (commencement of operations) through December 31, 1997. (c) Formerly ISG Tennessee Tax-Exempt Fund. (d) Formerly ISG Limited Term Tennessee Tax-Exempt Fund. See notes to financial statements. 28 A SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- TENNESSEE TAX-EXEMPT FUND (c) Six Months Ended January 31, 2002 # 2.97%^^ 1.10%^^ 1.34%^^ 48% $2,934 Year Ended July 31, 2001 + 3.63% 1.09% 1.33% 123% $3,764 Period Ended July 31, 2000 (a) 3.78%^^ 1.13%^^ 1.27%^^ 23% $2,919 Year Ended December 31, 1999 3.34% 1.25% 1.26% 64% $3,324 Year Ended December 31, 1998 3.37% 1.20% 1.20% 155% $2,919 Year Ended December 31, 1997 4.13% 0.84% 1.09% 253% $1,669 LIMITED TERM TENNESSEE TAX-EXEMPT FUND (d) Six Months Ended January 31, 2002 # 2.56%^^ 1.30%^^ 1.69%^^ 81% $11,814 Year Ended July 31, 2001 + 2.95% 1.28% 1.66% 111% $12,886 Period Ended July 31, 2000 (a) + 3.29%^^ 1.16%^^ 1.49%^^ 20% $15,489 Year Ended December 31, 1999 3.07% 1.08% 1.55% 52% $19,361 Year Ended December 31, 1998 3.11% 1.05% 1.52% 189% $19,439 Period Ended December 31, 1997 (b) 3.48%^^ 0.98%^^ 1.52%^^ 179% $22,893
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the fund changed its fiscal year end to July 31. (b) For the period from February 28, 1997 (commencement of operations) through December 31, 1997. (c) Formerly ISG Tennessee Tax-Exempt Fund. (d) Formerly ISG Limited Term Tennessee Tax-Exempt Fund. See notes to financial statements. 28A B SHARES Selected data for a share outstanding throughout the period indicated.
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ VALUE FUND Six Months Ended January 31, 2002 # $20.15 (0.01) (1.22) (1.23) (0.02) (1.61) (1.63) $17.29 (6.02)%^ Year Ended July 31, 2001 + $19.41 (0.03) 3.58 3.55 (0.04) (2.77) (2.81) $20.15 20.09% Year Ended July 31, 2000 $25.14 0.07 (2.19) (2.12) (0.11) (3.50) (3.61) $19.41 (8.86)% Year Ended July 31, 1999 $24.55 0.02 3.10 3.12 (0.06) (2.47) (2.53) $25.14 14.03% Period Ended July 31, 1998 (a) $23.15 0.09 2.68 2.77 (0.12) (1.25) (1.37) $24.55 12.49%^ EQUITY INCOME FUND Six Months Ended January 31, 2002 # $12.42 0.02 (0.26) (0.24) (0.06) -- (0.06) $12.12 (1.93)%^ Year Ended July 31, 2001 + $14.48 0.07 (2.04) (1.97) (0.09) -- (0.09) $12.42 (13.64)% Period Ended July 31, 2000 $13.05 0.07 2.24 2.31 (0.07) (0.81) (0.88) $14.48 18.24% Year Ended July 31, 1999 $11.86 0.07 1.47 1.54 (0.09) (0.26) (0.35) $13.05 13.34% Period Ended July 31, 1998 (a) $11.60 0.15 0.68 0.83 (0.16) (0.41) (0.57) $11.86 7.26%^
# Unaudited. + Net investment income (loss) is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) For the period from March 13, 2000 (commencement of operations) through July 31, 2000. (b) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year and to July 31. (c) For the period from March 3, 1998 (commencement of operations) through December 31, 1998. See notes to financial statements. 29 B SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- VALUE FUND Six Months Ended January 31, 2002 # (0.31)%^^ 2.11%^^ 2.11%^^ 26% $14,170 Year Ended July 31, 2001 + (0.16)% 2.09% 2.10% 43% $10,322 Year Ended July 31, 2000 0.32% 2.10% 2.11% 17% $7,949 Year Ended July 31, 1999 0.05% 2.08% 2.09% 18% $12,394 Period Ended July 31, 1998 (a) 0.26%^^ 2.11%^^ 2.11%^^ 17% $7,929 EQUITY INCOME FUND Six Months Ended January 31, 2002 # 0.43%^^ 2.10%^^ 2.18%^^ 84% $25,602 Year Ended July 31, 2001 + 0.49% 2.05% 2.13% 209% $28,678 Period Ended July 31, 2000 0.49% 2.09% 2.20% 168% $28,153 Year Ended July 31, 1999 0.61% 2.16% 2.33% 134% $7,919 Period Ended July 31, 1998 (a) 1.29%^^ 2.19%^^ 2.35%^^ 83% $7,733
# Unaudited. + Net investment income (loss) is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) For the period from March 13, 2000 (commencement of operations) through July 31, 2000. (b) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year and to July 31. (c) For the period from March 3, 1998 (commencement of operations) through December 31, 1998. See notes to financial statements. 29A B SHARES Selected data for a share outstanding throughout the period indicated
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ GOVERNMENT INCOME FUND Six Months Ended January 31, 2002 # $10.10 0.21 0.03 0.24 (0.23) -- (0.23) $10.11 2.33%^ Year Ended July 31, 2001 + $ 9.61 0.47 0.51 0.98 (0.49) -- (0.49) $10.10 10.36% Year Ended July 31, 2000 (a) $ 9.48 0.18 0.10 0.28 (0.15) -- (0.15) $ 9.61 2.98%^ LIMITED TERM U.S. GOVERNMENT FUND Six Months Ended January 31, 2002 # $10.27 0.13 0.02 0.15 (0.14) -- (0.14) $10.28 1.46%^ Year Ended July 31, 2001 + $ 9.90 0.38 0.39 0.77 (0.40) -- (0.40) $10.27 7.91% Period Ended July 31, 2000 (b) $ 9.86 0.25 0.01 0.26 (0.22) -- (0.22) $ 9.90 2.67%^ Year Ended December 31, 1999 $10.26 0.41 (0.39) 0.02 (0.41) (0.01) (0.42) $ 9.86 0.22% Period Ended December 31, 1998 (c) $10.12 0.35 0.15 0.50 (0.35) (0.01) (0.36) $10.26 4.98%^
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) For the period from March 13, 2000 (commencement of operations) through July 31, 2000. (b) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year and to July 31. (c) For the period from March 3, 1998 (commencement of operations) through December 31, 1998. See notes to financial statements. 30 B SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- GOVERNMENT INCOME FUND Six Months Ended January 31, 2002 # 4.00%^^ 1.76%^^ 1.97%^^ 5% $2,545 Year Ended July 31, 2001 + 4.65% 1.74% 1.95% 25% $1,635 Year Ended July 31, 2000 (a) 4.77%^^ 1.75%^^ 1.98%^^ 42% $520 LIMITED TERM U.S. GOVERNMENT FUND Six Months Ended January 31, 2002 # 2.71%^^ 1.86%^^ 2.12%^^ 19% $2,239 Year Ended July 31, 2001 + 3.75% 1.90% 2.17% 31% $737 Period Ended July 31, 2000 (b) 4.13%^^ 1.88%^^ 2.06%^^ 4% $378 Year Ended December 31, 1999 4.06% 1.83% 1.99% 17% $462 Period Ended December 31, 1998 (c) 4.01%^^ 1.97%^^ 2.24%^^ 86% $430
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) For the period from March 13, 2000 (commencement of operations) through July 31, 2000. (b) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year and to July 31. (c) For the period from March 3, 1998 (commencement of operations) through December 31, 1998. See notes to financial statements. 30A B SHARES Selected data for a share outstanding throughout the period indicated.
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ TENNESSEE TAX- EXEMPT FUND (e) Six Months Ended January 31, 2002 # $10.12 0.12 0.01 0.13 (0.12) -- (0.12) $10.13 1.24%^ Year Ended July 31, 2001 + $ 9.76 0.29 0.36 0.65 (0.29) -- (0.29) $10.12 6.75% Period Ended July 31, 2000 (a) $ 9.57 0.17 0.18 0.35 (0.16) -- (0.16) $ 9.76 3.74%^ Year Ended December 31, 1999 $10.21 0.27 (0.64) (0.37) (0.27) -- (0.27) $ 9.57 (3.65)% Period Ended December 31, 1998 (b) $10.22 0.26 0.06 0.32 (0.26) (0.07) (0.33) $10.21 3.17%^ LIMITED TERM TENNESSEE TAX-EXEMPT FUND (f) Six Months Ended January 31, 2002 # $10.12 0.09 0.04 0.13 (0.10) -- (0.10) $10.15 1.24%^ Year Ended July 31, 2001 + $ 9.81 0.22 0.31 0.53 (0.22) -- (0.22) $10.12 5.51% Period Ended July 31, 2000 (a) + $ 9.68 0.15 0.11 0.26 (0.13) -- (0.13) $ 9.81 2.74%^ Year Ended December 31, 1999 $10.10 0.22 (0.40) (0.18) (0.22) (0.02) (0.24) $ 9.68 (1.84)% Period Ended December 31, 1998 (d) $10.18 0.20 -- 0.20 (0.20) (0.08) (0.28) $10.10 1.94%^
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year to July 31. (b) For the period from February 24, 1998 (commencement of operations) through December 31, 1999. (c) There were no fee reductions in this period. (d) For the period from February 3, 1998 (commencement of operations) through December 31, 1998. (e) Formerly ISG Tennessee Tax-Exempt Fund. (f) Formerly ISG Limited Term Tennessee Tax-Exempt Fund. See notes to financial statements. 31 B SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- TENNESSEE TAX- EXEMPT FUND (e) Six Months Ended January 31, 2002 # 2.21%^^ 1.85%^^ 2.09%^^ 48% $1,470 Year Ended July 31, 2001 + 2.85% 1.84% 2.08% 123% $1,432 Period Ended July 31, 2000 (a) 3.07%^^ 1.83%^^ 1.96%^^ 23% $1,054 Year Ended December 31, 1999 2.72% 1.84% 1.85% 64% $1,288 Period Ended December 31, 1998 (b) 2.50%^^ 1.95%^^ (c) 155% $1,397 LIMITED TERM TENNESSEE TAX-EXEMPT FUND (f) Six Months Ended January 31, 2002 # 1.75%^^ 2.05%^^ 2.44%^^ 81% $428 Year Ended July 31, 2001 + 2.13% 2.03% 2.41% 111% $426 Period Ended July 31, 2000 (a) + 2.50%^^ 1.97%^^ 2.21%^^ 20% $289 Year Ended December 31, 1999 2.21% 1.93% 2.15% 52% $612 Period Ended December 31, 1998 (d) 2.02%^^ 2.05%^^ 2.27%^^ 189% $732
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (a) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year to July 31. (b) For the period from February 24, 1998 (commencement of operations) through December 31, 1999. (c) There were no fee reductions in this period. (d) For the period from February 3, 1998 (commencement of operations) through December 31, 1998. (e) Formerly ISG Tennessee Tax-Exempt Fund. (f) Formerly ISG Limited Term Tennessee Tax-Exempt Fund. See notes to financial statements. 31A TRUST SHARES Selected data for a share outstanding throughout the period indicated.
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ VALUE FUND Six Months Ended January 31, 2002 # $20.34 0.06 (1.22) (1.16) (0.06) (1.61) (1.67) $17.51 (5.61)%^ Year Ended July 31, 2001 + $19.53 0.15 3.59 3.74 (0.16) (2.77) (2.93) $20.34 21.10% Year Ended July 31, 2000 $25.27 0.28 (2.24) (1.96) (0.28) (3.50) (3.78) $19.53 (8.11)% Year Ended July 31, 1999 $24.57 0.26 3.16 3.42 (0.25) (2.47) (2.72) $25.27 15.43% Year Ended July 31, 1998 (a) $22.51 0.28 3.31 3.59 (0.28) (1.25) (1.53) $24.57 12.46%(^^) EQUITY INCOME FUND Six Months Ended January 31, 2002 # $12.51 0.07 (0.27) (0.20) (0.09) -- (0.09) $12.22 (1.55)%^ Year Ended July 31, 2001 + $14.57 0.19 (2.05) (1.86) (0.20) -- (0.20) $12.51 (12.88)% Period Ended July 31, 2000 $13.10 0.20 2.27 2.47 (0.19) (0.81) (1.00) $14.57 19.55% Year Ended July 31, 1999 $11.89 0.19 1.47 1.66 (0.19) (0.26) (0.45) $13.10 14.43% Year Ended July 31, 1998 (a) $11.35 0.25 0.95 1.20 (0.25) (0.41) (0.66) $11.89 7.54%(^)
# Unaudited. + Net investment income (loss) is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (^) Represents total return based on the activity of Classic Shares for the period from August 1, 1997 to September 1, 1997 and the activity of Premier Shares for the period from September 2, 1997 to July 31, 1998. Total return for the Premier Shares for the period from September 2, 1997 (commencement of operations) through July 31, 1998 was 10.82%. (^^) Represents total return based on the activity of Classic Shares for the period from August 1, 1997 to September 1, 1997 and the activity of Premier Shares for the period from September 2, 1997 to July 31, 1998. Total return for the Premier Shares for the period from September 2, 1997 (commencement of operations) through July 31, 1998 was 16.52%. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either Classic Shares or Premier Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as Classic Shares. See notes to financial statements. 32 TRUST SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- VALUE FUND Six Months Ended January 31, 2002 # 0.62%^^ 1.21%^^ 1.26%^^ 26% $512,212 Year Ended July 31, 2001 + 0.76% 1.19% 1.25% 43% $565,484 Year Ended July 31, 2000 1.30% 1.13% 1.15% 17% $560,804 Year Ended July 31, 1999 1.07% 1.08% 1.09% 18% $960,660 Year Ended July 31, 1998 (a) 1.26%^^ 1.09%^^ 1.10%^^ 17% $947,575 EQUITY INCOME FUND Six Months Ended January 31, 2002 # 1.31%^^ 1.21%^^ 1.33%^^ 84% $57,644 Year Ended July 31, 2001 + 1.38% 1.17% 1.28% 209% $77,078 Period Ended July 31, 2000 1.35% 1.19% 1.32% 168% $107,121 Year Ended July 31, 1999 1.59% 1.16% 1.33% 134% $10,908 Year Ended July 31, 1998 (a) 2.34%^^ 1.19%^^ 1.35%^^ 83% $ 8,087
# Unaudited. + Net investment income (loss) is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (^) Represents total return based on the activity of Classic Shares for the period from August 1, 1997 to September 1, 1997 and the activity of Premier Shares for the period from September 2, 1997 to July 31, 1998. Total return for the Premier Shares for the period from September 2, 1997 (commencement of operations) through July 31, 1998 was 10.82%. (^^) Represents total return based on the activity of Classic Shares for the period from August 1, 1997 to September 1, 1997 and the activity of Premier Shares for the period from September 2, 1997 to July 31, 1998. Total return for the Premier Shares for the period from September 2, 1997 (commencement of operations) through July 31, 1998 was 16.52%. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either Classic Shares or Premier Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as Classic Shares. See notes to financial statements. 32A TRUST SHARES Selected data for a share outstanding throughout the period indicated.
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ GOVERNMENT INCOME FUND Six Months Ended January 31, 2002 # $10.10 0.25 0.03 0.28 (0.27) -- (0.27) $10.11 2.78%^ Year Ended July 31, 2001 + $ 9.61 0.56 0.50 1.06 (0.57) -- (0.57) $10.10 11.30% Year Ended July 31, 2000 $ 9.62 0.57 (0.03) 0.54 (0.55) -- (0.55) $ 9.61 5.91% Year Ended July 31, 1999 $ 9.87 0.54 (0.26) 0.28 (0.53) -- (0.53) $ 9.62 2.72% Year Ended July 31, 1998 (a) $ 9.66 0.59 0.17 0.76 (0.55) -- (0.55) $ 9.87 7.58%! LIMITED TERM U.S. GOVERNMENT FUND Six Months Ended January 31, 2002 # $10.26 0.18 0.02 0.20 (0.18) -- (0.18) $10.28 1.97%^ Year Ended July 31, 2001 + $ 9.89 0.48 0.38 0.86 (0.49) -- (0.49) $10.26 8.88% Period Ended July 31, 2000 (b) $ 9.85 0.29 0.02 0.31 (0.27) -- (0.27) $ 9.89 3.18%^ Year Ended December 31, 1999 $10.25 0.50 (0.39) 0.11 (0.50) (0.01) (0.51) $ 9.85 1.08% Year Ended December 31, 1998 (c) $10.29 0.03 (0.04) (0.01) (0.03) -- (0.03) $10.25 (0.14%)^
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. ! Represents total return based on the activity of Classic Shares for the period from August 1, 1997 to September 1, 1997 and the activity of Premier Shares for the period from September 2, 1997 to July 31, 1998. Total return for the Premier Shares for the period from September 2, 1997 (commencement of operations) through July 31, 1998 was 8.04%. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either Classic Shares or Premier Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as Classic Shares. (b) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year end to July 31. (c) For the period from December 14, 1998 (commencement of operations) through December 31, 1998. (c) For the period from December 14, 1998 (commencement of operations) through December 31, 1998. See notes to financial statements. 33 TRUST SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- GOVERNMENT INCOME FUND Six Months Ended January 31, 2002 # 4.86%^^ 0.86%^^ 1.12%^^ 5% $286,925 Year Ended July 31, 2001 + 5.62% 0.84% 1.10% 25% $302,099 Year Ended July 31, 2000 5.68% 0.85% 1.13% 42% $356,642 Year Ended July 31, 1999 5.44% 0.60% 1.65% 27% $ 3,150 Year Ended July 31, 1998 (a) 5.72%^^ 0.63%^^ 1.80%^^ 35% $ 2,521 LIMITED TERM U.S. GOVERNMENT FUND Six Months Ended January 31, 2002 # 3.62%^^ 0.97%^^ 1.27%^^ 19% $44,895 Year Ended July 31, 2001 + 4.76% 1.00% 1.32% 31% $32,351 Period Ended July 31, 2000 (b) 5.00%^^ 0.99%^^ 1.21%^^ 4% $37,648 Year Ended December 31, 1999 4.94% 0.98% 1.14% 17% $42,281 Year Ended December 31, 1998 (c) 5.29%^^ 0.69%^^ 0.96%^^ 86% $46,344
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. ! Represents total return based on the activity of Classic Shares for the period from August 1, 1997 to September 1, 1997 and the activity of Premier Shares for the period from September 2, 1997 to July 31, 1998. Total return for the Premier Shares for the period from September 2, 1997 (commencement of operations) through July 31, 1998 was 8.04%. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either Classic Shares or Premier Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as Classic Shares. (b) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year end to July 31. (c) For the period from December 14, 1998 (commencement of operations) through December 31, 1998. (c) For the period from December 14, 1998 (commencement of operations) through December 31, 1998. See notes to financial statements. 33A TRUST SHARES Selected data for a share outstanding throughout the period indicated.
Investment Activities Less Dividends from ------------------------------------ ----------------------------------- Net Realized and Net Net Unrealized Realized Net Asset Net Gains Total Gains Asset Value, Investment (Losses) from Net from Value, Beginning Income from Investment Investment Investment Total End of Total of Period (Loss) Investments Activities Income Transactions Dividends Period Return --------- ------ ----------- ---------- ------ ------------ --------- ------ ------ TENNESSEE TAX EXEMPT FUND (c) Six Months Ended January 31, 2002 # $10.10 0.16 0.01 0.17 (0.16) -- (0.16) $10.11 1.70%^ Year Ended July 31, 2001 + $ 9.74 0.38 0.36 0.74 (0.38) -- (0.38) $10.10 7.70% Year Ended July 31, 2000 (a) $ 9.55 0.22 0.18 0.40 (0.21) -- (0.21) $ 9.74 4.26%^ Year Ended December 31, 1999 $10.19 0.35 (0.64) (0.29) (0.35) -- (0.35) $ 9.55 (2.83)% Year Ended December 31, 1998 $10.18 0.37 0.08 0.45 (0.37) (0.07) (0.44) $10.19 4.52% Period Ended $10.05 0.10 0.13 0.23 (0.10) -- (0.10) $10.18 2.35%^ December 31, 1997 (b)
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (^) Represents total return based on the activity of Class A Shares for the period from August 1, 1997 to September 1, 1997 and the activity of Trust Shares for the period from September 2, 1997 to July 31, 1998. Total return for the Trust Shares for the period from September 2, 1997 (commencement of operations) through July 31, 1998 was 5.27%. (a) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year end to July 31. (b) For the period from October 3, 1997 (commencement of operations) through December 31, 1997. (c) Formerly ISG Tennessee Tax-Exempt Fund. See notes to financial statements. 34 TRUST SHARES Selected data for a share outstanding throughout the period indicated. (Continued)
Ratios (to average net assets)/Supplemental Data ------------------------------------------------------------ Net Expenses Assets, Net (before Portfolio End of Investment Net Reductions/ Turnover Period Income Expenses Reimbursements) Rate* (000's) ------ -------- --------------- ----- ------- TENNESSEE TAX EXEMPT FUND (c) Six Months Ended January 31, 2002 # 3.11%^^ 0.95%^^ 1.24%^^ 48% $ 52,741 Year Ended July 31, 2001 + 3.77% 0.94% 1.23% 123% $ 56,693 Year Ended July 31, 2000 (a) 3.95%^^ 0.95%^^ 1.11%^^ 23% $ 65,160 Year Ended December 31, 1999 3.57% 1.00% 1.00% 64% $ 75,537 Year Ended December 31, 1998 3.65% 0.95% 0.95% 155% $ 91,687 Period Ended 4.22%^^ 0.56%^^ 0.87%^^ 253% $100,742 December 31, 1997 (b)
# Unaudited. + Net investment income is based on average shares outstanding during the period. * Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. ^ Not annualized. ^^ Annualized. (^) Represents total return based on the activity of Class A Shares for the period from August 1, 1997 to September 1, 1997 and the activity of Trust Shares for the period from September 2, 1997 to July 31, 1998. Total return for the Trust Shares for the period from September 2, 1997 (commencement of operations) through July 31, 1998 was 5.27%. (a) For the period from January 1, 2000 through July 31, 2000. In conjunction with the reorganization of the AmSouth Funds, the Fund changed its fiscal year end to July 31. (b) For the period from October 3, 1997 (commencement of operations) through December 31, 1997. (c) Formerly ISG Tennessee Tax-Exempt Fund. See notes to financial statements. 34A INFORMATION ABOUT THE REORGANIZATIONS PLAN OF REORGANIZATION The Plan provides that, for each Reorganization, on the Closing Date therefor (presently expected to be on or about November 1, 2002 or November 8, 2002), an Acquiring Fund will acquire all the assets of the corresponding Acquired Fund in exchange solely for the Acquiring Fund's Shares and the Acquiring Fund's assumption of all the Acquired Fund's liabilities. The Acquired Fund will then distribute those Shares to its shareholders, by class. Thus, shareholders of each Acquired Fund will become shareholders of the corresponding class of the corresponding Acquiring Fund as of the close of business on the applicable Closing Date. Immediately after a Reorganization, each former shareholder of the participating Acquired Fund will own Shares of the corresponding class of the corresponding Acquiring Fund equal in NAV to the aggregate NAV of that shareholder's Acquired Fund Shares immediately before the Reorganization. An Acquiring Fund's NAV per Share will not change as a result of a Reorganization. Thus, the Reorganizations will not result in a dilution of the interest of any Acquiring Fund shareholder. The Acquired Funds will be liquidated after the Reorganizations. Each Reorganization is independent of, and is not contingent on, consummation of the other Reorganizations. The consummation of each Reorganization is subject to a number of conditions set forth in the Plan, including the receipt of an opinion in form and substance reasonably satisfactory to AmSouth Funds, as described under "Federal Income Tax Considerations" below. AmSouth Funds may terminate the Plan with respect to any Reorganization, and abandon any Reorganization, before the applicable Closing Date, at any time before or after approval by the participating Acquired Fund's shareholders, if the Trustees believe that proceeding with that Reorganization would be inadvisable for either participating Fund. In addition, the Plan may be amended in any manner, except that no amendment may be made subsequent to the Meeting that would have a material adverse effect on an Acquired Fund's shareholders' interests. The Advisor and the Funds will bear the expenses related to each Reorganization equally. Those expenses will likely include legal fees, transfer taxes (if any), fees of banks and transfer agents, and the costs of preparing, printing, copying, and mailing proxy solicitation materials to the Acquired Funds' shareholders and the costs of holding the Meeting. The foregoing brief summary of the Plan is qualified in its entirety by the terms and provisions of the Plan, the form of which is attached hereto as Appendix A and incorporated herein by this reference. REASONS FOR THE REORGANIZATIONS At a meeting held on June 18, 2002, the Trustees, including the Independent Trustees, unanimously determined that the Reorganizations would be in the best interests of the Funds and their existing shareholders. The Trustees 35 also unanimously determined that the interests of such shareholders would not be diluted as a result of effecting the Reorganizations. At that meeting, all of the Trustees, including the Independent Trustees, unanimously approved the Reorganizations and recommended approval of the Plan. In particular, the Trustees determined that the Reorganizations offer the following benefits: o DILUTION: The Trustees were informed that the interests of the Funds' shareholders would not be diluted as a result of the Reorganizations and that the shareholders of each Acquired Fund would receive, in the aggregate, Shares of the corresponding Acquiring Fund equal in value to the net value of the assets of the Acquired Fund. o SIMILARITY OF INVESTMENT OBJECTIVES AND STRATEGIES: The Trustees were informed that the investment objectives and/or strategies of each Acquired Fund are substantially similar to or otherwise comparable with the investment objectives and/or strategies of the corresponding Acquiring Fund. o EXPENSES: The Trustees considered the following information regarding each of the three Reorganizations: LIMITED TERM U.S. GOVERNMENT FUND AND GOVERNMENT INCOME FUND. For all classes of Shares of these Funds, the expense ratios of the Acquiring Fund were lower than the expense ratios of the Acquired Fund for the fiscal year ended July 31, 2001. The Advisor voluntarily capped "other expenses" of each class of Shares of the Acquiring Fund Shares at a lower level than "other expenses" of the Acquired Fund, and the advisory fees paid by each Fund are the same. As a result of the Reorganization, on a PRO FORMA basis, it is projected that the expenses of each class of Acquiring Fund Shares will remain the same. In addition, the Advisor intends to continue to cap expenses of the Acquiring Fund at a lower level than expenses of the Acquired Fund. Accordingly, it is projected that the Reorganization will result in lowering the expenses paid by shareholders of the Acquired Fund and will not impact the expenses paid by shareholders of the Acquiring Fund. However, the increase in the asset size of the Acquiring Fund should help contribute to the lowering of expense ratios in the future. LIMITED TERM TENNESSEE TAX-EXEMPT FUND AND TENNESSEE TAX-EXEMPT FUND. For all classes of Shares of these Funds, the expense ratios of the Acquiring Fund were lower than the expense ratios of the Acquired Fund for the fiscal year ended July 31, 2001. The Advisor also voluntarily capped "other expenses" of each class of Acquiring Fund Shares at a lower level than "other expenses" of the Acquired Fund, and the advisory fees paid by each Fund are the same. As a result of the Reorganization, on a PRO FORMA basis, it is projected that the expenses of each class of shares of the Acquiring Fund will decline. In addition, the Advisor intends to continue to cap expenses of the Acquiring Fund Shares at a lower level 36 than expenses of the Acquired Fund. Accordingly, it is projected that the Reorganization will result in lowering the expenses paid by shareholders of the Acquired Fund and will not impact the expenses paid by shareholders of the Acquiring Fund. However, the increase in the asset size of the Acquiring Fund should help contribute to the lowering of expense ratios in the future. EQUITY INCOME FUND AND VALUE FUND. Before expense reimbursements, for all classes of Shares of these Funds, the expense ratios of the Acquiring Fund were lower than the expense ratios of the Acquired Fund for the fiscal year ended July 31, 2001. The Advisor also voluntarily capped "other expenses" of these Funds. However, the expense cap for the Class A Shares and Class B Shares of the Acquiring Fund was three basis points higher than the expense cap for the Class A Shares and Class B Shares of the Acquired Fund, and the expense cap for the Trust Shares of the Acquiring Fund was two basis points higher than the expense cap for the Trust Shares of the Acquired Fund. The advisory fees paid by each Fund are the same. As a result of the Reorganization, on a PRO FORMA basis, it is projected that the expenses of each class of shares of the Acquiring Fund Shares will remain the same. However, the Advisor does not intend to change the expense cap for the Acquiring Fund. Accordingly, it is projected that the expense ratio for the Class A Shares and Class B Shares of the Acquired Fund will increase by three basis points and the expense ratio for the Trust Shares of the Acquired Fund will increase by two basis points. It is projected that the Reorganization will not impact the expenses paid by shareholders of the Acquiring Fund. However, the increase in the asset size of the Acquiring Fund should help contribute to the lowering of expense ratios in the future. o PERFORMANCE: The Trustees received information relating to the performance of the Acquiring Funds, both on an absolute basis and in comparison to relevant benchmarks and industry averages. The information showed that the long-term performance of each Acquiring Fund has been superior to that of the corresponding Acquired Fund. Of course, past performance does not predict future results. o ASSETS: The Trustees considered that each Reorganization would permit Acquired Fund shareholders to pursue similar investment objectives in the context of a larger Fund immediately following the Reorganization. It is anticipated that each Acquiring Fund will more likely experience asset growth and more stable cash flow in the future than would have been the case for the corresponding Acquired Fund. This should enhance the Advisor's ability to manage the Acquiring Funds with greater investment flexibility and offer shareholders the benefits associated with the resulting economies of scale attributable to the larger asset size of each Acquiring Fund. o TAX-FREE NATURE OF THE REORGANIZATIONS: The Trustees were informed that the Reorganizations would be accomplished without resulting in the imposition of federal income tax on the Funds or 37 their shareholders, except with respect to taxable distributions of net gains from sales described under "Operating Procedures" above. o REORGANIZATION COSTS: The Trustees were informed of the Advisor's recommendation in favor of the Reorganizations and that the Advisor would share the costs of each Reorganization equally with the participating Funds. o ALTERNATIVES TO THE REORGANIZATIONS: The Trustees were informed that alternatives to the Reorganizations include liquidation of the Acquired Funds or keeping the Acquired Funds in existence at present asset and expense levels. THEREFORE, THE TRUSTEES UNANIMOUSLY APPROVED THE REORGANIZATIONS AND RECOMMENDED THE APPROVAL OF THE PLAN BY THE ACQUIRED FUNDS' SHAREHOLDERS AT THE MEETING. FEDERAL INCOME TAX CONSIDERATIONS Each Reorganization is intended to be a tax-free reorganization under the Internal Revenue Code of 1986, as amended ("Code"). AmSouth Funds will receive an opinion of Kirkpatrick & Lockhart LLP, its counsel, with respect to each Reorganization substantially to the following effect: (1) The Acquiring Fund's acquisition of the Acquired Fund's assets in exchange solely for the Acquiring Fund's Shares and the Acquiring Fund's assumption of the Acquired Fund's liabilities, followed by the Acquired Fund's distribution of those Shares PRO RATA to its shareholders constructively in exchange for their Acquired Fund Shares, will qualify as a "reorganization" as defined in section 368(a)(1)(C) of the Code, and each Fund will be "a party to a reorganization" within the meaning of section 368(b) of the Code; (2) The Acquired Fund will recognize no gain or loss on the transfer of its assets to the Acquiring Fund in exchange solely for Acquiring Fund Shares and the Acquiring Fund's assumption of the Acquired Fund's liabilities or on the subsequent distribution of those Shares to the Acquired Fund's shareholders in constructive exchange for their Acquired Fund Shares; (3) The Acquiring Fund will recognize no gain or loss on its receipt of the Acquired Fund's assets in exchange solely for the Acquiring Fund's Shares and its assumption of the Acquired Fund's liabilities; (4) The Acquiring Fund's basis in the Acquired Fund assets it receives will be the same as the Acquired Fund's basis therein immediately before the Reorganization, and the Acquiring Fund's holding period for those assets will include the Acquired Fund's holding period therefor; 38 (5) An Acquired Fund shareholder will recognize no gain or loss on the constructive exchange of all of his or her Acquired Fund Shares solely for Acquiring Fund Shares pursuant to the Reorganization; and (6) An Acquired Fund shareholder's aggregate basis in the Acquiring Fund Shares he or she receives in the Reorganization will be the same as the aggregate basis in his or her Acquired Fund Shares constructively surrendered in exchange for those Acquiring Fund Shares, and his or her holding period for those Acquiring Fund Shares will include his or her holding period for those Acquired Fund Shares, provided the shareholder holds them as capital assets on the Closing Date. The opinion may state that no opinion is expressed as to the effect of any Reorganization on any Fund or shareholder with respect to any asset as to which unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. An Acquiring Fund's utilization after a Reorganization of any pre-Reorganization capital losses realized by the corresponding Acquired Fund could be subject to limitation in future years under the Code. You should consult your tax adviser regarding the effect, if any, of the Reorganizations in light of your individual circumstances. Because the foregoing discussion only relates to the federal income tax consequences of the Reorganizations, you also should consult your tax adviser as to state and local tax consequences to you, if any, of the Reorganizations. DESCRIPTION OF THE SECURITIES TO BE ISSUED Shares of AmSouth Funds have no subscription or preemptive rights and only conversion or exchange rights the Trustees may grant in their discretion. Acquiring Fund Shares will be fully paid and nonassessable when issued, will be transferable without restriction, and will have no preemptive or conversion rights. Each shareholder is entitled to one vote per Share and a proportionate fractional vote for any fractional Share. The Declaration of Trust permits AmSouth Funds to divide its Shares of any series, without shareholder approval, into one or more classes of Shares having preferences and special or relative rights and privileges the Trustees may determine. Shares of each Fund are currently divided into three classes: Class A, Class B, and Trust Shares, which will be distributed as applicable by AmSouth Funds in connection with each Reorganization. Under Massachusetts law, AmSouth Funds' shareholders could, under certain circumstances, be held personally liable for its obligations. However, the Declaration of Trust disclaims shareholder liability for acts or obligations of AmSouth Funds. The Declaration of Trust provides for indemnification out of AmSouth Funds' property for all loss and expense of any shareholder held personally liable for any obligations of AmSouth Funds. Thus, the risk of a shareholder's incurring financial loss on account of shareholder liability is 39 limited to circumstances in which AmSouth Funds would be unable to meet its obligations. The likelihood of those circumstances is remote. As shareholders of the larger Acquiring Funds following the Reorganization, the former Acquired Fund shareholders will possess less proportional voting power when they vote separately as Acquiring Fund shareholders, or shareholders of the classes thereof, than they had when they voted separately as shareholders of the smaller Acquired Funds. CAPITALIZATION The following tables (UNAUDITED) set forth as of April 30, 2002, (i) the capitalization of the each Acquired Fund, (ii) the capitalization of each Acquiring Fund, and (iii) pro forma capitalization of the Combined Fund. EQUITY INCOME FUND/VALUE FUND
EQUITY INCOME FUND VALUE FUND ------------------ ---------- CLASS A CLASS B TRUST CLASS A CLASS B TRUST Net Assets($) $34,732,038.71 $25,039,861.68 $51,369,843.36 $135,292,905.59 $17,623,282.95 $521,832,259.10 Shares 2,853,284,811 2,074,039,599 4,215,687,599 7,650,844,483 1,011,831,463 29,561,767,513 Net Asset Value per Share ($) $12.17 $12.07 $12.19 $17.68 $17.42 $17.65
COMBINED FUND PRO FORMA -----------------------
CLASS A CLASS B TRUST Net Assets($) $170,024,944.30 $42,663,144.63 $573,202,102.46 Shares 9,614,949,146 2,449,481,868 32,471,866,190 Net Asset Value per Share ($) $17.68 $17.42 $17.65
LIMITED TERM U.S. GOVERNMENT FUND/GOVERNMENT INCOME FUND
LIMITED TERM U.S. GOVERNMENT FUND GOVERNMENT INCOME FUND --------------------------------- ---------------------- CLASS A CLASS B TRUST CLASS A CLASS B TRUST Net Assets($) $3,209,806.83 $2,834,663.48 $32,955,326.02 $6,789,957.20 $2,598,964.61 $287,899,473.36 Shares 312,245,798 275,789,937 3,206,291,855 673,123,701 257,685,956 28,538,697,474 Net Asset Value per Share ($) $10.28 $10.28 $10.28 $10.09 $10.09 $10.09
40 COMBINED FUND PRO FORMA -----------------------
CLASS A CLASS B TRUST Net Assets($) $9,999,764.03 $5,433,628.09 $320,854,799.38 Shares 991,328,513 538,741,329 31,805,469,964 Net Asset Value per Share ($) $10.09 $10.09 $10.09
LIMITED TERM TENNESSEE TAX-EXEMPT FUND/TENNESSEE TAX-EXEMPT FUND
LIMITED TERM TENNESSEE TAX-EXEMPT FUND TENNESSEE TAX-EXEMPT FUND -------------------------------------- ------------------------- CLASS A CLASS B TRUST CLASS A CLASS B TRUST Net Assets($) $10,952,389.34 $920,142.40 N/A $2,473,411.74 $1,832,365.86 $50,047,642.45 Shares 1,078,079,897 90,586,680 N/A 243,420,909 180,088,228 4,927,538,339 Net Asset Value per Share ($) $10.16 $10.16 N/A $10.16 $10.17 $10.16
COMBINED FUND PRO FORMA ----------------------- CLASS A CLASS B TRUST Net Assets($) $13,425,801.08 $2,752,508.26 $50,047,642.45 Shares 1,321,300,716 270,521,486 4,927,538,339 Net Asset Value per Share ($) $10.16 $10.17 $10.16
LEGAL MATTERS Certain legal matters concerning the issuance of Shares of the Acquiring Funds as part of the Reorganizations, as well as certain legal matters concerning the tax consequences of the Reorganizations, will be passed upon by Kirkpatrick & Lockhart LLP, 1800 Massachusetts Avenue, N.W., Second Floor, Washington, D.C. 20036-1800. INFORMATION FILED WITH THE SECURITIES AND EXCHANGE COMMISSION This Combined Prospectus/Proxy Statement and the related Statement of Additional Information do not contain all of the information set forth in the registration statements and the exhibits relating thereto which AmSouth Funds has filed with the Securities and Exchange Commission under the Securities Act of 1933 and the 1940 Act to which reference is hereby made. The SEC file numbers 41 for the AmSouth Funds Prospectus and the AmSouth Funds SAI, which are incorporated by reference herein, are Registration Nos. 33-21660 and 811-5551. AmSouth Funds is subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act and, in accordance therewith, files reports and other information with the SEC. Reports, proxy and information statements, registration statements and other information filed by AmSouth Funds can be inspected and copied at the public reference facilities of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549. Copies of such filings may also be available at the following SEC regional and district offices: 3475 Lenox Road, N.E., Suite 1000, Atlanta, GA 30326-1232; 73 Tremont Street, Suite 600, Boston, MA 02108-3912; 175 West Jackson Boulevard, Suite 900, Chicago, IL 60604; and 601 Walnut Street, Suite 1120E, Philadelphia, PA 19106. Copies of such materials can also be obtained by mail from the Public Reference Branch, Office of Consumer Affairs and Information Services, SEC, Washington, D.C. 20549 at prescribed rates. EXPERTS The audited financial statements of AmSouth Funds are incorporated by reference in the SAI. The financial statements have been audited by Ernst & Young LLP, independent auditors, whose report therein is also included in the AmSouth Funds Annual Report to shareholders for the fiscal year ended July 31, 2001. The financial statements audited by Ernst & Young LLP have been incorporated by reference in the SAI in reliance on its report given on its authority as experts in auditing and accounting. SPECIAL MEETING OF SHAREHOLDERS VOTING INFORMATION Proxies will be solicited by and on behalf of the Trustees for use at the Meeting. The Meeting is to be held on October 15, 2002, at 10:00 a.m., Eastern time, at the office of the Distributor, 3435 Stelzer Road, Columbus, OH 43219. This Combined Prospectus/Proxy Statement and the enclosed form of proxy are being mailed to shareholders on or about August __, 2002. Any shareholder giving a proxy has the power to revoke it. The shareholder revoking such proxy must either submit to AmSouth Funds a subsequently dated proxy, deliver to AmSouth Funds a written notice of revocation, or otherwise give notice of revocation in open meeting. All properly executed proxies received in time for the Meeting will be voted as specified in the proxy, or if no specification is made, FOR the proposal. The solicitation of proxies, the cost of which will be shared by the Advisor and the Funds, will be made primarily by mail, but also may be made by telephone or oral communications by representatives of the Advisor, who will not receive any compensation for these activities from either Fund, or by Georgeson Shareholder Communications Inc., professional proxy solicitors, who will be paid fees and expenses of approximately [$____], for soliciting services. If votes are recorded by telephone, the Advisor will use procedures designed to 42 authenticate shareholders' identities, to allow shareholders to authorize the voting of their Shares in accordance with their instructions, and to confirm that a shareholder's instructions have been properly recorded. Shareholders also may vote by mail or through a secure Internet site. Proxies voted by telephone or Internet may be revoked at any time before they are voted in the same manner that proxies voted by mail may be revoked. Shareholders of record of each Acquired Fund at the close of business on July 31, 2002 (the "Record Date") will be entitled to vote at the Special Meeting of Shareholders or any adjournment thereof. The holders of a majority of votes attributable to the outstanding voting Shares of an Acquired Fund represented in person or by proxy at the meeting will constitute a quorum for such Fund for the meeting, and a majority of the Shares of an Acquired Fund voted on a Reorganization is necessary to approve the Reorganization. Shareholders are entitled to one vote per Share and a proportionate fractional vote for any fractional Share. Votes cast by proxy, telephone, the Internet or in person at the Meeting will be counted by the inspector of election appointed by AmSouth Funds. The inspector of election will count the total number of votes cast "for" approval of the proposal for purposes of determining whether sufficient affirmative votes have been cast. The inspector of election will count Shares represented by proxies that reflect abstentions and "broker non-votes" (i.e., Shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or the persons entitled to vote and (ii) the broker or nominee does not have the discretionary voting power on a particular matter) as Shares that are present and entitled to vote on the matter for purposes of determining the presence of a quorum. For purposes of determining whether an issue has been approved, abstentions and broker non-votes have the effect of a negative vote on the proposal. If a Reorganization is approved by shareholders of each Acquired Fund, shareholders will not have the right to dissent and obtain payment of the fair value of their shares because the exercise of dissenters' rights is subject to the forward pricing requirements of Rule 22c-1 under the 1940 Act, which supercedes state law. Shareholders will, however, have the right to redeem their Fund shares at net asset value until the closing of the Reorganization. After the Reorganization, shareholders will hold shares of the corresponding Acquiring Fund, which may also be redeemed at net asset value. Only shareholders of record at the close of business on July 31, 2002, will be entitled to notice of and to vote at the meeting. Shareholders are entitled to one vote for each Share held and a fractional vote for each fractional Share held. As of July 31, 2002, there was outstanding the following amount of Shares of the Class A, Class B and Trust Class of the Funds: 43
---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- LIMITED TERM LIMITED TERM EQUITY INCOME U.S. GOVERNMENT GOVERNMENT TENNESSEE TENNESSEE FUND VALUE FUND FUND INCOME FUND TAX-EXEMPT FUND TAX-EXEMPT FUND ---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- CLASS A SHARES ---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- CLASS B SHARES ---------------- ----------------- ----------------- ----------------- ----------------- ----------------- ----------------- TRUST SHARES ---------------- ----------------- ----------------- ----------------- ----------------- ----------------- -----------------
As of the Record Date, the officers and Trustees, as a group, beneficially owned less than 1% of the outstanding Class A, Class B, and Trust Shares of each Acquired Fund. As of the Record Date, to the best of the knowledge of AmSouth Funds, no shareholders beneficially owned more than 25% or more of the outstanding Shares or otherwise could be deemed to control any Acquired Fund or Acquiring Fund. As of the Record Date, to the best of the knowledge of AmSouth Funds, the following shareholders owned beneficially or of record 5% or more of a class of any Fund:
----------------------------------------- ------------------ ---------------------------- ---------------------------- NAME AND ADDRESS NATURE OF % CLASS OWNERSHIP OF % CLASS OWNERSHIP OF OWNERSHIP AND SHARES BEFORE ACQUIRING FUND AFTER CLASS REORGANIZATION REORGANIZATION ----------------------------------------- ------------------ ---------------------------- ---------------------------- EQUITY INCOME FUND ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- VALUE FUND ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- LIMITED TERM U.S. GOVERNMENT FUND ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- GOVERNMENT INCOME FUND ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- LIMITED TERM TENNESSEE TAX-EXEMPT FUND ---------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------- TENNESSEE TAX-EXEMPT FUND ----------------------------------------------------------------------------------------------------------------------
REQUIRED VOTE Approval of each Reorganization requires the affirmative vote of a majority of all Shares voted on the Reorganization. A shareholder of an Acquired Fund objecting to the proposed Reorganization is not entitled under either Massachusetts law or AmSouth Funds' Declaration of Trust to demand payment for and an appraisal of his or her particular Acquired Fund Shares if the 44 Reorganization is consummated over his or her objection. However, Shares of each Acquired Fund are redeemable for cash at their NAV on Business Days. In the event that a quorum is present at the Meeting but sufficient votes to approve the proposal are not received, the persons named as proxies may propose one or more adjournments of such Meeting to permit further solicitation of proxies. The affirmative vote of less than a majority of the votes entitled to be cast represented in person or by proxy is sufficient for adjournments. In such case, the persons named as proxies will vote those proxies which they are entitled to vote in favor of such proposal "FOR" such an adjournment, and will vote those proxies required to be voted against such proposal "AGAINST" such an adjournment. The Acquired Funds have been advised by AmSouth Bank that the Shares over which AmSouth Bank has discretionary voting power may be voted: (1) in accordance with instructions received from the beneficial owners of the Shares; (2) in accordance with instructions received from a special fiduciary independent of AmSouth Bank; or (3) to the extent AmSouth Bank does not receive such instructions, by AmSouth Bank in the same proportion as those votes case in accordance with instructions. In the event that this proposal is not approved by shareholders of an Acquired Fund, the Acquired Fund will continue to be managed in accordance with its current investment objectives and policies, and the Trustees may consider alternatives in the best interests of the shareholders. However, if approval of the Plan is obtained with respect to each Reorganization, the Reorganizations will be consummated. AmSouth Funds' Trustees know of no matters other than those set forth herein to be brought before the Meeting. If, however, any other matters properly come before the Meeting, it is the Trustees' intention that proxies will be voted on such matters in accordance with the judgment of persons named in the enclosed form of proxy. THE BOARD OF TRUSTEES OF AMSOUTH FUNDS, INCLUDING THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS APPROVAL OF THE PLAN WITH RESPECT TO EACH REORGANIZATION. 45 APPENDIX A FORM OF PLAN OF REORGANIZATION AND TERMINATION THIS PLAN OF REORGANIZATION AND TERMINATION ("Plan"), effective as of ________, 2002, is adopted by AmSouth Funds, a Massachusetts business trust ("Trust"), on behalf of each segregated portfolio of assets ("series") thereof listed on Schedule A to this Plan ("Schedule A"). (Each such series listed under the heading "Acquiring Funds" is referred to herein as an "Acquiring Fund," each such series listed under the heading "Targets" is referred to herein as a "Target," and all such series are sometimes referred to herein individually as a "Fund" and collectively as the "Funds.") Trust wishes to effect three separate reorganizations, each described in section 368(a)(1)(C) of the Internal Revenue Code of 1986, as amended ("Code"), and intends this Plan to be, and adopts it as, a "plan of reorganization" within the meaning of the regulations under section 368 of the Code ("Regulations"). Each reorganization will involve the transfer of a Target's assets to the Acquiring Fund listed on Schedule A opposite its name (each, a "corresponding Acquiring Fund") in exchange solely for voting shares of beneficial interest in that Acquiring Fund ("Acquiring Fund Shares") and that Acquiring Fund's assumption of that Target's liabilities, followed by the constructive distribution of those shares PRO RATA to the holders of shares of beneficial interest in that Target ("Target Shares") in exchange therefor, all on the terms and conditions set forth herein. (All such transactions involving each Target and its corresponding Acquiring Fund are referred to herein as a "Reorganization.") The consummation of one Reorganization shall not be contingent on the consummation of any other Reorganization. (For convenience, the balance of this Plan will refer only to a single Reorganization, one Target, and one Acquiring Fund, but the terms and conditions hereof shall apply separately to each Reorganization and the Target and corresponding Acquiring Fund participating therein.) The Target Shares are divided into three classes, designated Class A, Class B, and Trust Shares ("Class A Target Shares," "Class B Target Shares," and "Trust Class Target Shares," respectively). The Acquiring Fund Shares also are divided into three classes, also designated Class A, Class B, and Trust Shares ("Class A Acquiring Fund Shares," "Class B Acquiring Fund Shares," and "Trust Class Acquiring Fund Shares," respectively). Each class of Acquiring Fund Shares is substantially similar to the corresponding class of Target Shares, i.e., the Funds' Class A, Class B, and Trust Class Shares correspond to each other. 1. PLAN OF REORGANIZATION AND TERMINATION 1.1. At the Closing (as defined in paragraph 3.1), Target shall assign, sell, convey, transfer, and deliver all of its assets described in paragraph 1.2 ("Assets") to Acquiring Fund. In exchange therefor, Acquiring Fund shall -- (a) issue and deliver to Target the number of full and fractional (rounded to the third decimal place) (i) Class A Acquiring Fund Shares determined by dividing the net value of Target (computed as set forth in A-1 paragraph 2.1) ("Target Value") attributable to the Class A Target Shares by the net asset value ("NAV") of a Class A Acquiring Fund Share (computed as set forth in paragraph 2.2), (ii) Class B Acquiring Fund Shares determined by dividing the Target Value attributable to the Class B Target Shares by the NAV of a Class B Acquiring Fund Share (as so computed), and (iii) Trust Class Acquiring Fund Shares determined by dividing the Target Value attributable to the Trust Class Target Shares by the NAV of a Trust Class Acquiring Fund Share (as so computed), and (b) assume all of Target's liabilities described in paragraph 1.3 ("Liabilities"). 1.2. The Assets shall include all cash, cash equivalents, securities, receivables (including interest and dividends receivable), claims and rights of action, rights to register shares under applicable securities laws, books and records, deferred and prepaid expenses shown as assets on Target's books, and other property owned by Target at the Effective Time (as defined in paragraph 3.1). 1.3. The Liabilities shall include all of Target's liabilities, debts, obligations, and duties of whatever kind or nature, whether absolute, accrued, contingent, or otherwise, whether or not arising in the ordinary course of business, whether or not determinable at the Effective Time, and whether or not specifically referred to in this Plan. Notwithstanding the foregoing, Target agrees to use its best efforts to discharge all its known Liabilities before the Effective Time. 1.4. At or immediately before the Effective Time, Target shall declare and pay to its shareholders a dividend and/or other distribution in an amount large enough so that it will have distributed substantially all (and in any event not less than 90%) of its investment company taxable income (computed without regard to any deduction for dividends paid) and substantially all of its realized net capital gain, if any, for the current taxable year through the Effective Time. 1.5. At the Effective Time (or as soon thereafter as is reasonably practicable), Target shall distribute the Acquiring Fund Shares it received pursuant to paragraph 1.1 to its shareholders of record, determined as of the Effective Time (each a "Shareholder" and collectively "Shareholders"), in constructive exchange for their Target Shares. That distribution shall be accomplished by Trust's transfer agent's opening accounts on Acquiring Fund's share transfer books in the Shareholders' names and transferring those Acquiring Fund Shares thereto. Each Shareholder's account shall be credited with the respective pro rata number of full and fractional (rounded to the third decimal place) Acquiring Fund Shares due that Shareholder, by class (i.e., the account for a Shareholder of Class A Target Shares shall be credited with the respective pro rata number of Class A Acquiring Fund Shares due that Shareholder, the account for a Shareholder of Class B Target Shares shall be credited with the respective pro rata number of Class B Acquiring Fund Shares due that Shareholder, and the account for a Shareholder of Trust Class Target Shares shall be credited with the respective pro rata number of Trust Class Acquiring Fund Shares due that Shareholder). All outstanding Target Shares, including any A-2 represented by certificates, shall simultaneously be canceled on Target's share transfer books. Acquiring Fund shall not issue certificates representing the Acquiring Fund Shares issued in connection with the Reorganization. 1.6. As soon as reasonably practicable after distribution of the Acquiring Fund Shares pursuant to paragraph 1.5, but in all events within six months after the Effective Time, Target shall be terminated as a series of Trust and any further actions shall be taken in connection therewith as required by applicable law. 1.7. Any reporting responsibility of Target to a public authority is and shall remain its responsibility up to and including the date on which it is terminated. 1.8. Any transfer taxes payable on issuance of Acquiring Fund Shares in a name other than that of the registered holder on Target's books of the Target Shares constructively exchanged therefor shall be paid by the person to whom those Acquiring Fund Shares are to be issued, as a condition of that transfer. 2. VALUATION 2.1. For purposes of paragraph 1.1(a), Target's net value shall be (a) the value of the Assets computed as of the close of regular trading on the New York Stock Exchange ("NYSE") on the date of the Closing ("Valuation Time"), using the valuation procedures set forth in Trust's then-current prospectus and statement of additional information, less (b) the amount of the Liabilities as of the Valuation Time. 2.2. For purposes of paragraph 1.1(a), the NAV per share of each class of Acquiring Fund Shares shall be computed as of the Valuation Time, using such valuation procedures. 2.3. All computations pursuant to paragraphs 2.1 and 2.2 shall be made by or under the direction of AmSouth Investment Management Company, LLC ("Advisor"). 3. CLOSING AND EFFECTIVE TIME 3.1. The Reorganization, together with related acts necessary to consummate the same ("Closing"), shall occur at Trust's principal office on or about the applicable date set forth on Schedule A, or at such other place and/or on such other date Trust determines. All acts taking place at the Closing shall be deemed to take place simultaneously as of the close of business on the date thereof or at such other time Trust determines ("Effective Time"). If, immediately before the Valuation Time, (a) the NYSE is closed to trading or trading thereon is restricted or (b) trading or the reporting of trading on the NYSE or elsewhere is disrupted, so that accurate appraisal of Target's net value and/or the NAV per share of each class of Acquiring Fund Shares is impracticable, the Effective Time shall be postponed until the first business day after the day when that trading has been fully resumed and that reporting has been restored. 3.2. Trust's fund accounting and pricing agent shall deliver at the Closing a certificate of an authorized officer verifying that the information (including adjusted basis and holding period, by lot) concerning the Assets, A-3 including all portfolio securities, transferred by Target to Acquiring Fund, as reflected on Acquiring Fund's books immediately after the Closing, does or will conform to that information on Target's books immediately before the Closing. Trust's custodian shall deliver at the Closing a certificate of an authorized officer stating that (a) the Assets it holds will be transferred to Acquiring Fund at the Effective Time and (b) all necessary taxes in conjunction with the delivery of the Assets, including all applicable federal and state stock transfer stamps, if any, have been paid or provision for payment has been made. Trust's transfer agent shall deliver at the Closing a certificate as to the opening of accounts in the Shareholders' names on Acquiring Fund's share transfer books and a confirmation, or other evidence satisfactory to Trust, that the Acquiring Fund Shares to be credited to Target at the Effective Time have been credited to Target's account on Acquiring Fund's books. 4. CONDITIONS PRECEDENT 4.1. Trust's obligation to implement this Plan on Acquiring Fund's behalf shall be subject to satisfaction of the following conditions at or before the Effective Time: 4.1.1. Target is a duly established and designated series of Trust; 4.1.2. At the Closing, Target will have good and marketable title to the Assets and full right, power, and authority to sell, assign, transfer, and deliver the Assets free of any liens or other encumbrances (except securities that are subject to "securities loans" (as referred to in section 851(b)(2) of the Code); and on delivery and payment for the Assets, Acquiring Fund will acquire good and marketable title thereto; 4.1.3. Target is not in violation of, and the adoption of this Plan and consummation of the Reorganization will not conflict with or violate, Massachusetts law or any provision of Trust's Amended and Restated Declaration of Trust ("Declaration of Trust") or By-Laws or of any agreement, instrument, lease, or other undertaking to which Target is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Target is a party or by which it is bound; 4.1.4. All material contracts and other commitments of or applicable to Target (other than this Plan and investment contracts, including options, futures, and forward contracts) will be terminated, or provision for discharge of any liabilities of Target thereunder will be made, at or prior to the Effective Time, without either Fund's incurring any liability or penalty with respect thereto and without diminishing or releasing any rights Target may have had with respect to actions taken or omitted or to be taken by any other party thereto prior to the Closing; 4.1.5. No litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Trust's knowledge) threatened against Trust with respect to Target or any of its properties or assets that, if adversely determined, would materially and adversely affect Target's financial condition or the conduct of its business; A-4 and Trust knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the Reorganization; 4.1.6. Target incurred the Liabilities in the ordinary course of its business; 4.1.7. Target is a "fund" as defined in section 851(g)(2) of the Code; it qualified for treatment as a regulated investment company under Subchapter M of the Code ("RIC") for each past taxable year since it commenced operations and will continue to meet all the requirements for that qualification for its current taxable year; the Assets will be invested at all times through the Effective Time in a manner that ensures compliance with the foregoing; and Target has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M did not apply to it; 4.1.8. Target is not under the jurisdiction of a court in a "title 11 or similar case" (as defined in section 368(a)(3)(A) of the Code); 4.1.9. During the five-year period ending at the Effective Time, (a) neither Target nor any person "related" (within the meaning of section 1.368-1(e)(3) of the Regulations) to it will have acquired Target Shares, either directly or through any transaction, agreement, or arrangement with any other person, with consideration other than Acquiring Fund Shares or Target Shares, except for shares redeemed in the ordinary course of Target's business as a series of an open-end investment company as required by section 22(e) of the Investment Company Act of 1940, as amended ("1940 Act"), and (b) no distributions will have been made with respect to Target Shares, other than normal, regular dividend distributions made pursuant to Target's historic dividend-paying practice and other distributions that qualify for the deduction for dividends paid (within the meaning of section 561 of the Code) referred to in sections 852(a)(1) and 4982(c)(1)(A) of the Code; 4.1.10. Not more than 25% of the value of Target's total assets (excluding cash, cash items, and U.S. government securities) is invested in the stock and securities of any one issuer, and not more than 50% of the value of such assets is invested in the stock and securities of five or fewer issuers; and 4.1.11. Target's federal income tax returns, and all applicable state and local tax returns, for all taxable years through and including the taxable year ended July 31, 2001, have been timely filed and all taxes payable pursuant to those returns have been timely paid. 4.2. Trust's obligation to implement this Plan on Target's behalf shall be subject to satisfaction of the following conditions at or before the Effective Time: 4.2.1. Acquiring Fund is a duly established and designated series of Trust; A-5 4.2.2. No consideration other than Acquiring Fund Shares (and Acquiring Fund's assumption of the Liabilities) will be issued in exchange for the Assets in the Reorganization; 4.2.3. The Acquiring Fund Shares to be issued and delivered to Target hereunder will have been duly authorized at the Effective Time and, when issued and delivered as provided herein, will be duly and validly issued and outstanding shares of Acquiring Fund, fully paid and non-assessable; 4.2.4. Acquiring Fund is not in violation of, and the adoption of this Plan and consummation of the Reorganization will not conflict with or violate, Massachusetts law or any provision of the Declaration of Trust or Trust's By-Laws or of any agreement, instrument, lease, or other undertaking to which Acquiring Fund is a party or by which it is bound or result in the acceleration of any obligation, or the imposition of any penalty, under any agreement, judgment, or decree to which Acquiring Fund is a party or by which it is bound; 4.2.5. No litigation, administrative proceeding, or investigation of or before any court or governmental body is presently pending or (to Trust's knowledge) threatened against Trust with respect to Acquiring Fund or any of its properties or assets that, if adversely determined, would materially and adversely affect Acquiring Fund's financial condition or the conduct of its business; and Trust knows of no facts that might form the basis for the institution of any such litigation, proceeding, or investigation and is not a party to or subject to the provisions of any order, decree, or judgment of any court or governmental body that materially or adversely affects its business or its ability to consummate the Reorganization; 4.2.6. Acquiring Fund is a "fund" as defined in section 851(g)(2) of the Code; it qualified for treatment as a RIC for each past taxable year since it commenced operations and will continue to meet all the requirements for such qualification for its current taxable year; it intends to continue to meet all such requirements for the next taxable year; and it has no earnings and profits accumulated in any taxable year in which the provisions of Subchapter M of the Code did not apply to it; 4.2.7. Acquiring Fund has no plan or intention to issue additional Acquiring Fund Shares following the Reorganization except for shares issued in the ordinary course of its business as a series of an open-end investment company; nor does Acquiring Fund, or any person "related" (within the meaning of section 1.368-1(e)(3) of the Regulations) to it, have any plan or intention to acquire -- during the five-year period beginning at the Effective Time, either directly or through any transaction, agreement, or arrangement with any other person -- with consideration other than Acquiring Fund Shares, any Acquiring Fund Shares issued to the Shareholders pursuant to the Reorganization, except for redemptions in the ordinary course of such business as required by section 22(e) of the 1940 Act; A-6 4.2.8. Following the Reorganization, Acquiring Fund (a) will continue Target's "historic business" (within the meaning of section 1.368-1(d)(2) of the Regulations) and (b) will use a significant portion of Target's "historic business assets" (within the meaning of section 1.368-1(d)(3) of the Regulations) in a business; in addition, Acquiring Fund has no plan or intention to sell or otherwise dispose of any of the Assets, except for dispositions made in the ordinary course of that business and dispositions necessary to maintain its status as a RIC; 4.2.9. There is no plan or intention for Acquiring Fund to be dissolved or merged into another business trust or a corporation or any "fund" thereof (as defined in section 851(g)(2) of the Code) following the Reorganization; 4.2.10. Acquiring Fund does not directly or indirectly own, nor at the Effective Time will it directly or indirectly own, nor has it directly or indirectly owned at any time during the past five years, any shares of Target; 4.2.11. During the five-year period ending at the Effective Time, neither Acquiring Fund nor any person "related" (within the meaning of section 1.368-1(e)(3) of the Regulations) to it will have acquired Target Shares with consideration other than Acquiring Fund Shares; 4.2.12. Immediately after the Reorganization, (a) not more than 25% of the value of Acquiring Fund's total assets (excluding cash, cash items, and U.S. government securities) will be invested in the stock and securities of any one issuer and (b) not more than 50% of the value of such assets will be invested in the stock and securities of five or fewer issuers; and 4.2.13. Acquiring Fund's federal income tax returns, and all applicable state and local tax returns, for all taxable years through and including the taxable year ended July 31, 2001, have been timely filed and all taxes payable pursuant to such returns have been timely paid. 4.3. Trust's obligation to implement this Plan on each Fund's behalf shall be subject to satisfaction of the following conditions at or before the Effective Time: 4.3.1. Trust is a trust operating under a written declaration of trust, the beneficial interest in which is divided into transferable shares, that is duly organized and validly existing under the laws of the Commonwealth of Massachusetts; a copy of the Declaration of Trust is on file with the Secretary of the Commonwealth of Massachusetts; Trust is duly registered as an open-end management investment company under the 1940 Act, and that registration is in full force and effect; and before January 1, 1997, Trust "claimed" classification for federal tax purposes as an association taxable as a corporation, and it has ever elected otherwise; 4.3.2. The fair market value of the Acquiring Fund Shares received by each Shareholder will be approximately equal to the fair market value of its Target Shares constructively surrendered in exchange therefor; A-7 4.3.3. Its management (a) is unaware of any plan or intention of Shareholders to redeem, sell, or otherwise dispose of (i) any portion of their Target Shares before the Reorganization to any person "related" (within the meaning of section 1.368-1(e)(3) of the Regulations) to either Fund or (ii) any portion of the Acquiring Fund Shares they receive in the Reorganization to any person "related" (within such meaning) to Acquiring Fund, (b) does not anticipate dispositions of those Acquiring Fund Shares at the time of or soon after the Reorganization to exceed the usual rate and frequency of dispositions of shares of Target as a series of an open-end investment company, (c) expects that the percentage of Shareholder interests, if any, that will be disposed of as a result of or at the time of the Reorganization will be DE MINIMIS, and (d) does not anticipate that there will be extraordinary redemptions of Acquiring Fund Shares immediately following the Reorganization; 4.3.4. The Shareholders will pay their own expenses, if any, incurred in connection with the Reorganization; 4.3.5. The fair market value of the Assets on a going concern basis will equal or exceed the Liabilities to be assumed by Acquiring Fund and those to which the Assets are subject; 4.3.6. There is no intercompany indebtedness between the Funds that was issued or acquired, or will be settled, at a discount; 4.3.7. Pursuant to the Reorganization, Target will transfer to Acquiring Fund, and Acquiring Fund will acquire, at least 90% of the fair market value of the net assets, and at least 70% of the fair market value of the gross assets, Target held immediately before the Reorganization. For the purposes of the foregoing, any amounts Target used to pay its Reorganization expenses and to make redemptions and distributions immediately before the Reorganization (except (a) redemptions in the ordinary course of its business required by section 22(e) of the 1940 Act and (b) regular, normal dividend distributions made to conform to its policy of distributing all or substantially all of its income and gains to avoid the obligation to pay federal income tax and/or the excise tax under section 4982 of the Code) will be included as assets held thereby immediately before the Reorganization; 4.3.8. None of the compensation received by any Shareholder who is an employee of or service provider to Target will be separate consideration for, or allocable to, any of the Target Shares that Shareholder held; none of the Acquiring Fund Shares any such Shareholder receives will be separate consideration for, or allocable to, any employment agreement, investment advisory agreement, or other service agreement; and the consideration paid to any such Shareholder will be for services actually rendered and will be commensurate with amounts paid to third parties bargaining at arm's-length for similar services; A-8 4.3.9. Immediately after the Reorganization, the Shareholders will not own shares constituting "control" (as defined in section 304(c) of the Code) of Acquiring Fund; 4.3.10. Neither Fund will be reimbursed for any expenses incurred by it or on its behalf in connection with the Reorganization unless those expenses are solely and directly related to the Reorganization (determined in accordance with the guidelines set forth in Rev. Rul. 73-54, 1973-1 C.B. 187) ("Reorganization Expenses"); 4.3.11. The aggregate value of the acquisitions, redemptions, and distributions limited by paragraphs 4.1.9, 4.2.7, and 4.2.11 will not exceed 50% of the value (without giving effect to such acquisitions, redemptions, and distributions) of the proprietary interest in Target at the Effective Time; 4.3.12. Trust's current prospectus and statement of additional information conform in all material respects to the applicable requirements of the Securities Act of 1933, as amended ("1933 Act"), and the 1940 Act, and the rules and regulations thereunder and do not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 4.3.13. Trust has called a special meeting of Target's shareholders ("Meeting") to consider and act on this Plan and to take all other action necessary to obtain their approval, to the extent same is required, of the Reorganization. 4.3.14. This Plan has been duly authorized by all necessary action on the part of Trust's board of trustees, which has made the determinations required by Rule 17a-8(a) under the 1940 Act; and, subject to Target's shareholders' approval in accordance with the Declaration of Trust and Trust's By-Laws and applicable law, this Plan constitutes a valid and legally binding obligation of each Fund, enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium, and other similar laws relating to or affecting creditors' rights generally and by general principles of equity; 4.3.15. No governmental consents, approvals, authorizations, or filings are required under the 1933 Act, the Securities Exchange Act of 1934, as amended ("1934 Act"), or the 1940 Act for Trust's adoption of this Plan, except for (a) the filing with the Securities and Exchange Commission ("SEC") of a registration statement by Trust on Form N-14 relating to the Acquiring Fund Shares issuable hereunder, and any supplement or amendment thereto ("Registration Statement"), including therein a prospectus and proxy statement ("Prospectus/Proxy Statement"), and (b) such consents, approvals, authorizations, and filings as have been made or received or as may be required subsequent to the Effective Time; A-9 4.3.16. On the effective date of the Registration Statement, at the time of the Meeting, and at the Effective Time, the Prospectus/Proxy Statement will (a) comply in all material respects with the applicable provisions of the 1933 Act, the 1934 Act, and the 1940 Act and the rules and regulations thereunder and (b) not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; 4.3.17. All necessary filings shall have been made with the SEC and state securities authorities, and no order or directive shall have been received that any other or further action is required to permit the parties to carry out the Reorganization. The Registration Statement shall have become effective under the 1933 Act, no stop orders suspending the effectiveness thereof shall have been issued, and the SEC shall not have issued an unfavorable report with respect to the Reorganization under section 25(b) of the 1940 Act nor instituted any proceedings seeking to enjoin consummation of the Reorganization under section 25(c) of the 1940 Act. All consents, orders, and permits of federal, state, and local regulatory authorities (including the SEC and state securities authorities) Trust deems necessary to permit consummation, in all material respects, of the Reorganization shall have been obtained, except where failure to obtain same would not involve a risk of a material adverse effect on the assets or properties of either Fund; 4.3.18. At the Effective Time, no action, suit, or other proceeding shall be pending before any court or governmental agency in which it is sought to restrain or prohibit, or to obtain damages or other relief in connection with, the Reorganization; and 4.3.19. Trust shall have received an opinion of Kirkpatrick & Lockhart LLP ("Counsel"), addressed to and in form and substance reasonably satisfactory to it, as to the federal income tax consequences mentioned below ("Tax Opinion"). In rendering the Tax Opinion, Counsel may assume satisfaction of all the conditions set forth in this paragraph 4, may treat them as representations and warranties Trust made to Counsel, and may rely as to factual matters, exclusively and without independent verification, on such representations and warranties. The Tax Opinion shall be substantially to the effect that, based on the facts and assumptions stated therein, for federal income tax purposes: (a) Acquiring Fund's acquisition of the Assets in exchange solely for Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities, followed by Target's distribution of those shares PRO RATA to the Shareholders constructively in exchange for their Target Shares, will qualify as a "reorganization" as defined in section 368(a)(1)(C) of the Code, and each Fund will be "a party to a reorganization" within the meaning of section 368(b) of the Code; (b) Target will recognize no gain or loss on the transfer of the Assets to Acquiring Fund in exchange solely for Acquiring Fund Shares and Acquiring Fund's assumption of the Liabilities or on A-10 the subsequent distribution of those shares to the Shareholders in constructive exchange for their Target Shares; (c) Acquiring Fund will recognize no gain or loss on its receipt of the Assets in exchange solely for Acquiring Fund Shares and its assumption of the Liabilities; (d) Acquiring Fund's basis in the Assets will be the same as Target's basis therein immediately before the Reorganization, and Acquiring Fund's holding period for the Assets will include Target's holding period therefor; (e) A Shareholder will recognize no gain or loss on the constructive exchange of all its Target Shares solely for Acquiring Fund Shares pursuant to the Reorganization; and (f) A Shareholder's aggregate basis in the Acquiring Fund Shares it receives in the Reorganization will be the same as the aggregate basis in its Target Shares it constructively surrenders in exchange for those Acquiring Fund Shares, and its holding period for those Acquiring Fund Shares will include its holding period for those Target Shares, provided the Shareholder held them as capital assets at the Effective Time. Notwithstanding subparagraphs (b) and (d), the Tax Opinion may state that no opinion is expressed as to the effect of the Reorganization on the Funds or any Shareholder with respect to any Asset as to which any unrealized gain or loss is required to be recognized for federal income tax purposes at the end of a taxable year (or on the termination or transfer thereof) under a mark-to-market system of accounting. 5. TERMINATION AND AMENDMENT OF PLAN 5.1. Trust's trustees may terminate this Plan and abandon the Reorganization at any time before the Effective Time if circumstances develop that, in their judgment, make proceeding with the Reorganization inadvisable for either Fund. 5.2. Trust's trustees may amend, modify, or supplement this Plan at any time in any manner, notwithstanding Target's shareholders' approval thereof; provided that, following such approval no such amendment, modification, or supplement shall have a material adverse effect on the Shareholders' interests. 6. MISCELLANEOUS 6.1. This Plan shall be construed and interpreted in accordance with the internal laws of the Commonwealth of Massachusetts; provided that, in the case of any conflict between those laws and the federal securities laws, the latter shall govern. A-11 6.2. The Advisor shall bear 50% of all the Reorganization Expenses, and the Funds shall bear the other 50% thereof in proportion to their respective net assets as of the Valuation Time. 6.3. Nothing expressed or implied herein is intended or shall be construed to confer on or give any person, firm, trust, or corporation other than the Funds and their respective successors and assigns any rights or remedies under or by reason of this Plan. 6.4. Notice is hereby given that this instrument is adopted on behalf of Trust's trustees solely in their capacities as trustees, and not individually, and that Trust's obligations under this instrument are not binding on or enforceable against any of its trustees, officers, or shareholders or any series of Trust other than the Funds but are only binding on and enforceable against the respective Funds' property. Each Fund, in asserting any rights or claims under this Plan, shall look only to the other Fund's property in settlement of such rights or claims and not to such trustees, officers, or shareholders. A-12 SCHEDULE A
TARGETS ACQUIRING FUNDS DATES OF CLOSING ----------------------------------------------- --------------------------------------------- ----------------- AmSouth Equity Income Fund AmSouth Value Fund November 8, 2002 AmSouth Limited Term U.S. Government Fund AmSouth Government Income Fund November 1, 2002 AmSouth Limited Term Tennessee Tax-Exempt Fund AmSouth Tennessee Tax-Exempt Fund November 1, 2002
A-13 APPENDIX B-1 MANAGEMENT DISCUSSION OF FUNDS' PERFORMANCE The following information was provided by the Annual Report to Shareholders of AmSouth Funds ("Annual Report") for the period ended July 31, 2001. The Management Discussion of Performance included in the Annual Report is as follows: AMSOUTH EQUITY INCOME FUND PORTFOLIO MANAGER Christopher Wiles, CFA President and Chief Investment Officer Rockhaven Asset Management, LLC (sub-advisor) CHRIS HAS MORE THAN 15 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE AND HOLDS AN M.B.A. AND A BACHELOR'S DEGREE IN FINANCE. PREVIOUSLY, HE WAS AFFILIATED WITH FEDERATED INVESTMENTS AND MELLON BANK. PORTFOLIO MANAGER'S PERSPECTIVE "With the AmSouth Equity Income Fund, we try to reduce risk through a disciplined portfolio construction limited, under normal conditions, to 50 stocks. Then we select the most attractive securities on a risk/reward basis in each sector. Rather than trying to time the market or guess which sector may offer the greatest return, we put our emphasis on investing in which we believe are the best-yielding, best dividend-growing securities, sector by sector." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the 12 months ended July 31, 2001, the Fund's total return was -12.96% (Class A Shares at NAV). In comparison, the S&P 500 Index produced a -14.32% return, and the Lipper Equity Income Funds Index returned 6.97%.+ Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. The last 12 months, really the last 18 months, have been a true bear market in every sense of the term. Technology, telecommunications, and a majority of other industrial companies continued to come under pressure from an economic slowdown, and a tight monetary policy, although the Fed did reverse course and has eased interest rates considerably since the first of the year. Clearly, we have had a bear market in a large segment of the U.S. stock market. It is now apparent that the S&P 500 Stock Index is not immune, and neither were we. B-1 In hindsight, the reason we did not outperform our Lipper Equity Income benchmark was that we owned good companies, run by good managers, but we held them longer than we should have; fundamentally, the companies were doing very well, but their stock prices were overvalued relative to the marketplace. What differentiates us from a lot of our peers in the equity income sector, is that we are sector-neutral to the S&P 500, rather than concentrating simply on value-oriented companies. Our goal is to provide shareholders with market performance, while delivering above-average income and below-average risk. Over the last three years, we have achieved this goal. During the most recent 12 months, however, the classic equity income fund--which buys stocks based on yield--profited from gains in such high-yield sectors as financials, utilities and energy. Being sector-neutral, we were not overweighted in these sectors, and this in turn hurt performance during the period. As of July 31, 2001, the Fund's top five holdings Citigroup, Inc., common shares (3.17% of net assets); Washington Mutual, Inc., convertible shares (2.82%); L-3 Communications, Inc., convertible bond (2.42%); Exxon Mobil Corp., common shares (2.40%); and EOG Resources, convertible shares (2.39%).++ Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. We believe the economy will begin to show some recovery in the beginning of 2002, evident by a couple of positive signs on the horizon. One is that there are many healthy paradoxes in the stock market and the economy; one of those paradoxes is that whenever industrial production falls, the stock market usually stages a powerful rally over the next 12 months. We are already seeing signs that companies are making bottoms in announcing bad news and building on a base for future growth. Do not underestimate the resolve of corporate America to respond to changing economic realities. +THE LIPPER EQUITY INCOME FUNDS INDEX IS AN INDEX COMPRISED OF MANAGED MUTUAL FUNDS THAT SEEK RELATIVELY HIGH CURRENT INCOME AND GROWTH OF INCOME THROUGH INVESTING 65% OR MORE OF THEIR PORTFOLIO IN DIVIDEND-PAYING EQUITY SECURITIES. ++THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. B-2 AMSOUTH EQUITY INCOME FUND Value of a $10,000 Investment [CHART] AmSouth AmSouth AmSouth Equity Equity Equity Income Income Income Fund Fund Fund S&P 500 (Class A (Class (Trust Stock Shares)* B Shares)** Shares) Index 3/20/1997 $ 9,452 $10,000 $10,000 $10,000 3/31/1997 9,293 9,829 9,832 9,589 4/30/1997 9,618 10,171 10,175 10,162 5/31/1997 10,168 10,742 10,758 10,780 6/30/1997 10,482 11,063 11,090 11,264 7/31/1997 11,136 11,745 11,781 12,160 8/31/1997 10,805 11,384 11,432 11,478 9/30/1997 11,291 11,871 11,948 12,107 10/31/1997 10,878 11,434 11,514 11,703 11/30/1997 11,129 11,693 11,781 12,244 12/31/1997 11,331 11,898 11,999 12,455 1/31/1998 11,457 12,025 12,134 12,592 2/28/1998 12,221 12,812 12,935 13,501 3/31/1998 12,664 13,271 13,407 14,192 4/30/1998 12,635 13,234 13,390 14,335 5/31/1998 12,351 12,929 13,092 14,088 6/30/1998 12,394 12,967 13,140 14,661 7/31/1998 11,947 12,490 12,669 14,504 8/31/1998 10,428 10,901 11,061 12,411 9/30/1998 10,839 11,314 11,488 13,202 10/31/1998 11,634 12,139 12,345 14,276 11/30/1998 12,383 12,914 13,142 15,142 12/31/1998 12,707 13,244 13,489 16,014 1/31/1999 13,113 13,655 13,912 16,683 2/28/1999 12,718 13,235 13,506 16,165 3/31/1999 13,050 13,583 13,862 16,812 4/30/1999 13,586 14,124 14,435 17,463 5/31/1999 13,231 13,749 14,048 17,050 6/30/1999 13,911 14,449 14,785 17,997 7/31/1999 13,640 14,156 14,497 17,435 8/31/1999 13,601 14,106 14,459 17,348 9/30/1999 13,289 13,782 14,141 16,873 10/31/1999 14,234 14,738 15,137 17,941 11/30/1999 14,647 15,158 15,580 18,309 12/31/1999 15,854 16,402 16,882 19,384 1/31/2000 16,049 16,589 17,090 18,410 2/29/2000 16,541 17,101 17,617 18,061 3/31/2000 17,276 17,849 18,406 19,828 4/30/2000 16,726 17,260 17,810 19,231 5/31/2000 16,271 16,778 17,328 18,837 6/30/2000 16,889 17,409 18,000 19,301 7/31/2000 16,248 16,738 17,331 18,999 8/31/2000 17,928 18,454 19,112 20,180 9/30/2000 17,017 17,505 18,143 19,114 10/31/2000 16,466 16,938 17,558 19,033 11/30/2000 14,741 15,145 15,723 17,533 12/31/2000 15,624 16,049 16,665 17,619 1/31/2001 16,181 16,606 17,261 18,244 2/28/2001 14,827 15,210 15,820 16,582 3/31/2001 13,986 14,334 14,925 15,532 4/30/2001 14,954 15,323 15,959 16,737 5/31/2001 15,068 15,431 16,095 16,850 6/30/2001 14,312 14,639 15,278 16,440 7/31/2001 14,142 14,255 15,098 16,279 Average Annual Total Return As of Inception 1 Since July 31, 2001 Date Year Inception - -------------------------------------------------------- Class A Shares* 3/20/97 -17.76% 8.26% - -------------------------------------------------------- Class B Shares** 9/3/97/1/ -17.93% 8.46% - -------------------------------------------------------- Trust Shares 9/2/97/1/ -12.88% 9.90% - -------------------------------------------------------- *Reflects maximum 5.50% sales charge. **Reflects applicable contingent deferred sales charge (maximum 5.00%). THE CHART ABOVE REPRESENTS A COMPARISON OF A HYPOTHETICAL $10,000 INVESTMENT FROM 3/20/97 TO 7/31/01 IN THE INDICATED SHARE CLASS VERSUS A SIMILAR INVESTMENT IN THE FUND'S BENCHMARK, AND REPRESENTS THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS IN THE FUND. THE PERFORMANCE OF THE AMSOUTH EQUITY INCOME FUND IS MEASURED AGAINST THE S&P 500 STOCK INDEX, AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET AS A WHOLE. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. DURING THE PERIOD SHOWN, THE ADVISOR WAIVED AND/OR REIMBURSED FEES FOR VARIOUS EXPENSES. HAD THESE WAIVERS AND/OR REIMBURSEMENTS NOT BEEN IN EFFECT, PERFORMANCE QUOTED WOULD HAVE BEEN LOWER. 1 PERFORMANCE FOR THE CLASS B AND TRUST SHARES, WHICH COMMENCED OPERATIONS ON 9/3/97 AND 9/2/97, RESPECTIVELY, ARE BASED ON THE HISTORICAL PERFORMANCE OF THE CLASS A SHARES (WITHOUT SALES CHARGE) PRIOR TO THAT DATE. THE HISTORICAL PERFORMANCE FOR THE CLASS B SHARES HAS BEEN ADJUSTED TO REFLECT THE HIGHER 12B-1 FEES AND THE CONTINGENT DEFERRED SALES CHARGE (CDSC). EFFECTIVE 12/1/99, THE CLASSIC AND PREMIER SHARES WERE RENAMED CLASS A AND TRUST SHARES, RESPECTIVELY. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-3 AMSOUTH VALUE FUND PORTFOLIO MANAGER Richard H. Calvert, CFA Vice President AmSouth Bank AmSouth Investment Management Company, LLC RICHARD HAS BEEN A PORTFOLIO MANAGER AND ANALYST FOR MORE THAN SEVEN YEARS. HE IS A MEMBER OF AMSOUTH BANK'S VALUE STRATEGY GROUP AND THE ASSET ALLOCATION COMMITTEE. HE HOLDS A B.S. IN ECONOMICS. PORTFOLIO MANAGERS' PERSPECTIVE "The AmSouth Value Fund uses a 'value investing' approach. Rather than pursue hot stocks that are in high demand, we search for solid companies with good fundamentals that are available at attractive prices. By adhering to this investment approach through entire market cycles, we seek to achieve above average long-term results in less volatility than the overall market." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the 12 months ended July 31, 2001, the AmSouth Value Fund produced a total return of 21.10% (Class A Shares at NAV). In comparison, the S&P 500 Stock Index produced a -14.32% return, while the Lipper Multi-Cap Value Funds Index gained 14.03%.+ Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. However we look at it, the Fund enjoyed a spectacular year. We not only rode the "value wave" to performance that far exceeded the negative return of the S&P 500 Stock Index, but we outperformed our value benchmark, as well. The speculative bubble that inflated prices in many technology and telecommunications stocks damaged the overall market during the past year. At the same time, the value sector performed admirably. Value investing prospered precisely because it does focus on fundamental valuations, as opposed to the false promise of future profits that was floated by many technology companies. The Fund profited from our energy holdings, several of our specialty chemical stocks and selected business equipment names. In addition, some of the technology stocks we own also did well. B-4 From our perspective, a "value" stock does not have to be a low-growth company; it just has to present us with good valuation. Some of the technology stocks we bought during the period included Keane, Inc. (1.30% of net assets), Computer Associates International, Inc. (3.00%), and Cabletron Systems, Inc. (3.29%).++ As of July 31, 2001, the Fund's top five holdings were Cabletron Systems, Inc. (3.29% of net assets), Washington Mutual, Inc. (3.23%), Marsh & McLennan Cos., Inc. (3.06%), Computer Associates International, Inc. (3.00%), and St. Paul Cos., Inc. (2.77%).++ Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. We do not try to guess which way the market is going to go. We do continue to believe that the next 12 months will be much like the last 12, in that it's going to be a stock picker's market. We produced above-average returns in the last year and we hope to continue our success going forward. +THE LIPPER MULTI-CAP VALUE FUNDS INDEX CONSISTS OF MANAGED MUTUAL FUNDS THAT, BY PORTFOLIO PRACTICE, INVEST IN A VARIETY OF MARKET CAPITALIZATION RANGES, WITHOUT CONCENTRATING MORE THAN 75% OF THEIR EQUITY ASSETS IN ANY ONE MARKET CAPITALIZATION RANGE OVER AN EXTENDED PERIOD OF TIME. ++THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. B-5 AMSOUTH VALUE FUND Value of a $10,000 Investment [CHART] AmSouth Value AmSouth Value AmSouth Value Fund Fund Fund S&P 500 (Class A Shares)* (Class B Shares) (Trust Shares) Stock Index 7/31/1991 $ 9,451 $10,000 $10,000 $10,000 8/31/1991 9,476 10,021 10,027 10,235 9/30/1991 9,336 9,863 9,878 10,067 10/31/1991 9,424 9,947 9,971 10,202 11/30/1991 8,976 9,472 9,498 9,790 12/31/1991 9,889 10,422 10,463 10,909 1/31/1992 10,000 10,528 10,581 10,706 2/29/1992 10,207 10,739 10,799 10,843 3/31/1992 9,981 10,496 10,561 10,630 4/30/1992 10,385 10,908 10,988 10,940 5/31/1992 10,455 10,971 11,062 10,999 6/30/1992 10,247 10,750 10,842 10,839 7/31/1992 10,673 11,183 11,293 11,276 8/31/1992 10,289 10,771 10,887 11,048 9/30/1992 10,446 10,929 11,053 11,176 10/31/1992 10,490 10,961 11,099 11,216 11/30/1992 10,858 11,341 11,489 11,594 12/31/1992 10,910 11,383 11,544 11,746 1/31/1993 11,201 11,679 11,851 11,831 2/28/1993 11,362 11,837 12,022 11,991 3/31/1993 11,741 12,218 12,423 12,249 4/30/1993 11,777 12,249 12,461 11,949 5/31/1993 12,130 12,608 12,834 12,271 6/30/1993 12,101 12,566 12,804 12,312 7/31/1993 12,146 12,598 12,851 12,254 8/31/1993 12,606 13,073 13,339 12,721 9/30/1993 12,433 12,883 13,155 12,627 10/31/1993 12,643 13,083 13,377 12,883 11/30/1993 12,564 12,988 13,293 12,762 12/31/1993 12,916 13,347 13,666 12,919 1/31/1994 13,501 13,939 14,285 13,352 2/28/1994 13,180 13,601 13,945 12,991 3/31/1994 12,556 12,946 13,286 12,426 4/30/1994 12,625 12,999 13,358 12,588 5/31/1994 12,919 13,295 13,670 12,793 6/30/1994 12,746 13,105 13,487 12,477 7/31/1994 13,107 13,464 13,868 12,890 8/31/1994 13,509 13,865 14,294 13,414 9/30/1994 13,224 13,559 13,992 13,091 10/31/1994 13,376 13,706 14,153 13,391 11/30/1994 12,800 13,105 13,543 12,900 12/31/1994 12,964 13,263 13,717 13,088 1/31/1995 13,208 13,506 13,975 13,428 2/28/1995 13,772 14,065 14,572 13,949 3/31/1995 14,179 14,467 15,004 14,362 4/30/1995 14,718 15,005 15,573 14,780 5/31/1995 15,127 15,417 16,006 15,364 6/30/1995 15,150 15,428 16,031 15,725 7/31/1995 15,631 15,903 16,539 16,248 8/31/1995 15,661 15,913 16,572 16,292 9/30/1995 15,985 16,230 16,914 16,975 10/31/1995 15,698 15,924 16,611 16,916 11/30/1995 16,321 16,547 17,270 17,660 12/31/1995 16,515 16,727 17,475 17,987 1/31/1996 17,009 17,212 17,998 18,605 2/29/1996 17,223 17,413 18,224 18,784 3/31/1996 17,671 17,856 18,698 18,964 4/30/1996 18,222 18,395 19,281 19,243 5/31/1996 18,425 18,585 19,496 19,739 6/30/1996 18,264 18,405 19,326 19,820 7/31/1996 17,362 17,487 18,372 18,938 8/31/1996 17,957 18,068 19,001 19,340 9/30/1996 18,353 18,458 19,420 20,427 10/31/1996 18,280 18,363 19,343 20,987 11/30/1996 19,355 19,430 20,481 22,579 12/31/1996 19,114 19,176 20,227 22,137 1/31/1997 19,848 19,894 21,002 23,512 2/28/1997 20,505 20,539 21,698 23,702 3/31/1997 20,086 20,095 21,255 22,716 4/30/1997 20,566 20,560 21,762 24,072 5/31/1997 22,086 22,059 23,371 25,550 6/30/1997 22,919 22,872 24,252 26,690 7/31/1997 24,715 24,646 26,153 28,809 8/31/1997 23,853 23,770 25,241 27,207 9/30/1997 25,339 25,238 26,818 28,697 10/31/1997 24,036 23,945 25,445 27,739 11/30/1997 24,818 24,703 26,278 29,023 12/31/1997 25,288 25,157 26,746 29,522 1/31/1998 25,368 25,225 26,847 29,850 2/28/1998 27,188 27,013 28,768 32,003 3/31/1998 28,641 28,434 30,314 33,642 4/30/1998 28,379 28,170 30,055 33,980 5/31/1998 28,291 28,056 29,968 33,396 6/30/1998 28,591 28,336 30,280 34,752 7/31/1998 27,765 27,499 29,411 34,382 8/31/1998 24,050 23,808 25,488 29,411 9/30/1998 25,568 25,287 27,093 31,295 10/31/1998 27,745 27,429 29,409 33,841 11/30/1998 29,080 28,725 30,832 35,892 12/31/1998 29,742 29,357 31,595 37,960 1/31/1999 29,769 29,367 31,630 39,548 2/28/1999 29,115 28,704 30,941 38,318 3/31/1999 29,896 29,457 31,778 39,852 4/30/1999 32,124 31,639 34,152 41,395 5/31/1999 32,210 31,701 34,248 40,418 6/30/1999 32,943 32,393 35,035 42,661 7/31/1999 31,907 31,358 33,949 41,329 8/31/1999 30,873 30,315 32,843 41,124 9/30/1999 29,295 28,751 31,186 39,997 10/31/1999 30,589 30,000 32,555 42,528 11/30/1999 30,295 29,689 32,249 43,393 12/31/1999 30,891 30,275 32,864 45,949 1/31/2000 29,116 28,506 30,977 43,640 2/29/2000 27,136 26,551 28,877 42,814 3/31/2000 30,472 29,805 32,423 47,003 4/30/2000 30,113 29,437 32,057 45,588 5/31/2000 30,621 29,903 32,586 44,653 6/30/2000 28,831 28,138 30,699 45,754 7/31/2000 29,295 28,580 31,194 45,038 8/31/2000 31,365 30,578 33,404 47,836 9/30/2000 31,492 30,669 33,527 45,311 10/31/2000 32,237 31,377 34,325 45,119 11/30/2000 31,101 30,257 33,082 41,562 12/31/2000 32,460 31,556 34,552 41,765 1/31/2001 34,336 33,361 36,554 43,247 2/28/2001 33,669 32,687 35,829 39,303 3/31/2001 32,659 31,699 34,775 36,814 4/30/2001 34,959 33,897 37,213 39,674 5/31/2001 35,986 34,868 38,313 39,940 6/30/2001 35,717 34,595 38,032 38,968 7/31/2001 35,477 34,323 37,777 38,585 The Class B contingent deferred sales charge (CDSC) is not included in the above graph, since the performance is for more than six years and the CDSC would no longer apply. Average Annual Total Return As of Inception 1 5 10 July 31, 2001 Date Year Year Year - ----------------------------------------------------------------- Class A Shares* 12/1/88 14.42% 14.06% 13.50% - ----------------------------------------------------------------- Class B Shares** 9/3/97/1/ 15.09% 14.20% 13.12% - ----------------------------------------------------------------- Trust Shares 9/2/97/1/ 21.10% 15.51% 14.21% - ----------------------------------------------------------------- *Reflects maximum 5.50% sales charge. **Reflects applicable contingent deferred sales charge (maximum 5.00%). THE CHART ABOVE REPRESENTS A COMPARISON OF A HYPOTHETICAL $10,000 INVESTMENT FROM 7/31/91 TO 7/31/01 VERSUS A SIMILAR INVESTMENT IN THE FUND'S BENCHMARK, AND REPRESENTS THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS IN THE FUND. THE PERFORMANCE OF THE AMSOUTH VALUE FUND IS MEASURED AGAINST THE S&P 500 STOCK INDEX, AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET AS A WHOLE. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. DURING THE PERIOD SHOWN, THE ADVISOR WAIVED AND/OR REIMBURSED FEES FOR VARIOUS EXPENSES. HAD THESE WAIVERS AND/OR REIMBURSEMENTS NOT BEEN IN EFFECT, PERFORMANCE QUOTED WOULD HAVE BEEN LOWER. 1 PERFORMANCE FOR THE CLASS B AND TRUST SHARES, WHICH COMMENCED OPERATIONS ON 9/3/97 AND 9/2/97, RESPECTIVELY, ARE BASED ON THE HISTORICAL PERFORMANCE OF THE CLASS A SHARES (WITHOUT SALES CHARGE) PRIOR TO THAT DATE. THE HISTORICAL PERFORMANCE FOR THE CLASS B SHARES HAS BEEN ADJUSTED TO REFLECT THE HIGHER 12B-1 FEES AND THE CONTINGENT DEFERRED SALES CHARGE (CDSC). EFFECTIVE 12/1/99, THE CLASSIC AND PREMIER SHARES WERE RENAMED CLASS A AND TRUST SHARES, RESPECTIVELY. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-6 AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND PORTFOLIO MANAGER John Mark McKenzie Senior Vice President AmSouth Bank AmSouth Investment Management Company, LLC JOHN MARK HAS MORE THAN 14 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE. IN ADDITION TO MANAGING THE AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND, HE CO-MANAGES THE AMSOUTH GOVERNMENT INCOME FUND AND MANAGES FOUR OF THE AMSOUTH MONEY MARKET FUNDS: U.S.TREASURY, TREASURY RESERVE, PRIME, AND INSTITUTIONAL PRIME OBLIGATIONS. HE HOLDS BACHELORS' DEGREES IN BANKING AND FINANCE AND EARNED A LAW DEGREE FROM THE UNIVERSITY OF MISSISSIPPI SCHOOL OF LAW. PORTFOLIO MANAGER'S PERSPECTIVE "The AmSouth Limited Term U.S. Government Fund seeks to provide current income from high-grade securities while limiting share price fluctuations. We minimize share price movements by investing in securities with short maturities. While we generally track the Merrill Lynch 1-5-Year Government Bond Index, we seek to outperform it through an occasional contrarian stance to prevailing market sentiment." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the 12 months ended July 31, 2001, the Fund produced a total return of 8.71% (Class A Shares at NAV). In comparison, the Merrill Lynch 1-5-Year Government Bond Index gained 10.46%. Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. Traditionally, the AmSouth Limited Term U.S. Government Funds returns are based, to a large extent, on the performance of the U.S. Treasury and mortgage-backed securities. During the most recent, 12-month period, we benefited from an overall rally in Treasury securities, continuing Treasury buy backs--which boost the price of these securities--and a contraction in mortgage spreads. With the Fed lowering interest rates during the last seven months, we saw a major shift in yields, especially at the short end of the yield curve. Generally, yield declines in the bond market increase proportionally the value of comparable bonds held in our portfolio. For example, from July 2000 to July 2001, yields on one-year securities tumbled 265 basis points (2.65%); five-year paper fell 160 basis points (1.60%); and the 30-year bond's yield declined 35 basis points (0.35%). B-7 We feel that this disparity between long-and short-securities' yields was expected. The Fed policy affects short-term rates, while the market sets long-term rates. Consequently, the short-term holdings of the portfolio helped to produce significant price appreciation. We responded to prevailing conditions by lengthening the average maturity of the portfolio slightly, and continued to emphasize agency paper. As of July 31, 2001, the Fund's average maturity was 2.8 years, and its average credit quality was AAA (as rated by the Standard & Poor's). Approximately 35.5% of the Fund were invested in government agency securities, 42.4% in U.S. Treasuries, 17.7% in mortgage-backed securities, and 2.9% in cash.++ Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. In recent months, we have become a bit more defensive in positioning the portfolio; we believe much of the bond-market rally is over. We anticipate the economy will bounce back sometime toward the end of this year or the beginning of 2002. We see interest rates either stabilizing or, when the economy picks up, even rising somewhat. Still, we have not lowered the Fund's average maturity; with its short structure, we feel the interest-rate risk of the portfolio should be minimal. ++ THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. B-8 AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND Value of a $10,000 Investment [CHART] AmSouth Limited AmSouth Limited AmSouth Limited Merrill Lynch Term U.S. Term U.S. Term U.S. 1-5-Year Government Fund Government Fund Government Fund Government (Class A Shares)* (Class B Shares) (Trust Shares) Bond Index 7/31/91 9,601 10,000 10,000 10,000 8/31/91 9,787 10,192 10,194 10,163 9/30/91 9,947 10,356 10,361 10,326 10/31/91 10,067 10,466 10,485 10,462 11/30/91 10,173 10,575 10,596 10,581 12/31/91 10,399 10,795 10,832 10,701 1/31/92 10,280 10,658 10,707 10,899 2/29/92 10,306 10,685 10,735 10,843 3/31/92 10,253 10,616 10,680 10,879 4/30/92 10,346 10,699 10,777 10,853 5/31/92 10,493 10,849 10,929 10,959 6/30/92 10,626 10,973 11,068 11,087 7/31/92 10,799 11,151 11,248 11,229 8/31/92 10,919 11,260 11,373 11,393 9/30/92 11,079 11,411 11,540 11,516 10/31/92 10,905 11,233 11,359 11,654 11/30/92 10,826 11,137 11,276 11,538 12/31/92 10,972 11,274 11,429 11,495 1/31/93 11,185 11,479 11,650 11,623 2/28/93 11,358 11,658 11,831 11,798 3/31/93 11,385 11,671 11,859 11,938 4/30/93 11,478 11,753 11,956 11,980 5/31/93 11,425 11,699 11,900 12,071 6/30/93 11,545 11,808 12,025 12,035 7/31/93 11,558 11,808 12,039 12,157 8/31/93 11,691 11,932 12,178 12,181 9/30/93 11,731 11,973 12,219 12,328 10/31/93 11,744 11,973 12,233 12,372 11/30/93 11,704 11,918 12,191 12,396 12/31/93 11,744 11,945 12,233 12,375 1/31/94 11,824 12,027 12,316 12,423 2/28/94 11,704 11,890 12,191 12,523 3/31/94 11,598 11,767 12,080 12,400 4/30/94 11,531 11,699 12,011 12,287 5/31/94 11,531 11,685 12,011 12,215 6/30/94 11,545 11,685 12,025 12,232 7/31/94 11,651 11,781 12,136 12,256 8/31/94 11,678 11,808 12,164 12,383 9/30/94 11,625 11,740 12,108 12,426 10/31/94 11,638 11,740 12,122 12,361 11/30/94 11,598 11,699 12,080 12,378 12/31/94 11,625 11,712 12,108 12,312 1/31/95 11,758 11,836 12,247 12,344 2/28/95 11,931 12,000 12,427 12,531 3/31/95 11,997 12,055 12,497 12,741 4/30/95 12,104 12,151 12,607 12,813 5/31/95 12,330 12,370 12,843 12,942 6/30/95 12,397 12,425 12,913 13,238 7/31/95 12,397 12,411 12,913 13,313 8/31/95 12,477 12,479 12,996 13,348 9/30/95 12,543 12,548 13,065 13,439 10/31/95 12,663 12,658 13,190 13,514 11/30/95 12,783 12,767 13,315 13,644 12/31/95 12,889 12,863 13,426 13,785 1/31/96 12,969 12,932 13,509 13,904 2/29/96 12,850 12,795 13,384 14,028 3/31/96 12,783 12,712 13,315 13,933 4/30/96 12,743 12,671 13,273 13,893 5/31/96 12,743 12,658 13,273 13,879 6/30/96 12,836 12,740 13,370 13,888 7/31/96 12,876 12,767 13,412 14,006 8/31/96 12,876 12,753 13,412 14,054 9/30/96 12,996 12,863 13,537 14,088 10/31/96 13,156 13,014 13,703 14,240 11/30/96 13,289 13,137 13,842 14,431 12/31/96 13,236 13,068 13,786 14,567 1/31/97 13,289 13,110 13,842 14,531 2/28/97 13,316 13,123 13,870 14,596 3/31/97 13,265 13,068 13,817 14,620 4/30/97 13,369 13,164 13,925 14,585 5/31/97 13,447 13,219 14,007 14,724 6/30/97 13,538 13,301 14,101 14,828 7/31/97 13,719 13,466 14,290 14,941 8/31/97 13,677 13,425 14,246 15,153 9/30/97 13,805 13,548 14,379 15,135 10/31/97 13,922 13,644 14,501 15,273 11/30/97 13,945 13,671 14,525 15,411 12/31/97 14,053 13,767 14,638 15,443 1/31/98 14,200 13,890 14,791 15,559 2/28/98 14,202 13,890 14,793 15,738 3/31/98 14,237 13,929 14,830 15,736 4/30/98 14,299 13,963 14,894 15,795 5/31/98 14,376 14,027 14,975 15,868 6/30/98 14,438 14,088 15,039 15,961 7/31/98 14,487 14,124 15,090 16,053 8/31/98 14,693 14,313 15,305 16,123 9/30/98 14,956 14,557 15,579 16,374 10/31/98 14,962 14,549 15,584 16,660 11/30/98 14,950 14,527 15,572 16,726 12/31/98 14,993 14,556 15,610 16,684 1/31/99 15,056 14,606 15,675 16,743 2/28/99 14,923 14,467 15,536 16,820 3/31/99 15,015 14,546 15,633 16,668 4/30/99 15,061 14,580 15,680 16,794 5/31/99 15,004 14,515 15,621 16,846 6/30/99 15,004 14,505 15,621 16,790 7/31/99 15,007 14,497 15,624 16,839 8/31/99 15,025 14,503 15,642 16,866 9/30/99 15,135 14,599 15,757 16,908 10/31/99 15,153 14,606 15,775 17,036 11/30/99 15,168 14,611 15,792 17,073 12/31/99 15,155 14,588 15,778 17,098 1/31/00 15,127 14,536 15,733 17,096 2/29/00 15,219 14,614 15,829 17,060 3/31/00 15,322 14,707 15,954 17,180 4/30/00 15,315 14,706 15,948 17,313 5/31/00 15,364 14,729 15,986 17,341 6/30/00 15,541 14,889 16,188 17,402 7/31/00 15,627 14,977 16,280 17,622 8/31/00 15,749 15,084 16,409 17,736 9/30/00 15,874 15,179 16,524 17,895 10/31/00 15,941 15,249 16,613 18,042 11/30/00 16,091 15,366 16,771 18,153 12/31/00 16,279 15,553 16,969 18,364 1/31/01 16,461 15,702 17,162 18,626 2/28/01 16,586 15,811 17,277 18,865 3/31/01 16,681 15,900 17,395 19,003 4/30/01 16,664 15,882 17,379 19,161 5/31/01 16,723 15,928 17,443 19,171 6/30/01 16,768 15,946 17,493 19,270 7/31/01 16,989 16,162 17,726 19,334 The Class B contingent deferred sales charge (CDSC) is not included in the above graph, since the performance is for more than six years and the CDSC would no longer apply. Average Annual Total Return As of Inception 1 5 10 July 31, 2001 Date Year Year Year - -------------------------------------------------------------------------- Class A Shares* 2/28/97/1/ 4.38% 4.85% 5.44% - -------------------------------------------------------------------------- Class B Shares** 3/3/98/2/ 2.91% 4.50% 4.92% - -------------------------------------------------------------------------- Trust Shares 12/14/98/2/ 8.88% 5.74% 5.89% - -------------------------------------------------------------------------- * Reflects maximum 4.00% sales charge. ** Reflects applicable contingent deferred sales charge (maximum 5.00%). THE CHART ABOVE REPRESENTS A COMPARISON OF A HYPOTHETICAL $10,000 INVESTMENT 7/31/91 TO 7/31/01 IN THE INDICATED SHARE CLASS VERSUS A SIMILAR INVESTMENT IN THE FUND'S BENCHMARK, AND REPRESENTS THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS IN THE FUND. THE PERFORMANCE OF THE AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND IS MEASURED AGAINST THE MERRILL LYNCH 1-5-YEAR GOVERNMENT BOND INDEX, WHICH IS GENERALLY REPRESENTATIVE OF THE PERFORMANCE OF GOVERNMENT BONDS IN THAT MATURITY RANGE WITH A RATING OF AT LEAST BAA. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. DURING THE PERIOD SHOWN, THE ADVISOR WAIVED AND/OR REIMBURSED FEES FOR VARIOUS EXPENSES. HAD THESE WAIVERS AND/OR REIMBURSEMENTS NOT BEEN IN EFFECT, PERFORMANCE QUOTED WOULD HAVE BEEN LOWER. THE QUOTED RETURNS REFLECT THE PERFORMANCE FROM 2/28/97 TO 3/12/00 OF THE ISG LIMITED TERM U.S. GOVERNMENT FUND, AN OPEN-END INVESTMENT COMPANY THAT WAS THE PREDECESSOR FUND TO THE AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND. 1 THE ISG LIMITED TERM U.S. GOVERNMENT FUND COMMENCED OPERATIONS ON 2/28/97, THROUGH A TRANSFER OF ASSETS FROM CERTAIN COLLECTIVE TRUST FUND ("COMMINGLED") ACCOUNTS MANAGED BY FIRST AMERICAN NATIONAL BANK, USING SUBSTANTIALLY THE SAME INVESTMENT OBJECTIVE, POLICIES AND METHODOLOGIES AS THE FUND. THE QUOTED PERFORMANCE OF THE FUND INCLUDES PERFORMANCE OF THE COMMINGLED ACCOUNTS FOR PERIODS DATING BACK TO 7/31/91, AND PRIOR TO THE MUTUAL FUND'S COMMENCEMENT OF OPERATIONS, AS ADJUSTED TO REFLECT THE EXPENSES ASSOCIATED WITH THE FUND. THE COMMINGLED ACCOUNTS WERE NOT REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION AND, THEREFORE, WERE NOT SUBJECT TO THE INVESTMENT RESTRICTIONS IMPOSED BY LAW ON REGISTERED MUTUAL FUNDS. IF THE COMMINGLED ACCOUNTS HAD BEEN REGISTERED, THE COMMINGLED ACCOUNTS' PERFORMANCE MAY HAVE BEEN ADVERSELY AFFECTED. 2 PERFORMANCE FOR THE CLASS B AND TRUST SHARES, WHICH COMMENCED OPERATIONS ON 3/3/98 AND 12/14/98, RESPECTIVELY, ARE BASED ON THE HISTORICAL PERFORMANCE OF THE CLASS A SHARES (WITHOUT SALES CHARGE) PRIOR TO THAT DATE. THE HISTORICAL PERFORMANCE FOR THE CLASS B SHARES HAS BEEN ADJUSTED TO REFLECT THE HIGHER 12B-1 FEES AND THE CONTINGENT DEFERRED SALES CHARGE (CDSC). PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-9 AMSOUTH GOVERNMENT INCOME FUND PORTFOLIO MANAGERS John P. Boston, CFA, Senior Vice President John Mark McKenzie, Senior Vice President AmSouth Bank THE AMSOUTH GOVERNMENT INCOME FUND IS CO-MANAGED BY JOHN BOSTON, CFA, AND JOHN MARK MCKENZIE. JOHN BOSTON ALSO MANAGES THE AMSOUTH LIMITED TERM BOND FUND, AND CO-MANAGES THE AMSOUTH BOND FUND. HE HAS MORE THAN 11 YEARS OF EXPERIENCE AS A FIXED-INCOME MANAGER. HE HOLDS A BACHELOR'S DEGREE IN FINANCE AND POLITICAL SCIENCE AND IS A CHARTERED FINANCIAL ANALYST. JOHN MARK MCKENZIE HAS MORE THAN 14 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE. IN ADDITION TO CO-MANAGING THE AMSOUTH GOVERNMENT INCOME FUND, HE MANAGES THE AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND AND FOUR OF THE AMSOUTH MONEY MARKET FUNDS: U.S. TREASURY, TREASURY RESERVE, PRIME, AND INSTITUTIONAL PRIME OBLIGATIONS. HE HOLDS BACHELOR'S DEGREES IN BANKING AND FINANCE AND EARNED A LAW DEGREE FROM THE UNIVERSITY OF MISSISSIPPI SCHOOL OF LAW. PORTFOLIO MANAGERS' PERSPECTIVE "The AmSouth Government Income Fund is more suitable for investors who seek income but also demand the safety of U.S. government securities. Although we attempt to consistently generate a high level of income, investors should be aware that yields and principal values vary and that the Fund is not guaranteed by the U.S. government." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the 12 months ended July 31, 2001, the Fund produced a total return of 11.25% (Class A Shares at NAV). In comparison, the Lehman Brothers Mortgage Index rose 12.54%, while the Lipper U.S. Mortgage Funds Index gained 11.48%.+ Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. Traditionally, the AmSouth Government Income Funds returns are based, to a large extent, on the performance of the U.S. Treasury and mortgage-backed securities. During the most recent, 12-month period, we benefited from an overall rally in Treasury securities, continuing Treasury buy backs--which boost the price of these securities--and a contraction in mortgage spreads. With the Fed lowering interest rates during the last seven months, we saw a major shift in yields, especially at the short end of the yield curve. Generally, yield declines in the bond market increases proportionally the value B-10 of comparable bonds held in our portfolio. For example, from July 2000 to July 2001, yields on one-year securities tumbled 265 basis points (2.65%); five-year paper fell 160 basis points (1.60%); and the 30-year bond's yield declined 35 basis points (0.35%). We feel that this disparity between long- and short-securities' yields was expected. The Fed policy affects short-term rates, while the market sets long-term rates. Consequently, most price appreciation took place among the short-and intermediate-term securities we owned. A slower economy and benign inflation in general also helped bonds; although inflation picked up slightly during the period, we feel it was not considered a major concern by bond investors. As of July 31, 2001, the Fund's average maturity was 6.0 years, and its average credit quality was AAA (as rated by the Standard & Poor's). Approximately 38.6% of the Fund was invested in government agency securities, 20.6% in U.S. Treasuries, 38.5% in mortgage-backed securities, and 0.9% in cash equivalents.++ Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. In recent months, we have become a bit more defensive in positioning the portfolio; we believe much of the bond-market rally is over. We anticipate the economy will bounce back sometime toward the end of this year or the beginning of 2002. We see interest rates either stabilizing or, when the economy picks up, even rising somewhat. In response, we began shortening the Fund's average maturity. + THE LIPPER U.S. MORTGAGE FUNDS INDEX CONSISTS OF MANAGED MUTUAL FUNDS THAT INVEST AT LEAST 65% OF THEIR ASSETS IN MORTGAGES/SECURITIES ISSUED OR GUARANTEED AS TO PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT AND CERTAIN FEDERAL AGENCIES. ++ THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. B-11 AMSOUTH GOVERNMENT INCOME FUND Value of a $10,000 Investment [CHART] AmSouth AmSouth AmSouth Lehman Government Government Government Brothers Income Fund Income Fund Income Fund Mortgage (Class A Shares)* (Class B Shares) (Trust Shares) Index 10/1/1993 9,597 10,000 10,000 10,000 10/31/1993 9,573 9,958 9,975 10,029 11/30/1993 9,549 9,930 9,950 10,009 12/31/1993 9,598 9,972 10,001 10,090 1/31/1994 9,656 10,028 10,061 10,190 2/28/1994 9,597 9,958 10,000 10,119 3/31/1994 9,460 9,804 9,858 9,855 4/30/1994 9,411 9,748 9,806 9,783 5/31/1994 9,431 9,762 9,827 9,822 6/30/1994 9,461 9,776 9,858 9,800 7/31/1994 9,572 9,888 9,973 9,996 8/31/1994 9,603 9,916 10,005 10,028 9/30/1994 9,552 9,846 9,952 9,886 10/31/1994 9,552 9,846 9,952 9,880 11/30/1994 9,511 9,790 9,909 9,849 12/31/1994 9,562 9,832 9,962 9,928 1/31/1995 9,720 9,986 10,125 10,140 2/28/1995 9,904 10,168 10,318 10,399 3/31/1995 9,926 10,182 10,340 10,448 4/30/1995 10,027 10,280 10,445 10,596 5/31/1995 10,309 10,559 10,737 10,930 6/30/1995 10,376 10,615 10,807 10,992 7/31/1995 10,379 10,615 10,810 11,011 8/31/1995 10,476 10,699 10,911 11,125 9/30/1995 10,558 10,783 10,996 11,223 10/31/1995 10,672 10,881 11,114 11,323 11/30/1995 10,807 11,021 11,255 11,452 12/31/1995 10,936 11,133 11,388 11,595 1/31/1996 11,000 11,189 11,454 11,682 2/29/1996 10,864 11,049 11,314 11,586 3/31/1996 10,820 10,993 11,269 11,544 4/30/1996 10,767 10,923 11,213 11,511 5/31/1996 10,739 10,895 11,183 11,478 6/30/1996 10,847 10,993 11,295 11,636 7/31/1996 10,888 11,021 11,337 11,680 8/31/1996 10,909 11,035 11,359 11,680 9/30/1996 11,072 11,189 11,529 11,875 10/31/1996 11,308 11,427 11,774 12,107 11/30/1996 11,494 11,594 11,968 12,280 12/31/1996 11,381 11,483 11,850 12,217 1/31/1997 11,428 11,510 11,899 12,307 2/28/1997 11,446 11,524 11,917 12,348 3/31/1997 11,339 11,399 11,806 12,232 4/30/1997 11,494 11,552 11,968 12,426 5/31/1997 11,598 11,650 12,075 12,548 6/30/1997 11,737 11,776 12,221 12,695 7/31/1997 12,001 12,028 12,495 12,933 8/31/1997 11,937 11,958 12,429 12,902 9/30/1997 12,103 12,112 12,603 13,066 10/31/1997 12,252 12,252 12,760 13,211 11/30/1997 12,309 12,308 12,820 13,255 12/31/1997 12,445 12,434 12,963 13,375 1/31/1998 12,580 12,559 13,105 13,508 2/28/1998 12,600 12,559 13,127 13,536 3/31/1998 12,643 12,601 13,173 13,593 4/30/1998 12,691 12,629 13,223 13,670 5/31/1998 12,787 12,727 13,325 13,761 6/30/1998 12,861 12,783 13,390 13,827 7/31/1998 12,910 12,825 13,442 13,897 8/31/1998 13,056 12,965 13,609 14,024 9/30/1998 13,273 13,161 13,823 14,193 10/31/1998 13,253 13,133 13,803 14,175 11/30/1998 13,314 13,189 13,882 14,246 12/31/1998 13,334 13,203 13,904 14,307 1/31/1999 13,417 13,273 13,978 14,409 2/28/1999 13,284 13,133 13,854 14,351 3/31/1999 13,343 13,175 13,917 14,447 4/30/1999 13,400 13,217 13,978 14,514 5/31/1999 13,334 13,147 13,910 14,432 6/30/1999 13,291 13,091 13,866 14,382 7/31/1999 13,248 13,049 13,807 14,284 8/31/1999 13,226 13,007 13,815 14,284 9/30/1999 13,381 13,147 13,964 14,515 10/31/1999 13,436 13,203 14,022 14,600 11/30/1999 13,454 13,203 14,042 14,607 12/31/1999 13,418 13,161 14,006 14,572 1/31/2000 13,389 13,119 13,976 14,445 2/29/2000 13,527 13,245 14,121 14,613 3/31/2000 13,716 13,413 14,320 14,772 4/30/2000 13,664 13,368 14,268 14,782 5/31/2000 13,655 13,335 14,261 14,790 6/30/2000 13,877 13,558 14,494 15,106 7/31/2000 13,983 13,654 14,623 15,203 8/31/2000 14,178 13,835 14,828 15,434 9/30/2000 14,242 13,889 14,897 15,594 10/31/2000 14,365 14,002 15,012 15,707 11/30/2000 14,592 14,214 15,267 15,942 12/31/2000 14,850 14,442 15,522 16,199 1/31/2001 15,020 14,598 15,702 16,452 2/28/2001 15,145 14,712 15,835 16,545 3/31/2001 15,211 14,769 15,906 16,641 4/30/2001 15,156 14,707 15,851 16,665 5/31/2001 15,223 14,764 15,922 16,775 6/30/2001 15,259 14,789 15,962 16,810 7/31/2001 15,556 15,069 16,275 17,109 The Class B contingent deferred sales charge (CDSC) is not included in the above graph, since the performance is for more than six years and the CDSC would no longer apply. -------------------------------------------------------------------------------- Average Annual Total Return -------------------------------------------------------------------------------- As of Inception 1 5 Since July 31, 2000 Date Year Year Inception -------------------------------------------------------------------------------- Class A Shares* 10/1/93 6.80% 6.53% 5.81% -------------------------------------------------------------------------------- Class B Shares** 3/13/00/1/ 5.36% 6.14% 5.38% -------------------------------------------------------------------------------- Trust Shares 9/2/97/1/ 11.30% 7.50% 6.42% -------------------------------------------------------------------------------- *Reflects maximum 4.00% sales charge. **Reflects applicable contingent deferred sales charge (maximum 5.00%) THE CHART ABOVE REPRESENTS A COMPARISON OF A HYPOTHETICAL $10,000 INVESTMENT FROM 10/1/93 TO 7/31/01 IN THE INDICATED SHARE CLASS VERSUS A SIMILAR INVESTMENT IN THE FUND'S BENCHMARK, AND REPRESENTS THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS IN THE FUND. THE PERFORMANCE OF THE AMSOUTH GOVERNMENT INCOME FUND IS MEASURED AGAINST THE LEHMAN BROTHERS MORTGAGE INDEX, AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE MORTGAGE BOND MARKET AS A WHOLE. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. DURING THE PERIOD SHOWN, THE ADVISOR WAIVED AND/OR REIMBURSED FEES FOR VARIOUS EXPENSES. HAD THESE WAIVERS AND/OR REIMBURSEMENTS NOT BEEN IN EFFECT, PERFORMANCE QUOTED WOULD HAVE BEEN LOWER. 1 PERFORMANCE FOR THE CLASS B AND TRUST SHARES, WHICH COMMENCED OPERATIONS ON 3/13/00 AND 9/2/97, RESPECTIVELY, ARE BASED ON THE HISTORICAL PERFORMANCE OF THE CLASS A SHARES (WITHOUT SALES CHARGE) PRIOR TO THAT DATE. THE HISTORICAL PERFORMANCE FOR THE CLASS B SHARES HAS BEEN ADJUSTED TO REFLECT THE HIGHER 12B-1 FEES AND THE CONTINGENT DEFERRED SALES CHARGE (CDSC). EFFECTIVE 12/1/99, THE CLASSIC AND PREMIER SHARES WERE RENAMED CLASS A AND TRUST SHARES, RESPECTIVELY. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-12 AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND+ PORTFOLIO MANAGER Sharon Brown Senior Vice President AmSouth Bank AmSouth Investment Management Company, LLC SHARON BROWN MANAGES THREE OF THE AMSOUTH FUNDS: THE TENNESSEE TAX-EXEMPT FUND, THE LIMITED TERM TENNESSEE TAX-EXEMPT FUND AND THE TAX-EXEMPT MONEY MARKET FUND. SHE HAS 22 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE AND HOLDS A BACHELOR'S DEGREE IN BUSINESS ADMINISTRATION FROM THE UNIVERSITY OF TENNESSEE. PORTFOLIO MANAGER'S PERSPECTIVE "The AmSouth Limited Term Tennessee Tax-Exempt Fund holds a portfolio of high-quality, short-term Tennessee municipal bonds. The Fund buys only bonds rated 'A' and above, while attempting to provide a reliable flow of tax-free income. By investing in high-quality bonds and keeping bond durations short, we strive to limit fluctuations in the Fund's market value." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the 12 months ended July 31, 2001, the Fund produced a total return of 6.28% (Class A Shares at NAV). In comparison, the Fund's benchmark, Merrill Lynch 3-7-Year Municipal Bond Index, produced a total return of 9.21%. It is also important to recognize income yield to shareholders. As of July 31, 2001, the Fund's 30-day SEC yield (Class A Shares) was 2.38%. For investors in the 39.1% federal income tax bracket, that is equivalent to a taxable yield of 3.91% (shareholders who are residents of Tennessee could realize a higher taxable-equivalent yield. The yield percentage is annualized). We achieved our objectives while maintaining an average credit quality of AA (as rated by Standard & Poor's). As of July 31, 2001, the Fund's average maturity was 4.1 years.++ Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. The past 12 months were profitable for just about every type of bond and bond fund, and our portfolio was no exception. With economic conditions unusually conducive to fixed-income securities, and the stock market moving lower, many investors found profitable refuge in funds such as ours. Our emphasis on securities producing income tax-free to Tennessee residents further benefited shareholders who live in that state. B-13 The municipal market "piggybacked" on the success of the taxable bond market, with bonds helped by the Fed's persistent rate-cutting policy. Because our Fund operates mostly on the short end of the yield curve, and Fed policy directly influences shorter securities, the value of our holdings was enhanced. A lack of supply within the state of Tennessee also worked to lower rates and boost bond prices. Q. WHAT ARE A FEW OF YOUR FAVORITE BONDS IN THE FUND? A. We especially like Rutherford County bonds yielding 6.00%, due in 2004 (8.03% of net assets). It offers a good coupon rate for such a short maturity. On the longer end of the yield curve are bonds issued by Shelby County yielding 5.50%, due in 2009 (4.12%). These securities are noncallable and give us participation in the intermediate segment of the yield curve.++ Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. We would not say we are necessarily at the end of the rate-cutting road, but we may be close to the bottom in yields; the Fed may not have much more room to lower rates. On the positive side, we do not see an imminent resurgence of inflationary pressures. We believe the most likely scenario over the short- and mid-term, is that the municipal market could experience a narrow trading range, with most performance coming from our tax-free yields. +THE FUND'S INCOME MAY BE SUBJECT TO CERTAIN STATE AND LOCAL TAXES AND, DEPENDING ON ONE'S TAX STATUS, THE FEDERAL ALTERNATIVE MINIMUM TAX. ++THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. B-14 AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND Value of a $10,000 Investment [CHART] AmSouth Limited AmSouth Limited Term Term Tennessee Tennessee Merrill Lynch Tax-Exempt Fund Tax-Exempt Fund 3-7 Year (Class A Shares)* (Class B Shares) Municipal Bond Index 7/31/91 9,595 10,000 10,000 8/31/91 9,755 10,161 10,166 9/30/91 9,828 10,235 10,265 10/31/91 9,914 10,309 10,335 11/30/91 9,914 10,297 10,365 12/31/91 10,110 10,495 10,530 1/31/92 10,147 10,532 10,620 2/29/92 10,110 10,483 10,578 3/31/92 10,123 10,483 10,568 4/30/92 10,135 10,483 10,662 5/31/92 10,221 10,569 10,699 6/30/92 10,356 10,693 10,900 7/31/92 10,503 10,842 11,095 8/31/92 10,491 10,817 11,031 9/30/92 10,442 10,755 11,107 10/31/92 10,466 10,780 11,012 11/30/92 10,577 10,879 11,303 12/31/92 10,577 10,866 11,355 1/31/93 10,687 10,978 11,445 2/28/93 10,896 11,188 11,682 3/31/93 10,834 11,114 11,664 4/30/93 10,908 11,176 11,728 5/31/93 10,933 11,188 11,814 6/30/93 11,018 11,275 11,907 7/31/93 11,018 11,262 11,884 8/31/93 11,117 11,349 12,004 9/30/93 11,190 11,423 12,120 10/31/93 11,178 11,399 12,187 11/30/93 11,129 11,337 12,089 12/31/93 11,252 11,448 12,262 1/31/94 11,350 11,547 12,384 2/28/94 11,190 11,374 12,176 3/31/94 10,920 11,089 11,836 4/30/94 10,969 11,126 11,913 5/31/94 10,994 11,139 11,995 6/30/94 10,969 11,114 12,000 7/31/94 11,043 11,176 12,220 8/31/94 11,104 11,225 12,231 9/30/94 11,043 11,151 12,132 10/31/94 10,994 11,101 12,056 11/30/94 10,883 10,978 11,939 12/31/94 10,957 11,040 12,049 1/31/95 11,043 11,114 12,128 2/28/95 11,178 11,250 12,383 3/31/95 11,252 11,312 12,459 4/30/95 11,301 11,349 12,542 5/31/95 11,497 11,535 12,826 6/30/95 11,472 11,498 12,839 7/31/95 11,583 11,609 12,943 8/31/95 11,656 11,671 13,060 9/30/95 11,681 11,683 13,058 10/31/95 11,718 11,708 13,120 11/30/95 11,816 11,795 13,302 12/31/95 11,877 11,844 13,333 1/31/96 11,951 11,918 13,489 2/29/96 11,926 11,881 13,464 3/31/96 11,816 11,757 13,351 4/30/96 11,791 11,720 13,349 5/31/96 11,779 11,708 13,340 6/30/96 11,840 11,757 13,395 7/31/96 11,902 11,807 13,509 8/31/96 11,877 11,770 13,529 9/30/96 11,951 11,832 13,647 10/31/96 12,049 11,918 13,772 11/30/96 12,184 12,042 13,932 12/31/96 12,135 11,980 13,915 1/31/97 12,184 12,030 13,945 2/28/97 12,270 12,104 14,044 3/31/97 12,143 11,968 13,903 4/30/97 12,176 11,993 13,931 5/31/97 12,284 12,079 14,096 6/30/97 12,343 12,129 14,260 7/31/97 12,539 12,314 14,502 8/31/97 12,463 12,228 14,411 9/30/97 12,561 12,314 14,560 10/31/97 12,623 12,364 14,614 11/30/97 12,663 12,389 14,671 12/31/97 12,793 12,512 14,817 1/31/98 12,905 12,611 14,931 2/28/98 12,886 12,584 14,953 3/31/98 12,871 12,561 14,975 4/30/98 12,815 12,483 14,914 5/31/98 12,951 12,618 15,105 6/30/98 12,972 12,628 15,145 7/31/98 12,994 12,638 15,199 8/31/98 13,117 12,747 15,417 9/30/98 13,205 12,822 15,562 10/31/98 13,225 12,831 15,594 11/30/98 13,245 12,839 15,612 12/31/98 13,274 12,844 15,698 1/31/99 13,374 12,944 15,883 2/28/99 13,338 12,901 15,828 3/31/99 13,332 12,886 15,840 4/30/99 13,364 12,908 15,894 5/31/99 13,305 12,842 15,830 6/30/99 13,153 12,686 15,651 7/31/99 13,201 12,723 15,781 8/31/99 13,169 12,683 15,785 9/30/99 13,205 12,696 15,800 10/31/99 13,119 12,617 15,746 11/30/99 13,180 12,666 15,844 12/31/99 13,141 12,607 15,801 1/31/00 13,095 12,567 15,774 2/29/00 13,183 12,643 15,838 3/31/00 13,262 12,713 15,989 4/30/00 13,213 12,658 15,942 5/31/00 13,183 12,622 15,938 6/30/00 13,415 12,833 16,258 7/31/00 13,551 12,953 16,447 8/31/00 13,619 13,009 16,622 9/30/00 13,597 12,980 16,592 10/31/00 13,689 13,060 16,711 11/30/00 13,727 13,098 16,780 12/31/00 13,956 13,296 17,105 1/31/01 14,132 13,460 17,405 2/28/01 14,166 13,484 17,421 3/31/01 14,231 13,551 17,586 4/30/01 14,141 13,443 17,472 5/31/01 14,247 13,536 17,670 6/30/01 14,293 13,571 17,772 7/31/01 14,403 13,667 17,962 The Class B contingent deferred sales charge (CDSC) is not included in the above graph, since the performance is for more than six years and the CDSC would no longer apply. -------------------------------------------------------------------------------- Average Annual Total Return -------------------------------------------------------------------------------- As of Inception 1 5 10 July 31, 2001 Date Year Year Year -------------------------------------------------------------------------------- Class A Shares* 2/28/97/1/ 2.02% 3.05% 3.72% -------------------------------------------------------------------------------- Class B Shares** 2/3/98/2/ 0.51% 2.61% 3.17% -------------------------------------------------------------------------------- *Reflects 4.00% sales charge. **Reflects applicable contingent deferred sales charge (maximum 5.00%). THE CHART ABOVE REPRESENTS A COMPARISON OF A HYPOTHETICAL $10,000 INVESTMENT FROM 7/31/91 TO 7/31/01 IN THE INDICATED SHARE CLASS VERSUS A SIMILAR INVESTMENT IN THE FUND'S BENCHMARK, AND REPRESENTS THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS IN THE FUND. THE PERFORMANCE OF THE AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND IS MEASURED AGAINST THE MERRILL LYNCH 3-7-YEAR MUNICIPAL BOND INDEX, AN UNMANAGED INDEX THAT IS GENERALLY REPRESENTATIVE OF MUNICIPAL BONDS WITH INTERMEDIATE MATURITIES. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. DURING THE PERIOD SHOWN, THE ADVISOR WAIVED AND/OR REIMBURSED FEES FOR VARIOUS EXPENSES. HAD THESE WAIVERS AND/OR REIMBURSEMENTS NOT BEEN IN EFFECT, PERFORMANCE QUOTED WOULD HAVE BEEN LOWER. THE QUOTED RETURNS REFLECT THE PERFORMANCE FROM 2/28/97 TO 3/12/00 OF THE ISG LIMITED TERM TENNESSEE TAX-EXEMPT FUND, AN OPEN-END INVESTMENT COMPANY THAT WAS THE PREDECESSOR FUND TO THE AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND. 1 THE ISG LIMITED TERM TENNESSEE TAX-EXEMPT FUND COMMENCED OPERATIONS ON 2/28/97, THROUGH A TRANSFER OF ASSETS FROM CERTAIN COLLECTIVE TRUST FUND ("COMMINGLED") ACCOUNTS MANAGED BY FIRST AMERICAN NATIONAL BANK, USING SUBSTANTIALLY THE SAME INVESTMENT OBJECTIVE, POLICIES AND METHODOLOGIES AS THE FUND. THE QUOTED PERFORMANCE OF THE FUND INCLUDES PERFORMANCE OF THE COMMINGLED ACCOUNTS FOR PERIODS DATING BACK TO 7/31/91, AND PRIOR TO THE MUTUAL FUND'S COMMENCEMENT OF OPERATIONS, AS ADJUSTED TO REFLECT THE EXPENSES ASSOCIATED WITH THE FUND. THE COMMINGLED ACCOUNTS WERE NOT REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION AND, THEREFORE, WERE NOT SUBJECT TO THE INVESTMENT RESTRICTIONS IMPOSED BY LAW ON REGISTERED MUTUAL FUNDS. IF THE COMMINGLED ACCOUNTS HAD BEEN REGISTERED, THE COMMINGLED ACCOUNTS' PERFORMANCE MAY HAVE BEEN ADVERSELY AFFECTED. 2 PERFORMANCE FOR THE CLASS B SHARES, WHICH COMMENCED OPERATIONS ON 2/3/98, RESPECTIVELY, ARE BASED ON THE HISTORICAL PERFORMANCE OF THE CLASS A SHARES (WITHOUT SALES CHARGE) PRIOR TO THAT DATE. THE HISTORICAL PERFORMANCE FOR THE CLASS B SHARES HAS BEEN ADJUSTED TO REFLECT THE HIGHER 12B-1 FEES AND THE CONTINGENT DEFERRED SALES CHARGE (CDSC). PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-15 AMSOUTH TENNESSEE TAX-EXEMPT FUND+ PORTFOLIO MANAGER Sharon Brown Senior Vice President AmSouth Funds AmSouth Investment Management Company, LLC SHARON BROWN MANAGES THREE OF THE AMSOUTH FUNDS: THE TENNESSEE TAX-EXEMPT FUND, THE LIMITED TERM TENNESSEE TAX-EXEMPT FUND AND THE TAX-EXEMPT MONEY MARKET FUND. SHE HAS 22 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE AND HOLDS A BACHELOR'S DEGREE IN BUSINESS ADMINISTRATION FROM THE UNIVERSITY OF TENNESSEE. PORTFOLIO MANAGER'S PERSPECTIVE "The AmSouth Tennessee Tax-Exempt Fund generates income that is exempt from both Federal and the state of Tennessee income tax. The Fund only invests in securities in the top three rating classes, or of comparable quality. As with the other AmSouth bond funds, we strive to enhance long-term performance by capitalizing on expected changes in interest rates." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the 12 months ended July 31, 2001, the Fund produced a total return of 7.55% (Class A Shares at NAV). In comparison, the Fund's benchmark, the Lehman Brothers Municipal 10-Year Bond Index, produced a total return of 9.48%. It is also important to recognize income yield to shareholders. As of July 31, 2001, the Fund's 30-day SEC yield at (Class A Shares) was 3.27%. For investors in the 39.1% federal income tax bracket, that is equivalent to a taxable yield of 5.37% (shareholders who are residents of Tennessee could realize a higher taxable-equivalent yield. The yield percentage is annualized). We achieved our objectives while maintaining an average credit quality of AA (as rated by Standard & Poor's). As of July 31, 2001, the Fund's average maturity was 6.6 years.++ Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. The past 12 months were profitable for just about every type of bond and bond fund, and our portfolio was no exception. With economic conditions unusually conducive to fixed-income securities, and the stock market moving lower, many investors found profitable refuge in funds such as ours. Our emphasis on B-16 securities producing income tax free to Tennessee residents further benefited shareholders who live in that state. The municipal market "piggybacked" on the success of the taxable bond market, with bonds helped by the Fed's persistent rate-cutting policy. Because our Fund operates mostly in the short and intermediate portions of the yield curve, and Fed policy directly influences shorter securities, the value of our holdings was enhanced. A lack of supply within the state of Tennessee also worked to lower rates and boost bond prices. Q. WHAT ARE A FEW OF YOUR FAVORITE BONDS IN THE FUND? A. Among our favorite bonds are City of Memphis bonds yielding 5.25%, due in 2014 (2.11% of net assets). This is a good, solid, noncallable bond that tends to perform well in most types of markets. We also like a Rutherford County issue yielding 6.25%, due in 2004 (2.61%). With its high coupon and short maturity, it offers some protection should the market move against us.++ Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. We would not say we are necessarily at the end of the rate-cutting road, but we may be close to the bottom in yields; the Fed may not have much more room to lower rates. On the positive side, we do not see an imminent resurgence of inflationary pressures. We believe the most likely scenario over the short- and mid-term, is that the municipal market could experience a narrow trading range, with most performance coming from our tax-free yields. +THE FUND'S INCOME MAY BE SUBJECT TO CERTAIN STATE AND LOCAL TAXES AND, DEPENDING ON ONE'S TAX STATUS, THE FEDERAL ALTERNATIVE MINIMUM TAX. ++THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. B-17 AMSOUTH TENNESSEE TAX-EXEMPT FUND+ Value of a $10,000 Investment [CHART] AmSouth AmSouth AmSouth Merrill Lehman TN Tax TN Tax TN Tax Lynch Brothers Exempt Exempt Exempt 1-12-Year Municipal Fund Class Fund Class Fund Trust Municipal 10-Year A Shares B Shares Shares Bond Index Index 7/31/91 9,603 10,000 10,000 10,000 10,000 8/31/91 9,757 10,152 10,161 10,181 10,135 9/30/91 9,812 10,203 10,218 10,266 10,291 10/31/91 9,989 10,381 10,402 10,350 10,374 11/30/91 9,945 10,318 10,356 10,363 10,391 12/31/91 10,110 10,483 10,529 10,521 10,612 1/31/92 10,143 10,508 10,563 10,576 10,635 2/29/92 10,077 10,432 10,494 10,514 10,619 3/31/92 10,055 10,407 10,471 10,517 10,603 4/30/92 10,099 10,445 10,517 10,618 10,703 5/31/92 10,265 10,597 10,690 10,655 10,829 6/30/92 10,430 10,762 10,862 10,883 11,016 7/31/92 10,706 11,042 11,149 11,154 11,377 8/31/92 10,530 10,851 10,966 11,030 11,243 9/30/92 10,530 10,839 10,966 11,103 11,336 10/31/92 10,408 10,699 10,839 10,976 11,221 11/30/92 10,651 10,940 11,092 11,242 11,426 12/31/92 10,662 10,953 11,103 11,321 11,559 1/31/93 10,795 11,080 11,241 11,449 11,754 2/28/93 11,115 11,398 11,575 11,739 12,184 3/31/93 11,015 11,283 11,471 11,682 12,006 4/30/93 11,148 11,410 11,609 11,786 12,120 5/31/93 11,203 11,461 11,667 11,818 12,163 6/30/93 11,325 11,576 11,793 11,958 12,402 7/31/93 11,313 11,550 11,782 11,956 12,433 8/31/93 11,534 11,766 12,011 12,133 12,691 9/30/93 11,689 11,919 12,172 12,228 12,847 10/31/93 11,678 11,893 12,161 12,323 12,867 11/30/93 11,545 11,741 12,023 12,214 12,762 12/31/93 11,755 11,944 12,241 12,407 13,034 1/31/94 11,843 12,033 12,333 12,530 13,194 2/28/94 11,545 11,715 12,023 12,252 12,833 3/31/94 10,800 10,953 11,247 11,926 12,342 4/30/94 10,851 10,991 11,300 11,977 12,478 5/31/94 10,926 11,055 11,378 12,031 12,578 6/30/94 10,856 10,978 11,305 12,021 12,524 7/31/94 11,033 11,156 11,489 12,278 12,734 8/31/94 11,073 11,182 11,532 12,309 12,784 9/30/94 10,923 11,017 11,375 12,169 12,611 10/31/94 10,740 10,813 11,184 12,087 12,427 11/30/94 10,544 10,610 10,980 11,936 12,192 12/31/94 10,747 10,813 11,192 12,092 12,412 1/31/95 11,021 11,080 11,477 12,270 12,733 2/28/95 11,291 11,334 11,758 12,598 13,094 3/31/95 11,382 11,423 11,853 12,659 13,270 4/30/95 11,379 11,398 11,850 12,709 13,286 5/31/95 11,646 11,652 12,127 13,074 13,708 6/30/95 11,526 11,525 12,003 13,049 13,623 7/31/95 11,583 11,576 12,062 13,149 13,823 8/31/95 11,720 11,703 12,205 13,288 14,011 9/30/95 11,773 11,741 12,260 13,300 14,100 10/31/95 11,912 11,868 12,404 13,411 14,263 11/30/95 12,084 12,033 12,584 13,634 14,454 12/31/95 12,187 12,122 12,691 13,710 14,542 1/31/96 12,267 12,198 12,775 13,877 14,689 2/29/96 12,140 12,058 12,642 13,745 14,629 3/31/96 11,944 11,855 12,438 13,735 14,447 4/30/96 11,877 11,779 12,369 13,736 14,397 5/31/96 11,847 11,741 12,337 13,738 14,356 6/30/96 11,938 11,804 12,431 13,817 14,493 7/31/96 12,016 11,881 12,513 13,948 14,632 8/31/96 11,973 11,830 12,469 13,960 14,632 9/30/96 12,090 11,931 12,590 14,086 14,782 10/31/96 12,221 12,046 12,726 14,220 14,969 11/30/96 12,437 12,249 12,951 14,399 15,271 12/31/96 12,356 12,160 12,867 14,381 15,202 1/31/97 12,362 12,160 12,874 14,426 15,262 2/28/97 12,439 12,211 12,953 14,526 15,405 3/31/97 12,245 12,008 12,751 14,374 15,199 4/30/97 12,300 12,046 12,809 14,432 15,311 5/31/97 12,457 12,198 12,973 14,638 15,529 6/30/97 12,550 12,274 13,070 14,787 15,699 7/31/97 12,887 12,592 13,420 15,116 16,141 8/31/97 12,738 12,440 13,265 14,994 15,984 9/30/97 12,896 12,579 13,429 15,163 16,187 10/31/97 12,965 12,643 13,501 15,225 16,273 11/30/97 13,008 12,668 13,549 15,287 16,348 12/31/97 13,237 12,884 13,789 15,487 16,606 1/31/98 13,368 12,999 13,928 15,616 16,790 2/28/98 13,326 13,010 13,873 15,642 16,789 3/31/98 13,288 12,976 13,850 15,662 16,777 4/30/98 13,157 12,839 13,716 15,590 16,685 5/31/98 13,393 13,061 13,966 15,817 16,968 6/30/98 13,392 13,052 13,967 15,861 17,031 7/31/98 13,404 13,055 13,983 15,911 17,058 8/31/98 13,628 13,265 14,220 16,156 17,355 9/30/98 13,785 13,409 14,387 16,330 17,614 10/31/98 13,782 13,397 14,386 16,351 17,621 11/30/98 13,791 13,398 14,399 16,375 17,674 12/31/98 13,800 13,398 14,411 16,457 17,728 1/31/99 13,973 13,558 14,581 16,685 18,000 2/28/99 13,843 13,426 14,462 16,586 17,838 3/31/99 13,825 13,403 14,447 16,572 17,829 4/30/99 13,862 13,431 14,488 16,619 17,877 5/31/99 13,735 13,315 14,359 16,527 17,752 6/30/99 13,498 13,066 14,113 16,291 17,421 7/31/99 13,550 13,109 14,170 16,431 17,538 8/31/99 13,477 13,032 14,097 16,412 17,473 9/30/99 13,491 13,040 14,101 16,435 17,533 10/31/99 13,365 12,912 13,972 16,347 17,410 11/30/99 13,474 13,010 14,103 16,495 17,600 12/31/99 13,376 12,909 14,004 16,456 17,508 1/31/00 13,307 12,835 13,934 16,399 17,436 2/29/00 13,416 12,935 14,051 16,518 17,574 3/31/00 13,601 13,107 14,246 16,730 17,915 4/30/00 13,516 13,004 14,144 16,668 17,826 5/31/00 13,448 12,944 14,090 16,622 17,720 6/30/00 13,764 13,239 14,423 17,009 18,202 7/31/00 13,932 13,392 14,600 17,237 18,454 8/31/00 14,097 13,527 14,759 17,455 18,740 9/30/00 14,010 13,449 14,684 17,392 18,653 10/31/00 14,142 13,567 14,825 17,550 18,844 11/30/00 14,218 13,629 14,905 17,634 18,945 12/31/00 14,534 13,925 15,239 18,042 19,391 1/31/01 14,664 14,027 15,363 18,310 19,641 2/28/01 14,691 14,059 15,408 18,333 19,674 3/31/01 14,793 14,149 15,517 18,503 19,841 4/30/01 14,604 13,959 15,321 18,296 19,597 5/31/01 14,736 14,076 15,461 18,509 19,811 6/30/01 14,809 14,137 15,540 18,641 19,930 7/31/01 14,984 14,296 15,725 18,877 20,203 The Class B contingent deferred sales charge (CDSC) is not included in the above graph, since the performance is for more than six years and the CDSC would no longer apply. Average Annual Total Return As of Inception 1 5 Since July 31, 2001 Date Year Year Inception ------------------------------------------------------------------- Class A Shares* 3/28/94/1/ 3.21% 3.66% 4.13% ------------------------------------------------------------------- Class B Shares** 2/24/98/2/ 1.75% 3.42% 3.64% ------------------------------------------------------------------- Trust Shares 10/03/97/2/ 7.70% 4.68% 4.63% ------------------------------------------------------------------- *Reflects maximum 4.00% sales charge. **Reflects applicable contingent deferred sales charge (maximum 5.00%). THE CHART ABOVE REPRESENTS A COMPARISON OF A HYPOTHETICAL $10,000 INVESTMENT FROM 7/31/91 TO 7/31/01 IN THE INDICATED SHARE CLASS VERSUS A SIMILAR INVESTMENT IN THE FUND'S BENCHMARK, AND REPRESENTS THE REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS IN THE FUND. THE PERFORMANCE OF THE AMSOUTH TENNESSEE TAX-EXEMPT FUND IS MEASURED AGAINST THE MERRILL LYNCH 1-12-YEAR MUNICIPAL BOND INDEX, WHICH IS UNMANAGED AND IS GENERALLY REPRESENTATIVE OF MUNICIPAL BONDS WITH INTERMEDIATE MATURITIES. THE LEHMAN BROTHERS MUNICIPAL 10-YEAR INDEX IS AN UNMANAGED INDEX THAT INCLUDES MUNICIPAL BONDS ISSUED WITHIN THE LAST FIVE YEARS BY MUNICIPALITIES THROUGHOUT THE UNITED STATES, WITH MATURITIES OF AT LEAST ONE YEAR, BUT NO MORE THAN 12 YEARS, AND A CREDIT QUALITY OF AT LEAST BAA. THE INDICES DO NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. DURING THE PERIOD SHOWN, THE ADVISOR WAIVED AND/OR REIMBURSED FEES FOR VARIOUS EXPENSES. HAD THESE WAIVERS AND/OR REIMBURSEMENTS NOT BEEN IN EFFECT, PERFORMANCE QUOTED WOULD HAVE BEEN LOWER. THE QUOTED RETURNS REFLECT THE PERFORMANCE FROM 3/28/94 TO 3/12/00 OF THE ISG TENNESSEE TAX-EXEMPT FUND, AN OPEN-END INVESTMENT COMPANY THAT WAS THE PREDECESSOR FUND TO THE AMSOUTH TENNESSEE TAX-EXEMPT FUND. 1 THE ISG TENNESSEE TAX-EXEMPT FUND COMMENCED OPERATIONS ON 3/28/94, THROUGH A TRANSFER OF ASSETS FROM CERTAIN COLLECTIVE TRUST FUND ("COMMINGLED") ACCOUNTS MANAGED BY FIRST AMERICAN NATIONAL BANK, USING SUBSTANTIALLY THE SAME INVESTMENT OBJECTIVE, POLICIES AND METHODOLOGIES AS THE FUND. THE QUOTED PERFORMANCE OF THE FUND INCLUDES PERFORMANCE OF THE COMMINGLED ACCOUNTS FOR PERIODS DATING BACK TO 7/31/91, AND PRIOR TO THE MUTUAL FUND'S COMMENCEMENT OF OPERATIONS, AS ADJUSTED TO REFLECT THE EXPENSES ASSOCIATED WITH THE FUND. THE COMMINGLED ACCOUNTS WERE NOT REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION AND, THEREFORE, WERE NOT SUBJECT TO THE INVESTMENT RESTRICTIONS IMPOSED BY LAW ON REGISTERED MUTUAL FUNDS. IF THE COMMINGLED ACCOUNTS HAD BEEN REGISTERED, THE COMMINGLED ACCOUNTS' PERFORMANCE MAY HAVE BEEN ADVERSELY AFFECTED. 2 PERFORMANCE FOR THE CLASS B AND TRUST SHARES, WHICH COMMENCED OPERATIONS ON 2/24/98 AND 10/3/97, RESPECTIVELY, ARE BASED ON THE HISTORICAL PERFORMANCE OF THE CLASS A SHARES (WITHOUT SALES CHARGE) PRIOR TO THAT DATE. THE HISTORICAL PERFORMANCE FOR THE CLASS B SHARES HAS BEEN ADJUSTED TO REFLECT THE HIGHER 12B-1 FEES AND THE CONTINGENT DEFERRED SALES CHARGE (CDSC). PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-18 APPENDIX B-2 MANAGEMENT DISCUSSION OF FUNDS' PERFORMANCE The following information was provided by the Semi-Annual Report to Shareholders of AmSouth Funds ("Semi-Annual Report") for the period ended January 31, 2002. The Management Discussion found in the Semi-Annual Report is as follows: AMSOUTH EQUITY INCOME FUND PORTFOLIO MANAGER Christopher Wiles, CFA President and Chief Investment Officer Rockhaven Asset Management, LLC (sub-advisor) CHRIS HAS MORE THAN 15 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE AND HOLDS AN M.B.A. AND A BACHELOR'S DEGREE IN FINANCE. PREVIOUSLY, HE WAS AFFILIATED WITH FEDERATED INVESTMENTS AND MELLON BANK. PORTFOLIO MANAGER'S PERSPECTIVE "With the AmSouth Equity Income Fund, we try to reduce risk through a disciplined portfolio construction limited, under normal conditions, to 50 stocks. Then we select the most attractive securities on a risk/reward basis in each sector. Rather than trying to time the market or guess which sector may offer the greatest return, we put our emphasis on investing in what we believe are the best-yielding, best dividend-growing securities, ector by sector." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the six months ended January 31, 2002, the Fund's total return was -1.60% (Class A Shares at NAV).1 In comparison, the S&P 500 Stock Index returned -6.01%, and the Lipper Equity Income Fund Index2 posted a -4.11% return for the period. Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. The key objective of this Fund is to perform in line with the S&P 500 Index, with less risk and more income. As for our peer group, the Lipper Equity Income category, we run our Fund differently from other equity income funds. We want to have exposure in every market sector, while choosing what we believe to be stocks that could potentially offer both above-average yields and total returns. This strategy served us particularly well over the last six months, especially since larger-cap growth stocks which we target perhaps more than the average equity income fund--did so well during the last calendar quarter of 2001. B-19 Specifically, some judicious stock selection enabled us to again outperform our primary benchmark. Some bright spots among our holdings included health care names such as Johnson & Johnson (2.09% of net assets) and Abbott Laboratories (2.36%), both of which were strong performers for us. We also benefited from holdings in the retail sector, including Costco Co. (2.98%), which has been one of our core holdings for years and Johnson Controls, Inc. (1.46%).* As of January 31, 2002, the Fund's top five holdings were L-3 Communications, Inc. convertible bond (3.41% of net assets); Costco Co., convertible bond (2.98%); Citigroup, Inc. (2.91%); Omnicom Group, Inc. (2.63%); and Ball Corp. (2.58%).* Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. We are clearly seeing signs of an economic recovery, and we believe will probably continue into the second half of 2002. On the negative side, we still see the unwinding of the speculative bubble period of the 1990s. Many companies are discovering that the capital markets are not too friendly when it comes to restructuring debt, which we feel could lead to more companies going bankrupt. As for our Fund, we will continue to focus on companies with unassailable balance sheets and income statements. This strategy is something we feel will should help the Fund do well this year, regardless of whether the market takes off or remains in a narrow trading range. 1 WITH THE MAXIMUM SALES CHARGE OF 5.50%, THE FUND'S SIX-MONTH, 1 YEAR AND SINCE INCEPTION RETURNS WERE -7.03%, -18.74% AND 7.02%, RESPECTIVELY. THE TOTAL RETURNS LESS THAN ONE YEAR ARE AGGREGATE RETURNS, TOTAL RETURNS OVER ONE YEAR ARE ANNUALIZED. 2 THE LIPPER EQUITY INCOME FUNDS INDEX IS COMPRISED OF MANAGED MUTUAL FUNDS THAT SEEK RELATIVELY HIGH CURRENT INCOME AND GROWTH OF INCOME THROUGH INVESTING 65% OR MORE OF THEIR PORTFOLIO IN DIVIDEND-PAYING EQUITY SECURITIES. 3 THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET AS A WHOLE. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING FUNDS OR SECURITIES. * THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-20 AMSOUTH VALUE FUND PORTFOLIO MANAGER Richard H. Calvert, CFA Vice President AmSouth Bank AmSouth Investment Management Company, LLC RICHARD HAS BEEN A PORTFOLIO MANAGER AND ANALYST FOR MORE THAN SEVEN YEARS. HE IS A MEMBER OF AMSOUTH BANK'S VALUE STRATEGY GROUP AND THE ASSET ALLOCATION COMMITTEE. HE HOLDS A B.S. IN ECONOMICS. PORTFOLIO MANAGERS' PERSPECTIVE "The AmSouth Value Fund uses a 'value investing' approach. Rather than pursue hot stocks that are in high demand, we search for solid companies with good fundamentals that are available at attractive prices. By adhering to this investment approach through entire market cycles, we seek to achieve above average long-term results with less volatility than the overall market." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the six months ended January 31, 2002, the AmSouth Value Fund produced a total return of -5.68% (Class A Shares at NAV).1 In comparison, the S&P 500 Stock Index returned -6.01%, while the Lipper Multi-Cap Value Index2 produced a -3.94% return. Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. During most of the period's first two months, value stocks did relatively well, as investors steered clear of most growth names. The events of September 11 battered the market even further, until stocks hit bottom on September 21 and then shortly after launched a strong recovery. During the last calendar quarter of 2001, investors returned to growth stocks, the type of technology companies we believed to be overvalued. Consequently, the Fund's relative performance was stronger at the beginning of the period than in the second half. Among other actions, we added to our holdings in the utility and property-casualty sectors. We also looked to pick up attractively-valued stocks that had been beaten down in the days after the terrorist attacks: companies such as Hilton Hotels Corp. (2.38% of net assets) and Cendant Corporation (1.47%).* In addition, we sold a significant portion of our technology holdings. While we were overweighted in technology at the beginning of the period, we ended January 2002 with roughly 14.5% of the portfolio invested in technology stocks, while slightly more than 16% of the S&P 500 Index represented technology stocks. Some B-21 of the tech holdings we pruned from the Fund had appreciated sharply in the last year, and we felt they no longer offered compelling valuations. As of January 31, 2002, the Fund's top five holdings were Valero Energy Corp. (4.11%), Washington Mutual, Inc. (3.41%), St. Paul Cos., Inc. (3.28%), Chubb Corp. (2.76%) and Mirant Corp. (2.64%).* Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. We are stock pickers, not market timers. We do not base our investment decisions on a macro view of the market's future direction. We believe we are back in a time when individual stock valuations are more important to investors than they were during the 1990s. In a market characterized by volatility, buying fairly-valued or undervalued stocks, and reducing volatility, could help us outperform our benchmarks. 1 WITH THE MAXIMUM SALES CHARGE OF 5.50%, THE FUND'S SIX MONTH, 1 YEAR, 5 YEAR AND 10 YEAR RETURNS WERE -10.89%, -7.90%, 9.76% AND 12.20%, RESPECTIVELY. THE TOTAL RETURNS LESS THAN ONE YEAR ARE AGGREGATE RETURNS, TOTAL RETURNS OVER ONE YEAR ARE ANNUALIZED. 2 THE S&P 500 STOCK INDEX IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE U.S. STOCK MARKET AS A WHOLE. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. 3 THE LIPPER MULTI-CAP VALUE FUNDS INDEX CONSIST OF MANAGED MUTUAL FUNDS THAT, BY PORTFOLIO PRACTICE, INVEST IN A VARIETY OF MARKET CAPITALIZATION RANGES, WITHOUT CONCENTRATING MORE THAN 75% OF THEIR EQUITY ASSETS IN ANY ONE MARKET CAPITALIZATION RANGE OVER AN EXTENDED PERIOD OF TIME. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING FUNDS OR SECURITIES. * THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-22 AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND PORTFOLIO MANAGER John Mark McKenzie Senior Vice President AmSouth Bank AmSouth Investment Management Company, LLC JOHN MARK HAS MORE THAN 20 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE. IN ADDITION TO MANAGING THE AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND, HE CO-MANAGES THE AMSOUTH GOVERNMENT INCOME FUND AND MANAGES FOUR OF THE AMSOUTH MONEY MARKET FUNDS: U.S.TREASURY, TREASURY RESERVE, PRIME, AND INSTITUTIONAL PRIME OBLIGATIONS. HE HOLDS BACHELORS' DEGREES IN BANKING AND FINANCE AND EARNED A LAW DEGREE FROM THE UNIVERSITY OF MISSISSIPPI SCHOOL OF LAW. PORTFOLIO MANAGER'S PERSPECTIVE "The AmSouth Limited Term U.S. Government Fund seeks to provide current income from high-grade securities while limiting share price fluctuations. We minimize share price movements by investing in securities with short maturities. While we generally track the Merrill Lynch 1-5-Year Government Bond Index, we seek to outperform it through an occasional contrarian stance to prevailing market sentiment." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the six months ended January 31, 2002, the AmSouth Limited Term U.S. Government Fund produced a total return of 1.99% (Class A Shares at NAV).1 In comparison, the Merrill Lynch 1-5 Year Government Bond Index2 gained 3.26%. Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. For much of the period, the bond market was buffeted by a significant degree of volatility. Economic conditions and the Fed's continued easing--the Fed lowered short-term interest rates five times during the last six months-- probably had something to do with this, as did the events of September 11. Through most of the period, we kept the Fund's average maturity below those of our peer group's, based on our belief that most of the bond market's "yield rally" would be at the short end of the yield curve. Another factor that differentiates us from our peer group is that we normally maintain a greater level of Treasury securities. Consequently, as non-Treasury securities became more attractive to investors, especially during the latter half of the period, our relative performance was compromised. As of January 31, 2002, the Fund's effective maturity was 2.7 years, and its average credit quality was AAA. Approximately 40% of the Fund was invested in B-23 government agency securities, 41% in U.S. Treasuries, 10% in mortgage-backed securities and 8% in cash.* Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. Looking at interest rates, we anticipate that the yield curve will flatten, with yields on short-term instruments (with maturities of 2-5 years) rising sharply to close the gap with yields in middle part of the curve. Based on this outlook, we have attempted to position the portfolio so that even if interest rates rise, any decline in the Fund's net asset value should be offset by a larger income stream.* 1 WITH THE MAXIMUM SALES CHARGE OF 4.00%, THE SIX-MONTH, 1 YEAR, 5 YEAR AND 10 YEAR RETURNS WERE -2.11%, 1.08%, 4.58% AND 4.93%, RESPECTIVELY. THE TOTAL RETURNS LESS THAN ONE YEAR ARE AGGREGATE RETURNS, TOTAL RETURNS OVER ONE YEAR ARE ANNUALIZED. 2 THE MERRILL LYNCH 1-5-YEAR GOVERNMENT BOND INDEX, IS GENERALLY REPRESENTATIVE OF THE PERFORMANCE OF GOVERNMENT BONDS IN THAT MATURITY RANGE WITH A RATING OF AT LEAST BAA. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. *THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-24 AMSOUTH GOVERNMENT INCOME FUND PORTFOLIO MANAGERS John P. Boston, CFA, Senior Vice President John Mark McKenzie, Senior Vice President AmSouth Bank THE AMSOUTH GOVERNMENT INCOME FUND IS CO-MANAGED BY JOHN BOSTON, CFA, AND JOHN MARK MCKENZIE. JOHN BOSTON ALSO MANAGES THE AMSOUTH LIMITED TERM BOND FUND, AND CO-MANAGES THE AMSOUTH BOND FUND. HE HAS MORE THAN 11 YEARS OF EXPERIENCE AS A FIXED-INCOME MANAGER. HE HOLDS A BACHELOR'S DEGREE IN FINANCE AND POLITICAL SCIENCE AND IS A CHARTERED FINANCIAL ANALYST. JOHN MARK MCKENZIE HAS MORE THAN 20 YEARS OF INVESTMENT MANAGEMENT EXPERIENCE. IN ADDITION TO CO-MANAGING THE AMSOUTH GOVERNMENT INCOME FUND, HE MANAGES THE AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND AND FOUR OF THE AMSOUTH MONEY MARKET FUNDS: U.S. TREASURY, TREASURY RESERVE, PRIME, AND INSTITUTIONAL PRIME OBLIGATIONS. HE HOLDS BACHELOR'S DEGREES IN BANKING AND FINANCE AND EARNED A LAW DEGREE FROM THE UNIVERSITY OF MISSISSIPPI SCHOOL OF LAW. PORTFOLIO MANAGERS' PERSPECTIVE "The AmSouth Government Income Fund is more suitable for investors who seek income but also demand the safety of U.S. government securities. Although we attempt to consistently generate a high level of income, investors should be aware that yields and principal values vary and that the Fund is not guaranteed by the U.S. government." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the six months ended January 31, 2002, the AmSouth Government Income Fund produced a total return of 2.70% (Class A Shares at NAV).1 In comparison, the Lehman Brothers Mortgage Index2 rose 3.41%, while the Lipper U.S. Mortgage Fund Index3 gained 3.04%. Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. The period was characterized by the type of volatility generally reserved for stocks, as the actions of fixed-income investors were driven by the Fed's continued easing bias, a flight to Treasury securities sparked by the events of September 11 and then an exodus out of Treasuries and into mortgage-backed securities, in anticipation of rising interest rates. While we benefited from the move into Treasuries in September and October, our performance was hurt by market conditions in the period's latter months. Our two benchmarks are mortgage indices, and because our strategy is to diversify among different government-security sectors, we will always attempt to own fewer mortgage-backed securities than the indices. During the period, less B-25 than half of the Fund's assets were invested in mortgage-backed securities. Consequently, our total return fell behind the gains enjoyed by our benchmarks. As of January 31, 2002, the Fund's effective maturity was 5.5 years, and its average credit quality was AAA. Approximately 35% of the Fund was invested in government agency securities, 19% in U.S. Treasuries, 40% in mortgage-backed securities and 6% in cash.* Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. Our plan is to increase our exposure to mortgage-backed securities, while probably reducing our holdings in Treasuries. As for interest rates, we anticipate that the yield curve will flatten, with yields on short-term instruments (with maturities of 2-5 years) rising sharply to close the gap with yields in middle part of the curve. With this outlook, we intend to keep the Fund's average maturity shorter than our benchmark's. 1 WITH THE MAXIMUM SALES CHARGE OF 4.00%, THE SIX-MONTH, 1 YEAR, 5 YEAR AND 10 YEAR RETURNS WERE -1.40%, 2.08%, 6.06% AND 5.78%, RESPECTIVELY. THE TOTAL RETURNS LESS THAN ONE YEAR ARE AGGREGATE RETURNS, TOTAL RETURNS OVER ONE YEAR ARE ANNUALIZED. 2 THE LEHMAN BROTHERS MORTGAGE INDEX, IS AN UNMANAGED INDEX GENERALLY REPRESENTATIVE OF THE MORTGAGE BOND MARKET AS A WHOLE. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. 3 THE LIPPER U.S. MORTGAGE FUNDS INDEX CONSISTS OF MANAGED MUTUAL FUNDS THAT INVEST AT LEAST 65% OF THEIR ASSETS IN MORTGAGES/SECURITIES ISSUED OR GUARANTEED AS TO PRINCIPAL AND INTEREST BY THE U.S. GOVERNMENT AND CERTAIN FEDERAL AGENCIES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. *THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-26 AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT BOND FUND+ PORTFOLIO MANAGER Dorothy E. Thomas, CFA Senior Vice President AmSouth Bank AmSouth Investment Management Company, LLC DOROTHY HAS MORE THAN 19 YEARS OF EXPERIENCE AS AN INVESTMENT PORTFOLIO MANAGER. SHE HOLDS A M.B.A AND A B.A. IN ECONOMICS. SHE ALSO SERVES AS MANAGER OF TAX-EXEMPT, FIXED-INCOME INVESTMENTS. PORTFOLIO MANAGER'S PERSPECTIVE "The AmSouth Limited Term Tennessee Tax-Exempt Fund holds a portfolio of high-quality, short-term Tennessee municipal bonds. The Fund buys only bonds rated 'A' and above, while attempting to provide a reliable flow of tax-free income. By investing in high-quality bonds and keeping bond durations short, we strive to limit fluctuations in the Fund's market value." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the six months ended January 31, 2002, the Fund produced a total return of 1.60% (Class A Shares at NAV).1 In comparison, the Fund's benchmark, the Merrill Lynch 3-7-Year Index2 produced a total return of 2.63%. It is also important to recognize income yield to shareholders. As of January 31, 2002, the Fund's 30-day SEC yield (Class A Shares at NAV) was 1.50%. For investors in the 39.1% federal income tax bracket, that is equivalent to a taxable yield of 2.46%. (Shareholders who are residents of Tennessee could realize a higher taxable-equivalent yield. The yield percentage is annualized.) We achieved our objectives while maintaining an average credit quality of AA (as rated by Standard & Poor's). As of January 31, 2002, the Fund's average maturity was 3.9 years.* Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. The Fed cut short-term interest rates five times during the period; the Fed Funds rate fell 200 basis points (2.00%). Because we invest mostly in short-term securities, the Fund benefited from this broad trend of lower short-term rates. However, taking a larger view, the municipal market tends to slow in trading activity when there is a shock to the market, such as the events of September 11. After the terrorist attacks, rates trended lower, until the early part of November, when intermediate-to-longer interest rates rose steadily, until B-27 reversing course and again falling through December and January. As a result of these events our Fund underperformed its benchmark. The municipal market in general evidenced some wide swings in supply, but as a relatively small state, Tennessee did not experience a great deal of activity. Recessions tend to hit state and local governments with something of a lag, because tax revenues are based on economic activity of the prior year. Therefore, in a post-recessionary environment, states such as Tennessee need to take a careful look at their budgets. This is not to say that Tennessee is in financial trouble, but it is one state that needs to reassess its spending. Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. We will continue to apply our fixed-income strategy to this Fund. We expect to maintain a short maturity structure for this portfolio for the immediate future. As the U.S. economy progresses through its recovery--with interest rates rising and/or the municipal bond yield curve flattening--we will reassess our maturity structure to take advantage of new trends. 1 WITH THE MAXIMUM SALES CHARGE OF 4.00%, THE SIX-MONTH, 1 YEAR, 5 YEAR AND 10 YEAR RETURNS WERE 32.45%, -0.60%, 2.89% AND 3.31%, RESPECTIVELY. THE TOTAL RETURNS LESS THAN ONE-YEAR ARE AGGREGATE RETURNS, TOTAL RETURNS OVER ONE YEAR ARE ANNUALIZED. + THE FUND'S INCOME MAY BE SUBJECT TO CERTAIN STATE AND LOCAL TAXES AND, DEPENDING ON ONE'S TAX STATUS, THE FEDERAL ALTERNATIVE MINIMUM TAX. 2 THE MERRILL LYNCH 3-7-YEAR MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX THAT IS GENERALLY REPRESENTATIVE OF MUNICIPAL BONDS WITH INTERMEDIATE MATURITIES. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. * THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-28 AMSOUTH TENNESSEE TAX-EXEMPT BOND FUND+ PORTFOLIO MANAGER Dorothy E. Thomas, CFA Senior Vice President AmSouth Bank AmSouth Investment Management Company, LLC DOROTHY HAS MORE THAN 19 YEARS OF EXPERIENCE AS AN INVESTMENT PORTFOLIO MANAGER. SHE HOLDS A M.B.A. AND A B.A. IN ECONOMICS. SHE ALSO SERVES AS MANAGER OF TAX-EXEMPT, FIXED-INCOME INVESTMENTS. PORTFOLIO MANAGER'S PERSPECTIVE "The AmSouth Tennessee Tax-Exempt Fund generates income that is exempt from both Federal and the state of Tennessee income tax. The Fund only invests in securities in the top three rating classes, or of comparable quality. As with the other AmSouth bond funds, we strive to enhance long-term performance by capitalizing on unexpected changes in interest rates." Q&A Q. HOW DID THE FUND PERFORM DURING THE PERIOD? A. For the six months ended January 31, 2002, the Fund produced a total return of 1.73% (Class A Shares at NAV).1 In comparison, the Fund's benchmark, the Lehman Brothers 10-Year Municipal Bond Index2 produced a total return of 2.32%. It is also important to recognize income yield to shareholders. As of January 31, 2002, the Fund's 30-day SEC yield (Class A Shares at NAV) was 2.38%. For investors in the 39.1% federal income tax bracket, that is equivalent to a taxable yield of 3.91%. (Shareholders who are residents of Tennessee could realize a higher taxable-equivalent yield. The yield percentage is annualized.) We achieved our objectives while maintaining an average credit quality of AA (as rated by Standard & Poor's). As of January 31, 2002, the Fund's average maturity was 6.2 years.* Q. WHAT FACTORS AFFECTED YOUR PERFORMANCE? A. Although the Fed cut short-term interest rates five times during the period--the Fed Funds rate fell a total of 200 basis points (2.00%)--intermediate-term rates ended the period pretty much where they started (although there was quite a bit of volatility within the period). For the period as a whole, most of the securities in our portfolio neither gained nor lost significant ground; our positive total return was due not to price appreciation of the underlying securities, but to the yields provided by these securities. B-29 The municipal market tends to slow in trading activity when there is a shock to the market, such as the events of September 11. After the terrorist attacks, rates trended lower, until the early part of November, when intermediate-to-longer interest rates rose steadily, until reversing course and again falling through December and January. The municipal market in general evidenced some wide swings in supply, but as a relatively small state, Tennessee did not experience a great deal of activity. Recessions tend to hit state and local governments with something of a lag, because tax revenues are based on economic activity of the prior year. Therefore, in a post-recessionary environment, states such as Tennessee need to take a careful look at their budgets. This is not to say that Tennessee is in financial trouble, but it is one state that needs to reassess its spending. Q. WHAT IS YOUR OUTLOOK FOR THE NEXT SIX TO 12 MONTHS? A. We will continue to apply our fixed-income strategy to this Fund. We expect to continue to maintain an intermediate maturity structure for this portfolio for the immediate future. As the U.S. economy progresses through its recovery--with interest rates rising and/or the municipal bond yield curve flattening--we will reassesS our maturity structure. 1 WITH THE MAXIMUM SALES CHARGE OF 4.00%, THE SIX-MONTH, 1 YEAR, 5 YEAR AND 10 YEAR RETURNS WERE -2.33%, -0.22%, 3.43% AND 3.74%, RESPECTIVELY. THE TOTAL RETURNS LESS THAN ONE- YEAR ARE AGGREGATE RETURNS, TOTAL RETURNS OVER ONE YEAR ARE ANNUALIZED. + THE FUND'S INCOME MAY BE SUBJECT TO CERTAIN STATE AND LOCAL TAXES AND, DEPENDING ON ONE'S TAX STATUS, THE FEDERAL ALTERNATIVE MINIMUM TAX. 2 THE MERRILL LYNCH 3-7-YEAR MUNICIPAL BOND INDEX IS AN UNMANAGED INDEX THAT IS GENERALLY REPRESENTATIVE OF MUNICIPAL BONDS WITH INTERMEDIATE MATURITIES. THE INDEX DOES NOT REFLECT THE DEDUCTION OF FEES ASSOCIATED WITH A MUTUAL FUND, SUCH AS INVESTMENT MANAGEMENT FEES. THE FUND'S PERFORMANCE DOES REFLECT THE DEDUCTION OF FEES FOR THESE VALUE-ADDED SERVICES. INVESTORS CANNOT INVEST DIRECTLY IN AN INDEX, ALTHOUGH THEY CAN INVEST IN ITS UNDERLYING SECURITIES. *THE FUND'S PORTFOLIO COMPOSITION IS SUBJECT TO CHANGE. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. INVESTMENT RETURN AND NET ASSET VALUE WILL FLUCTUATE, SO THAT AN INVESTOR'S SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THE ORIGINAL COST. B-30 AMSOUTH FUNDS STATEMENT OF ADDITIONAL INFORMATION This Statement of Additional Information contains information that may be of interest to investors but that is not included in the Combined Prospectus/Proxy Statement (the "Prospectus") [ , 2002], relating to the transfer of assets and liabilities from the AmSouth Equity Income Fund, the AmSouth Limited Term U.S. Government Fund and the AmSouth Limited Term Tennessee Tax-Exempt Fund to the AmSouth Value Fund, the AmSouth Government Income Fund and the AmSouth Tennessee Tax-Exempt Fund, respectively. The Statement of Additional Information for AmSouth Funds dated December 1, 2001, as supplemented on February 8, 2002 and June 21, 2002 ("AmSouth Funds SAI"), the AmSouth Funds' Annual Report to Shareholders for the period ended July 31, 2001 ("AmSouth Funds Annual Report") and the AmSouth Funds' Semi-Annual Report to Shareholders for the period ended January 31, 2002 (AmSouth Funds Semi-Annual Report"), have been filed with the Securities and Exchange Commission and are incorporated herein by reference. This Statement of Additional Information is not a prospectus and is authorized for distribution only when it accompanies or follows delivery of the Prospectus, AmSouth Funds SAI, AmSouth Funds Annual Report, and AmSouth Funds Semi-Annual Report. This Statement of Additional Information should be read in conjunction with that Prospectus, AmSouth Funds SAI, AmSouth Funds Annual Report, and AmSouth Funds Semi-Annual Report. A copy of the Prospectus, AmSouth Funds SAI, AmSouth Funds Annual Report, and AmSouth Funds Semi-Annual Report may be obtained, without charge, by writing AmSouth Funds, 3435 Stelzer Road, Columbus, OH 43219 or by calling 1-800-451-8382. Audited financial statements for the Funds for the period ended July 31, 2001 are contained in the AmSouth Funds Annual Report to Shareholders, filed with the SEC on September 28, 2001, EDGAR Accession Number 0001045969-01-501180. Unaudited financial statements for the Funds for the period ended January 31, 2001 are contained in the AmSouth Funds Semi-Annual Report filed with the SEC on April 1, 2002, EDGAR Accession Number 0000950109-02-001862. The date of this Statement of Additional Information is [_____ __, 2002]. TABLE OF CONTENTS Financial Statements of the Combined Value Fund and Equity Income Fund, the Combined Government Income Fund and Limited Term U.S. Government Fund, and the Combined Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund on a pro-forma basis for the six-months ended January 31, 2002. Statements of Operations......................................................1 Statements of Assets and Liabilities..........................................4 Schedules of Investments......................................................7 Notes to Financial Statements................................................29 AMSOUTH FUNDS STATEMENTS OF OPERATIONS SIX MONTHS ENDED JANUARY 31, 2002 (UNAUDITED) (Amounts in thousands)
EQUITY VALUE INCOME FUND FUND COMBINED ------------- ------------- --------------- INVESTMENT INCOME: Dividend income $ 5,788 $ 1,587 $ 7,375 Interest income 48 46 94 Income from securities lending 196 24 220 ------------- ------------- --------------- Total Investment Income 6,032 1,657 7,689 ------------- ------------- --------------- EXPENSES: Investment advisory fees 2,649 526 3,175 Administration fees 662 132 794 Distribution fees - Class B Shares 45 97 142 Shareholder servicing fees - Class A Shares 159 48 207 Shareholder servicing fees - Class B Shares 15 32 47 Shareholder servicing fees - Trust Shares 392 50 442 Accounting fees 82 16 98 Custodian fees 91 18 109 Transfer agent fees 112 53 165 Registration and filing fees 8 7 15 Other fees 82 20 102 ------------- ------------- --------------- Total expenses before fee reductions 4,297 999 5,296 Expenses reduced by Investment Advisor - (1) (1) Expenses reduced by Administrator - (33) (33) Expenses reduced by Transfer Agent - (5) (5) Expenses reduced by Distributor (131) (17) (148) Expenses reduced by Fund Accountant (22) (5) (27) ------------- ------------- --------------- Net Expenses 4,144 938 5,082 ------------- ------------- --------------- NET INVESTMENT INCOME 1,888 719 2,607 ------------- ------------- --------------- REALIZED/UNREALIZED GAINS/(LOSSES) FROM INVESTMENTS: Net realized gains/(losses) from investment transactions 27,838 (9,634) 18,204 Change in unrealized appreciation/depreciation from investments (68,753) 5,626 (63,127) ------------- ------------- --------------- NET REALIZED/UNREALIZED GAINS/(LOSSES) FROM INVESTMENTS (40,915) (4,008) (44,923) ------------- ------------- --------------- CHANGE IN NET ASSETS FROM OPERATIONS $(39,027) $(3,289) $(42,316) ============= ============= =============== SEE NOTES TO FINANCIALS
1 AMSOUTH FUNDS STATEMENTS OF OPERATIONS SIX MONTHS ENDED JANUARY 31, 2002 (UNAUDITED) (Amounts in thousands)
LIMITED TERM TENNESSEE TENNESSEE TAX-EXEMPT TAX-EXEMPT FUND FUND COMBINED ----------------- ---------------- --------------- INVESTMENT INCOME: Dividend income $ 24 $ 6 $ 30 Interest income 1,196 248 1,444 ----------------- ---------------- --------------- Total Investment Income 1,220 254 1,474 ----------------- ---------------- --------------- EXPENSES: Investment advisory fees 195 43 238 Administration fees 60 13 73 Distribution fees - Class B Shares 6 2 8 Shareholder servicing fees - Class A Shares 5 16 21 Shareholder servicing fees - Class B Shares 2 - 2 Shareholder servicing fees - Trust Shares 41 - 41 Accounting fees 10 3 13 Custodian fees 8 2 10 Transfer agent fees 27 16 43 Registration and filing fees 15 15 30 Other fees 12 3 15 ----------------- ---------------- --------------- Total expenses before fee reductions 381 113 494 Expenses reduced by Investment Advisor (45) (10) (55) Expenses reduced by Administrator (15) (7) (22) Expenses reduced by Transfer Agent (10) (9) (19) Expenses reduced by Distributor (14) - (14) Expenses reduced by Fund Accountant (2) - (2) ----------------- ---------------- --------------- Net Expenses 295 87 382 ----------------- ---------------- --------------- NET INVESTMENT INCOME 925 167 1,092 ----------------- ---------------- --------------- REALIZED/UNREALIZED GAINS/(LOSSES) FROM INVESTMENTS: Net realized gains from investment transactions 432 112 544 Change in unrealized appreciation/depreciation from investments (322) (74) (396) ----------------- ---------------- --------------- NET REALIZED/UNREALIZED GAINS FROM INVESTMENTS 110 38 148 ----------------- ---------------- --------------- CHANGE IN NET ASSETS FROM OPERATIONS $ 1,035 $ 205 $ 1,240 ================= ================ =============== SEE NOTES TO FINANCIALS
2
AMSOUTH FUNDS STATEMENTS OF OPERATIONS SIX MONTHS ENDED JANUARY 31, 2002 LIMITED (Unaudited) TERM (Amounts in thousands) GOVERNMENT U.S. INCOME GOVERNMENT FUND FUND COMBINED ---------------- --------------- ------------ INVESTMENT INCOME: Dividend income $ 137 $ 46 $ 183 Interest income 8,555 1,040 9,595 Income from securities lending 74 1 75 ---------------- --------------- ------------ Total Investment Income 8,766 1,087 9,853 ---------------- --------------- ------------ EXPENSES: Investment advisory fees 996 154 1,150 Administration fees 307 47 354 Distribution fees - Class B Shares 9 5 14 Shareholder servicing fees - Class A Shares 9 4 13 Shareholder servicing fees - Class B Shares 3 2 5 Shareholder servicing fees - Trust Shares 223 32 255 Accounting fees 46 9 55 Custodian fees 42 7 49 Transfer agent fees 46 27 73 Other fees 45 22 67 ---------------- --------------- ------------ Total expenses before fee reductions 1,726 309 2,035 Expenses reduced by Investment Advisor (230) (35) (265) Expenses reduced by Administrator (77) (12) (89) Expenses reduced by Transfer Agent - (11) (11) Expenses reduced by Distributor (74) (11) (85) Expenses reduced by Fund Accountant (10) (1) (11) ---------------- --------------- ------------ Net Expenses 1,335 239 1,574 ---------------- --------------- ------------ NET INVESTMENT INCOME 7,431 848 8,279 ---------------- --------------- ------------ REALIZED/UNREALIZED GAINS/(LOSSES) FROM INVESTMENTS: Net realized gains/(losses) from investment transactions 450 (15) 435 Change in unrealized appreciation/depreciation from investments 609 39 648 ---------------- ---------------- ----------- NET REALIZED/UNREALIZED GAINS FROM INVESTMENTS 1,059 24 1,083 ---------------- ---------------- ----------- CHANGE IN NET ASSETS FROM OPERATIONS $ 8,490 $ 872 $ 9,362 ================ ================ =========== SEE NOTES TO FINANCIALS
3 AMSOUTH FUNDS STATEMENTS OF ASSETS AND LIABILITIES JANUARY 31, 2002 (UNAUDITED) (Amounts in thousands, except per share amounts)
EQUITY VALUE INCOME FUND FUND COMBINED --------------- ------------- ------------- Assets: Investments: Investments at cost $ 529,041 $ 111,168 $ 640,209 Net unrealized appreciation 138,223 6,404 144,627 --------------- ------------- ------------- Total investments at value 667,264 117,572 784,836 Collateral for securities loaned 99,436 11,594 111,030 Interest and dividends receivable 754 373 1,127 Receivable from capital shares issued 154 19 173 Receivable from investments sold - 2,858 2,858 Prepaid expenses and other assets 20 10 30 --------------- ------------- ------------- Total Assets 767,628 132,426 900,054 LIABILITIES: Payable to custodian - 575 575 Payable for investments purchased 13,267 - 13,267 Payable for securities loaned 99,436 11,594 111,030 Payable for capital shares redeemed 38 26 64 Accrued expenses and other payables: Investment advisory fees 198 37 235 Administration fees 11 1 12 Shareholder servicing and distribution fees 82 35 117 Custodian fees 15 3 18 Other 64 25 89 --------------- ------------- ------------- Total Liabilities 113,111 12,296 125,407 --------------- ------------- ------------- NET ASSETS $654,517 $120,130 $774,647 =============== ============= ============= NET ASSETS CONSIST OF: Capital $ 485,484 $ 144,920 $ 630,404 Accumulated (distributions in excess of) net investment income 63 (234) (171) Accumulated (distributions in excess of) net realized gains/(losses) from investments 30,747 (30,960) (213) Unrealized appreciation from investments 138,223 6,404 144,627 --------------- ------------- ------------- NET ASSETS $654,517 $120,130 $774,647 =============== ============= ============= CLASS A SHARES: Net Assets $ 128,135 $ 36,884 $ 165,019 Shares outstanding 7,306 3,022 9,408 Redemption price per share $ 17.54 $ 12.21 $ 17.54 =============== ============= ============= Maximum Sales Load 5.50% 5.50% 5.50% --------------- ------------- ------------- Maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to the nearest cent) $ 18.56 $ 12.92 $ 18.56 CLASS B SHARES: Net Assets $ 14,170 $ 25,602 $ 39,772 Shares outstanding 819 2,113 2,300 Offering price per share* $ 17.29 $ 12.12 $ 17.29 =============== ============= ============= TRUST SHARES: Net Assets $ 512,212 $ 57,644 $ 569,856 Shares outstanding 29,252 4,717 32,545 Offering and redemption price per share $ 17.51 $ 12.22 $ 17.51 =============== ============= ============= *Redemption price per share varies by length of time shares are held. SEE NOTES TO FINANCIALS
4 AMSOUTH FUNDS STATEMENTS OF ASSETS AND LIABILITIES JANUARY 31, 2002 (UNAUDITED) (Amounts in thousands, except per share amounts)
LIMITED TERM TENNESSEE TENNESSEE TAX-EXEMPT TAX-EXEMPT FUND FUND COMBINED ------------------ ----------------- --------------- Assets: Investments: Investments at cost $ 55,321 $ 12,407 $ 67,728 Net unrealized appreciation 962 162 1,124 ------------------ ----------------- --------------- Total investments at value 56,283 12,569 68,852 Interest and dividends receivable 874 144 1,018 Prepaid expenses and other assets 21 17 38 ------------------ ----------------- --------------- Total Assets 57,178 12,730 69,908 LIABILITIES: Payable for investments purchased - 479 479 Accrued expenses and other payables: Investment advisory fees 11 2 13 Administration fees 1 - 1 Shareholder servicing and distribution fees 6 3 9 Custodian fees 1 - 1 Other 14 4 18 ------------------ ----------------- --------------- Total Liabilities 33 488 521 ------------------ ----------------- --------------- - NET ASSETS $57,145 $ 12,242 $ 69,387 ================== ================= =============== NET ASSETS CONSIST OF: Capital $ 56,630 $ 12,182 $ 68,812 Accumulated net investment income 62 9 71 Accumulated net realized losses from investment transactions (509) (111) (620) Unrealized appreciation from investments 962 162 1,124 ------------------ ----------------- --------------- NET ASSETS $57,145 $ 12,242 $ 69,387 ================== ================= =============== CLASS A SHARES: Net Assets $ 2,934 $ 11,814 $ 14,748 Shares outstanding 290 1,165 1,457 Redemption price per share $ 10.12 $ 10.15 $ 10.12 ================== ================= =============== Maximum Sales Load 4.00% 4.00% 4.00% ------------------ ----------------- --------------- Maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to the nearest cent) $ 10.54 $ 10.57 $ 10.54 CLASS B SHARES: Net Assets $ 1,470 $ 428 $ 1,898 Shares outstanding 145 42 187 Offering price per share* $ 10.13 $ 10.15 $ 10.13 ================== ================= =============== TRUST SHARES: Net Assets $ 52,741 - $ 52,741 Shares outstanding 5,216 - 5,216 Offering and redemption price per share $ 10.11 $ 0.00 $ 10.11 ================== ================= =============== *Redemption price per share varies by length of time shares are held. SEE NOTES TO FINANCIALS
5 AMSOUTH FUNDS STATEMENTS OF ASSETS AND LIABILITIES JANUARY 31, 2002 (UNAUDITED) (Amounts in thousands, except per share amounts)
LIMITED TERM GOVERNMENT U.S. INCOME GOVERNMENT FUND FUND COMBINED --------------- --------------- ----------------- Assets: Investments: Investments at cost $ 279,867 $ 49,384 $ 329,251 Net unrealized appreciation 13,274 671 13,945 --------------- --------------- ----------------- Total investments at value 293,141 50,055 343,196 Collateral for securities loaned 58,961 8,465 67,426 Interest and dividends receivable 3,388 640 4,028 Receivable from capital shares issued 1 9 10 Prepaid expenses and other assets 25 16 41 --------------- --------------- ----------------- Total Assets 355,516 59,185 414,701 LIABILITIES: Payable for securities loaned 58,961 8,465 67,426 Accrued expenses and other payables: Investment advisory fees 57 10 67 Administration fees 4 1 5 Shareholder servicing and distribution fees 28 6 34 Custodian fees 7 1 8 Other 38 7 45 --------------- --------------- ----------------- Total Liabilities 59,095 8,490 67,585 --------------- --------------- ----------------- NET ASSETS $296,421 $50,695 $347,116 =============== =============== ================= NET ASSETS CONSIST OF: Capital $ 286,424 $ 51,186 $ 337,610 Accumulated (distributions in excess of) net investment income (406) 67 (339) Accumulated net realized gains/(losses) from investment transactions (2,871) (1,229) (4,100) Unrealized appreciation from investments 13,274 671 13,945 --------------- --------------- ----------------- NET ASSETS $296,421 $50,695 $347,116 =============== =============== ================= CLASS A SHARES: Net Assets $ 6,951 $ 3,561 $ 10,512 Shares outstanding 688 346 1,040 Redemption price per share $ 10.11 $ 10.29 $ 10.11 =============== =============== ================= Maximum Sales Load 4.00% 4.00% 4.00% --------------- --------------- ----------------- Maximum offering price per share (100%/(100%-maximum sales charge) of net asset value adjusted to the nearest cent) $10.53 $10.72 $10.53 CLASS B SHARES: Net Assets $ 2,545 $ 2,239 $ 4,784 Shares outstanding 252 218 473 Offering price per share* $ 10.11 $ 10.28 $ 10.11 =============== =============== ================= TRUST SHARES: Net Assets $ 286,925 $ 44,895 $ 331,820 Shares outstanding 28,375 4,366 32,821 Offering and redemption price per share $10.11 $10.28 $10.11 =============== =============== ================= *Redemption price per share varies by length of time shares are held. SEE NOTES TO FINANCIALS
6 January 31, 2002 AmSouth Value and Equity Income Fund (Unaudited) Schedule of Investments (Amounts in thousands, except shares) SHARES OR PRINCIPAL AMOUNT -------------------------------------------------------------------------------------------------------------------
EQUITY VALUE FUND INCOME FUND COMBINED COMMON STOCKS (97.4%) AEROSPACE/DEFENSE (1.4%) 9,600 9,600 General Dynamics Corp. 250,000 250,000 Raytheon Company AUTOMOTIVE (0.0%) 4,294 4,294 Ford Motor Co. AUTOMOTIVE PARTS (0.5%) 250,000 250,000 Dana Corp. BANKING (2.8%) 242,184 242,184 Bank of America Corp. 11,000 11,000 PNC Financial Service Group 12,000 12,000 U.S. Bancorp 155,000 155,000 Wachovia Corp. BUSINESS SERVICES (3.3%) 2,343,500 2,343,500 MPS Group, Inc. (b) 325,000 325,000 Reynolds & Reynolds Co., Class A CHEMICALS-SPECIALITY (2.3%) 107,800 107,800 Dow Chemical Co. 530,050 530,050 Engelhard Corp. COMPUTER HARDWARE (2.9%) 533,100 533,100 Compaq Computer Corp. 1,000,000 1,000,000 Gateway, Inc. (b) 6,400 6,400 Hewlett-Packard Co. 100,000 100,000 IBM Corp. COMPUTER SOFTWARE (0.1%) 56,600 56,600 Keane, Inc. (b) COMPUTER SOFTWARE & SERVICES (3.2%) 310,000 310,000 Computer Associates International, Inc. 1,245,000 1,245,000 Enterasys Networks, Inc. (b) CONSUMER DISCRETIONARY (2.0%) $ 3,430 $ 3,430 Costco Co., 0.00%, CVT. BD., 8/19/02 20,900 20,900 Johnson Controls, Inc. 69,000 69,000 Marriott International, Inc., Class A 36,223 36,223 Omnicom Group, Inc. $ 35,000 $ 35,000 Reliant Energy/AOL, 2.00%, CVT. BD., 3/8/02 (b) 109,000 109,000 Walt Disney (The) Co. CONSUMER STAPLES (1.3%) 53,300 53,300 Anheuser-Busch Cos., Inc. 59,870 59,870 PepsiCo, Inc. $ 2,100 2,100 Performance Food Group Co., 5.50%, CVT. BD., 10/16/04 37,000 37,000 Suiza Capital Trust II, 5.50%, CVT. PFD., 4/1/28 ENERGY (0.8%) 62,700 62,700 Apache Corp., $2.02, CVT. PFD., 5/15/02 45,486 45,486 Exxon Mobil Corp. 60,000 60,000 Nabors Industries, Inc. (b) 7 January 31, 2002 AmSouth Value and Equity Income Fund (Unaudited) Schedule of Investments (Amounts in thousands, except shares) SHARES OR PRINCIPAL AMOUNT ------------------------------------------------------------------------------------------------------------------- ELECTRICAL & ELECTRONIC (1.7%) 497,000 497,000 Avnet, Inc. FINANCE (7.3%) 37,000 37,000 Ace Ltd., 8.25%, CVT. PFD., 5/16/03 58,000 58,000 American Express Co. 222,732 73,837 296,569 Citigroup, Inc. 23,000 23,000 Goldman Sachs Group, Inc. 13,500 40,622 54,122 J.P. Morgan Chase & Co. 18,800 46,100 64,900 Lehman Brothers Holdings, Inc. 11,600 11,600 Morgan Stanley Dean Witter & Co. 36,800 36,800 MBIA, Inc. 40,000 40,000 Prudential Financial, Inc. 650,000 650,000 Washington Mutual, Inc. 29,750 29,750 Washington Mutual, Inc., 8.00%, CVT.PFD., 8/16/04 (PIES) FOOD PRODUCTS, PROCESSING, & PACKAGING (1.1%) 405,000 405,000 Sara Lee Corp. FOREST & PAPER PRODUCTS (4.4%) 200,000 200,000 Georgia Pacific Corp. 200,000 200,000 International Paper Co. 175,000 175,000 Weyerhaeuser 195,000 195,000 Willamette Industries, Inc. HEALTH CARE (3.9%) 49,100 49,100 Abbott Laboratories $ 1,840 $ 1,840 Amerisource Health Corp., 5.00%, CVT. BD., 12/1/07 36,000 36,000 Anthem, Inc., 6.00%, CVT. PFD., 11/15/04 $ 1,260 $ 1,260 Gilead Sciences, Inc., 5.00%, CVT. BD., 12/20/03 22,500 22,500 HCA-The Healthcare Co. 597,001 597,001 Health Management Assoc., Inc., Class A (b) 43,674 43,674 Johnson & Johnson 56,400 56,400 Pfizer, Inc. 65,900 65,900 Pharmacia Corp. HOTELS & LODGING (2.0%) 1,300,000 1,300,000 Hilton Hotels Corp. INDUSTRIALS (1.7%) 78,100 78,100 General Electric Co. 24,300 24,300 Illinois Tool Works, Inc. $ 2,900 $ 2,900 L-3 Communications, Inc., 5.25%, CVT. BD., 6/1/09 22,000 22,000 Minnesota Mining & Manufacturing Co. 42,000 42,000 W.W. Grainger, Inc. INSURANCE (9.5%) 290,000 290,000 ACE Ltd. 10,297 10,297 American International Group, Inc. 270,000 270,000 Chubb Corp. 117,000 117,000 Marsh & McLennan Cos., Inc. 150,000 150,000 MGIC Investment Corp. 480,000 480,000 St. Paul Cos., Inc. MATERIALS (0.4%) 39,400 39,400 Ball Corp. 8 January 31, 2002 AmSouth Value and Equity Income Fund (Unaudited) Schedule of Investments (Amounts in thousands, except shares) SHARES OR PRINCIPAL AMOUNT ------------------------------------------------------------------------------------------------------------------- MEDICAL SUPPLIES (2.0%) 320,000 320,000 C.R. Bard, Inc. METALS & MINING (0.0%) 9,800 9,800 Alcoa, Inc. NEWSPAPERS (0.8%) 96,000 96,000 Gannett Co., Inc. OIL & GAS EXPLORATION, PRODUCTION, & SERVICES (15.4%) 6,396 6,396 BP Amoco, PLC, ADR 153,000 153,000 Burlington Resources, Inc. 173,369 173,369 ChevronTexaco Corp. 150,000 150,000 El Paso Corp. 235,000 235,000 Kerr-McGee Corp. 521,600 521,600 Marathon Oil Corp. 300,000 300,000 Noble Affiliates 15,300 15,300 Royal Dutch Petroleum Co. 420,000 420,000 Sunoco, Inc. 585,367 585,367 Valero Energy Corp. 750,000 750,000 Williams Cos., Inc. PHARMACEUTICALS (2.8%) 294,450 294,450 Pharmacia Corp. 300,000 300,000 Schering-Plough Corp. RESTAURANTS (0.5%) 150,000 150,000 McDonald's Corp. RETAIL (2.5%) 320,000 320,000 CVS Corp. 200,000 200,000 Gap (The), Inc. 175,000 175,000 Target Corp. TECHNOLOGY (2.8%) $ 2,015 $ 2,015 Affiliated Computer Services, 3.50%, CVT. BD., 2/15/06 79,000 79,000 Agilent Technologies, Inc. (b) 62,100 62,100 Dell Computer Corp. (b) $ 2,050 $ 2,050 Extreme Networks, Inc., 3.50%, CVT. BD., 12/01/06 (c) 34,500 34,500 Microsoft Corp. (b) $ 2,100 $ 2,100 Photronics, Inc., 4.75%, CVT. BD., 12/20/04, (c) $ 1,710 $ 1,710 Semtech Corp., 4.50%, CVT. BD., 2/1/07 $ 1,335 $ 1,335 Siebel Systems, Inc., 5.50%, CVT. BD., 9/15/02 70,000 70,000 Solectron Corp., 7.25%, CVT. PFD., 11/15/04 69,280 69,280 Texas Instruments, Inc. TELECOMMUNICATIONS- EQUIPMENT (3.9%) 345,000 345,000 Harris Corp. 1,760,000 1,760,000 Lucent Technologies, Inc. 900,000 900,000 Nortel Networks Corp., ADR TELECOM SERVICES (2.5%) 225,000 46,000 271,000 BellSouth Corp. 98,000 98,000 Mediaone Group/Vodafone, 7.00%, CVT. PFD., 11/15/02 105,000 50,950 155,950 SBC Communications, Inc. TELECOMMUNICATIONS -WIRELESS (0.2%) 157,682 157,682 AT&T Wireless Services Inc. (b) TRANSPORTATION LEASING & TRUCKING (1.0%) 300,000 300,000 Ryder System, Inc. TRAVEL (1.3%) 3,200 3,200 Carnival Corp. 550,000 550,000 Cendant Corp. (b) 9 January 31, 2002 AmSouth Value and Equity Income Fund (Unaudited) Schedule of Investments (Amounts in thousands, except shares) SHARES OR PRINCIPAL AMOUNT ------------------------------------------------------------------------------------------------------------------- UTILITIES-ELECTRIC & GAS (6.9%) 475,000 475,000 Constellation Energy Group 156,264 156,264 Duke Energy Corp. 6,400 6,400 Exelon Corp. 1,725,000 1,725,000 Mirant Corp. (b) 680,000 680,000 Reliant Energy, Inc. UTILITIES- TELECOMMUNICATIONS (2.6%) 265,000 265,000 AT&T Corp. 330,000 330,000 Verizon Communications UTILITIES (0.2%) 32,300 32,300 Sierra Pacific Resources, 9.00%, CVT.PFD., 11/15/05
(a) Represents cost for financial reporting purposes, is substantially the same as cost for federal income tax purposes, and differs from market value by unrealized appreciation of securities as follows: Unrealized appreciation $186,879 Unrealized depreciation (42,252) ========= Net unrealized appreciation $144,627 (b) Represents a non-income producing security. (c) Represents a restricted security, purchased under Rule 144A, which is exempt from registration under the Security Act of 1933, as amended. These securities have been deemed liquid under guidelines established by the Board of Trustees. ADR - American Depositary Receipt CVT. BD. - Convertible Bond CVT. PFD. - Convertible Preferred Stock PIES - Premium Income Equity Securities PLC - Public Limited Company Breakdown of Sectors* Common Stocks 92.2% Convertible Preferred Stocks 2.5% Convertible Bonds 3.3% Investment Companies 3.3% -------- Total 101.3% ======== * Percentages indicated are based on net assets. 10 January 31, 2002 AmSouth Value and Equity Income Fund (Unaudited) Schedule of Investments (Amounts in thousands, except shares) (Continued) VALUE ------------------------------------------------------------------------------- EQUITY VALUE FUND INCOME FUND COMBINED COMMON STOCKS (97.4%) AEROSPACE/DEFENSE (1.4%) $860 $ 860 9,567 9,567 10,427 10,427 AUTOMOTIVE (0.0%) 66 66 AUTOMOTIVE PARTS (0.5%) 3,653 3,653 BANKING (2.8%) 15,265 15,265 635 635 250 250 5,154 5,154 21,304 21,304 BUSINESS SERVICES (3.3%) 17,107 17,107 8,678 8,678 25,785 25,785 CHEMICALS-SPECIALITY (2.3%) 3,184 3,184 14,768 14,768 17,952 17,952 COMPUTER HARDWARE (2.9%) 6,584 6,584 5,210 5,210 142 142 10,788 10,788 22,724 22,724 COMPUTER SOFTWARE (0.1%) 1,036 1,036 COMPUTER SOFTWARE & SERVICES (3.2%) 10,683 10,683 13,720 13,720 24,403 24,403 CONSUMER DISCRETIONARY (2.0%) 3,584 3,584 1,757 1,757 2,814 2,814 3,165 3,165 1,508 1,508 2,296 2,296 15,124 15,124 CONSUMER STAPLES (1.3%) 2,519 2,519 3,000 3,000 2,848 2,848 1,748 1,748 10,115 10,115 ENERGY (0.8%) 2,771 2,771 1,776 1,776 1,879 1,879 6,426 6,426 11 January 31, 2002 AmSouth Value and Equity Income Fund (Unaudited) Schedule of Investments (Amounts in thousands, except shares) (Continued) VALUE ------------------------------------------------------------------------------- EQUITY VALUE FUND INCOME FUND COMBINED ELECTRICAL & ELECTRONIC (1.7%) 13,245 13,245 FINANCE (7.3%) 2,899 2,899 2,079 2,079 10,557 3,500 14,057 2,001 2,001 460 1,383 1,843 1,218 2,986 4,204 638 638 1,983 1,983 2,198 2,198 22,308 22,308 2,255 2,255 35,181 21,284 56,465 FOOD PRODUCTS, PROCESSING, & PACKAGING (1.1%) 8,566 8,566 FOREST & PAPER PRODUCTS (4.4%) 5,000 5,000 8,356 8,356 10,206 10,206 10,813 10,813 34,375 34,375 HEALTH CARE (3.9%) 2,833 2,833 2,629 2,629 2,451 2,451 1,959 1,959 956 956 11600 11,600 2,512 2,512 2,350 2,350 2,669 2,669 12,556 17,403 29,959 HOTELS & LODGING (2.0%) 15,600 15,600 INDUSTRIALS (1.7%) 2,901 2,901 1,735 1,735 4,095 4,095 2,438 2,438 2,281 2,281 13,450 13,450 INSURANCE (9.5%) 11,267 11,267 764 764 18,049 18,049 11,916 11,916 10,050 10,050 21,455 21,455 73,501 73,501 MATERIALS (0.4%) 3,101 3,101 12 January 31, 2002 AmSouth Value and Equity Income Fund (Unaudited) Schedule of Investments (Amounts in thousands, except shares) (Continued) VALUE ------------------------------------------------------------------------------- EQUITY VALUE FUND INCOME FUND COMBINED MEDICAL SUPPLIES (2.0%) 15,696 15,696 METALS & MINING (0.0%) 351 351 NEWSPAPERS (0.8%) 6,475 6,475 OIL & GAS EXPLORATION, PRODUCTION, & SERVICES (15.4%) 299 299 5,239 5,239 14,528 14,528 5,693 5,693 12,443 12,443 14,631 14,631 9,750 9,750 765 765 16,194 16,194 26,891 26,891 13,260 13,260 119,693 119,693 PHARMACEUTICALS (2.8%) 11,925 11,925 9,714 9,714 21,639 21,639 RESTAURANTS (0.5%) 4,077 4,077 RETAIL (2.5%) 8,704 8,704 2,880 2,880 7,772 7,772 19,356 19,356 TECHNOLOGY (2.8%) 2,538 2,538 2,398 2,398 1,707 1,707 1,963 1,963 2,198 2,198 2,447 2,447 1,832 1,832 2,169 2,169 2,084 2,084 2,162 2,162 21,498 21,498 TELECOMMUNICATIONS- EQUIPMENT (3.9%) 12,072 12,072 11,510 11,510 6,516 6,516 30,098 30,098 TELECOM SERVICES (2.5%) 9,000 1,840 10,840 2,313 2,313 3,932 1,908 5,840 12,932 6,061 18,993 TELECOMMUNICATIONS -WIRELESS (0.2%) 1,813 1,813 TRANSPORTATION LEASING & TRUCKING (1.0%) 7,494 7,494 TRAVEL (1.3%) 87 87 9,614 9,614 9,701 9,701 13 January 31, 2002 AmSouth Value and Equity Income Fund (Unaudited) Schedule of Investments (Amounts in thousands, except shares) (Continued) VALUE ------------------------------------------------------------------------------- EQUITY VALUE FUND INCOME FUND COMBINED UTILITIES-ELECTRIC & GAS (6.9%) 13,395 13,395 5,449 5,449 315 315 17,268 17,268 17,054 17,054 ------------------------------------ 53,481 53,481 ------------------------------------ UTILITIES- TELECOMMUNICATIONS (2.6%) 4,691 4,691 15,295 15,295 ------------------------------------ 19,986 19,986 ------------------------------------ UTILITIES (0.2%) 1,786 1,786 ------------------------------------ TOTAL COMMON STOCKS & SECURITIES CONVERTIBLE TO COMMON STOCKS 643,166 116,248 759,414 INVESTMENT COMPANIES (3.3%) 18,106 18,106 5,992 5,992 ------------------------------------ 1,324 1,324 ------------------------------------ TOTAL INVESTMENT COMPANIES 24,098 1,324 25,422 ------------------------------------ TOTAL INVESTMENTS - 101.3% 667,264 117,572 784,836 Cost (a) 529,041 111,168 640,209 Liabilities in excess of other assets - (1.3)% (12,747) 2,558 (10,189) ------------------------------------ NET ASSETS 654,517 120,130 774,647 ==================================== (a) Represents cost for financial reporting purposes, is substantially the same as cost for federal income tax purposes, and differs from market value by unrealized appreciation of securities as follows: Unrealized appreciation $186,879 Unrealized depreciation (42,252) ========= Net unrealized appreciation $144,627 (b) Represents a non-income producing security. (c) Represents a restricted security, purchased under Rule 144A, which is exempt from registration under the Security Act of 1933, as amended. These securities have been deemed liquid under guidelines established by the Board of Trustees. ADR - American Depositary Receipt CVT. BD. - Convertible Bond CVT. PFD. - Convertible Preferred Stock PIES - Premium Income Equity Securities PLC - Public Limited Company Breakdown of Sectors* Common Stocks 92.2% Convertible Preferred Stocks 2.5% Convertible Bonds 3.3% Investment Companies 3.3% -------- Total 101.3% ======== * Percentages indicated are based on net assets. 14
January 31, 2002 AmSouth Tennessee Tax-Exempt Fund and Limited Term Tax-Free Fund (Unauditied) Schedule of Investments (Amounts in thousands, except shares) Shares or Principal Amount --------------------------------------------------- Tennessee Ltd. Term TN Tax-Exempt Tax-Exempt Combined Municipal Bonds (96.6%) Tennessee (96.6%) Anderson County, Refunding, GO, 1,055 1,055 5.00%, 4/1/09, FSA Bradley County, Refunding, Hospital, 1,000 1,000 GO, 4.25%, 3/1/10, FGIC Bristol Health & Educational Facilities, Revenue, Bristol Memorial Hospital, 3000 3,000 6.75%, 9/1/07, FGIC Chattanooga Health Education & Housing Facilities Board, Revenue, Catholic Health Initiatives, Refunding, 500 500 5.50%, 12/1/05 Chattanooga, GO, 5.38%, 9/1/09, 595 595 Callable 9/1/06 @ 101, FGIC Chattanooga-Hamilton County Hospital Authority, Hospital Revenue, 1,000 1,000 5.63%, 10/1/09, FSA Clarksville, Water, Sewer & Gas, Refunding, 6.13%, 2/1/12, Callable 500 500 2/1/02 @ 102, OID, MBIA Clarksville, Water Sewer & Gas 1570 1,570 Revenue, Refunding, 5.15%, 2/1/14, FSA Dickson County, Public Improvements & Schools, GO, 5.25%, 4/1/16, Callable 1,000 1,000 4/1/10 @ 100, OID, FSA Franklin, Refunding, GO, 4.25%, 470 470 11/1/2010 Hamilton County, GO, 5.00%, 11/1/11, 1,000 1,000 Callable 11/1/08 @ 101 Jackson, Hospital Revenue, Refunding 1,000 1,000 and Improvement, 6.00%, 4/1/05, AMBAC Johnson City Health & Educational Facilities Board, Hospital Revenue, Refunded-1st, MTG-MTN, States 1,000 1,000 Health-A, 6.50%, 7/1/14, MBIA Johnson City, Refunding, GO, 4.70%, 1,000 1,000 6/1/12, OID, FGIC Knox County Health Education & Housing Facilities Board, Hospital Facilities Revenue, Mercy Health System, Series B, 5.30%, 9/1/04, 1000 1,000 Callable 9/1/03 @ 102, AMBAC, OID Knox County Health Education & Housing Facilities Board, Hospital Revenue, Refunding, 7.25%, 1/1/08, 750 750 MBIA Knox County, Public Improvements, 425 425 GO, 5.00%, 5/1/02 Knox County Health Education & Housing Facilities Board, Hospital Facilities Revenue, Fort Sanders 2000 2,000 Alliance, 7.25%, 1/1/09, MBIA Knox County, GO, 5.00%, 2/1/12, 2,000 2,000 Callable 2/1/04 @ 101, OID 15 January 31, 2002 AmSouth Tennessee Tax-Exempt Fund and Limited Term Tax-Free Fund (Unauditied) Schedule of Investments (Amounts in thousands, except shares) Knox County, Refunding, GO, 6.50%, 1,500 1,500 4/1/04, Callable 4/1/03 @ 102 2,000 2,000 Knox County, Refunding, GO, 5.50%, 4/1/11 Knoxville, Water Revenue, 5.00%, 1,000 1,000 3/1/13, Callable 3/1/10 @ 100, MBIA 1,000 1,000 Marion County, GO, 5.00%, 4/1/11, AMBAC Memphis, Electrical Systems Revenue, Refunding, 6.00%, 1/1/05, 500 500 OID Memphis, Refunding, GO, 6.00%, 500 500 11/1/2003 1,000 1,000 Memphis Water Revenue, 5.90%, 1/1/04, OID Memphis, General Improvements, 1000 1,000 Refunding, GO, 5.00%, 11/1/15 1,000 1,000 Memphis, GO, 6.25%, 7/1/04 1,000 1,000 Memphis, GO, 6.00%, 11/1/06 Metropolitan Government, Nashville & Davidson County, Health & Education Facilities Board, Revenue, The Vanderbilt University, Series A, 500 500 6.00%, 7/1/07 Metropolitan Government, Nashville & Davidson County, Refunding, GO, 750 750 5.00%, 12/1/06 Metropolitan Government, Nashville & Davidson County, Electric Revenue, 1,000 1,000 Refunding, Series B, 5.50%, 5/15/12 Metropolitan Government, Nashville & Davidson County, Electric Revenue, 1,000 1,000 Refunding, Series B, 5.50%, 5/15/14 Metropolitan Government, Nashville & Davidson County, Refunding & Improvement, Series A & B, GO, 1000 1,000 5.25%, 10/15/09 Metropolitan Government, Nashville & Davidson County, Refunding, GO, 1500 1,500 6.00%, 12/1/09 Metropolitan Nashville Airport Authority, Airport Revenue, Refunding, 500 500 Series A, 6.63%, 7/1/07, FGIC Oak Ridge, GO, 5.00%, 4/1/13, 1,000 1,000 Callable 4/1/11 @ 100, AMBAC Putnam County, Schools, GO, 5.50%, 1000 1,000 4/1/19, Prerefunded 4/1/10 @100, OID, FGIC Rutherford County, Capital Outlay 500 500 Notes, GO, 6.00%, 4/1/04 Rutherford County, Capital Outlay 1050 1,050 Notes, Series A, GO, 6.50%, 5/1/06 Rutherford County, Capital Outlay, 1,500 1,500 Series A, GO, 6.25%, 5/1/04 Rutherford County, Public Improvements, GO, 5.40%, 4/1/13, 1000 1,000 OID, Prerefunded 4/1/06 @ 100 Shelby County Health Educational & Housing Facility Board, Hospital Revenue, Methodist Healthcare, 5.50%, 600 600 4/1/05, MBIA 16 January 31, 2002 AmSouth Tennessee Tax-Exempt Fund and Limited Term Tax-Free Fund (Unauditied) Schedule of Investments (Amounts in thousands, except shares) Shelby County Health Education & Housing Facilities Board, Hospital Revenue, Methodist Healthcare, 5.10%, 2,000 2,000 4/1/12, Callable 4/1/08 @ 101, MBIA Shelby County Health Education, & Housing Facilities Board, Hospital Revenue, Methodist Health Systems, 3500 3,500 Inc., 6.25%, 8/1/07, MBIA Shelby County Schools, Series A, GO, 1000 1,000 5.88%, 6/1/19, Prerefunded 6/1/06 @ 100 Shelby County, Public Improvements, Series A, GO, 5.88%, 6/1/20, 1,000 500 1,500 Prerefunded 6/1/06 @ 100, OID Shelby County, Refunding, Series B, 1,000 1,000 GO, 5.25%, 12/1/10, Callable 12/1/06 @ 101, OID 1,000 1,000 Shelby County, Series A, GO, 6.75%, 4/1/05 Tennesse State School Board Authority, Refunding, Higher 500 500 Educational Facilities, 5.00%, 5/1/05 Tennessee State, GO, 5.00%, 5/1/09, 500 500 Callable 5/1/07 @ 101.5, OID Tennessee State, Refunding, Series A, 500 500 GO, 5.00%, 5/1/05 1500 1,500 Tennessee State, Series B, GO, 6.00%, 5/1/05 2000 2,000 Tennessee State, Series A, GO, 7.00%, 3/1/05 Williamson County, GO, 6.00%, 500 500 3/1/2008 1000 1,000 Williamson County, GO, 5.00%, 3/1/11 Williamson County, Public Improvements, 1000 1,000 GO, 5.00%, 3/1/07 TOTAL MUNICIPAL BONDS Investment Companies (2.6%) 669,519 544,357 1,213,876 AIM Tax-Free Money Market Fund 1,437 588,321 589,758 AmSouth Tax-Exempt Money Market Fund TOTAL INVESTMENT COMPANIES TOTAL INVESTMENTS - 99.2% Cost (a) Other Assets in Excess of Liabilities - 0.8% NET ASSETS (a) Represents cost for financial reporting purposes, is substantially the same as cost for federal income tax purposes, and differs from market value by unrealized appreciation of securities as follows: Unrealized appreciation $ 1,316 Unrealized depreciation (192) ============= Net unrealized appreciation $ 1,124 AMBAC - Insured by AMBAC Indemnity Corp. FGIC - Insured by Financial Guaranty Insurance Corp. FSA - Insured by Financial Security Assurance Inc. GO - General Obligation MBIA - Insured by Municipal Bond Insurance Assoc. MTN - Medium Term Note OID - Original Issue Discount
17
January 31, 2002 AmSouth Tennessee Tax-Exempt Fund and Limited Term Tax-Free Fund (Unauditied) Schedule of Investments (Amounts in thousands, except shares) Value ------------------------------------------------ Tennessee Ltd. Term TN Tax-Exempt Tax-Exempt Combined Municipal Bonds (96.6%) Tennessee (96.6%) 1,114 1,114 998 998 3,431 3,431 535 535 640 640 1,093 1,093 510 510 1,653 1,653 1,033 1,033 475 475 1,048 1,048 1,088 1,088 1,164 1,164 1,027 1,027 1061 1,061 877 877 453 453 2,361 2,361 2,120 2,120 18 January 31, 2002 AmSouth Tennessee Tax-Exempt Fund and Limited Term Tax-Free Fund (Unauditied) Schedule of Investments (Amounts in thousands, except shares) Value ------------------------------------------------ Tennessee Ltd. Term TN Tax-Exempt Tax-Exempt Combined 1,598 1,598 2,178 2,178 1,030 1,030 1,051 1,051 541 541 534 534 1,064 1,064 1,037 1,037 1,089 1,089 1,117 1,117 557 557 806 806 1,092 1,092 1,090 1,090 1,080 1,080 1,694 1,694 568 568 1,034 1,034 1,099 1,099 537 537 1181 1,181 1,624 1,624 1,083 1,083 642 642 19 January 31, 2002 AmSouth Tennessee Tax-Exempt Fund and Limited Term Tax-Free Fund (Unauditied) Schedule of Investments (Amounts in thousands, except shares) Value ------------------------------------------------ Tennessee Ltd. Term TN Tax-Exempt Tax-Exempt Combined 2,073 2,073 3,900 3,900 1105 1,105 1,105 553 1,658 1,054 1,054 1,111 1,111 530 530 529 529 531 531 1,640 1,640 2233 2,233 557 557 1056 1,056 1064 1,064 --------------------------------------------- 55,612 11,436 67,048 --------------------------------------------- Investment Companies (2.6%) AIM Tax-Free Money Market Fund 670 544 1,214 AmSouth Tax-Exempt Money Market Fund 1 589 590 --------------------------------------------- TOTAL INVESTMENT COMPANIES 671 1,133 1,804 --------------------------------------------- TOTAL INVESTMENTS - 99.2% 56,283 12,569 68,852 Cost (a) 55,321 12,407 67,728 Other Assets in Excess of Liabilities - 0.8% 862 (327) 535 --------------------------------------------- 57,145 12,242 69,387 NET ASSETS ============================================= (a) Represents cost for financial reporting purposes, is substantially the same as cost for federal income tax purposes, and differs from market value by unrealized appreciation of securities as follows: Unrealized appreciation $ 1,316 Unrealized depreciation (192) ============= Net unrealized appreciation $ 1,124 AMBAC - Insured by AMBAC Indemnity Corp. FGIC - Insured by Financial Guaranty Insurance Corp. FSA - Insured by Financial Security Assurance Inc. GO - General Obligation MBIA - Insured by Municipal Bond Insurance Assoc. MTN - Medium Term Note OID - Original Issue Discount
20
Shares or Principal Amount ---------------------------------------------------------------------- Government Income Ltd. Term U.S. Govt Combined U.S. Government Agencies (70.4%) Fannie Mae (9.4%) 2,000 2,000 5.75%, 4/15/03 5,000 5,000 5.65%, 3/21/06, Callable 3/21/03 @ 100 2,000 2,000 6.94%, 9/5/07, Callable 9/5/02 @ 100 5,000 5,000 6.27%, 2/5/08, Callable 2/5/03 @ 100, MTN 7,000 7,000 6.00%, 5/15/08 4,637 4,637 7.50%, 4/1/15 - 6/1/15 2,506 2,506 8.00%, 7/1/15 1,000 1,000 5.38%, 3/15/02 500 500 5.98%, 11/12/02 500 500 5.63%, 5/14/04 250 250 5.75%, 6/15/05 500 500 6.44%, 8/14/07 500 500 6.65%, 11/14/07 Federal Farm Credit Bank (8.3%) 10,000 10,000 6.20%, 7/1/02 8,000 8,000 5.07%, 12/15/03 7,000 7,000 5.70%, 9/3/08 750 750 5.76%, 7/7/03 1,000 1,000 5.07%, 12/15/03 1,000 1,000 3.88%, 12/15/04 500 500 5.75%, 9/1/05, MTN Federal Government Loan Mortgage Corporation (0.8%) 2,760 2,760 6.50%, 5/1/31 Federal Home Loan Bank (10.1%) 3,000 3,000 5.35%, 12/1/03 2,250 2,250 6.34%, 6/29/04 10,000 10,000 7.25%, 5/13/05 10,000 10,000 5.80%, 9/2/08 5,000 5,000 5.89%, 3/30/09 1,000 1,000 1.91%, 2/27/02 750 750 6.34%, 6/29/04 375 375 5.50%, 8/15/08 1,000 1,000 5.82%, 3/30/09 Freddie Mac (10.5%) 10,000 10,000 5.00%, 1/15/04 2,954 2,954 5.50%, 8/1/08 10,000 10,000 5.75%, 3/15/09 5,613 5,613 6.00%, 6/1/16 - 8/1/18 3,371 3,371 7.00%, 6/1/31 500 500 6.16%, 9/25/02 1,500 1,500 3.25%, 12/15/03 1,000 1,000 5.00%, 1/15/04 985 985 5.50%, 8/1/08 21 VALUE ------------------------------------------------------------------------------ Government Income Ltd. Term U.S. Govt Combined U.S. Government Agencies (70.4%) Fannie Mae (9.4%) 2,077 2,077 5,163 5,163 2,050 2,050 5,150 5,150 7,301 7,301 4,859 4,859 2,637 2,637 1,004 1,004 515 515 522 522 262 262 533 533 515 515 ---------------------------------------------------------------------------- 29,237 3,351 32,588 ---------------------------------------------------------------------------- Federal Farm Credit Bank (8.3%) 10,177 10,177 8,250 8,250 7,144 7,144 781 781 1,031 1,031 998 988 522 522 ---------------------------------------------------------------------------- 25,571 3,332 28,903 ---------------------------------------------------------------------------- Federal Government Loan Mortgage Corporation (0.8%) 2,783 2,783 ---------------------------------------------------------------------------- Federal Home Loan Bank (10.1%) 3,106 3,106 2,384 2,384 10,928 10,928 10,238 10,238 5,119 5,119 999 999 795 795 378 378 1,019 1,019 ---------------------------------------------------------------------------- 31,775 3,191 34,966 ---------------------------------------------------------------------------- Freddie Mac (10.5%) 10,296 10,296 2,961 2,961 10,225 10,225 5,624 5,624 3,450 3,450 513 513 1,498 1,498 1,030 1,030 987 987 ---------------------------------------------------------------------------- 32,556 4,028 36,584 ---------------------------------------------------------------------------- 22 Government National Mortgage Assoc. (21.8%) 4,202 4,202 5.50%, 2/15/14 - 10/15/28 10,107 10,107 6.00%, 5/15/16 - 6/15/31 9,555 9,555 6.50%, 7/15/14 - 5/15/31 12,189 12,189 7.00%, 12/15/26 - 2/20/29 23,433 23,433 7.50%, 9/20/15 - 8/20/30 9,543 9,543 8.00%, 7/15/26 - 6/20/30 96 96 8.50%, 12/15/19 - 2/15/23 368 368 9.00%, 6/15/18 - 9/15/22 307 307 9.50%, 5/15/18 - 8/15/21 1,967 1,967 5.50%, 3/15/16 - 8/20/16 700 700 7.00%, 8/15/11 - 9/15/11 902 902 7.50%, 5/15/10 - 10/15/11 20 20 9.00%, 2/15/03 Private Export Funding (4.7%) 2,000 2,000 6.31%, 9/30/04, Series C 2,500 2,500 5.53%, 4/30/06 2,000 2,000 6.49%, 7/15/07, Series B 3,800 3,800 5.75%, 1/15/08 3,000 3,000 5.87%, 7/31/08, Series D 1,000 1,000 6.45%, 9/30/04 1,000 1,000 5.53%, 4/30/06 500 500 5.75%, 1/15/08 Sallie Mae (0.7%) 2,300 2,300 5.25%, 3/15/06 Tennessee Valley Authority (4.1%) 1,500 1,500 5.38%, 11/13/08 5,000 5,000 5.63%, 1/18/11, Series A 5,000 5,000 6.75%, 11/1/25 1,000 1,000 6.00%, 9/24/02 1,350 1,350 5.38%, 11/13/08 U.S. Treasury Bonds (7.6%) 7,900 7.50%, 11/15/16 7,000 7.25%, 8/15/22 7,000 7.63%, 11/15/22 TOTAL U.S. TREASURY BONDS U.S. Treasury Notes (14.7%) 10,000 7.50%, 5/15/02 19,000 5.75%, 8/15/03 - 8/15/10 1,500 1,500 6.63%, 4/30/02 3,000 3,000 7.50%, 5/15/02 - 2/15/05 750 750 6.25%, 6/30/02 1,000 1,000 5.75%, 10/31/02 3,000 3,000 5.63%, 12/31/02 - 2/15/06 1,000 1,000 4.25%, 3/31/03 1,000 1,000 4.00%, 4/30/03 2,000 2,000 2.75%, 9/30/03 4,000 4,000 6.50%, 8/15/05 - 10/15/05 2,000 2,000 3.50%, 11/15/06 1,000 1,000 4.75%, 11/15/08 TOTAL U.S. TREASURY NOTES Investment Companies (6.2%) 13,655,502 2,495,761 16,151,263 AIM Treasury Money Market Fund 3,518,649 1,698,791 5,217,440 AmSouth Treasury Reserve Money Market TOTAL INVESTMENTS - 98.9% Cost(a) Other Assets in Excess of Liabilities - 1 NET ASSETS (a) Represents cost for financial reporting purposes, is substantially the same as cost for federal income tax purposes, and differs from market value by unrealized appreciation of securities as follows: Unrealized appreciation $ 14,250 Unrealized depreciation (305) Net unrealized appreciation =========== $ 13,945 MTN - Medium Term Note
23 VALUE ------------------------------------------------------------------------------ Government Income Ltd. Term U.S. Govt Combined Government National Mortgage Assoc. (21.8%) 4,112 4,112 10,142 10,142 9,736 9,736 12,540 12,540 24,575 24,575 10,071 10,071 106 106 405 405 343 343 1,956 734 955 21 ------------------------------------------------------------------------------ 72,030 3,666 75,696 ------------------------------------------------------------------------------ Private Export Funding (4.7%) 2,125 2,125 2,575 2,575 2,140 2,140 3,914 3,914 3,086 3,086 1,065 1,030 515 ------------------------------------------------------------------------------ 13,840 2,610 16,450 ------------------------------------------------------------------------------ 2,346 2,346 ------------------------------------------------------------------------------ Sallie Mae (0.7%) 2,346 2,346 ------------------------------------------------------------------------------ Tennessee Valley Authority (4.1%) 1,494 1,494 4,938 4,938 5,282 5,282 1,016 1,345 1,345 ------------------------------------------------------------------------------ 11,714 2,361 14,075 ------------------------------------------------------------------------------ 219,506 24,885 244,391 ------------------------------------------------------------------------------ U.S. Treasury Bond (7.6%) 9,417 8,317 8,646 ------------------------------------------------------------------------------ 26,380 26,380 ------------------------------------------------------------------------------ U.S. Treasury Notes (14.7%) 10,166 19,915 1,518 1,518 3,229 3,229 764 764 1,027 1,027 3,138 3,138 1,021 1,021 1,019 1,019 1,997 1,997 4,339 4,339 1,926 1,926 997 997 ------------------------------------------------------------------------------ 30,081 20,975 51,056 ------------------------------------------------------------------------------ 24 VALUE ------------------------------------------------------------------------------ Government Income Ltd. Term U.S. Govt Combined Investment Companies (6.2%) 13,655 2,496 16,151 3,519 1,699 5,218 ------------------------------------------------------------------------------ 17,174 4,195 21,369 ------------------------------------------------------------------------------ 293,141 50,055 343,196 279,867 49,384 329,251 3,280 640 3,920 ------------------------------------------------------------------------------ 296,421 50,695 347,116 ==============================================================================
25 NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF COMBINATION: The unaudited Pro Forma Combined Statements of Assets and Liabilities, Statements of Operations, and Schedules of Portfolio Investments reflect the accounts of six investment portfolios offered by the AmSouth Mutual Funds (the "AmSouth Funds"): the AmSouth Equity Income Fund, the AmSouth Value Fund, the AmSouth Limited Term U.S. Government Fund, the AmSouth Government Income Fund, the AmSouth Limited Term Tennessee Tax-Exempt Fund, and the AmSouth Tennessee Tax-Exempt Fund, (collectively, the "Funds" and individually a "Fund") as if the proposed reorganization occurred as of and for the six months ended January 31, 2002. These statements have been derived from books and records utilized in calculating daily net asset value at January 31, 2002. The Reorganization Agreement provides that on the Closing Date of the Reorganization, all of the assets and liabilities will be transferred as follows such that at and after the Reorganization, the assets and liabilities of the applicable Acquired Funds will become the assets and liabilities of the corresponding Acquiring Fund (see table below): AmSouth Equity Income Fund into AmSouth Value Fund AmSouth Limited Term U.S. Government Fund into AmSouth Government Income Fund AmSouth Limited Term Tennessee Tax-Exempt Fund into AmSouth Tennessee Tax-Exempt Fund In exchange for the transfer of assets and liabilities, the Company will issue to the Value Fund, the Limited Term Bond Fund, and the Tennessee Tax-Exempt Fund (each, an "Acquiring Fund") full and fractional shares of the corresponding Equity Income Fund, the Limited Term U.S. Government Fund, the Limited Term Tennessee Tax-Exempt Fund (each, an "Acquired Fund"), and the Acquired Funds will make a liquidating distribution of such shares to its shareholders. The number of shares of the Acquiring Funds so issued will be equal in value to the full and fractional shares of the Acquired Funds that are outstanding immediately prior to the Reorganization. At and after the Reorganization, all debts, liabilities and obligations of Acquired Funds will attach to the Acquiring Funds and may thereafter be enforced against the Acquiring Funds to the same extent as if the Acquiring Funds had incurred them. The pro forma statements give effect to the proposed transfer described above. 26 Under the purchase method of accounting for business combinations under accounting principles generally accepted in the United States of America ("GAAP"), the basis on the part of the Acquiring Funds, of the assets of the Acquired Funds will be the fair market value of such assets on the Closing Date of the Reorganization. The Acquiring Funds will recognize no gain or loss for federal tax purposes on its issuance of shares in the Reorganization, and the basis to the Acquiring Funds of the assets of the Acquired Funds received pursuant to the Reorganization will equal the fair market value of the consideration furnished, and costs incurred, by the Acquired Funds in the Reorganization -- i.e., the sum of the liabilities assumed, the fair market value of the Acquired Funds shares issued, and such costs. For accounting purposes, the Acquiring Funds are the surviving portfolios of this Reorganization. The pro forma statements reflect the combined results of operations of the Acquired Funds and the Acquiring Funds. However, should such Reorganization be effected, the statements of operations of the Acquiring Funds will not be restated for pre-combination period results of the corresponding Acquired Funds. The Pro Forma Combined Statements of Assets and Liabilities, Statements of Operations, and Schedules of Portfolio Investments should be read in conjunction with the historical financial statements of the Funds incorporated by reference in the Statement of Additional Information. The Acquiring Funds and the Acquired Funds are each separate portfolios of the AmSouth Mutual Funds, and are registered as open-end management companies under the Investment Company Act of 1940. The investment objectives of each fund are listed below.
--------------------------------------------------------------------------------------------------------------------------------- EQUITY INCOME FUND VALUE FUND --------------------------------------------------------------------------------------------------------------------------------- Investment Objective Seeks above average income and capital Seeks capital growth by investing primarily in a appreciation by investing primarily in a diversified portfolio of common stock and securities diversified portfolio of common stocks, convertible into common stock. The production of preferred stocks, and securities that are current income is a secondary objective. convertible into common stocks, such as convertible bonds and convertible preferred stock. --------------------------------------------------------------------------------------------------------------------------------- Limited Term U.S. Government Fund Government Income Fund --------------------------------------------------------------------------------------------------------------------------------- Investment Objective Seeks to provide investors with high current Seeks current income consistent with the preservation income without assuming undue risk. of capital. --------------------------------------------------------------------------------------------------------------------------------- Limited Term Tennessee Tax-Exempt Fund Tennessee Tax-Exempt Fund --------------------------------------------------------------------------------------------------------------------------------- Investment Objective Seeks to provide investors with current income Same exempt from federal and Tennessee income taxes without assuming undue risk. ---------------------------------------------------------------------------------------------------------------------------------
27 EXPENSES AIMCO, a separate, wholly owned subsidiary of AmSouth Bank, serves as the AmSouth Funds' investment advisor. Rockhaven Asset Management, LL, serves as sub-investment advisor to the AmSouth Equity Income Fund. AmSouth Bank serves as the custodian. ASO Services Company ("ASO") serves as the administrator and mutual fund accountant for the AmSouth Funds. AmSouth and BISYS Fund Services Limited Partnership d/b/a BISYS Fund Services (BISYS) serve as sub-administrators to the AmSouth Funds. BISYS Fund Services Ohio ("BISYS Ohio") serves as the transfer and dividend disbursing agent for the AmSouth Funds. ASO, BISYS and BISYS Ohio are subsidiaries of The BISYS Group, Inc. AMSOUTH FUNDS: The AmSouth Funds offer three classes of Fund shares: Class A Shares, Trust Shares, and Class B Shares (except for the Limited Term Tennessee Tax-Exempt Fund which does not offer Trust Shares). Each class of shares has identical rights and privileges except with respect to fees paid under shareholder servicing or distribution plans, expenses allocable exclusively to each class of shares, voting rights on matters affecting a single class of shares, and the exchange privilege of each class of shares. Class A Shares are subject to an initial sales charge upon purchase. Class B Shares are subject to a contingent deferred sales change (CDSC) upon redemption. Under the terms of the investment advisory agreement, AIMCO is entitled to receive fees computed at the annual rate based on each Fund's average daily net assets (see table below). Rockhaven Asset Management, LLC, serves as sub-investment advisor to the AmSouth Equity Income Fund and receives an annual fee from AmSouth Bank of 0.48% of the average daily net assets of the Fund. Such fees are accrued daily and paid monthly. For the six months ended January 31, 2002, total investment advisory fees incurred by the AmSouth Funds were as follows (amounts in thousands): PERCENTAGE FEE TOTAL FEES FEES WAIVED Equity Income 0.80% $ 526 $ 1 Value 0.80% 2,649 - Limited Term U.S. Government 0.65% 154 35 Government Income 0.65% 996 230 Limited Term Tennessee Tax-Exempt 0.65% 43 10 Tennessee Tax-Exempt 0.65% 195 45 28 Under the terms of the administration agreement, ASO's fees are computed at the annual rate of 0.20% of each Fund's daily average net assets. For the six months ended January 31, 2002, the administration fees incurred by the AmSouth Funds were as follows (amounts in thousands): TOTAL FEES FEES WAIVED Equity Income $ 132 $ 33 Value 662 - Limited Term U.S. Government 47 12 Government Income 307 77 Limited Term Tennessee Tax-Exempt 13 7 Tennessee Tax-Exempt 60 15 PRO FORMA ADJUSTMENTS AND PRO FORMA COMBINED COLUMNS The pro forma adjustments and pro forma combined columns of the Statements of Operations reflect the adjustments necessary to show expenses at the rates which would have been in effect if the Acquired Funds were included in the Acquiring Funds for the six months ended January 31, 2002. Investment advisory, administration, 12b-1, shareholder service, accounting and custodian fees in the pro forma combined column are calculated at the rates in effect for the Acquiring Funds based upon the combined net assets of the corresponding Acquired Funds and the Acquiring Funds. Certain pro forma adjustments were made to estimate the benefit of combining operations of separate funds into one survivor fund. The pro forma Schedules of Portfolio Investments give effect to the proposed transfer of such assets as if the Reorganization had occurred at January 31, 2002. 2. PORTFOLIO VALUATION, SECURITIES TRANSACTIONS AND RELATED INCOME: Bonds and other fixed income securities (other than short term obligations but including listed issues) are valued on the basis of valuations furnished by a pricing service, the use of which has been approved by the Trust's Board of Trustees. In making such valuations the pricing service utilizes both dealer-supplied valuations and the use of electronic and matrix techniques which take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics other than market data and without exclusive reliance upon quoted prices of over-the-counter prices, since such valuations are believed to reflect more accurately the fair value of such securities. All debt portfolio securities with a remaining maturity of 60 days or less are valued at amortized cost. Under the amortized cost method, premium or discount, if any, is amortized or accreted, respectively, on a constant (straight- line) basis to the maturity of the security. 29 The value of each equity security is based either on the last sale price on a national securities exchange, or in the absence of recorded sales, at the closing bid prices on such exchanges, or at the quoted bid price in the over-the-counter market. Securities or other assets for which market quotations are not readily available are valued by or at the direction of the Trust's Board of Trustees. Investments in restricted securities are valued by the Board of Trustees, or by procedures approved by the Board of Trustees, by considering pertinent factors, including the results of operations and the sales price of recent private placements in its common stock. It is possible that the estimated value may differ significantly from the amount that might ultimately be realized in the near term. Security transactions are recorded on trade date. Realized gains and losses from sales of investments are calculated on the identified cost basis. Interest income, including accretion of discount and amortization of premium on investments, is accrued daily. Dividend income is recorded on the ex-dividend date. 30 AMSOUTH FUNDS Part C Item 15. Indemnification -------- --------------- The information required by this item is incorporated by reference to Item 25 of Post-Effective Amendment No. 36 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660) under the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended (File No. 811-5551). Item 16. Exhibits -------- -------- (1) Amended and Restated Declaration of Trust of the Registrant, dated as of November 23, 1999.(7) (2) (a) Bylaws of the Registrant.(7) (b) Amendment No. 1 to the Registrant's Bylaws.(7) (3) Voting trust agreement - none. (4) Form of Plan of Reorganization and Termination is filed herewith as Appendix A to Part A (Combined Prospectus/Proxy Statement) of this Registration Statement. (5) Provisions of instruments defining the rights of holders of securities are contained in Articles III, IV, VI, VIII and IX of the Registrant's Amended and Restated Declaration of Trust and Articles 9 and 11 of the Registrant's Bylaws. (6) (a) Investment Advisor Agreement dated as of May 12, 2001 between the Registrant and AmSouth Investment Management Company, LLC ("Advisor").(1) (b) Investment Sub-Advisory Agreement dated May 12, 2001 between Advisor and Peachtree Asset Management.(1) (c) Investment Sub-Advisory Agreement dated as of May 12, 2001 between Advisor and Five Points Capital Advisors, Inc.(1) (7) (a) Distribution Agreement dated as of July 16, 1997 between the Registrant and BISYS Fund Services, Limited Partnership.(2) (b) Amended Schedules A, B, C and D dated November 23, 1999 to the Distribution Agreement between the Registrant and BISYS Fund Services Limited Partnership.(3) (c) Dealer Agreement between The Winsbury Company and AmSouth Investment Services, Inc.(9) 1 (d) Dealer Agreement between The Winsbury Company and National Financial Services Corporation.(9) (e) Dealer Agreement between The Winsbury Company and AmSouth Bank N.A. (9) (8) Copies of all bonus, profit sharing, pension or other similar contracts - none. (9) (a) Custodian Agreement dated as of April 17, 1997 between the Registrant and AmSouth Bank.(4) (b) Amended Schedule A dated March 13, 2000 to the Custodian Agreement between Registrant and AmSouth Bank.(3) (10) (a) Form of Distribution and Shareholder Services Plan between the Registrant and BISYS Funds Services, Inc.(5) (b) Multiple Class Plan for AmSouth Funds adopted by the Board of Trustees on December 6, 1995, as amended and restated as of November 23, 1999.(3) (11) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding the legality of the shares being registered. (filed herewith) (12) Opinion of Kirkpatrick & Lockhart LLP regarding certain tax matters (to be filed). (13) (a) Transfer Agency and Shareholder Service Agreement dated as of November 23, 1999 between the Registrant and BISYS Fund Services, Inc.(3) (b) Management and Administration Agreement dated as of November 23, 1999 between the Registrant and ASO Services Company and AmSouth Bank.(3) (c) Sub-Administration Agreement dated as of November 23, 1999 between ASO Services Company and AmSouth Bank.(3) (d) Sub-Administration Agreement dated as of November 23, 1999 between ASO Services Company and BISYS Fund Services, Inc.(3) (e) Fund Accounting Agreement dated as of November 23, 1999 between the Registrant and ASO Services Company, Inc.(3) (f) Shareholder Servicing Plan for AmSouth Mutual Funds adopted by the Board of Trustees on December 6, 1995.(6) (g) Amended Schedule I dated March 13, 2000 to the Shareholder Servicing Plan.(3) (h) Model Shareholder Servicing Agreement for AmSouth Mutual Funds adopted by the Board of Trustees on December 6, 1995.(6) 2 (14) Consent of Ernst & Young LLP. (filed herewith) (15) Financial statements omitted from Part B - none. (16) Powers of Attorney.(7) (a) Power of Attorney for Edward P. Farley.(8) (17) Additional Exhibits (a) Proxy Card for AmSouth Equity Income Fund (filed herewith) (b) Proxy Card for AmSouth Limited Term U.S. Government Fund (filed herewith) (c) Proxy Card for AmSouth Limited Term Tennessee Tax-Exempt Fund (filed herewith) --------------- 1. Incorporated by reference from the Registrant's Post-Effective Amendment No. 35 to its Registration Statement on Form N-1A filed with the Securities and Exchange Commission on September 28, 2001. 2. Incorporated by reference from the Registrant's Post-Effective Amendment No. 24 to its Registration Statement on Form N-1A filed with the Securities and Exchange Commission on August 27, 1997. 3. Incorporated by reference from the Registrant's Post-Effective Amendment No. 32 to its Registration Statement on Form N-1A filed with the Securities and Exchange Commission on March 13, 2000. 4. Incorporated by reference from the Registrant's Post-Effective Amendment No. 23 to its Registration Statement on Form N-1A filed with the Securities and Exchange Commission on July 3, 1997. 5. Incorporated by reference from the Registrant's Post-Effective Amendment No. 33 to its Registration Statement on Form N-1A filed with the Securities and Exchange Commission on September 29, 2000. 6. Incorporated by reference from the Registrant's Post-Effective Amendment No. 18 to its Registration Statement on Form N-1A filed with the Securities and Exchange Commission on January 31, 1996. 7. Incorporated by reference from the Registrant's Registration Statement on Form N-14, Registration No. 333-84778, filed with the Securities and Exchange Commission on March 22, 2002. 8. Incorporated by reference from the Registrant's Post-Effective Amendment No. 1 to its Registration Statement on Form N-14, Registration No. 333-84778, filed with the Securities and Exchange Commission on April 25, 2002. 3 9. Incorporated by reference from the Registrant's Post-Effective Amendment No. 2 to its Registration Statement on Form N-14, Registration No. 333-84778, filed with the Securities and Exchange Commission on June 24, 2002. 4 Item 17. Undertakings -------- ------------ (1) The undersigned Registrant agrees that prior to any public re-offering of the securities registered through the use of a prospectus which is a part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended, the re-offering prospectus will contain the information called for by the applicable registration form for re-offerings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as a part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the Securities Act of 1933 Act, as amended, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. 5 SIGNATURES As required by the Securities Act of 1933, as amended, this Registration Statement on Form N-14 has been signed on behalf of the Registrant, in the City of Washington, District of Columbia on this 26th day of June, 2002. AMSOUTH FUNDS By: /s/ J. David Huber ** -------------------------------- J. David Huber, Chairman Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement on Form N-14 has been signed below by the following persons in the capacities and on the dates indicated: Signature Title Date --------- ----- ---- /s/ J.David Huber ** Chairman June 26, 2002 ------------------------------ J. David Huber /s/ John F. Calvano ** President June 26, 2002 ------------------------------ John F. Calvano /s/ Charles L. Booth** Treasurer June 26, 2002 ------------------------------ and Principal Charles L. Booth Financial Officer /s/ James H. Woodward, Jr. ** Trustee June 26, 2002 ------------------------------ James H. Woodward, Jr. /s/ Wendell D. Cleaver** Trustee June 26, 2002 ------------------------------ Wendell D. Cleaver /s/ Dick D. Briggs, Jr.** Trustee June 26, 2002 ------------------------------ Dick D. Briggs, Jr. /s/ Edward P. Farley** Trustee June 26, 2002 ------------------------------ Edward P. Farley 6 ------------------------------ Trustee Geoffrey A. von Kuhn **Signed by Kathy Kresch Ingber, Attorney-In-Fact pursuant to Powers of Attorney filed on March 22, 2002, EDGAR Accession Number 0000898432-02-000206 and on April 25, 2002, EDGAR Accession Number 0000898432-02-000308. 7 Exhibit Index ------------- (11) Opinion and Consent of Kirkpatrick & Lockhart LLP regarding the legality of the shares being registered. (14) Consent of Ernst & Young LLP. (17) (a) Proxy Card for AmSouth Equity Income Fund (17) (b) Proxy Card for AmSouth Limited Term U.S. Government Fund (17) (c) Proxy Card for AmSouth Limited Term Tennessee Tax-Exempt Fund 8