-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N8tPjAYqQZSayu603MWICdMjLXbDok5Ln9HG2O+ZK+oDl4OjQV6cCglp3dr8GTf1 5lAfpTqORO9N6bLQVgju6A== /in/edgar/work/0000950152-00-007102/0000950152-00-007102.txt : 20001003 0000950152-00-007102.hdr.sgml : 20001003 ACCESSION NUMBER: 0000950152-00-007102 CONFORMED SUBMISSION TYPE: 485APOS PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 20000929 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMSOUTH MUTUAL FUNDS CENTRAL INDEX KEY: 0000832544 STANDARD INDUSTRIAL CLASSIFICATION: [ ] STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 033-21660 FILM NUMBER: 732948 FILING VALUES: FORM TYPE: 485APOS SEC ACT: SEC FILE NUMBER: 811-05551 FILM NUMBER: 732949 BUSINESS ADDRESS: STREET 1: 3435 STELZER RD STREET 2: STE 1000 CITY: COLUMBUS STATE: OH ZIP: 43219 BUSINESS PHONE: 8004518382 MAIL ADDRESS: STREET 1: 3435 STELZER RD STREET 2: STE 1000 CITY: COLUMBUS STATE: OH ZIP: 43219 FORMER COMPANY: FORMER CONFORMED NAME: ASO OUTLOOK GROUP DATE OF NAME CHANGE: 19920703 485APOS 1 l83374ae485apos.txt AMSOUTH FUNDS 485APOS 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 2000 REGISTRATION NOS. 33-21660 AND 811-5551 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form N-1A REGISTRATION STATEMENT UNDER THE SECURITIES ACT ---- OF 1933 / / ---- Pre-Effective Amendment No. / / ---- Post-Effective Amendment No. 33 / X / and/or ---- REGISTRATION STATEMENT UNDER THE INVESTMENT ---- COMPANY ACT OF 1940 / / ---- Amendment No. 34 / X / AMSOUTH FUNDS ---- (Exact Name of Registrant as Specified in Charter) 3435 Stelzer Road, Columbus, Ohio 43219 ---------------------------------------- (Address of Principal Executive Offices) (800) 451-8382 -------------- (Registrant's Telephone Number, Including Area Code) Name and address of agent for service: Copy to: Mr. J. David Huber Alan G. Priest, Esq. AmSouth Funds Ropes & Gray 3435 Stelzer Road 1301 K Street, N.W., Suite 800 East Columbus, Ohio 43219 Washington, D.C. 20005 Approximate Date of Public Offering: Continuous. It is proposed that this filing will become effective (check appropriate box) ---- / / immediately upon filing pursuant to paragraph (b) ---- / / on ___________, 2000 pursuant to paragraph (b) ---- / / 60 days after filing pursuant to paragraph (a)(i) ---- / / 75 days after filing pursuant to paragraph (a)(ii) ---- / X / on (November 30, 2000) pursuant to paragraph (a)(ii) of Rule 485 ---- / / This post-effective amendment designates a new effective date for a ---- previously filed post-effective amendment 2 AmSouth Funds Prospectus Class A Shares Class B Shares Trust Shares [December 1,] 2000 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these Fund shares or determined whether this prospectus AMSOUTH is truthful or complete. Anyone who tells you otherwise MUTUAL FUNDS is committing a crime. 3 AMSOUTH FUNDS TABLE OF CONTENTS DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES [LOGO] Carefully review this important 3 Overview section, which summarizes each 4 CAPITAL APPRECIATION FUNDS Fund's investments, risks, past 5 Value Fund performance, and fees. 8 Growth Fund 11 Capital Growth Fund 14 Large Cap Fund 17 Mid Cap Fund 20 Small Cap Fund 23 Equity Income Fund 26 Balanced Fund 29 Select Equity Fund 32 Enhanced Market Fund 35 International Equity Fund 38 STRATEGIC PORTFOLIOS 39 Strategic Portfolios: Aggressive Growth Portfolio 42 Strategic Portfolios: Growth Portfolio 46 Strategic Portfolios: Growth and Income Portfolio 50 Strategic Portfolios: Moderate Growth and Income Portfolio 54 Strategic Portfolios: Current Income Portfolio 58 INCOME FUNDS 59 Bond Fund 62 Limited Term Bond Fund 65 Government Income Fund 68 Limited Term U.S. Government Fund 71 Municipal Bond Fund 74 Florida Tax-Exempt Fund 77 Tennessee Tax-Exempt Fund 80 Limited Term Tennessee Tax-Exempt Fund 84 MONEY MARKET FUNDS 85 Prime Money Market Fund 88 U.S. Treasury Money Market Fund 91 Treasury Reserve Money Market Fund 94 Tax-Exempt Money Market Fund ADDITIONAL INVESTMENT STRATEGIES AND RISKS [LOGO] Review this section for 97 CAPITAL APPRECIATION FUNDS information on investment 97 Value Fund strategies and their risks. 97 Growth Fund 97 Capital Growth Fund 97 Large Cap Fund 97 Mid Cap Fund 97 Small Cap Fund 97 Equity Income Fund 98 Balanced Fund 98 Select Equity Fund 98 Enhanced Market Fund 98 International Equity Fund 99 STRATEGIC PORTFOLIOS 99 INCOME FUNDS 99 Bond Fund 99 Limited Term Bond Fund 100 Government Income Fund 100 Limited Term U.S. Government Fund 100 Municipal Bond Fund 100 Florida Tax-Exempt Fund 101 Tennessee Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund
4 AMSOUTH FUNDS TABLE OF CONTENTS ADDITIONAL INVESTMENT STRATEGIES AND RISKS [LOGO] Review this section for 102 MONEY MARKET FUNDS information on investment 102 Treasury Reserve Money Market Fund strategies and their risks. 102 Tax-Exempt Money Market Fund FUND MANAGEMENT [LOGO] Review this section for details on 109 The Investment Advisor the people and organizations who 110 The Investment Sub-Advisors oversee the Funds. 115 Portfolio Managers 117 The Distributor and Administrator SHAREHOLDER INFORMATION [LOGO] Review this section for details on 118 Choosing a Share Class how shares are valued, how to 119 Pricing of Fund Shares purchase, sell and exchange 120 Purchasing and Adding to Your Shares shares, related charges and 123 Selling Your Shares payments of dividends and 125 General Policies on Selling Shares distributions. 126 Distribution Arrangements/Sales Charges 129 Distribution and Service (12b-1) Fees and Shareholder Servicing Fees 130 Exchanging Your Shares 131 Dividends, Distributions and Taxes OTHER INFORMATION ABOUT THE FUNDS [LOGO] 132 Financial Highlights
2 5 [LOGO] DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES OVERVIEW THE FUNDS AmSouth Funds (formerly AmSouth Mutual Funds) is a mutual fund family that offers different classes of shares in separate investment portfolios ("Funds"). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Class A Shares (formerly Classic Shares), the Class B Shares, and the Trust Shares (formerly Premier Shares) of the Capital Appreciation Funds, the Strategic Portfolios, the Income Funds and the Money Market Funds that you should know before investing. Please read this prospectus and keep it for future reference. Each of the Funds in this prospectus is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities like stocks and bonds. Before you look at specific Funds, you should know a few general basics about investing in mutual funds. The value of your investment in a Fund is based on the market prices of the securities the Fund holds. These prices change daily due to economic and other events that affect securities markets generally, as well as those that affect particular companies or government units. These price movements, sometimes called volatility, will vary depending on the types of securities a Fund owns and the markets where these securities trade. 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 FDIC OR ANY GOVERNMENT AGENCY. Each Fund has its own investment goal and strategies for reaching that goal. However, it cannot be guaranteed that a Fund will achieve its goal. Before investing, make sure that the Fund's goal matches your own. The portfolio manager invests each Fund's assets in a way that the manager believes will help the Fund achieve its goal. A manager's judgments about the stock markets, economy and companies, or selecting investments may cause a Fund to underperform other funds with similar objectives.
3 6 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES OVERVIEW CAPITAL APPRECIATION FUNDS These Funds seek capital appreciation and invest primarily in equity securities, principally common stocks and, to a limited extent, preferred stocks and convertible securities. WHO MAY WANT TO INVEST Consider investing in these Funds if you are: - seeking a long-term goal such as retirement - looking to add a growth component to your portfolio - willing to accept the risks of investing in the stock markets These Funds may not be appropriate if you are: - pursuing a short-term goal or investing emergency reserves - uncomfortable with an investment that will fluctuate in value
4 7 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH VALUE FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth Equity Fund) seeks capital growth by investing primarily in a diversified portfolio of common stock and securities convertible into common stock, such as convertible bonds and convertible preferred stock. The production of current income is an incidental objective. PRINCIPAL INVESTMENT STRATEGIES To pursue these goals, the Fund invests primarily in common stocks that the portfolio manager believes to be undervalued. In managing the Fund's portfolio, the manager uses a variety of economic projections, quantitative techniques, and earnings projections in formulating individual stock purchase and sale decisions. The portfolio manager will select investments believed to have basic investment value which will eventually be recognized by other investors, thus increasing their value to the Fund. The Fund may also invest in certain other equity securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: MARKET RISK: The possibility that the 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: The possibility that the market segment on which this Fund focuses - undervalued stocks - will underperform other kinds of investments or market averages. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
5 8 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH VALUE FUND The chart and table on this page show how the Value Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over ten years to demonstrate that the Fund's value varied at different times. The table below compares the Fund's performance over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [BAR GRAPH] 1990 -6.59 91 19.21 92 10.33 93 18.38 94 0.37 95 27.4 96 15.75 97 32.23 98 18.13 99 4.02
Best quarter: 16.62% 12/31/98 Worst quarter: -14.37% 9/30/90 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated.
SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS (12/1/88) CLASS A SHARES (with 4.50% sales charge) (0.79%) 17.88% 12.77% 14.00% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) (1.25%) 17.74% 12.25% 13.41% TRUST SHARES 4.02% 19.09% 13.35% 14.53% S&P 500(R) INDEX 21.03% 28.54% 18.19% 19.39%
(1) Both charts assume reinvestment of dividends and distributions. (2) Performance for the Class B Shares, which commenced operations on September 3, 1997, is based on the historical performance of the Class A Shares (without sales charge) adjusted to reflect B Shares fees prior to that date. 6 9 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH VALUE FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (EXPENSES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.56% 0.56% 0.46%(6) Total Fund Operating Expenses(5) 1.36% 2.11% 1.26%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. Other expenses are being limited to 0.55% for Class A Shares and 0.30% for Class B Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares, 1.35%; Class B Shares, 2.10%; and Trust Shares, 1.26%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $582 $861 $1,161 $2,011 CLASS B SHARES Assuming redemption $714 $961 $1,334 $2,250 Assuming no redemption $214 $661 $1,134 $2,250 TRUST SHARES $128 $400 $ 692 $1,523
As an investor in the Value Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each period Because actual returns and operating expenses will be different, this example is for comparison only. 7 10 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH GROWTH FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth Capital Growth Fund) seeks long-term capital appreciation by investing primarily in a diversified portfolio of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in domestically traded U.S. common stocks, as well as non-U.S. common stocks and American Depositary Receipts ("ADRs") that the portfolio manager believes have attractive potential for growth. In managing the Fund, the portfolio manager seeks reasonably-priced securities with the potential to produce above-average earnings growth. In choosing individual stocks the portfolio manager uses a quantitative process to identify companies with a history of above-average growth or companies that are expected to enter periods of above-average growth or are positioned in emerging growth industries. Some of the criteria that the manager uses to select these companies are earnings growth, return on capital, cash flow and price earnings ratios. The Fund may also invest in certain other equity securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: MARKET RISK: The possibility that the 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: The possibility that the market segment on which this Fund focuses -- growth stocks -- will underperform other kinds of investments or market averages. FOREIGN SECURITIES RISK: Investing in foreign markets involves a greater risk than investing in the United States. Foreign securities may be adversely affected by myriad factors, including currency fluctuations and social, economic or political instability. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
8 11 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH GROWTH FUND The chart and table on this page show how the Growth Fund has performed and how its performance has varied from year to year. The bar chart shows the performance of the Fund's Trust Shares over two years of operations. The table below compares the Fund's performance over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [BAR GRAPH] 98 34.46 99 18.66
Best quarter: 30.59% 12/31/98 Worst quarter: -11.70% 9/30/98 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated.
SINCE INCEPTION 1 YEAR (8/3/97) CLASS A SHARES (with 4.50% sales charge) 13.13% 19.38% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) 12.73% 19.90% TRUST SHARES 18.66% 21.96% S&P 500(R) INDEX 21.03% 21.31%
(1) Both charts assume reinvestment of dividends and distributions. (2) Performance for the Class B Shares, which commenced operations on September 3, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. 9 12 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH GROWTH FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.95% 0.95% 0.85%(6) Total Fund Operating Expenses(5) 1.75% 2.50% 1.65%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. Other expenses for Class A are being limited to 0.43% for Class A Shares, 0.17% for Class B Shares, and for Trust Shares, 0.18%. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares, 1.23%; Class B Shares, 1.97%; and Trust Shares, 0.98%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $621 $ 979 $1,361 $2,430 CLASS B SHARES Assuming redemption $753 $1,079 $1,531 $2,654 Assuming no redemption $253 $ 779 $1,331 $2,654 TRUST SHARES $167 $ 517 $ 892 $1,944
As an investor in the Growth Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 10 13 AMSOUTH CAPITAL GROWTH FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVES The Fund seeks to provide investors with capital growth. PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in equity securities of U.S. companies with market capitalizations of at least $500 million that the Advisor believes offer opportunities for capital appreciation and growth of earnings. The Fund also may invest in medium-sized companies. In choosing stocks for the Fund, the portfolio manager first identifies industries that it believes will expand over the next few years or longer. The portfolio manager then uses fundamental analysis of company financial statements to find large U.S. companies within these industries that offer the prospect of solid earnings growth. The portfolio manager also may consider other factors in selecting investments for the Fund, including the development of new or improved products or services, opportunities for greater market share, more effective management or other signs that the company will have greater than average earnings growth and capital appreciation. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS MARKET RISK: Stocks and other equity securities fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced. The value of your investment in the Fund will fluctuate in response to movements in the stock market and the activities of individual portfolio companies. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in the share prices of the Fund's holdings or an overall decline in the stock market. INVESTMENT STYLE RISK: The Fund may invest in medium-sized companies which carry additional risks because their earnings tend to be less predictable, their share prices more volatile and their securities less liquid than larger, more established companies. Over time, growth companies are expected to increase their earnings at an above-average rate. If these expectations are not met, the stock price can fall drastically--even if earnings show an absolute increase. NON-DIVERSIFIED RISK: The Fund is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Fund's portfolio may be more sensitive to changes in the market value of a single company or industry. The Fund may trade securities actively, which could increase in transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
11 14 AMSOUTH CAPITAL GROWTH FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES [BAR GRAPH] 90 -5.64 91 24.66 92 6.49 93 3.48 94 -0.42 95 30.42 96 22.25 97 30.79 98 32.05 99 21.85
The bar chart above does not reflect any applicable sales charges which would reduce returns. Best quarter: 22.63% 12/31/99 Worst quarter: -11.65% 9/30/90
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1999)
INCEPTION 1 5 10 SINCE DATE YEAR YEARS YEARS INCEPTION CLASS A SHARES (with 4.50% sales charge) 12/31/80* 16.36% 26.24% 15.25% 13.47% CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 12/31/80* 16.11% 26.66% 15.52% 13.61% TRUST SHARES 12/31/80* 22.09% 27.29% 15.74% 13.73% S&P 500(R)INDEX 12/31/80 21.03% 28.54% 18.19% 17.14%
* The Capital Growth Fund commenced operations on 4/1/96 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. The bar chart and table on this page provide some indication of the risks of investing in the Capital Growth Fund by showing how the Fund has performed. The bar chart shows how the performance of the Fund's Class A shares has varied from year to year. The table below compares the performance of Class A and Trust shares over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Both the bar chart and the table assume the reinvestment of dividends and distributions. Class B shares had not been offered for a full calendar year. Of course, past performance does not indicate how the Fund will perform in the future. 12 15 AMSOUTH CAPITAL GROWTH FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES (FEES CLASS A CLASS B TRUST PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES (FEES CLASS A CLASS B TRUST PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fee None 0.75% None Other Expenses(5) 0.61% 0.61% 0.51%(6) TOTAL FUND OPERATING EXPENSES(6) 1.41% 2.16% 1.31% Fee Waiver and/or Expense Reimbursement (0.05%) (0.20%) (0.20%) NET EXPENSES(7) 1.36% 1.96% 1.11%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are in effect. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 1.36%; Class B, 1.96%; and Trust, 1.11% until October 1, 2001. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $587 $876 $1,186 $2,065 CLASS B SHARES Assuming Redemption $719 $976 $1,359 $2,213 Assuming No Redemption $219 $676 $1,159 $2,213 TRUST SHARES $133 $415 $ 718 $1,579
As an investor in the Capital Growth Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 13 16 AMSOUTH LARGE CAP FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with long-term capital appreciation and, as a secondary objective, current income. PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in equity securities of large U.S. companies with market capitalizations over $1 billion that the portfolio manager believes have the potential to provide capital appreciation and growth of income. In choosing stocks for the Fund, the portfolio manager's strategy is to select well managed U.S. companies that have demonstrated sustained patterns of profitability, strong balance sheets, and the potential to achieve predictable, above-average earnings growth. The portfolio manager also looks for companies that pay above-average dividends. The portfolio manager seeks to diversify the Fund's portfolio within the various industries typically comprising, what the portfolio manager believes to be, the Class A growth segments of the U.S. economy: Technology, Consumer Non-Durables, Health Care, Business Equipment and Services, Retail, and Capital Goods. The Fund invests for long-term growth rather than short-term profits. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS MARKET RISK: Stocks and other equity securities fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced. The value of your investment in the Fund will fluctuate in response to movements in the stock market and the activities of individual portfolio companies. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in the share prices of the Fund's holdings or an overall decline in the stock market. INVESTMENT STYLE RISK: Over time, growth companies are expected to increase their earnings at an above-average rate. If these expectations are not met, the stock price can fall drastically--even if earnings show an absolute increase. The risks and returns of different industries can vary over the long-term and short-term. Because of this, the Fund's performance could suffer during times when the stocks of companies in the Class A growth industries in which it is invested are out of favor. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
14 17 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH LARGE CAP FUND PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES [BAR GRAPH] 93 5.6 94 1.78 95 34.99 96 17.63 97 35.93 98 37.87 99 18.85
The bar chart above does not reflect any applicable sales charges which would reduce returns. Best quarter: 24.83% 12/31/98 Worst quarter: -5.95% 9/30/98 AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1999)
INCEPTION 1 5 10 SINCE DATE YEAR YEARS YEARS INCEPTION CLASS A SHARES (with 4.50% sales charge) 8/3/92 13.49% 27.57% N/A 19.86% CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 8/3/92 12.78% 28.35% N/A 20.46% TRUST SHARES 8/3/92 18.84% 28.73% N/A 20.60% S&P 500(R)INDEX 7/31/92 21.03% 28.54% N/A 20.84%
The bar chart and table on this page provide some indication of the risks of investing in the Large Cap Fund by showing how the Fund has performed. The bar chart shows how the performance of the Fund's Class A shares has varied from year to year. The table below compares the performance of Class A shares over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Both the bar chart and the table assume the reinvestment of dividends and distributions. Class B shares and Class I shares had not been offered for a full calendar year. Of course, past performance does not indicate how the Fund will perform in the future. 15 18 AMSOUTH LARGE DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES CAP FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES (FEES CLASS A CLASS B TRUST PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES (FEES CLASS A CLASS B TRUST PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses(5) 0.57% 0.57% 0.47%(6) TOTAL FUND OPERATING EXPENSES 1.37% 2.12% 1.27% Fee Waiver and/or Expense Reimbursement n/a (0.10%) (0.10%) NET EXPENSES(7) 1.37% 2.02% 1.17%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are in effect. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) Total expenses after fee waivers and expense reimbursements for each class through April 30, 2000 will be as follows: Class A, 1.04%; and Trust Class, 1.07%. AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 1.41%; Class B, 2.01%; and Trust, 1.16% until October 1, 2001. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $583 $864 $1,166 $2,022 CLASS B SHARES Assuming Redemption $715 $964 $1,339 $2,171 Assuming No Redemption $215 $664 $1,139 $2,171 TRUST SHARES $129 $403 $ 697 $1,534
As an investor in the Large Cap Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 16 19 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH MID CAP FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in equity securities of companies publicly traded on U.S. exchanges that are either included in the Russell Mid-Cap Growth Index or have market capitalizations within the range of such included companies. In choosing stocks for the Fund, the Fund's Sub-Advisor, Bennett Lawrence Management, seeks to identify industries that are benefiting from major demand trends or themes and are therefore growing at a much faster rate than the overall economy. The Sub-Advisor then typically gathers information on the companies that are benefiting from these trends or themes. Generally, the Fund will not invest in a company unless the Sub-Advisor has met with the company's top management. The Sub-Advisor also seeks to talk to suppliers, purchasers, and competitors to reinforce its analysis and monitor the Fund's holdings. The Sub-Advisor's experience has been that when mid-sized companies are backed by major demand trends, they can create attractive gains for investors. For a more complete description of the various securities in which the Fund may invest please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS MARKET RISK: Stocks and other equity securities fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced. The value of your investment in the Fund will fluctuate in response to movements in the stock market and the activities of individual portfolio companies. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in share prices of the Fund's holdings or an overall decline in the stock market. INVESTMENT STYLE RISK: The Fund invests in mid-cap companies which carry additional risks. These companies typically have less predictable earnings than larger companies and their securities trade less frequently and in more limited volume than those of larger, more established companies. As a result, mid-cap stocks and thus the Fund's shares may fluctuate more in value than larger-cap stocks and funds that focus on them. Over time, growth companies are expected to increase their earnings at an above-average rate. If these expectations are not met, the stock price can fall drastically -- even if earnings show an absolute increase. The Sub-Advisor implements a concentrated investment approach that commits capital to a select number of industries within the economy. Such concentration can result in increased volatility and loss of the effects of diversification. Because demand trends and themes can change, the Fund's performance could suffer if the Advisor is slow to respond to such changes. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
17 20 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH MID CAP FUND This section would normally include a bar chart and a table showing how the Mid Cap Fund has performed and how its performance has varied from year to year. Because the Fund has not been in operation for full calendar year, the bar chart and table are not shown. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 1.00% 1.00% 1.00% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses(5) 1.34% 1.34% 1.24%(6) Total Fund Operating Expenses(5) 2.34% 3.09% 2.24%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. Approximately eight years after purchase (seven years in the case of ISG Shares acquired in the 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are in effect. AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 3.00%; Class B, 3.60%; Trust, 2.75% until October 1, 2001. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. EXPENSE EXAMPLE 1 3 YEAR YEARS CLASS A SHARES $676 $1,148 CLASS B SHARES Assuming Redemption $812 $1,254 Assuming No Redemption $312 $ 954 TRUST SHARES $227 $ 700
As an investor in the Mid Cap Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 18 21 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH SMALL CAP FUND PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES [BAR GRAPH] 1999 16.24
The bar chart above does not reflect any applicable sales charges which would reduce returns. Best quarter: 27.47% 12/31/99 Worst quarter: 19.70% 9/30/98
AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1999)
SINCE 1 5 10 INCEPTION YEAR YEARS YEARS 3/2/98 CLASS A SHARES (with 4.50% sales charge) 10.78% N/A N/A 2.34% CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 9.99% N/A N/A 1.84% TRUST SHARES 16.24% N/A N/A 5.09% S&P 500(R)INDEX 21.03% N/A N/A 21.81%
The bar chart and table on this page provide some indication of the risks of investing in the Small Cap Fund by showing how the Fund has performed. The bar chart shows how the performance of the Fund's Class A shares has varied from year to year. The table below compares the performance of Class A shares over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Both the bar chart and the table assume the reinvestment of dividends and distributions. Class B shares and Trust shares had not been offered for a full calendar year. Of course, past performance does not indicate how the Fund will perform in the future. 19 22 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH SMALL CAP FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks capital appreciation by investing primarily in a diversified portfolio of securities consisting of common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. Any current income generated from these securities is incidental. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in common stocks of companies with market capitalizations at the time of purchase in the range of companies in the Russell 2000(R) Growth Index (currently between $50 million and $2 billion). In managing the Fund's portfolio, the manager seeks smaller companies with above-average growth potential. Factors the portfolio manager typically considers in selecting individual securities include positive changes in earnings estimates for future growth, higher than market average profitability, a strategic position in a specialized market, earnings growth consistently above market, and fundamental value. The Fund may also invest in certain other equity securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: MARKET RISK: The possibility that the 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. SMALL COMPANY RISK: Investing in smaller, lessor-known companies involves greater risk than investing in those that are more established. A small company's financial well-being may, for example, depend heavily on just a few products or services. In addition, investors may have limited flexibility to buy or sell small company stocks, which tend to trade less frequently than those of larger firms. INVESTMENT STYLE RISK: The possibility that the market segment on which this Fund focuses -- small company growth stocks -- will underperform other kinds of investments or market averages. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
20 23 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH SMALL CAP FUND PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES [BAR GRAPH] 1999 16.24
The bar chart above does not reflect any applicable sales charges which would reduce returns. Best quarter: 27.47% 12/31/99 Worst quarter: 19.70% 9/30/98 AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1999)
SINCE 1 5 10 INCEPTION YEAR YEARS YEARS 3/2/98 CLASS A SHARES (with 4.50% sales charge) 10.78% N/A N/A 2.34% CLASS B SHARES (with applicable Contingent Deferred Sales Charge) 9.99% N/A N/A 1.84% TRUST SHARES 16.24% N/A N/A 5.09% S&P 500(R)INDEX 21.03% N/A N/A 21.81%
The bar chart and table on this page provide some indication of the risks of investing in the Small Cap Fund by showing how the Fund has performed. The bar chart shows how the performance of the Fund's Class A shares has varied from year to year. The table below compares the performance of Class A shares over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Both the bar chart and the table assume the reinvestment of dividends and distributions. Class B shares and Trust shares had not been offered for a full calendar year. Of course, past performance does not indicate how the Fund will perform in the future. 21 24 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH SMALL CAP FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (EXPENSES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 1.20% 1.20% 1.20% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.55% 0.55% 0.45%(6) TOTAL FUND OPERATING EXPENSES 1.75% 2.50% 1.65% Fee Waiver and/or Expense Reimbursement N/A (0.15%) (0.15%) NET EXPENSES(7) 1.75% 2.35% 1.50%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class B Shares, 2.35%; Trust Shares, 1.50% until October 1, 2001. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $620 $ 976 $1,356 $2,420 CLASS B SHARES Assuming redemption $753 $1,079 $1,531 $2,565 Assuming no redemption $253 $ 779 $1,331 $2,565 TRUST SHARES $168 $ 520 $ 897 $1,955
As an investor in the Small Cap Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 22 25 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH EQUITY INCOME FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks above average income and capital appreciation by investing primarily in a diversified portfolio of common stocks, preferred stocks, and securities that are convertible into common stocks, such as convertible bonds and convertible preferred stock. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in income-producing equity securities such as common stocks, ADRs, and securities convertible into common stocks, including convertible bonds and convertible preferred stocks. In managing the Fund's portfolio, the manager seeks equity securities believed to represent investment value. In choosing individual securities, the portfolio manager emphasizes those common stocks in each sector that have good value, attractive yield, and dividend growth potential. The portfolio manager will also consider higher valued companies that show the potential for growth. Factors that the portfolio manager considers in selecting equity securities include industry and company fundamentals, historical price relationships, and/or underlying asset value. The Fund also utilizes convertible securities because these securities typically offer higher yields and good potential for capital appreciation as well as some downside protection. The Fund may also invest in certain other equity securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: MARKET RISK: The possibility that the 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: The possibility that this Fund's blended investment style will underperform other Funds or market averages that focus exclusively on either growth or value. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
23 26 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH EQUITY INCOME FUND The chart and table on this page show how the Equity Income Fund has performed and how its performance has varied from year to year. The bar chart shows the performance of the Fund's Trust Shares for its first two full calendar years of operations. The table below compares the Fund's performance over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [BAR GRAPH] The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated. 98 12.42 99 25.15
Best quarter: 19.38% 12/31/99 Worst quarter: -12.57% 9/30/98 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
SINCE INCEPTION 1 YEAR (3/20/97) CLASS A SHARES (with 4.50% sales charge) 19.14% 18.45% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) 18.84% 18.85% TRUST SHARES 25.15% 20.70% S&P 500(R)INDEX 21.03% 29.16%
(1) Both charts assume reinvestment of dividends and distributions. (2) Performance for the Class B Shares, which commenced operations on September 3, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. 24 27 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH EQUITY INCOME FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.58% 0.58% 0.48%(6) TOTAL FUND OPERATING EXPENSES 1.38% 2.13% 1.28% Fee Waiver and/or Expense Reimbursement N/A (0.07%) (0.07%) NET EXPENSES(7) 1.38% 2.06% 1.21%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class B Shares, 2.06%; Trust Shares, 1.21% until October 1, 2001. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $584 $867 $1,171 $2,033 CLASS B SHARES Assuming redemption $716 $967 $1,344 $2,182 Assuming no redemption $216 $667 $1,114 $2,182 TRUST SHARES $130 $406 $ 702 $1,545
As an investor in the Equity Income Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 25 28 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH BALANCED FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVES The Fund seeks to obtain long-term capital growth and produce a reasonable amount of current income through a moderately aggressive investment strategy. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests in a broadly diversified portfolio of equity and debt securities consisting primarily of common stocks and bonds. The Fund normally invests between 45-75% of its assets in equity securities and at least 25% of its assets in fixed-income securities. The portion of the Fund's assets invested in equity and debt securities will vary depending upon economic conditions, the general level of stock prices, interest rates and other factors, including the risks associated with each investment. The Fund's equity investments consist primarily of common stocks of companies that the portfolio manager believes are undervalued and have a favorable outlook. The Fund's fixed-income investments consist primarily of "high-grade" bonds, notes and debentures. The average dollar-weighted maturity of the fixed-income portion of the Fund's portfolio will range from one to thirty years. In managing the equity portion of the Fund, the portfolio manager uses a variety of economic projections, quantitative techniques, and earnings projections in formulating individual stock purchase and sale decisions. The portfolio manager selects investments that he believes have basic investment value which will eventually be recognized by other investors. In managing the fixed income portion of the Fund's portfolio, the portfolio manager uses a "top down" investment management approach focusing on a security's maturity. The manager sets, and continually 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 which are deemed to be the best relative values. The Fund may also invest in certain other equity and debt securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the Statement of Additional Information ("SAI"). PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: MARKET RISK: The possibility that the 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: The possibility that the market segment on which the equity portion of this Fund focuses -- value stocks -- will underperform other kinds of investments or market averages. INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates. Generally, an increase in the average maturity of the fixed income portion of the Fund will make it more sensitive to interest rate risk. CREDIT RISK: 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. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
26 29 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH BALANCED FUND The chart and table on this page show how the Balanced Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over eight years to demonstrate that the Fund's value varied at different times. The table below compares the Fund's performance over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks, and the Lehman Brothers Government/Corporate Bond Index, an unmanaged index representative of the total return of government and corporate bonds. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [BAR GRAPH] The returns for Class A and Class B Shares will differ from the Trust Share returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated. 92 8.72 93 14.37 94 0.59 95 23.51 96 9.72 97 20.95 98 13.42 99 1.51
Best quarter: 9.21% 6/30/97 Worst quarter: -5.19% 9/30/99 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
SINCE INCEPTION 1 YEAR 5 YEARS (12/19/91) CLASS A SHARES (with 4.50% sales charge) (3.23%) 12.38% 11.31% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) (3.71%) 12.78% 11.70% TRUST SHARES 1.51% 13.54% 12.02% S&P 500(R) INDEX 21.03% 28.54% 20.93% LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX -2.15% 7.61% 6.93%
(1) Both charts assume reinvestment of dividends and distributions. (2) Performance for the Class B Shares, which commenced operations on September 2, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. 27 30 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH BALANCED FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.57% 0.57% 0.47%(6) Total Fund Operating Expenses(5) 1.37% 2.12% 1.27%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. Other expenses are being limited to 0.56% for Class A Shares and 0.31% for Class B Shares and 0.46% for Trust Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares, 1.36%; Class B Shares, 2.11%; and Trust Shares, 1.26%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $583 $864 $1,166 $2,022 CLASS B SHARES Assuming redemption $715 $964 $1,339 $2,261 Assuming no redemption $215 $664 $1,139 $2,261 TRUST SHARES $129 $403 $ 697 $1,534
As an investor in the Balanced Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 28 31 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH SELECT EQUITY FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks long-term growth of capital by investing primarily in common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stocks. The portfolio manager does not currently intend to purchase convertible securities. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in common stocks of companies with market capitalizations greater than $2 billion at the time of purchase and that possess a dominant market share and have a barrier, such as a patent or well-known brand name, that shields its market share and profits from competitors. In managing the Fund's portfolio, the managers continuously monitor a universe of companies possessing "market power" to look for opportunities to purchase these stocks at reasonable prices. "Market power" is a combination of dominant market share and a barrier that protects that market share. In selecting individual securities, the portfolio managers look for companies that appear undervalued. The managers then conduct a fundamental analysis of the stock, the industry and the industry structure. The portfolio managers will then purchase those companies whose market power, in the managers' opinion, is intact. As a result, the portfolio managers may focus on a relatively limited number of stocks (i.e., generally 25 or less). The Fund is non-diversified. The Fund may also invest in certain other equity securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: MARKET RISK: The possibility that the 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: The possibility that the market segment on which this Fund focuses - undervalued growth stocks - will underperform other kinds of investments or market averages. NON-DIVERSIFIED RISK: The Fund may invest in a small number of companies which may increase the volatility of the Fund. If the companies in which the Fund invests perform poorly, the Fund could suffer greater losses than if it had been invested in a greater number of companies. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. However, the portfolio managers expect that the Fund's annual portfolio turnover rate will average less than 50% each year. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
29 32 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH SELECT EQUITY FUND The chart and table on this page show how the Select Equity Fund has performed and how its performance has varied from year to year. The bar chart shows the performance of the Fund's Trust Shares for its first full calendar year of operations. The table below it compares the Fund's performance over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [PERFORMANCE BAR CHART AND TABLE] The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated. 99 -9.86
Best quarter: 9.02% 6/30/99 Worst quarter: -13.12% 9/30/99 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
SINCE INCEPTION 1 YEAR (9/1/98) CLASS A SHARES (with 4.50% sales charge) (14.19%) 2.64% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) (14.85%) 2.53% TRUST SHARES -9.86% 6.41% S&P 500(R) INDEX 21.03% 25.61%
(1) Both charts assume reinvestment of dividends and distributions. (2) Performance for the Class B Shares, which commenced operations on September 3, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. 30 33 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES AMSOUTH SELECT EQUITY FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.80% 0.80% 0.80% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 1.05% 1.05% 0.95%(6) Total Fund Operating Expenses(5) 1.85% 2.60% 1.75%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%. 2%, 1%. (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 restated to reflect current fees. Other expenses are being limited to 0.35% for Class A Shares and Class B Shares are being limited to 0.10%, and for Trust Shares are 0.21%. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares, 1.15%; Class B Shares, 2.15%; and Trust Shares, 1.01%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $628 $1,000 $1,396 $2,501 CLASS B SHARES Assuming redemption $763 $1,108 $1,580 $2,747 Assuming no redemption $263 $ 808 $1,380 $2,747 TRUST SHARES $178 $ 551 $ 949 $2,062
As an investor in the Select Equity Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each period Because actual returns and operating expenses will be different, this example is for comparison only. 31 34 AMSOUTH ENHANCED MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to produce long-term growth of capital by investing primarily in a diversified portfolio of common stock and securities convertible into common stocks such as convertible bonds and convertible preferred stock. The portfolio manager does not currently intend to purchase convertible securities. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests in a broadly diversified portfolio of S&P 500 stocks, overweighting relative to their S&P weights those that the portfolio manager believes to be undervalued compared to others in the index. The Fund seeks to maintain risk characteristics similar to that of the S&P 500 Index and, normally, invests at least 80% of its assets in common stocks drawn from the Index. The portfolio manager's stock selection process utilizes computer-aided quantitative analysis. The portfolio manager's computer models use many types of data, but emphasize technical data such as price and volume information. Applying these models to stocks within the S&P 500, the portfolio manager hopes to generate more capital growth than that of the S&P 500. The portfolio manager's emphasis on technical analyses can result in significant shifts in portfolio holdings at different times. However, stringent risk controls at the style, industry and individual stock levels help ensure the Fund maintains risk characteristics similar to those of the S&P 500. The Fund may also invest in certain other equity securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: MARKET RISK: The possibility that the 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: The possibility that the market segment on which this Fund focuses -- stocks in the S&P 500 Index which are primarily large cap companies -- will underperform other kinds of investments or market averages. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
32 35 AMSOUTH ENHANCED MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The chart and table on this page show how the Enhanced Market Fund has performed and how its performance has varied from year to year. The bar chart shows the performance of the Fund's Trust Shares for its first full calendar year of operations. The table below it compares the Fund's performance over time to that of the S&P 500(R) Index, a widely recognized, unmanaged index of common stocks. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [BAR GRAPH] The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated. 99 39.47
Best quarter: 14.44% 12/31/99 Worst quarter: -5.70% 9/30/99 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
SINCE INCEPTION 1 YEAR (9/1/98) CLASS A SHARES (with 4.50% sales charge) 15.62% 34.50% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) 15.17% 35.47% TRUST SHARES 21.35% 39.47% S&P 500(R) INDEX 21.03% 26.04%
(1) Both charts assume reinvestment of dividends and distributions. (2) Performance for the Class B Shares, which commenced operations on September 3, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. 33 36 AMSOUTH ENHANCED MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.45% 0.45% 0.45% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 1.09% 1.00% 1.19%(6) Total Fund Operating Expenses(5) 1.54% 2.30% 1.64%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. Other expenses are being limited to 0.45% for Class A Shares and Class B Shares are being limited to 0.20%, and for Trust Shares are 0.46%. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares, 0.90%; Class B Shares, 1.65%; and Trust Shares, 0.91%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $600 $ 915 $1,252 $2,202 CLASS B SHARES Assuming redemption $733 $1,018 $1,430 $2,445 Assuming no redemption $233 $ 718 $1,230 $2,445 TRUST SHARES $167 $ 517 $ 892 $1,944
As an investor in the Enhanced Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 34 37 AMSOUTH INTERNATIONAL EQUITY FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital appreciation. PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in equity securities of large non-U.S. companies (i.e., incorporated or organized outside the United States). In choosing stocks for the Fund, the Fund's Sub-Advisor, Lazard Asset Management, looks for established companies in economically developed countries that it believes are undervalued based on their return on total capital or equity. The Sub-Advisor attempts to identify securities that are undervalued according to traditional measures of relative value, including low price to earnings ratio, low price to cash flow ratio, or low price to book value ratio, as well as the Sub-Advisor's judgement regarding an underlying company's internal return on capital, unrecognized assets, or potential change in business strategy. The Sub-Advisor focuses on individual stock selection (a "bottom-up" approach) rather than on forecasting stock market trends (a "top-down" approach). The percentage of the Fund's assets invested in particular geographic sectors may shift from time to time in accordance with the judgment of the portfolio manager and Sub-Advisor. Ordinarily, the Fund invests in at least three different foreign countries. Although the Fund invests primarily in the stocks of companies located in developed foreign countries, it may invest up to 10% of its total assets in typically large companies located in emerging markets. In addition, the Fund may have substantial investments in American and Global Depositary Receipts. For a more complete description of the various securities in which a Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS MARKET RISK: The Fund's performance will be influenced by political, social and economic factors affecting companies in foreign countries. The securities of foreign issuers fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced. Foreign securities include special risks such as exposure to currency fluctuations, a lack of adequate company information, political instability, and differing auditing and legal standards. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in the share prices of the Fund's holdings or an overall decline in the stock markets of the foreign countries in which the Fund is invested. INVESTMENT STYLE RISK: Emerging market countries have economic structures that are generally less diverse and mature, and political systems that are less stable, than those of developed countries. As a result, their markets are more volatile. Value stocks involve the risk that they may never reach what the Sub-Advisor believes is their full market value. They also may decline in price, even though in theory they are already underpriced. NON-DIVERSIFIED RISK: The Fund is non-diversified and may invest a greater percentage of its assets in a particular company compared with other funds. Accordingly, the Fund's portfolio may be more sensitive to changes in the market value of a single company or industry. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
35 38 AMSOUTH INTERNATIONAL EQUITY FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES [BAR GRAPH] 98 9.47 99 26.77
The bar chart above does not reflect any applicable sales charges which would reduce returns. Best quarter: 18.79% 12/31/98 Worst quarter: -19.33% 9/30/98 AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1999)
INCEPTION PAST PAST 5 PAST 10 DATE YEAR YEARS YEARS CLASS A SHARES (with 4.50% sales charge) 8/15/97 20.73% N/A N/A CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) 8/15/97 22.98% N/A N/A TRUST SHARES 8/15/97 26.72% N/A N/A EAFE INDEX 7/31/97 20.33% N/A N/A SINCE INCEPTION CLASS A SHARES (with 4.50% sales charge) 11.19% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) 11.99% TRUST SHARES 13.35% EAFE INDEX 5.62%
The bar chart and table on this page provide some indication of the risks of investing in the International Fund by showing how the Fund has performed. The bar chart shows the performance of the Fund's Class A shares for its first two full calendar years of operation. The table below compares the performance of Class A shares over time to that of Morgan Stanley Capital International Europe, Australia, Far East ("EAFE") Index, a widely recognized, unmanaged index of foreign securities representing major non-U.S. stock markets. Both the bar chart and the table assume the reinvestment of dividends and distributions. Class B and Trust shares had not been offered for a full calendar year. Of course, past performance does not indicate how the Fund will perform in the future. 36 39 AMSOUTH INTERNATIONAL EQUITY FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 1.25% 1.25% 1.25% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expense(5) 1.21% 1.21% 1.11%(6) TOTAL FUND OPERATING EXPENSES 2.46% 3.21% 2.36% Fee Waiver and/or Expense Reimbursement (.15%) (.30%) (.30%) NET EXPENSES(7) 2.31% 2.91% 2.06%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are in effect. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 2.31%; Class B, 2.91%; and Trust, 2.06% until October 1, 2001. EXPENSE EXAMPLE 3 5 10 1 YEAR YEARS YEARS YEARS CLASS A SHARES $688 $1,182 $1,702 $3,120 CLASS B SHARES Assuming Redemption $824 $1,289 $1,878 $3,260 Assuming No Redemption $324 $ 989 $1,678 $3,260 TRUST SHARES $239 $ 736 $1,260 $2,696
As an investor in the International Equity Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 37 40 DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES OVERVIEW STRATEGIC PORTFOLIOS These Funds are "funds of funds" which will invest substantially all of their assets in Trust Shares of other Funds of the AmSouth Funds (Underlying Funds) as described herein. WHO MAY WANT TO INVEST? Consider investing in these Funds if you are: - seeking to spread your investment among many different mutual funds that match your goals in one simple package - seeking investment professionals to select and maintain a portfolio of mutual funds for you - seeking the benefits of asset allocation and multiple levels of risk reducing diversification These Funds may not be appropriate if you are: - pursuing a short-term goal or investing emergency reserves - uncomfortable with an investment that will fluctuate in value
38 41 AMSOUTH STRATEGIC PORTFOLIOS: AGGRESSIVE GROWTH PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with capital growth. PRINCIPAL INVESTMENT STRATEGIES The Fund allocates its assets among the Underlying Funds within predetermined strategy ranges, as set forth below. The Advisor will make allocation decisions according to its outlook for the economy, financial markets and relative market valuation of the Underlying Funds. The Fund will invest 0% to 100% of its total assets in six Underlying Funds which invest primarily in equity securities and up to 30% of its total assets in one Underlying Fund which invests in money market instruments. The Fund will invest its assets in the following Underlying Funds within the strategy ranges (expressed as a percentage of the Fund's total assets) indicated below:
UNDERLYING FUND STRATEGY RANGE Large Cap Fund 0%-70% Capital Growth Fund 0%-45% Small Cap Fund 0%-30% International Equity Fund 0%-20% Mid Cap Fund 0%-30% Value Fund 0%-70% Prime Money Market Fund 0%-30%
The Underlying Funds are described elsewhere in this Prospectus. PRINCIPAL INVESTMENT RISKS The Fund's investments are concentrated in the Underlying Funds, so the Fund's investment performance is directly related to the performance of those Underlying Funds. Before investing in the Fund, investors should assess the risks associated with the Underlying Funds in which the Fund invests and the types of investments made by such Underlying Funds. In addition, since the Fund must allocate its investments among the Underlying Funds, the Fund does not have the same flexibility to invest as a mutual fund without such constraints. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in the share prices of the Underlying Fund's holdings. The Fund invests in Underlying Funds that invest primarily in equity securities. Stocks and other equity securities fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced.
39 42 AMSOUTH STRATEGIC PORTFOLIOS: AGGRESSIVE GROWTH PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES (FEES CLASS A CLASS B TRUST PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.20% 0.20% 0.20% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses 0.64% 0.64% 0.59% TOTAL FUND OPERATING EXPENSES(5) 0.84% 1.59% 0.79% Fee Waiver and/or Expense Reimbursement (0.15%) (0.15%) (0.05%) NET EXPENSES(6) 0.69% 1.45% 0.74%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1%, to 0% in the seventh and eighth year. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are or were in effect. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amounts reflect a reduction in shareholder servicing fees required by National Association of Securities Dealers (NASD) rules. As reduced, the shareholder servicing fees are .10% for each class. Absent such reduction, the shareholder servicing fees would be: Class A, .25%; Class B, .25%; Trust Class, .15%. AMSOUTH STRATEGIC PORTFOLIOS: AGGRESSIVE GROWTH PORTFOLIO CLASS A SHARES 2.23% CLASS B SHARES 2.98% TRUST SHARES 2.18%
Actual expenses will differ depending on the actual allocation of investments in the Underlying Funds in effect from time to time. This section normally would include a bar chart and a table showing how the Aggressive Growth Portfolio has performed and how its performance has varied from year to year. Because the Fund has not been in operation for a full calendar year, the bar chart and table are not shown. As an investor in the Strategic Portfolios: Aggressive Growth Portfolio, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. In addition to the expenses shown above, if you buy and hold shares of the AmSouth Strategic Portfolios: Aggressive Growth Portfolio you will indirectly bear your pro rata share of fees and expenses incurred by the Underlying Funds in which the Fund invests, so that the investment returns of the Fund will be net of the expenses of the Underlying Funds. After combining the total operating expenses of the Fund with those of the Underlying Funds, the estimated average weighted expense ratio is as follows: 40 43 AMSOUTH STRATEGIC PORTFOLIOS: AGGRESSIVE GROWTH PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $666 $1,116 $1,591 $2,899 CLASS B SHARES Assuming Redemption $801 $1,221 $1,767 $3,041 Assuming No Redemption $301 $ 921 $1,567 $3,041 TRUST SHARES $221 $ 682 $1,169 $2,513
Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. 41 44 AMSOUTH STRATEGIC PORTFOLIOS: GROWTH PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with long-term capital growth. PRINCIPAL INVESTMENT STRATEGIES The Fund allocates its assets among the Underlying Funds within predetermined strategy ranges, as set forth below. The Advisor will make allocation decisions according to its outlook for the economy, financial markets and relative market valuation of the Underlying Funds. The Fund will invest 0% to 100% of its total assets in seven Underlying Funds which invest primarily in equity securities, up to 25% of its total assets in one Underlying Fund which invests primarily in fixed income securities and up to 20% of its total assets in one Underlying Fund which invests in money market instruments. The Fund will invest its assets in the following Underlying Funds within the strategy ranges (expressed as a percentage of the Fund's total assets) indicated below:
UNDERLYING FUND STRATEGY RANGE Large Cap Fund 0%-65% Capital Growth Fund 0%-25% Equity Income Fund 0%-25% Small Cap Fund 0%-25% International Equity Fund 0%-15% Value Fund 0%-65% Prime Money Market Fund 0%-20% Mid Cap Fund 0%-25% Government Income Fund 0%-25%
The Underlying Funds are described elsewhere in this Prospectus. PRINCIPAL INVESTMENT RISKS The Fund's investments are concentrated in the Underlying Funds, so the Fund's investment performance is directly related to the performance of those Underlying Funds. Before investing in the Fund, investors should assess the risks associated with the Underlying Funds in which the Fund invests and the types of investments made by such Underlying Funds. In addition, since the Fund must allocate its investments among the Underlying Funds, the Fund does not have the same flexibility to invest as a mutual fund without such constraints. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in the share prices of the Underlying Fund's holdings. The Fund invests in Underlying Funds that invest primarily in equity securities. Stocks and other equity securities fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced.
42 45 AMSOUTH STRATEGIC PORTFOLIOS: GROWTH PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES This section normally would include a bar chart and a table showing how the Growth Portfolio has performed and how its performance has varied from year to year. Because the Fund has not been in operation for a full calendar year, the bar chart and table are not shown. As an investor in the Strategic Portfolios: Growth Portfolio, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.20% 0.20% 0.20% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses 0.64% 1.59% 0.59% TOTAL FUND OPERATING EXPENSES(5) 0.84% 1.59% 0.79% Fee Waiver and/or Expense Reimbursement (.15%) (.15%) (.05%) NET EXPENSES(6) 0.69% 1.45% 0.74%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are or were in effect. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amounts reflect a reduction in shareholder servicing fees required by NASD rules. As reduced, the shareholder servicing fees are .10% for each class. Absent such reduction, the shareholder servicing fees would be: Class A, .25%; Class B, .25%; Trust Class, .15%. AMSOUTH STRATEGIC PORTFOLIOS: GROWTH PORTFOLIO CLASS A SHARES 2.18% CLASS B SHARES 2.93% TRUST SHARES 2.13%
Actual expenses will differ depending on the actual allocation of investments in the Underlying Funds in effect from time to time. In addition to the expenses shown above, if you buy and hold shares of the AmSouth Strategic Portfolios: Growth Portfolio you will indirectly bear your pro rata share of fees and expenses incurred by the Underlying Funds in which the Fund invests, so that the investment returns of the Fund will be net of the expenses of the Underlying Funds. After combining the total operating expenses of the Fund with those of the Underlying Funds, the estimated average weighted expense ratio is as follows: 43 46 AMSOUTH STRATEGIC PORTFOLIOS: GROWTH PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $661 $1,101 $1,567 $2,850 CLASS B SHARES Assuming Redemption $796 $1,207 $1,743 $3,081 Assuming No Redemption $296 $ 907 $1,543 $3,081 TRUST SHARES $216 $ 667 $1,144 $2,462
44 47 AMSOUTH STRATEGIC PORTFOLIOS: GROWTH AND INCOME PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with long-term capital growth and a moderate level of current income. PRINCIPAL INVESTMENT STRATEGIES The Fund allocates its assets among the Underlying Funds within predetermined strategy ranges, as set forth below. The Advisor will make allocation decisions according to its outlook for the economy, financial markets and relative market valuation of the Underlying Funds. The Fund will invest 0% to 100% of its total assets in seven Underlying Funds which invest primarily in equity securities, 0% to 80% of its total assets in two Underlying Funds which invest primarily in fixed income securities and up to 20% of its total assets in one Underlying Fund which invests in money market instruments. The Fund will invest its assets in the following Underlying Funds within the strategy ranges (expressed as a percentage of the Fund's total assets) indicated below:
UNDERLYING FUND STRATEGY RANGE International Equity Fund 0%-15% Small Cap Fund 0%-20% Mid Cap Fund 0%-20% Value Fund 0%-60% Government Income Fund 0%-60% Large Cap Fund 0%-60% Capital Growth Fund 0%-25% Equity Income Fund 0%-25% Limited Term Bond Fund 0%-20% Prime Money Market Fund 0%-20%
The Underlying Funds are described elsewhere in this Prospectus. PRINCIPAL INVESTMENT RISKS The Fund's investments are concentrated in the Underlying Funds, so the Fund's investment performance is directly related to the performance of those Underlying Funds. Before investing in the Fund, investors should assess the risks associated with the Underlying Funds in which the Fund invests and the types of investments made by such Underlying Funds. In addition, since the Fund must allocate its investments among the Underlying Funds, the Fund does not have the same flexibility to invest as a mutual fund without such constraints. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in the share prices of the Underlying Fund's holdings. The Fund invests in Underlying Funds that invest primarily in equity securities. Stocks and other equity securities fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced. The Fund also invests in Underlying Funds that invest primarily in fixed income securities, which are subject to interest rate and credit risk. Interest rate risk is the potential for a decline in bond prices due to rising interest rates. Credit risk is the possibility that the issuer of a fixed-income security will fail to make timely payments of interest or principal, or that the security will have its credit rating downgraded.
45 48 AMSOUTH STRATEGIC PORTFOLIOS: GROWTH AND INCOME PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES This section normally would include a bar chart and a table showing how the Growth and Income Portfolio has performed and how its performance has varied from year to year. Because the Fund has not been in operation for a full calendar year, the bar chart and table are not shown. As an investor in the Strategic Portfolios: Growth and Income Portfolio, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES (FEES CLASS A CLASS B TRUST PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES (FEES CLASS A CLASS B TRUST PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.20% 0.20% 0.20% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses 0.64% 0.64% 0.59% TOTAL FUND OPERATING EXPENSES(5) 0.84% 1.59% 0.79% Fee Waiver and/or Expense Reimbursement (0.15%) (0.15%) (0.05%) NET EXPENSES(6) 0.69% 1.45% 0.74%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are or were in effect. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amounts reflect a reduction in shareholder servicing fees required by NASD rules. As reduced, the shareholder servicing fees are .10% for each class. Absent such reduction, the shareholder servicing fees would be: Class A, .25%; Class B, .25%; Trust Class, .15%. AMSOUTH STRATEGIC PORTFOLIOS: GROWTH AND INCOME PORTFOLIO CLASS A SHARES 2.18% CLASS B SHARES 2.93% TRUST SHARES 2.13%
Actual expenses will differ depending on the actual allocation of investments in the Underlying Fund in effect from time to time. In addition to the expenses shown above, if you buy and hold shares of the AmSouth Strategic Portfolios: Growth and Income Portfolio you will indirectly bear your pro rata share of fees and expenses incurred by the Underlying Funds in which the Fund invests, so that the investment returns of the Fund will be net of the expenses of the Underlying Funds. After combining the total operating expenses of the Fund with those of the Underlying Funds, the estimated average weighted expense ratio is as follows: 46 49 AMSOUTH STRATEGIC PORTFOLIOS: GROWTH AND INCOME PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $661 $1,101 $1,567 $2,850 CLASS B SHARES Assuming Redemption $796 $1,207 $1,743 $2,993 Assuming No Redemption $296 $ 907 $1,543 $2,993 TRUST SHARES $216 $ 667 $1,144 $2,462
47 50 DESCRIPTION OF THE FUNDS -- AMSOUTH STRATEGIC PORTFOLIOS: MODERATE GROWTH AND INCOME PORTFOLIO OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with current income and a moderate level of capital growth. PRINCIPAL INVESTMENT STRATEGIES The Fund allocates its assets among the Underlying Funds within Funds within predetermined strategy ranges, as set forth below. The Advisor will make allocation decisions according to its outlook for the economy, financial markets and relative market valuation of the Underlying Funds. The Fund will invest 0% to 80% of its total assets in four Underlying Funds which invest primarily in equity securities, 0% to 100% of its total assets in two Underlying Funds which invest primarily in fixed income securities and up to 20% of its total assets in one Underlying Fund which invests in money market instruments. The Fund will invest its assets in the following Underlying Funds within the strategy ranges (expressed as a percentage of the Fund's total assets) indicated below:
UNDERLYING FUND STRATEGY RANGE Government Income Fund 0%-70% Limited Term Bond Fund 0%-45% Large Cap Fund 0%-50% Capital Growth Fund 0%-15% Value Fund 0%-50% Equity Income Fund 0%-15% Prime Money Market Fund 0%-20%
The Underlying Funds are described elsewhere in this Prospectus. PRINCIPAL INVESTMENT RISKS The Fund's investments are concentrated in the Underlying Funds, so the Fund's investment performance is directly related to the performance of those Underlying Funds. Before investing in the Fund, investors should assess the risks associated with the Underlying Funds in which the Fund invests and the types of investments made by such Underlying Funds. In addition, since the Fund must allocate its investments among the Underlying Funds, the Fund does not have the same flexibility to invest as a mutual fund without such constraints. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in the share prices of the Underlying Fund's holdings. The Fund invests in Underlying Funds that invest primarily in fixed income securities, which are subject to interest rate and credit risk. Interest rate risk is the potential for a decline in bond prices due to rising interest rates. Credit risk is the possibility that the issuer of a fixed-income security will fail to make timely payments of interest or principal, or that the security will have its credit rating downgraded. The Fund also invests in Underlying Funds that invest primarily in equity securities. Stocks and other equity securities fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced.
48 51 DESCRIPTION OF THE FUNDS -- AMSOUTH STRATEGIC PORTFOLIOS: MODERATE GROWTH AND INCOME PORTFOLIO OBJECTIVES, RISK/RETURN AND EXPENSES This section normally would include a bar chart and a table showing how the Moderate Growth and Income Portfolio has performed and how its performance has varied from year to year. Because the Fund has not been in operation for a full calendar year, the bar chart and table are not shown. As an investor in the Strategic Portfolios: Moderate Growth and Income Portfolio, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.50%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES (FEES CLASS A CLASS B TRUST PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.20% 0.20% 0.20% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses 0.64% 0.64% 0.59% TOTAL FUND OPERATING EXPENSES(5) 0.84% 1.59% 0.79% Fee Waiver and/or Expense Reimbursement (0.15%) (0.15%) (0.05%) NET EXPENSES(6) 0.69% 1.45% 0.74%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are or were in effect. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amounts reflect a reduction in shareholder servicing fees required by NASD rules. As reduced, the shareholder servicing fees are .10% for each class. Absent such reduction, the shareholder servicing fees would be: Class A, .25%; Class B, .25%; Trust Class, .15%. AMSOUTH STRATEGIC PORTFOLIOS: MODERATE GROWTH AND INCOME PORTFOLIO CLASS A SHARES 2.03% CLASS B SHARES 2.78% TRUST SHARES 1.98%
Actual expenses will differ depending on the actual allocation of investments in the Underlying Funds in effect from time to time. In addition to the expenses shown above, if you buy and hold shares of the AmSouth Strategic Portfolios: Moderate Growth and Income Portfolio you will indirectly bear your pro rata share of fees and expenses incurred by the Underlying Funds in which the Fund invests, so that the investment returns of the Fund will be net of the expenses of the Underlying Funds. After combining the total operating expenses of the Fund with those of the Underlying Funds, the estimated average weighted expense ratio is as follows: 49 52 DESCRIPTION OF THE FUNDS -- AMSOUTH STRATEGIC PORTFOLIOS: MODERATE GROWTH AND INCOME PORTFOLIO OBJECTIVES, RISK/RETURN AND EXPENSES Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $647 $1,058 $1,494 $2,702 CLASS B SHARES Assuming Redemption $781 $1,162 $1,669 $2,935 Assuming No Redemption $281 $ 862 $1,469 $2,935 TRUST SHARES $201 $ 621 $1,068 $2,306
50 53 AMSOUTH STRATEGIC PORTFOLIOS: CURRENT INCOME PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with current income. PRINCIPAL INVESTMENT STRATEGIES The Fund allocates its assets among the Underlying Funds within predetermined strategy ranges, as set forth below. The Advisor will make allocation decisions according to its outlook for the economy, financial markets and relative market valuation of the Underlying Funds. The Fund will invest 75% to 100% of its total assets in two Underlying Funds which invest primarily in fixed income securities and up to 30% of its total assets in one Underlying Fund which invests in money market instruments. The Fund will invest its assets in the following Underlying Funds within the strategy ranges (expressed as a percentage of the Fund's total assets) indicated below:
UNDERLYING FUND STRATEGY RANGE Limited Term Bond Fund 40%-60% Bond Fund 35%-55% Prime Money Market Fund 0%-30%
The Underlying Funds are described elsewhere in this Prospectus. PRINCIPAL INVESTMENT RISKS The Fund's investments are concentrated in the Underlying Funds, so the Fund's investment performance is directly related to the performance of those Underlying Funds. Before investing in the Fund, investors should assess the risks associated with the Underlying Funds in which the Fund invests and the types of investments made by such Underlying Funds. In addition, since the Fund must allocate its investments among the Underlying Funds, the Fund does not have the same flexibility to invest as a mutual fund without such constraints. As a result, you could lose money by investing in the Fund, particularly if there is a sudden decline in the share prices of the Underlying Fund's holdings. The Fund invests in Underlying Funds that invest primarily in fixed income securities, which are subject to interest rate, credit and prepayment risk. Prices of fixed income 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 the Underlying Fund's share price as well. Interest rate risk is usually greater for fixed-income securities with longer maturities or durations. To the extent the Underlying Funds maintain a comparatively long duration, their share prices will react more to interest rate movements. The Underlying Funds' investments also are subject to credit risk, which is the risk that the issuer of the security will fail to make timely payments of interest or principal, or to otherwise honor its obligations. Credit risk includes the possibility that any of the Underlying Funds' investments will have its credit rating downgraded or will default. Mortgage-related and asset-backed securities, which are derivative instruments, are subject to both credit and prepayment risk, and may be more volatile and less liquid than more traditional debt securities. If the borrowers prepay some or all of the principal owed to the issuer much earlier than expected, the Underlying Fund may have to replace the security by investing the proceeds in a less attractive security which could reduce the Underlying Fund's share price or yield.
51 54 AMSOUTH STRATEGIC PORTFOLIOS: CURRENT INCOME PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES This section normally would include a bar chart and a table showing how the Current Income Portfolio has performed and how its performance has varied from year to year. Because the Fund has not been in operation for a full calendar year, the bar chart and table are not shown. As an investor in the Strategic Portfolios: Current Income Portfolio, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES (FEES CLASS A CLASS B TRUST PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES (FEES CLASS A CLASS B TRUST PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.20% 0.20% 0.20% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses 0.79% 0.79% 0.64% TOTAL FUND OPERATING EXPENSES(5) 0.99% 1.74% 0.84% Fee Waiver and/or Expense Reimbursement (0.15%) (0.15%) (0.05%) NET EXPENSES(6) 0.84% 1.59% 0.79%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are or were in effect. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amounts reflect a reduction in shareholder servicing fees required by NASD rules. As reduced, the shareholder servicing fees are .10% for each class. Absent such reduction, the shareholder servicing fees would be: Class A, .25%; Class B, .25%; Trust Class, .15%. AMSOUTH STRATEGIC PORTFOLIOS: CURRENT INCOME PORTFOLIO CLASS A SHARES 1.91% CLASS B SHARES 2.66% TRUST SHARES 1.91%
Actual expenses will differ depending on the actual allocation of investments in the Underlying Fund in effect from time to time. In addition to the expenses shown above, if you buy and hold shares of the AmSouth Strategic Portfolios: Current Income Portfolio you will indirectly bear your pro rata share of fees and expenses incurred by the Underlying Funds in which the Fund invests, so that the investment returns of the Fund will be net of the expenses of the Underlying Funds. After combining the total operating expenses of the Fund with those of the Underlying Funds, the estimated average weighted expense ratio is as follows: 52 55 AMSOUTH STRATEGIC PORTFOLIOS: CURRENT INCOME PORTFOLIO DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $586 $ 976 $1,390 $2,543 CLASS B SHARES Assuming Redemption $769 $1,126 $1,610 $2,816 Assuming No Redemption $269 $ 826 $1,410 $2,816 TRUST SHARES $194 $ 600 $1,032 $2,233
53 56 OVERVIEW DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSE INCOME FUNDS TAXABLE FUNDS The Bond Fund, the Government Income Fund, the Limited Term Bond Fund, and the Limited Term U.S. Government Fund seek current income and invest primarily in fixed income securities, such as U.S. government securities, or corporate, bank and commercial obligations. WHO MAY WANT TO INVEST Consider investing in these Funds if you are: - looking to add a monthly income component to your portfolio - willing to accept the risks of price and dividend fluctuations These Funds may not be appropriate if you are: - investing emergency reserves - uncomfortable with an investment that will fluctuate in value TAX-FREE FUNDS The Municipal Bond Fund, Florida Tax-Exempt Fund, the Tennessee Tax-Exempt Fund and the Limited Term Tennessee Tax-Exempt Fund seek tax-exempt income and invest primarily in municipal securities which are exempt from Federal and, in the case of the Florida Tax-Exempt Fund, Florida intangible taxes and in the case of the Tennessee Funds, Tennessee intangible taxes. WHO MAY WANT TO INVEST Consider investing in these Funds if you are: - looking to reduce Federal income or Florida or Tennessee intangible taxes - seeking monthly Federal tax-exempt dividends - willing to accept the risks of price and dividend fluctuations These Funds may not be appropriate if you are: - investing through a tax-exempt retirement plan - uncomfortable with an investment that will fluctuate in value
54 57 AMSOUTH BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks current income consistent with the preservation of capital. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests in bonds and other fixed-income securities. These investments include primarily U.S. corporate bonds and debentures and notes or bonds issued or guaranteed by the U.S. government, its agencies or instrumentalities. The Fund invests in debt securities only if they are high grade (rated at time of purchase in one of the three highest rating categories by a nationally recognized statistical rating organization (an "NRSRO"), or are determined by the portfolio manager to be of comparable quality). The Fund also invests in zero-coupon obligations which are securities which do not provide current income but represent ownership of future interest and principal payments on U.S. Treasury bonds. The Fund may purchase fixed-income securities of any maturity and although there is no limit on the Fund's average maturity, it is normally expected to be between five and ten years. In managing the Fund's portfolio, the manager uses a "top down" investment management approach focusing on a security's maturity. The manager sets, and continually 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 which the manager believes are the best relative values. The Fund may also invest in certain other debt securities. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates. Interest rate risk is generally high for longer-term bonds and low for shorter-term bonds. CREDIT RISK: 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. INCOME RISK: The possibility that the 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. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
55 58 AMSOUTH BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/ RETURN AND EXPENSES The chart and table on this page show how the Bond Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over ten years to demonstrate that the Fund's value varied at different times. The table below compares the Fund's performance over time to that of the Lehman Brothers Government/ Corporate Bond Index, an unmanaged index representative of the total return of government and corporate bonds. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [PERFORMANCE BAR CHART AND TABLE] 90 6.92 91 15.32 92 7.3 93 9.86 94 3.23 95 18.41 96 2.56 97 9.21 98 9.4 99 -2.46
The performance information shown above is based on a calendar year. Best quarter: 7.13% 6/30/89 Worst quarter: -2.39% 3/31/94
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated.
1 5 10 SINCE INCEPTION YEAR YEARS YEARS (12/31/88) CLASS A SHARES (with 4.00% sales charge) (6.47%) 6.27% 6.66% 7.20% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) (8.03%) 5.83% 6.08% 6.56% TRUST SHARES (2.46%) 7.19% 7.13% 7.62% LEHMAN BROTHERS GOVERNMENT/CORPORATE BOND INDEX 0.16% 7.77% 7.89% (1.94%)
(1) Both charts assume reinvestment of dividends and distributions. For current performance information including the Fund's 30-day yield, call 1-800-451-8382. (2) Performance for the Class B Shares, which commenced operations on September 3, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. 56 59 AMSOUTH BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/ RETURN AND EXPENSES As an investor in the Bond Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.53% 0.53% 0.43%(6) TOTAL FUND OPERATING EXPENSES 1.18% 1.93% 1.08% Fee Waiver and/or Expense Reimbursement N/A (0.07%) (0.07%) NET EXPENSES(7) 1.18% 1.86% 1.01%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class B Shares, 1.86%; Trust Shares, 1.01% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $515 $760 $1,023 $1,775 CLASS B SHARES Assuming redemption $696 $906 $1,242 $1,968 Assuming no redemption $196 $606 $1,042 $1,968 TRUST SHARES $110 $343 $ 595 $1,317
57 60 AMSOUTH LIMITED TERM BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth Limited Maturity Fund) seeks current income consistent with the preservation of capital. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in short-term fixed income securities with maturities of five years or less, principally corporate bonds and securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. The Fund invests in debt securities only if they are high-grade (rated at the time of purchase in one of the three highest rating categories by an NRSRO, or are determined by the portfolio manager to be of comparable quality). In managing the Fund's portfolio, the manager uses a "top down" investment management approach focusing on a security's maturity. The manager sets, and continually 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 which the manager believes are the best relative values. The Fund may also invest in certain other debt securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INCOME RISK: The possibility that the 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. INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates. Interest rate risk is generally high for longer-term bonds and low for shorter-term bonds. CREDIT RISK: 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. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
58 61 AMSOUTH LIMITED TERM BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The chart and table on this page show how the Limited Term Bond Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over ten years to demonstrate that the Fund's value varied at different times. The table below compares the Fund's performance over time to that of Merrill Lynch 1-5 Year Government/Corporate Bond Index, an unmanaged index representative of the total return of short-term government and corporate bonds. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) BAR GRAPH 90 8.52 91 11.94 92 6.03 93 7.16 94 -1.8 95 12.72 96 3.69 97 6.89 98 7.26 99 1.46
The performance information shown above is based on a calendar year. Best quarter: 4.59% 6/30/89 Worst quarter: -1.41% 3/31/94
AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated.
5 10 SINCE INCEPTION 1 YEAR YEARS YEARS (2/1/89) CLASS A SHARES (with 4.00% sales charge) (2.69%) 5.41% 5.84% 6.19% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) (4.21%) 4.95% 5.24% 5.57% TRUST SHARES 1.46% 6.33% 6.50% 6.62% MERRILL LYNCH 1-5 YEAR GOVERNMENT/ CORPORATE BOND INDEX 2.19% 6.86% 7.00% 7.38%
(1) Both charts assume reinvestment of dividends and distributions. For current performance information including the Fund's 30-day yield, call 1-800-451-8382. (2) Performance for the Class B Shares, which commenced operations on September 2, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. 59 62 AMSOUTH LIMITED TERM BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Limited Term Bond Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (EXPENSES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.54% 0.54% 0.44%(6) TOTAL FUND OPERATING EXPENSES 1.19% 1.94% 1.09% Fee Waiver and/or Expense Reimbursement N/A (0.11%) (0.11%) NET EXPENSES(7) 1.19% 1.83% 0.98%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class B Shares, 1.83%; Trust Shares, 0.98% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $516 $763 $1,028 $1,785 CLASS B SHARES Assuming redemption $697 $909 $1,247 $1,979 Assuming no redemption $197 $609 $1,047 $1,979 TRUST SHARES $111 $347 $ 601 $1,329
60 63 AMSOUTH GOVERNMENT INCOME FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks current income consistent with the preservation of capital. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in securities issued or guaranteed by the U.S. government, its agencies or instrumentalities. These investments are principally mortgage-related securities, but may also include U.S. Treasury obligations. In managing the Fund's portfolio, the manager uses a "top down" investment management approach focusing on a security's maturity. The manager sets, and continually 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 which the manager believes are the best relative values. The Fund may also invest in certain other debt securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates. 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: The possibility that the 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. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
61 64 AMSOUTH GOVERNMENT INCOME FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The chart and table on this page show how the Government Income Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over six years to demonstrate that the Fund's value varied at different times. The table below compares the Fund's performance over time to that of the Lehman Brothers Mortgage Index, an unmanaged index generally representative of the mortgage bond market as a whole. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [PERFORMANCE BAR CHART AND TABLE] 94 -0.39 95 14.32 96 4.05 97 9.39 98 7.26 99 0.74
The performance information shown above is based on a calendar year. Best quarter: 4.53% 6/30/95 Worst quarter: -1.43% 3/31/94 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1, 2) The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated.
1 5 SINCE INCEPTION YEAR YEARS (10/01/93) CLASS A SHARES (with 4.00% sales charge) (3.35%) 6.14% 4.82% TRUST SHARES 0.74% 7.05% 5.54% LEHMAN BROTHERS MORTGAGE INDEX 1.85% 7.98% 6.21%
(1) Both charts assume reinvestment of dividends and distributions. For current performance information including the Fund's 30-day yield, call 1-800-451-8382. (2) This Fund also offers Class B Shares. Class B Shares had not commenced operations prior to the date of this prospectus. 62 65 AMSOUTH GOVERNMENT INCOME FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Government Income Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.69% 0.69% 0.59%(6) TOTAL FUND OPERATING EXPENSES 1.34% 2.09% 1.24% Fee Waiver and/or Expense Reimbursement (0.06%) (0.21%) (0.21%) NET EXPENSES(7) 1.28% 1.88% 1.03%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A Shares, 1.28%; Class B Shares, 1.88%; Trust Shares, 1.03% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $531 $808 $1,105 $1,948 CLASS B SHARES Assuming redemption $712 $955 $1,324 $2,149 Assuming no redemption $212 $655 $1,124 $2,149 TRUST SHARES $126 $393 $ 681 $1,500
63 66 AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with high current income without assuming undue risk. PRINCIPAL INVESTMENT STRATEGIES The Fund invests in securities issued or guaranteed as to payment of principal and interest by the U.S. Government, its agencies or instrumentalities, and enters into repurchase agreements in respect of such securities. In choosing U.S. Government securities for the Fund, the portfolio manager follows a controlled duration strategy which limits how much the Fund's portfolio duration will differ from its benchmark -- the Merrill Lynch 1-5 Year Government Bond Index. Typically, the Fund will have a portfolio duration between one and four years and a dollar weighted average portfolio life between one and five years, depending on market conditions. Duration is an indication of how sensitive a bond or mutual fund portfolio may be to changes in interest rates. For example, the market price of a bond with a duration of three years should decline 3% if interest rates rise 1%. Conversely, the market price of the same bond should increase 3% if interest rates fall 1%. The market price of a bond with a duration of six years should increase or decline twice as much as the market price of a bond with a three-year duration. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS INCOME RISK: 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 the Fund's share price as well. INTEREST RATE RISK: Interest rate risk is usually greater for fixed-income securities with longer maturities or durations. A security backed by the U.S. Government is guaranteed only as to timely payment of interest and principal when held to maturity. Neither the market value of such securities nor the Fund's share price is guaranteed. As a result, the value of your investment in the Fund will fluctuate and you could lose money by investing in the Fund. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
64 67 AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The bar chart and table on this page provide some indication of the risks of investing in the Limited Term U.S. Government Fund by showing how the Fund has performed. The bar chart shows how the performance of the Fund's Class A shares has varied from year to year. The table below compares the performance of Class A shares over time to that of the Merrill Lynch 1-5 Year Government Bond Index, a recognized, unmanaged index of short-term U.S. Government securities. Both the bar chart and the table assume the reinvestment of dividends and distributions. Class B and Trust shares had not been offered for a full calendar year. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES BAR GRAPH 90 8.11 91 12.7 92 5.51 93 7.04 94 -1.02 95 10.88 96 2.69 97 6.18 98 6.69 99 1.08
The bar chart above does not reflect any applicable sales charges which would reduce returns. Best quarter: 5.65% 6/30/89 Worst quarter: -1.41% 3/31/92 AVERAGE ANNUAL TOTAL RETURNS (for the periods ended December 31, 1999)
INCEPTION PAST PAST 5 PAST 10 SINCE DATE YEAR YEARS YEARS INCEPTION CLASS A SHARES (with sales charge imposed) 12/31/86* -2.99% 4.60% 5.47% 5.67% MERRILL LYNCH 1-5 YEAR GOV'T BOND INDEX -4.58% 4.79% 5.74% 5.89%
(*) The Limited Term U.S. Government Fund commenced operations on 2/28/97 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. 65 68 AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Limited Term U.S. Government Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses(5) 0.76% 0.76% 0.66%(6) TOTAL FUND OPERATING EXPENSES 1.41% 2.16% 1.31% Fee Waiver and/or Expense Reimbursement (0.05%) (0.20%) (0.20%) NET EXPENSES(7) 1.36% 1.96% 1.11%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. Approximately eight years after purchase (seven 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are in effect. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 1.36%; Class B, 1.96%: and Trust, 1.11% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $538 $828 $1,140 $2,023 CLASS B SHARES Assuming Redemption $719 $976 $1,359 $2,227 Assuming No Redemption $219 $676 $1,159 $2,227 TRUST SHARES $133 $415 $ 718 $1,579
66 69 AMSOUTH MUNICIPAL BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to produce as high a level of current federal tax-exempt income, as is consistent with the preservation of capital. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal securities that provide income that is exempt from federal income tax and not subject to the federal alternative minimum tax for individuals. Municipal securities are debt obligations, such as bonds and notes, issued by states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities. Additionally, the Fund concentrates its investments in municipal securities issued by the State of Alabama and its political subdivisions. The Fund invests in debt securities only if they are high-grade (rated at the time of purchase in one of the three highest rating categories by an NRSRO, or are determined by the portfolio manager to be of comparable quality). The Fund may purchase securities of any maturity. In managing the Fund's portfolio, the manager uses a "top down" investment management approach focusing on a security's maturity. The manager sets, and continually 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, have a certain level of credit quality, and which the manager believes are the best relative values. The Fund may also invest in certain other debt securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates. Interest rate risk is generally high for longer-term bonds and low for shorter-term bonds. TAX RISK: The risk that the issuer of the securities will fail to comply with certain requirements of the Internal Revenue Code, which would cause adverse tax consequences. CREDIT RISK: 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. CONCENTRATION RISK: By concentrating its investments in securities issued by Alabama and its municipalities, the Fund may be more vulnerable to unfavorable developments in Alabama than funds that are more geographically diversified. Additionally, because of the relatively small number of issuers of Alabama municipal securities, the Fund is likely to invest in a limited number of issuers. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
67 70 AMSOUTH MUNICIPAL BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The chart and table on this page show how the Municipal Bond Fund has performed and how its performance has varied from year to year. The bar chart shows the performance of the Fund's Class A Shares for its first two full calendar years of operations. The table below compares the Fund's performance over time to that of the Merrill Lynch 3-7 Year Municipal Bond Index, an unmanaged index generally representative of municipal bonds with intermediate maturities. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) BAR GRAPH 98 5.42 99 -1.57
The performance information shown above is based on a calendar year. Best quarter: 3.02% 9/30/98 Worst quarter: (2.09%) 6/30/98 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated.
SINCE INCEPTION 1 YEAR 5 YEAR 10 YEAR (07/01/97) CLASS A SHARES (with 4.00% sales charge) (5.56%) 3.82% 4.55% 5.59% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) (7.21%) 4.16% 4.89% 5.72% TRUST SHARES (1.57%) 4.73% 5.01% 5.77% MERRILL LYNCH 3-7 YEAR MUNICIPAL BOND INDEX 0.66% N/A N/A 6.62%
(1) Both charts assume reinvestment of dividends and distributions. For current performance information including the Fund's 30-day yield, call 1-800-451-8382. (2) Performance for the Class B Shares, which commenced operations on September 2, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B shares fees prior to that date. 68 71 AMSOUTH MUNICIPAL BOND FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Municipal Bond Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.65% 0.65% 0.65% Distribution and Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses 0.53% 0.53% 0.43%(6) Total Fund Operating Expenses(5) 1.18% 1.93% 1.08%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (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 restated to reflect current fees. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. Use the table at right to compare fees and expenses with those of other Funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - redemption at the end of each period - no changes in the Fund's operating expenses Because this example is hypothetical and for comparison only, your actual costs will be different. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $515 $760 $1,023 $1,775 CLASS B SHARES Assuming redemption $696 $906 $1,242 $1,968 Assuming no redemption $196 $606 $1,042 $1,968 TRUST SHARES $110 $343 $ 595 $1,317
69 72 AMSOUTH FLORIDA TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth Tax-Free Fund) seeks to produce as high a level of current interest income exempt from Federal income taxes and Florida intangibles taxes as is consistent with the preservation of capital. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in municipal securities of the State of Florida and its political subdivisions, that provide income exempt from Federal personal income tax and Florida intangible personal property tax. The Fund invests in Florida municipal securities only if they are high grade (rated at the time of purchase in one of the three highest rating categories by an NRSRO, or are determined by the portfolio manager to be of comparable quality). Although there is no limit on the Fund's average maturity, normally it is expected to be between five to ten years. In managing the Fund's portfolio, the manager uses a "top down" investment management approach focusing on interest rates and credit quality. The manager sets, and continually adjusts, a target for the interest rate sensitivity of the Fund's portfolio based on expectations about interest rate movements. The manager then selects securities consistent with this target based on their individual characteristics. The Fund is non-diversified and, therefore, may concentrate its investments in a limited number of issuers. The Fund may also invest in certain other debt securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates. Interest rate risk is generally high for longer-term bonds and low for shorter-term bonds. STATE SPECIFIC RISK: By concentrating its investments in securities issued by Florida and its municipalities, the Fund may be more vulnerable to unfavorable developments in Florida than funds that are more geographically diversified. CREDIT RISK: 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: The risk 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: Because the Fund is non-diversified, it may invest a greater percentage of its assets in a particular issuer compared with other funds. Accordingly, the Fund's portfolio may be more sensitive to changes in the market value of a single issuer or industry. INCOME RISK: The possibility that the 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. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
70 73 AMSOUTH FLORIDA TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The chart and table on this page show how the Florida Tax-Exempt Fund has performed and how its performance has varied from year to year. The bar chart shows the performance of the Fund's Trust Shares for its first five full calendar years of operations. The table below compares the Fund's performance over time to that of the Merrill Lynch 3-7 Year Municipal Bond Index, an unmanaged index generally representative of the intermediate-term municipal bonds. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) BAR GRAPH 95 11.09 96 3.6 97 6.69 98 5.44 99 -1.24
The performance information shown above is based on a calendar year. Best quarter: 4.40% 3/31/95 Worst quarter: -1.82% 6/30/99 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated.
SINCE 1 5 INCEPTION YEAR YEARS (09/30/94) CLASS A SHARES (with 4.00% sales charge) (5.29%) 4.12% 3.71% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) (6.77%) 4.49% 4.22% TRUST SHARES (1.24%) 5.03% 4.57% MERRILL LYNCH 3-7 YEAR MUNICIPAL BOND INDEX 66.00% 5.55% 5.14%
(1) Both charts assume reinvestment of dividends and distributions. For current performance information including the Fund's 30-day yield, call 1-800-451-8382. (2) Performance for the Class B Shares, which commenced operations on September 2, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. 71 74 AMSOUTH FLORIDA TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Florida Tax-Exempt Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (EXPENSES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(5) 0.63% 0.62% 0.53%(6) Total Fund Operating Expenses(5) 1.28% 2.02% 1.18%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) Lower sales charges are available depending upon the amount invested. For investments of $1 million or more, a contingent deferred sales charge ("CDSC") is applicable to redemptions within one year of purchase. See "Distribution Arrangements." (3) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (4) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (5) Management fees paid by the Fund are being limited to 0.30%. Additionally, shareholder servicing fees for Class A Shares are being limited to 0.10%. Other Expenses are restated to reflect current fees. Other expenses for Class A Shares are being limited to 0.46% and 0.21% for Class B Shares. Total expenses after fee waivers and expense reimbursements for each class are: Class A Shares, 0.61%; Class B Shares, 1.51%; and Trust Shares 0.66%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $525 $790 $1,074 $1,883 CLASS B SHARES Assuming redemption $705 $934 $1,288 $2,158 Assuming no redemption $205 $634 $1,088 $2,158 TRUST SHARES $120 $375 $ 649 $1,432
72 75 AMSOUTH TENNESSEE TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with current income exempt from Federal and Tennessee income taxes without assuming undue risk. PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests substantially all of its assets in 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 average dollar-weighted credit rating of 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. The Fund may purchase securities of any maturity. Generally, the average maturity of the Fund's investments is primarily between six and ten years. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS The Fund's investments in municipal obligations will be subject primarily to interest rate and credit risk. INTEREST RATE RISK: Prices of municipal obligations 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 the Fund's share price as well. Interest rate risk is usually greater for fixed-income securities with longer maturities or durations. If interest rates fall, it is possible that issuers of callable bonds with high interest coupons will "call" (or prepay) their bonds before their maturity date. If a call were exercised by the issuer during a period of declining interest rates, the Fund is likely to replace such called security with a lower yielding security. If that were to happen, it could decrease the Fund's dividends. As a result, the value of your investment in the Fund will fluctuate and you could lose money by investing in the Fund. CREDIT RISK: The Fund's investments also are subject to credit risk, which is the risk that the issuer of the security will fail to make timely payments of interest or principal, or to otherwise honor its obligations. Credit risk includes the possibility that any of the Fund's investments will have its credit rating downgraded or will default. STATE-SPECIFIC RISK: Because of the Fund's concentration in Tennessee municipal obligations, the Fund will be vulnerable to any development in Tennessee's economy that weakens or jeopardizes the ability of Tennessee municipal obligation issuers to pay interest and principal. As a result, the value of the Fund's shares may fluctuate more widely than those of a fund investing in municipal obligations from a number of different states. NON-DIVERSIFIED RISK: The Fund is non-diversified and may invest a greater percentage of its assets in a particular issuer compared with other funds. Accordingly, the Fund's portfolio may be more sensitive to changes in the market value of a single issuer or industry. Although the Fund's objective is to generate income exempt from Federal and Tennessee income taxes, interest from some of the Fund's holdings may be subject to the Federal alternative minimum tax. The fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97.
73 76 AMSOUTH TENNESSEE TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The bar chart and table on this page provide some indication of the risks of investing in the Tennessee Tax-Exempt Fund by showing how the Fund has performed. The bar chart shows how the performance of the Fund's Class A shares has varied from year to year. The table below compares the performance of Class A and Trust shares over time to that of the Lehman Brothers Municipal 10-Year Index, a recognized, unmanaged index of investment grade municipal obligations. Both the bar chart and the table assume the reinvestment of dividends and distributions. Class B shares had not been offered for a full calendar year. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1) BAR GRAPH 90 5.67 91 9.31 92 5.46 93 10.25 94 -8.57 95 13.39 96 1.39 97 7.13 98 4.25 99 -3.07
The bar chart above does not reflect any applicable sales charges which would reduce returns. Best quarter: 5.91% 3/31/95 Worst quarter: -8.12% 3/31/94 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)
INCEPTION 1 5 10 SINCE DATE YEAR YEARS YEARS INCEPTION CLASS A SHARES (with 4.00% sales charge) 12/31/80* (6.91%) 3.63% 3.91% 6.02% CLASS B SHARES (with applicable contingent deferred sales charge) 2/24/98 (8.33%) 3.94% 4.24% 6.20% TRUST SHARES 10/3/97 (2.83%) 4.58% 4.39% 6.28% LEHMAN BROTHERS MUNICIPAL 10-YEAR INDEX 9/30/97 6.11% 6.22% 8.26% 7.59%
(*)The Tennessee Tax-Exempt Fund commenced operations on 3/28/94 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. 74 77 AMSOUTH TENNESSEE TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Tennessee Tax-Exempt Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES (FEES CLASS A CLASS B TRUST PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES (FEES CLASS A CLASS B TRUST PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expense(5) 0.67% 0.67% 0.57%(6) TOTAL FUND OPERATING EXPENSES 1.32% 2.07% 1.22% Fee Waiver and/or Expense Reimbursement (0.05%) (0.20%) (0.20%) NET EXPENSES(7) 1.27% 1.87% 1.02%
(1) AmSouth Bank or other financial institutions may change their customer 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. (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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0%. 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are in effect. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 1.27%; Class B, 1.87% and Trust, 1.02% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $529 $802 $1,095 $1,927 CLASS B SHARES Assuming Redemption $710 $949 $1,314 $2,118 Assuming No Redemption $210 $649 $1,114 $2,118 TRUST SHARES $124 $387 $ 670 $1,477
75 78 AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with current income exempt from Federal and Tennessee income taxes without assuming undue risk. PRINCIPAL INVESTMENT STRATEGIES The Fund normally invests substantially all of its assets in municipal obligations of the State of Tennessee, its political subdivisions, authorities and corporations, that provide income exempt from Federal and Tennessee personal income taxes. In choosing municipal obligations for the Fund, the portfolio manager attempts to reduce interest rate risk by maintaining a portfolio duration of under five years and an effective average portfolio maturity between three and five years, depending on market conditions. Duration is an indication of how sensitive a bond or mutual fund portfolio may be to changes in interest rates. For example, the market price of a bond with a duration of three years should decline 3% if interest rates rise 1%. Conversely, the market price of the same bond should increase 3% if interest rates fall 1%. The market price of a bond with a duration of six years should increase or decline twice as much as the market price of a bond with a three-year duration. The average dollar-weighted credit rating of 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. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS The Fund's investments in municipal obligations will be subject primarily to interest rate and credit risk. INTEREST RATE RISK: Prices of municipal obligations 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 the Fund's share price as well. Interest rate risk is usually greater for fixed-income securities with longer maturities or durations. If interest rates fall, it is possible that issuers of callable bonds with high interest coupons will "call" (or prepay) their bonds before their maturity date. If a call were exercised by the issuer during a period of declining interest rates, the Fund is likely to replace such called security with a lower yielding security. If that were to happen, it could decrease the Fund's dividends. As a result, the value of your investment in the Fund will fluctuate and you could lose money by investing in the Fund. CREDIT RISK: The Fund's investments also are subject to credit risk, which is the risk that the issuer of the security will fail to make timely payments of interest or principal, or to otherwise honor its obligations. Credit risk includes the possibility that any of the Fund's investments will have its credit rating downgraded or will default. STATE-SPECIFIC RISK: Because of the Fund's concentration in Tennessee municipal obligations, the Fund will be vulnerable to any development in Tennessee's economy that weakens or jeopardizes the ability of Tennessee municipal obligation issuers to pay interest and principal. As a result, the value of the Fund's shares may fluctuate more widely than those of a fund investing in municipal obligations from a number of different states.
76 79 AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES NON-DIVERSIFIED RISK: The Fund is non-diversified and may invest a greater percentage of its assets in a particular issuer compared with other funds. Accordingly, the Fund's portfolio may be more sensitive to changes in the market value of a single issuer or industry. Although the Fund's objective is to generate income exempt from Federal and Tennessee income taxes, interest from some of the Fund's holdings may be subject to the Federal alternative minimum tax. The Fund may trade securities actively, which could increase its transaction costs (thereby lowering its performance) and may increase the amount of taxes that you pay. If the Fund invests in securities with additional risks, its share price volatility accordingly could be greater and its performance lower. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97. 77 80 AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The bar chart and table on this page provide some indication of the risks of investing in the Limited Term Tennessee Tax-Exempt Fund by showing how the Fund has performed. The bar chart shows how the performance of the Fund's Class A shares has varied from year to year. The table below compares the performance of Class A shares over time to that of the Lehman Brothers Municipal 1-5 Year Index, a recognized, unmanaged index of investment grade municipal obligations. Both the bar chart and the table assume the reinvestment of dividends and distributions. Class B and Trust shares had not been offered for a full calendar year. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1) BAR GRAPH 90 6.13 91 8.14 92 4.61 93 6.38 94 -2.62 95 8.4 96 2.17 97 5.42 98 3.76 99 -1
The bar chart above does not reflect any applicable sales charges which would reduce returns. Best quarter: 3.53% 12/31/90 Worst quarter: -2.94% 3/31/94 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)
SINCE 1 5 10 INCEPTION YEAR YEARS YEARS 12/31/86* CLASS A SHARES (with 4.00% sales charge) (4.95%) 2.86% 3.65% 3.81% CLASS B SHARES (with applicable Contingent Deferred Sales Charge) (6.64%) 2.97% 3.89% 3.98%
(*)The Limited Term Tennessee Tax-Exempt Fund commenced operations on 2/28/97 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. 78 81 AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Limited Term Tennessee Tax-Exempt Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases 4.00%(2) None None Maximum Deferred Sales Charge (Load) None 5.00%(3) None Redemption Fee(4) 0.00% 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee(5) 0.65% 0.65% 0.65% Distribution and/or Service (12b-1) Fee 0.00% 0.75% None Other Expenses(5) 1.00% 1.00% 0.90%(6) TOTAL FUND OPERATING EXPENSES 1.65% 2.40% 1.55% Fee Waiver and/or Expense Reimbursement (0.05%) (0.20%) (0.20%) NET EXPENSES(7) 1.60% 2.20% 1.35%
(1) AmSouth Bank or other financial institutions may change their customer 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. (3) For B Shares acquired in the combination of AmSouth Funds with ISG Funds, waivers are in place on the CDSC charged if 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. For all other B Shares, the CDSC declines over a six year period as follows: 5%, 4%, 3%, 3%, 2%, 1%, to 0% in the seventh and eighth year. Approximately eight years after purchase (seven years for 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) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are in effect. (6) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (7) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 1.60%; Class B, 2.20%; and Trust 1.35% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 3 5 10 1 YEAR YEARS YEARS YEARS CLASS A SHARES $561 $ 900 $1,261 $2,276 CLASS B SHARES Assuming Redemption $743 $1,048 $1,480 $2,463 Assuming No Redemption $243 $ 748 $1,280 $2,463 TRUST SHARES $158 $ 490 $ 845 $1,845
79 82 OVERVIEW DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES MONEY MARKET FUNDS These Funds seek current income with liquidity and stability of principal by investing primarily in short-term debt securities. The Funds seek to maintain a stable price of $1.00 per share. WHO MAY WANT TO INVEST Consider investing in these Funds if you are: - seeking preservation of capital - investing short-term reserves - willing to accept lower potential returns in exchange for a higher degree of safety - in the case of the Tax-Exempt Money Market Fund, seeking Federal tax-exempt income These Funds may not be appropriate if you are: - seeking high total return - pursuing a long-term goal or investing for retirement
80 83 AMSOUTH PRIME MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth Prime Obligations Fund) seeks current income with liquidity and stability of principal. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only in U.S. dollar-denominated, "high-quality" short-term debt securities, including the following: - obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities - certificates of deposit, time deposits, bankers' acceptances and other short-term securities issued by domestic or foreign banks or their subsidiaries or branches - domestic and foreign commercial paper and other short-term corporate debt obligations, including those with floating or variable rates of interest - obligations issued or guaranteed by one or more foreign governments or their agencies or instrumentalities, including obligations of supranational entities - asset-backed securities - repurchase agreements collateralized by the types of securities listed above "High-quality" debt securities are those obligations which, at the time of purchase, (i) possess the highest short-term rating from at least two nationally recognized statistical rating organizations (an "NRSRO") (for example, commercial paper rated "A-1" by Standard & Poor's Corporation and "P-1" by Moody's Investors Service, Inc.) or one NRSRO if only rated by one NRSRO or (ii) if unrated, are determined by the portfolio manager to be of comparable quality. When selecting securities for the Fund's portfolio, the manager first considers safety of principal and the quality of an investment. The manager then focuses on generating a high-level of income. The manager generally evaluates investments based on interest rate sensitivity selecting those securities whose maturities fit the Fund's interest rate sensitivity target and which the manager believes to be the best relative values. The Fund will maintain an average weighted portfolio maturity of 90 days or less and will limit the maturity of each security in its portfolio to 397 days or less. For a more complete description of the securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates or that the Fund's yield will decrease due to a decrease in interest rates. CREDIT RISK: The possibility that an issuer cannot make timely interest and principal payments on its debt securities such as commercial paper. The lower a security's rating, the greater its credit risk. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
81 84 AMSOUTH PRIME MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The chart and table on this page show how the Prime Money Market Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over ten years to demonstrate that the Fund's value varied at different times. The table below shows the Fund's performance over time. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [Prime Obligations Fund Performance Bar Chart] 90 7.86 91 5.77 92 3.39 93 2.61 94 3.72 95 5.5 96 4.92 97 5.09 98 4.98 99 4.6
The performance information shown above is based on a calendar year. Best quarter: 2.35% 6/30/89 Worst quarter: 0.63% 6/30/93 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The returns for Class A Shares and Class B Shares will differ from the Trust Shares returns shown in the bar chart because of differences in expenses of each class. The table assumes that Class B shareholders redeem all of their fund shares at the end of the period indicated.
SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS (12/19/91) CLASS A SHARES 4.49% 4.94% 4.80% 5.28% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) 3.56% N/A N/A 3.67% TRUST SHARES 4.60% 5.02% 4.83% 5.31%
(1) Both charts assume reinvestment of dividends and distributions. (2) Performance for the Class B Shares, which commenced operations on September 2, 1997, is based on the historical performance of the Class A Shares (without sales charge), adjusted to reflect B Shares fees, prior to that date. As of December 31, 1999, the Fund's 7-day yield for Class A Shares, Class B Shares and Trust Shares was 4.90%, 3.96% and 5.00% respectively. Without fee waivers and expense reimbursements, the Fund's yield would have been 4.75% for Class A Shares, for this time period. For current yield information on the Fund, call 1-800-451-8382. The Fund's yield appears in The Wall Street Journal each Thursday. 82 85 AMSOUTH PRIME MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Prime Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A CLASS B TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum Sales Charge (Load) on Purchases None None None Maximum Deferred Sales Charge (Load) None 5.00%(2) None Redemption Fee(3) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management Fee 0.40% 0.40% 0.40% Distribution and/or Service (12b-1) Fee 0.00% 0.75% 0.00% Other Expenses(4) 0.53% 0.53% 0.43%(5) TOTAL FUND OPERATING EXPENSES 0.93% 1.68% 0.83% Fee Waiver and/or Expense Reimbursement (0.16%) (0.16%) (0.16%) NET EXPENSES(6) 0.77% 1.52% 0.67%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) A CDSC on Class B Shares declines over six years starting with year one and ending in year seven from: 5%, 4%, 3%, 3%, 2%, 1%. (3) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (4) Other expenses are restated to reflect current fees. (5) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (6) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A Shares, 0.66%; Trust Shares, 0.66% through April 30, 2000, and thereafter will be: Class A Shares, 0.77%; Class B Shares, 1.52%; Trust Shares, 0.67% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $ 95 $296 $ 515 $1,143 CLASS B SHARES Assuming redemption $671 $830 $1,113 $1,694 Assuming no redemption $171 $530 $ 913 $1,694 TRUST SHARES $ 85 $265 $ 460 $1,025
83 86 AMSOUTH U.S. TREASURY MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth U.S. Treasury Fund) seeks current income with liquidity and stability of principal. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests exclusively in short-term U.S. dollar-denominated obligations issued by the U.S. Treasury ("U.S. Treasury Securities"), separately traded component parts of those securities called STRIPs, and repurchase agreements collateralized by U.S. Treasury Securities. When selecting securities for the Fund's portfolio, the manager first considers safety of principal and the quality of an investment. The manager then focuses on generating a high-level of income. The manager generally evaluates investments based on interest rate sensitivity selecting those securities whose maturities fit the Fund's interest rate sensitivity target and which the manager believes to be the best relative values. The Fund will maintain an average weighted portfolio maturity of 90 days or less and will limit the maturity of each security in its portfolio to 397 days or less. For a more complete description of the securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the Fund's yield will decrease due to a decrease in interest rates or that the value of the Fund's investments will decline due to an increase in interest rates. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
84 87 AMSOUTH U.S. TREASURY MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The chart and table on this page show how the U.S. Treasury Money Market Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over ten years to demonstrate that the Fund's value varied at different times. The table below shows the Fund's performance over time. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [BAR GRAPH] 90 7.64 91 5.48 92 3.32 93 2.54 94 3.55 95 5.3 96 4.69 97 4.75 98 4.6 99 4.17
The performance information shown above is based on a calendar year. Best quarter: 2.23% 6/30/89 Worst quarter: 0.62% 6/30/93 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 YEAR 5 YEARS 10 YEARS SINCE INCEPTION CLASS A SHARES 4.06% 4.62% 4.56% 5.02% TRUST SHARES 4.17% 4.70% 4.60% 5.06%
(1) Both charts assume reinvestment of dividends and distributions. As of December 31, 1999, the Fund's 7-day yield for Class A Shares was 4.24% and for Trust Shares was 4.34%. Without fee waivers and expense reimbursements, the Fund's yield would have been 4.09% for Class A Shares for this time period. For current yield information on the Fund, call 1-800-451-8382. The Fund's yield appears in The Wall Street Journal each Thursday. 85 88 AMSOUTH U.S. TREASURY MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the U.S. Treasury Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES Maximum Sales Charge (Load) on Purchases None None Maximum Deferred Sales Charge (Load) None None Redemption Fee(2) 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES Management Fee 0.40% 0.40% Distribution and/or Service (12b-1) Fee 0.00% 0.00% Other Expenses(3) 0.57% 0.47%(4) Total Fund Operating Expenses 0.97% 0.87%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (3) Shareholder servicing for Class A Shares were limited to 0.10%. Other Expenses are restated to reflect current fees. Other expenses are being limited to 0.56% for Class A Shares and 0.31% for Class B Shares. Total expenses after fee waivers and expense reimbursements for Class A Shares is 0.81%; and Trust Shares, 0.86%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (4) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $99 $309 $536 $1,190 TRUST SHARES $89 $278 $482 $1,073
86 89 AMSOUTH TREASURY RESERVE MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. PRINCIPAL INVESTMENT STRATEGIES The Fund invests primarily in U.S. Treasury securities and repurchase agreements in respect thereof. The Fund may invest up to 35% of its assets in other securities guaranteed as to payment of principal and interest by the U.S. Government and repurchase agreements in respect thereof. The income from the Fund's investment in direct obligations of the United States is exempt from state and local, but not Federal, income taxes. Dividends and distributions attributable to income from repurchase agreements may be subject to Federal, state and local taxes. The Fund invests based on considerations of safety of principal and liquidity, which means that the Fund may not necessarily invest in securities paying the highest available yield at a particular time. The Fund will attempt to increase its yield by trading to take advantage of short-term market variations. The portfolio manager generally evaluates investments based on interest rate sensitivity. For a more complete description of the securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS INTEREST RATE RISK: Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the Fund. The Fund is subject to the risk that changes in interest rates will affect the yield or value of the Fund's investments. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to timely payment of interest and principal when held to maturity. Neither the market value of such securities nor the Fund's share price is guaranteed. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
87 90 AMSOUTH TREASURY RESERVE MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The bar chart and table on this page provide some indication of the risks of investing in the Treasury Money Market Fund by showing how the Fund has performed and how its performance has varied from year to year. Both the bar chart and the table assume the reinvestment of dividends and distributions. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1) 93 2.06 94 4.05 95 5.41 96 4.78 97 4.78 98 4.68 99 4.38
Best quarter: 1.36% 6/30/95 Worst quarter: -0.60% 9/30/93 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)
INCEPTION 1 5 SINCE DATE YEAR YEARS INCEPTION CLASS A SHARES 10/1/92* 4.38% 4.80% 4.30% TRUST SHARES 7/1/96 4.39% 4.94% 4.39%
As of December 31, 1999, the Fund's 7-day yield for Class A Shares was 4.42% and for Trust Shares was 4.42%. Without fee waivers and expense reimbursements, the Fund's yield would have been 4.17% for Trust Shares for this time period. For current yield information on the Fund, call 1-800-852-0045. The Fund's yield appears in The Wall Street Journal each Thursday. (*)The Treasury Money Market Fund commenced operations on 3/29/94 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. 88 91 AMSOUTH TREASURY RESERVE MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Treasury Reserve Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES Maximum Sales Charge (Load) on Purchases None None Maximum Deferred Sales Charge (Load) None None Redemption Fee(2) 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES CLASS A TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES Management Fee(5) 0.40% 0.40% Distribution and/or Service (12b-1) Fee 0.00% None Other Expenses(3) 0.57% 0.47%(4) TOTAL FUND OPERATING EXPENSES(3) 0.97% 0.87% Fee Waiver and/or Expense Reimbursement (0.25%) (0.23%) NET EXPENSES(5) 0.72% 0.62%
(1) AmSouth Bank or other financial institutions may change their customer account fees for automatic investment and other case management services provided in connection with investment in the Funds. (2) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (3) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are or were in effect. (4) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (5) Total expenses after fee waivers and expense reimbursements through April 30, 2000 are as follows: Class A, .60%; and Trust Class, .60% AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, .72%; and Trust Class, .62% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $99 $309 $536 $1,190 TRUST SHARES $89 $278 $482 $1,073
89 92 AMSOUTH TAX-EXEMPT MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the Amsouth Tax-Exempt Fund) seeks as high a level of current interest income exempt from federal income taxes as is consistent with the preservation of capital and relative stability of principal. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in short-term municipal securities that provide income that is exempt from federal income tax and not subject to the federal alternative minimum tax for individuals. Short-term municipal securities are debt obligations, such as bonds and notes, issued by states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities which, generally have remaining maturities of one year or less. Municipal securities purchased by the Fund may include rated and unrated variable and floating rate tax-exempt notes which may have a stated maturity in excess of one year but which will be subject to a demand feature permitting the Fund to demand payment within a year. The Fund may also invest up to 10% of its total assets in the securities of money market mutual funds which invest primarily in obligations exempt from federal income tax. When selecting securities for the Fund's portfolio, the manager first considers safety of principal and the quality of an investment. The manager then focuses on generating a high-level of income. The manager generally evaluates investments based on interest rate sensitivity selecting those securities whose maturities fit the Fund's interest rate sensitivity target and which the manager believes to be the best relative values. The Fund will maintain an average weighted portfolio maturity of 90 days or less and will limit the maturity of each security in its portfolio to 397 days or less. The Fund may also invest in certain other short-term debt securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 97 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the Fund's yield will decrease due to a decrease in interest rates or that the value of the Fund's investments will decline due to an increase in interest rates. CREDIT RISK: The possibility that an issuer cannot make timely interest and principal payments on its debt securities such as municipal notes. The lower a security's rating, the greater its credit risk. TAX RISK: The risk that the issuer of the securities will fail to comply with certain requirements of the Internal Revenue Code, which would cause adverse tax consequences. For more information about these risks, please see the Additional Investment Strategies and Risks on page 97. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
90 93 AMSOUTH TAX-EXEMPT MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES The chart and table on this page show how the Tax-Exempt Money Market Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over nine years to demonstrate that the Fund's value varied at different times. The table below shows the Fund's performance over time. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) [Tax-Exempt Fund Performance Bar Chart] 91 3.91 92 2.59 93 1.92 94 2.33 95 3.44 96 3.03 97 3.2 98 2.99 99 2.8
The performance information shown above is based on a calendar year. The Fund's total return from 1/1/99 to 9/30/99 was 2.01%. Best quarter: 1.40% 12/31/90 Worst quarter: 0.44% 3/31/94 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
SINCE INCEPTION 1 YEAR 5 YEARS (12/19/91) CLASS A SHARES 2.70% 3.02% 3.02% TRUST SHARES 2.80% 3.09% 3.06%
(1) Both charts assume reinvestment of dividends and distributions. As of December 31, 1999, the Fund's 7-day yield for Class A Shares was 3.74% and for Trust Shares was 3.84%. Without fee waivers and expense reimbursements, the Fund's yield would have been 3.39% and 3.64% for this time period. For current yield information on the Fund, call 1-800-451-8382. The Fund's yield appears in The Wall Street Journal each Thursday. 91 94 AMSOUTH TAX-EXEMPT MONEY MARKET FUND DESCRIPTION OF THE FUNDS -- OBJECTIVES, RISK/RETURN AND EXPENSES As an investor in the Tax-Exempt Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES Maximum Sales Charge (Load) on Purchases None None Maximum Deferred Sales Charge (Load) None None Redemption Fee(2) 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES Management Fee 0.40% 0.40% Distribution and/or Service (12b-1) Fee 0.00% 0.00% Other Expenses(3) 0.53% 0.43%(4) TOTAL FUND OPERATING EXPENSES 0.93% 0.83% Fee Waiver and/or Expense Reimbursement (0.03%) (0.03%) NET EXPENSES(5) 0.90% 0.80%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (3) Other expenses are restated to reflect current fees. (4) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (5) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A Shares, 0.90%; Trust Shares, 0.80% until October 1, 2001. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - no changes in the Fund's operating expenses - redemption at the end of each time period Because actual returns and operating expenses will be different, this example is for comparison only. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $95 $296 $515 $1,143 TRUST SHARES $85 $265 $460 $1,025
92 95 [LOGO] ADDITIONAL INVESTMENT STRATEGIES AND RISKS CAPITAL APPRECIATION FUNDS VALUE FUND -- The Fund will normally invest at least 80% of its total assets in common stocks and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks. The Fund may also invest up to 20% of the value of its total assets in preferred stocks, corporate bonds, notes, and warrants, and short-term money market instruments. GROWTH FUND -- The Fund will normally invest at least 65% of its total assets in common stocks and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks. The Fund may also invest up to 35% of the value of its assets in preferred stocks, corporate bonds, notes, and warrants, and short-term money market instruments. CAPITAL GROWTH FUND -- The Fund will invest at least 65% of its total assets in equity securities. The Fund also may invest in debt securities of domestic and foreign issuers when the Advisor believes that such securities offer opportunities for capital growth. The Fund may invest up to 10% of its total assets in foreign securities which are not publicly traded in the United States. At least 65% of the Fund's total assets invested in debt securities must consist of debt securities which are rated no lower than investment grade (Baa/BBB) by a credit rating agency, or, if unrated, deemed to be of comparable quality by the Advisor. The remainder of such assets may be invested in debt securities which are rated no lower than Ba by Moody's and BB by S&P, Fitch and Duff or, if unrated, deemed to be of comparable quality by the Advisor. Debt securities rated Ba by Moody's and BB by S&P, Fitch and Duff are considered speculative grade debt (also known as junk bonds) and the payment of principal and interest may be affected at any time by adverse economic changes. LARGE CAP FUND -- The Fund will invest at least 70% of its total assets in equity securities. The Fund also may invest in debt securities of domestic issuers rated no lower than investment grade (Baa/BBB) by a credit rating agency, or, if unrated, deemed to be of comparable quality by the Advisor. MID CAP FUND -- The Fund will invest at least 65% of its total assets in equity securities of companies publicly traded on U.S. exchanges that are either included in the Russell Mid-Cap Growth Index or have market capitalizations within the range of such included companies. The Fund may invest up to 20% of its total assets in securities of foreign issuers traded on the New York or American Stock Exchange or in the over-the-counter market in the form of depositary receipts, such as ADRs. The Fund also may invest in debt securities of domestic issuers rated no lower than investment grade (Baa/BBB) by a credit rating agency, or, if unrated, deemed to be of comparable quality by the Advisor. Securities of foreign issuers (including ADRs) fluctuate in price, often based on factors unrelated to the issuers' value, and such fluctuations can be pronounced. Foreign securities tend to be more volatile than U.S. securities because they include special risks such as exposure to currency fluctuations, a lack of comprehensive company information, potential instability, and differing auditing and legal standards. SMALL CAP FUND -- The Fund will normally invest at least 80% of its total assets in common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock of companies with market capitalization that are equivalent to the capitalization of the companies in the Russell 2000(R) Growth Index at the time of purchase. The Fund may invest up to 20% of the value of its total assets in common stocks and securities convertible into common stocks of companies with a market capitalization of greater than $2 billion determined at the time of the purchase, preferred stocks, corporate bonds, notes, and warrants, and short-term money market instruments. EQUITY INCOME FUND -- The Fund will normally invest at least 65% of its total assets in income producing equity securities such as common stocks, preferred stocks, and securities convertible into common stocks, such as convertible bonds and convertible preferred stocks. The Fund may also invest up to 35% of the value of its total assets in corporate bonds, notes, and warrants, and short-term money market instruments or conducting substantial business. 93 96 ADDITIONAL INVESTMENT STRATEGIES AND RISKS BALANCED FUND -- The Fund will normally invest in equity securities consisting of common stocks but may also invest in other equity-type securities such as warrants, preferred stocks and convertible debt instruments. As a fundamental policy, the Fund will invest at least 25% of its total assets in fixed-income securities. Fixed-income securities include debt securities, preferred stock and that portion of the value of securities convertible into common stock, including convertible preferred stock and convertible debt, which is attributable to the fixed-income characteristics of those securities. The Fund's debt securities will consist of high grade securities, which are those securities rated in one of the three highest rating categories by a nationally recognized statistical rating organization (an "NRSRO") at the time of purchase, or if not rated, found by the Advisor under guidelines established by the Trust's Board of Trustees to be of comparable quality. If the rating of any debt securities held by the Fund falls below the third highest rating the Fund will not have to dispose of those obligations and may continue to hold them if the portfolio manager considers it to be appropriate. SELECT EQUITY FUND -- The Fund will normally invest at least 65% of its assets in common stocks and securities convertible into common stocks such as convertible bonds and convertible preferred stock of companies with market capitalization greater than $2 billion at the time of purchase. The Fund may also invest up to 35% of the value of its total assets in common stocks and securities convertible into common stocks of companies with market capitalizations less than $2 billion, preferred stocks, corporate bonds, notes, and warrants, and short-term money market instruments. Stock futures and option contracts, stock index futures and index option contracts may be used to hedge cash and maintain exposure to the U.S. equity market. ENHANCED MARKET FUND -- The Fund will normally invest at least 80% of its total assets in equity securities drawn from the S&P 500 Index. The Fund may invest up to 20% of its total assets in equity securities not held in the S&P 500, corporate bonds, notes, and warrants, and short-term money market instruments. Stock futures and option contracts, stock index futures and index option contracts may be used to hedge cash and maintain exposure to the U.S. equity market. INTERNATIONAL EQUITY FUND -- The Fund will invest at least 65% of its total assets in equity securities of non-United States companies (i.e., incorporated or organized outside the United States). Under normal market conditions, the Fund will invest at least 80% of the value of its total assets in the equity securities of companies within not less than three different countries (not including the United States). Foreign securities held by the Fund may trade on days when the Fund does not calculate its NAV and thus affect the Fund's NAV on days when investors have no access to the Fund. The Fund is not required to invest exclusively in common stocks or other equity securities, and, if deemed advisable, the Fund may invest, to a limited extent, in fixed income securities and money market instruments. The Fund will not invest in fixed income securities rated lower than A by a credit rating agency, such as Moody's, S&P, Fitch or Duff, or, if unrated, deemed to be of comparable quality by the Advisor. The Fund may engage in foreign currency transactions to hedge the Fund's portfolio or increase returns. The Fund's success in these transactions will depend principally on the Sub-Advisor's ability to predict accurately the future exchange rates between foreign currencies and the U.S. dollar. The Fund also may engage in short-selling, which involves selling a security it does not own in anticipation of a decline in the market price of the security. To complete the transaction, the Fund must borrow the security to make delivery to the buyer. The Fund is obligated to replace the security borrowed by purchasing it later in the market. The price at such time may be more or less than the price at which the security was sold by the Fund, which would result in a loss or gain, respectively. While the Sub-Advisor intends for the Fund to have only moderate turnover, the Fund may choose to trade portfolio securities more actively, if in the opinion of the Sub-Advisor, individual equity fundamentals warrant. INTERNATIONAL EQUITY, MID CAP, CAPITAL GROWTH AND LARGE CAP FUNDS -- While these Funds typically invest primarily in common stocks, the equity securities in which they may invest also include convertible securities and preferred stocks. Convertible securities are exchangeable for a certain amount of another form of an issuer's securities, usually common stock, at a prestated price. Convertible securities generally are subordinated to other similar but non-convertible securities of the same issuer and, thus, typically have lower credit ratings than similar non-convertible securities. Preferred stock pays dividends at a specified rate and has preference over common stock in the payment of dividends and the liquidation of assets. Preferred stock ordinarily does not carry voting rights. 94 97 ADDITIONAL INVESTMENT STRATEGIES AND RISKS GROWTH FUND, EQUITY INCOME FUND, SELECT EQUITY FUND, ENHANCED MARKET FUND, VALUE FUND, SMALL CAP FUND, INTERNATIONAL EQUITY FUND: TEMPORARY DEFENSIVE MEASURES -- If deemed appropriate under the circumstances, the Growth Fund, Equity Income Fund, Select Equity Fund, and International Equity Fund may each increase its holdings in short-term money market instruments to over 35% of its total assets. Similarly, the Enhanced Market Fund, Value Fund and Small Cap Fund may each increase its holdings in short-term money market instruments to over 20% of its total assets. Each Capital Appreciation Fund may hold uninvested cash pending investment. STRATEGIC PORTFOLIOS APPLICABLE TO ALL AMSOUTH STRATEGIC PORTFOLIOS -- The Advisor will make allocation decisions according to its outlook for the economy, financial markets and relative market valuation of the Funds. Each Strategic Portfolio has a "benchmark percentage" representing the asset class mix of the Underlying Funds the Advisor expects to maintain when its assessment of economic conditions and other factors indicate that the financial markets are fairly valued relative to each other. The Advisor anticipates that each AmSouth Strategic Portfolio's asset class benchmark percentage will be as follows: BENCHMARK PERCENTAGES
MODERATE AGGRESSIVE GROWTH AND GROWTH AND CURRENT UNDERLYING FUND GROWTH GROWTH INCOME INCOME INCOME ASSET CLASS PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO --------------- ---------- --------- ---------- ---------- --------- Equity 95% 80% 60% 30% 0% Fixed-Income 0% 15% 35% 65% 95% Money Market Instruments 5% 5% 5% 5% 5%
Under normal market conditions, the Advisor expects to adhere to the benchmark percentages set forth above and the strategy ranges set forth herein; however, the Advisor reserves the right to vary such percentages and ranges as the risk/return characteristics of the financial markets or Underlying Fund asset classes, as assessed by the Advisor, vary over time. Each AmSouth Strategic Portfolio may invest, in anticipation of otherwise investing cash positions, directly in U.S. Government securities and short-term paper, such as bankers' acceptances. Under normal market conditions, none of the Strategic Portfolios expects to have a substantial portion of its assets invested in such securities. However, when the Advisor determines that adverse market conditions exist, the Fund may adopt a temporary defensive posture and invest entirely in such securities. Although the Fund would do this to avoid losses, it could reduce the benefit of any upswing in the market. During such periods, the Fund may not achieve its investment objective. Because the AmSouth Strategic Portfolios invest in the Underlying Funds, there will be duplication of advisory fees and certain other expenses. INCOME FUNDS BOND FUND -- The Fund will invest at least 65% of its total assets in bonds (including debentures). For temporary defensive purposes, the Fund may hold more than 35% of its total assets in cash and cash equivalents. "Cash equivalents" are short-term, interest-bearing instruments or deposits known as money market instruments. LIMITED TERM BOND FUND -- The Fund will normally invest at least 65% of its total assets in bonds (including debentures), notes and other debt securities which have a stated or remaining maturity of five years or less or which have an unconditional redemption feature that will permit the Fund to require the issuer of the security to redeem the security within five years from the date of purchase by the Fund or for which the Fund has acquired an unconditional "put" to sell 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 securities which have a stated or remaining maturity of greater than five years, cash, cash equivalents, and money-market instruments. For temporary defensive purposes, the Fund may invest more than 35% of its total assets in cash, cash equivalents and corporate bonds with remaining maturities of less than 1 year. If the Fund acquires a debt security with a stated or remaining maturity in excess of five years, the Fund may acquire a "put" with respect to the security. Under a "put", the Fund would have the right to sell the debt security within a specified period of time at a specified minimum price. The Fund will only acquire puts from dealers, banks and broker-dealers which the Advisor has determined are creditworthy. A put will be sold, transferred, or assigned by the Fund only with the underlying debt security. The Fund will acquire puts solely to shorten the maturity of the underlying debt security. 95 98 ADDITIONAL INVESTMENT STRATEGIES AND RISKS GOVERNMENT INCOME FUND -- The Fund invests at least 65% of its total assets in obligations issued or guaranteed by the U.S. government or its agencies and instrumentalities. Up to 35% of the Fund's total assets may be invested in other types of debt securities, preferred stocks and options. Under normal market conditions, the Fund will invest up to 80% of its total assets in mortgage-related securities issued or guaranteed by the U.S. government or its agencies and instrumentalities, such as the Government National Mortgage Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage Corporation ("FHLMC"), and in mortgage-related securities issued by nongovernmental entities which are rated, at the time of purchase, in one of the three highest rating categories by an NRSRO or, if unrated, determined by its portfolio manager to be of comparable quality. LIMITED TERM U.S. GOVERNMENT FUND -- The Fund will invest at least 65% of its total assets in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities and repurchase agreements in respect of such securities. Repurchase agreements are contracts in which a U.S. commercial bank or securities dealer sells U.S. Government securities to the Fund and agrees to repurchase them on a specific date (usually the next day) and at a specific price. These agreements offer the Fund a means of investing money for a short period of time. If the seller defaults, the Fund could be delayed in selling the securities which could affect the Fund's yield. The Fund's controlled duration strategy may limit its ability to take advantage of investment opportunities. U.S. Government securities are bonds or other debt obligations issued or guaranteed as to principal and interest by the U.S. Government or one of its agencies or instrumentalities. U.S. Treasury securities and some obligations of U.S. Government agencies and instrumentalities are supported by the "full faith and credit" of the United States Government. Other U.S. Government securities are backed by the right of the issuer to borrow from the U.S. Treasury. Still others are supported only by the credit of the issuer or instrumentality. While the U.S. Government provides financial support to U.S. Government-sponsored agencies or instrumentalities, no assurance can be given that it will always do so. The Fund may invest, to a limited extent, in securities issued by other investment companies which principally invest in securities of the type in which the Fund invests. Such investments will involve duplication of advisory fees and certain other expenses. The Fund may lend its portfolio securities to brokers, dealers and other financial institutions, which could subject the Fund to risk of loss if the institution breaches its agreement with the Fund. In connection with such loans, the Fund will receive collateral consisting of cash or U.S. Government securities which will be maintained at all times in an amount equal to 100% of the current market value of the loaned securities. MUNICIPAL BOND FUND -- As a fundamental policy, the Fund will normally invest at least 80% of its net assets in Municipal Securities and in securities of money market mutual funds which invest primarily in obligations exempt from federal income tax. Additionally, as a fundamental policy, the Fund will invest, under normal market conditions, at least 65% of the its total assets in bonds. Under normal market conditions, the Fund may invest up to 20% of net assets in obligations, the interest on which is either subject to federal income taxation or treated as a preference item for purposes of the federal alternative minimum tax ("Taxable Obligations"). For temporary defensive purposes, the Fund may increase its holdings in Taxable Obligations to over 20% of its net assets and hold uninvested cash reserves pending investment. Taxable obligations may include obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (some of which may be subject to repurchase agreements), certificates of deposit, demand and time deposits, bankers' acceptances of selected banks, and commercial paper meeting the Tax-Free Funds' quality standards (as described in the SAI) for tax-exempt commercial paper. The Fund may invest 25% or more of its total assets in bonds, notes and warrants generally issued by or on behalf of the State of Alabama and its political subdivisions, the interest on which, in the opinion of the issuer's bond counsel at the time of issuance, is exempt from both federal income tax and Alabama personal income tax and is not treated as a preference item for purposes of the federal alternative minimum tax for individuals. FLORIDA TAX-EXEMPT FUND -- As a fundamental policy, the Fund will normally invest at least 80% of its net assets in Florida Municipal Securities. Florida municipal securities include bonds, notes and warrants generally issued by or on behalf of the State of Florida and its political subdivisions, the interest on which, in the opinion of the issuer's bond counsel at the time of issuance, is exempt from federal income tax, is not subject to the federal alternative minimum tax for individuals, and is exempt from the Florida intangible personal property tax. 96 99 ADDITIONAL INVESTMENT STRATEGIES AND RISKS Under normal market conditions, the Fund may invest up to 20% of net assets in obligations, the interest on which is either subject to federal income taxation or treated as a preference item for purposes of the federal alternative minimum tax ("Taxable Obligations"). For purposes of the 20% basket the Fund may also invest in municipal securities of states other than Florida. For temporary defensive purposes, the Fund may increase its holdings in Taxable Obligations to over 20% of its net assets and hold uninvested cash reserves pending investment. The Fund may also increase its holdings in municipal securities of states other than Florida to over 20% of its net assets in such situations. Taxable obligations may include obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (some of which may be subject to repurchase agreements), certificates of deposit, demand and time deposits, bankers' acceptances of selected banks, and commercial paper meeting the Tax-Free Funds' quality standards (as described in the SAI) for tax-exempt commercial paper. The Florida Tax-Exempt Fund is a non-diversified fund and may concentrate its investments in the securities of a limited number of issuers. Thus, the Florida Tax-Exempt Fund generally may invest up to 25% of its total assets in the securities of each of any two issuers. TENNESSEE TAX-EXEMPT FUND AND LIMITED TERM TENNESSEE TAX-EXEMPT FUND -- The AmSouth Tennessee Tax-Exempt Fund and AmSouth Limited Term Tennessee Tax-Exempt Fund (each a "Tennessee Fund") will each invest, as a fundamental policy, at least 80% of its net assets (except when maintaining a temporary defensive position) in municipal obligations. Under normal circumstances, each Tennessee Fund will invest at least 65% of its total assets in bonds, debentures, and other debt securities of the State of Tennessee, its political subdivisions, authorities and corporations, the interest from which is, in the opinion of bond counsel to the issuer, exempt from Federal and Tennessee personal income taxes. The remainder of each Tennessee Fund's assets may be invested in securities that are not Tennessee municipal obligations and therefore may be subject to Tennessee income tax. Each Tennessee Fund intends to invest in such securities when their return to investors, taking into account applicable Tennessee income taxes, would be greater than comparably rated Tennessee municipal obligations. In addition, to the extent acceptable Tennessee municipal obligations are at any time unavailable for investment by each Tennessee Fund, the Fund will invest temporarily in other municipal obligations. When the Fund has adopted a temporary defensive position, including when acceptable Tennessee municipal obligations are unavailable for investment by the Fund, in excess of 35% of the Fund's total assets may be invested in securities that are not exempt from Tennessee State income tax. Each Tennessee Fund may invest up to 10% of its total assets in industrial development bonds backed only by the assets and revenues of non-governmental users. Each Tennessee Fund may invest up to 10% of its net assets in municipal obligations which provide income subject to the alternative minimum tax. From time to time, on a temporary basis other than for temporary defensive purposes (but not to exceed 20% of the Fund's net assets) or for temporary defensive purposes, each Tennessee Fund may invest in taxable money market instruments having, at the time of purchase, a quality rating in the two highest grades of Moody's, S&P or Fitch or, if unrated, deemed to be of comparable quality by the Advisor. Except for temporary defensive purposes, at no time will more than 20% of each Tennessee Fund's net assets be invested in taxable money market instruments and municipal obligations which provide income subject to the alternative minimum tax. The AmSouth Limited Term Tennessee Tax-Exempt Fund's controlled duration strategy may limit its ability to take advantage of investment opportunities. Each Tennessee Fund may invest some assets in derivative securities, such as options and futures, which may give rise to taxable income. These instruments are used primarily to hedge the Fund's portfolio but may be used to increase returns; however, they sometimes may reduce returns or increase volatility. In addition, derivatives can be illiquid and highly sensitive to changes in their underlying security, interest rate or index, and as a result can be highly volatile. A small investment in certain derivatives could have a potentially large impact on the Fund's performance. Municipal obligations in which each Tennessee Funds may invest are debt obligations typically divided into two types: - GENERAL OBLIGATION BONDS, which are secured by the full faith and credit of the issuer and its taxing power; and - REVENUE BONDS, which are payable from the revenues derived from a specific revenue source, such as charges for water and sewer service or highway tolls. To the extent described above, each Tennessee Fund may invest in industrial development bonds which, although nominally issued by municipal authorities, are in most cases revenue bonds that are not secured by the taxing power of 97 100 ADDITIONAL INVESTMENT STRATEGIES AND RISKS the municipality, but by the revenues derived from payments by the non-governmental users. Certain industrial development bonds, while exempt from Federal income tax, provide income subject to the alternative minimum tax. Each Tennessee Fund may invest, to a limited extent, in securities issued by other investment companies which principally invest in securities of the type in which the Fund invests. Such investments will involve duplication of advisory fees and certain other expenses. Each Tennessee Fund may lend its portfolio securities to brokers, dealers and other financial institutions, which could subject the Fund to risk of loss if the institution breaches its agreement the Fund and may give rise to taxable income. In connection with such loans, the Fund will receive collateral consisting of cash or U.S. Government securities which will be maintained at all times in an amount equal to 100% of the current market value of the loaned securities. MONEY MARKET FUNDS TREASURY RESERVE MONEY MARKET FUND -- The Fund will invest, as a fundamental policy, at least 65% of its total assets in securities issued by the U.S. Treasury and repurchase agreements in respect thereof. The remainder of its assets may be invested in other securities guaranteed as to payment of principal and interest by the U.S. Government and repurchase agreements in respect thereof. Repurchase agreements are contracts in which a U.S. commercial bank or securities dealer sells a security to the Fund and agrees to repurchase the security on a specific date (usually the next day) and at a specific price. These agreements offer the Fund a means of investing money for a short period of time. If the seller defaults, the Fund could be delayed in selling the securities which could affect the Fund's yield. The Fund will not invest in securities issued or guaranteed by U.S. Government agencies, instrumentalities or government-sponsored enterprises that are not backed by the full faith and credit of the United States. As a money market fund, the AmSouth Treasury Reserve Money Market Fund is subject to maturity, quality and diversification requirements designed to help it maintain a stable price of $1.00 per share. The Fund must do the following: - maintain an average dollar weighted portfolio maturity of 90 days or less - buy individual securities that have remaining maturities of 397 days or less - buy only high quality U.S. dollar denominated obligations The Fund may lend its portfolio securities to brokers, dealers and other financial institutions, which could subject the Fund to risk of loss if the institution breaches its agreement with the Fund. In connection with such loans, the Fund will receive collateral consisting of cash or U.S. Government securities which will be maintained at all times in an amount equal to 100% of the current market value of the loaned securities. The Fund may enter into reverse repurchase agreements with banks, brokers or dealers. In these transactions, the Fund sells a portfolio security to another party in return for cash and agrees to repurchase the security generally at a particular price and time. The Fund will use the cash to make investments which either mature or have a demand feature to resell to the issuer at a date simultaneous with or prior to the time the Fund must repurchase the security. Reverse repurchase agreements may be preferable to a regular sale and later repurchase of the securities because it avoids certain market risks and transaction costs. Such transactions, however, may increase the risk of potential fluctuations in the market value of the Fund's assets. In addition, interest costs on the cash received may exceed the return on the securities purchased. The Fund expects to maintain a net asset value of $1.00 per share, but there is no assurance that the Fund will be able to do so on a continuous basis. The Fund's performance per share will change daily based on many factors, including fluctuation in interest rates. TAX-EXEMPT MONEY MARKET FUND -- As a fundamental policy, under normal market conditions at least 80% of the Fund's total assets will be invested in municipal securities and in securities of money market mutual funds which invest primarily in obligations exempt from federal income tax. It is also a fundamental policy that the Fund may invest up to 20% of its total assets in obligations, the interest on which is either subject to regular federal income tax or treated as a preference item for purposes of the federal alternative minimum tax for individuals ("Taxable Obligations"). For temporary defensive purposes, however, the Fund may increase its short-term Taxable Obligations to over 20% of its total assets and hold 98 101 ADDITIONAL INVESTMENT STRATEGIES AND RISKS uninvested cash reserves pending investment. Taxable Obligations may include obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (some of which may be subject to repurchase agreements), certificates of deposit and bankers' acceptances of selected banks, and commercial paper. The Fund will invest only in those municipal securities and other obligations which are considered by the portfolio manager to present minimal credit risks. In addition, investments will be limited to those obligations which, at the time of purchase, (i) possess one of the two highest short-term ratings from an NRSRO in the case of single-rated securities or (ii) possess, in the case of multiple-rated securities, one of the two highest short-term ratings by at least two NRSROs; or (iii) do not possess a rating (i.e., are unrated) but are determined by the Advisor to be of comparable quality to the rated instruments eligible for purchase by the Fund under the guidelines adopted by the Trustees. INVESTMENT PRACTICES The Funds invest in a variety of securities and employ a number of investment techniques. Each security and technique involves certain risks. The following table describes the securities and techniques the Funds use, as well as the main risks they pose. Equity securities are subject mainly to market risk. Fixed income securities are primarily influenced by market, credit and prepayment risks, although certain securities may be subject to additional risks. Following the table is a more complete discussion of risk. You may also consult the Statement of Additional Information for additional details regarding these and other permissible investments.
FUND NAME FUND CODE --------- --------- Balanced Fund 1 Growth Fund 2 Enhanced Market Fund 3 Value Fund 4 Equity Income Fund 5 Select Equity Fund 6 Small Cap Fund 7 Bond Fund 8 Government Income Fund 9 Limited Term Bond Fund 10 Florida Tax-Exempt Fund 11 Municipal Bond Fund 12 Prime Money Market Fund 13 U.S. Treasury Money Market Fund 14 Tax-Exempt Money Market Fund 15 International Equity Fund 16 Mid Cap Fund 17 Capital Growth Fund 18 Large Cap Fund 19 Limited Term U.S. Government Fund 20 Tennessee Tax-Exempt Fund 21 Limited Term Tennessee Tax-Exempt Fund 22 Treasury Reserve Money Market Fund 23
99 102 ADDITIONAL INVESTMENT STRATEGIES AND RISKS
INSTRUMENT FUND CODE RISK TYPE ---------- --------- --------- AMERICAN DEPOSITARY RECEIPTS (ADRS): ADRs are foreign shares 1-7,16-19 Market of a company held by a U.S. bank that issues a receipt Political evidencing ownership. Foreign Investment ASSET-BACKED SECURITIES: Securities secured by company 1,8,13,18 Pre-payment receivables, home equity loans, truck and auto loans, Market leases, credit card receivables and other securities backed Credit by other types of receivables or other assets. Interest Rate Regulatory Liquidity BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 1,2,4,7,8,13,15, Credit on and accepted by a commercial bank. Maturities are 16-19,21,22 Liquidity generally six months or less. Market Interest Rate BONDS: Interest-bearing or discounted government or 1,8-12,20-22 Interest Rate corporate securities that obligate the issuer to pay the Market bondholder a specified sum of money, usually at specific Credit intervals, and to repay the principal amount of the loan at maturity. The Funds will only purchase bonds that are high grade (rated at the time of purchase) in one of the three highest rating categories by a nationally recognized statistical rating organizations, or, if not rated, determined to be of comparable quality by the Advisor. CALL AND PUT OPTIONS: A call option gives the buyer the 1,3,5,6,8, Management right to buy, and obligates the seller of the option to 16-19 Liquidity sell, a security at a specified price. A put option gives Credit the buyer the right to sell, and obligates the seller of the Market option to buy a security at a specified price. The Funds Leverage will sell only covered call and secured put options. CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1,2,8,11,13,15, Market stated maturity. 16,14,21,22 Credit Liquidity Interest Rate COMMERCIAL PAPER: Secured and unsecured short-term 1-13,15, Credit promissory notes issued by corporations and other entities. 16-19,21,22 Liquidity Maturities generally vary from a few days to nine months. Market Interest Rate COMMON STOCK: Shares of ownership of a company. 1-7,16-19 Market CONVERTIBLE SECURITIES: Bonds or preferred stock that 1-7,16-19 Market convert to common stock. Credit DEMAND FEATURES: Securities that are subject to puts and 1,2,8-13,15, Market standby commitments to purchase the securities at a fixed 16-19,21,22 Liquidity price (usually with accrued interest) within a fixed period Management of time following demand by a Fund. DERIVATIVES: Instruments whose value is derived from an 1-13,15, Management underlying contract, index or security, or any combination 16-19,21,22 Market thereof, including futures, options (e.g., put and calls), Interest Rate options on futures, swap agreements, and some Credit mortgage-backed securities. Liquidity Leverage FOREIGN SECURITIES: Stocks issued by foreign companies, as 1-7,10, Market well as commercial paper of foreign issuers and obligations 16-19,21,22 Political of foreign banks, overseas branches of U.S. banks and Liquidity supranational entities. Foreign Investment
100 103 ADDITIONAL INVESTMENT STRATEGIES AND RISKS
INSTRUMENT FUND CODE RISK TYPE ---------- --------- --------- FUNDING AGREEMENTS: Also known as guaranteed investment 13,16-19, Liquidity contracts, an agreement where a Fund invests an amount of 21,22 Credit cash with an insurance company and the insurance company Market credits such investment on a monthly basis with guaranteed Interest Rate interest which is based on an index. These agreements provide that the guaranteed interest will not be less than a certain minimum rate. These agreements also provide for adjustment of the interest rate monthly and are considered variable rate instruments. Funding Agreements are considered illiquid investments, and, together with other instruments in the Fund which are not readily marketable, may not exceed 10% of the Fund's net assets. FUTURES AND RELATED OPTIONS: A contract providing for the 3,6,8,10, Management future sale and purchase of a specified amount of a 16-19,21,22 Market specified security, class of securities, or an index at a Credit specified time in the future and at a specified price. Liquidity Leverage GLOBAL DEPOSITORY RECEIPTS (GDRS): 16 HIGH-YIELD/HIGH-RISK/DEBT SECURITIES: 18 Credit High-yield/High-risk/debt securities are securities that are Market rated below investment grade by the primary rating agencies Liquidity (e.g., BB or lower by Standard & Poor's and Ba or lower by Interest Rate Moody's). These securities are considered speculative and involve greater risk of loss than investment grade debt securities. Other terms commonly used to describe such securities include "lower rated bonds," "noninvestment grade bonds" and "junk bonds." INVESTMENT COMPANY SECURITIES: Shares of investment 1,3,6,15, Market companies. A Fund may invest up to 5% of its assets in the 16-20,23 shares of any one registered investment company, but may not own more than 3% of the securities of any one registered investment company or invest more than 10% of its assets in the securities of other registered investment companies. These registered investment companies may include money market funds of AmSouth Funds and shares of other registered investment companies for which the Advisor or a Sub-Advisor to a Fund or any of their affiliates serves as investment advisor, administrator or distributor. The Money Market Funds may only invest in shares of other investment companies with similar objectives. MONEY MARKET INSTRUMENTS: Investment-grade, U.S. 1-13,15 Market dollar-denominated debt securities that have remaining Credit maturities of one year or less. These securities may include U.S. government obligations, commercial paper and other short-term corporate obligations, repurchase agreements collateralized with U.S. government securities, certificates of deposit, bankers' acceptances, and other financial institution obligations. These securities may carry fixed or variable interest rates. MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 1,8,9,13,18,20 Pre-payment estate loans and pools of loans. These include Market collateralized mortgage obligations and real estate mortgage Credit investment conduits. Regulatory MUNICIPAL SECURITIES: Securities issued by a state or 1,11,12,15, Market political subdivision to obtain funds for various public 21,22 Credit purposes Municipal securities include private activity bonds Political and industrial development bonds, as well as general Tax obligation bonds, tax anticipation notes, bond anticipation Regulatory notes, revenue anticipation notes, project notes, other Interest Rate short-term tax-exempt obligations, municipal leases, and obligations of municipal housing authorities (single family revenue bonds).
101 104 ADDITIONAL INVESTMENT STRATEGIES AND RISKS
INSTRUMENT FUND CODE RISK TYPE ---------- --------- --------- There are two general types of municipal bonds: General-obligations bonds, which are secured by the taxing power of the issuer and revenue bonds, which take many shapes and forms but are generally backed by revenue from a specific project or tax. These include, but are not limited, to certificates of participation (COPs); utility and sales tax revenues; tax increment or tax allocations; housing and special tax, including assessment district and community facilities district (Mello-Roos) issues which are secured by specific real estate parcels; hospital revenue; and industrial development bonds that are secured by a private company. PREFERRED STOCKS: Preferred Stocks are equity securities 1-7,16-19 Market that generally pay dividends at a specified rate and have preference over common stock in the payment of dividends and liquidation. Preferred stock generally does not carry voting rights. REPURCHASE AGREEMENTS: The purchase of a security and the 1-8,13,15, Market simultaneous commitment to return the security to the seller 16-20,23 Leverage at an agreed upon price on an agreed upon date. This is treated as a loan by a fund. REVERSE REPURCHASE AGREEMENT: The sale of a security and the 2,3,6,7,8, Market simultaneous commitment to buy the security back at an 13-15,23 Leverage agreed upon price on an agreed upon date. This is treated as a borrowing by a Fund. SECURITIES LENDING: The lending of up to 33 1/3% of the 1-13,15, Market Fund's total assets. In return the Fund will receive cash, 16,23 Leverage other securities, and/or letters of credit. Liquidity Credit TIME DEPOSITS: Non-negotiable receipts issued by a bank in 11-13,15, Liquidity exchange for the deposit of funds. 16-19,21,22 Credit Market TREASURY RECEIPTS: Treasury receipts, Treasury investment 8-13,15 Market growth receipts, and certificates of accrual of Treasury 16-20,23 securities. U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 1-3,6-13, Market agencies and instrumentalities of the U.S. government. These 15,16-20,23 Credit include Ginnie Mae, Fannie Mae, and Freddie Mac. Interest Rate U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately 1-3,6-15, Market traded registered interest and principal securities, and 16-20,23 coupons under bank entry safekeeping. VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured demand notes 13,15 Credit that permit the indebtedness to vary and provide for Liquidity periodic adjustments in the interest rate according to the Interest Rate terms of the instrument. Because master demand notes are direct lending arrangements between a Fund and the issuer, they are not normally traded. Although there is no secondary market in these notes, the Fund may demand payment of principal and accrued interest at specified intervals. VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 2,8,13,15, Credit interest rates which are reset daily, weekly, quarterly or 16-19,21,22 Liquidity some other period and which may be payable to the Fund on Market demand. Interest Rate WARRANTS: Securities, typically issued with preferred stock 1-7,16-19 Market or bonds, that give the holder the right to buy a Credit proportionate amount of common stock at a specified price. WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1-13,15, Market contract to purchase securities at a fixed price for 16-20,23 Leverage delivery at a future date. Liquidity Credit
102 105 ADDITIONAL INVESTMENT STRATEGIES AND RISKS
INSTRUMENT FUND CODE RISK TYPE ---------- --------- --------- ZERO-COUPON DEBT OBLIGATIONS: Bonds and other debt that pay 1-13,15, Credit no interest, but are issued at a discount from their value 16-20,23 Market at maturity. When held to maturity, their entire return Zero Coupon equals the difference between their issue price and their Interest Rate maturity value.
INVESTMENT RISKS Below is a more complete discussion of the types of risks inherent in the securities and investment techniques listed above as well as those risks discussed in "Risk/Return Summary and Fund Expenses." Because of these risks, the value of the securities held by the Funds may fluctuate, as will the value of your investment in the Funds. Certain investments and Funds are more susceptible to these risks than others. CREDIT RISK. The risk that the issuer of a security, or the counterparty to a contract, will default or otherwise become unable to honor a financial obligation. Credit risk is generally higher for non-investment grade securities. The price of a security can be adversely affected prior to actual default as its credit status deteriorates and the probability of default rises. FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs, delayed settlements, currency controls and adverse economic developments. This also includes the risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Adverse changes in exchange rates may erode or reverse any gains produced by foreign currency denominated investments and may widen any losses. Exchange rate volatility also may affect the ability of an issuer to repay U.S. dollar denominated debt, thereby increasing credit risk. Foreign securities may also be affected by incomplete or inaccurate financial information on companies, social upheavals or political actions ranging from tax code changes to governmental collapse. These risks are more significant in emerging markets. INTEREST RATE RISK. The risk that debt prices overall will decline over short or even long periods due to rising interest rates. A rise in interest rates typically causes a fall in values while a fall in rates typically causes a rise in values. Interest rate risk should be modest for shorter-term securities, moderate for intermediate-term securities, and high for longer-term securities. Generally, an increase in the average maturity of the Fund will make it more sensitive to interest rate risk. The market prices of securities structured as zero coupon or pay-in-kind securities are generally affected to a greater extent by interest rate changes. These securities tend to be more volatile than securities which pay interest periodically. INVESTMENT STYLE RISK. The risk that returns from a particular class or group of stocks (e.g., value, growth, small cap, large cap) will trail returns from other asset classes or the overall stock market. Groups or asset classes of stocks tend to go through cycles of doing better -- or worse -- than common stocks in general. These periods can last for periods as long as several years. Additionally, a particular asset class or group of stocks could fall out of favor with the market, causing the Fund to underperform funds that focus on other types of stocks. LEVERAGE RISK. The risk associated with securities or practices that multiply small index or market movements into large changes in value. Leverage is often associated with investments in derivatives, but also may be embedded directly in the characteristics of other securities. HEDGED. When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the Portfolio also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment, and vice versa. Hedges are sometimes subject to imperfect matching between the derivative and underlying security, and there can be no assurance that a Portfolio's hedging transactions will be effective. SPECULATIVE. To the extent that a derivative is not used as a hedge, the Portfolio is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivatives original cost. LIQUIDITY RISK. The risk that certain securities may be difficult or impossible to sell at the time and the price that would normally prevail in the market. The seller may have to lower the price, sell other securities instead or forego an investment opportunity, any of which could have a negative effect on Portfolio management or performance. This includes the risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. 103 106 ADDITIONAL INVESTMENT STRATEGIES AND RISKS MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may fail to produce the intended result. This includes the risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Incomplete matching can result in unanticipated risks. MARKET RISK. The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time. Market risk may affect a single issuer, industrial sector of the economy or the market as a whole. There is also the risk that the current interest rate may not accurately reflect existing market rates. For fixed income securities, market risk is largely, but not exclusively, influenced by changes in interest rates. A rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. Finally, key information about a security or market may be inaccurate or unavailable. This is particularly relevant to investments in foreign securities. POLITICAL RISK. The risk of losses attributable to unfavorable governmental or political actions, seizure of foreign deposits, changes in tax or trade statutes, and governmental collapse and war. PRE-PAYMENT/CALL RISK. The risk that the principal repayment of a security will occur at an unexpected time. Prepayment risk is the chance that the repayment of a mortgage will occur sooner than expected. Call risk is the possibility that, during times of declining interest rates, a bond issuer will "call" -- or repay -- higher yielding bonds before their stated maturity. Changes in pre-payment rates can result in greater price and yield volatility. Pre-payments and calls generally accelerate when interest rates decline. When mortgage and other obligations are pre-paid or called, a Fund may have to reinvest in securities with a lower yield. In this event, the Fund would experience a decline in income -- and the potential for taxable capital gains. Further, with early prepayment, a Fund may fail to recover any premium paid, resulting in an unexpected capital loss. Prepayment/call risk is generally low for securities with a short-term maturity, moderate for securities with an intermediate-term maturity, and high for securities with a long-term maturity. REGULATORY RISK. The risk associated with Federal and state laws which may restrict the remedies that a lender has when a borrower defaults on loans. These laws include restrictions on foreclosures, redemption rights after foreclosure, Federal and state bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and state usury laws. SMALL COMPANY RISK. Stocks of small-capitalization companies are more risky than stocks of larger companies and may be more vulnerable than larger companies to adverse business or economic developments. Many of these companies are young and have a limited track record. Small cap companies may also have limited product lines, markets, or financial resources. Securities of such companies may be less liquid and more volatile than securities of larger companies or the market averages in general and, therefore, may involve greater risk than investing in larger companies. In addition, small cap companies may not be well-known to the investing public, may not have institutional ownership, and may have only cyclical, static, or moderate growth prospects. If a Fund concentrates on small-capitalization companies, its performance may be more volatile than that of a fund that invests primarily in larger companies. TAX RISK. The risk that the issuer of the securities will fail to comply with certain requirements of the Internal Revenue Code, which would cause adverse tax consequences. 104 107 [ICON] FUND MANAGEMENT THE INVESTMENT ADVISOR AmSouth Bank, (AmSouth or the "Advisor"), is the Advisor for the Funds. AmSouth is the bank affiliate of AmSouth Bancorporation, one of the largest banking institutions headquartered in the mid-south region. AmSouth Bancorporation reported assets as of September 30, 2000 of $ billion and operated 276 banking offices in Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment management services through its Trust Investment Department since 1915. As of June 30, 2000, AmSouth and its affiliates had over $ billion in assets under discretionary management and provided custody services for an additional $ billion in securities. AmSouth is the largest provider of trust services in Alabama and its Trust Natural Resources and Real Estate Department is a major manager of timberland, mineral, oil and gas properties and other real estate interests. Through its portfolio management team, AmSouth makes the day-to-day investment decisions and continuously reviews, supervises and administers the Funds' investment programs. For these advisory services, the Funds paid as follows during their fiscal year ended:
PERCENTAGE OF AVERAGE NET ASSETS AS OF 07/31/00 ------------------------------ Value Fund 0.80% ------------------------------ Growth Fund 0.80% ------------------------------ Capital Growth Fund(1) 0.80% ------------------------------ Large Cap Fund(1) 0.80% ------------------------------ Mid Cap Fund(1) 1.00% ------------------------------ Small Cap Fund 1.20% ------------------------------ Equity Income Fund 0.80% ------------------------------ Balanced Fund 0.80% ------------------------------ Select Equity Fund 0.80% ------------------------------ Enhanced Market Fund 0.45% ------------------------------ International Equity Fund(1) 1.25% ------------------------------ Aggressive Growth Portfolio(1) 0.20% ------------------------------ Growth Portfolio(1) 0.20% ------------------------------ Growth and Income Portfolio(1) 0.20% ------------------------------ Moderate Growth and Income Portfolio(1) 0.20% ------------------------------ Current Income Portfolio(1) 0.20% ------------------------------ Bond Fund 0.50% ------------------------------ Limited Term Bond Fund 0.50% ------------------------------ Government Income Fund 0.30% ------------------------------ Limited Term U.S. Government Fund(1) 0.65% ------------------------------ Municipal Bond Fund 0.40% ------------------------------ Florida Tax-Exempt Fund 0.30% ------------------------------ Tennessee Tax-Exempt Fund(1) 0.65% ------------------------------ Limited Term Tennessee Tax-Exempt Fund(1) 0.65% ------------------------------ Prime Money Market Fund 0.40% ------------------------------ U.S. Treasury Money Market Fund 0.40% ------------------------------ Treasury Reserve Money Market Fund(1) 0.40% ------------------------------ Tax-Exempt Money Market Fund 0.20% -------------------------------------------------------------------------
(1) This new Fund commenced operations as an AmSouth Fund immediately following the ISG/AmSouth combination occurring on March 13, 2000. The figure shown reflects the fee paid for the period from March 13, 2000 through July 31, 2000. 105 108 FUND MANAGEMENT THE INVESTMENT SUB-ADVISORS GROWTH FUND. Peachtree Asset Management ("Peachtree" or "Sub-Advisor") serves as investment sub-advisor to the Growth Fund, pursuant to a Sub-Advisory Agreement with AmSouth. Under the Sub-Advisory Agreement, Peachtree manages the Fund, selects investments, and places all orders for purchases and sales of securities, subject to the general supervision of the Trust's Board of Trustees and AmSouth in accordance with the Fund's investment objectives, policies and restrictions. Peachtree is a division of SSB Citi Fund Management LLC, which is an indirect wholly-owned subsidiary of Citigroup, Inc. Peachtree has performed advisory services since 1994 for institutional clients, and has its principal offices at 303 Peachtree Street, N.E., Atlanta, GA 30308. SSB Citi Fund Management LLC and its predecessors have been providing investment advisory services to mutual funds since 1968. As of July 31, 1999, SSB Citi Fund Management LLC had aggregate assets under management of approximately $114 billion. ENHANCED MARKET FUND AND SELECT EQUITY FUND. OakBrook Investments, LLC ("OakBrook") serves as investment sub-advisor to the Enhanced Market Fund and the Select Equity Fund pursuant to a Sub-Advisory Agreement with AmSouth. Under the Sub-Advisory Agreement, OakBrook manages the Funds, selects investments, and places all orders for purchases and sales of securities, subject to the general supervision of the Trust's Board of Trustees and AmSouth in accordance with each Fund's investment objective, policies, and restrictions. OakBrook is 50% owned by AmSouth and 50% owned by Neil Wright, Janna Sampson and Peter Jankovskis. OakBrook was organized in February, 1998 to perform advisory services for investment companies and other institutional clients and has its principal offices at 701 Warrenville Road, Suite 135, Lisle, IL 60532. The following table sets forth the performance data relating to the historical performance of two institutional funds, the Multiple Fund Investment Trust for the Employee Benefit Plans Large Cap Equity Growth Fund (the "Large Cap Fund") and the Multiple Fund Investment Trust for the Employee Benefit Plans Enhanced S&P 500 Equity Fund (the "Enhanced S&P Fund"), since the dates indicated, that have investment objectives, policies, strategies and risks substantially similar to those of the AmSouth Select Equity Fund and the AmSouth Enhanced Market Fund, respectively. Dr. Wright, Ms. Sampson, and Dr. Jankovskis are the portfolio managers for the Select Equity Fund, and, as such, have the primary responsibility for the day-to-day portfolio management of the Fund. From November 1, 1993 to February 25, 1998, Dr. Wright was the portfolio manager of the Large Cap Fund, a commingled investment fund managed by ANB Investment Management and Trust Company ("ANB") for employee benefit plan accounts. Dr. Wright received the same portfolio management assistance and support in managing the Large Cap Fund from Ms. Sampson and Dr. Jankovskis that he receives from them in managing the Select Equity Fund. This data is provided to illustrate the past performance of Dr. Neil Wright in managing a substantially similar account as measured against a specified market index and does not represent the performance of the Select Equity Fund. Investors should not consider this performance data as an indication of future performance of the Select Equity Fund. Dr. Wright, Ms. Sampson, and Dr. Jankovskis are the portfolio managers for the Enhanced Market Fund, and, as such, have the primary responsibility for the day-to-day portfolio management of the Fund. From December 1, 1994 to February 25, 1998, Dr. Wright, Ms. Sampson, and Dr. Jankovskis were the portfolio managers of the Enhanced S&P Fund, a commingled investment fund managed by ANB for employee benefit plan accounts. This data is provided to illustrate the past performance of Dr. Neil Wright, Ms. Sampson, and Dr. Jankovskis in managing a substantially similar account as measured against a specified market index and does not represent the performance of the Enhanced Market Fund. Investors should not consider this performance data as an indication of future performance of the Enhanced Market Fund. The performance data shown below relating to the institutional accounts was calculated on a total return basis and includes all dividends and interest, accrued income and realized and unrealized gains and losses. The returns of the Large Cap Fund reflect the deduction of an investment advisory fee of 1.00%, the returns of the Enhanced S&P Fund reflect the deduction of an investment advisory fee of .50%, and both accounts reflect deductions of brokerage commissions, execution costs, and custodial fees paid by ANB's institutional private accounts, without provision for federal or state income taxes. Securities transactions are accounted for on the trade date and accrual accounting is utilized. Cash and equivalents are included in performance returns. The institutional private accounts were not subject to the same types of expenses to which the Select Equity Fund and the Enhanced Market Fund are subject nor to the diversification requirements, specific tax restrictions and investment 106 109 FUND MANAGEMENT limitations imposed on the Fund by the Investment Company Act or Subchapter M of the Internal Revenue Code. Consequently, the performance results for the institutional accounts could have been adversely affected if the accounts had been regulated as investment company under the federal securities laws. The results presented below may not necessarily equate with the return experienced by any particular investor as a result of the timing of investments and redemptions. In addition, the effect of taxes on any investor will depend on such person's tax status, and the results have not been reduced to reflect any income tax which may have been payable. The investment results presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Select Equity Fund and the Enhanced Market Fund or an individual investor investing in such Funds. The investment results were not calculated pursuant to the methodology established by the SEC that will be used to calculate the Select Equity Fund's and the Enhanced Market Fund's performance results. Investors should also be aware that the use of a methodology different from that used below to calculate performance would result in different performance data. All information set forth in the table below relies on data supplied by OakBrook or from statistical services, reports or other sources believed by OakBrook to be reliable. However, except as otherwise indicated, such information has not been verified and is unaudited.
ENHANCED S&P 500 YEAR LARGE CAP FUND S&P FUND INDEX(1) ---- ------------------ ------------ ------------ 1993(2) 2.62% -- .30% 1994 4.39% -- 1.37% 1994(3) -- 1.24% 1.45% 1995 31.26% 35.49% 37.43% 1996 19.34% 25.86% 23.14% 1997 37.36% 33.00% 33.34% 1998(4) 1.44% 1.10% 1.11% Since inception(5) 22.12% -- 21.90% Since inception(6) -- 30.47% 30.35%
(1) The S&P 500 Index is an unmanaged index which measures the performance of 500 stocks representative of the U.S. equity market. (2) Total return for the period from November 1, 1993 through December 31, 1993. Returns have not been annualized. (3) Total return for the period from December 1, 1994 through December 31, 1994. Returns have not been annualized. (4) Total return for the period from January 1, 1998, through January 31, 1998. Returns have not been annualized. (5) Annualized total return for the Large Cap Fund is for the period from November 1, 1993 through January 31, 1998. (6) Annualized total return for the Enhanced S&P Fund is for the period from December 1, 1994 through January 31, 1998. HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. EQUITY INCOME FUND. Rockhaven Asset Management, LLC ("Rockhaven") serves as investment sub-advisor to the Equity Income Fund pursuant to a Sub-Advisory Agreement with AmSouth. Under the Sub-Advisory Agreement, Rockhaven manages the Fund, selects investments, and places all orders for purchases and sales of securities, subject to the general supervision of the Trust's Board of Trustees and AmSouth in accordance with the Fund's investment objective, policies, and restrictions. Rockhaven is 50% owned by AmSouth and 50% owned by Mr. Christopher H. Wiles. Rockhaven was organized in 1997 to perform advisory services for investment companies and has its principal offices at 100 First Avenue, Suite 1050, Pittsburgh, PA 15222. Mr. Wiles is the portfolio manager of the Equity Income Fund and has primary responsibility for the day-to-day portfolio management of the Fund. From August 1, 1991 to January 31, 1997, he was the portfolio manager of the Federated Equity Income Fund. 107 110 FUND MANAGEMENT The cumulative total return for the Class A Shares of the Federated Equity Income Fund from August 1, 1991 through January 31, 1997 was 139.82%, absent the imposition of a sales charge. The cumulative total return for the same period for the Standard & Poor's Composite Stock Price Index ("S&P 500 Index") was 135.09%. The cumulative total return for the Class B Shares of the Federated Equity Income Fund from September 27, 1994 (date of initial public offering) through January 31, 1997 was 62.64%, absent the imposition of a contingent deferred sales charge. The cumulative total return for the same period for the S&P 500 Index was 79.69%. At January 31, 1997, the Federated Equity Income Fund had approximately $970 million in net assets. As portfolio manager of the Federated Equity Income Fund, Mr. Wiles had full discretionary authority over the selection of investments for that fund. Average annual total returns for the one-year, three-year, and five-year periods ended January 31, 1997 and for the entire period during which Mr. Wiles managed the Class A Shares of the Federated Equity Income Fund and for the one-year and since inception period for the Class B Shares of the Federated Equity Income Fund compared with the performance of the S&P 500 Index and the Lipper Equity Income Fund Index were: PRIOR PERFORMANCE OF CLASS A SHARES AND CLASS B SHARES OF THE FEDERATED EQUITY INCOME FUND
LIPPER FEDERATED EQUITY S&P 500 EQUITY INCOME INCOME FUND(+*) INDEX(@) FUND INDEX(#) ---------------------- ----------- ----------------- CLASS A SHARES (absent imposition of sales charge) One Year 23.26% 26.34% 19.48% Three Years 17.03% 20.72% 15.09% Five Years 16.51% 17.02% 14.73% August 1, 1991 through 17.25% 16.78% 14.99% January 31, 1997 CLASS B SHARES (absent imposition of Federated Equity Income Fund's maximum sales charge) One Year 16.48% Three Years 14.85% Five Years 15.20% August 1, 1991 through January 31, 1997 16.05% CLASS B SHARES (absent imposition of contingent deferred sales charge) One Year 22.26% 26.34% 19.48% September 27, 1994 through January 31, 1997 23.15% 28.44% 20.65% CLASS B SHARES (assuming imposition of the Federated Equity Income Fund's maximum contingent deferred sales charge) One Year 16.76% September 27, 1994 through January 31, 1997 22.79%
(+) Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. (*) During the period from August 1, 1991 through January 31, 1997, the operating expense ratio of the Class A Shares (the shares most similar to the Class A Shares of the AmSouth Equity Income Fund) of the Federated Equity Income Fund ranged from 0.95% to 1.05% of the fund's average daily net assets. During the period from September 27, 1994 through January 31, 1997 the operating expense ratio for the Class B Shares of the Federated Equity Income Fund ranged from 1.80% to 1.87% of the fund's average daily net assets. The operating expenses of the Class A Shares and Class B Shares of the Federated Equity Income Fund were lower than the projected operating expenses of the Class A Shares and Class B Shares, respectively, of the AmSouth Equity Income Fund. If the actual operating expenses of the AmSouth Equity Fund are higher than the historical operating expenses of the Federated Equity Income Fund, this could negatively affect performance. (@) The S&P 500 Index is an unmanaged index of common stocks that is considered to be generally representative of the United States stock market. The Index is adjusted to reflect reinvestment of dividends. (#) The Lipper Equity Income Fund Index is an unmanaged index. The Index is adjusted to reflect re-investment of dividends. HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. 108 111 FUND MANAGEMENT The Federated Equity Income Fund is a separate fund and its historical performance is not indicative of the potential performance of the AmSouth Equity Income Fund. Share prices and investment returns will fluctuate reflecting market conditions, as well as changes in company-specific fundamentals of portfolio securities. Christopher Wiles was the Federated Equity Income Fund's portfolio manager from August 1, 1991 to January 31, 1997. Mr. Wiles joined Federated Investors in 1990 and served as a Vice President of the fund's investment advisor from 1992 and Senior Vice President from October, 1996 to January 31, 1997. Mr. Wiles served as Assistant Vice President of the Fund's investment advisor in 1991. Mr. Wiles is a Chartered Financial Analyst and received his M.B.A. in Finance from Cleveland State University. SMALL CAP FUND. Sawgrass Asset Management, LLC ("Sawgrass") serves as investment sub-advisor to the Small Cap Fund, pursuant to a Sub-Advisory Agreement with AmSouth. Under the Sub-Advisory Agreement, Sawgrass manages the Fund, selects investments, and places all orders for purchases and sales of securities, subject to the general supervision of the Trust's Board of Trustees and AmSouth in accordance with the Fund's investment objectives, policies and restrictions. Sawgrass is 50% owned by AmSouth and 50% owned by Sawgrass Asset Management, Inc. Sawgrass Asset Management, Inc. is controlled by Mr. Dean McQuiddy, Mr. Brian Monroe and Mr. Andrew Cantor. Sawgrass was organized in January, 1998 to perform advisory services for investment companies and other institutional clients and has its principal offices at 4337 Pablo Oaks Court, Jacksonville, FL 32224. The following tables set forth the performance data relating to the historical performance of an institutional fund (the Employee Benefit Small Capitalization Fund) and a mutual fund (the Emerald Small Capitalization Fund), since the dates indicated, that have investment objectives, policies, strategies and risks substantially similar to those of the AmSouth Small Cap Fund. Mr. Dean McQuiddy, a Principal of Sawgrass, is the portfolio manager for the Small Cap Fund, and, as such, has the primary responsibility for the day-to-day portfolio management of the Fund. From January 1, 1987 to December 31, 1997, he was the portfolio manager of the Employee Benefit Small Capitalization Fund, a common trust fund managed by Barnett Bank for employee benefit plan accounts. On January 4, 1994, the Employee Benefits Small Capitalization Fund transferred the majority of its assets to the Emerald Small Capitalization Fund. Mr. McQuiddy was the portfolio manager for the Emerald Small Capitalization Fund from its inception through December 31, 1997. This data is provided to illustrate the past performance of Mr. McQuiddy in managing substantially similar accounts as measured against a specified market index and does not represent the performance of the Small Cap Fund. Investors should not consider this performance data as an indication of future performance of the Small Cap Fund. The performance data shown below relating to the institutional account was calculated on a total return basis and includes all dividends and interest, accrued income and realized and unrealized gains and losses. The returns of the institutional account reflect the deduction of investment advisory fees, brokerage commissions and execution costs paid by Barnett's institutional private account, without provision for federal or state income taxes. Custodial fees of the institutional account, if any, were not included in the calculation. Securities transactions are accounted for on the trade date and accrual accounting is utilized. Cash and equivalents are included in performance returns. The yearly returns of the institutional fund are calculated by geometrically linking the monthly returns. The institutional private account was not subject to the same types of expenses to which the Small Cap Fund is subject nor to the diversification requirements, specific tax restrictions and investment limitations imposed on the Fund by the Investment Company Act or Subchapter M of the Internal Revenue Code. Consequently, the performance results for the institutional account could have been adversely affected if the account had been regulated as investment company under the federal securities laws. The results presented below may not necessarily equate with the return experienced by any particular investor as a result of the timing of investments and redemptions. In addition, the effect of taxes on any investor will depend on such person's tax status, and the results have not been reduced to reflect any income tax which may have been payable. The investment results presented below are unaudited and are not intended to predict or suggest the returns that might be experienced by the Small Cap Fund or an individual investor investing in such Fund. The investment results were not calculated pursuant to the methodology established by the SEC that will be used to calculate the Small Cap Fund's performance results. Investors should also be aware that the use of a methodology different from that used below to calculate performance could result in different performance data. 109 112 FUND MANAGEMENT All information set forth in the tables below relies on data supplied by Sawgrass or from statistical services, reports or other sources believed by Sawgrass to be reliable. However, except as otherwise indicated, such information has not been verified and is unaudited.
SAWGRASS SMALL CAP RUSSELL 2000(R) YEAR COMPOSITE GROWTH INDEX(1) ---- ---------------------- ----------------- 1988 11.73% 20.37% 1989 12.64% 20.17% 1990 (13.35)% (17.41)% 1991 56.66% 51.19% 1992 21.94% 7.77% 1993 20.99% 13.36% 1994 0.99% (2.43)% 1995 37.79% 31.04% 1996 11.72% 11.43% 1997 13.49% 12.86% Last 5 Years(2) 16.38% 12.76% Last 10 Years(2) 16.09% 13.50%
(1) The Russell 2000(R) Growth Index is an unmanaged index which measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index with higher price-to-book ratios and higher forecasted growth values. (2) Through December 31, 1997. PRIOR PERFORMANCE OF RETAIL SHARES AND CLASS B SHARES OF THE EMERALD SMALL CAPITALIZATION FUND The cumulative total return for the Retail Shares of the Emerald Small Capitalization Fund from March 1, 1994 through December 31, 1997 was 56.78% absent the imposition of a sales charge and was 49.72% including the imposition of a sales charge. The cumulative total return for the same period for the Russell 2000(R) Growth Index was 57.31%. The cumulative total return for the Class B Shares of the Emerald Small Capitalization Fund from March 1, 1994 through March 11, 1996 was 39.85% absent the imposition of a contingent deferred sales charge and was 34.25% including the imposition of a contingent deferred sales charge. The cumulative total return for the same period for the Russell 2000(R) Growth Index was 29.71%. At December 31, 1997, the Emerald Small Capitalization Fund had approximately $180 million in assets. As portfolio manager of the Emerald Small Capitalization Fund, Mr. McQuiddy had full discretionary authority over the selection of investments for that fund. Average annual total returns for the Retail Shares for the one-year, three-year and since inception through December 31, 1997 period (the entire period during which Mr. McQuiddy managed the Retail Shares of the Emerald Small Capitalization Fund) and for the one-year and since inception through March 11, 1996 period for the Class B Shares, compared with the performance of the Russell 2000(R) Growth Index were:
EMERALD SMALL RUSSELL 2000(R) CAPITALIZATION GROWTH FUND(1) INDEX(2) ------------------ ----------------- RETAIL SHARES (absent imposition of sales charges) One Year 12.62% 12.86% Three Years 18.39% 18.12% Since Inception 12.41% 12.55% RETAIL SHARES (absent imposition of the Emerald Small Capitalization Fund's maximum sales charge) One Year 7.55% 12.86% Three Years 16.58% 18.12% Since Inception 10.17% 12.55%
110 113 FUND MANAGEMENT
EMERALD SMALL RUSSELL 2000(R) CAPITALIZATION GROWTH FUND(1) INDEX(2) ------------------ ----------------- CLASS B SHARES (absent imposition of sales charges) One Year 8.02% 12.86% Since Inception 18.26% 13.89% CLASS B SHARES (assuming imposition of the Emerald Small Capitalization Fund's maximum contingent deferred sales charge) One Year 4.99% 12.86% Since Inception 15.87% 13.89%
(1) Average annual total return reflects changes in share prices and reinvestment of dividends and distributions and is net of fund expenses. (2) The Russell 2000(R) Growth Index is an unmanaged index which measures the performance of the 2,000 smallest companies in the Russell 3000(R) Index with higher price-to-book ratios and higher forecasted growth values. During the period from March 1, 1994 through December 31, 1997, the operating expense ratio of the Retail Shares (the shares most similar to the Class A Shares of the AmSouth Small Cap Fund) of the Emerald Small Capitalization Fund ranged from 1.73% to 2.50% of the Fund's average daily net assets. During the period from March 1, 1994 through March 11, 1996, the operating expense ratio of the Class B Shares (the shares most similar to the Class B Shares of the AmSouth Small Cap Fund) of the Emerald Small Capitalization Fund ranged from 2.50% to 3.29% of the Fund's average daily net assets. If the actual operating expenses of the AmSouth Small Cap Fund are higher than the historical operating expenses of the Emerald Small Capitalization Fund, this could negatively affect performance. HISTORICAL PERFORMANCE IS NOT INDICATIVE OF FUTURE PERFORMANCE. The Emerald Small Capitalization Fund is a separate fund and its historical performance is not indicative of the potential performance of the AmSouth Small Cap Fund, Share prices and investment returns will fluctuate reflecting market conditions, as well as change in company-specific fundamentals of portfolio securities. INTERNATIONAL EQUITY FUND -- Lazard Asset Management, located at 30 Rockefeller Plaza, New York, New York 10112-6300, serves as sub-investment advisor to the International Equity Fund. Lazard Asset Management, a division of Lazard Freres & Co. LLC, which is a New York limited liability company, provides investment management services to client discretionary accounts with assets totalling approximately $74.4 billion as of December 31, 1999. MID CAP FUND -- Bennett Lawrence Management, LLC, located at 757 Third Avenue, New York, New York 10017, serves as sub-investment advisor to the Mid Cap Fund. Bennett Lawrence Management provides discretionary investment management services to client discretionary accounts with assets totalling approximately $1,652 million as of December 31, 1999. PORTFOLIO MANAGERS The primary portfolio manager for each Fund is as follows: BALANCED FUND AND VALUE FUND -- Pedro Verdu, CFA, has been the portfolio manager for the Value Fund and Balanced Fund since their inception. Mr. Verdu has twenty-nine years of experience as an analyst and portfolio manager; he is currently Senior Vice President and Trust Investment Officer in charge of equity investments at AmSouth. GROWTH FUND -- Dennis A. Johnson, CFA, has been the portfolio manager for the Growth Fund since its inception. Mr. Johnson, who has been employed by Peachtree since 1994, is President and Chief Investment Officer of Peachtree. From 1989 to 1994, Mr. Johnson was Vice President and Portfolio Manager at Trusco Capital, the investment management subsidiary of Trust Company Bank, Atlanta, Georgia. EQUITY INCOME FUND -- Christopher H. Wiles has been the portfolio manager for the Equity Income Fund since its inception. Mr. Wiles is the President and Chief Investment Officer of Rockhaven. From August 1, 1991 to January 31, 1997, he was the portfolio manager of the Federated Equity Income Fund. Mr. Wiles joined Federated Investors in 1990 111 114 FUND MANAGEMENT and served as a Vice President of the fund's investment advisor from 1992 and Senior Vice President from October, 1996 to January 31, 1997. SMALL CAP FUND -- Mr. Dean McQuiddy, CFA, has been the portfolio manager for the Small Cap Fund since its inception. Mr. McQuiddy, who has been employed by Sawgrass since 1998, is a Principal and the Director of Equity Investing of Sawgrass. From 1983 to 1988, Mr. McQuiddy was portfolio manager at Barnett Capital Advisors, Inc. Mr. McQuiddy holds membership in the Association of Management and Research. He has 17 years of investment experience. SELECT EQUITY FUND AND ENHANCED MARKET FUND -- The Select Equity Fund and Enhanced Market Fund are managed by a team of investment professionals, all of whom take an active part in the decision making process. Dr. Neil Wright, Ms. Janna Sampson and Dr. Peter Jankovskis are the team members and have been the portfolio managers of the Enhanced Market Fund and Select Equity Fund since their inception. Each of the portfolio managers has been with OakBrook since 1998. Dr. Wright is OakBrook's President and Chief Investment Officer. From 1993 to 1997, Dr. Wright was the Chief Investment Officer of ANB Investment Management & Trust Co. ("ANB"). Ms. Sampson is OakBrook's Director of Portfolio Management. From 1993 to 1997, she was Senior Portfolio Manager for ANB. Dr. Jankovskis is OakBrook's Director of Research. From 1992 to 1996, he was an Investment Strategist for ANB and from 1996 to 1997 he was the Manager of Research for ANB. BOND FUND -- The Bond Fund is co-managed by Brian B. Sullivan, CFA, and John P. Boston, CFA. Mr. Sullivan has been the portfolio manager for the Bond Fund since 1992. Mr. Sullivan has been a portfolio manager at the Advisor since 1984, and is currently Senior Vice President and Senior Trust Investment Officer at AmSouth. Mr. Boston has co-managed the Bond Fund with Mr. Sullivan since 1999. Mr. Boston has been associated with AmSouth Trust Investment Group for over five years and is currently Senior Vice President and Trust Investment Officer in charge of taxable fixed income investments. GOVERNMENT INCOME FUND AND LIMITED TERM BOND FUND -- John P. Boston, CFA, has been the portfolio manager for the Limited Term Bond Fund since August, 1995, and of the Government Income Fund since inception. Mr. Boston has been associated with AmSouth's Trust Investment Group for over five years and is currently Senior Vice President and Trust Investment Officer in charge of taxable fixed-income investments. MUNICIPAL BOND FUND AND FLORIDA TAX-EXEMPT FUND -- Dorothy E. Thomas, CFA, is the portfolio manager for the Municipal Bond Fund and the Florida Tax-Exempt Fund. Ms. Thomas has been associated with AmSouth's Trust Investment Group for over sixteen years and is currently Senior Vice President and Trust Investment Officer in charge of tax-free fixed income investments. AMSOUTH INTERNATIONAL EQUITY FUND -- Herbert W. Gullquist and John R. Reinsberg. Messrs. Gullquist and Reinsberg have been the International Equity Fund's primary portfolio managers since its inception, and have been Managing Directors of Lazard for over five years. AMSOUTH MID CAP FUND -- S. Van Zandt Schreiber and Robert W. Deaton. Messrs. Schreiber and Deaton have been the Mid Cap Fund's primary portfolio managers since its inception. Mr. Schreiber has been the Chief Portfolio Manager at Bennett Lawrence since its inception in August 1995. For more than five years prior thereto, Mr. Schreiber was Managing Director and Senior Growth Portfolio Manager with Deutsche Morgan Grenfell/C.J. Lawrence, Inc. Mr. Deaton has been a Portfolio Manager at Bennett Lawrence since its inception in August 1995. From 1994 to August 1995, Mr. Deaton was a portfolio manager and research analyst with Deutsche Morgan Grenfell/C.J. Lawrence, Inc. Prior thereto, Mr. Deaton managed the Long-Term Growth Fund for the Tennessee Consolidated Retirement System. AMSOUTH CAPITAL GROWTH FUND -- Charles E. Winger, Jr. Mr. Winger has been the Capital Growth Fund's primary portfolio manager since its inception. He has been a Trust Officer of First American National Bank since 1988 and has been employed by the Advisor since 1999. AMSOUTH LARGE CAP FUND -- Ronald E. Lindquist. Mr. Lindquist, who has over 30 years' experience as a portfolio manager, has been the Large Cap Fund's primary portfolio manager since its inception, and has been employed by First American National Bank since May 1998 and has been employed by the Advisor since December 1999. Prior to May 1998, he was employed since 1978 by Deposit Guaranty National Bank and Commercial National Bank, affiliates of the Advisor. AMSOUTH LIMITED TERM U.S. GOVERNMENT FUND -- John Mark McKenzie. Mr. McKenzie has been a portfolio manager of the Limited Term U.S. Government Fund since May 1998 and the Fund's primary portfolio manager since 112 115 FUND MANAGEMENT December 1998. He has been employed by First American National Bank since May 1998 and has been employed by the Advisor since December 1999. Prior to May 1998, he was employed by Deposit Guaranty National Bank since 1984. AMSOUTH TENNESSEE TAX-EXEMPT FUND -- Sharon S. Brown. She has been the Tennessee Tax-Exempt Fund's primary portfolio manager since its inception and has been a Trust Officer of First American National Bank since 1988 and has been employed by the Advisor since December 1999. AMSOUTH LIMITED TERM TENNESSEE TAX-EXEMPT FUND -- Sharon S. Brown. Ms. Brown has been the Limited Term Tennessee Tax-Exempt Fund's primary portfolio manager since its inception and has been a Trust Officer of First American National Bank since 1988 and has been employed by the Advisor since December 1999. AMSOUTH STRATEGIC PORTFOLIOS -- Investment decisions for each Strategic Portfolio are made by a team of the Advisor's portfolio managers, and no person is primarily responsible for making recommendations to the team. THE DISTRIBUTOR AND ADMINISTRATOR ASO Services Company ("ASC"), whose address is 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as each Fund's administrator. Management and administrative services of ASC include providing office space, equipment and clerical personnel to the Fund and supervising custodial, auditing, valuation, bookkeeping, legal and dividend dispersing services. ASC is a wholly owned subsidiary of BISYS Fund Services ("BISYS"). BISYS, whose address is also 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as the distributor of each Fund's shares. BISYS may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. The Statement of Additional Information has more detailed information about the Investment Advisor and other service providers. 113 116 [ICON] SHAREHOLDER INFORMATION CHOOSING A SHARE CLASS Class A Shares and Class B Shares have different expenses and other characteristics, allowing you to choose the class that best suits your needs. You should consider the amount you want to invest, how long you plan to have it invested, and whether you plan to make additional investments. Your financial representative can help you decide which share class is best for you. CLASS A SHARES - Capital Appreciation Funds Strategic Portfolios, and Income Funds: Front-end sales charges, as described below. Money Market Funds: No sales charges - Shareholder servicing fees of 0.25% of average daily net assets. CLASS B SHARES - No front-end sales charge; all your money goes to work for you right away. - Class B Shares pay a shareholder servicing fee of 0.25% of average daily net assets. This fee is in the form of a separate non-Rule 12b-1 fee. All Funds bear a Rule 12b-1 fee of 0.75%. - A deferred sales charge, as described below. - Automatic conversion to Class A Shares after eight years, thus reducing future annual expenses. - Maximum investment for all Class B purchases: $250,000. - PRIME MONEY MARKET FUND: Class B Shares of the Prime Money Market Fund are only available through exchange of Class B Shares of another AmSouth Fund or if you participate in the Automatic Exchange program (see page ). For actual past expenses of each share class, see the fund-by-fund information earlier in this prospectus. Because 12b-1 fees are paid on an ongoing basis, Class B shareholders could end up paying more expenses over the long term than if they had paid a sales charge. TRUST SHARES - No sales charges. - No Distribution and service (12b-1) fees. - Available only to the following investors: - investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; - investors who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; - orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies; - investors who purchase through financial institutions approved by the Distributor; and - investors who provide an AmSouth Fund with its initial seed capital. All other investors are eligible to purchase Class A Shares or Class B Shares only. - shareholder servicing fee of up to 0.15% of average daily net assets. 114 117 SHAREHOLDER INFORMATION PRICING OF FUND SHARES ------------------------------- HOW NAV IS CALCULATED The NAV is calculated by adding the total value of the Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund: NAV = Total Assets - Liabilities ------------------------------- Number of Shares Outstanding Generally, for other than the Money Market Funds, you can find the Fund's NAV daily in The Wall Street Journal and other newspapers. NAV is calculated separately for each class of shares. ------------------------------- MONEY MARKET FUNDS Per share net asset value (NAV) for each Fund is determined and its shares are priced twice a day. The NAV for the Prime Money Market Fund, the Treasury Reserve Money Market Fund, and the U.S. Treasury Money Market Fund is determined at 1:00 p.m. Eastern time and at the close of regular trading on the New York Stock Exchange, normally at 4:00 p.m. Eastern time on days the Exchange and the Federal Reserve Bank of Atlanta are open. The NAV for the Tax-Exempt Money Market Fund is determined at 12:00 p.m. Eastern time and at the close of regular trading on the New York Stock Exchange. Your order for purchase, sale or exchange of shares is priced at the next NAV calculated after your order is received. This is what is known as the offering price. Each Fund uses the amortized cost method of valuing its investments, which does not take into account unrealized gains or losses. For further information regarding the methods used in valuing the Fund's investments, please see the SAI. OTHER FUNDS Per share net asset value (NAV) for each Fund is determined and its shares are priced at the close of regular trading on the New York Stock Exchange, normally at 4:00 p.m. Eastern time on days the Exchange and the Federal Reserve Bank of Atlanta are open. Your order for purchase, sale or exchange of shares is priced at the next NAV calculated after your order is accepted by the Fund less any applicable sales charge as noted in the section on "Distribution Arrangements/Sales Charges." This is what is known as the offering price. For further information regarding the methods used in valuing the Fund's investments, please see the SAI. The Fund's 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 Fund's Trustees. For further information regarding the methods used in valuing the Fund's investments, please see the SAI. 115 118 SHAREHOLDER INFORMATION PURCHASING AND ADDING TO YOUR SHARES You may purchase Funds through the Distributor or through banks, brokers and other investment representatives, which may charge additional fees and may require higher minimum investments or impose other limitations on buying and selling shares. Additionally, banks, brokers and other financial institutions and representatives may use shares of the Money Market Funds in "sweep" programs whereby the accounts of a participating customer of the financial institution or representative is automatically "swept" into shares of one of the Money Market Funds. If you purchase shares through an investment representative, that party is responsible for transmitting orders by close of business and may have an earlier cut-off time for purchase and sale requests. Consult your investment representative or institution for specific information.
MINIMUM INITIAL MINIMUM ACCOUNT TYPE INVESTMENT SUBSEQUENT Class A or Class B ---------------------------------------------------------- Regular $1,000 $0 ---------------------------------------------------------- Automatic Investment Plan $1,000 $50 ---------------------------------------------------------- Trust ---------------------------------------------------------- Regular $1,000 $0 ---------------------------------------------------------- Retirement $250 $50
All purchases must be in U.S. dollars. A fee will be charged for any checks that do not clear. Third-party checks are not accepted. A Fund may waive its minimum purchase requirement. The Distributor may reject a purchase order if it considers it in the best interest of the Fund and its shareholders. ---------------------------------------- AVOID 31% TAX WITHHOLDING Each Fund is required to withhold 31% of taxable dividends, capital gains distributions and redemptions paid to shareholders who have not provided the Fund with their certified taxpayer identification number in compliance with IRS rules. To avoid this, make sure you provide your correct Tax Identification Number (Social Security Number for most investors) on your account application. ---------------------------------------- INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT You may purchase Trust Shares by following the procedures established by the Distributor in connection with the requirements of qualified accounts maintained by AmSouth Bank or other financial institutions approved by the Distributor. These procedures may include sweep arrangements where an account is "swept" automatically no less frequently than weekly into Trust Shares of a Money Market Fund. DIRECTED DIVIDEND OPTION By selecting the appropriate box in the Account Application, you can elect to receive your distributions in cash (check) or have distributions (capital gains and dividends) reinvested in another AmSouth Fund without a sales charge. You must maintain the minimum balance in each Fund into which you plan to reinvest dividends or the reinvestment will be suspended and your dividends paid to you. The Fund may modify or terminate this reinvestment option without notice. You can change or terminate your participation in the reinvestment option at any time. 116 119 SHAREHOLDER INFORMATION PURCHASING AND ADDING TO YOUR SHARES CONTINUED ----------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS All dividends and distributions will be automatically reinvested unless you request otherwise. There are no sales charges for reinvested distributions. Income dividends are usually paid monthly. Capital gains are distributed at least annually. DISTRIBUTIONS ARE MADE ON A PER SHARE BASIS REGARDLESS OF HOW LONG YOU'VE OWNED YOUR SHARES. THEREFORE, IF YOU INVEST SHORTLY BEFORE THE DISTRIBUTION DATE, SOME OF YOUR INVESTMENT WILL BE RETURNED TO YOU IN THE FORM OF A DISTRIBUTION. ----------------------------------------------------------------------------- INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT -- CLASS A SHARES AND CLASS B SHARES BY REGULAR MAIL If purchasing through your financial advisor or brokerage account, simply tell your advisor or broker that you wish to purchase shares of the Funds and he or she will take care of the necessary documentation. For all other purchases, follow the instructions below. Initial Investment: 1. Carefully read and complete the application. Establishing your account privileges now saves you the inconvenience of having to add them later. 2. Make check, bank draft or money order payable to "AmSouth Funds." 3. Mail to: AmSouth Funds P.O. Box 182733, Columbus, OH 43218-2733 Subsequent: 1. Use the investment slip attached to your account statement. Or, if unavailable, 2. Include the following information on a piece of paper: - AmSouth Funds/Fund name - Share class - Amount invested - Account name - Account number Include your account number on your check. 3. Mail to: AmSouth Funds P.O. Box 182733, Columbus, OH 43218-2733 BY OVERNIGHT SERVICE See instructions 1-2 above for subsequent investments. 4. Send to: AmSouth Funds c/o BISYS Fund Services Attn: T.A. Operations 3435 Stelzer Road, Columbus, OH 43219. ELECTRONIC PURCHASES Your bank must participate in the Automated Clearing House (ACH) and must be a U. S. Bank. Your bank or broker may charge for this service. Establish electronic purchase option on your account application or call 1-800-451-8382. Your account can generally be set up for electronic purchases within 15 days. Call 1-800-451-8382 to arrange a transfer from your bank account. ELECTRONIC VS. WIRE TRANSFER Wire transfers allow financial institutions to send funds to each other, almost instantaneously. With an electronic purchase or sale, the transaction is made through the Automated Clearing House (ACH) and may take up to eight days to clear. There is generally no fee for ACH transactions. QUESTIONS? Call 800-451-8382 or your investment representative. 117 120 SHAREHOLDER INFORMATION PURCHASING AND ADDING TO YOUR SHARES CONTINUED BY WIRE TRANSFER Note: Your bank may charge a wire transfer fee. For initial investment: Fax the completed application, along with a request for a confirmation number to 1-800-451-8382. Follow the instructions below after receiving your confirmation number. For initial and subsequent investments: Instruct your bank to wire transfer your investment to: AmSouth Bank Routing Number: ABA #044000024 DDA# Include: Your name Your confirmation number AFTER INSTRUCTING YOUR BANK TO WIRE THE FUNDS, CALL 1-800-451-8382 TO ADVISE US OF THE AMOUNT BEING TRANSFERRED AND THE NAME OF YOUR BANK. -------------------------------------- YOU CAN ADD TO YOUR ACCOUNT BY USING THE CONVENIENT OPTIONS DESCRIBED BELOW. THE FUND RESERVES THE RIGHT TO CHANGE OR ELIMINATE THESE PRIVILEGES AT ANY TIME WITH 60 DAYS NOTICE. -------------------------------------- AUTOMATIC INVESTMENT PLAN You can make automatic investments in the Funds from your bank account, through payroll deduction or from your federal employment, Social Security or other regular government checks. Automatic investments can be as little as $50, once you've invested the $1,000 minimum required to open the account. To invest regularly from your bank account: - Complete the Automatic Investment Plan portion on your Account Application. Make sure you note: - Your bank name, address and account number - The amount you wish to invest automatically (minimum $50) - How often you want to invest (every month, 4 times a year, twice a year or once a year) - Attach a voided personal check. To invest regularly from your paycheck or government check: Call 1-800-451-8382 for an enrollment form or consult the SAI for additional information. ----------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS All dividends and distributions will be automatically reinvested unless you request otherwise. There are no sales charges for reinvested distributions. Dividends are higher for Class A Shares than for Class B Shares, because Class A Shares have lower distribution expenses. Income dividends are usually paid monthly. Capital gains are distributed at least annually. Distributions are made on a per share basis regardless of how long you've owned your shares. Therefore, if you invest shortly before the distribution date, some of your investment will be returned to you in the form of a distribution. ----------------------------------------------------------------------------- DIRECTED DIVIDEND OPTION By selecting the appropriate box in the Account Application, you can elect to receive your distributions in cash (check) or have distributions (capital gains and dividends) reinvested in another AmSouth Fund without a sales charge. You must maintain the minimum balance in each Fund into which you plan to reinvest dividends or the reinvestment will be suspended and your dividends paid to you. The Fund may modify or terminate this reinvestment option without notice. You can change or terminate your participation in the reinvestment option at any time. 118 121 SHAREHOLDER INFORMATION SELLING YOUR SHARES You may sell your shares at any time. Your sales price will be the next NAV after your sell order is received by the Fund, its transfer agent, or your investment representative. Normally you will receive your proceeds within a week after your request is received. See section on "General Policies on Selling Shares below." WITHDRAWING MONEY FROM YOUR FUND INVESTMENT As a mutual fund shareholder, you are technically selling shares when you request a withdrawal in cash. This is also known as redeeming shares or a redemption of shares. CONTINGENT DEFERRED SALES CHARGE When you sell Class B Shares, you will be charged a fee for any shares that have not been held for a sufficient length of time. These fees will be deducted from the money paid to you. See the section on "Distribution Arrangements/Sales Charges" below for details. INSTRUCTIONS FOR SELLING SHARES If selling your shares through your financial advisor or broker, ask him or her for redemption procedures. Your advisor and/or broker may have transaction minimums and/or transaction times which will affect your redemption. For all other sales transactions, follow the instructions below. BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES) 1. Call 1-800-451-8382 with instructions as to how you wish to receive your funds (mail, wire, electronic transfer). (See "General Policies on Selling Shares -- Verifying Telephone Redemptions" below.) BY MAIL 1. Call 1-800-451-8382 to request redemption forms or write a letter of instruction indicating: - your Fund and account number - amount you wish to redeem - address where your check should be sent - account owner signature 2. Mail to: AmSouth Funds, P.O. Box 182733, Columbus, OH 43218-2733 BY OVERNIGHT SERVICE (SEE "GENERAL POLICIES ON SELLING SHARES - REDEMPTIONS IN WRITING REQUIRED" BELOW.) 1. See instruction 1 above. 2. Send to AmSouth Funds, c/o BISYS Fund Services, Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219 119 122 SHAREHOLDER INFORMATION SELLING YOUR SHARES CONTINUED WIRE TRANSFER You must indicate this option on your application. The Fund will charge a $7 wire transfer fee for each wire transfer request. Note: Your financial institution may also charge a separate fee. Call 1-800-451-8382 to request a wire transfer. If you call by 4 p.m. Eastern time, your payment will normally be wired to your bank on the next business day. ELECTRONIC REDEMPTIONS Your bank must participate in the Automated Clearing House (ACH) and must be a U.S. bank. Your bank may charge for this service. Call 1-800-451-8382 to request an electronic redemption. If you call by 4 p.m. Eastern time, the NAV of your shares will normally be determined on the same day and the proceeds credited within 7 days. SYSTEMATIC WITHDRAWAL PLAN You can receive automatic payments from your account on a monthly, quarterly, semi-annual or annual basis. The minimum withdrawal is $25. To activate this feature: - Make sure you have checked the appropriate box on the account application, or call 1-800-451-8382. - Include a voided personal check. - Your account must have a value of $5,000 or more to start withdrawals. - If the value of your account falls below $500, you may be asked to add sufficient funds to bring the account back to $500, or the Fund may close your account and mail the proceeds to you. REDEMPTION BY CHECK WRITING PRIME MONEY MARKET FUND ONLY You may write checks in amounts of $1,000 or more on your account in the Prime Money Market Fund. To obtain checks, complete the signature card section of the account application or contact the Fund to obtain a signature card. Dividends and distributions will continue to be paid up to the day the check is presented for payment. The check writing feature may be modified or terminated upon 30-days' written notice. You must maintain the minimum required account balance in the Prime Money Market Fund of $1,000 and you may not close your Fund account by writing a check. 120 123 SHAREHOLDER INFORMATION GENERAL POLICIES ON SELLING SHARES REDEMPTIONS IN WRITING REQUIRED You must request redemption in writing and obtain a signature guarantee if: - The check is not being mailed to the address on your account; or - The check is not being made payable to the owner of the account. A signature guarantee can be obtained from a financial institution, such as a bank, broker-dealer, or credit union, or from members of the STAMP (Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are subject to dollar limitations which must be considered when requesting their guarantee. The Transfer Agent may reject any signature guarantee if it believes the transaction would otherwise be improper. VERIFYING TELEPHONE REDEMPTIONS The Fund makes every effort to insure that telephone redemptions are only made by authorized shareholders. All telephone calls are recorded for your protection and you will be asked for information to verify your identity. Given these precautions, unless you have specifically indicated on your application that you do not want the telephone redemption feature, you may be responsible for any fraudulent telephone orders. If appropriate precautions have not been taken, the Transfer Agent may be liable for losses due to unauthorized transactions. REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT When you have made your initial investment by check, the proceeds of your redemption may be held up to 15 business days until the Transfer Agent is satisfied that the check has cleared. You can avoid this delay by purchasing shares with a certified check. REFUSAL OF REDEMPTION REQUEST Payment for shares may be delayed under extraordinary circumstances or as permitted by the Securities and Exchange Commission in order to protect remaining shareholders. REDEMPTION IN KIND Each Fund reserves the right to make payment in securities rather than cash, known as "redemption in kind." This could occur under extraordinary circumstances, such as a very large redemption that could affect Fund operations (for example, more than 1% of the Fund's net assets). If the Fund deems it advisable for the benefit of all shareholders, redemption in kind will consist of securities equal in market value to your shares. When you convert these securities to cash, you will pay brokerage charges. CLOSING OF SMALL ACCOUNTS If your account falls below $50, the Fund may ask you to increase your balance. If it is still below $50 after 60 days, the Fund may close your account and send you the proceeds at the current NAV. UNDELIVERABLE REDEMPTION CHECKS For any shareholder who chooses to receive distributions in cash: If distribution checks (1) are returned and marked as "undeliverable" or (2) remain uncashed for six months, your account will be changed automatically so that all future distributions are reinvested in your account. Checks that remain uncashed for six months will be canceled and the money reinvested in the appropriate Fund. 121 124 SHAREHOLDER INFORMATION DISTRIBUTION ARRANGEMENTS/SALES CHARGES CALCULATION OF SALES CHARGES CLASS A SHARES Class A Shares are sold at their public offering price. This price equals NAV plus the initial sales charge, if applicable. Therefore, part of the money you invest will be used to pay the sales charge. The remainder is invested in Fund shares. The sales charge decreases with larger purchases. There is no sales charge on reinvested dividends and distributions. The current sales charge rates are as follows: FOR THE CAPITAL APPRECIATION FUNDS, THE AGGRESSIVE GROWTH PORTFOLIO, GROWTH PORTFOLIO, GROWTH AND INCOME PORTFOLIO, AND MODERATE GROWTH AND INCOME PORTFOLIO
SALES CHARGE SALES CHARGE YOUR AS A % OF AS A % OF INVESTMENT OFFERING PRICE YOUR INVESTMENT Up to $49,999 4.50% 4.71% ------------------------------------------------------------------------ $50,000 up to $99,999 4.00% 4.17% ------------------------------------------------------------------------ $100,000 up to $249,999 3.00% 3.09% ------------------------------------------------------------------------ $250,000 up to $499,999 2.00% 2.04% ------------------------------------------------------------------------ $500,000 up to $999,999 1.00% 1.01% ------------------------------------------------------------------------ $1,000,000 and above(1) 0.00% 0.00%
FOR THE INCOME FUNDS AND THE CURRENT INCOME PORTFOLIO
SALES CHARGE SALES CHARGE YOUR AS A % OF AS A % OF INVESTMENT OFFERING PRICE YOUR INVESTMENT Up to $99,999 4.00% 4.17% ------------------------------------------------------------------------ $100,000 up to $249,999 3.00% 3.09% ------------------------------------------------------------------------ $250,000 up to $499,999 2.00% 2.04% ------------------------------------------------------------------------ $500,000 up to $999,999 1.00% 1.01% ------------------------------------------------------------------------ $1,000,000 and above(1) 0.00% 0.00%
FOR THE MONEY MARKET FUNDS No sales charges. (1) There is no initial sales charge on purchases of $1 million or more. However, a contingent deferred sales charge (CDSC) of up to 1.00% of the purchase price will be charged to the shareholder if shares are redeemed in the first year after purchase. This charge will be based on the lower of your cost for the shares or their NAV at the time of redemption. There will be no CDSC on reinvested distributions. The Distributor will provide additional compensation in an amount up to 1.00% of the offering price of Class A Shares of the Funds for sales of $1 million to $3 million. For sales over $3 million, the amount of additional compensation will be negotiated. 122 125 SHAREHOLDER INFORMATION DISTRIBUTION ARRANGEMENTS/SALES CHARGES CONTINUED CLASS B SHARES Class B Shares are offered at NAV, without any up-front sales charge. Therefore, all the money you invest is used to purchase Fund shares. However, if you sell your Class B Shares of the Fund before the sixth anniversary, you will have to pay a contingent deferred sales charge at the time of redemption. The CDSC will be based upon the lower of the NAV at the time of purchase or the NAV at the time of redemption according to the schedule below. There is no CDSC on reinvested dividends or distributions.
YEARS CDSC AS A % OF SINCE DOLLAR AMOUNT PURCHASE SUBJECT TO CHARGE* 0-1 5.00% 1-2 4.00% 2-3 3.00% 3-4 3.00% 4-5 2.00% 5-6 1.00% more than 6 None
If you sell some but not all of your Class shares, certain shares not subject to the CDSC (i.e., shares purchased with reinvested dividends) will be redeemed first, followed by shares subject to the lowest CDSC (typically shares held for the longest time). CONVERSION FEATURE -- CLASS B SHARES - Class B Shares automatically convert to Class A Shares of the same Fund after eight years from the end of the month of purchase.* - After conversion, your shares will be subject to the lower distribution and shareholder servicing fees charged on Class A Shares which will increase your investment return compared to the Class B Shares. - You will not pay any sales charge or fees when your shares convert, nor will the transaction be subject to any tax. - If you purchased Class B Shares of one Fund which you exchanged for Class B Shares of another Fund, your holding period will be calculated from the time of your original purchase of Class B Shares. - The dollar value of Class A Shares you receive will equal the dollar value of the Class B Shares converted. * 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. These shares will automatically convert to Class A Shares of the same Fund after seven years from the end of the month of purchase. 123 126 SHAREHOLDER INFORMATION DISTRIBUTION ARRANGEMENTS/SALES CHARGES CONTINUED SALES CHARGE REDUCTIONS Reduced sales charges for Class A Shares are available to shareholders with investments of $50,000 or more. In addition, you may qualify for reduced sales charges under the following circumstances. - LETTER OF INTENT. You inform the Fund in writing that you intend to purchase enough shares over a 13-month period to qualify for a reduced sales charge. You must include a minimum of 5% of the total amount you intend to purchase with your letter of intent. - RIGHTS OF ACCUMULATION. When the value of shares you already own plus the amount you intend to invest reaches the amount needed to qualify for reduced sales charges, your added investment will qualify for the reduced sales charge. - COMBINATION PRIVILEGE. Combine accounts of multiple Funds (excluding the Money Market Funds) or accounts of immediate family household members (spouse and children under 21) to achieve reduced sales charges. SALES CHARGE WAIVERS CLASS A SHARES The following qualify for waivers of sales charges: - Shares purchased by investment representatives through fee-based investment products or accounts. - Shares purchased with proceeds from redemptions from another mutual fund complex within 30 days after redemption, if you paid a front end sales charge for those shares. - Shares purchased upon the reinvestment of dividend and capital gain distributions. - Shares purchased by investors through a payroll deduction plan. - Shares purchased by officers, directors, trustees, employees, retired employees, and their immediate family members of AmSouth Bancorporation, its affiliates and BISYS Fund Services and its affiliates and the sub-advisors of the Funds and their affiliates. - Shares purchased by employees and their immediate family members of dealers who have an agreement with the Distributor. - Shares purchased by former Plan Participants using proceeds from distributions of AmSouth Bank 401(K) plans. The Distributor may also waive the sales charge at anytime in its own discretion. Consult the SAI for more details concerning sales charges waivers. REINSTATEMENT PRIVILEGE If you have sold Class A Shares and decide to reinvest in the Fund within a 90 day period, you will not be charged the applicable sales charge on amounts up to the value of the shares you sold. You must provide a written request for reinstatement and payment within 90 days of the date your instructions to sell were processed. 124 127 SHAREHOLDER INFORMATION DISTRIBUTION ARRANGEMENTS/SALES CHARGES CONTINUED CLASS B SHARES The CDSC will be waived under certain circumstances, including the following: - Redemptions from accounts following the death or disability of the shareholder. - Returns of excess contributions to retirement plans. - Distributions of less than 10% of the annual account value under a Systematic Withdrawal Plan. - Shares issued in a plan of reorganization sponsored by the Advisor, or shares redeemed involuntarily in a similar situation. DISTRIBUTION AND SERVICE (12B-1) FEES AND SHAREHOLDER SERVICING FEES 12b-1 fees compensate the Distributor and other dealers and investment representatives for services and expenses relating to the sale and distribution of the Fund's shares and/or for providing shareholder services. Shareholder servicing fees compensate financial institutions that provide shareholder services to their customers and account holders. 12b-1 and shareholder servicing fees are paid from Fund assets on an ongoing basis, and will increase the cost of your investment. - The 12b-1 and shareholder servicing fees vary by share class as follows: - Trust Shares pay a shareholder servicing fee of up to 0.15% of the average daily net assets of a Fund. - Class A Shares pay a non-Rule 12b-1 shareholder servicing fee of up to .25% of the average daily net assets of a Fund. - Class B Shares pay a shareholder servicing fee of 0.25% of average daily net assets. This fee is in the form of a separate non-Rule 12b-1 fee. All Funds bear a Rule 12b-1 fee of 0.75%. This will cause expenses for Class B Shares to be higher and dividends to be lower than for Class A Shares. - The higher 12b-1 fee on Class B Shares, together with the CDSC, help the Distributor sell Class B Shares without an "up-front" sales charge. In particular, these fees help to defray the Distributor's costs of advancing brokerage commissions to investment representatives. Over time shareholders will pay more than the equivalent of the maximum permitted front-end sales charge because 12b-1 distribution and service fees are paid out of the Fund's assets on an on-going basis. 125 128 SHAREHOLDER INFORMATION EXCHANGING YOUR SHARES You can exchange your shares in one Fund for shares of the same class of another AmSouth Fund, usually without paying additional sales charges (see "Notes" below). You must meet the minimum investment requirements for the Fund into which you are exchanging. Exchanges from one Fund to another are taxable. Class A Shares may also be exchanged for Trust Shares of the same Fund if you become eligible to purchase Trust Shares. No transaction fees are currently charged for exchanges. INSTRUCTIONS FOR EXCHANGING SHARES Exchanges may be made by sending a written request to AmSouth Funds, P.O. Box 182733, Columbus OH 43218-2733, or by calling 1-800-451-8382. Please provide the following information: - Your name and telephone number - The exact name on your account and account number - Taxpayer identification number (usually your Social Security number) - Dollar value or number of shares to be exchanged - The name of the Fund from which the exchange is to be made - The name of the Fund into which the exchange is being made See "Selling your Shares" for important information about telephone transactions. To prevent disruption in the management of the Funds, due to market timing strategies, exchange activity may be limited to four exchanges from a Fund during a calendar year. AUTOMATIC EXCHANGES -- CLASS A SHARES AND CLASS B SHARES You can use the Funds' Automatic Exchange feature to purchase shares of the Funds at regular intervals through regular, automatic redemptions from the AmSouth Prime Money Market Fund. To participate in the Automatic Exchange: - Complete the appropriate section of the Account Application. - Keep a minimum of $10,000 in the AmSouth Prime Money Market Fund and $1,000 in the Fund whose shares you are buying. To change the Automatic Exchange instructions or to discontinue the feature, you must send a written request to AmSouth Funds, P.O. Box 182733, Columbus, Ohio 43218-2733. NOTES ON EXCHANGES - When exchanging Trust Shares of a Fund for Class A Shares of a Fund, you will be exempt from any applicable sales charge. - When exchanging from a Fund that has no sales charge or a lower sales charge to a Fund with a higher sales charge, you will pay the difference. - The registration and tax identification numbers of the two accounts must be identical. - The Exchange Privilege (including automatic exchanges) may be changed or eliminated at any time upon a 60-day notice to shareholders. - Be sure to read carefully the Prospectus of any Fund into which you wish to exchange shares. 126 129 SHAREHOLDER INFORMATION DIVIDENDS, DISTRIBUTIONS AND TAXES Please consult your tax advisor regarding your specific questions about federal, state and local income taxes. Below we have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund distributes any net investment income monthly and any net realized capital gains at least once a year. All distributions will be automatically reinvested in additional Fund Shares unless you request to receive all distributions in cash. Generally, for federal income tax purposes, Fund distributions are taxable as ordinary income, except that distributions of long-term capital gains will be taxed as such regardless of how long you have held your shares. Distributions are taxable whether you received them in cash or in additional shares. Distributions are also taxable to you even if they are paid from income or gains earned by the Fund before your investment (and thus were included in the price you paid). For the Florida Tax-Exempt Fund, Municipal Bond Fund, Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund, and Tax-Exempt Money Market Fund, the income dividends that you receive are expected to be exempt from federal income taxes and, in the case of the Florida Tax-Exempt Fund, Florida intangible taxes and in the case of the Tennessee Tax-Exempt Fund and the Limited Term Tennessee Tax-Exempt Fund, Tennessee personal income taxes. However, if you receive social security or railroad retirement benefits, you should consult your tax advisor to determine what effect, if any, an investment in the Florida Tax-Exempt Fund, Municipal Bond Fund, Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund, or Tax-Exempt Money Market Fund may have on the federal taxation of your benefits. In addition, an investment in the Florida Tax-Exempt Fund, Municipal Bond Fund, Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund, or Tax-Exempt Money Market Fund may result in liability for federal alternative minimum tax, both for individual and corporate shareholders. A Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, a Fund's yield on those securities would be decreased. Shareholders generally will not be entitled to claim a credit or deduction with respect to foreign taxes. In addition, a Fund's investments in foreign securities or foreign currencies may increase or accelerate a Fund's recognition of ordinary income and may affect the timing or amount of a Fund's distributions. Any gain resulting from the sale or exchange of your Fund Shares (even if the income from which is tax exempt) will generally be subject to tax. You should consult your tax advisor for more information on your own tax situation, including possible state and local taxes. AmSouth Funds will send you a statement each year showing the tax status of all your distributions. - For each Fund, other than the Florida Tax-Exempt Fund, Municipal Bond Fund, Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund, and Tax-Exempt Money Market Fund, the dividends and short-term capital gains that you receive are considered ordinary income for tax purposes. For the Florida Tax-Exempt Fund, Municipal Bond Fund, Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund, and Tax-Exempt Money Market Fund, any short-term capital gains that you receive are taxable to you as ordinary income for Federal income tax purposes. - Any distributions of net long-term capital gains by a Fund are taxable to you as long-term capital gains for tax purposes, no matter how long you've owned shares in the Fund. - Generally, the Funds' advisors do not consider taxes when deciding to buy or sell securities. Capital gains are realized from time to time as by-products of ordinary investment activities. Distributions may vary considerably from year to year. - If you sell or exchange shares, any gain or loss you have is a taxable event. This means that you may have a capital gain to report as income, or a capital loss to report as a deduction, when you complete your federal income tax return. - Distributions of dividends or capital gains, and capital gains or losses from your sale or exchange of Fund shares, may be subject to state and local income taxes as well. The tax information in this prospectus is provided as general information and will not apply to you if you are investing through a tax-deferred account such as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be subject to U.S. withholding and estate tax.) MORE INFORMATION ABOUT TAXES IS IN OUR STATEMENT OF ADDITIONAL INFORMATION. 127 130 [ICON] OTHER INFORMATION ABOUT THE FUNDS FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Funds' financial performance for the past 5 years or, if shorter, the period of the Funds' 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 the Fund (assuming reinvestment of all dividends and distributions). The information for the year or period ended July 31, 2000 has been audited by Ernst & Young LLP. Prior to that, the information pertaining to the Capital Growth Fund, Large Cap Fund, Mid Cap Fund, International Equity Fund, Aggressive Growth Portfolio, Growth Portfolio, Growth and Income Portfolio, Moderate Growth and Income Portfolio, Current Income Portfolio, Limited Term U.S. Government Fund, Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund, and Treasury Reserve Money Market Fund has been audited by KPMG LLP. The other information included herein, has been audited by PricewaterhouseCoopers LLP. The reports of Ernst & Young LLP, KPMG LLP and PricewaterhouseCoopers LLP, along with the Fund's financial statements, are incorporated by reference in the SAI, which is available upon request. 128 131 VALUE FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY EQUITY FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED YEAR ENDED JULY 31, 2000 JULY 31, 1999 JULY 31, 1998 ------------- ------------------------------ ------------- (A, B, TRUST) A SHARES B SHARES TRUST A SHARES (a) ------------- -------- -------- -------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $24.60 $24.55 $24.57 $23.35 ------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.20 0.02 0.26 0.21 Net realized and unrealized gains (losses) from investments 3.11 3.10 3.16 2.54 ------------------------------------------------------------------------------------------------------------- Total from Investment Activities 3.31 3.12 3.42 2.75 ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.19) (0.06) (0.25) (0.25) Net realized gains from investment transactions (2.47) (2.47) (2.47) (1.25) ------------------------------------------------------------------------------------------------------------- Total Distributions (2.66) (2.53) (2.72) (1.50) ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $25.25 $25.14 $25.27 $24.60 ------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 14.92% 14.03% 15.43% 12.34% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $70,740 $12,394 $960,660 $73,165 Ratio of expenses to average net assets 1.33% 2.08% 1.08% 1.19% Ratio of net investment income to average net assets 0.82% 0.05% 1.07% 0.89% Ratio of expenses to average net assets* 1.34% 2.09% 1.09% 1.19% Portfolio Turnover(e) 17.65% 17.65% 17.65% 16.95% YEAR ENDED JULY 31, 1998 -------------------------- B SHARES (b) TRUST (a) ------------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD $23.15 $22.51 ----------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.09 0.28 Net realized and unrealized gains (losses) from investments 2.68 3.31 ----------------------------------------------------------------------------------------- Total from Investment Activities 2.77 3.59 ----------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.12) (0.28) Net realized gains from investment transactions (1.25) (1.25) ----------------------------------------------------------------------------------------------------- Total Distributions (1.37) (1.53) ----------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $24.55 $24.57 ------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 12.49%(c) 12.46%(f) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $7,929 $947,575 Ratio of expenses to average net assets 2.11%(d) 1.09%(d) Ratio of net investment income to average net assets 0.26%(d) 1.26%(d) Ratio of expenses to average net assets* 2.11%(d) 1.10%(d) Portfolio Turnover(e) 16.95% 16.95%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as A Shares. (b) For the period from September 3, 1997 (commencement of operations) to July 31, 1998. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) 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 16.52%. 129 132 OTHER INFORMATION ABOUT THE FUNDS VALUE FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ----------------------- 1997 1996 ---------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD $ 17.62 $ 16.75 ---------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.30 0.33 Net realized and unrealized gains (losses) from investments 6.77 1.48 ---------------------------------------------------------------------- Total from Investment Activities 7.07 1.81 ---------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.30) (0.33) Net realized gains from investment transactions (1.04) (0.61) ---------------------------------------------------------------------- Total Distributions (1.34) (0.94) ---------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 23.35 $ 17.62 ---------------------------------------------------------------------- Total Return (excludes sales charge) 42.35% 11.09% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 974,985 $ 374,622 Ratio of expenses to average net assets 1.06% 1.02% Ratio of net investment income to average net assets 1.52% 1.86% Ratio of expenses to average net assets* 1.10% 1.11% Portfolio Turnover 24.47% 19.11%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. 130 133 GROWTH FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY CAPITAL GROWTH FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED JULY 31, 2000 JULY 31, 1999 ------------- --------------------------------- (A, B, TRUST) A SHARES B SHARES TRUST ------------- -------- ------------ ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.62 $11.54 $ 11.65 ------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) (0.06) (0.12) (0.02) Net realized and unrealized gains (losses) from investments 2.57 2.52 2.57 ------------------------------------------------------------------------------------------------ Total from Investment Activities 2.51 2.40 2.55 ------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income -- -- -- Net realized gains from investment transactions (0.09) (0.09) (0.09) ------------------------------------------------------------------------------------------------ Total Distributions (0.09) (0.09) (0.09) ------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 14.04 $13.85 $ 14.11 ------------------------------------------------------------------------------------------------ Total Return (excludes sales charge) 21.76% 20.96% 22.05% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $14,040 $7,463 $18,055 Ratio of expenses to average net assets 1.23% 1.97% 0.96% Ratio of net investment income to average net assets (0.50)% (1.26)% (0.28)% Ratio of expenses to average net assets* 1.74% 2.48% 1.47% Portfolio Turnover (e) 79.30% 79.30% 79.30% AUGUST 3, 1997 TO JULY 31, 1998 (f) ------------------------------------------ A SHARES (a) B SHARES (b) TRUST (a)(f) ------------ ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $ 9.82 $ 9.55 ------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) (0.03) (0.06) -- Net realized and unrealized gains (losses) from investments 1.65 1.78 2.10 ------------------------------------------------------------------------------------------------ Total from Investment Activities 1.62 1.72 2.10 ------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income -- -- -- Net realized gains from investment transactions -- -- -- ------------------------------------------------------------------------------------------------ Total Distributions -- -- -- ------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $11.62 $11.54 $11.65 ------------------------------------------------------------------------------------------------ Total Return (excludes sales charge) 16.20%(c) 17.52%(c) 16.50%(g) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $9,720 $3,477 $2,824 Ratio of expenses to average net assets 1.40%(d) 2.05%(d) 0.99%(d) Ratio of net investment income to average net assets (0.42)%(d) (1.10)%(d) 0.00%(d) Ratio of expenses to average net assets* 2.37%(d) 3.11%(d) 2.05%(d) Portfolio Turnover (e) 77.26% 77.26% 77.26%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as A Shares. (b) For the period from September 3, 1997 (commencement of operations) through July 31, 1998. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) Period from commencement of operations. (g) Represents total return based on the activity of Class A Shares for the period from August 4, 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 21.99%. 131 134 OTHER INFORMATION ABOUT THE FUNDS CAPITAL GROWTH FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS A SHARES -------------------------------------------------------- PERIOD ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED JULY 31, ------------------------- DECEMBER 31, 2000 1999 1998 1997 1996 (a) ------------- ------- ------ ------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 14.20 $12.80 $11.32 $ 10.00 ------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.04) (0.01) 0.06 -- Net realized and unrealized gains (losses) from investments 2.97 3.89 3.40 1.32 ------------------------------------------------------------------------------------------------------- Total from Investment Activities 2.93 3.88 3.46 1.32 ------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income -- -- (0.06) -- Net realized gains (2.76) (2.48) (1.92) -- ------------------------------------------------------------------------------------------------------- Total Distributions (2.76) (2.48) (1.98) -- ------------------------------------------------------------------------------------------------------- Net change in asset value 0.17 1.40 1.48 1.32 ------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.37 $14.20 $12.80 $ 11.32 ------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 21.85% 32.05% 30.79% 13.20%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $10,310 $4,631 $ 858 $49,008 Ratio of expenses to average net assets 1.32% 1.28% 0.93% 1.20%(c) Ratio of net investment income (loss) to average net assets (0.33)% (0.19)% 0.42% (0.02)%(c) Ratio of expenses to average net assets* 1.33% 1.29% 1.18% 1.39%(c) Portfolio Turnover** 178% 152% 116% 69%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from April 1, 1996 (commencement of operations) through December 31, 1996. (b) Not annualized. (c) Annualized. 132 135 OTHER INFORMATION ABOUT THE FUNDS CAPITAL GROWTH FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS B SHARES -------------------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED JULY 31, DECEMBER 31, DECEMBER 31, 2000 1999 + 1998 (a) -------------- ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $13.92 $13.10 ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.14) (0.05) Net realized and unrealized gains (losses) from investments 2.91 3.35 ----------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 2.77 3.30 ----------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net realized gains (2.76) (2.48) ----------------------------------------------------------------------------------------------------------------------------- Total Distributions (2.76) (2.48) ----------------------------------------------------------------------------------------------------------------------------- Net change in asset value 0.01 0.82 ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $13.93 $13.92 ----------------------------------------------------------------------------------------------------------------------------- Total Return (excludes redemption charge) 21.11% 26.86%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $7,704 $2,854 Ratio of expenses to average net assets 1.92% 2.04%(c) Ratio of net investment income (loss) to average net assets (0.93)% (0.95)%(c) Ratio of expenses to average net assets* 1.93% (d) Portfolio Turnover** 178% 152%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. + Net investment income (loss) is based on average shares outstanding during the period. (a) For the period from February 5, 1998 (commencement of operations) through December 31, 1998. (b) Not annualized. (c) Annualized. (d) There were no fee reductions for this period. 133 136 OTHER INFORMATION ABOUT THE FUNDS CAPITAL GROWTH FUND FINANCIAL HIGHLIGHTS CONTINUED
TRUST SHARES ---------------------------------------------------------------------- PERIOD ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED JULY 31, ------------------------------- DECEMBER 31, 2000 1999 1998 1998 (a) ------------- ------------ ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 14.09 $ 12.69 $ 14.51 ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.01) 0.01 0.02 Net realized and unrealized gains (losses) from investments 2.95 3.88 0.10 ----------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 2.94 3.89 0.12 ----------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income -- (0.01) (0.02) Net realized gains (2.76) (2.48) (1.92) ----------------------------------------------------------------------------------------------------------------------------- Total Distributions (2.76) (2.49) (1.94) ----------------------------------------------------------------------------------------------------------------------------- Net change in asset value 0.18 1.40 (1.82) ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.27 $ 14.09 12.69 ----------------------------------------------------------------------------------------------------------------------------- Total Return 22.09% 32.40% 0.88%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $241,810 $173,542 $141,761 Ratio of expenses to average net assets 1.07% 1.02% 0.58%(c) Ratio of net investment income (loss) to average net assets (0.09)% 0.07% 0.80%(c) Ratio of expenses to average net assets* 1.08% 1.03% 0.99%(c) Portfolio Turnover** 178% 152% 116%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from October 3, 1997 (commencement of operations) through December 31, 1997. (b) Not annualized. (c) Annualized. 134 137 OTHER INFORMATION ABOUT THE FUNDS LARGE CAP FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS A SHARES ------------------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED JULY 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 (a) ------------- ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 27.55 $ 23.01 ------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.03 0.05 Net realized and unrealized gains (losses) from investments 5.07 5.79 ------------------------------------------------------------------------------------------ Total from Investment Activities 5.10 5.84 ------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.03) (0.05) Net realized gains (4.60) (1.25) ------------------------------------------------------------------------------------------ Total Distributions (4.63) (1.30) ------------------------------------------------------------------------------------------ Net change in asset value 0.47 4.54 ------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 28.02 $ 27.55 ------------------------------------------------------------------------------------------ Total Return (excludes sales charge) 18.85% 25.83%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $79,211 $57,772 Ratio of expenses to average net assets 1.04% 1.03%(c) Ratio of net investment income to average net assets 0.12% 0.21%(c) Ratio of expenses to average net assets* 1.39% 1.03%(c) Portfolio Turnover** 15% 3% CLASS A SHARES ----------------------------------------- YEAR ENDED FEBRUARY 28, ----------------------------------------- 1998 1997 1996 1995 -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD 16.68 $ 14.49 $ 11.41 $ 10.87 ------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.11 0.14 0.16 0.16 Net realized and unrealized gains (losses) from investments 6.48 2.54 3.63 0.71 ------------------------------------------------------------------------------------------ Total from Investment Activities 6.59 2.68 3.79 0.87 ------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.11) (0.14) (0.17) (0.16) Net realized gains (0.15) (0.35) (0.54) (0.17) ------------------------------------------------------------------------------------------ Total Distributions (0.26) (0.49) (0.71) (0.33) ------------------------------------------------------------------------------------------ Net change in asset value 6.33 2.19 3.08 0.54 ------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 23.01 $ 16.68 $ 14.49 $ 11.41 ------------------------------------------------------------------------------------------ Total Return (excludes sales charge) 39.74% 18.79% 33.73% 8.23% RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $715,631 $490,392 $385,145 $259,998 Ratio of expenses to average net assets 0.99% 0.92% 0.94% 0.95% Ratio of net investment income to average net assets 0.54% 0.95% 1.24% 1.54% Ratio of expenses to average net assets* (d) (d) (d) (d) Portfolio Turnover** 6% 7% 15% 1%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from March 1, 1998 through December 31, 1998. In conjunction with the reorganization of the ISG Funds, the Fund changed its fiscal year end to December 31. (b) Not annualized. (c) Annualized. (d) There were no fee reductions in this period. 135 138 OTHER INFORMATION ABOUT THE FUNDS LARGE CAP FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS B SHARES ---------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED JULY 31, DECEMBER 31, DECEMBER 31, 2000 1999 + 1998 (a) -------------- ------------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 27.54 $25.98 ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.23) -- Net realized and unrealized gains (losses) from investments 5.04 1.56 ----------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 4.81 1.56 ----------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net realized gains (4.60) -- ----------------------------------------------------------------------------------------------------------------------------- Total Distributions (4.60) -- ----------------------------------------------------------------------------------------------------------------------------- Net change in asset value 0.21 1.56 ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 27.75 $27.54 ----------------------------------------------------------------------------------------------------------------------------- Total Return (excludes redemption charge) 17.78% 6.02%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $18,584 $ 100 Ratio of expenses to average net assets 1.98% 1.10%(c) Ratio of net investment income (loss) to average net assets (0.79)% (0.23)%(c) Ratio of expenses to average net assets* 2.00% 2.11%(c) Portfolio Turnover** 15% 3%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. + Net investment income (loss) is based on average shares outstanding during the period. (a) For the period from December 15, 1998 (commencement of operations) through December 31, 1998. (b) Not annualized. (c) Annualized. 136 139 OTHER INFORMATION ABOUT THE FUNDS LARGE CAP FUND FINANCIAL HIGHLIGHTS CONTINUED
TRUST SHARES ---------------------------------- PERIOD ENDED YEAR ENDED PERIOD ENDED JULY 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 (a) -------------- ------------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 27.54 $ 25.52 ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.03 -- Net realized and unrealized gains (losses) from investments 5.07 2.02 ----------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 5.10 2.02 ----------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.03) -- Net realized gains (4.60) -- ----------------------------------------------------------------------------------------------------------------------------- Total Distributions (4.63) -- ----------------------------------------------------------------------------------------------------------------------------- Net change in asset value 0.47 2.02 ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 28.01 $ 27.54 ----------------------------------------------------------------------------------------------------------------------------- Total Return 18.84% 7.92%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $706,313 $786,462 Ratio of expenses to average net assets 1.04% 1.04%(c) Ratio of net investment income to average net assets 0.11% 0.20%(c) Ratio of expenses to average net assets* 1.14% 1.09%(c) Portfolio Turnover** 15% 3%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from December 14, 1998 (commencement of operations) through December 13, 1998. (b) Not annualized. (c) Annualized. 137 140 OTHER INFORMATION ABOUT THE FUNDS MID CAP FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS A SHARES -------------- PERIOD ENDED PERIOD ENDED JULY 31, DECEMBER 31, 2000 1999 (a)+ -------------- -------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 -------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.14) Net realized and unrealized gains (losses) from investments 7.47 -------------------------------------------------------------------------------------------------- Total from Investment Activities 7.33 -------------------------------------------------------------------------------------------------- Net change in asset value 7.33 -------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $17.33 -------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 73.30%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $2,357 Ratio of expenses to average net assets 2.28%(c) Ratio of net investment income (loss) to average net assets (1.62)%(c) Ratio of expenses to average net assets* 2.29%(c) Portfolio Turnover** 20%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. + Net investment income (loss) is based on average shares outstanding during the period. (a) For the period from May 4, 1999 (commencement of operations) through December 31, 1999. (b) Not annualized. (c) Annualized. 138 141 OTHER INFORMATION ABOUT THE FUNDS MID CAP FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS B SHARES --------------- PERIOD ENDED PERIOD ENDED JULY 31, DECEMBER 31, 2000 1999 (a)+ -------------- --------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 ------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) (0.19) Net realized and unrealized gains (losses) from investments 7.47 ------------------------------------------------------------------------------------------------ Total from Investment Activities 7.28 ------------------------------------------------------------------------------------------------ Net change in asset value 7.28 ------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $17.28 ------------------------------------------------------------------------------------------------ Total Return (excludes redemption charge) 72.80%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $2,177 Ratio of expenses to average net assets 2.86%(c) Ratio of net investment income (loss) to average net assets (2.17)%(c) Ratio of expenses to average net assets* 2.86%(c) Portfolio Turnover** 20%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. + Net investment income (loss) is based on average shares outstanding during the period. (a) For the period from May 4, 1999 (commencement of operations) through December 31, 1999. (b) Not annualized. (c) Annualized. 139 142 OTHER INFORMATION ABOUT THE FUNDS MID CAP FUND FINANCIAL HIGHLIGHTS CONTINUED
TRUST SHARES ------------------------------------------- PERIOD ENDED PERIOD ENDED JULY 31, DECEMBER 31, 2000 1999 (a)+ -------------- -------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 ----------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.12) Net realized and unrealized gains (losses) from investments 7.49 ----------------------------------------------------------------------------------------------------- Total from Investment Activities 7.37 ----------------------------------------------------------------------------------------------------- Net change in asset value 7.37 ----------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 17.37 ----------------------------------------------------------------------------------------------------- Total Return 73.70%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $37,186 Ratio of expenses to average net assets 2.18%(c) Ratio of net investment income (loss) to average net assets (1.47)%(c) Ratio of expenses to average net assets* 2.18%(c) Portfolio Turnover** 20%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. + Net investment income (loss) is based on average shares outstanding during the period. (a) For the period from May 4, 1999 (commencement of operations) through December 31, 1999. (b) Not annualized. (c) Annualized. 140 143 OTHER INFORMATION ABOUT THE FUNDS SMALL CAP FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, 1999 YEAR ENDED -------------------------------- JULY 31, 2000 A SHARES B SHARES TRUST ------------- --------- --------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.14 $ 9.11 $ 9.15 ----------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.10) (0.14) (0.03) Net realized and unrealized gains (losses) from investments (0.64) (0.66) (0.68) ----------------------------------------------------------------------------------------------- Total from Investment Activities (0.74) (0.80) (0.71) ----------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 8.40 $ 8.31 $ 8.44 ----------------------------------------------------------------------------------------------- Total Return (excludes sales charge) (8.10)% (8.78)% (7.76)% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 1,073 $ 929 $ 21,777 Ratio of expenses to average net assets 1.66% 2.41% 1.39% Ratio of net investment income to average net assets (1.07)% (1.83)% (0.82)% Ratio of expenses to average net assets* 2.68% 3.42% 2.38% Portfolio Turnover(e) 208.13% 208.13% 208.13% MARCH 2, 1998 TO JULY 31, 1998 (a) --------------------------------------- A SHARES (B) B SHARES TRUST ------------- ------------- ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.97 $ 10.00 $ 10.00 ----------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.03) (0.04) (0.02) Net realized and unrealized gains (losses) from investments (0.80) (0.85) (0.83) ----------------------------------------------------------------------------------------------- Total from Investment Activities (0.83) (0.89) (0.85) ----------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.14 $ 9.11 $ 9.15 ----------------------------------------------------------------------------------------------- Total Return (excludes sales charge) (8.31)%(c) (8.90)%(c) (8.48)%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 1,372 $ 871 $ 5,072 Ratio of expenses to average net assets 1.78%(d) 2.54%(d) 1.50%(d) Ratio of net investment income to average net assets (0.92)%(d) (1.69)%(d) (0.52)%(d) Ratio of expenses to average net assets* 4.23%(d) 4.98%(d) 3.94%(d) Portfolio Turnover(e) 70.64% 70.64% 70.64%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) For the period from March 3, 1998 (commencement of operations) through July 31, 1998. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. 141 144 OTHER INFORMATION ABOUT THE FUNDS EQUITY INCOME FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED JULY 31, 1999 JULY 31, 1998 YEAR ENDED ------------------------------- ------------- JULY 31, 2000 A SHARES B SHARES TRUST A SHARES (a) ------------- -------- -------- --------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.89 $ 11.86 $ 11.89 $ 11.72 -------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.17 0.07 0.19 0.24 Net realized and unrealized gains (losses) from investments 1.46 1.47 1.47 0.59 -------------------------------------------------------------------------------------------------------------- Total from Investment Activities 1.63 1.54 1.66 0.83 -------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.16) (0.09) (0.19) (0.25) Net realized gains from investment transactions (0.26) (0.26) (0.26) (0.41) -------------------------------------------------------------------------------------------------------------- Total Distributions (0.42) (0.35) (0.45) (0.66) -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 13.10 $ 13.05 $ 13.10 $ 11.89 -------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 14.17% 13.34% 14.43% 7.29% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 21,526 $ 7,919 $ 10,908 $ 26,686 Ratio of expenses to average net assets 1.41% 2.16% 1.16% 1.42% Ratio of net investment income to average net assets 1.37% 0.61% 1.59% 2.03% Ratio of expenses to average net assets* 1.58% 2.33% 1.33% 1.57% Portfolio Turnover(e) 133.74% 133.74% 133.74% 83.26% YEAR ENDED JULY 31, 1998 -------------------------- B SHARES (b) TRUST (a) ------------- ---------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.60 $ 11.35 -------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.15 0.25 Net realized and unrealized gains (losses) from investments 0.68 0.95 -------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.83 1.20 -------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.16) (0.25) Net realized gains from investment transactions (0.41) (0.41) -------------------------------------------------------------------------------------------------------------- Total Distributions (0.57) (0.66) -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.86 $ 11.89 -------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 7.26%(c) 7.54%(f) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 7,733 $ 8,087 Ratio of expenses to average net assets 2.19%(d) 1.19%(d) Ratio of net investment income to average net assets 1.29%(d) 2.34%(d) Ratio of expenses to average net assets* 2.35%(d) 1.35%(d) Portfolio Turnover(e) 83.26% 83.26%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as A Shares. (b) For the period from September 3, 1997 (commencement of operations) through July 31, 1998. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) 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 10.82%. 142 145 OTHER INFORMATION ABOUT THE FUNDS EQUITY INCOME FUND FINANCIAL HIGHLIGHTS CONTINUED
MARCH 20, 1997 TO JULY 31, 1997 (a) -------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 -------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.07 Net realized and unrealized gains (losses) from investments 1.71 -------------------------------------------------------------------------------------------- Total from Investment Activities 1.78 -------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.06) Net realized gains from investment transactions -- -------------------------------------------------------------------------------------------- Total Distributions (0.06) -------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.72 -------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 17.81%(b) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 22,273 Ratio of expenses to average net assets 1.30%(c) Ratio of net investment income to average net assets 2.13%(c) Ratio of expenses to average net assets* 1.51%(c) Portfolio Turnover(e) 27.38%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Not annualized. (c) Annualized. 143 146 OTHER INFORMATION ABOUT THE FUNDS BALANCED FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED JULY 31, 1999 JULY 31, 1998 YEAR ENDED ------------------------------------- -------------- JULY 31, 2000 A SHARES B SHARES TRUST A SHARES (a) -------------- ------------ ---------- --------- -------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 15.19 $ 15.16 $ 15.18 $ 15.21 ---------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.41 0.29 0.44 0.38 Net realized and unrealized gains (losses) from investments 0.93 0.95 0.95 0.98 ---------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 1.34 1.24 1.39 1.36 ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.40) (0.30) (0.44) (0.41) Net realized gains from investment transactions (1.20) (1.20) (1.20) (0.97) ---------------------------------------------------------------------------------------------------------------------- Total Distributions (1.60) (1.50) (1.64) (1.38) ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 14.93 $ 14.90 $ 14.93 $ 15.19 ---------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 9.40% 8.66% 9.74% 9.54% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 43,223 $ 10,131 $ 319,016 $ 46,814 Ratio of expenses to average net assets 1.34% 2.09% 1.09% 1.24% Ratio of net investment income to average net assets 2.67% 1.93% 2.93% 2.77% Ratio of expenses to average net assets* 1.35% 2.10% 1.10% 1.24% Portfolio Turnover(e) 23.24% 23.24% 23.24% 25.40% YEAR ENDED JULY 31, 1998 ---------------------------- B SHARES (b) TRUST (a) -------------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 14.99 $ 14.77 ---------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.28 0.41 Net realized and unrealized gains (losses) from investments 1.15 1.38 ---------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 1.43 1.79 ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.29) (0.41) Net realized gains from investment transactions (0.97) (0.97) ---------------------------------------------------------------------------------------------------------------------- Total Distributions (1.26) (1.38) ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 15.16 $ 15.18 ---------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 10.07%(c) 9.73%(f) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 5,309 $ 329,626 Ratio of expenses to average net assets 2.12%(d) 1.10%(d) Ratio of net investment income to average net assets 1.83%(d) 2.95%(d) Ratio of expenses to average net assets* 2.12%(d) 1.10%(d) Portfolio Turnover(e) 25.40% 25.40%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as A Shares. (b) For the period from September 2, 1997 (commencement of operations) through July 31, 1998. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) Represents total return based on the activity of 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 12.70%. 144 147 OTHER INFORMATION ABOUT THE FUNDS BALANCED FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, --------------------------------- 1997 1996 1995 --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD $ 13.03 $ 12.76 $ 11.81 ------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.48 0.47 0.47 Net realized and unrealized gains (losses) from investments 2.78 0.58 1.24 ------------------------------------------------------------------------------------ Total from Investment Activities 3.26 1.05 1.71 ------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.50) (0.47) (0.46) Net realized gains from investment transactions (0.58) (0.31) (0.30) ------------------------------------------------------------------------------------ Total Distributions (1.08) (0.78) (0.76) ------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 15.21 $ 13.03 $ 12.76 ------------------------------------------------------------------------------------ Total Return (excludes sales charge) 26.42% 8.37% 15.27% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 372,769 $ 338,425 $ 295,509 Ratio of expenses to average net assets 1.05% 0.98% 0.94% Ratio of net investment income to average net assets 3.49% 3.61% 3.91% Ratio of expenses to average net assets* 1.10% 1.11% 1.12% Portfolio Turnover 25.00% 20.47% 16.97%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. 145 148 OTHER INFORMATION ABOUT THE FUNDS SELECT EQUITY FUND FINANCIAL HIGHLIGHTS CONTINUED
PERIOD ENDED JULY 31, 1999 YEAR ENDED ---------------------------------- JULY 31, 2000 A SHARES (a) B SHARES (f) -------------- ------------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 $ 9.98 -------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.04 0.02 Net realized and unrealized gains (losses) from investments 1.91 1.86 -------------------------------------------------------------------------------------------------------- Total from Investment Activities 1.95 1.88 -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.05) (0.01) In excess of net investment income (0.01) (0.01) Net realized gains from investment transactions (0.01) (0.01) -------------------------------------------------------------------------------------------------------- Total Distributions (0.07) (0.03) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.88 $ 11.83 -------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 19.44%(c) 18.83%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 10,258 $ 1,933 Ratio of expenses to average net assets 1.13%(d) 1.99%(d) Ratio of net investment income to average net assets 0.43%(d) (0.49)%(d) Ratio of expenses to average net assets* 1.81%(d) 2.58%(d) Portfolio Turnover(e) 9.72% 9.72% PERIOD ENDED JULY 31, 1999 ------------------ TRUST (b) ------------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 11.52 -------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.04 Net realized and unrealized gains (losses) from investments 0.38 -------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.42 -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.03) In excess of net investment income (0.01) Net realized gains from investment transactions (0.01) -------------------------------------------------------------------------------------------------------- Total Distributions (0.05) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 11.89 -------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 3.63%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 10,420 Ratio of expenses to average net assets 0.99%(d) Ratio of net investment income to average net assets 0.65%(d) Ratio of expenses to average net assets* 1.58%(d) Portfolio Turnover(e) 9.72%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) For the period from September 1, 1998 (commencement of operations) through July 31, 1999. (b) For the period from September 2, 1998 (commencement of operations) through July 31, 1999. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) For the period from December 3, 1998 (commencement of operations) through July 31, 1999. 146 149 OTHER INFORMATION ABOUT THE FUNDS ENHANCED MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
PERIOD ENDED JULY 31, 1999 YEAR ENDED -------------------------------------------------------------- JULY 31, 2000 A SHARES (a) B SHARES (f) TRUST (b) -------------- ------------ ------------- ------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.30 $12.18 ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.09 0.03 0.07 Net realized and unrealized gains (losses) from investments 3.89 3.55 1.71 ----------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 3.98 3.58 1.78 ----------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.09) (0.03) (0.07) Net realized gains from investment transactions (0.03) (0.03) (0.03) ----------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.12) (0.06) (0.10) ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $13.86 $13.82 $13.86 ----------------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 39.93%(c) 34.85%(c) 14.71%(c) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $14,365 $6,132 $14,273 Ratio of expenses to average net assets 0.88%(d) 1.73%(d) 0.74%(d) Ratio of net investment income to average net assets 0.79%(d) (0.12)%(d) 0.90%(d) Ratio of expenses to average net assets* 1.52%(d) 2.28%(d) 1.29%(d) Portfolio Turnover(e) 36.03% 36.03% 36.03%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) For the period from September 1, 1998 (commencement of operations) through July 31, 1999. (b) For the period from September 2, 1998 (commencement of operations) through July 31, 1999. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) For the period from December 11, 1998 (commencement of operations) through July 31, 1999. 147 150 OTHER INFORMATION ABOUT THE FUNDS INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS A SHARES ---------------------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED PERIOD ENDED JULY 31, DECEMBER 31, DECEMBER 31, FEBRUARY 28, 2000 1999 1998 (a) 1998 (b) ------------- ------------ ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.58 $ 10.46 $ 10.00 --------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.02 0.03 (0.02) Net realized and unrealized gains (losses) from investments and foreign currencies 2.81 0.12 0.49 --------------------------------------------------------------------------------------------------------- Total from Investment Activities 2.83 0.15 0.47 --------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.07) (0.03) -- In excess of net investment income (0.07) -- (0.01) --------------------------------------------------------------------------------------------------------- Total Distributions (0.14) (0.03) (0.01) --------------------------------------------------------------------------------------------------------- Net change in asset value 2.69 0.12 0.46 --------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 13.27 $ 10.58 $ 10.46 --------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 26.77% 1.42%(c) 4.71(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 1,033 $ 149 $ 26,533 Ratio of expenses to average net assets 1.59% 1.81%(d) 1.77%(d) Ratio of net investment income (loss) to average net assets 0.26% 0.71%(d) (0.48%(d) Ratio of expenses to average net assets* 2.12% 2.16%(d) 2.27%(d) Portfolio Turnover** 40% 62% 21%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from March 1, 1998 through December 31, 1998. In conjunction with the reorganization of the ISG Funds, the Fund changed its year end to December 31. (b) For the period from August 15, 1997 (commencement of operations) through February 28, 1998. (c) Not annualized. (d) Annualized. 148 151 OTHER INFORMATION ABOUT THE FUNDS INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS B SHARES ----------------------------------------- YEAR ENDED YEAR ENDED JULY 31, DECEMBER 31, 2000 1999 (a) -------------- --------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.66 --------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) (0.02) Net realized and unrealized gains (losses) from investments and foreign currencies 2.69 --------------------------------------------------------------------------------------------------- Total from Investment Activities 2.67 --------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.06) In excess of net investment income (0.06) --------------------------------------------------------------------------------------------------- Total Distributions (0.12) --------------------------------------------------------------------------------------------------- Net change in asset value 2.55 --------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 13.21 --------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 25.98%(b) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) 228 Ratio of expenses to average net assets 2.45%(c) Ratio of net investment income (loss) to average net assets (0.54)%(c) Ratio of expenses to average net assets* 2.73%(c) Portfolio Turnover** 40%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from February 2, 1999 (commencement of operations) through December 31, 1999. (b) Not annualized. (c) Annualized. 149 152 OTHER INFORMATION ABOUT THE FUNDS INTERNATIONAL EQUITY FUND FINANCIAL HIGHLIGHTS CONTINUED
TRUST SHARES -------------------------------------------- YEAR ENDED YEAR ENDED PERIOD ENDED JULY 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 (a) ------------ ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.58 $ 10.05 ------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.08 (0.01) Net realized and unrealized gains (losses) from investments and foreign currencies 2.75 0.54 ------------------------------------------------------------------------------------------------------------ Total from Investment Activities 2.83 0.53 ------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net Investment income (0.07) -- In excess of net investment income (0.07) -- ------------------------------------------------------------------------------------------------------------ Total Distributions (0.14) -- ------------------------------------------------------------------------------------------------------------ Net change in asset value 2.69 0.53 ------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 13.27 $ 10.58 ------------------------------------------------------------------------------------------------------------ Total Return 26.72% 5.27%(b) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $46,104 $27,977 Ratio of expenses to average net assets 1.56% 1.61%(c) Ratio of net investment income (loss) to average net assets 0.80% (1.47)%(c) Ratio of expenses to average net assets* 1.84% 1.89%(c) Portfolio Turnover** 40% 62%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from December 14, 1998 (commencement of operations) through December 31, 1998. (b) Not annualized. (c) Annualized. 150 153 OTHER INFORMATION ABOUT THE FUNDS AGGRESSIVE GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED PERIOD ENDED JULY 31, 2000 DECEMBER 31, 1999(a) -------------------------- --------------------------------- CLASS A CLASS B TRUST CLASS A CLASS B TRUST SHARES SHARES SHARES SHARES SHARES SHARES ------- ------- ------ ------- ------- ------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 $10.03 $ 10.05 ------------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.09 0.07 0.12 Net realized and unrealized gains (losses) from investments with affiliates 1.60 1.50 1.52 ------------------------------------------------------------------------------------------------------------------------ Total from Investment Activities 1.69 1.57 1.64 ------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.11) (0.09) (0.12) Net realized gains (0.04) (0.04) (0.04) ------------------------------------------------------------------------------------------------------------------------ Total Distributions (0.15) (0.13) (0.16) ------------------------------------------------------------------------------------------------------------------------ Net change in asset value 1.54 1.44 1.48 ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $11.54 $11.47 $ 11.53 ------------------------------------------------------------------------------------------------------------------------ Total Return (excludes sales charge) 16.92%(b) 15.70%(b) 16.31%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $ 450 $ 456 $18,847 Ratio of expenses to average net assets 0.96%(c) 1.52%(c) 0.73%(c) Ratio of net investment income to average net assets 1.65%(c) 0.92%(c) 3.23%(c) Ratio of expenses to average net assets* 6.10%(c) 7.86%(c) 2.10%(c) Portfolio Turnover** 95% 95% 95%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from January 13, 1999 (commencement of operations for Class A Shares) through January 27, 1999 (commencement of operations for Class B Shares), and January 26, 1999 (commencement of operations for Trust Shares) through December 31, 1999. (b) Not annualized. (c) Annualized. 151 154 OTHER INFORMATION ABOUT THE FUNDS GROWTH PORTFOLIO FINANCIAL HIGHLIGHTS CONTINUED
PERIOD ENDED DECEMBER 31, 1999 (a) ---------------------------------------------- CLASS A SHARES CLASS B SHARES TRUST SHARES NET ASSET VALUE, BEGINNING OF PERIOD $ 9.93 $ 9.84 $ 10.00 -------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.14 0.12 0.16 Net realized and unrealized gains (losses) from investments 0.73 0.81 0.69 -------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.87 0.93 0.85 -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.14) (0.12) (0.16) Net realized gains (0.08) (0.08) (0.08) -------------------------------------------------------------------------------------------------------- Total Distributions (0.22) (0.20) (0.24) -------------------------------------------------------------------------------------------------------- Net change in asset value 0.65 0.73 0.61 -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.58 $ 10.57 $ 10.61 -------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 8.85%(b) 9.48%(b) 8.59%(b) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 164 $ 998 $ 11,372 Ratio of expenses to average net assets 0.94%(c) 1.55%(c) 0.73%(c) Ratio of net investment income to average net assets 2.44%(c) 2.14%(c) 4.82%(c) Ratio of expenses to average net assets* 9.41%(c) 6.75%(c) 3.14%(c) Portfolio Turnover** 76% 76% 76%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from February 11, 1999 (commencement of operations for Class A Shares), from February 15, 1999 (commencement of operations for Class B Shares), and February 1, 1999 (commencement of operations for Trust Shares) through December 31, 1999. (b) Not annualized. (c) Annualized. 152 155 OTHER INFORMATION ABOUT THE FUNDS GROWTH AND INCOME PORTFOLIO FINANCIAL HIGHLIGHTS CONTINUED
PERIOD ENDED DECEMBER 31, 1999 (a) ---------------------------------------------- CLASS A SHARES CLASS B SHARES TRUST SHARES NET ASSET VALUE, BEGINNING OF PERIOD $ 10.10 $ 10.00 $ 9.85 -------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.11 0.08 0.13 Net realized and unrealized gains (losses) from investments with affiliates 0.41 0.53 0.69 -------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.52 0.61 0.82 -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.11) (0.08) (0.13) Net realized gains (0.03) (0.03) (0.03) -------------------------------------------------------------------------------------------------------- Total Distributions (0.14) (0.11) (0.16) -------------------------------------------------------------------------------------------------------- Net change in asset value 0.38 0.50 0.66 -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.48 $ 10.50 $ 10.51 -------------------------------------------------------------------------------------------------------- Total Return (excludes redemption charge) 5.21%(b) 6.10%(b) 8.40%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $ 535 $ 1,725 $ 86,700 Ratio of expenses to average net assets 0.95%(c) 1.52%(c) 0.70%(c) Ratio of net investment income to average net assets 2.44%(c) 1.74%(c) 3.43%(c) Ratio of expenses to average net assets* 2.27%(c) 4.26%(c) 0.98%(c) Portfolio Turnover** 57% 57% 57%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from March 8, 1999 (commencement of operations for Class A Shares), from January 27, 1999 (commencement of operations for Class B Shares, and from February 8, 1999 (commencement of operations for Trust Shares) through December 31, 1999. (b) Not annualized. (c) Annualized. 153 156 OTHER INFORMATION ABOUT THE FUNDS MODERATE GROWTH AND INCOME PORTFOLIO FINANCIAL HIGHLIGHTS CONTINUED
PERIOD ENDED DECEMBER 31, 1999 (a) ---------------------------------------------- CLASS A SHARES CLASS B SHARES TRUST SHARES NET ASSET VALUE, BEGINNING OF PERIOD $ 9.86 $ 10.00 $ 9.88 -------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.17 0.13 0.20 Net realized and unrealized gains (losses) from investments with affiliates 0.16 0.02 0.16 -------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.33 0.15 0.36 -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.17) (0.13) (0.20) Net realized gains (0.06) (0.06) (0.06) -------------------------------------------------------------------------------------------------------- Total Distributions (0.23) (0.19) (0.26) -------------------------------------------------------------------------------------------------------- Net change in asset value 0.10 (0.04) 0.10 -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.96 $ 9.96 $ 9.98 -------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 3.37%(b) 1.50%(b) 3.64%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $ 172 $ 941 $ 21,384 Ratio of expenses to average net assets 0.93%(c) 1.54%(c) 0.73%(c) Ratio of net investment income (loss) to average net assets (3.32)%(c) 2.80%(c) 4.46%(c) Ratio of expenses to average net assets* 9.78%(c) 6.90%(c) 1.87%(c) Portfolio Turnover** 124% 124% 124%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from February 9, 1999 (commencement of operations for Class A Shares), from January 28, 1999 (commencement of operations for Class B Shares), and from February 10, 1999 (commencement of operations for Trust Shares) through December 31, 1999. (b) Not annualized. (c) Annualized. 154 157 OTHER INFORMATION ABOUT THE FUNDS CURRENT INCOME PORTFOLIO FINANCIAL HIGHLIGHTS CONTINUED
PERIOD ENDED DECEMBER 31, 1999 (a) ---------------------------------------------- CLASS A SHARES CLASS B SHARES TRUST SHARES NET ASSET VALUE, BEGINNING OF PERIOD $ 9.88 $ 9.87 $ 10.00 -------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.32 0.27 0.41 Net realized and unrealized gains (losses) from investments with affiliates (0.48) (0.43) (0.55) -------------------------------------------------------------------------------------------------------- Total from Investment Activities (0.16) (0.16) (0.14) -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.32) (0.27) (0.41) -------------------------------------------------------------------------------------------------------- Total Distributions (0.32) (0.27) (0.41) -------------------------------------------------------------------------------------------------------- Net change in asset value (0.48) (0.43) (0.55) -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.40 $ 9.44 $ 9.45 -------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) (1.63)%(b) (1.66)%(b) (1.41)%(b) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 3 $ -- $ 645 Ratio of expenses to average net assets 1.01%(c) 1.51%(c) 0.68%(c) Ratio of net investment income to average net assets 4.66%(c) 4.07%(c) 4.88%(c) Ratio of expenses to average net assets* 28.50%(c) 31.04%(c) 27.99%(c) Portfolio Turnover** 96% 96% 96%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from February 23, 1999 (commencement of operations for Class A Shares), from March 17, 1999 (commencement of operations for Class B Shares), and from January 25, 1999 (commencement of operations for Trust Shares) through December 31, 1999. (b) Not annualized. (c) Annualized. 155 158 OTHER INFORMATION ABOUT THE FUNDS BOND FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED JULY 31, 1999 JULY 31, 1998 YEAR ENDED ------------------------------------------- ------------ JULY 31, 2000 A SHARES B SHARES TRUST A SHARES (a) ------------- ------------ ------------ ------------- ------------ NET ASSET VALUE, BEGINNING OF PERIOD $11.05 $11.04 $ 11.05 $10.92 ------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.61 0.50 0.61 1.41 Net realized and unrealized gains (losses) from investments (0.32) (0.31) (0.30) (0.62) ------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.29 0.19 0.31 0.79 ------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.58) (0.50) (0.60) (0.63) Net realized gains from investment transactions (0.13) (0.13) (0.13) (0.03) ------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.71) (0.63) (0.73) (0.66) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.63 $10.60 $ 10.63 $11.05 ------------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 2.58% 1.58% 2.68% 7.45% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $7,070 $2,521 $380,226 $7,032 Ratio of expenses to average net assets 0.81% 1.71% 0.71% 0.73% Ratio of net investment income to average net assets 5.46% 4.63% 5.57% 5.78% Ratio of expenses to average net assets* 1.20% 1.95% 0.95% 0.95% Portfolio Turnover(e) 18.26% 18.26% 18.26% 40.41% YEAR ENDED JULY 31, 1998 ------------------------------- B SHARES (b) TRUST (a) -------------- -------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.88 $ 10.72 ------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.46 0.57 Net realized and unrealized gains (losses) from investments 0.24 0.38 ------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.70 0.95 ------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.51) (0.59) Net realized gains from investment transactions (0.03) (0.03) ------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.54) (0.62) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $11.04 $ 11.05 ------------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 6.58%(c) 7.54%(f) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 442 $327,930 Ratio of expenses to average net assets 1.74%(d) 0.73%(d) Ratio of net investment income to average net assets 4.75%(d) 5.72%(d) Ratio of expenses to average net assets* 1.99%(d) 0.97%(d) Portfolio Turnover(e) 40.41% 40.41%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as A Shares. (b) For the period from September 16, 1997 (commencement of operations) through July 31, 1998. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) Represents total return based on the activity of 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 9.03%. 156 159 OTHER INFORMATION ABOUT THE FUNDS BOND FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------------------- 1997 1996 1995 ------------ ---------- --------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.54 $ 10.83 $ 10.59 ------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.65 0.65 0.69 Net realized and unrealized gains (losses) from investments 0.42 (0.18) 0.28 ------------------------------------------------------------------------------------------ Total from Investment Activities 1.07 0.47 0.97 ------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.69) (0.65) (0.69) Net realized gains from investment transactions -- (0.11) (0.04) ------------------------------------------------------------------------------------------ Total Distributions (0.69) (0.76) (0.73) ------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 10.92 $ 10.54 $ 10.83 ------------------------------------------------------------------------------------------ Total Return (excludes sales charge) 10.48% 4.40% 9.70% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 311,881 $ 132,737 $ 94,671 Ratio of expenses to average net assets 0.75% 0.75% 0.75% Ratio of net investment income to average net assets 6.10% 6.12% 6.63% Ratio of expenses to average net assets* 0.98% 0.98% 0.98% Portfolio Turnover 34.62% 9.60% 17.70%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. 157 160 OTHER INFORMATION ABOUT THE FUNDS LIMITED TERM BOND FUND (FORMERLY LIMITED MATURITY FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED JULY 31, 1999 JULY 31, 1998 YEAR ENDED ------------------------------------------- ------------ JULY 31, 2000 A SHARES B SHARES (c) TRUST A SHARES (a) ------------- ---------- -------------- ------------- ------------ NET ASSET VALUE, BEGINNING OF PERIOD $10.43 $10.58 $ 10.43 $10.42 ------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.57 0.27 0.59 0.85 Net realized and unrealized gains (losses) from investments (0.15) (0.30) (0.16) (0.25) ------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.42 (0.03) 0.43 0.60 ------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.56) (0.28) (0.57) (0.59) ------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.56) (0.28) (0.57) (0.59) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $10.29 $10.27 $ 10.29 $10.43 ------------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 4.01% (0.33)%(b) 4.14% 5.94% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $2,716 $1,599 $109,554 $3,531 Ratio of expenses to average net assets 0.81% 1.69%(d) 0.71% 0.74% Ratio of net investment income to average net assets 5.49% 4.61%(d) 5.60% 5.65% Ratio of expenses to average net assets* 1.23% 1.96%(d) 0.98% 0.96% Portfolio Turnover(e) 39.15% 39.15% 39.15% 39.31% YEAR ENDED JULY 31, 1998 -------------- TRUST (a) -------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.34 ------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.55 Net realized and unrealized gains (losses) from investments 0.10 ------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.65 ------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.56) ------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.56) ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.43 ------------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 6.04%(f) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $106,953 Ratio of expenses to average net assets 0.73%(d) Ratio of net investment income to average net assets 5.70%(d) Ratio of expenses to average net assets* 0.98%(d) Portfolio Turnover(e) 39.31%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. (b) Not annualized. (c) For the period from January 21, 1999 (commencement of operations) through July 31, 1999. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) Represents total return based on the activity of 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 6.37%. 158 161 OTHER INFORMATION ABOUT THE FUNDS LIMITED TERM BOND FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------- 1997 1996 1995 --------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.31 $ 10.41 $ 10.23 ------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.58 0.58 0.58 Net realized and unrealized gains (losses) from investments 0.14 (0.10) 0.17 ------------------------------------------------------------------------------ Total from Investment Activities 0.72 0.48 0.75 ------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.61) (0.57) (0.57) Net realized gains from investment transactions -- (0.01) -- In excess of net realized gains -- -- -- ------------------------------------------------------------------------------ Total Distributions (0.61) (0.58) (0.57) ------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 10.42 $ 10.31 $ 10.41 ------------------------------------------------------------------------------ Total Return (excludes sales charge) 7.25% 4.74% 7.65% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 138,675 $ 46,005 $ 59,798 Ratio of expenses to average net assets 0.77% 0.76% 0.80% Ratio of net investment income to average net assets 5.65% 5.48% 5.69% Ratio of expenses to average net assets* 1.02% 0.99% 1.03% Portfolio Turnover 64.89% 29.56% 38.11%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. 159 162 OTHER INFORMATION ABOUT THE FUNDS GOVERNMENT INCOME FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED JULY 31, 1999 JULY 31, 1998 YEAR ENDED ----------------- ------------------------ JULY 31, 2000 A SHARES TRUST A SHARES (a) TRUST (a) ------------- -------- ------ ------------ --------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.88 $ 9.87 $ 9.75 $ 9.66 ----------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.54 0.54 0.63 0.59 Net realized and unrealized gains (losses) from investments (0.28) (0.26) 0.09 0.17 ----------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.26 0.28 0.72 0.76 ----------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.52) (0.53) (0.53) (0.49) In excess of net investment income -- -- (0.06) (0.06) ----------------------------------------------------------------------------------------------------------- Total Distributions (0.52) (0.53) (0.59) (0.55) ----------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.62 $ 9.62 $ 9.88 $ 9.87 ----------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 2.62% 2.72% 7.58% 7.58%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $5,436 $3,150 $8,176 $2,521 Ratio of expenses to average net assets 0.70% 0.60% 0.71% 0.63%(d) Ratio of net investment income to average net assets 5.35% 5.44% 5.95% 5.72%(d) Ratio of expenses to average net assets* 1.90% 1.65% 1.77% 1.80%(d) Portfolio Turnover(b) 26.85% 26.85% 34.89% 34.89%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as A Shares. (b) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (c) Represents total return based on the activity of 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 8.04%. (d) Annualized. 160 163 OTHER INFORMATION ABOUT THE FUNDS GOVERNMENT INCOME FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------ 1997 1996 1995 -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 9.40 $ 9.54 $ 9.48 ----------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.58 0.66 0.68 Net realized and unrealized gains (losses) from investments 0.35 (0.20) 0.08 ----------------------------------------------------------------------------- Total from Investment Activities 0.93 0.46 0.76 ----------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.58) (0.59) (0.70) Tax Return of Capital -- (0.01) -- ----------------------------------------------------------------------------- Total Distributions (0.58) (0.60) (0.70) ----------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.75 $ 9.40 $ 9.54 ----------------------------------------------------------------------------- Total Return (excludes sales charge) 10.21% 4.91% 8.43% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 11,622 $ 15,752 $ 16,679 Ratio of expenses to average net assets 0.69% 0.65% 0.58% Ratio of net investment income to average net assets 5.98% 6.81% 7.18% Ratio of expenses to average net assets* 1.29% 1.10% 1.19% Portfolio Turnover(c) 2.96% 78.31% 27.32%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. 161 164 OTHER INFORMATION ABOUT THE FUNDS LIMITED TERM U.S. GOVERNMENT FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS A SHARES ------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, PERIOD ENDED JULY 31, ----------------------- DECEMBER 31, 2000 1999 1998 1997 (a) ------------- ---------- ---------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ $10.25 $10.12 $ 10.00 ------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.50 0.53 0.42 Net realized and unrealized gains (losses) from investments (0.39) 0.14 0.12 ------------------------------------------------------------------------------------------------------ Total from Investment Activities 0.11 0.67 0.54 ------------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.50) (0.53) (0.42) Net realized gains (0.01) (0.01) -- ------------------------------------------------------------------------------------------------------ Total Distributions (0.51) (0.54) (0.42) ------------------------------------------------------------------------------------------------------ Net change in asset value (0.40) 0.13 0.12 ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 9.85 $10.25 $ 10.12 ------------------------------------------------------------------------------------------------------ Total Return (excludes sales charge) 1.08% 6.69% 5.54%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $3,571 $2,437 $20,103 Ratio of expenses to average net assets 0.98% 1.02% 1.00%(c) Ratio of net investment income to average net assets 4.93% 5.16% 5.34%(c) Ratio of expenses to average net assets* 1.40% 1.54% 1.62%(c) Portfolio turnover** 17% 86% 52%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from February 28, 1997 (commencement of operations) through December 31, 1997. (b) Not annualized. (c) Annualized. 162 165 OTHER INFORMATION ABOUT THE FUNDS LIMITED TERM U.S. GOVERNMENT FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS B SHARES --------------------------- YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, 1999 1998 (a) ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $10.26 $10.12 ------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.41 0.35 Net realized and unrealized gains (losses) from investments (0.39) 0.15 ------------------------------------------------------------------------------------- Total from Investment Activities 0.02 0.50 ------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.41) (0.35) Net realized gains (0.01) (0.01) ------------------------------------------------------------------------------------- Total Distributions (0.42) (0.36) ------------------------------------------------------------------------------------- Net change in asset value (0.40) 0.14 ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.86 $10.26 ------------------------------------------------------------------------------------- Total Return (excludes sales charge) 0.22% 4.98%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $ 462 $ 430 Ratio of expenses to average net assets 1.83% 1.97%(c) Ratio of net investment income to average net assets 4.06% 4.01%(c) Ratio of expenses to average net assets* 1.99% 2.24%(c) Portfolio turnover** 17% 86%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from March 3, 1998 (commencement of operations) through December 31, 1998. (b) Not annualized. (c) Annualized. 163 166 OTHER INFORMATION ABOUT THE FUNDS LIMITED TERM U.S. GOVERNMENT FUND FINANCIAL HIGHLIGHTS CONTINUED
TRUST SHARES --------------------------- YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, 1999 1998 (a) ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.25 $ 10.29 ------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.50 0.03 Net realized and unrealized gains (losses) from investments (0.39) (0.04) ------------------------------------------------------------------------------------- Total from Investment Activities 0.11 (0.01) ------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.50) (0.03) Net realized gains (0.01) -- ------------------------------------------------------------------------------------- Total Distributions (0.51) (0.03) ------------------------------------------------------------------------------------- Net change in asset value (0.40) (0.04) ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.85 $ 10.25 ------------------------------------------------------------------------------------- Total Return (excludes sales charge) 1.08% (0.14%)(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $42,281 $46,344 Ratio of expenses to average net assets 0.98% 0.69%(c) Ratio of net investment income to average net assets 4.94% 5.29%(c) Ratio of expenses to average net assets* 1.14% 0.96%(c) Portfolio turnover** 17% 86%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from December 14, 1998 (commencement of operations) through December 31, 1998. (b) Not annualized. (c) Annualized. 164 167 OTHER INFORMATION ABOUT THE FUNDS MUNICIPAL BOND FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED JULY 31, 1999 JULY 31, 1998 ---------------------------------------- --------------------------------- A SHARES CLASS B (f) TRUST A SHARES (b) TRUST (b) ------------ -------------- -------- --------------- --------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.13 $10.28 $ 10.14 $10.15 $ 10.04 --------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.41 0.14 0.42 0.86 0.39 Net realized and unrealized gains (losses) from investments (0.17) (0.41) (0.18) (0.43) 0.14 --------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.24 (0.27) 0.24 0.43 0.53 --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.39) (0.14) (0.40) (0.42) (0.40) Net realized gains from investment transactions (0.11) -- (0.11) (0.03) (0.03) --------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.50) (0.14) (0.51) (0.45) (0.43) --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.87 $ 9.87 $ 9.87 $10.13 $ 10.14 --------------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 2.31% (2.60)%(c) 2.30% 4.30% 4.49%(g) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $2,694 $ 16 $321,293 $2,689 $326,464 Ratio of expenses to average net assets 0.71% 1.60%(d) 0.61% 0.62% 0.64%(d) Ratio of net investment income to average net assets 4.01% 3.17%(d) 4.11% 4.26% 4.23%(d) Ratio of expenses to average net assets* 1.20% 1.87%(d) 0.95% 0.92% 0.97%(d) Portfolio Turnover(e) 20.74% 20.74% 20.74% 28.75% 28.75% JULY 1, 1997 JULY 31, 1997 (a) ------------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00 --------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.04 Net realized and unrealized gains (losses) from investments 0.15 --------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.19 --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.04) Net realized gains from investment transactions -- --------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.04) --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.15 --------------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 1.86%(c) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $337,933 Ratio of expenses to average net assets 0.71%(d) Ratio of net investment income to average net assets 4.31%(d) Ratio of expenses to average net assets* 1.04%(d) Portfolio Turnover(e) 1.59%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Period from commencement of operations. (b) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as A Shares. (c) Not annualized. (d) Annualized. (e) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (f) For the period from February 3, 1999 (commencement of operations) through July 31, 1999. (g) Represents total return based on the activity of 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. 165 168 FLORIDA TAX-EXEMPT FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY FLORIDA TAX-FREE FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED YEAR ENDED JULY 31, 1999 JULY 31, 1998 --------------------------------------- ----------------------------- A SHARES CLASS B (e) TRUST A SHARES (a) TRUST (a) ------------ -------------- ------- --------------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.45 $10.52 $ 10.46 $ 10.50 $ 10.39 ---------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.41 0.12 0.43 0.45 0.41 Net realized and unrealized gains (losses) from investments (0.18) (0.30) (0.20) 0.01 0.14 ---------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.23 (0.18) 0.23 0.46 0.55 ---------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.40) (0.14) (0.41) (0.44) (0.41) Net realized gains from investment transactions (0.06) -- (0.06) (0.07) (0.07) ---------------------------------------------------------------------------------------------------------------------- Total Distributions (0.46) (0.14) (0.47) (0.51) (0.48) ---------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.22 $10.20 $ 10.22 $ 10.45 $ 10.46 ---------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 2.06% (1.77)%(b) 2.16% 4.46% 4.66%(f) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $12,195 $ 569 $63,548 $ 8,883 $55,369 Ratio of expenses to average net assets 0.59% 1.49%(c) 0.49% 0.55% 0.49%(c) Ratio of net investment income to average net assets 4.00% 3.06%(c) 4.10% 4.24% 4.30%(c) Ratio of expenses to average net assets* 1.26% 2.00%(c) 1.01% 1.06% 1.04%(c) Portfolio Turnover(d) 34.33% 34.33% 34.33% 29.55% 29.55%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective September 2, 1997, the Fund's existing shares, which were previously unclassified, were designated either A Shares or Trust Shares. For reporting purposes, past performance numbers (prior to September 2, 1997) are being reflected as A Shares. (b) Not annualized. (c) Annualized. (d) Portfolio turnover is calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. (e) For the period from March 16, 1999 (commencement of operations) through July 31, 1999. (f) Represents total return based on the activity of 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 Florida Tax-Free Fund Trust Shares for the period from September 2, 1997 (commencement of operations). 166 169 FLORIDA TAX-EXEMPT FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY FLORIDA TAX-FREE FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED SEPTEMBER 30, JULY 31, 1994 TO -------------------------- JULY 31 1997 1996 1995 (c) ------- ------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.30 $ 10.32 $ 10.00 --------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.45 0.45 0.34 Net realized and unrealized gains (losses) from investments 0.24 (0.01) 0.30 --------------------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.69 0.44 0.64 --------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.48) (0.45) (0.32) Net realized gains from investment transactions (0.01) (0.01) -- --------------------------------------------------------------------------------------------------------------------------- Total Distributions (0.49) (0.46) (0.32) --------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 10.50 $ 10.30 $ 10.32 --------------------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 6.89% 4.24% 6.53%(a) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $53,688 $48,869 $48,333 Ratio of expenses to average net assets 0.57% 0.59% 0.70%(b) Ratio of net investment income to average net assets 4.36% 4.33% 4.16%(b) Ratio of expenses to average net assets* 1.06% 1.04% 1.01%(b) Portfolio Turnover 24.05% 12.21% 2.33%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Not annualized. (b) Annualized. (c) Period from commencement of operations. 167 170 OTHER INFORMATION ABOUT THE FUNDS TENNESSEE TAX-EXEMPT FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS A SHARES -------------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, JULY 31, ------------------------------------------------- 2000 1999 1998 1997 1996 1995 ---------- ------- ------- ------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ $ 10.19 $ 10.18 $ 9.90 $ 10.19 $ 9.40 ------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES Net investment income (loss) 0.33 0.35 0.44 0.42 0.45 Net realized and unrealized gains (losses) from investments (0.64) 0.08 0.25 (0.29) 0.79 ------------------------------------------------------------------------------------------------------------- Total from Investment Activities (0.31) 0.43 0.69 0.13 1.24 ------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS Net investment income (0.33) (0.35) (0.41) (0.42) (0.45) Net realized gains -- (0.07) -- -- -- ------------------------------------------------------------------------------------------------------------- Total Distributions (0.33) (0.42) (0.41) (0.42) (0.45) ------------------------------------------------------------------------------------------------------------- Net change in asset value (0.64) 0.01 0.28 (0.29) 0.79 ------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.55 $ 10.19 $ 10.18 $ 9.90 $ 10.19 ------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) (3.07)% 4.25% 7.13% 1.39% 13.40% RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $ 3,324 $ 2,919 $ 1,669 $ 88,084 $ 94,143 Ratio of expenses to average net assets 1.25% 1.20% 0.84% 0.86% 0.87% Ratio of net investment income to average net assets 3.34% 3.37% 4.13% 4.29% 4.52% Ratio of expenses to average net assets* 1.26% 1.20% 1.09% 1.11% 1.12% Portfolio turnover** 64% 155% 253% 219% 188%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. 168 171 OTHER INFORMATION ABOUT THE FUNDS TENNESSEE TAX-EXEMPT FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS B SHARES ------------------------------------------ YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, 1999 1998 (a) ---------------- -------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.21 $ 10.22 ------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income (loss) 0.27 0.26 Net realized and unrealized gains (losses) from investments (0.64) 0.06 ------------------------------------------------------------------------------------------------------------------ Total from Investment Activities (0.37) 0.32 ------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.27) (0.26) Net realized gains -- (0.07) ------------------------------------------------------------------------------------------------------------------ Total Distributions (0.27) (0.33) ------------------------------------------------------------------------------------------------------------------ Net change in Asset Value (0.64) (0.01) ------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 9.57 $ 10.21 ------------------------------------------------------------------------------------------------------------------ Total Return (excludes redemption charge) (3.65)% 3.17%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $ 1,288 $ 1,397 Ratio of expenses to average net assets 1.84% 1.95%(c) Ratio of net investment income to average net assets 2.72% 2.50%(c) Ratio of expenses to average net assets* 1.85% (d) Portfolio Turnover** 64% 155%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from February 24, 1998 (commencement of operations) through December 31, 1998. (b) Not annualized. (c) Annualized. (d) There were no reductions in this period. 169 172 OTHER INFORMATION ABOUT THE FUNDS TENNESSEE TAX-EXEMPT FUND FINANCIAL HIGHLIGHTS CONTINUED
TRUST SHARES ------------------------------------------ YEAR ENDED DECEMBER 31, PERIOD ENDED --------------------------- DECEMBER 31, 1999 1998 1997 (a) ------------ ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.19 $ 10.18 $ 10.05 ----------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.35 0.37 0.10 Net realized and unrealized gains (losses) from investments (0.64) 0.08 0.13 ----------------------------------------------------------------------------------------- Total from Investment Activities (0.29) 0.45 0.23 ----------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.35) (0.37) (0.10) Net realized gains -- (0.07) -- ----------------------------------------------------------------------------------------- Total Distributions (0.35) (0.44) (0.10) ----------------------------------------------------------------------------------------- Net change in asset value (0.64) 0.01 0.13 ----------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.55 $ 10.19 $ 10.18 ----------------------------------------------------------------------------------------- Total Return (excludes sales charge) (2.83)% 4.52% 2.35%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $75,537 $91,687 $100,742 Ratio of expenses to average net assets 1.00% 0.95% 0.56%(c) Ratio of net investment income to average net assets 3.57% 3.65% 4.22%(c) Ratio of expenses to average net assets* 1.00% 0.95% 0.87%(c) Portfolio turnover** 64% 155% 253%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from October 3, 1997 (commencement of operations) through December 31, 1997. (b) Not annualized. (c) Annualized. 170 173 LIMITED TERM TENNESSEE TAX-EXEMPT FUND OTHER INFORMATION ABOUT THE FUNDS FINANCIAL HIGHLIGHTS CONTINUED
CLASS A SHARES -------------------------------------- YEAR ENDED DECEMBER 31, PERIOD ENDED ----------------------- DECEMBER 31, 1999 1998 1997 (a) ---------- ---------- ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 10.11 $ 10.13 $ 10.00 ------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.30 0.32 0.29 Net realized and unrealized gains (losses) from investments (0.40) 0.06 0.13 ------------------------------------------------------------------------------------- Total from Investment Activities (0.10) 0.38 0.42 ------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.30) (0.32) (0.29) Net realized gains -- (0.08) -- In excess of net realized gains (0.02) -- -- ------------------------------------------------------------------------------------- Total Distributions (0.32) (0.40) (0.29) ------------------------------------------------------------------------------------- Net change in asset value (0.42) (0.02) 0.13 ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.69 $ 10.11 $ 10.13 ------------------------------------------------------------------------------------- Total Return (excludes sales charge) (1.00)% 3.76% 4.26%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $19,361 $19,439 $ 22,893 Ratio of expenses to average net assets 1.08% 1.05% 0.98%(c) Ratio of net investment income to average net assets 3.07% 3.11% 3.48%(c) Ratio of expenses to average net assets* 1.55% 1.52% 1.52%(c) Portfolio turnover** 52% 189% 179%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from February 28, 1997 (commencement of operations) through December 31, 1997. (b) Not annualized. (c) Annualized. 171 174 LIMITED TERM TENNESSEE TAX-EXEMPT FUND OTHER INFORMATION ABOUT THE FUNDS FINANCIAL HIGHLIGHTS CONTINUED
CLASS B SHARES --------------------------- YEAR ENDED PERIOD ENDED DECEMBER 31, DECEMBER 31, 1999 1998 (a) ------------ ------------ NET ASSET VALUE, BEGINNING OF PERIOD $10.10 $10.18 ------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.22 0.20 Net realized and unrealized gains (losses) from investments (0.40) -- ------------------------------------------------------------------------------------- Total from Investment Activities (0.18) 0.20 ------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.22) (0.20) Net realized gains -- (0.08) In excess of net realized gains (0.02) -- ------------------------------------------------------------------------------------- Total Distributions (0.24) (0.28) ------------------------------------------------------------------------------------- Net change in asset value (0.42) (0.08) ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 9.68 $10.10 ------------------------------------------------------------------------------------- Total Return (excludes redemption charge) (1.84)% 1.94%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $ 612 $ 732 Ratio of expenses to average net assets 1.93% 2.05%(c) Ratio of net investment income to average net assets 2.21% 2.02%(c) Ratio of expenses to average net assets* 2.15% 2.27%(c) Portfolio turnover** 52% 189%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. ** Portfolio turnover is calculated on the basis of the fund as a whole without distinguishing between the classes of shares issued. (a) For the period from February 3, 1998 (commencement of operations) through December 31, 1998. (b) Not annualized. (c) Annualized. 172 175 PRIME MONEY MARKET FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY PRIME OBLIGATIONS FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ----------------------------------------------------------------------------- 1999 1998 ------------------------------------ -------------------------------------- A SHARES B SHARES TRUST A SHARES B SHARES (a) TRUST ------------ ---------- -------- ---------- -------------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ---------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.044 0.035 0.045 0.049 0.005 0.050 ---------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.044) (0.035) (0.045) (0.049) (0.005) (0.050) ---------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ---------------------------------------------------------------------------------------------------------------------------- Total Return 4.48% 3.55% 4.59% 4.99% 0.49%(b) 5.09% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $136,078 $ 224 $536,899 $116,960 $ 1 $479,974 Ratio of expenses to average net assets 0.78% 1.69% 0.68% 0.79% 1.85%(c) 0.69% Ratio of net investment income to average net assets 4.40% 3.39% 4.51% 4.88% 3.83%(c) 4.98% Ratio of expenses to average net assets* 0.94% 1.70% 0.69% 0.95% 1.88%(c) 0.70%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) For the period from June 15, 1998 (commencement of operations) through July 31, 1998. (b) Not annualized. (c) Annualized. 173 176 OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, --------------------------------------------------------------- 1997 1996 1995 ----------------------- -------------------------- -------- A SHARES TRUST A SHARES (a) TRUST (a) ------------ -------- -------------- --------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income 0.048 0.049 0.016 0.050 0.050 ------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.048) (0.049) (0.016) (0.050) (0.050) ------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------------------------------------ Total Return 4.90% 5.00% 5.07%(b) 5.10% 5.14% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $111,027 $416,966 $125,075 $478,542 $617,673 Ratio of expenses to average net assets 0.78% 0.68% 0.81%(c) 0.71% 0.69% Ratio of net investment income to average net assets 4.79% 4.89% 4.61%(c) 5.00% 5.04% Ratio of expenses to average net assets* 0.93% (d) 0.96%(c) (d) (d)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Trust Shares, and the Fund commenced offering A Shares. (b) Represents total return for the Trust Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the A Shares for the period from April 1, 1996 to July 31, 1996. Total return for the A Shares for the period April 1, 1996 (commencement of operations) to July 31, 1996 was 1.55%. (c) Annualized. (d) There were no waivers during the period. 174 177 U.S. TREASURY MONEY MARKET FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY U.S. TREASURY FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------------------------------- YEAR ENDED 1999 1998 JULY 31, -------------------------- -------------------------- 2000 A SHARES TRUST A SHARES TRUST ---------- ---------- ------------- ---------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ $1.000 $ 1.000 $1.000 $ 1.000 ------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.040 0.041 0.046 0.047 ------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.040) (0.041) (0.046) (0.047) ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $1.000 $ 1.000 $1.000 $ 1.000 ------------------------------------------------------------------------------------------------------------------- Total Return 4.06% 4.16% 4.67% 4.77% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $4,390 $320,847 $8,070 $352,055 Ratio of expenses to average net assets 0.79% 0.69% 0.80% 0.70% Ratio of net investment income to average net assets 4.03% 4.10% 4.57% 4.67% Ratio of expenses to average net assets* 0.95% 0.70% 0.95% 0.70% YEAR ENDED JULY 31, -------------------------- 1997 -------------------------- A SHARES TRUST ---------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $1.000 $ 1.000 ------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.045 0.046 ------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.045) (0.046) ------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $1.000 $ 1.000 ------------------------------------------------------------------------------------------------------------------- Total Return 4.60% 4.70% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $9,885 $309,361 Ratio of expenses to average net assets 0.79% 0.69% Ratio of net investment income to average net assets 4.50% 4.60% Ratio of expenses to average net assets* 0.94% (a)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) There were no waivers during the period. 175 178 OTHER INFORMATION ABOUT THE FUNDS U.S. TREASURY MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------------------ 1996 1996 1995 --------------- ------------- -------- A SHARES (a) Trust (a) --------------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 ----------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.015 0.048 0.048 ----------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.015) (0.048) (0.048) ----------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 ----------------------------------------------------------------------------------------- Total Return 4.90%(b) 4.93% 4.90% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $12,263 $368,162 $322,939 Ratio of expenses to average net assets 0.82%(c) 0.71% 0.70% Ratio of net investment income to average net assets 4.44%(c) 4.82% 4.81% Ratio of expenses to average net assets* 0.97%(c) (d) (d)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Trust Shares, and the Fund commenced offering A Shares. (b) Represents total return for the Trust Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the A Shares for the period from April 1, 1996 to July 31, 1996. Total return for the A Shares for the period April 1, 1996 (commencement of operations) to July 31, 1996 was 1.49%. (c) Annualized. (d) There were no waivers during the period. 176 179 OTHER INFORMATION ABOUT THE FUNDS TREASURY RESERVE MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
CLASS A SHARES --------------------------------------------------------------- YEAR ENDED YEAR ENDED DECEMBER 31, JULY 31, -------------------------------------------------- 2000 1999 1998 1997 1996 1995 ---------- -------- -------- ------- ------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ $ 1.000 $ 1.000 $ 1.000 1.000 $ 1.000 -------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.043 0.046 0.047 0.047 0.053 -------------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.043 0.046 0.047 0.047 0.053 -------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.043) (0.046) (0.047) (0.047) (0.053) -------------------------------------------------------------------------------------------------------------- Total Distributions (0.043) (0.046) (0.047) (0.047) (0.053) -------------------------------------------------------------------------------------------------------------- Net change in asset value -- -- -- -- -- -------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 4.38% 4.68% 4.78% 4.78% 5.41% RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $143,208 $167,475 $77,065 $78,308 $168,430 Ratio of expenses to average net assets 0.60% 0.77% 0.75% 0.56% 0.50% Ratio of net investment income to average net assets 4.28% 4.56% 4.68% 4.72% 5.28% Ratio of expenses to average net assets* 0.70% 0.78% (a) 0.74% 0.75%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. (a) There were no fee reductions in this period. 177 180 OTHER INFORMATION ABOUT THE FUNDS TREASURY RESERVE MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
INSTITUTIONAL SHARES --------------------------------------------- YEAR ENDED DECEMBER 31, PERIOD ENDED ------------------------------ DECEMBER 31, 1999 1998 1997 1996 (a) -------- -------- -------- ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 1.000 -------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.043 0.048 0.049 0.024 -------------------------------------------------------------------------------------------- Total from Investment Activities 0.043 0.048 0.049 0.024 -------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.043) (0.048) (0.049) (0.024) -------------------------------------------------------------------------------------------- Total Distributions (0.043) (0.048) (0.049) (0.024) -------------------------------------------------------------------------------------------- Net change in asset value -- -- -- -- -------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------------------------------------------------------------------------------------------- Total Return 4.39% 4.93% 5.05% 2.43%(b) RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $341,803 $308,979 $114,175 $109,698 Ratio of expenses to average net assets 0.59% 0.53% 0.50% 0.52%(c) Ratio of net investment income to average net assets 4.31% 4.78% 4.94% 4.78%(c) Ratio of expenses to average net assets* 0.60% (d) (d) (d)
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. (a) For the period from July 1, 1996 (commencement of operations) through December 31, 1996. (b) Not annualized. (c) Annualized. (d) There were no fee reductions in this period. 178 181 TAX-EXEMPT MONEY MARKET FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY TAX-EXEMPT FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------------------------------------------------- 1999 1998 1997 ---------------------- ------------------------- -------------------- A SHARES TRUST A SHARES TRUST A SHARES TRUST ------------ ------- --------------- ------- ---------- ------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income 0.026 0.027 0.030 0.031 0.030 0.031 ------------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.026) (0.027) (0.030) (0.031) (0.030) (0.031) ------------------------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------------------------------------------ Total Return 2.66% 2.76% 3.03% 3.13% 3.04% 3.15% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $22,844 $73,880 $28,657 $62,084 $ 27,926 $55,429 Ratio of expenses to average net assets 0.59% 0.49% 0.60% 0.50% 0.62% 0.52% Ratio of net investment income to average net assets 2.64% 2.71% 2.97% 3.07% 3.00% 3.10% Ratio of expenses to average net assets* 0.98% 0.73% 0.98% 0.73% 0.97% 0.72%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. 179 182 TAX-EXEMPT MONEY MARKET FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY TAX-EXEMPT FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------------------ 1996 1995 -------------------------------- ------- A SHARES (a) Trust (a) ---------------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 --------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.010 0.031 0.032 --------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.010) (0.031) (0.032) --------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 --------------------------------------------------------------------------------------------- Total Return 3.12%(b) 3.15% 3.22% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $17,116 $43,611 $57,640 Ratio of expenses to average net assets 0.68%(c) 0.54% 0.54% Ratio of net investment income to average net assets 2.82%(c) 3.11% 3.15% Ratio of expenses to average net assets* 1.03%(c) 0.74% 0.74%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Trust Shares, and the Fund commenced offering A Shares. (b) Represents total return for the Trust Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the A Shares for the period from April 1, 1996 to July 31, 1996. Total return for the A Shares for the period April 1, 1996 (commencement of operations) through July 31, 1996 was 0.95%. (c) Annualized. 180 183 AMSOUTH FUNDS 3435 STELZER ROAD COLUMBUS, OH 43219 For more information about the Funds, the following documents are available free upon request: ANNUAL/SEMI-ANNUAL REPORTS (REPORTS): The Funds' annual and semi-annual reports to shareholders contain additional information on the Funds' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during the last fiscal year. STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the Funds, including their operational and investment policies. It is incorporated by reference and is legally considered a part of this prospectus. You can get free copies of Reports and the SAI, prospectuses of other members of the AmSouth Funds family, or request other information and discuss your questions about the Funds by contacting a broker or bank that sells the Funds. Or contact the Funds at: AMSOUTH FUNDS 3435 STELZER ROAD COLUMBUS, OHIO 43219 TELEPHONE: 1-800-451-8382 INTERNET: http://www.amsouthfunds.com You can review the Funds' reports and SAIs at the Public Reference Room of the Securities and Exchange Commission. You can get text-only copies: - - For a fee, by writing the Public Reference Section of the Commission, Washington, D.C. 20549-6009 or by calling 1-202-942-8090, or by electronic request, by emailing the SEC at the following address: publicinfo@sec.gov. - - Free from the Commission's Website at http://www.sec.gov. Investment Company Act file no. 811-5551. ASOP31300ABT 184 AmSouth Funds Prospectus MONEY MARKET FUNDS CLASS A SHARES CLASS B SHARES TRUST SHARES INSTITUTIONAL SHARES [DECEMBER 1,] 2000 As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved these Fund shares or determined whether this prospectus is truthful or complete. Anyone who tells you otherwise is committing a crime. [AmSouth Funds Logo] 185 AMSOUTH FUNDS TABLE OF CONTENTS RISK/RETURN SUMMARY AND FUND EXPENSES [LOGO] Carefully review this Important 2 Overview section, which summarizes each 3 Money Market Funds Fund's investments, risks, past Retail Money Market Fund performance, and fees. 4 Prime Money Market Fund 7 U.S. Treasury Money Market Fund 10 Tax-Exempt Money Market Fund 13 Treasury Reserve Money Market Fund Institutional Money Market Fund 16 Institutional Prime Obligations Money Market Fund ADDITIONAL INVESTMENT STRATEGIES AND RISKS [LOGO] Review this section for 18 Applicable to All Funds information on investment strategies and risks. FUND MANAGEMENT [LOGO] Review this section for details on 24 The Investment Advisor the people and organization who 24 The Distributor and Administrator oversee the Funds. SHAREHOLDER INFORMATION [LOGO] Review this section for details on 25 Choosing a Share Class how shares are valued, how to 26 Pricing of Fund Shares purchase, sell and exchange 27 Purchasing and Adding to Your Shares shares, related charges and 31 Selling Your Shares payments of dividends and 33 General Policies on Selling Shares distributions. 34 Distribution Arrangements/Sales Charges 35 Distribution and Service (12b-1) Fees and Shareholder Servicing Fees 36 Exchanging Your Shares 37 Dividends, Distributions and Taxes OTHER INFORMATION ABOUT THE FUNDS [LOGO] 38 Financial Highlights
186 [LOGO] RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW THE FUNDS AmSouth Funds is a mutual fund family that offers different classes of shares in separate investment portfolios ("Funds"). The Funds have individual investment goals and strategies. This prospectus gives you important information about the Class A Shares, Class B Shares and Trust Shares of the Retail Money Market Funds and the Class I Shares, Class II Shares and Class III Shares of the Institutional Money Market Fund (the Retail Money Market Funds and Institutional Money Market Fund are collectively the "Money Market Funds") that you should know before investing. Please read this prospectus and keep it for future reference. Each of the Funds in this prospectus is a mutual fund. A mutual fund pools shareholders' money and, using professional investment managers, invests it in securities like stocks and bonds. Before you look at specific Funds, you should know a few general basics about investing in mutual funds. ALTHOUGH THE FUNDS SEEK TO PRESERVE THE VALUE OF YOUR INVESTMENT AT $1 PER SHARE, AS WITH 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 FDIC OR ANY GOVERNMENT AGENCY. Each Fund has its own investment goal and strategies for reaching that goal. However, it cannot be guaranteed that a Fund will achieve its goal. Before investing, make sure that the Fund's goal matches your own. The portfolio manager invests each Fund's assets in a way that the manager believes will help the Fund achieve its goal. A manager's judgments about the stock markets, economy and companies, or selecting investments may cause a Fund to underperform other funds with similar objectives.
2 187 RISK/RETURN SUMMARY AND FUND EXPENSES OVERVIEW MONEY MARKET FUNDS These Funds seek current income with liquidity and stability of principal by investing primarily in short-term debt securities. The Funds seek to maintain a stable price of $1.00 per share. WHO MAY WANT TO INVEST Consider investing in these Funds if you are: - seeking preservation of capital - investing short-term reserves - willing to accept lower potential returns in exchange for a higher degree of safety - in the case of the Tax-Exempt Money Market Fund, seeking Federal tax-exempt income These Funds may not be appropriate if you are: - seeking high total return - pursuing a long-term goal or investing for retirement
3 188 AMSOUTH PRIME RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth Prime Obligations Fund) seeks current income with liquidity and stability of principal. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only in U.S. dollar-denominated, "high-quality" short-term debt securities, including the following: - obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities - certificates of deposit, time deposits, bankers' acceptances and other short-term securities issued by domestic or foreign banks or their subsidiaries or branches - domestic and foreign commercial paper and other short-term corporate debt obligations, including those with floating or variable rates of interest - obligations issued or guaranteed by one or more foreign governments or their agencies or instrumentalities, including obligations of supranational entities - asset-backed securities - repurchase agreements collateralized by the types of securities listed above "High-quality" debt securities are those obligations which, at the time of purchase, (i) possess the highest short-term rating from at least two nationally recognized statistical rating organizations (an "NRSRO") (for example, commercial paper rated "A-1" by Standard & Poor's Corporation and "P-1" by Moody's Investors Service, Inc.) or one NRSRO if only rated by one NRSRO or (ii) if unrated, are determined by the portfolio manager to be of comparable quality. When selecting securities for the Fund's portfolio, the manager first considers safety of principal and the quality of an investment. The manager then focuses on generating a high-level of income. The manager generally evaluates investments based on interest rate sensitivity selecting those securities whose maturities fit the Fund's interest rate sensitivity target and which the manager believes to be the best relative values. The Fund will maintain an average weighted portfolio maturity of 90 days or less and will limit the maturity of each security in its portfolio to 397 days or less. For a more complete description of the securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 18 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates or that the Fund's yield will decrease due to a decrease in interest rates. CREDIT RISK: 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. For more information about these risks, please see the Additional Investment Strategies and Risks on page 18. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
4 189 AMSOUTH PRIME RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1)
'1990' 7.86 - ------ ---- '91' 5.77 '92' 3.39 '93' 2.61 '94' 3.72 '95' 5.50 '96' 4.92 '97' 5.09 '98' 4.98 '99' 4.60
The performance information shown above is based on a calendar year. Best quarter: 2.35% 6/30/89 Worst quarter: 0.63% 6/30/93 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The chart and table on this page show how the Prime Money Market Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over ten years to demonstrate that the Fund's value varied at different times. The table below it shows the Fund's performance over time. Of course, past performance does not indicate how the Fund will perform in the future.
SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS (12/19/91) CLASS A SHARES 4.49% 4.94% 4.80% 5.28% CLASS B SHARES(2) (with applicable Contingent Deferred Sales Charge) 3.56% N/A N/A 3.67% TRUST SHARES 4.60% 5.02% 4.83% 5.31%
(1) Both charts assume reinvestment of dividends and distributions. (2) Class B Shares commenced operations on September 2, 1997. Performance prior to that date is represented by performance of Class A Shares, as adjusted for the fees of Class B Shares. As of December 31, 1999, the Fund's 7-day yield for Class A Shares, Class B Shares and Trust Shares was 4.90%, 3.96% and 5.00% respectively. Without fee waivers and expense reimbursements, the Fund's yield would have been 4.75% for Class A Shares, for this time period. For current yield information on the Fund, call 1-800-451-8382. The Fund's yield appears in The Wall Street Journal each Thursday. 5 190 AMSOUTH PRIME RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES CLASS B SHARES Maximum sales charge (load) on purchases None None None Maximum deferred sales charge (load) None 5.00%(2) None Redemption fee(3) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A CLASS B TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management fee 0.40% 0.40% 0.40% Distribution and/or service (12b- 1) fee 0.00% 0.75% 0.00% Other expenses(4) 0.53% 0.53% 0.43%(5) TOTAL FUND OPERATING EXPENSES(4) 0.93% 1.68% 0.83% Fee waiver and/or expense reimbursement 0.16% 0.16% 0.16% NET EXPENSES(6) 0.77% 1.52% 0.67%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) For former Class B Shares acquired in the combination of AmSouth Funds with ISG Funds, waivers are in place on the CDSC as follows: 4%, 3%, 3%, 2%, 2%, 1%, 0%. For all other Class B Shares, the CDSC declines over a six-year period as follows: 5%, 4%, 3%, 3%, 2%, 1% to 0% in the seventh and eighth year. 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. (3) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (4) Other expenses are restated to reflect current fees. (5) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (6) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to Class A 0.77%; Class B, 1.52%; Trust Shares 0.67% until October 1, 2001. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $ 95 $296 $ 515 $1,143 CLASS B SHARES Assuming redemption $671 $830 $1,113 $1,694 Assuming no redemption $171 $580 $ 913 $1,694 Trust Shares $ 85 $265 $ 460 $1,025
As an investor in the Prime Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. CONTINGENT DEFERRED SALES CHARGE Some Fund share classes impose a back end sales charge (load) if you sell your shares before a certain period of time has elapsed. This is called a Contingent Deferred Sales Charge. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - redemption at the end of each period - no changes in the Fund's operating expenses Because actual returns and operating expenses will be different, this example is for comparison only. 6 191 AMSOUTH U.S. TREASURY RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth U.S. Treasury Fund) seeks current income with liquidity and stability of principal. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests exclusively in short-term U.S. dollar-denominated obligations issued by the U.S. Treasury ("U.S. Treasury Securities"), separately traded component parts of those securities called STRIPs, and repurchase agreements collateralized by U.S. Treasury Securities. When selecting securities for the Fund's portfolio, the manager first considers safety of principal and the quality of an investment. The manager then focuses on generating a high-level of income. The manager generally evaluates investments based on interest rate sensitivity selecting those securities whose maturities fit the Fund's interest rate sensitivity target and which the manager believes to be the best relative values. The Fund will maintain an average weighted portfolio maturity of 90 days or less and will limit the maturity of each security in its portfolio to 397 days or less. For a more complete description of the securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 18 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the Fund's yield will decrease due to a decrease in interest rates or that the value of the Fund's investments will decline due to an increase in interest rates. For more information about these risks, please see the Additional Investment Strategies and Risks on page 18. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
7 192 AMSOUTH U.S. TREASURY RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1) '1990' 7.64 '91' 5.48 '92' 3.32 '93' 2.54 '94' 3.55 '95' 5.30 '96' 4.69 '97' 4.75 '98' 4.60 '99' 4.17
The performance information shown above is based on a calendar year. Best quarter: 2.23% 6/30/89 Worst quarter: 0.62% 6/30/93 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The chart and table on this page show how the U.S. Treasury Money Market Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over ten years to demonstrate that the Fund's value varied at different times. The table below it shows the Fund's performance over time. Of course, past performance does not indicate how the Fund will perform in the future.
SINCE INCEPTION 1 YEAR 5 YEARS 10 YEARS (12/19/91) CLASS A SHARES 4.06% 4.62% 4.56% 5.02% TRUST SHARES 4.17% 4.70% 4.60% 5.06%
(1) Both charts assume reinvestment of dividends and distributions. As of December 31, 1999, the Fund's 7-day yield for Class A and Trust Shares was 4.24% and 4.34%, respectively. Without fee waivers and expense reimbursements, the Fund's yield would have been 4.09% for Class A Shares for this time period. For current yield information on the Fund, call 1-800-451-8382. The Fund's yield appears in The Wall Street Journal each Thursday. 8 193 AMSOUTH U.S. TREASURY RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES Maximum sales charge (load) on purchases None None Maximum deferred sales charge (load) None None Redemption fee(2) 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES Management fee 0.40% 0.40% Distribution and/or service (12b-1) fee 0.00% 0.00% Other expenses(3) 0.57% 0.47%(4) Total Fund operating expenses(3) 0.97% 0.87%
(1) AmSouth Bank may charge your account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (3) Other expenses are restated to reflect current fees. Other expenses are being limited to 0.35% for Class A Shares and 0.31% for Trust Shares. Total expenses after fee waivers and expense reimbursements for Class A Shares are 0.81% and for Trust Shares are 0.70%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. (4) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $99 $309 $536 $1,190 TRUST SHARES $89 $278 $482 $1,073
As an investor in the U.S. Treasury Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - redemption at the end of each period - no changes in the Fund's operating expenses Because actual returns and operating expenses will be different, this example is for comparison only. 9 194 AMSOUTH TAX-EXEMPT RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth Tax-Exempt Fund) seeks as high a level of current interest income exempt from federal income taxes as is consistent with the preservation of capital and relative stability of principal. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in short-term municipal securities that provide income that is exempt from federal income tax and not subject to the federal alternative minimum tax for individuals. Short-term municipal securities are debt obligations, such as bonds and notes, issued by states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities which, generally have remaining maturities of one year or less. Municipal securities purchased by the Fund may include rated and unrated variable and floating rate tax-exempt notes which may have a stated maturity in excess of one year but which will be subject to a demand feature permitting the Fund to demand payment within a year. The Fund may also invest up to 10% of its total assets in the securities of money market mutual funds which invest primarily in obligations exempt from federal income tax. When selecting securities for the Fund's portfolio, the manager first considers safety of principal and the quality of an investment. The manager then focuses on generating a high-level of income. The manager generally evaluates investments based on interest rate sensitivity selecting those securities whose maturities fit the Fund's interest rate sensitivity target and which the manager believes to be the best relative values. The Fund will maintain an average weighted portfolio maturity of 90 days or less and will limit the maturity of each security in its portfolio to 397 days or less. The Fund may also invest in certain other short-term debt securities in addition to those described above. For a more complete description of the various securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 18 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the Fund's yield will decrease due to a decrease in interest rates or that the value of the Fund's investments will decline due to an increase in interest rates. CREDIT RISK: 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. TAX RISK. The risk that the issuer of the securities will fail to comply with certain requirements of the Internal Revenue Code, which would cause adverse tax consequences. For more information about these risks, please see the Additional Investment Strategies and Risks on page 18. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
10 195 AMSOUTH TAX-EXEMPT RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR TRUST SHARES(1)
1991 3.91 92 2.59 93 1.92 94 2.33 95 3.44 96 3.03 97 3.20 98 2.99 99 2.80
The performance information shown above is based on a calendar year. Best quarter: 1.40% 12/31/90 Worst quarter: 0.44% 3/31/94 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1) The chart and table on this page show how the Tax-Exempt Money Market Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over nine years to demonstrate that the Fund's value varied at different times. The table below it shows the Fund's performance over time. Of course, past performance does not indicate how the Fund will perform in the future.
1 5 SINCE INCEPTION YEAR YEARS (12/19/91) CLASS A SHARES 2.70% 3.02% 3.02% TRUST SHARES 2.80% 3.09% 3.06%
(1) Both charts assume reinvestment of dividends and distributions. As of December 31, 1999, the Fund's 7-day yield for Class A and Trust Shares was 3.74% and 3.84%, respectively. Without fee waivers and expense reimbursements, the Fund's yield would have been 3.39% and 3.64%, respectively, for this time period. For current yield information on the Fund, call 1-800-451-8382. The Fund's yield appears in The Wall Street Journal each Thursday. 11 196 AMSOUTH TAX-EXEMPT RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES Maximum sales charge (load) on purchases None None Maximum deferred sales charge (load) None None Redemption fee(2) 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS A TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES Management fee 0.40% 0.40% Distribution and/or service (12b-1) fee 0.00% 0.00% Other expenses(3) 0.53% 0.43%(4) TOTAL FUND OPERATING EXPENSES(3) 0.93% 0.83% Fee waiver and/or expense reimbursement 0.03% 0.03% NET EXPENSES(5) 0.90% 0.80%
(1) AmSouth Bank or other financial institutions may charge their customer's account fees for automatic investment and other cash management services provided in connection with investment in the Funds. (2) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (3) Other expenses are restated to reflect current fees. (4) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (5) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 0.90%; Trust Shares 0.80% until October 1, 2001. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $95 $296 $515 $1,143 TRUST SHARES $83 245 $460 $1,025
As an investor in the Tax-Exempt Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - redemption at the end of each period - no changes in the Fund's operating expenses Because actual returns and operating expenses will be different, this example is for comparison only. 12 197 AMSOUTH TREASURY RESERVE RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund seeks to provide investors with as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests primarily in U.S. Treasury securities and repurchase agreements in respect thereof. The Fund may invest up to 35% of its assets in other securities guaranteed as to payment of principal and interest by the U.S. Government and repurchase agreements in respect thereof. The income from the Fund's investment in direct obligations of the United States is exempt from state and local, but not Federal, income taxes. Dividends and distributions attributable to income from repurchase agreements may be subject to Federal, state and local taxes. The Fund invests based on considerations of safety of principal and liquidity, which means that the Fund may not necessarily invest in securities paying the highest available yield at a particular time. The Fund will attempt to increase its yield by trading to take advantage of short-term market variations. The portfolio manager generally evaluates investments based on interest rate sensitivity. For a more complete description of the securities in which the Fund may invest, please see Additional Investment Strategies and Risks on page 18 or consult the SAI. PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the Fund's yield will decrease due to a decrease in interest rates or that the value of the Fund's investments will decline due to an increase in interest rates. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed only as to timely payment of interest and principal when held to maturity. Neither the market value of such securities nor the Fund's share price is guaranteed. For more information about these risks, please see the Additional Investment Strategies and Risks on page 18. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investments at $1 per share, it is possible to lose money by investing in the Fund.
13 198 AMSOUTH TREASURY RESERVE RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND The chart and table on this page show how the Treasury Reserve Money Market Fund has performed and how its performance has varied from year to year. The bar chart gives some indication of risk by showing changes in the Fund's yearly performance over seven years to demonstrate that the Fund's value varied at different times. The table below it shows the Fund's performance over time. Of course, past performance does not indicate how the Fund will perform in the future. PERFORMANCE BAR CHART AND TABLE YEAR-BY-YEAR TOTAL RETURNS AS OF 12/31 FOR CLASS A SHARES(1) 93 2.06 94 4.05 95 5.41 96 4.78 97 4.78 98 4.68 99 4.38
The performance information shown above is based on a calendar year. Best quarter: 1.36% 6/30/95 Worst quarter: -0.06% 9/30/93 AVERAGE ANNUAL TOTAL RETURNS (for the periods ending December 31, 1999)(1)
1 5 SINCE INCEPTION YEAR YEARS 10/1/92* CLASS A SHARES 4.38% 4.80% 4.30% TRUST SHARES 4.39% 4.94% 4.39%
(1) Both charts assume reinvestment of dividends and distributions. As of December 31, 1999, the Fund's 7-day yield for Class A and Trust Shares was 4.42% and 4.32%, respectively. Without fee waivers and expense reimbursements, the Fund's yield would have been 4.17% for Trust Shares for this time period. For current yield information on the Fund, call 1-800-451-8382. The Fund's yield appears in The Wall Street Journal each Thursday. * The Treasury Reserve Money Market Fund commenced operations on 3/29/94 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. 14 199 AMSOUTH TREASURY RESERVE RISK/RETURN SUMMARY AND FUND EXPENSES MONEY MARKET FUND FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS A TRUST (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES Maximum sales charge (load) on purchases None None Maximum deferred sales charge (load) None None Redemption fee(2) 0.00% 0.00% ANNUAL FUND OPERATING EXPENSES CLASS A TRUST (FEES PAID FROM FUND ASSETS) SHARES SHARES Management fee 0.40% 0.40% Distribution and/or service (12b-1) fee 0.00% None Other expenses(3) 0.57% 0.47%(4) TOTAL FUND OPERATING EXPENSES(3) 0.97% 0.87% Fee waiver and/or expense reimbursement 0.23% 0.23% NET EXPENSES(5) 0.72% 0.62%
(1) AmSouth Bank or other financial institutions may change their customer account fees for automatic investment and other case management services provided in connection with investment in the Funds. (2) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (3) Management fees and other expenses are restated to reflect current fees. The expenses noted above do not reflect any fee waivers or expense reimbursement arrangements that are or were in effect. (4) The above amount includes a shareholder servicing fee that became effective on March 13, 2000. (5) AmSouth Bank has contractually agreed to waive fees and/or reimburse expenses to limit total annual fund operating expenses to: Class A, 0.72%; and Trust Shares, 0.62% until October 1, 2001. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS A SHARES $99 $309 $536 $1,190 TRUST SHARES $89 $278 $482 $1,073
As an investor in the AmSouth Treasury Reserve Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - redemption at the end of each period - no changes in the Fund's operating expenses Because actual returns and operating expenses will be different, this example is for comparison only. 15 200 AMSOUTH INSTITUTIONAL PRIME RISK/RETURN SUMMARY AND FUND EXPENSES OBLIGATIONS MONEY MARKET FUND RISK/RETURN SUMMARY INVESTMENT OBJECTIVE The Fund (formerly the AmSouth Institutional Prime Obligations Fund) seeks current income with liquidity and stability of principal. PRINCIPAL INVESTMENT STRATEGIES To pursue this goal, the Fund invests only in U.S. dollar-denominated, "high-quality" short-term debt securities, including the following: - obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities - certificates of deposit, time deposits, bankers' acceptances and other short-term securities issued by domestic or foreign banks or their subsidiaries or branches - domestic and foreign commercial paper and other short-term corporate debt obligations, including those with floating or variable rates of interest - obligations issued or guaranteed by one or more foreign governments or their agencies or instrumentalities, including obligations of supranational entities - asset-backed securities - repurchase agreements collateralized by the types of securities listed above "High-quality" debt securities are those obligations which, at the time of purchase, (i) possess the highest short-term rating from at least two nationally recognized statistical rating organizations (an "NRSRO") (for example, commercial paper rated "A-1" by Standard & Poor's Corporation and "P-1" by Moody's Investors Service, Inc.) or one NRSRO if only rated by one NRSRO or (ii) if unrated, are determined by the portfolio manager to be of comparable quality. When selecting securities for the Fund's portfolio, the portfolio manager first considers safety of principal and the quality of an investment. The manager then focuses on generating a high-level of income. The manager generally evaluates investments based on interest rate sensitivity selecting those securities whose maturities fit the Fund's interest rate sensitivity target and which the manager believes to be the best relative values. The Fund will maintain an average weighted portfolio maturity of 90 days or less and will limit the maturity of each security in its portfolio to 397 days or less. For a more complete description of the securities in which the Fund may invest, please see the Additional Investment Strategies and Risks on page 18 or consult the Statement of Additional Information ("SAI"). PRINCIPAL INVESTMENT RISKS Your investment in the Fund may be subject to the following principal risks: INTEREST RATE RISK: The possibility that the value of the Fund's investments will decline due to an increase in interest rates or that the Fund's yield will decrease due to a decrease in interest rates. CREDIT RISK: 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. For more information about these risks, please see the Additional Investment Strategies and Risks on page 18. An investment in the Fund is not a deposit or an obligation of AmSouth Bank, its affiliates, or any bank, and it is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the Fund.
16 201 AMSOUTH INSTITUTIONAL PRIME RISK/RETURN SUMMARY AND FUND EXPENSES OBLIGATIONS MONEY MARKET FUND This section would normally include a bar chart and a table showing how the Institutional Prime Obligations Money Market Fund has performed and how its performance has varied from year to year. Because the Fund has not been in operation for a full calendar year, the bar chart and table are not shown. FEES AND EXPENSES SHAREHOLDER TRANSACTION EXPENSES CLASS I CLASS II CLASS III (FEES PAID BY YOU DIRECTLY)(1) SHARES SHARES SHARES Maximum sales charge (load) on purchases None None None Maximum deferred sales charge (load) None None None Redemption fee(2) 0% 0% 0% ANNUAL FUND OPERATING EXPENSES CLASS I CLASS II CLASS III (FEES PAID FROM FUND ASSETS) SHARES SHARES SHARES Management fee(3) 0.20% 0.20% 0.20% Distribution and/or service (12b-1) fee 0.00% 0.25% 0.50% Other expenses(3) 0.27% 0.29% 0.29% Total Fund operating expenses(3) 0.47% 0.74% 0.99%
(1) AmSouth Bank or other financial institutions may charge you account fees for automatic investment and other cash management services provided in connection with investment in the Fund. (2) A wire transfer fee of $7.00 will be deducted from the amount of your redemption if you request a wire transfer. (3) During the period ended July 31, 1999, management fees paid by the Fund were limited to 0.07%. Other expenses are restated to reflect current fees. Other expenses for each class are being limited to 0.17%, 0.19%, and 0.19% for Class I, Class II and Class III Shares, respectively. Total expenses after fee waivers and expense reimbursements for each class are: Class I Shares, 0.24%; Class II Shares, 0.51%; and Class III Shares, 0.76%. Any fee waiver or expense reimbursement arrangement is voluntary and may be discontinued at any time. EXPENSE EXAMPLE 1 3 5 10 YEAR YEARS YEARS YEARS CLASS I SHARES $ 48 $151 $263 $ 591 CLASS II SHARES $ 76 $237 $411 $ 918 CLASS III SHARES $101 $315 $547 $1,213
As an investor in the Institutional Prime Obligations Money Market Fund, you will pay the following fees and expenses when you buy and hold shares. Shareholder transaction fees are paid from your account. Annual Fund operating expenses are paid out of Fund assets, and are reflected in the share price. Use the example at right to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It illustrates the amount of fees and expenses you would pay, assuming the following: - $10,000 investment - 5% annual return - redemption at the end of each period - no changes in the Fund's operating expenses Because actual returns and operating expenses will be different, this example is for comparison only. 17 202 [LOGO] ADDITIONAL INVESTMENT STRATEGIES AND RISKS MONEY MARKET FUNDS TAX-EXEMPT MONEY MARKET FUND -- As a fundamental policy, under normal market conditions at least 80% of the Fund's total assets will be invested in municipal securities and in securities of money market mutual funds which invest primarily in obligations exempt from federal income tax. It is also a fundamental policy that the Fund may invest up to 20% of its total assets in obligations, the interest on which is either subject to regular federal income tax or treated as a preference item for purposes of the federal alternative minimum tax for individuals ("Taxable Obligations"). For temporary defensive purposes, however, the Fund may increase its short-term Taxable Obligations to over 20% of its total assets and hold uninvested cash reserves pending investment. Taxable Obligations may include obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (some of which may be subject to repurchase agreements), certificates of deposit and bankers' acceptances of selected banks, and commercial paper. The Fund will invest only in those municipal securities and other obligations which are considered by the portfolio manager to present minimal credit risks. In addition, investments will be limited to those obligations which, at the time of purchase, (i) possess one of the two highest short-term ratings from an NRSRO in the case of single-rated securities or (ii) possess, in the case of multiple-rated securities, one of the two highest short-term ratings by at least two NRSROs; or (iii) do not possess a rating (i.e., are unrated) but are determined by the Advisor to be of comparable quality to the rated instruments eligible for purchase by the Fund under the guidelines adopted by the Trustees. AMSOUTH TREASURY RESERVE MONEY MARKET FUND -- The Fund will invest, as a fundamental policy, at least 65% of its total assets in securities issued by the U.S. Treasury and repurchase agreements in respect thereof. The remainder of its assets may be invested in other securities guaranteed as to payment of principal and interest by the U.S. Government and repurchase agreements in respect thereof. The Fund will not invest in securities issued or guaranteed by U.S. Government agencies, instrumentalities or government-sponsored enterprises that are not backed by the full faith, and credit of the United States. As a money market fund, the Fund is subject to maturity, quality and diversification requirements designed to help it maintain a stable price of $1.00 per share. The Fund must do the following: - maintain an average dollar weighted portfolio maturity of 90 days or less - buy individual securities that have remaining maturities of 397 days or less - buy only high quality U.S. dollar denominated obligations The Fund may lend its portfolio securities to brokers, dealers and other financial institutions, which could subject the Fund to risk of loss if the institution breaches its agreement with the Fund. In connection with such loans, the Fund will receive collateral consisting of cash or U.S. Government securities which will be maintained at all times in an amount equal to 100% of the current market value of the loaned securities. The Fund may enter into reverse repurchase agreements with banks, brokers or dealers. The Fund will use the cash to make investments which either mature or have a demand feature to resell to the issuer at a date simultaneous with or prior to the time the Fund must repurchase the security. INVESTMENT PRACTICES The Funds invest in a variety of securities and employ a number of investment techniques. Each security and technique involves certain risks. The following table describes the securities and techniques the Fund uses, as well as the main risks they pose. Fixed income securities are primarily influenced by market, credit and prepayment risks, although certain securities may be subject to additional risks. You may also consult the Statement of Additional Information for additional detail regarding these and other permissible investments. Following the table is a more complete discussion of risk.
FUND NAME FUND CODE --------- --------- Prime Money Market Fund 1 U.S. Treasury Money Market Fund 2 Tax-Exempt Money Market Fund 3 Treasury Reserve Money Market Fund 4 Institutional Prime Obligations Money Market Fund 5
18 203 ADDITIONAL INVESTMENT STRATEGIES AND RISKS
INSTRUMENT CODE TYPE RISK TYPE ---------- --------- --------- ASSET-BACKED SECURITIES: Securities secured by company 1,5 Pre-payment receivables, home equity loans, truck and auto loans, Market leases, credit card receivables and other securities backed Credit by other types of receivables or other assets. Interest Rate Regulatory Liquidity BANKERS' ACCEPTANCES: Bills of exchange or time drafts drawn 1,3,5 Credit on and accepted by a commercial bank. Maturities are Liquidity generally six months or less. Market Interest Rate CERTIFICATES OF DEPOSIT: Negotiable instruments with a 1,3,5 Market stated maturity. Credit Liquidity Interest Rate COMMERCIAL PAPER: Secured and unsecured short-term 1,3,5 Credit promissory notes issued by corporations and other entities. Liquidity Maturities generally vary from a few days to nine months. Market Interest Rate DEMAND FEATURES: Securities that are subject to puts and 1,3,5 Market standby commitments to purchase the securities at a fixed Liquidity price (usually with accrued interest) within a fixed period Management of time following demand by a Fund. DERIVATIVES: Instruments whose value is derived from an 1,3,5 Management underlying contract, index or security, or any combination Market thereof, including futures, options (e.g., put and calls), Credit options on futures, swap agreements, and some Interest Rate mortgage-backed securities. Liquidity Leverage FOREIGN SECURITIES: Commercial paper of foreign issuers and 1,5 Market obligations of foreign banks, overseas branches of U.S. Political banks and supranational entities. Liquidity Foreign Investment FUNDING AGREEMENTS: Also known as guaranteed investment 1,5 Liquidity contracts, an agreement where a Fund invests an amount of Credit cash Credit with an insurance company and the insurance Market company credits such investment on a monthly basis with Interest Rate guaranteed interest which is based on an index. These agreements provide that the guaranteed interest will not be less than a certain minimum rate. These agreements also provide for adjustment of the interest rate monthly and are considered variable rate instruments. Funding Agreements are considered illiquid investments, and, together with other instruments in the Fund which are not readily marketable, may not exceed 10% of the Fund's net assets.
19 204 ADDITIONAL INVESTMENT STRATEGIES AND RISKS
INSTRUMENT CODE TYPE RISK TYPE ---------- --------- --------- INVESTMENT COMPANY SECURITIES: Shares of other registered 1-5 Market investment companies with similar investment objectives. A Fund may invest up to 5% of its assets in the shares of any one registered investment company, but may not own more than 3% of the securities of any one registered investment company or invest more than 10% of its assets in the securities of other registered investment companies. As a shareholder of an investment company, a Fund will indirectly bear investment management fees of that investment company, which are in addition to the management fees the Fund pays its own Advisor. MORTGAGE-BACKED SECURITIES: Debt obligations secured by real 1,5 Pre-payment estate loans and pools of loans. These include Market collateralized mortgage obligations and real estate mortgage Credit investment conduits. Regulatory MUNICIPAL SECURITIES: Securities issued by a state or 3 Market political subdivision to obtain funds for various public Credit purposes. Municipal securities include private activity Political bonds and industrial development bonds, as well as general Tax obligation bonds, tax anticipation notes, bond anticipation Regulatory notes, revenue anticipation notes, project notes, other Interest Rate short-term tax-exempt obligations, municipal leases, and Obligations of municipal housing authorities (single Family revenue bonds). There are two general types of municipal bonds: General-obligation bonds, which are secured by the taxing power of the issuer and revenue bonds, which take many shapes and forms but are generally backed by revenue from a specific project or tax. These include, but are not limited, to certificates of participation (COPs); utility and sales tax revenues; tax increment or tax allocations; housing and special tax, including assessment district and community facilities district (Mello-Roos) issues which are secured by specific real estate parcels; hospital revenue; and industrial development bonds that are secured by a private company. REPURCHASE AGREEMENTS: The purchase of a security and the 1-5 Market simultaneous commitment to return the security to the seller Leverage at an agreed upon price on an agreed upon date. This is treated as a loan. REVERSE REPURCHASE AGREEMENT: The sale of a security and the 1-5 Market simultaneous commitment to buy the security back at an Leverage agreed upon price on an agreed upon date. This is treated as a borrowing by a Fund. SECURITIES LENDING: The lending of up to 33 1/3% of the 1, Market Fund's total assets. In return the Fund will receive cash, 3-5 Leverage other securities, and/or letters of credit. Liquidity Credit TAX-EXEMPT COMMERCIAL PAPER: Commercial paper issued by 3 Credit governments, and/or letters of credit. Liquidity Market Tax TIME DEPOSITS: Non-negotiable receipts issued by a bank in 1,3,5 Liquidity exchange for the deposit of funds. Credit Market TREASURY RECEIPTS: Treasury receipts, Treasury investment 1,3,5 Market growth receipts, and certificates of accrual of Treasury securities. U.S. GOVERNMENT AGENCY SECURITIES: Securities issued by 3-5 Market agencies and instrumentalities of the U.S. government. These Credit include Ginnie Mae, Fannie Mae, and Freddie Mac. The Interest Rate Treasury Reserve Money Market Fund will only invest in such securities if they are backed by the full faith and credit of the United States
20 205 ADDITIONAL INVESTMENT STRATEGIES AND RISKS
INSTRUMENT CODE TYPE RISK TYPE ---------- --------- --------- U.S. TREASURY OBLIGATIONS: Bills, notes, bonds, separately 1-5 Market traded registered interest and principal securities, and coupons under bank entry safekeeping. VARIABLE AMOUNT MASTER DEMAND NOTES: Unsecured demand notes 1,3,5 Credit that permit the indebtedness to vary and provide Liquidity Liquidity for periodic adjustments in the interest rate according to Interest Rate the terms of the instrument. Because master demand notes are direct lending arrangements between a Fund and the issuer, they are not normally traded. Although there is no secondary market in these notes, the Fund may demand payment of principal and accrued interest at specified intervals. VARIABLE AND FLOATING RATE INSTRUMENTS: Obligations with 1,3,5 Credit interest rates which are reset daily, weekly, quarterly or Liquidity some other period and which may be payable to the Fund on Market demand. Interest Rate WHEN-ISSUED SECURITIES AND FORWARD COMMITMENTS: Purchase or 1,3,5 Market contract to purchase securities at a fixed price for Leverage delivery at a future date. Liquidity Credit ZERO-COUPON DEBT OBLIGATIONS: Bonds and other debt that pay 1,3,5 Credit no interest, but are issued at a discount from their value Interest Rate at maturity. When held to maturity, their entire return Market equals the difference between their issue price and their maturity value.
21 206 ADDITIONAL INVESTMENT STRATEGIES AND RISKS INVESTMENT RISKS Below is a more complete discussion of the types of risks inherent in the securities and investment techniques listed above as well as those risks discussed in "What are the main risks of investing in this Fund?". Because of these risks, the value of the securities held by the Funds may fluctuate, as will the value of your investment in the Funds. Certain investments and Funds are more susceptible to these risks than others. CREDIT RISK. The risk that the issuer of a security, or the counter party to a contract, will default or otherwise become unable to honor a financial obligation. Credit risk is generally higher for non-investment grade securities. The price of a security can be adversely affected prior to actual default as its credit status deteriorates and the probability of default rises. FOREIGN INVESTMENT RISK. The risk associated with higher transaction costs, delayed settlements, currency controls and adverse economic developments. This also includes the risk that fluctuations in the exchange rates between the U.S. dollar and foreign currencies may negatively affect an investment. Adverse changes in exchange rates may erode or reverse any gains produced by foreign currency denominated investments and may widen any losses. Exchange rate volatility also may affect the ability of an issuer to repay U.S. dollar denominated debt, thereby increasing credit risk. Foreign securities may also be affected by incomplete or inaccurate financial information on companies, social upheavals or political actions ranging from tax code changes to governmental collapse. These risks are more significant in emerging markets. INTEREST RATE RISK. The risk that debt prices overall will decline over short or even long periods due to rising interest rates. A rise in interest rates typically causes a fall in values while a fall in rates typically causes a rise in values. Interest rate risk should be modest for shorter-term securities, moderate for intermediate-term securities, and high for longer-term securities. Generally, an increase in the average maturity of the Fund will make it more sensitive to interest rate risk. The market prices of securities structured as zero coupon or pay-in-kind securities are generally affected to a greater extent by interest rate changes. These securities tend to be more volatile than securities which pay interest periodically. LEVERAGE RISK. The risk associated with securities or practices that multiply small index or market movements into large changes in value. Leverage is often associated with investments in derivatives, but also may be embedded directly in the characteristics of other securities. HEDGED. When a derivative (a security whose value is based on another security or index) is used as a hedge against an opposite position that the Portfolio also holds, any loss generated by the derivative should be substantially offset by gains on the hedged investment and vice versa. Hedges are sometimes subject to imperfect matching between the derivative and underlying security, and there can be no assurance that a Portfolio's hedging transactions will be effective. SPECULATIVE. To the extent that a derivative is not used as a hedge, the Portfolio is directly exposed to the risks of that derivative. Gains or losses from speculative positions in a derivative may be substantially greater than the derivative's original cost. LIQUIDITY RISK. The risk that certain securities may be difficult or impossible to sell at the time and the price that would normally prevail in the market. The seller may have to lower the price, sell other securities instead or forego an investment opportunity, any of which could have a negative effect on Fund management or performance. This includes the risk of missing out on an investment opportunity because the assets necessary to take advantage of it are tied up in less advantageous investments. MANAGEMENT RISK. The risk that a strategy used by a Fund's portfolio manager may fail to produce the intended result. This includes the risk that changes in the value of a hedging instrument will not match those of the asset being hedged. Incomplete matching can result in unanticipated risks. 22 207 ADDITIONAL INVESTMENT STRATEGIES AND RISKS MARKET RISK. The risk that the market value of a security may move up and down, sometimes rapidly and unpredictably. These fluctuations may cause a security to be worth less than the price originally paid for it, or less than it was worth at an earlier time. Market risk may affect a single issuer, industrial sector of the economy or the market as a whole. There is also the risk that the current interest rate may not accurately reflect existing market rates. For fixed income securities, market risk is largely, but not exclusively, influenced by changes in interest rates. A rise in interest rates typically causes a fall in values, while a fall in rates typically causes a rise in values. However, if held to maturity, the face value of the security is recovered. Finally, key information about a security or market may be inaccurate or unavailable. This is particularly relevant to investments in foreign securities. POLITICAL RISK. The risk of losses attributable to unfavorable governmental or political actions, seizure of foreign deposits, changes in tax or trade statutes, and governmental collapse and war. PRE-PAYMENT/CALL RISK. The risk that the principal repayment of a security will occur at an unexpected time. Prepayment risk is the chance that the repayment of a mortgage will occur sooner than expected. Call risk is the possibility that, during times of declining interest rates, a bond issuer will "call" -- or repay -- higher yielding bonds before their stated maturity. Changes in pre-payment rates can result in greater price and yield volatility. Pre-payments and calls generally accelerate when interest rates decline. When mortgage and other obligations are pre-paid or called, a Fund may have to reinvest in securities with a lower yield. In this event, the Fund would experience a decline in income -- and the potential for taxable capital gains. Further, with early prepayment, a Fund may fail to recover any premium paid, resulting in an unexpected capital loss. Prepayment/call risk is generally low for securities with a short-term maturity, moderate for securities with an intermediate-term maturity, and high for securities with a long-term maturity. REGULATORY RISK. The risk associated with Federal and state laws which may restrict the remedies that a lender has when a borrower defaults on loans. These laws include restrictions on foreclosures, redemption rights after foreclosure, Federal and state bankruptcy and debtor relief laws, restrictions on "due on sale" clauses, and state usury laws. TAX RISK. The risk that the issuer of the securities will fail to comply with certain requirements of the Internal Revenue Code, which would cause adverse tax consequences. 23 208 [LOGO] FUND MANAGEMENT THE INVESTMENT ADVISOR AmSouth Bank, (AmSouth or the "Advisor"), is the advisor for the Funds. AmSouth is the bank affiliate of AmSouth Bancorporation, one of the largest banking institutions headquartered in the mid-south region. AmSouth Bancorporation reported assets as of September 30, 2000 of $ billion and operated 276 banking offices in Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment management services through its Trust Investment Department since 1915. As of June 30, 2000, AmSouth and its affiliates had over $ billion in assets under discretionary management and provided custody services for an additional $ billion in securities. AmSouth is the largest provider of trust services in Alabama and its Trust Natural Resources and Real Estate Department is a major manager of timberland, mineral, oil and gas properties and other real estate interests. Through its portfolio management team, AmSouth makes the day-to-day investment decisions and continuously reviews, supervises and administers the Funds' investment programs. For these advisory services, the Funds paid as follows during their fiscal year ended:
PERCENTAGE OF AVERAGE NET ASSETS AS OF 07/31/00 ------------------------------ Prime Money Market Fund 0.40% ------------------------------ U.S. Treasury Money Market Fund 0.40% ------------------------------ Tax-Exempt Money Market Fund 0.20% ------------------------------ Institutional Prime Obligations Money Market Fund 0.20% ------------------------------ Treasury Reserve Money Market Fund* 0.40% -------------------------------------------------------------------------------------
*This Fund commenced operations as an AmSouth Fund immediately following the ISG/AmSouth combination occurring on March 13, 2000. The figure shown reflects the fee paid for the period from March 31, 2000 through July 31, 2000. THE DISTRIBUTOR AND ADMINISTRATOR ASO Services Company ("ASC"), whose address is 3435 Stelzer Road, Columbus, Ohio 43219-3035, serves as each Fund's administrator. Management and administrative services of ASC include providing office space, equipment and clerical personnel to the Fund and supervising custodial, auditing, valuation, bookkeeping, legal and dividend dispersing services. ASC is a wholly owned subsidiary of BISYS Fund Services ("BISYS"). BISYS, whose address is also 3435 Stelzer Road, Columbus, Ohio 43219-3035 serves as the distributor of each Fund's shares. BISYS may provide financial assistance in connection with pre-approved seminars, conferences and advertising to the extent permitted by applicable state or self-regulatory agencies, such as the National Association of Securities Dealers. The Statement of Additional Information has more detailed information about the Investment Advisor and other service providers. 24 209 [LOGO] SHAREHOLDER INFORMATION CHOOSING A SHARE CLASS Class A Shares, Class B Shares, Trust Shares, Class I Shares, Class II Shares and Class III Shares have different expenses and other characteristics, allowing you to choose the class that best suits your needs. Trust Shares and Class I Shares are only available to financial institutions, fiduciary clients of AmSouth Bank and certain other qualified investors. Class II and Class III Shares are only available to certain sweep program participants. Class A and Class B Shares are available to all other shareholders. In choosing a class, you should consider the amount you want to invest, how long you plan to have it invested, and whether you plan to make additional investments. Your financial representative can help you decide which share class is best for you. CLASS A SHARES - No sales charges - Shareholder servicing fee of 0.25% of average daily net assets. CLASS B SHARES - No front-end sales charge; all your money goes to work for you right away. - Class B Shares pay a shareholder servicing fee of 0.25% of average daily net assets. This fee is in the form of a separate non-Rule 12b-1 fee. All Funds bear a Rule 12b-1 fee of 0.75%. - A deferred sales charge, as described below. - Automatic conversion to Class A Shares after eight years, thus reducing future annual expenses. - Maximum investment for all Class B purchases: $250,000. - Because 12b-1 fees are paid on an ongoing basis, Class B shareholders could end up paying more expenses over the long term than if they had paid a sales charge. TRUST SHARES - No sales charge. - Shareholder servicing fee of 0.15% of average daily net assets. - Available only to the following investors: - investors for whom AmSouth acts in a fiduciary, advisory, custodial, agency or similar capacity through an account with its Trust Department; - investors who purchase Shares of a Fund through a 401(k) plan or a 403(b) plan which by its terms permits purchases of Shares; - orders placed on behalf of other investment companies distributed by the Distributor and its affiliated companies; - investors who purchase through financial institutions approved by the Distributor; and - investors who provide an AmSouth Fund with its initial seed capital. All other investors are eligible to purchase Class A Shares or Class B Shares only. CLASS I SHARES - No sales charges. - No Distribution and service (12b-1) fees. - Minimum Initial Investment: $3 million - Offered only to: - Customers of AmSouth Bank for whom AmSouth Bank acts in a fiduciary, advisory, custodial, agency, or similar capacity; and - Fiduciary customers of other financial institutions approved by the Distributor (Sweep Program Participant(s)). CLASS II SHARES - No sales charges. - Distribution and service (12b-1) fees of 0.25% of average daily net assets. - Offered as a cash sweep vehicle to institutional or corporate customers of AmSouth Bank and of other financial institutions approved by the Distributor (Sweep Program Participant(s)). CLASS III SHARES - No sales charges. - Distribution and service (12b-1) fees of 0.50% of average daily net assets. - Offered as a cash sweep vehicle to institutional or corporate customers of AmSouth Bank and of other financial institutions approved by the Distributor (Sweep Program Participant(s)). For actual past expenses of each share class, see the fund-by-fund information earlier in this prospectus. 25 210 SHAREHOLDER INFORMATION PRICING OF FUND SHARES ------------------------------ HOW NAV IS CALCULATED The NAV is calculated by adding the total value of the Fund's investments and other assets, subtracting its liabilities and then dividing that figure by the number of outstanding shares of the Fund: NAV = Total Assets - Liabilities ------------------------------ Number of Shares Outstanding NAV is calculated separately for each class of shares. ------------------------------ Per share net asset value (NAV) for each Fund is determined and its shares are priced twice a day. The NAV for the Prime Money Market Fund, the U.S. Treasury Money Market Fund and the Treasury Reserve Money Market Fund is determined at 1:00 p.m. Eastern time and at the close of regular trading on the New York Stock Exchange, normally at 4:00 p.m. Eastern time on days the Exchange and the Federal Reserve Bank of Atlanta are open. The NAV for the Tax-Exempt Money Market Fund is determined at 12:00 p.m. Eastern time and at the close of regular trading on the New York Stock Exchange. The NAV for the Institutional Money Market Fund is determined and its shares are priced twice a day at 2:00 p.m. Eastern time and at the close of regular trading on the New York Stock Exchange. Your order for purchase, sale or exchange of shares is priced at the next NAV calculated after your order is accepted by the Fund. This is what is known as the offering price. Each Fund uses the amortized cost method of valuing its investments, which does not take into account unrealized gains or losses. For further information regarding the methods used in valuing the Fund's investments, please see the SAI. 26 211 SHAREHOLDER INFORMATION PURCHASING AND ADDING TO YOUR SHARES
MINIMUM INITIAL MINIMUM ACCOUNT TYPE INVESTMENT SUBSEQUENT Class A or Class B Regular $1,000 $0 Automatic Investment Plan $1,000 $50 Trust Regular $1,000 $0 Retirement $250 $50 Class I $3,000,000 $0 Class II N/A N/A Class III N/A N/A
All purchases must be in U.S. dollars. A fee will be charged for any checks that do not clear. Third-party checks are not accepted. A Fund may waive its minimum purchase requirement. The Distributor may reject a purchase order if it considers it in the best interest of the Fund and its shareholders. You may purchase Funds through the Distributor or through banks, brokers and other investment representatives, which may charge additional fees and may require higher minimum investments or impose other limitations on buying and selling shares. Additionally, banks, brokers and other financial institutions and representatives may use shares of the Money Market Funds in "sweep" programs whereby the accounts of a participating customer of the financial institution or representative is automatically "swept" into shares of one of the Money Market Funds. If you purchase shares through an investment representative, that party is: responsible for transmitting orders by close of business and may have an earlier cut-off time for purchase and sale requests. Consult your investment representative or institution for specific information. ----------------------------------------------------------------------------- AVOID 31% TAX WITHHOLDING Each Fund is required to withhold 31% of taxable dividends, capital gains distributions and redemptions paid to shareholders who have not provided the Fund with their certified taxpayer identification number in compliance with IRS rules. To avoid this, make sure you provide your correct Tax Identification Number (Social Security Number for most investors) on your account application. ----------------------------------------------------------------------------- 27 212 SHAREHOLDER INFORMATION PURCHASING AND ADDING TO YOUR SHARES CONTINUED INSTRUCTIONS FOR OPENING OR ADDING TO AN ACCOUNT RETAIL MONEY MARKET FUNDS -- CLASS A AND B SHARES BY REGULAR MAIL If purchasing through your financial advisor or brokerage account, simply tell your advisor or broker that you wish to purchase shares of the Funds and he or she will take care of the necessary documentation. For all other purchases, follow the instructions below. Initial Investment: 1. Carefully read and complete the application. Establishing your account privileges now saves you the inconvenience of having to add them later. 2. Make check, bank draft or money order payable to "AmSouth Funds." 3. Mail to: AmSouth Funds P.O. Box 182733, Columbus, OH 43218-2733 Subsequent: 1. Use the investment slip attached to your account statement. Or, if unavailable, 2. Include the following information on a piece of paper: - AmSouth Funds/Fund name - Share class - Amount invested - Account name - Account number Include your account number on your check. 3. Mail to: AmSouth Funds P.O. Box 182733, Columbus, OH 43218-2733 BY OVERNIGHT SERVICE See instructions 1-2 above for subsequent investments. 4. Send to: AmSouth Funds c/o BISYS Fund Services Attn: T.A. Operations 3435 Stelzer Road, Columbus, OH 43219. ELECTRONIC PURCHASES Your bank must participate in the Automated Clearing House (ACH) and must be a U. S. Bank. Your bank or broker may charge for this service. Establish electronic purchase option on your account application or call 1-800-451-8382. Your account can generally be set up for electronic purchases within 15 days. Call 1-800-451-8382 to arrange a transfer from your bank account. QUESTIONS? Call 800-451-8382 or your investment representative. ELECTRONIC VS. WIRE TRANSFER Wire transfers allow financial institutions to send funds to each other, almost instantaneously. With an electronic purchase or sale, the transaction is made through the Automated Clearing House (ACH) and may take up to eight days to clear. There is generally no fee for ACH transactions. 28 213 SHAREHOLDER INFORMATION PURCHASING AND ADDING TO YOUR SHARES CONTINUED BY WIRE TRANSFER Note: Your bank may charge a wire transfer fee. For initial investment: Fax the completed application, along with a request for a confirmation number to 1-800-451-8382. Follow the instructions below after receiving your confirmation number. For initial and subsequent investments: Instruct your bank to wire transfer your investment to: AmSouth Bank Routing Number: ABA #044000024 DDA# Include: Your name Your confirmation number AFTER INSTRUCTING YOUR BANK TO WIRE THE FUNDS, CALL 1-800-451-8382 TO ADVISE US OF THE AMOUNT BEING TRANSFERRED AND THE NAME OF YOUR BANK. -------------------------------------- YOU CAN ADD TO YOUR ACCOUNT BY USING THE CONVENIENT OPTIONS DESCRIBED BELOW. THE FUND RESERVES THE RIGHT TO CHANGE OR ELIMINATE THESE PRIVILEGES AT ANY TIME WITH 60 DAYS NOTICE. -------------------------------------- AUTOMATIC INVESTMENT PLAN You can make automatic investments in the Funds from your bank account, through payroll deduction or from your federal employment, Social Security or other regular government checks. Automatic investments can be as little as $50, once you've invested the $1,000 minimum required to open the account. To invest regularly from your bank account: - Complete the Automatic Investment Plan portion on your Account Application. Make sure you note: - Your bank name, address and account number - The amount you wish to invest automatically (minimum $50) - How often you want to invest (every month, 4 times a year, twice a year or once a year) - Attach a voided personal check. To invest regularly from your paycheck or government check: Call 1-800-451-8382 for an enrollment form or consult the SAI for additional information. RETAIL MONEY MARKET FUNDS -- (TRUST SHARES) AND INSTITUTIONAL MONEY MARKET FUND You may purchase Trust Shares and Institutional Money Market Fund Shares by following the procedures established by the Distributor in connection with the requirements of qualified accounts maintained by AmSouth Bank or other financial institutions approved by the Distributor. These procedures may include sweep arrangements where an account is "swept" automatically no less frequently than weekly into a Money Market Fund. DIRECTED DIVIDEND OPTION By selecting the appropriate box in the Account Application, you can elect to receive your distributions in cash (check) or have distributions (capital gains and dividends) reinvested in another AmSouth Fund without a sales charge. You must maintain the minimum balance in each Fund into which you plan to reinvest dividends or the reinvestment will be suspended and your dividends paid to you. The Fund may modify or terminate this reinvestment option without notice. You can change or terminate your participation in the reinvestment option at any time. 29 214 SHAREHOLDER INFORMATION PURCHASING AND ADDING TO YOUR SHARES CONTINUED When purchasing Trust Shares or Institutional Money Market Fund Shares through AmSouth Bank or an approved financial institution, simply tell AmSouth or your financial institution that you wish to purchase shares of the Funds and they will take care of the necessary documentation. ----------------------------------------------------------------------------- DIVIDENDS AND DISTRIBUTIONS All dividends and distributions will be automatically reinvested unless you request otherwise. There are no sales charges for reinvested distributions. Dividends will vary among each class of shares, because each share class has different distribution expenses. Income dividends are usually paid monthly. Capital gains are distributed at least annually. Distributions are made on a per share basis regardless of how long you've owned your shares. Therefore, if you invest shortly before the distribution date, some of your investment will be returned to you in the form of a distribution. ----------------------------------------------------------------------------- 30 215 SHAREHOLDER INFORMATION SELLING YOUR SHARES You may sell your shares at any time. Your sales price will be the next NAV after your sell order is received by the Fund, its transfer agent, or your investment representative. Normally you will receive your proceeds within a week after your request is received. See section on "General Policies on Selling Shares below." BY TELEPHONE (UNLESS YOU HAVE DECLINED TELEPHONE SALES PRIVILEGES) 1. Call 1-800-451-8382 with instructions as to how you wish to receive your funds (mail, wire, electronic transfer). (See "General Policies on Selling Shares -- Verifying Telephone Redemptions" below.) BY MAIL 1. Call 1-800-451-8382 to request redemption forms or write a letter of instruction indicating: - your Fund and account number - amount you wish to redeem - address where your check should be sent - account owner signature 2. Mail to: AmSouth Funds, P.O. Box 182733, Columbus, OH 43218-2733 BY OVERNIGHT SERVICE (SEE "GENERAL POLICIES ON SELLING SHARES -- REDEMPTIONS IN WRITING REQUIRED" BELOW.) 1. See instruction 1 above. 2. Send to AmSouth Funds, c/o BISYS Fund Services, Attn: T.A. Operations, 3435 Stelzer Road, Columbus, OH 43219 WITHDRAWING MONEY FROM YOUR FUND INVESTMENT As a mutual fund shareholder, you are technically selling shares when you request a withdrawal in cash. This is also known as redeeming shares or a redemption of shares. CONTINGENT DEFERRED SALES CHARGE When you sell Class B Shares, you will be charged a fee for any shares that have not been held for a sufficient length of time. These fees will be deducted from the money paid to you. See the section on "Distribution Arrangements/Sales Charges" below for details. INSTRUCTIONS FOR SELLING SHARES If selling your shares through your financial advisor or broker, ask him or her for redemption procedures. Your advisor and/or broker may have transaction minimums and/or transaction times which will affect your redemption. For all other sales transactions, follow the instructions below. 31 216 SHAREHOLDER INFORMATION SELLING YOUR SHARES CONTINUED WIRE TRANSFER You must indicate this option on your application. The Fund will charge a $7 wire transfer fee for each wire transfer request. Note: Your financial institution may also charge a separate fee. Call 1-800-451-8382 to request a wire transfer. If you call by 4 p.m. Eastern time, your payment will normally be wired to your bank on the next business day. ELECTRONIC REDEMPTIONS Your bank must participate in the Automated Clearing House (ACH) and must be a U.S. bank. Your bank may charge for this service. Call 1-800-451-8382 to request an electronic redemption. If you call by 4 p.m. Eastern time, the NAV of your shares will normally be determined on the same day and the proceeds credited within 7 days. REDEMPTION BY CHECK WRITING PRIME MONEY MARKET FUND ONLY You may write checks in amounts of $1,000 or more on your account in the Prime Money Market Fund. To obtain checks, complete the signature card section of the account application or contact the Fund to obtain a signature card. Dividends and distributions will continue to be paid up to the day the check is presented for payment. The check writing feature may be modified or terminated upon 30-days' written notice. You must maintain the minimum required account balance in the Prime Money Market Fund of $1,000 and you may not close your Fund account by writing a check. SYSTEMATIC WITHDRAWAL PLAN You can receive automatic payments from your account on a monthly, quarterly, semi-annual or annual basis. The minimum withdrawal is $25. To activate this feature: - Make sure you've checked the appropriate box on the account application. Or call 1-800-451-8382. - Include a voided personal check. - Your account must have a value of $5,000 or more to start withdrawals. - If the value of your account falls below $500, you may be asked to add sufficient funds to bring the account back to $500, or the Fund may close your account and mail the proceeds to you. 32 217 SHAREHOLDER INFORMATION GENERAL POLICIES ON SELLING SHARES REDEMPTIONS IN WRITING REQUIRED You must request redemption in writing and obtain a signature guarantee if: - The check is not being mailed to the address on your account; or - The check is not being made payable to the owner of the account. A signature guarantee can be obtained from a financial institution, such as a bank, broker-dealer, or credit union, or from members of the STAMP (Securities Transfer Agents Medallion Program), MSP (New York Stock Exchange Medallion Signature Program) or SEMP (Stock Exchanges Medallion Program). Members are subject to dollar limitations which must be considered when requesting their guarantee. The Transfer Agent may reject any signature guarantee if it believes the transaction would otherwise be improper. VERIFYING TELEPHONE REDEMPTIONS The Fund makes every effort to insure that telephone redemptions are only made by authorized shareholders. All telephone calls are recorded for your protection and you will be asked for information to verify your identity. Given these precautions, unless you have specifically indicated on your application that you do not want the telephone redemption feature, you may be responsible for any fraudulent telephone orders. If appropriate precautions have not been taken, the Transfer Agent may be liable for losses due to unauthorized transactions. REDEMPTIONS WITHIN 15 DAYS OF INITIAL INVESTMENT When you have made your initial investment by check, the proceeds of your redemption may be held up to 15 business days until the Transfer Agent is satisfied that the check has cleared. You can avoid this delay by purchasing shares with a certified check. REFUSAL OF REDEMPTION REQUEST Payment for shares may be delayed under extraordinary circumstances or as permitted by the Securities and Exchange Commission in order to protect remaining shareholders. REDEMPTION IN KIND Each Fund reserves the right to make payment in securities rather than cash, known as "redemption in kind." This could occur under extraordinary circumstances, such as a very large redemption that could affect Fund operations (for example, more than 1% of the Fund's net assets). If the Fund deems it advisable for the benefit of all shareholders, redemption in kind will consist of securities equal in market value to your shares. When you convert these securities to cash, you will pay brokerage charges. CLOSING OF SMALL ACCOUNTS For the Institutional Money Market Fund, if the value of Class I shares in your account falls below $3 million, the Fund may ask you to increase your balance. If it is still below $3 million after 60 days, the Fund may convert, at net asset value, your Class I Shares to Trust Shares. For all other Funds, if your account falls below $50, the Fund may ask you to increase your balance. If it is still below $50 after 60 days, the Fund may close your account and send you the proceeds at the current NAV. UNDELIVERABLE REDEMPTION CHECKS For any shareholder who chooses to receive distributions in cash: If distribution checks (1) are returned and marked as "undeliverable" or (2) remain uncashed for six months, your account will be changed automatically so that all future distributions are reinvested in your account. Checks that remain uncashed for six months will be canceled and the money reinvested in the appropriate Fund. 33 218 SHAREHOLDER INFORMATION DISTRIBUTION ARRANGEMENTS/SALES CHARGES CLASS A, TRUST, CLASS I, CLASS II AND CLASS III SHARES No sales charge.
YEARS CDSC AS A % OF SINCE DOLLAR AMOUNT PURCHASE SUBJECT TO CHARGE* 0-1 5.00% 1-2 4.00% 2-3 3.00% 3-4 3.00% 4-5 2.00% 5-6 1.00% more than 6 None
CLASS B SHARES Class B Shares are offered at NAV, without any up-front sales charge. Therefore, all the money you invest is used to purchase Fund shares. However, if you sell your Class B Shares of the Fund before the sixth anniversary, you will have to pay a contingent deferred sales charge at the time of redemption. The CDSC will be based upon the lower of the NAV at the time of purchase or the NAV at the time of redemption according to the schedule below. There is no CDSC on reinvested dividends or distributions. If you sell some but not all of your Class shares, certain shares not subject to the CDSC (i.e., shares purchased with reinvested dividends) will be redeemed first, followed by shares subject to the lowest CDSC (typically shares held for the longest time). CONVERSION FEATURE -- CLASS B SHARES - Class B Shares automatically convert to Class A Shares of the same Fund after eight years from the end of the month of purchase.* - After conversion, your shares will be subject to the lower distribution and shareholder servicing fees charged on Class A Shares which will increase your investment return compared to the Class B Shares. - You will not pay any sales charge or fees when your shares convert, nor will the transaction be subject to any tax. - If you purchased Class B Shares of one Fund which you exchanged for Class B Shares of another Fund, your holding period will be calculated from the time of your original purchase of Class B Shares. - The dollar value of Class A Shares you receive will equal the dollar value of the Class B Shares converted. * 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. These shares will automatically convert to Class A Shares of the same Fund after seven years from the end of the month of purchase. 34 219 SHAREHOLDER INFORMATION DISTRIBUTION ARRANGEMENTS/SALES CHARGES CONTINUED CLASS B SHARES The CDSC will be waived under certain circumstances, including the following: - Redemptions from accounts following the death or disability of the shareholder. - Returns of excess contributions to retirement plans. - Distributions of less than 10% of the annual account value under a Systematic Withdrawal Plan. - Shares issued in a plan of reorganization sponsored by the Advisor, or shares redeemed involuntarily in a similar situation. DISTRIBUTION AND SERVICE (12b-1) FEES AND SHAREHOLDER SERVICING FEES 12b-1 fees compensate the Distributor and other dealers and investment representatives for services and expenses relating to the sale and distribution of the Fund's shares and/or for providing shareholder services. Shareholder servicing fees compensate financial institutions that provide shareholder services to their customers and account holders. 12b-1 and shareholder servicing fees are paid from Fund assets on an ongoing basis, and will increase the cost of your investment. - The 12b-1 and shareholder servicing fees vary by share class as follows: - Class A Shares pay a non-Rule 12b-1 shareholder servicing fee of up to 0.25% of the average daily net assets of a Fund. - Class B Shares -- Class B Shares pay a shareholder servicing fee of 0.25% of average daily net assets. This fee is in the form of a separate non-Rule 12b-1 fee. All Funds bear a Rule 12b-1 fee of 0.75%. This will cause expenses for Class B Shares to be higher and dividends to be lower than for Class A Shares. -- The higher 12b-1 fee on Class B Shares, together with the CDSC, help the Distributor sell Class B Shares without an "up-front" sales charge. In particular, these fees help to defray the Distributor's costs of advancing brokerage commissions to investment representatives. - Trust Shares pay a shareholder servicing fee of up to 0.15% of the average daily net assets of a Fund. - Class II Shares pay a 12b-1 fee of up to 0.25% of the average daily net assets of a Fund. - Class III Shares pay a 12b-1 fee of up to 0.50% of the average daily net assets of the applicable Fund. This will cause expenses for Class III Shares to be higher and dividends to be lower than for Class II Shares. Over time shareholders will pay more than the equivalent of the maximum permitted front-end sales charge because 12b-1 distribution and service fees are paid out of the Fund's assets on an on-going basis. 35 220 SHAREHOLDER INFORMATION EXCHANGING YOUR SHARES You can exchange your shares in one Fund for shares of the same class of another AmSouth Fund, usually without paying additional sales charges if applicable (see "Notes" below). You must meet the minimum investment requirements for the Fund into which you are exchanging. Class A Shares may also be exchanged for Trust Shares of the same Fund if you become eligible to purchase Trust Shares. Trust Shares may also be exchanged for Class A Shares of another Fund if you are no longer eligible to purchase Trust Shares. Shares of an Institutional Money Market Fund may not be exchanged for Trust Shares, Class A Shares or Class B Shares of the other AmSouth Funds. Exchanges from one Fund to another are taxable. No transaction fees are charged for exchanges. AUTOMATIC EXCHANGES You can use the Funds' Automatic Exchange feature to purchase shares of the Funds at regular intervals through regular, automatic redemptions from the AmSouth Prime Money Market Fund. To participate in the Automatic Exchange: - Complete the appropriate section of the Account Application. - Keep a minimum of $10,000 in the AmSouth Prime Money Market Fund and $1,000 in the Fund whose shares you are buying. To change the Automatic Exchange instructions or to discontinue the feature, you must send a written request to AmSouth Funds, P.O. Box 182733, Columbus, Ohio 43218-2733. INSTRUCTIONS FOR EXCHANGING SHARES Exchanges may be made by sending a written request to AmSouth Funds, P.O. Box 182733, Columbus OH 43218-2733, or by calling 1-800-451-8382. Please provide the following information: - Your name and telephone number - The exact name on your account and account number - Taxpayer identification number (usually your Social Security number) - Dollar value or number of shares to be exchanged - The name of the Fund from which the exchange is to be made - The name of the Fund into which the exchange is being made See "Selling your Shares" for important information about telephone transactions. To prevent disruption in the management of the Funds, due to market timing strategies, exchange activity may be limited to four exchanges from a Fund during a calendar year. NOTES ON EXCHANGES - - The registration and tax identification numbers of the two accounts must be identical. - - The Exchange Privilege may be changed or eliminated at any time upon a 60-day notice to shareholders. - - Be sure to read carefully the Prospectus of any Fund into which you wish to exchange shares. - - When exchanging Trust Shares of a Fund for Class A Shares of a Fund, you will be exempt from any applicable sales charge. 36 221 SHAREHOLDER INFORMATION DIVIDENDS, DISTRIBUTIONS AND TAXES Please consult your tax advisor regarding your specific questions about federal, state and local income taxes. Below we have summarized some important tax issues that affect the Funds and their shareholders. This summary is based on current tax laws, which may change. Each Fund distributes any net investment income monthly (and net realized capital gains, if any) at least once a year. All distributions will be automatically reinvested in additional Fund Shares unless you request to receive all distributions in cash. Generally, for federal income tax purposes, Fund distributions are taxable as ordinary income, (except that distributions of long-term capital gains, if any, will be taxed as such regardless of how long you have held your shares). Distributions are taxable whether you received them in cash or in additional shares. Distributions are also taxable to you even if they are paid from income or gains earned by the Fund before your investment (and thus were included in the price you paid). For the Tax-Exempt Money Market Fund, the income dividends that you receive are expected to be exempt from federal income taxes. However, if you receive social security or railroad retirement benefits, you should consult your tax advisor to determine what effect, if any, an investment in the Tax-Exempt Money Market Fund may have on the federal taxation of your benefits. In addition, an investment in the Tax-Exempt Money Market Fund may result in liability for federal alternative minimum tax, both for individual and corporate shareholders. A Fund's investments in foreign securities may be subject to foreign withholding taxes. In that case, a Fund's yield on those securities would be decreased. Shareholders generally will not be entitled to claim a credit or deduction with respect to foreign taxes. In addition, a Fund's investments in foreign securities or foreign currencies may increase or accelerate a Fund's recognition of ordinary income and may affect the timing or amount of a Fund's distributions. Any gain resulting from the sale or exchange of your Fund Shares (even if the income from which is tax exempt) will generally be subject to tax. You should consult your tax advisor for more information on your own tax situation, including possible state and local taxes. AmSouth Funds will send you a statement each year showing the tax status of all your distributions. - For each Fund, other than the Tax-Exempt Money Market Fund, the dividends and short-term capital gains that you receive are considered ordinary income for tax purposes. For the Tax-Exempt Money Market Fund, any short-term capital gains that you receive are taxable to you as ordinary dividend income for Federal income tax purposes. - Any distributions of net long-term capital gains by a Fund are taxable to you as long-term capital gains for tax purposes, no matter how long you've owned shares in the Fund. - Generally, the Fund's advisors do not consider taxes when deciding to buy or sell securities. Capital gains are realized from time to time as by-products of ordinary investment activities. Distributions may vary considerably from year to year. - If you sell or exchange shares, any gain or loss you have is a taxable event. This means that you may have a capital gain to report as income, or a capital loss to report as a deduction, when you complete your federal income tax return. - Distributions of dividends or capital gains, and capital gains or losses from your sale or exchange of Fund shares, may be subject to state and local income taxes as well. - Foreign governments may withhold taxes on dividends and interest paid, while imposing taxes on other payments or gains, with respect to foreign securities. The tax information in this prospectus is provided as general information and will not apply to you if you are investing through a tax-deferred account such as an IRA or a qualified employee benefit plan. (Non-U.S. investors may be subject to U.S. withholding and estate tax.) You should consult your tax advisor for more information on your own tax situation, including possible state and local taxes. More information about taxes is in our Statement of Additional Information. 37 222 [LOGO] PRIME MONEY MARKET FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY PRIME OBLIGATIONS FUND) FINANCIAL HIGHLIGHTS The financial highlights table is intended to help you understand the Funds' financial performance for the past 5 years or, if shorter, the period of the Funds' 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 the Fund (assuming reinvestment of all dividends and distributions). For the year or period ending July 31, 2000, this information has been audited by Ernst & Young, LLP, whose report, along with the Funds' financial statements, is incorporated by reference in the SAI, which is available upon request. For prior years or periods, this information has been audited by PricewaterhouseCoopers LLP (with respect to the Prime Money Market Fund, the U.S. Treasury Money Market Fund, the Tax-Exempt Money Market Fund, and the Institutional Prime Obligations Money Market Fund), whose report, along with the Funds' financial statements, is incorporated by reference in the SAI, which is available upon request. For prior years or periods, the information for the Treasury Reserve Money Market Fund such Fund being a former ISG Fund which merged into AmSouth Funds on March 13, 2000, has been audited by KPMG, LLP, whose report, along with the Fund's financial statements, is incorporated by reference in the SAI, which is available upon request.
YEAR ENDED JULY 31, ---------------------------------------------------------------- 2000 1999 1998 ------------------ ------------------ ---------------------- CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B (a) -------- ------- -------- ------- -------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ $ $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.044 0.035 0.049 0.005 -------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.044) (0.035) (0.049) (0.005) -------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ $ $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------------------------------------------------------------------------------------- Total Return % % 4.48% 3.55% 4.99% 0.49%(b) RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ $ $136,078 $ 224 $116,960 $ 1 Ratio of expenses to average net assets % % 0.78% 1.69% 0.79% 1.85%(c) Ratio of net investment income to average net assets % % 4.40% 3.39% 4.88% 3.83%(c) Ratio of expenses to average net assets* % % 0.94% 1.70% 0.95% 1.88%(c)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) For the period from June 15, 1998 (commencement of operations) through July 31, 1998. (b) Not annualized. (c) Annualized. 38 223 OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, -------------------------------------- 1997 1996 1995 ----------- ------------- -------- CLASS A CLASS A (A) ----------- ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.048 0.016 0.050 ------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.048) (0.016) (0.050) ------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------- Total Return 4.90% 5.07%(b) 5.14% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $111,027 $125,075 $617,673 Ratio of expenses to average net assets 0.78% 0.81%(c) 0.69% Ratio of net investment income to average net assets 4.79% 4.61%(c) 5.04% Ratio of expenses to average net assets* 0.93% 0.96%(c) (d)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Trust Shares, and the Fund commenced offering Class A Shares. (b) Represents total return for the Trust Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the Class A Shares for the period from April 1, 1996 to July 31, 1996. Total return for the Class A Shares for the period April 1, 1996 (commencement of operations) to July 31, 1996 was 1.55%. (c) Annualized. (d) There were no waivers during the period. 39 224 OTHER INFORMATION ABOUT THE FUNDS PRIME MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- --------- -------- TRUST TRUST TRUST TRUST (a) -------- -------- -------- --------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ---------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.045 0.050 0.049 0.050 0.050 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.045) (0.050) (0.049) (0.050) (0.050) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ---------------------------------------------------------------------------------------------------- Total Return 4.59% 5.09% 5.00% 5.10% 5.14% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $536,899 $479,974 $416,966 $478,542 $617,673 Ratio of expenses to average net assets 0.68% 0.69% 0.68% 0.71% 0.69% Ratio of net investment income to average net assets 4.51% 4.98% 4.89% 5.00% 5.04% Ratio of expenses to average net assets* 0.69% 0.70% (c) (c) (c)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Trust Shares, and the Fund commenced offering Class A Shares. (b) Annualized. (c) There were no waivers during the period. (d) Represents total return for the Trust Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the Class A Shares for the period from April 1, 1996 to July 31, 1996. Total return for the Class A Shares for the period April 1, 1996 (commencement of operations) to July 31, 1996 was 1.55%. 40 225 U.S. TREASURY MONEY MARKET FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY U.S. TREASURY FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ----------------------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- ----------- --------- CLASS A CLASS A CLASS A CLASS A (a) ------- ------- ------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ---------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.040 0.046 0.045 0.015 0.048 ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.040) (0.046) (0.045) (0.015) (0.048) ---------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ---------------------------------------------------------------------------------------------------- Total Return 4.06% 4.67% 4.60% 4.90%(b) 4.90% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 4,390 $ 8,070 $ 9,885 $ 12,263 $ 322,939 Ratio of expenses to average net assets 0.79% 0.80% 0.79% 0.82%(c) 0.70% Ratio of net investment income to average net assets 4.03% 4.57% 4.50% 4.44%(c) 4.81% Ratio of expenses to average net assets* 0.95% 0.95% 0.94% 0.97%(c) (d)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Trust Shares, and the Fund commenced offering Class A Shares. (b) Represents total return for the Trust Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the Class A Shares for the period from April 1, 1996 to July 31, 1996. Total return for the Class A Shares for the period April 1, 1996 (commencement of operations) to July 31, 1996 was 1.49%. (c) Annualized. (d) There were no waivers during the period. 41 226 OTHER INFORMATION ABOUT THE FUNDS U.S. TREASURY MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ---------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- TRUST TRUST TRUST TRUST -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 --------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.041 0.047 0.046 0.048 0.048 --------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.041) (0.047) (0.046) (0.048) (0.048) --------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 --------------------------------------------------------------------------------------------------- Total Return 4.16% 4.77% 4.70% 4.93% 4.90% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $320,847 $352,055 $309,361 $368,162 $322,939 Ratio of expenses to average net assets 0.69% 0.70% 0.69% 0.71% 0.70% Ratio of net investment income to average net assets 4.10% 4.67% 4.60% 4.82% 4.81% Ratio of expenses to average net assets* 0.70% 0.70% (a) (a) (a)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) There were no waivers during the period. 42 227 TAX-EXEMPT MONEY MARKET FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY TAX-EXEMPT FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- ----------- -------- CLASS A CLASS A CLASS A CLASS A (a) -------- -------- -------- ----------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income 0.026 0.030 0.030 0.010 0.032 ------------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.026) (0.030) (0.030) (0.010) (0.032) ------------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------------------------ Total Return 2.66% 3.03% 3.04% 3.12%(b) 3.22% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $ 22,844 $ 28,657 $ 27,926 $ 17,116 $ 57,640 Ratio of expenses to average net assets 0.59% 0.60% 0.62% 0.68%(c) 0.54% Ratio of net investment income to average net assets 2.64% 2.97% 3.00% 2.82%(c) 3.15% Ratio of expenses to average net assets* 0.98% 0.98% 0.97% 1.03%(c) 0.74%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Trust Shares, and the Fund commenced offering Class A Shares. (b) Represents total return for the Trust Shares for the period from August 1, 1995 to March 31, 1996 plus the total return for the Class A Shares for the period from April 1, 1996 to July 31, 1996. Total return for the Class A Shares for the period April 1, 1996 (commencement of operations) through July 31, 1996 was 0.95%. (c) Annualized. 43 228 OTHER INFORMATION ABOUT THE FUNDS TAX-EXEMPT MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, ------------------------------------------------- 1999 1998 1997 1996 1995 ------- ------- ------- --------- ------- TRUST TRUST TRUST TRUST (a) ------- ------- ------- --------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------------------ INVESTMENT ACTIVITIES: Net investment income 0.027 0.031 0.031 0.031 0.032 ------------------------------------------------------------------------------------------------ DISTRIBUTIONS: Net investment income (0.027) (0.031) (0.031) (0.031) (0.032) ------------------------------------------------------------------------------------------------ NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 ------------------------------------------------------------------------------------------------ Total Return 2.76% 3.13% 3.15% 3.15% 3.22% RATIOS/SUPPLEMENTAL DATA: Net Assets at end of period (000) $73,880 $62,084 $55,429 $43,611 $57,640 Ratio of expenses to average net assets 0.49% 0.50% 0.52% 0.54% 0.54% Ratio of net investment income to average net assets 2.71% 3.07% 3.10% 3.11% 3.15% Ratio of expenses to average net assets* 0.73% 0.73% 0.72% 0.74% 0.74%
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) Effective April 1, 1996, the Fund's existing shares, which were previously unclassified, were designated as Trust Shares, and the Fund commenced offering Class A Shares. 44 229 OTHER INFORMATION ABOUT THE FUNDS TREASURY RESERVE MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED DECEMBER 31, --------------------------------------------------------- 1999 1998 1997 1996 1995 --------- --------- --------- --------- --------- CLASS A CLASS A CLASS A CLASS A CLASS A --------- --------- --------- --------- --------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.043 0.046 0.047 0.047 0.053 -------------------------------------------------------------------------------------------------------- Total from Investment Activities 0.043 0.046 0.047 0.047 0.053 -------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.043) (0.046) (0.047) (0.047) (0.053) -------------------------------------------------------------------------------------------------------- Total Distributions (0.043) (0.046) (0.047) (0.047) (0.053) -------------------------------------------------------------------------------------------------------- Net change in asset value -- -- -- -- -- -------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------------------------------------------------------------------------------------------------------- Total Return (excludes sales charge) 4.38% 4.69% 4.76% 4.76% 5.41% RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $ 143,208 $ 167,475 $ 77,065 $ 78,308 $ 168,430 Ratio of expenses to average net assets 0.60% 0.77% 0.75% 0.68% 0.68% Ratio of net investment income to average net assets 4.28% 4.58% 4.68% 4.72% 5.28% Ratio of expenses in average net assets* 0.70% 0.78% (a) 0.74% 0.75%
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. (a) There were no fee reductions in this period. 45 230 OTHER INFORMATION ABOUT THE FUNDS TREASURY RESERVE MONEY MARKET FUND FINANCIAL HIGHLIGHTS CONTINUED
TRUST SHARES --------------------------------------------- PERIOD ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, ------------------------------ ------------ 1999 1998 1997 1996(a) -------- -------- -------- ------------ TRUST TRUST TRUST TRUST -------- -------- -------- ------------ NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income (loss) 0.043 0.046 0.049 0.024 -------------------------------------------------------------------------------------------- Total from Investment Activities 0.043 0.046 0.049 0.024 -------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.043) (0.046) (0.049) (0.024) -------------------------------------------------------------------------------------------- Total Distributions (0.043) (0.045) (0.049) (0.024) -------------------------------------------------------------------------------------------- Net change in asset value -- -- -- -- -------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 $ 1.000 -------------------------------------------------------------------------------------------- Total Return 4.38% 4.93% 5.05% 2.43% RATIOS/SUPPLEMENTARY DATA: Net Assets at end of period (000) $341,304 $309,979 $114,276 $109,698 Ratio of expenses to average net assets 0.59% 0.63% 0.80% 0.62%(c) Ratio of net investment income to average net assets 4.31% 4.78% 4.94% 4.72%(c) Ratio of expenses in average net assets* 0.60% (d) (d) (d)
* During the period, certain fees were voluntarily reduced/reimbursed. If such voluntary fee reductions/reimbursements had not occurred, the ratios would have been as indicated. (a) For the period from July 1, 1996 (commencement of operations) through December 31, 1996. (b) Not annualized. (c) Annualized. (d) There were no fee reductions in this period. 46 231 INSTITUTIONAL PRIME OBLIGATIONS MONEY MARKET FUND OTHER INFORMATION ABOUT THE FUNDS (FORMERLY THE INSTITUTIONAL PRIME OBLIGATIONS FUND) FINANCIAL HIGHLIGHTS CONTINUED
YEAR ENDED JULY 31, 1999 -------------------------------------------------------------------------- CLASS I (a) CLASS II (b) CLASS III (c) ----------- ------------ ------------- NET ASSET VALUE, BEGINNING OF PERIOD $ 1.000 $ 1.000 $ 1.000 ----------------------------------------------------------------------------------------------------------------------------- INVESTMENT ACTIVITIES: Net investment income 0.042 0.020 0.018 ----------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS: Net investment income (0.042) (0.020) (0.018) ----------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $ 1.000 $ 1.000 $ 1.000 ----------------------------------------------------------------------------------------------------------------------------- Total Return (d) 4.31%(d) 1.96%(d) 1.84%(d) RATIOS SUPPLEMENTAL DATA: Net Assets at end of period (000) $69,458 $26,000 $13,575 Ratio of expenses to average net assets 0.22%(e) 0.49%(e) 0.74%(e) Ratio of net investment income to average net assets 4.82%(e) 4.45%(e) 4.22%(e) Ratio of expenses to average net assets* 0.45%(e) 0.72%(e) 0.97%(e)
* During the period, certain fees were voluntarily reduced. If such voluntary fee reductions had not occurred, the ratios would have been as indicated. (a) For the period from September 15, 1998 (commencement of operations) through July 31, 1999. (b) For the period from February 19, 1999 (commencement of operations) through July 31, 1999. (c) For the period from February 22, 1999 (commencement of operations) through July 31, 1999. (d) Not annualized. (e) Annualized. 47 232 For more information about the Funds, the following documents are available free upon request: ANNUAL/SEMI-ANNUAL REPORTS (REPORTS): The Funds' annual and semi-annual reports to shareholders contain additional information on the Funds' investments. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected the Funds' performance during the last fiscal year. STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed information about the Funds, including their operational and investment policies. It is incorporated by reference and is legally considered a part of this prospectus. You can get free copies of Reports and the SAI, prospectuses of other members of the AmSouth Funds family, or request other information and discuss your questions about the Funds by contacting a broker or bank that sells the Funds. Or contact the Funds at: AMSOUTH FUNDS 3435 STELZER ROAD COLUMBUS, OHIO 43219 TELEPHONE: 1-800-451-8382 INTERNET: http://www.amsouthfunds.com You can review the Funds' reports and SAIs at the Public Reference Room of the Securities and Exchange Commission. You can get text-only copies: - - For a fee, by writing the Public Reference Section of the Commission, Washington, D.C. 20549-6009 or by calling 1-202-942-8090, or by electronic request, by emailing the SEC at the following address: publicinfo@sec.gov. - - Free from the Commission's Website at http://www.sec.gov. Investment Company Act file no. 811-5551. ASOP31300MM 233 AMSOUTH FUNDS Statement of Additional Information [December 1], 2000 ----------------- This Statement of Additional Information is not a Prospectus, but should be read in conjunction with the Prospectus of the AmSouth Value Fund, the AmSouth Growth Fund, the AmSouth Capital Growth Fund, the AmSouth Large Cap Fund, the AmSouth Mid Cap Fund, the AmSouth Small Cap Fund, the AmSouth Equity Income Fund, the AmSouth Balanced Fund, the AmSouth Select Equity Fund, the AmSouth Enhanced Market Fund, the AmSouth International Equity Fund, the AmSouth Strategic Portfolios: Aggressive Growth Portfolio, the AmSouth Strategic Portfolios: Growth Portfolio, the AmSouth Strategic Portfolios: Growth and Income Portfolio, the AmSouth Strategic Portfolios: Moderate Growth and Income Portfolio, the AmSouth Strategic Portfolios: Current Income Portfolio, the AmSouth Bond Fund, the AmSouth Limited Term Bond Fund, the AmSouth Government Income Fund, the AmSouth Limited Term U.S. Government Fund, the AmSouth Municipal Bond Fund, the AmSouth Florida Tax-Exempt Fund, the AmSouth Tennessee Tax-Exempt Fund, the AmSouth Limited Term Tennessee Tax-Exempt Fund, the AmSouth Prime Money Market Fund, the AmSouth U.S. Treasury Money Market Fund, the AmSouth Treasury Reserve Money Market Fund, the AmSouth Tax-Exempt Money Market Fund, and the AmSouth Prime Obligations Money Market Fund (each a "Fund" and collectively the "Funds"), each dated [December 1], 2000. This Statement of Additional Information is incorporated by reference in its entirety into each Prospectus. A copy of each Fund's Prospectus may be obtained by writing to AmSouth Funds at P.O. Box 182733, Columbus, Ohio 43218-2733, or by telephoning toll free (800) 451-8382. 234
TABLE OF CONTENTS Page AMSOUTH FUNDS.....................................................................................................1 INVESTMENT OBJECTIVES AND POLICIES................................................................................2 Additional Information on Portfolio Instruments..........................................................3 Investment Restrictions.................................................................................36 Additional Investment Restrictions......................................................................40 Portfolio Turnover......................................................................................43 VALUATION........................................................................................................45 Valuation of the Money Market Funds and the Institutional Money Market Fund.............................45 Valuation of the Capital Appreciation Funds and the Income Funds........................................46 ADDITIONAL PURCHASE AND REDEMPTION INFORMATION...................................................................46 Purchase of Shares......................................................................................47 Matters Affecting Redemption............................................................................50 Taxes...................................................................................................51 Additional Tax Information..............................................................................54 Additional Tax Information Concerning the Tax-Exempt Fund, the Tax-Free Funds, the Tennessee Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt Fund......................................................................57 MANAGEMENT OF THE TRUST..........................................................................................61 Officers................................................................................................63 Portfolio Transactions..................................................................................70 Glass-Steagall Act......................................................................................72 Administrator...........................................................................................73 Expenses................................................................................................75 Sub-Administrators......................................................................................76 Distributor.............................................................................................76 Custodian...............................................................................................81 Transfer Agent and Fund Accounting Services.............................................................81 Independent Accountants.................................................................................81 Legal Counsel...........................................................................................82 PERFORMANCE INFORMATION..........................................................................................82 Yields of the Money Market Funds........................................................................83
-i- 235 Yield of the Capital Appreciation Funds and the Income Funds............................................84 Calculation of Total Return.............................................................................86 Performance Comparisons.................................................................................95 ADDITIONAL INFORMATION...........................................................................................96 Organization and Description of Shares..................................................................96 Shareholder Liability...................................................................................97 Miscellaneous...........................................................................................97 FINANCIAL STATEMENTS............................................................................................128 APPENDIX........................................................................................................129
-ii- 236 STATEMENT OF ADDITIONAL INFORMATION AMSOUTH FUNDS AmSouth Funds (the "Trust") is an open-end management investment company. The Trust consists of twenty-nine series of units of beneficial interest ("Shares"), each representing interests in one of twenty-nine separate investment portfolios (each a "Fund"): the AmSouth Value Fund (formerly the AmSouth Equity Fund)(the "Value Fund"), the AmSouth Growth Fund (formerly the AmSouth Capital Growth Fund)(the "Growth Fund"), the AmSouth Small Cap Fund (the "Small Cap Fund"), the AmSouth Equity Income Fund (the "Equity Income Fund"), the AmSouth Balanced Fund (the "Balanced Fund"), the AmSouth Select Equity Fund (the "Select Equity Fund"), the AmSouth Enhanced Market Fund (the "Enhanced Market Fund"[)], the AmSouth Capital Growth Fund (the "Capital Growth Fund"), the AmSouth Large Cap Fund (the "Large Cap Fund"), the AmSouth Mid Cap Fund (the "Mid Cap Fund"), and the International Equity Fund (the "International Equity Fund" and these [eleven] Funds being collectively referred to as the ["]Capital Appreciation Funds"), the AmSouth Strategic Portfolios: Aggressive Growth Portfolio (the "Aggressive Growth Portfolio"), the AmSouth Strategic Portfolios: Growth Portfolio (the "Growth Portfolio"), the AmSouth Strategic Portfolios: Growth and Income Portfolio (the "Growth and Income Portfolio, the AmSouth Strategic Portfolios: Moderate Growth and Income Portfolio (the "Moderate Growth and Income Portfolio"), the AmSouth Strategic Portfolios: Current Income Portfolio (the "Current Income Portfolio" and these five Funds being collectively referred to as the "Strategic Portfolios"), the AmSouth Bond Fund (the "Bond Fund"), the AmSouth Limited Term Bond Fund (formerly the AmSouth Limited Maturity Fund)(the "Limited Term Bond Fund"), the AmSouth Government Income Fund (the "Government Income Fund"), the AmSouth Municipal Bond Fund (the "Municipal Bond Fund"), the AmSouth Florida Tax-Exempt Fund (formerly the AmSouth Florida Tax-Free Fund)(the "Florida Fund"[)],the AmSouth Limited Term U.S. Government Fund (the "Limited Term U.S. Government Fund"), the AmSouth Tennessee Tax-Exempt Fund (the "Tennessee Tax-Exempt Fund"), the AmSouth Limited Term Tennessee Tax-Exempt Fund (the "Limited Term Tennessee Tax-Exempt Fund" and these [EIGHT] Funds being collectively referred to as the ["]Income Funds"), the AmSouth Prime Money Market Fund (formerly the AmSouth Prime Obligations Fund) (the "Prime Money Market Fund"), the AmSouth U.S. Treasury Money Market Fund (formerly the AmSouth U.S. Treasury Fund)(the "U.S. Treasury Fund"), the AmSouth Tax-Exempt Money Market Fund (the "Tax-Exempt Fund"), the AmSouth Treasury Reserve Money Market Fund (the "Treasury Reserve Fund" and these four Funds being collectively referred to as the "Money Market Funds"), and the AmSouth Institutional Prime Obligations Money Market Fund (formerly the AmSouth Institutional Prime Obligations Fund)(the "Institutional Prime Obligations Fund" or the "Institutional Money Market Fund"). The Florida Fund and the Municipal Bond Fund are also collectively referred to herein as the "Tax-Free Funds." The 237 Funds, except for the U.S. Treasury Fund, the Tax-Exempt Fund, the Treasury Reserve Fund, and the Institutional Prime Obligations Fund, offer three classes of Shares: Trust Shares (formerly Premier Shares), Class A Shares (formerly Classic Shares), and Class B Shares. The U.S. Treasury Fund, the Treasury Reserve Fund, and the Tax-Exempt Fund offer two classes of Shares: Trust Shares and Class A Shares. The Institutional Prime Obligations Fund and the Institutional U.S. Treasury Fund offer three classes of Shares: Class I Shares, Class II Shares, and Class III Shares. Much of the information contained in this Statement of Additional Information expands on subjects discussed in the Prospectuses. This Statement of Additional Information relates to all Funds. Capitalized terms not defined herein are defined in the Prospectuses. No investment in Shares of a Fund should be made without first reading that Fund's Prospectus. INVESTMENT OBJECTIVES AND POLICIES STRATEGIC PORTFOLIOS Each Strategic Portfolio seeks to achieve its investment objective by allocating its assets among other mutual funds ("Underlying Funds") advised by the [Advisor], within predetermined strategy ranges, as set forth below. The [Advisor] will make allocation decisions according to its outlook for the economy, financial markets and relative market valuation of the Underlying Funds. Each Strategic Portfolio will invest its assets in the Underlying Funds within the strategy ranges (expressed as a percentage of the Strategic Portfolio's assets) indicated below:
Strategy Ranges --------------- Moderate Aggressive Growth and Growth and Current Growth Growth Income Income Income Underlying Fund Portfolio Portfolio Portfolio Portfolio Portfolio - --------------- --------- --------- --------- --------- --------- Value Fund 0-70% 0-65% 0-60% 0-50% 0% Large Cap Fund 0-70% 0-65% 0-60% 0-50% 0% Capital Growth Fund 0-45% 0-25% 0-25% 0-15% 0% Equity Income Fund 0% 0-25% 0-25% 0-15% 0% Mid Cap Fund 0-30% 0-25% 0-20% 0% 0% Small Cap Fund 0-30% 0-25% 0-20% 0% 0% International Equity Fund 0-20% 0-15% 0-15% 0% 0% Bond Fund 0% 0% 0% 0% 35-55% Limited Term Bond Fund 0% 0% 0-20% 0-45% 40-60% Prime Money Market Fund 0-30% 0-20% 0-20% 0-20% 0-30%
-2- 238
Government Income Fund 0% 0-25% 0-60% 0-70% 0%
The Strategic Portfolios' selection of the Underlying Funds in which to invest, as well as the percentage of a Strategic Portfolio's assets which can be invested in each Underlying Fund, are not fundamental investment policies and can be changed without the approval of shareholders. Changes in the net asset value of the Underlying Funds may affect cash income, if any, derived from these investments and will affect a Strategic Portfolio's net asset value. Because each Strategic Portfolio invests primarily in other mutual funds, which fluctuate in value, the Strategic Portfolio's shares will correspondingly fluctuate in value. Although the Strategic Portfolios normally seek to remain substantially fully invested in the Underlying Funds, each Strategic Portfolio may invest temporarily in certain short-term obligations. Such obligations may be used to invest uncommitted cash balances or to maintain liquidity to meet shareholder redemptions. Each Strategic Portfolio also may borrow money for temporary or emergency purposes. The 1940 Act permits the Strategic Portfolios to invest without limitation in other investment companies that are part of the same "group of investment companies" (as defined in the 1940 Act), such as the Strategic Portfolios and the Underlying Funds, provided that the Strategic Portfolios observe certain limitations on the amount of sales loads and distribution-related fees that are borne by shareholders and do not invest in other funds of funds. ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS The following policies supplement the investment objectives, restrictions and policies of each Fund as set forth in the respective Prospectus for that Fund. HIGH QUALITY INVESTMENTS WITH REGARD TO THE MONEY MARKET FUNDS AND THE INSTITUTIONAL MONEY MARKET FUND. As noted in the Prospectuses for the Money Market Funds and the Institutional Money Market Fund, each such Fund may invest only in obligations determined by AmSouth Bank, Birmingham, Alabama ("AmSouth") the investment [advisor] to the Trust [("Advisor")] to present minimal credit risks under guidelines adopted by the Trust's Trustees. With regard to the Prime Money Market Fund and the Institutional Prime Obligations Fund, investments will be limited to those obligations which, at the time of purchase, (i) possess the highest short-term ratings from at least two nationally recognized statistical ratings organizations ("NRSROs"); or (ii) do not possess a rating, (i.e., are unrated) but are determined by the [Advisor] to be of comparable quality to the rated instruments eligible for purchase by the Fund under guidelines adopted by the Trustees. With regard to the Tax-Exempt Fund, investments will be limited to those obligations which, at the time of -3- 239 purchase, (i) possess one of the two highest short-term ratings from an NRSRO; or (ii) possess, in the case of multiple-rated securities, one of the two highest short-term ratings by at least two NRSROs; or (iii) do not possess a rating, (i.e., are unrated) but are determined by the [Advisor] to be of comparable quality to the rated instruments eligible for purchase by the Fund under the guidelines adopted by the Trustees. For purposes of these investment limitations, a security that has not received a rating will be deemed to possess the rating assigned to an outstanding class of the issuer's short-term debt obligations if determined by the [Advisor] to be comparable in priority and security to the obligation selected for purchase by a Fund. (The above-described securities which may be purchased by the Prime Money Market Fund and the Tax-Exempt Fund are hereinafter referred to as "Eligible Securities.") A security subject to a tender or demand feature will be considered an Eligible Security only if both the demand feature and the underlying security possess a high quality rating or, if such do not possess a rating, (i.e., are unrated) but are determined by the [Advisor] to be of comparable quality; provided, however, that where the demand feature would be readily exercisable in the event of a default in payment of principal or interest on the underlying security, the obligation may be acquired based on the rating possessed by the demand feature or, if the demand feature does not possess a rating, a determination of comparable quality by the [Advisor]. A security which at the time of issuance had a maturity exceeding 397 days but, at the same time of purchase, has a remaining maturity of 397 days or less, is not considered an Eligible Security if it does not possess a high quality rating and the long-term rating, if any, is not within the two highest rating categories of an NRSRO. The Prime Money Market Fund and the Institutional Prime Obligations Fund will not invest more than 5% of its total assets in the securities of any one issuer, except that the Fund may invest up to 25% of its total assets in the securities of a single issuer for a period of up to three business days. If a percentage limitation is satisfied at the time of purchase, a later increase in such percentage resulting from a change in the Fund's net asset value or a subsequent change in a security's qualification as an Eligible Security will not constitute a violation of the limitation. In addition, there is no limit on the percentage of the Fund's assets that may be invested in obligations issued or guaranteed by the U.S. government, its agencies, and instrumentalities and repurchase agreements fully collateralized by such obligations. Under the guidelines adopted by the Trust's Trustees and in accordance with Rule 2a-7 under the Investment Company Act of 1940 (the "1940 Act"), the [Advisor] may be required promptly to dispose of an obligation held in a Fund's portfolio in the event of certain developments that indicate a diminishment of the instrument's credit quality, such as where an NRSRO downgrades an obligation below the second highest rating category, or in the event of a default relating to the financial condition of the issuer. -4- 240 The Appendix to this Statement of Additional Information identifies each NRSRO that may be utilized by the [Advisor] with regard to portfolio investments for the Funds and provides a description of relevant ratings assigned by each such NRSRO. A rating by an NRSRO may be utilized only where the NRSRO is neither controlling, controlled by, or under common control with the issuer of, or any issuer, guarantor, or provider of credit support for, the instrument. BANKERS' ACCEPTANCES AND CERTIFICATES OF DEPOSIT. All of the Funds, except the U.S. Treasury Fund, the Treasury Reserve Fund, and the Limited Term U.S. Government Fund, may invest in bankers' acceptances, certificates of deposit, and demand and time deposits. Bankers' acceptances are negotiable drafts or bills of exchange typically drawn by an importer or exporter to pay for specific merchandise, which are "accepted" by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank or a savings and loan association for a definite period of time and earning a specified return. The Prime Money Market Fund and the Institutional Prime Obligations Fund will not invest in excess of 10% of its net assets in time deposits, including ETDs and CTDs but not including certificates of deposit, with maturities in excess of seven days which are subject to penalties upon early withdrawal. Bankers' acceptances will be those guaranteed by domestic and foreign banks, if at the time of purchase, such banks have capital, surplus, and undivided profits in excess of $100,000,000 (as of the date of their most recently published financial statements). Certificates of deposit and demand and time deposits will be those of domestic and foreign banks and savings and loan associations, if (a) at the time of purchase they have capital, surplus, and undivided profits in excess of $100,000,000 (as of the date of their most recently published financial statements) or (b) the principal amount of the instrument is insured in full by the Federal Deposit Insurance Corporation. COMMERCIAL PAPER. Each Fund, except for the U.S. Treasury Fund, the Treasury Reserve Fund, and the Limited Term U.S. Government Fund, may invest in commercial paper. Commercial paper consists of unsecured promissory notes issued by corporations. Issues of commercial paper normally have maturities of less than nine months and fixed rates of return. Each Fund except the U.S. Treasury Fund, the Treasury Reserve Fund, the Limited Term U.S. Government Fund, the Tax-Exempt Fund, and the Tax-Free Funds may invest in (i) Canadian Commercial Paper, which is commercial paper issued by a Canadian corporation or a Canadian counterpart of a U.S. corporation, and (ii) Europaper, which is U.S. dollar-denominated commercial paper of an issue located in Europe. HIGH YIELD SECURITIES. The Equity Income Fund, and to a limited extent the Capital Growth Fund, may invest in high yield convertible securities. High yield securities are -5- 241 securities that are rated below investment grade by an NRSRO (e.g., "BB" or lower by S&P and "Ba" or lower by Moody's). The Capital Growth Fund may invest in securities rated as low as Ba by Moody's or BB by S&P, Fitch, or Duff. Other terms used to describe such securities include "lower rated bonds," "non-investment grade bonds" and "junk bonds." Generally, lower rated debt securities provide a higher yield than higher rated debt securities of similar maturity, but are subject to a greater degree of risk with respect to the ability of the issuer to meet its principal and interest obligations. Issuers of high yield securities may not be as strong financially as those issuing higher rated securities. The securities are regarded as predominantly speculative. The market value of high yield securities may fluctuate more than the market value of higher rated securities, since high yield securities tend to reflect short-term corporate and market developments to a greater extent than higher rated securities, which fluctuate primarily in response to the general level of interest rates, assuming that there has been no change in the fundamental interest rates, assuming that there has been no change in the fundamental quality of such securities. The market prices of fixed income securities generally fall when interest rates rise. Conversely, the market prices of fixed-income securities generally rise when interest rates fall. Additional risks of high yield securities include limited liquidity and secondary market support. As a result, the prices of high yield securities may decline rapidly in the event that a significant number of holders decide to sell. Changes in expectations regarding an individual issuer, an industry or high yield securities generally could reduce market liquidity for such securities and make their sale by the Equity Income Fund more difficult, at least in the absence of price concessions. Reduced liquidity also could adversely affect the Equity Income Fund's ability to accurately value high yield securities. Issuers of high yield securities also are more vulnerable to real or perceived economic changes (for instance, an economic downturn or prolonged period of rising interest rates), political changes or adverse developments specific to the issuer. Adverse economic, political or other developments may impair the issuer's ability to service principal and interest obligations, to meet projected business goals and to obtain additional financing, particularly if the issuer is highly leveraged. In the event of a default, the Equity Income Fund would experience a reduction of its income and could expect a decline in the market value of the defaulted securities. INSURANCE COMPANY FUNDING AGREEMENTS. The [International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund], the Bond Fund, the Limited Term Bond Fund, the [Tennessee Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt Fund], the Prime Money Market Fund, and the Institutional Prime Obligations Fund may invest in funding agreements ("Funding Agreements"), also known as guaranteed investment contracts, issued by insurance companies. Pursuant to such agreements, these Funds invest an amount of cash with an insurance company and the insurance company credits such investment on a monthly basis with guaranteed interest which is based on an index. The Funding Agreements provide that this guaranteed interest will not be less than a certain minimum rate. These Funds will only purchase a Funding Agreement (i) when the [Advisor] has determined, -6- 242 under guidelines established by the Board of Trustees, that the Funding Agreement presents minimal credit risks to the Fund and is of comparable quality to instruments that are rated high quality by a nationally recognized statistical rating organization that is not an affiliated person, as defined in the 1940 Act, of the issuer, on any insurer, guarantor, provider of credit support for the instrument and (ii) if it may receive all principal of and accrued interest on a Funding Agreement at any time upon thirty days' written notice. Because these Funds may not receive the principal amount of a Funding Agreement from the insurance company on seven days' notice or less, the Funding Agreement is considered an illiquid investment, and, together with other instruments in such Fund which are not readily marketable, will not exceed 15% of such Fund's net assets in the case of the Bond Fund, the Limited Term Bond Fund, the International Equity Fund, the Large Cap Fund, and the Mid Cap Fund, and 10% of such Funds net assets in the case of the Prime Money Market Fund, the Capital Growth Fund, the Tennessee Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt [Fund]. In determining average weighted portfolio maturity, a Funding Agreement will be deemed to have a maturity equal to 30 days, representing the period of time remaining until the principal amount can be recovered through demand. VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand notes, in which the Prime Money Market Fund, the Institutional Prime Obligations Fund, the Capital Appreciation Funds, the [Income Funds, The Tennessee Tax-Exempt Fund, and The Limited Term Tennessee Tax-Exempt Fund] may invest, are unsecured demand notes that permit the indebtedness thereunder to vary and provide for periodic readjustments in the interest rate according to the terms of the instrument. They are also referred to as variable rate demand notes. Because these notes are direct lending arrangements between a Fund and the issuer, they are not normally traded. Although there may be no secondary market in the notes, a Fund may demand payment of principal and accrued interest at any time or during specified periods not exceeding one year, depending upon the instrument involved, and may resell the note at any time to a third party. The absence of such an active secondary market, however, could make it difficult for the Funds to dispose of a variable amount master demand note if the issuer defaulted on its payment obligations or during periods when the Funds are not entitled to exercise their demand rights, and the Funds could, for this or other reasons, suffer a loss to the extent of the default. While the notes are not typically rated by credit rating agencies, issuers of variable amount master demand notes must satisfy the same criteria as set forth above for commercial paper. The [Advisor] or Sub- [Advisor] will consider the earning power, cash flow, and other liquidity ratios of the issuers of such notes and will continuously monitor their financial status and ability to meet payment on demand. Where necessary to ensure that a note is of "high quality," a Fund will require that the issuer's obligation to pay the principal of the note be backed by an unconditional bank letter or line of credit, guarantee or commitment to lend. In determining the dollar-weighted average portfolio maturity, a variable amount master demand note will be deemed to have a maturity equal to the period of time remaining until the principal amount can be recovered from the issuer through demand. -7- 243 VARIABLE AND FLOATING RATE NOTES AND BONDS. The [International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund], the Tax-Exempt Fund, the Bond Fund, the Limited Term Bond Fund, the Tax-Free Funds, [The Tennessee Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt Fund] may acquire variable and floating rate notes and bonds, subject to each Fund's investment objective, policies and restrictions. A variable rate note is one whose terms provide "for the readjustment of its interest rate on set dates and which, upon such readjustment, can reasonably be expected to have a market value that approximates its par value.["] A floating rate note is one whose terms provide for the readjustment of its interest rate whenever a specified interest rate changes and which, at any time, can reasonably be expected to have a market value that approximates its par value. Such notes are frequently not rated by credit rating agencies; however, unrated variable and floating rate notes purchased by a Fund will be determined by the [Advisor] under guidelines established by the Trust's Board of Trustees to be of comparable quality at the time of purchase to rated instruments eligible for purchase under the Fund's investment policies. In making such determinations, the [Advisor] will consider the earning power, cash flow and other liquidity ratios of the issuers of such notes (such issuers include financial, merchandising, bank holding and other companies) and will continuously monitor their financial condition. Although there may be no active secondary market with respect to a particular variable or floating rate note purchased by a Fund, the Fund may resell the note at any time to a third party. The absence of an active secondary market, however, could make it difficult for the Fund to dispose of a variable or floating rate note in the event the issuer of the note defaulted on its payment obligations and the Fund could, as a result or for other reasons, suffer a loss to the extent of the default. Variable or floating rate notes may be secured by bank letters of credit or drafts. For purposes of these Funds, the maturities of the variable and floating rate notes will be determined in accordance with Rule 2a-7 under the 1940 Act. PARTICIPATION INTERESTS AND TRUST RECEIPTS. [(International Equity Fund, Mid Cap Fund, Large Cap Fund, Capital Growth Fund, Tennessee Tax-Exempt Fund, Limited Term Tennessee Tax-Exempt Fund)] Each of these Funds may purchase from financial institutions and trusts created by such institutions participation interests and trust receipts in securities in which it may invest and may enter into loan participation agreements. A participation interest or receipt gives the Fund an undivided interest in the security in the proportion that the Fund's participation interest or receipt bears to the total principal amount of the security. These instruments may have fixed, floating or variable rates of interest with remaining maturities of 397 days or less. If the instrument is unrated, or has been given a rating below that which is permissible for purchase by the Fund, the instrument will be backed by an irrevocable letter of credit or guarantee of a bank or other entity the debt securities of which are rated high quality, or the payment obligation otherwise will be collateralized by U.S. Government securities, or, in the case of unrated instruments, the [Advisor], acting upon delegated authority -8- 244 from the Trust's Board of Trustees, must have determined that the instrument is of comparable quality to those instruments in which the Fund may invest. Participation interests or trust receipts with a rating below high quality that are backed by an irrevocable letter of credit or guarantee as described above will be purchased only if the [Advisor], acting as described above, determines after an analysis of, among other factors, the creditworthiness of the guarantor that such instrument is high quality, and if the rating agency did not include the letter of credit or guarantee in its determination of the instrument's rating. If the rating of a participation interest or trust receipt is reduced subsequent to its purchase by the Fund, the [Advisor] will consider, in accordance with procedures established by the Board of Trustees, all circumstances deemed relevant in determining whether the Fund should continue to hold the instrument. The guarantor of a participation interest or trust receipt will be treated as a separate issuer. For certain participation interests and trust receipts, the Fund will have the unconditional right to demand payment, on not more than seven days' notice, for all or any part of the Fund's interest in the security, plus accrued interest. As to these instruments, the Fund intends to exercise its right to demand payment only upon a default under the terms of the security, as needed to provide liquidity to meet redemptions, or to maintain or improve the quality of its investment portfolio. ZERO COUPON OBLIGATIONS. The Bond Fund, Limited Term Bond Fund, the [International Equity Fund, the Mid Cap Fund, The Large Cap Fund, the Capital Growth Fund, the Limited Term U.S. Government Fund, the Tennessee Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt] Fund, the Treasury Reserve Fund, and the Tax-Exempt Fund may acquire zero-coupon obligations evidencing ownership of future interest and principal payments on U.S. Treasury bonds. Such zero-coupon obligations pay no current interest and are typically sold at prices greatly discounted from par value, with par value to be paid to the holder at maturity. The return on a zero-coupon obligation, when held to maturity, equals the difference between the par value and the original purchase price. Zero-coupon obligations have greater price volatility than coupon obligations and such obligations will be purchased when the yield spread, in light of the obligation's duration, is considered advantageous. The Bond Fund will only purchase zero-coupon obligations if, at the time of purchase, such investments do not exceed 15% of the value of the Bond Fund's total assets, and the Limited Term Bond Fund and the Tennessee Tax-Exempt Fund will only purchase zero-coupon obligations if, at the time of purchase, such investments do not exceed 25% of the value of the Limited Term Bond Fund's total assets. The [International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund, the Tennessee Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt Fund] also may invest in zero coupon securities issued by corporations and financial institutions which constitute a proportionate ownership of the issuer's pool of underlying U.S. Treasury securities. An increase in interest rates will generally reduce the value of the investments in the [Bond Fund, the Limited Term Bond Fund, the Government Income -9- 245 Fund, the Municipal Bond Fund, and the Florida Tax-Exempt Fund] and a decline in interest rates will generally increase the value of those investments. Depending upon prevailing market conditions, the [Advisor] may purchase debt securities at a discount from face value, which produces a yield greater than the coupon rate. Conversely, if debt securities are purchased at a premium over face value, the yield will be lower than the coupon rate. In making investment decisions, the [Advisor] will consider many factors other than current yield, including the preservation of capital, maturity, and yield to maturity. Foreign Investment. All of the Funds, except the U.S. Treasury Fund, the Treasury Reserve Fund, the [Limited Term U.S. Government Fund, the Tennessee Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt Fund], and the Tax-Free Funds, may, subject to their investment objectives, restrictions and policies, invest in certain obligations or securities of foreign issuers. Permissible investments include Eurodollar Certificates of Deposit ("ECDs") which are U.S. dollar denominated certificates of deposit issued by branches of foreign and domestic banks located outside the United States, Yankee Certificates of Deposit ("Yankee CDs") which are certificates of deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the United States, Eurodollar Time Deposits ("ETD's") which are U.S. dollar denominated deposits in a foreign branch of a U.S. bank or a foreign bank, Canadian Time Deposits ("CTD's") which are U.S. dollar denominated certificates of deposit issued by Canadian offices of major Canadian Banks, and American Depository Receipts ("ADRs") which are foreign shares of a company held by a U.S. bank which issues a receipt evidencing ownership. Investments in securities issued by foreign branches of U.S. banks, foreign banks, or other foreign issuers, including ADRs and securities purchased on foreign securities exchanges, may subject the Funds to investment risks that differ in some respects from those related to investment in obligations of U.S. domestic issuers or in U.S. securities markets. Such risks include future adverse political and economic developments, possible seizure, currency blockage, nationalization or expropriation of foreign investments, less stringent disclosure requirements, the possible establishment of exchange controls or taxation at the source, and the adoption of other foreign governmental restrictions. Additional risks include currency exchange risks, less publicly available information, the risk that companies may not be subject to the accounting, auditing and financial reporting standards and requirements of U.S. companies, the risk that foreign securities markets may have less volume and therefore many securities traded in these markets may be less liquid and their prices more volatile than U.S. securities, and the risk that custodian and brokerage costs may be higher. Foreign issuers of securities or obligations are often subject to accounting treatment and engage in business practices different from those respecting domestic issuers of similar securities or obligations. Foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks. A Fund will acquire such securities only when the [Advisor] or Sub- [Advisor] believes the risks associated with such investments are minimal. -10- 246 REPURCHASE AGREEMENTS. Securities held by each Fund may be subject to repurchase agreements. Under the terms of a repurchase agreement, a Fund would acquire securities from member banks of the Federal Deposit Insurance Corporation with capital, surplus, and undivided profits of not less than $100,000,000 (as of the date of their most recently published financial statements) and from registered broker-dealers which the [Advisor] or Sub- [Advisor] deems creditworthy under guidelines approved by the Board of Trustees, subject to the seller's agreement to repurchase such securities at a mutually agreed-upon date and price. The repurchase price would generally equal the price paid by the Fund plus interest negotiated on the basis of current short-term rates, which may be more or less than the rate on the underlying portfolio securities. The seller under a repurchase agreement will be required to maintain the value of collateral held pursuant to the agreement at not less than the repurchase price (including accrued interest) and the [Advisor] or Sub- [Advisor] will monitor the collateral's value to ensure that it equals or exceeds the repurchase price (including accrued interest). In addition, securities subject to repurchase agreements will be held in a segregated account. If the seller were to default on its repurchase obligation or become insolvent, the Fund holding such obligation would suffer a loss to the extent that the proceeds from a sale of the underlying portfolio securities were less than the repurchase price under the agreement, or to the extent that the disposition of such securities by the Fund were delayed pending court action. Additionally, if the seller should be involved in bankruptcy or insolvency proceedings, a Fund may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Fund is treated as an unsecured creditor and required to return the underlying security to the seller's estate. Securities subject to repurchase agreements will be held by the Trust's custodian or another qualified custodian or in the Federal Reserve/Treasury book-entry system. Repurchase agreements are considered to be loans by a Fund under the 1940 Act. REVERSE REPURCHASE AGREEMENTS. As discussed in each Prospectus, each Fund, except the [International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund, the Limited Term U.S. Government Fund, the Tennessee Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt Fund] may borrow funds for temporary purposes by entering into reverse repurchase agreements in accordance with the Fund's investment restrictions. Pursuant to such an agreement, a Fund would sell portfolio securities to financial institutions such as banks and broker-dealers, and agree to repurchase the securities at a mutually agreed-upon date and price. Each Fund intends to enter into reverse repurchase agreements only to avoid otherwise selling securities during unfavorable market conditions to meet redemptions. At the time a Fund enters into a reverse repurchase agreement, it will place in a segregated custodial account assets consistent with the Fund's investment restrictions having a value equal to the repurchase price (including accrued interest), and will subsequently monitor the account to ensure that such equivalent value is maintained. Such assets will include U.S. government securities or other liquid high quality debt securities in the case of the -11- 247 Money Market Funds, the Institutional Money Market Fund, and the Income Funds or other liquid, high-grade debt securities, in the case of the [Value Fund, the Growth Fund, the Small Cap Fund, the Equity Income Fund, the Balanced Fund, the Select Equity Fund, and the Enhanced Market Fund]. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the price at which a Fund is obligated to repurchase the securities. Reverse repurchase agreements are considered to be borrowings by a Fund under the 1940 Act. U.S. GOVERNMENT OBLIGATIONS. The U.S. Treasury Fund will invest exclusively in bills, notes and bonds issued by the U.S. Treasury. Such obligations are supported by the full faith and credit of the U.S. government. Each of the other Funds may invest in such obligations and in other obligations issued or guaranteed by the U.S. government, its agencies and instrumentalities. Such other obligations may include those such as GNMA and the Export-Import Bank of the United States, which are supported by the full faith and credit of the U.S. government; others, such as those of FNMA, which are supported by the right of the issuer to borrow from the Treasury; others which are supported by the discretionary authority of the U.S. government to purchase the agency's obligations; and still others, such as those of the Federal Farm Credit Banks or FHLMC, which are supported only by the credit of the instrumentality. No assurance can be given that the U.S. government would provide financial support to U.S. government-sponsored agencies or instrumentalities if it is not obligated to do so by law. A Fund will invest in the obligations of such agencies and instrumentalities only when the [Advisor] or Sub- [Advisor] believes that the credit risk with respect thereto is minimal. The principal governmental (i.e., backed by the full faith and credit of the U.S. government) guarantor of mortgage-related securities is GNMA. GNMA is a wholly-owned U.S. government corporation within the Department of Housing and Urban Development. GNMA is authorized to guarantee, with the full faith and credit of the U.S. government, the timely payment of principal and interest on securities issued by institutions approved by GNMA (such as savings and loan institutions, commercial banks and mortgage bankers) and backed by pools of FHA-insured or VA-guaranteed mortgages. Government-related (i.e., not backed by the full faith and credit of the U.S. government) guarantors include FNMA and FHLMC. FNMA and FHLMC are government-sponsored corporations owned entirely by private stockholders. Pass-through securities issued by FNMA and FHLMC are guaranteed as to timely payment of principal and interest by FNMA and FHLMC but are not backed by the full faith and credit of the U.S. government. WHEN-ISSUED OR FORWARD COMMITMENT SECURITIES. As discussed in the Prospectuses, each Fund except the Prime Money Market Fund, the Institutional Prime Obligations Fund, and the U.S. Treasury Fund may purchase securities on a when-issued basis (i.e., for delivery beyond the normal settlement date at a stated price and yield). When a Fund agrees to -12- 248 purchase securities on a when-issued basis, the Fund's custodian will set aside cash or liquid portfolio securities equal to the amount of the commitment in a separate account. Normally, the custodian will set aside portfolio securities to satisfy the purchase commitment, and in such a case, the Fund may be required subsequently to place additional assets in the separate account in order to assure that the value of the account remains equal to the amount of the Fund's commitment. It may be expected that the Fund's net assets will fluctuate to a greater degree when it sets aside portfolio securities to cover such purchase commitments than when it sets aside cash. Securities purchased on a "when-issued" basis are recorded as an asset and are subject to changes in value based upon changes in the general level of interest rates. Each of the [Value Fund, the Growth Fund, the Small Cap Fund, the Equity Income Fund, the Balanced Fund, the Select Equity Fund, and the Enhanced Market Fund] expects that commitments to purchase "when-issued" securities will not exceed 25% of the value of its total assets under normal market conditions, and that a commitment to purchase "when-issued" securities will not exceed 60 days. In addition, because a Fund will set aside cash or liquid portfolio securities to satisfy its purchase commitments in the manner described above, a Fund's liquidity and the ability of the [Advisor] or Sub- [Advisor] to manage it might be affected in the event its commitments to purchase when-issued securities ever exceeded 25% of the value of its total assets. When a Fund engages in when-issued transactions, it relies on the seller to consummate the trade. Failure of the seller to do so may result in the Fund incurring a loss or missing the opportunity to obtain a price considered to be advantageous. No Fund intends to purchase when-issued securities for speculative purposes but only in furtherance of its investment objective. ASSET-BACKED SECURITIES. The Bond Fund, the Limited Term Bond Fund, the Institutional Prime Obligations Fund, the Capital Growth Fund, and the Prime Money Market Fund may invest in securities backed by automobile receivables and credit-card receivables and other securities backed by other types of receivables. Offerings of Certificates for Automobile Receivables ("CARS") are structured either as flow-through grantor trusts or as pay-through notes. CARS structured as flow-through instruments represent ownership interests in a fixed pool of receivables. CARS structured as pay-through notes are debt instruments supported by the cash flows from the underlying assets. CARS may also be structured as securities with fixed payment schedules which are generally issued in multiple-classes. Cash-flow from the underlying receivables is directed first to paying interest and then to retiring principal via paying down the two respective classes of notes sequentially. Cash-flows on fixed-payment CARS are certain, while cash-flows on other types of CARS issues depends on the prepayment rate of the underlying automobile loans. Prepayments of automobile loans are triggered mainly by automobile sales and trade-ins. Many people buy new cars every two or three years, leading to rising prepayment rates as a pool becomes more seasoned. -13- 249 Certificates for Amortizing Revolving Debt ("CARDS") represent participation in a fixed pool of credit card accounts. CARDS pay "interest only" for a specified period, typically 18 months. The CARD'S principal balance remains constant during this period, while any cardholder repayments or new borrowings flow to the issuer's participation. Once the principal amortization phase begins, the balance declines with paydowns on the underlying portfolio. CARDS have monthly payment schedules, weighted-average lives of 18-24 months and stated final maturities ranging from 3 to 5 years. Cash flows on CARDS are certain during the interest-only period. After this initial interest-only period, the cash flow will depend on how fast cardholders repay their borrowings. Historically, monthly cardholder repayment rates have been relatively fast. As a consequence, CARDS amortize rapidly after the end of the interest-only period. During this amortization period, the principal payments on CARDS depend specifically on the method for allocating cardholder repayments to investors. In many cases, the investor's participation is based on the ratio of the CARDS' balance to the total credit card portfolio balance. This ratio can be adjusted monthly or can be based on the balances at the beginning of the amortization period. In some issues, investors are allocated most of the repayments, regardless of the CARDS' balance. This method results in especially fast amortization. Credit support for asset-backed securities may be based on the underlying assets or provided by a third party. Credit enhancement techniques include letters of credit, insurance bonds, limited guarantees (which are generally provided by the issuer), senior-subordinated structures and over collateralization. The Bond Fund and the Limited Term Bond Fund will only purchase an asset-backed security if it is rated at the time of purchase in one of the three highest rating categories by an NRSRO or, if unrated, found by the [Advisor] under guidelines established by the Trust's Board of Trustees to be of comparable quality. Asset-backed securities purchased by the Institutional Prime Obligations Fund will be subject to the same quality requirements as other securities purchased by the Fund. MORTGAGE-RELATED SECURITIES. Mortgage-related securities have mortgage obligations backing such securities, including among others, conventional thirty year fixed rate mortgage obligations, graduated payment mortgage obligations, fifteen year mortgage obligations, and adjustable rate mortgage obligations. All of these mortgage obligations can be used to create pass-through securities. A pass-through security is created when mortgage obligations are pooled together and undivided interests in the pool or pools are sold. The cash flow from the mortgage obligations is passed through to the holders of the securities in the form of periodic payments of interest, principal and prepayments (net of a service fee). Prepayments occur when the holder of an individual mortgage obligation prepays the remaining principal before the mortgage obligation's scheduled maturity date. As a result of the pass-through of prepayments of principal on the underlying securities, mortgage-backed securities are often subject to more rapid prepayment of principal than their stated maturity would indicate. Because the prepayment characteristics of the underlying mortgage obligations vary, it is not possible to predict accurately the realized yield or average life of a particular issue of pass-through certificates. Prepayment rates are important because of their effect on the yield -14- 250 and price of the securities. Accelerated prepayments have an adverse impact on yields for pass-throughs purchased at a premium (i.e., a price in excess of principal amount) and may involve additional risk of loss of principal because the premium may not have been fully amortized at the time the obligation is repaid. The opposite is true for pass-throughs purchased at a discount. The Government Income Fund may purchase mortgage-related securities at a premium or at a discount. MORTGAGE-RELATED SECURITIES ISSUED BY NONGOVERNMENTAL ENTITIES. The Government Income Fund and the Capital Growth Fund may invest in mortgage-related securities issued by nongovernmental entities. Commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issues also create pass-through pools of conventional residential mortgage loans. Such issuers may also be the originators of the underlying mortgage loans as well as the guarantors of the mortgage-related securities. Pools created by such nongovernmental issuers generally offer a higher rate of interest than government and government-related pools because there are not direct or indirect government guarantees of payments in the former pools. However, timely payment of interest and principal of these pools is supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers and the mortgage poolers. Such insurance and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets the Government Income Fund's investment quality standards. There can be no assurance that the private insurers can meet their obligations under the policies. The Government Income Fund may buy mortgage-related securities without insurance or guarantees if through an examination of the loan experience and practices of the poolers the [Advisor] determines that the securities meet the Government Income Fund's quality standards. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable. The Government Income Fund and the Capital Growth Fund will not purchase mortgage-related securities or any other assets which in the [Advisor's] opinion are illiquid, if as a result, more than 15% of the value of the Government Income Fund's or more than 10% of the value of the Capital Growth Fund's net assets will be illiquid. COLLATERALIZED MORTGAGE OBLIGATIONS. Mortgage-related securities in which the Government Income Fund, the Limited Term U.S. Government Fund, and the Capital Growth Fund may invest may also include collateralized mortgage obligations ("CMOs"). CMOs are debt obligations issued generally by finance subsidiaries or trusts that are secured by mortgage-backed certificates, including, in many cases, certificates issued by government-related guarantors, including GNMA, FNMA and FHLMC, together with certain funds and other collateral. Although payment of the principal of and interest on the mortgage-backed certificates pledged to secure the CMOs may be guaranteed by GNMA, FNMA or FHLMC, the CMOs represent obligations solely of the issuer and are not insured or guaranteed by GNMA, FHLMC, FNMA or any other governmental agency, or by any other person or entity. The issuers of the CMOs typically have no significant assets other than those -15- 251 pledged as collateral for the obligations. The staff of the Securities and Exchange Commission has determined that certain issuers of CMOs are investment companies for purposes of the 1940 Act. CMOs may include Stripped Mortgage Securities. Such securities are derivative multiclass mortgage securities issued by agencies or instrumentalities of the U.S. government, or by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage banks, commercial banks, investment banks and special purpose subsidiaries of the foregoing. Stripped Mortgage Securities are usually structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common type of Stripped Mortgage Security will have one class receiving all of the interest from the mortgage assets (the interest-only or "IO" class), while the other class will receive all of the principal (the principal-only or "PO" class). The yield to maturity on an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying mortgage assets, and a rapid rate of principal payments may have a material adverse effect on the securities' yield to maturity. If the underlying mortgage assets experience greater than anticipated prepayments of principal, the Fund may fail to fully recoup its initial investment in these securities even if the security is rated AAA or Aaa. The Stripped Mortgage Securities held by the Funds will be considered liquid securities only under guidelines established by the Trust's Board of Trustees, and the Fund will not purchase a Stripped Mortgage Security that is illiquid if, as a result thereof, more than 15% of the value of the Fund's net assets would be invested in such securities and other illiquid securities. In reliance on a recent staff interpretation, the Funds' investment in certain qualifying CMOs, including CMOs that have elected to be treated as Real Estate Mortgage Investment Conduits (REMICs), are not subject to the 1940 Act's limitation on acquiring interests in other investment companies. In order to be able to rely on the staff's interpretation, the CMOs and REMICs must be unmanaged, fixed-asset issuers, that (a) invest primarily in mortgaged-backed securities, (b) do not issue redeemable securities, (c) operate under general exemptive orders exempting them from all provisions of the 1940 Act, and (d) are not registered or regulated under the 1940 Act as investment companies. To the extent that the Funds select CMOs or REMICs that do not meet the above requirements, the Funds' investment in such securities will be subject to the limitations on its investment in investment company securities. See "Investment Company Securities" in this Statement of Additional Information. The Fund expect that governmental, government-related or private entities may create mortgage loan pools offering pass-through investments in addition to those described above. The mortgages underlying these securities may be alternative mortgage instruments, that is, mortgage instruments whose principal or interest payments may vary or whose terms to maturity may be different from customary long-term fixed rate mortgages. As new types of mortgage-related securities are developed and offered to investors, the [Advisor] -16- 252 will, consistent with the Funds' investment objective, policies and quality standards, consider making investments in such new types of securities. Convertible Securities. Each of the Capital Appreciation Funds may invest in convertible securities. Convertible securities are fixed-income securities which may be exchanged or converted into a predetermined number of the issuer's underlying common stock at the option of the holder during a specified time period. Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of "usable" bonds and warrants or a combination of the features of several of these securities. Each Fund other than the Balanced Fund may invest in convertible securities rated "BBB" or higher by an NRSRO at the time of investment, or if unrated, of comparable quality. The Equity Income Fund may invest in convertible securities rated "BB" or lower by an NRSRO at the time of investment, or if unrated, of comparable quality. The Balanced Fund may invest in convertible securities rated "A" or higher by an NRSRO or, if unrated, of comparable quality. If a convertible security falls below these minimum ratings after a Fund has purchased it, a Fund is not required to drop the convertible bond from its portfolio, but will consider appropriate action. The investment characteristics of each convertible security vary widely, which allows convertible securities to be employed for different investment objectives. Securities which are rated "BB" or lower by Standard & Poor's or "Ba" or lower by Moody's either have speculative characteristics or are speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligations. A description of the rating categories is contained in the Appendix to the Statement of Additional Information. There is no lower limit with respect to rating categories for convertible securities in which the Equity Income Fund may invest. Corporate debt obligations that are not determined to be investment-grade are high-yield, high-risk bonds, typically subject to greater market fluctuations and greater risk of loss of income and principal due to an issuer's default. To a greater extent than investment-grade securities, lower rated securities tend to reflect short-term corporate, economic and market developments, as well as investor perceptions or the issuer's credit quality. Because investments in lower rated securities involve greater investment risk, achievement of the Equity Income Fund's investment objective may be more dependent on the Sub- [Advisor's] credit analysis than would be the case if the Fund were investing in higher rated securities. High yield securities may be more susceptible to real or perceived adverse economic and competitive industry conditions than investment grade securities. A projection of an economic downturn, for example, could cause a decline in high yield prices because the advent of a recession could lessen the ability of a highly leveraged company to make principal and interest payments on its debt securities. In addition, the secondary trading market for high yield securities may be less liquid than the market for higher grade securities. The market prices of debt securities also generally fluctuate with changes in interest rates so that the Fund's net asset value can be expected to decrease as long-term interest rates rise and -17- 253 to increase as long-term rates fall. In addition, lower rated securities may be more difficult to dispose of or to value than high-rated, lower-yielding securities. The Sub- [Advisor] attempts to reduce the risks described above through diversification of the portfolio and by credit analysis of each issuer as well as by monitoring broad economic trends and corporate and legislative developments. Convertible bonds and convertible preferred stocks are fixed-income securities that generally retain the investment characteristics of fixed-income securities until they have been converted but also react to movements in the underlying equity securities. The holder is entitled to receive the fixed-income of a bond or the dividend preference of a preferred stock until the holder elects to exercise the conversion privilege. Usable bonds are corporate bonds that can be used in whole or in part, customarily at full face value, in lieu of cash to purchase the issuer's common stock. When owned as part of a unit along with warrants, which are options to buy the common stock, they function as convertible bonds, except that the warrants generally will expire before the bond's maturity. Convertible securities are senior to equity securities, and, therefore, have a claim to assets of the corporation prior to the holders of common stock in the case of liquidation. However, convertible securities are generally subordinated to similar non-convertible securities of the same company. The interest income and dividends from convertible bonds and preferred stocks provide a stable stream of income with generally higher yields than common stocks, but lower than non-convertible securities of similar quality. The Funds will exchange or convert the convertible securities held in portfolio into shares of the underlying common stock in instances in which, in the opinion of the [Advisor] or Sub- [Advisor], the investment characteristics of the underlying common shares will assist a Fund in achieving its investment objectives. Otherwise, a Fund will hold or trade the convertible securities. In selecting convertible securities for a Fund, the [Advisor] or Sub- [Advisor] evaluates the investment characteristics of the convertible security as a fixed-income instrument, and the investment potential of the underlying equity security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the [Advisor] or Sub- [Advisor] considers numerous factors, including the economic and political outlook, the value of the security relative to other investment alternatives, trends in the determinants of the issuer's profits, and the issuer's management capability and practices. As with all debt securities, the market values of convertible securities tend to increase when interest rates decline and, conversely, tend to decline when interest rates increase. Calls. The Capital Appreciation Funds, the Bond Fund, the Limited Term Bond Fund and the Government Income Fund may write (sell) "covered" call options and purchase options to close out options previously written by it. Such options must be issued by the Options Clearing Corporation and may or may not be listed on a National Securities Exchange. The purpose of writing covered call options is to generate -18- 254 additional premium income for a Fund. This premium income will serve to enhance the Fund's total return and will reduce the effect of any price decline of the security involved in the option. Covered call options will generally be written on securities which, in the [Advisor's] or Sub- [Advisor's] opinion, are not expected to make any major price moves in the near future but which, over the long term, are deemed to be attractive investments for the Fund. A call option gives the holder (buyer) the "right to purchase" a security at a specified price (the exercise price) at any time until a certain date (the expiration date). So long as the obligation of the writer of a call option continues, he or she may be assigned an exercise notice by the broker-dealer through whom such option was sold, requiring him or her to deliver the underlying security against payment of the exercise price. This obligation terminates upon the expiration of the call option, or such earlier time at which the writer effects a closing purchase transaction by repurchasing an option identical to that previously sold. To secure his or her obligation to deliver the underlying security in the case of a call option, a writer is required to deposit in escrow the underlying security or other assets in accordance with the rules of the Options Clearing Corporation. The Funds will write only covered call options. This means that a Fund will only write a call option on a security which it already owns. Fund securities on which call options may be written will be purchased solely on the basis of investment considerations consistent with a Fund's investment objectives. The writing of covered call options is a conservative investment technique believed to involve relatively little risk (in contrast to the writing of naked or uncovered options, which the Funds will not do), but capable of enhancing a Fund's total return. When writing a covered call option, a Fund, in return for the premium, gives up the opportunity for profit from a price increase in the underlying security above the exercise price, but retains the risk of loss should the price of the security decline. Unlike when a Fund owns securities not subject to an option, these Funds will not have any control over when they may be required to sell the underlying securities, since they may be assigned an exercise notice at any time prior to the expiration of their obligation as a writer. If a call option which the Fund has written expires, the Fund will realize a gain in the amount of the premium; however, such gain may be offset by a decline in the market value of the underlying security during the option period. If the call option is exercised, the Fund will realize a gain or loss from the sale of the underlying security. The security covering the call will be maintained in a segregated account of the Fund's custodian. The Funds will consider a security covered by a call to be "pledged" as that term is used in its policy which limits the pledging or mortgaging of its assets. The premium received is the market value of an option. The premium a Fund will receive from writing a call option will reflect, among other things, the current market price of the underlying security, the relationship of the exercise price to such market price, the historical price volatility of the underlying security, and the length of the option period. Once the decision to write a call option has been made, the [Advisor] or Sub- [Advisor], in determining whether a particular call option should be written on a particular -19- 255 security, will consider the reasonableness of the anticipated premium and the likelihood that a liquid secondary market will exist for those options. The premium received by a Fund for writing covered call options will be recorded as a liability in the Fund's statement of assets and liabilities. This liability will be adjusted daily to the option's current market value, which will be the latest sale price at the time at which the net asset value per share of the Fund is computed (close of the New York Stock Exchange), or, in the absence of such sale, the latest asked price. The liability will be extinguished upon expiration of the option, the purchase of an identical option in the closing transaction, or delivery of the underlying security upon the exercise of the option. Closing transactions will be effected in order to realize a profit on an outstanding call option, to prevent an underlying security from being called, or to permit the sale of the underlying security. Furthermore, effecting a closing transaction will permit a Fund to write another call option on the underlying security with either a different exercise price or expiration date or both. If a Fund desires to sell a particular security from its portfolio on which it has written a call option, it will seek to effect a closing transaction prior to, or concurrently with, the sale of the security. There is, of course, no assurance that the Fund will be able to effect such closing transactions at a favorable price. If a Fund cannot enter into such a transaction, it may be required to hold a security that it might otherwise have sold, in which case it would continue to be at market risk on the security. This could result in higher transaction costs. A Fund will pay transaction costs in connection with the writing of options to close out previously written options. Such transaction costs are normally higher than those applicable to purchases and sales of portfolio securities. Call options written by the Funds will normally have expiration dates of less than nine months from the date written. The exercise price of the options may be below, equal to, or above the current market values of the underlying securities at the time the options are written. From time to time, a Fund may purchase an underlying security for delivery in accordance with an exercise notice of a call option assigned to it, rather than delivering such security from its portfolio. In such cases, additional costs will be incurred. A Fund will realize a profit or loss from a closing purchase transaction if the cost of the transaction is less or more than the premium received from the writing of the option. Because increases in the market price of a call option will generally reflect increases in the market price of the underlying security, any loss resulting from the repurchase of a call option is likely to be offset in whole or in part by appreciation of the underlying security owned by a Fund. PUTS. The Tax-Exempt Fund and the Tax-Free Funds may acquire "puts" with respect to Municipal Securities held in their portfolios, the Balanced Fund, the Bond Fund, and the Limited Term Bond Fund may acquire "puts" with respect to debt securities held in their portfolios, and the [International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund], the Enhanced Market Fund and Select Equity Fund may acquire "puts" with respect to equity securities held in their -20- 256 portfolios. A put is a right to sell a specified security (or securities) within a specified period of time at a specified exercise price. The Funds may sell, transfer, or assign a put only in conjunction with the sale, transfer, or assignment of the underlying security or securities. The amount payable to a Fund upon its exercise of a "put" is normally (i) the Fund's acquisition cost of the securities subject to the put (excluding any accrued interest which the Fund paid on the acquisition), less any amortized market premium or plus any amortized market or original issue discount during the period the Fund owned the securities, plus (ii) all interest accrued on the securities since the last interest payment date during that period. Puts may be acquired by a Fund to facilitate the liquidity of the portfolio assets. Puts may also be used to facilitate the reinvestment of assets at a rate of return more favorable than that of the underlying security. Puts may, under certain circumstances, also be used to shorten the maturity of underlying variable rate or floating rate securities for purposes of calculating the remaining maturity of those securities and the dollar-weighted average portfolio maturity of the Tax-Exempt Fund's assets pursuant to Rule 2a-7 under the 1940 Act. See "Variable and Floating Rate Notes" and "Valuation of the Prime Money Market Fund, the U.S. Treasury Fund and the Tax-Exempt Fund" in this Statement of Additional Information. The Limited Term Bond Fund will acquire puts solely to shorten the maturity of the underlying debt security. The Tax-Exempt Fund, the Tax-Free Funds, the Limited Term Bond Fund, the [International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund], the Balanced Fund, the Enhanced Market Fund, and the Select Equity Fund will generally acquire puts only where the puts are available without the payment of any direct or indirect consideration. However, if necessary or advisable, a Fund may pay for puts either separately in cash or by paying a higher price for portfolio securities which are acquired subject to the puts (thus reducing the yield to maturity otherwise available for the same securities). The Funds intend to enter into puts only with dealers, banks, and broker-dealers which, in the [Advisor's] opinion, present minimal credit risks. The [the International Equity Fund, the Mid Cap Fund, the Large Cap Fund, and the Capital Growth Fund] may write covered put options in respect of specific securities in which the Funds may invest and write covered call and put option contracts. The principal reason for writing covered put options is to realize income in the form of premiums. The writer of a covered put option accepts the risk of a decline in the price of the underlying security. The size of the premiums that the Fund may receive may be adversely affected as new or existing institutions, including other investment companies, engage in or increase their option-writing activities. -21- 257 FUTURES CONTRACTS AND RELATED OPTIONS. The Enhanced Market Fund, the Select Equity Fund, the Small Cap Fund, the [the International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund, the Tennessee Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt Fund] may invest in futures contracts and options thereon (interest rate futures contracts or index futures contracts, as applicable) to commit funds awaiting investment, to maintain cash liquidity or for other hedging purposes. The value of a Fund's contracts may equal or exceed 100% of the Fund's total assets, although a Fund will not purchase or sell a futures contract unless immediately afterwards the aggregate amount of margin deposits on its existing futures positions plus the amount of premiums paid for related futures options entered into for other than bona fide hedging purposes is 5% or less of its net assets. Futures contracts obligate a Fund, at maturity, to take or make delivery of securities, the cash value of a securities index or a stated quantity of a foreign currency. A Fund may sell a futures contract in order to offset an expected decrease in the value of its portfolio positions that might otherwise result from a market decline or currency exchange fluctuation. A Fund may do so either to hedge the value of its securities portfolio as a whole, or to protect against declines occurring prior to sales of securities in the value of the securities to be sold. In addition, a Fund may utilize futures contracts in anticipation of changes in the composition of its holdings or in currency exchange rates. Positions in futures contracts may be closed out only on an exchange which provides a secondary market for such futures. However, there can be no assurance that a liquid secondary market will exist for any particular futures contract at any specific time. Thus, it may not be possible to close a futures position. In the event of adverse price movements, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if a Fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at a time when it may be disadvantageous to do so. In addition, a Fund may be required to make delivery of the instruments underlying the futures contracts it holds. The inability to close options and futures positions also could have an adverse impact on a Fund's ability to effectively hedge. When a Fund purchases an option on a futures contract, it has the right to assume a position as a purchaser or a seller of a futures contract at a specified exercise price during the option period. When a Fund sells an option on a futures contract, it becomes obligated to sell or buy a futures contract if the option is exercised. In connection with a Fund's position in a futures contract or related option, a Fund will create a segregated account of liquid assets or will otherwise cover its position in accordance with applicable SEC requirements. Successful use of futures by the Funds is also subject to an [advisor's] or sub- [advisor's] ability to correctly predict movements in the direction of the market. For example, if a Fund has hedged against the possibility of a decline in the market -22- 258 adversely affecting securities held by it and securities prices increase instead, a Fund will lose part or all of the benefit to the increased value of its securities which it has hedged because it will have approximately equal offsetting losses in its futures positions. In addition, in some situations, if a Fund has insufficient cash, it may have to sell securities to meet daily variation margin requirements. Such sales of securities may be, but will not necessarily be, at increased prices which reflect the rising market. A Fund may have to sell securities at a time when it may be disadvantageous to do so. The risk of loss in trading futures contracts in some strategies can be substantial, due both to the low margin deposits required, and the extremely high degree of leverage involved in futures pricing. As a result, a relatively small price movement in a futures contract may result in immediate and substantial loss (as well as gain) to the investor. For example, if at the time of purchase, 10% of the value of the futures contract is deposited as margin, a subsequent 10% decrease in the value of the futures contract would result in a total loss of the margin deposit, before any deduction for the transaction costs, if the account were then closed out. A 15% decrease would result in a loss equal to 150% of the original margin deposit, before any deduction for the transaction costs, if the contract were closed out. Thus, a purchase or sale of a futures contract may result in losses in excess of the amount invested in the contract. Utilization of futures transactions by a Fund involves the risk of loss by a Fund of margin deposits in the event of bankruptcy of a broker with whom a Fund has an open position in a futures contract or related option. Most futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day. The daily limit establishes the maximum amount that the price of a futures contract may vary either up or down from the previous day's settlement price at the end of a trading session. Once the daily limit has been reached in a particular type of contract, no trades may be made on that day at a price beyond that limit. The daily limit governs only price movement, during a particular trading day and therefore does not limit potential losses, because the limit may prevent the liquidation of unfavorable positions. Futures contract prices have occasionally moved to the daily limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and subjecting some futures traders to substantial losses. The trading of futures contracts is also subject to the risk of trading halts, suspensions, exchange or clearing house equipment failures, government intervention, insolvency of a brokerage firm or clearing house or other disruptions of normal trading activity, which could at times make it difficult or impossible to liquidate existing positions or to recover excess variation margin payments. INVESTMENT COMPANY SECURITIES. Each Capital Appreciation Fund [(except the the International Equity Fund, the Mid Cap Fund, the Large Cap Fund, and the Capital Growth Fund)] and Income Fund may invest up to 5% of the value of its total assets in the -23- 259 securities of any one money market mutual fund including Shares of the AmSouth Prime Money Market Fund, the AmSouth U.S. Treasury Fund and the Treasury Reserve Fund (the "AmSouth Money Market Funds"), and the AmSouth Institutional Prime Obligations Fund (the "AmSouth Institutional Money Market Fund"); the [the International Equity Fund, the Mid Cap Fund, the Large Cap Fund, the Capital Growth Fund, the Limited Term U.S. Government Fund, the Tennessee Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt Fund], and the Treasury Reserve Money Market Fund may invest in securities issued by other investment companies which principally invest in securities of the type in which such Fund invests; and the Prime Money Market Fund, the Institutional Prime Obligations Fund, and the Tax-Exempt Fund may invest in the securities of other money market funds that have similar policies and objectives provided that no more than 10% of a Fund's total assets may be invested in the securities of money market mutual funds in the aggregate. In order to avoid the imposition of additional fees as a result of investments by the Funds in the AmSouth Money Market Funds or the AmSouth Institutional Money Market Fund, the [Advisor] and the Administrator will reduce that portion of their usual service fees from each Fund by an amount equal to their service fees from the AmSouth Money Market Funds or the AmSouth Institutional Money Market Fund that are attributable to those Fund investments. The [Advisor] and the Administrator will promptly forward such fees to the Funds. Each Fund will incur additional expenses due to the duplication of expenses as a result of investing in securities of other unaffiliated money market mutual funds. Securities Lending. In order to generate additional income, each Fund may, from time to time, lend its portfolio securities to broker-dealers, banks or institutional borrowers of securities which are not affiliated directly or indirectly with the Trust. While the lending of securities may subject a Fund to certain risks, such as delays or the inability to regain the securities in the event the borrower were to default on its lending agreement or enter into bankruptcy, the Fund will receive 100% collateral in the form of cash or other liquid securities. This collateral will be valued daily by the [Advisor] or Sub- [Advisor] and should the market value of the loaned securities increase, the borrower will furnish additional collateral to the Fund. During the time portfolio securities are on loan, the borrower pays the Fund any dividends or interest paid on such securities. Loans are subject to termination by the Funds or the borrower at any time. While the Funds do not have the right to vote securities on loan, the Funds intend to terminate the loan and regain the right to vote if that is considered important with respect to the investment. The Funds will only enter into loan arrangements with broker-dealers, banks or other institutions which the [Advisor] or Sub- [Advisor] has determined are creditworthy under guidelines established by the Trust's Board of Trustees. SHORT-TERM TRADING. Each Capital Appreciation Fund [(except the International Equity Fund, the Mid Cap Fund, the Large Cap Fund, and the Capital Growth Fund)] and the Government Income Fund may engage in the technique of short-term trading. Such trading involves the selling of securities held for a short time, ranging from several months to -24- 260 less than a day. The object of such short-term trading is to increase the potential for capital appreciation and/or income of the Fund in order to take advantage of what the [Advisor] or Sub- [Advisor] believes are changes in market, industry or individual company conditions or outlook. Any such trading would increase the turnover rate of a Fund and its transaction costs. SHORT-SELLING. (International Equity Fund and, to a limited extent, Capital Growth Fund, [Limited Term U.S. Government Fund, Tennessee Tax-Exempt Fund, and Limited Term Tennessee Tax-Exempt Fund)] In these transactions the Fund sells a security it does not own in anticipation of a decline in the market value of the security. To complete the transaction, the Fund must borrow the security to make delivery to the buyer. The Fund is obligated to replace the security borrowed by purchasing it subsequently at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Fund, which would result in a loss or gain, respectively. Securities will not be sold short if, after effect is given to any such short sale, the total market value of all securities sold short would exceed 25% of the value of the Fund's net assets. Each of these Funds, other than the International Equity Fund, will limit its short sales to those that are "against the box," a transaction in which the Fund enters into a short sale of a security which it owns. The proceeds of the short sale will be held by a broker until the settlement date at which time the Fund delivers the security to close the short position. The Fund receives the net proceeds from the short sale. At no time will any of these Funds have more than 15% of the value of its net assets in deposits on short sales against the box. MUNICIPAL SECURITIES. Under normal market conditions, the Tax-Exempt Fund and the Municipal Bond Fund will be primarily invested in bonds (and in the case of the Tax-Exempt Fund, notes) issued by or on behalf of states (including the District of Columbia), territories, and possessions of the United States and their respective authorities, agencies, instrumentalities, and political subdivisions, the interest on which is exempt from federal income tax ("Municipal Securities"). Under normal market conditions, the Tax-Exempt Fund will invest at least 80% of its total assets, the Municipal Bond Fund will invest at least 80% of its net assets, and the Florida Fund may invest up to 20% of its net assets in Municipal Securities, the interest on which is not treated as a preference item for purposes of the federal alternative minimum tax. Municipal Securities include debt obligations issued by governmental entities to obtain funds for various public purposes, such as the construction of a wide range of public facilities, the refunding of outstanding obligations, the payment of general operating expenses, and the extension of loans to other public institutions and facilities. Private activity bonds that are issued by or on behalf of public authorities to finance various privately-operated facilities are included within the term Municipal Securities if the interest paid thereon is exempt from both federal income tax and not treated as a preference item for individuals for purposes of the federal alternative minimum tax. Interest on private activity bonds (and industrial development bonds) is fully tax-exempt only if the bonds fall within certain defined categories of qualified -25- 261 private activity bonds and meet the requirements specified in those respective categories. Regardless of whether they qualify for tax-exempt status, private activity bonds may subject both individual and corporate investors to tax liability under the alternative minimum tax. However, private activity bonds will only be considered Municipal Securities if they do not have this effect regarding individuals. Municipal Securities may also include General Obligation Notes, Tax Anticipation Notes, Bond Anticipation Notes, Revenue Anticipation Notes, Project Notes, Tax Exempt Commercial Paper, Construction Loan Notes and other forms of short-term tax-exempt loans. Such instruments are issued with a short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements or other revenues. Project Notes are issued by a state or local housing agency and are sold by the Department of Housing and Urban Development. While the issuing agency has the primary obligation with respect to its Project Notes, they are also secured by the full faith and credit of the United States through agreements with the issuing authority which provide that, if required, the federal government will lend the issuer an amount equal to the principal of and interest on the Project Notes. As described in the Prospectuses of the Tax-Exempt Fund, the Municipal Bond Fund and the Florida Fund (collectively, the "Tax-Free Funds"), the two principal classifications of Municipal Securities consist of "general obligation" and "revenue" issues. A Fund permitted to invest in Municipal Securities may also acquire "moral obligation" issues, which are normally issued by special purpose authorities. If the issuer of moral obligation bonds is unable to meet its debt service obligations from current revenues, it may draw on a reserve fund, the restoration of which is a moral commitment but not a legal obligation of the state or municipality that created the issuer. There are, of course, variations in the quality of Municipal Securities, both within a particular classification and between classifications, and the yields on Municipal Securities depend upon a variety of factors, including general money market conditions, the financial condition of the issuer, general conditions of the municipal bond market, the size of a particular offering, the maturity of the obligation and the rating of the issue. The ratings of NRSROs represent their opinions as to the quality of Municipal Securities. It should be emphasized, however, that ratings are general and are not absolute standards of quality, and Municipal Securities with the same maturity, interest rate and rating may have different yields, while Municipal Securities of the same maturity and interest rate with different ratings may have the same yield. Subsequent to purchases by the Tax-Exempt Fund, an issue of Municipal Securities may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Tax-Exempt Fund. Neither event would under all circumstances require the elimination of such an obligation from the Fund's investment portfolio. However, the obligation generally would be retained only if such retention was determined by the Board of Trustees to be in the best interests of the Fund. -26- 262 Municipal Securities purchased by the Tax-Exempt Fund may include rated and unrated variable and floating rate tax-exempt notes, which may have a stated maturity in excess of one year but which will, in such event, be subject to a demand feature that will permit the Tax-Exempt Fund to demand payment of the principal of the note either (i) at any time upon not more than thirty days' notice or (ii) at specified intervals not exceeding one year and upon no more than thirty days' notice. There may be no active secondary market with respect to a particular variable or floating rate note. Nevertheless, the periodic readjustments of their interest rates tend to assure that their value to the Tax-Exempt Fund will approximate their par value. An issuer's obligations under its Municipal Securities are subject to the provisions of bankruptcy, insolvency, and other laws affecting the rights and remedies of creditors, such as the federal bankruptcy code, and laws, if any, which may be enacted by Congress or state legislatures extending the time for payment of principal or interest, or both, or imposing other constraints upon the enforcement of such obligations or upon the ability of municipalities to levy taxes. The power or ability of an issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities may be materially adversely affected by litigation or other conditions. Opinions relating to the validity of Eligible Municipal Securities and to the exemption of interest thereon from federal income tax are rendered by bond counsel to the respective issuers at the time of issuance. Neither the Tax-Free Funds nor the [Advisor] will review the proceedings relating to the issuance of Eligible Municipal Securities or the basis for such opinions. Although the Tax-Exempt Fund and Municipal Bond Fund do not presently intend to do so on a regular basis, each may invest more than 25% of its total assets in Municipal Securities that are related in such a way that an economic, business, or political development or change affecting one such security would likewise affect the other Municipal Securities. An example of such securities are obligations the repayment of which is dependent upon similar types of projects. Such investments would be made only if deemed necessary or appropriate by the [Advisor]. To the extent that the Fund's assets are concentrated in Municipal Securities that are so related, the Fund will be subject to the peculiar risks presented by such securities, such as negative developments in a particular industry, to a greater extent than it would be if the Fund's assets were not so concentrated. The Tax-Free Funds may acquire "puts" with respect to Eligible Municipal Securities held in their portfolios. Under a put, the Funds would have the right to sell a specified Eligible Municipal Security within a specified period of time at a specified price to a third party. A put would be sold, transferred, or assigned only with the underlying Eligible Municipal Security. The Funds will acquire puts solely to facilitate portfolio liquidity, shorten the maturity of the underlying Eligible Municipal Securities, or permit the investment of the Funds' at a more favorable rate of return. The Funds expect that they will generally acquire -27- 263 puts only where the puts are available without the payment of any direct or indirect consideration. However, if necessary or advisable, the Funds may pay for a put separately in cash. The aggregate price of a security subject to a put may be higher than the price which otherwise would be paid for the security without such an option, thereby increasing the security's cost and reducing its yield. TAX-FREE FUNDS. The Tax-Free Funds may also invest in master demand notes in order to satisfy short-term needs or, if warranted, as part of its temporary defensive investment strategy. Such notes are demand obligations that permit the investment of fluctuating amounts at varying market rates of interest pursuant to arrangements between the issuer and a U.S. commercial bank acting as agent for the payees of such notes. Master demand notes are callable on demand by the Funds, but are not marketable to third parties. Master demand notes are direct lending arrangements between the Fund and the issuer of such notes. The [Advisor] will review the quality of master demand notes at least quarterly, and will consider the earning power, cash flow and debt-to-equity ratios indicating the borrower's ability to pay principal together with accrued interest on demand. While master demand notes are not typically rated by credit rating agencies, issuers of such notes must satisfy the same criteria for the Funds set forth above for commercial paper. The Tax-Free Funds may acquire rated and unrated variable and floating rate notes. Variable and floating rate notes are frequently not rated by credit rating agencies; however, unrated variable and floating rate notes purchased by the Funds will be determined by the [Advisor] under guidelines established by the Board of Trustees to be of comparable quality at the time of purchase to rated instruments eligible for purchase under the Funds' investment policies. There may be no active secondary market with respect to a particular variable or floating rate note. Nevertheless, the periodic readjustments of their interest rates tend to assure that their value to the Funds will approximate their par value. The Tax-Free Funds may acquire zero coupon obligations. Such zero-coupon obligations pay no current interest and are typically sold at prices greatly discounted from par value, with par value to be paid to the holder at maturity. The return on a zero-coupon obligation, when held to maturity, equals the difference between the par value and the original purchase price. Zero-coupon obligations have greater price volatility than coupon obligations and such obligations will be purchased when the yield spread, in light of the obligation's duration, is considered advantageous. The Funds will only purchase zero-coupon obligations if, at the time of purchase, such investments do not exceed 20% of the value of the Florida Fund's total assets and 25% of the Municipal Bond Fund's total assets. An increase in interest rates will generally reduce the value of the investments in the Tax-Free Funds and a decline in interest rates will generally increase the value of those investments. Depending upon prevailing market conditions, the [Advisor] may purchase debt securities at a discount from face value, which produces a yield greater than the coupon rate. Conversely, if debt securities are purchased at a premium over face value, the -28- 264 yield will be lower than the coupon rate. In making investment decisions, the [Advisor] will consider many factors besides current yield, including the preservation of capital, maturity, and yield to maturity. [TENNESSEE TAX-EXEMPT FUND AND LIMITED TERM TENNESSEE TAX-EXEMPT FUND]. Municipal Securities bear fixed, floating or variable rates of interest, which are determined in some instances by formulas under which the Municipal Security's interest rate will change directly or inversely to changes in interest rates or an index, or multiples thereof, in many cases subject to a maximum and minimum. Certain Municipal Securities are subject to redemption at a date earlier than their stated maturity pursuant to call options, which may be separated from the related Municipal Securities and purchased and sold separately. Floating and variable rate demand notes and bonds are tax exempt obligations ordinarily having stated maturities in excess of one year, but which permit the holder to demand payment of principal at any time, or at specified intervals. The issuer of such obligations ordinarily has a corresponding right, after a given period, to prepay in its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days' notice to the holders thereof. The interest rate on a floating rate demand obligation is based on a known lending rate, such as a bank's prime rate, and is adjusted automatically each time such rate is adjusted. The interest rate on a variable rate demand obligation is adjusted automatically at specified intervals. Each of these Funds may invest up to 5% of the value of its total assets in municipal lease obligations or installment purchase contract obligations (collectively, "lease obligations"). Lease obligations have special risks not ordinarily associated with Municipal Securities. Although lease obligations do not constitute general obligations of the municipality for which the municipality's taxing power is pledged, a lease obligation ordinarily is backed by the municipality's covenant to budget for, appropriate and make the payments due under the lease obligation. Certain lease obligations in which these Funds may invest may contain "non-appropriation" clauses which provide that the municipality has no obligation to make lease payments in future years unless money is appropriated for such purpose on a yearly basis. Although "non-appropriation" lease obligations are secured by the leased property, disposition of the leased property in the event of foreclosure might prove difficult. In addition, no assurance can be given as to the liquidity of certain lease obligations. The staff of the Securities and Exchange Commission currently considers certain lease obligations to be illiquid. The Trust's Board of Trustees has established guidelines for the [Advisor] to determine the liquidity and appropriate valuation of lease obligations based on factors which include: (1) the frequency of trades and quotes for the lease obligation or similar securities; (2) the number of dealers willing to purchase or sell the lease obligation or similar securities and the number of other potential buyers; (3) the willingness of dealers to undertake to make a market in the security or similar securities; and (4) the nature of the marketplace trades, -29- 265 including the time needed to dispose of the security, the method of soliciting offers, and the mechanics of transfer. Each of these Funds may purchase tender option bonds and similar securities. A tender option bond is a Municipal Security (generally held pursuant to a custodial arrangement) having a relatively long maturity and bearing interest at a fixed rate substantially higher than prevailing short-term tax exempt rates, that has been coupled with the agreement of a third party, such as a bank, broker-dealer or other financial institution, pursuant to which such institution grants the security holders the option, at periodic intervals, to tender their securities to the institution and receive the face value thereof. As consideration for providing the option, the financial institution receives periodic fees equal to the difference between the Municipal Security's fixed coupon rate and the rate, as determined by a remarketing or similar agent at or near the commencement of such period, that would cause the securities, coupled with the tender option, to trade at par on the date of such determination. Thus, after payment of this fee, the security holder effectively holds a demand obligation that bears interest at the prevailing short-term tax exempt rate. The [Advisor], on behalf of the Fund, will consider on an ongoing basis the creditworthiness of the issuer of the underlying Municipal Security, of any custodian and of the third party provider of the tender option. In certain instances and for certain tender option bonds, the option may be terminable in the event of a default in payment of principal or interest on the underlying Municipal Securities and for other reasons. Each Fund will purchase tender option bonds only when it is satisfied that the custodial and tender option arrangements, including the fee payment arrangements, will not adversely affect the tax exempt status of the underlying Municipal Securities and that payment of any tender fees will not have the effect of creating taxable income for the Fund. Based on the tender option bond agreement, each of these Funds expects to be able to value the tender option bond at par; however, the value of the instrument will be monitored to assure that it is valued at fair value. THE MUNICIPAL BOND FUND -- CONCENTRATION IN ALABAMA ISSUERS. The Municipal Bond Fund may invest 25% or more of its total assets in bonds, notes and warrants generally issued by or on behalf of the State of Alabama and its political subdivisions, the interest on which, in the opinion of the issuer's bond counsel at the time of issuance, is exempt form both federal income tax and Alabama personal income tax and is not treated as a preference item for purposes of the federal alternative minimum tax for individuals ("Alabama Municipal Securities"). Because of the relatively small number of issuers of Alabama Municipal Securities, the Fund is more likely to invest a higher percentage of its assets in the securities of a single issuer. This concentration involves an increased risk of loss if the issuer is unable to make interest or principal payments or if the market value of such securities were to decline. Concentration of this nature may cause greater fluctuation in the net asset value of the Fund's Shares. -30- 266 GENERAL ECONOMIC CHARACTERISTICS OF ALABAMA. Alabama ranks twenty-third in the nation in total population, with over four million residents in 1998. Its economy has historically been based primarily on agriculture, textiles, mineral extraction and iron and steel production, although the state has diversified into health care related industries and other service-oriented sectors. Overall job growth rate was 0.2% in 1998. Alabama's per capita income in 1998 was $21,442, 81.2% of U.S. per capita income. Currently Alabama's general obligations are rated Aa3 by Moody's and AA by Standard and Poor's. BALANCED BUDGET AND PRO-RATION PROCEDURES. Section 213 of the Constitution of Alabama, as amended, requires that annual financial operations of Alabama must be on a balanced budget. The Constitution also prohibits the state from incurring general obligation debt unless authorized by an amendment to the Constitution. Amendments to the Constitution have generally been adopted through a procedure that requires each amendment to be proposed by a favorable vote of three-fifths of all the members of each house of the Legislature and thereafter approved by a majority of the voters of the state voting in a statewide election. Alabama has statutory budget provisions which create a proration procedure in the event that estimated budget resources in a fiscal year are insufficient to pay in full all appropriations for such fiscal year. The Alabama state budget is composed of two funds - the General Fund and the Education Fund. Proration of either Fund is possible in any fiscal year, and proration may have a material adverse effect on entities dependent on state funding, including certain issuers of Alabama Municipal Securities held in the Alabama Fund. Court decisions have indicated that certain state expenses necessary for essential functions of government are not subject to proration under applicable law. The Supreme Court of Alabama has held that the debt prohibition contained in the constitutional amendment does not apply to obligations incurred for current operating expenses payable during the current fiscal year, debts incurred by separate public corporations, or state debt incurred to repel invasion or suppress insurrection. The state may also make temporary loans not exceeding $300,000 to cover deficits in the state treasury. Limited obligation debt may be authorized by the legislature without amendment to the Constitution. The state has followed the practice of financing certain capital improvement programs - principally for highways, education and improvements to the State Docks - through the issuance of limited obligation bonds payable solely out of certain taxes and other revenues specifically pledged for their payment and not from the general revenues of the state. GENERAL OBLIGATION WARRANTS. Municipalities and counties in Alabama traditionally have issued general obligation warrants to finance various public improvements. Alabama statutes authorizing the issuance of such interest-bearing warrants do not require an election prior to issuance. On the other hand, the Constitution of Alabama (Section 222) provides that general obligation bonds may not be issued without an election. -31- 267 The Supreme Court of Alabama validated certain general obligation warrants issued by the City of Hoover, reaffirming that such obligations did not require an election under Section 222 of the Constitution of Alabama. In so holding, the Court found that warrants are not "bonds" within the meaning of Section 222. According to the Court, warrants are not negotiable instruments and transferees of warrants cannot be holders in due course. Therefore, a transferee of warrants is subject to all defenses that the issuer of such warrants may have against the transferor. County boards of education may borrow money by issuing interest-bearing warrants payable solely out of such board's allocated or apportioned share of specified tax. The county board's apportioned share of such tax may be diminished upon the establishment of a city school system, which could jeopardize the payment of the county board's warrants. LIMITED TAXING AUTHORITY. Political subdivisions of the state have limited taxing authority. Ad valorem taxes may be levied only as authorized by the Alabama Constitution. In order to increase the rate at which any ad valorem tax is levied above the limit otherwise provided in the Constitution, the proposed increase must be proposed by the governing body of the taxing authority after a public hearing, approved by an act of the Alabama Legislature and approved at an election within the taxing authority's jurisdiction. In addition, the Alabama Constitution limits the total amount of state, county, municipal and other ad valorem taxes that may be imposed on any class of property in any one tax year. This limitation is expressed in terms of a specified percentage of the market value of such property. Specific authorizing legislation is required for the levy of taxes by local governments. In addition, the rate at which such taxes are levied may be limited to the authorizing legislation or judicial precedent. For example, the Alabama Supreme Court has held that sales and use taxes, which usually comprise a significant portion of the revenues for local governments, may not be levied at rates that are confiscatory or unreasonable. The total sales tax (state and local) in some jurisdictions is 9%. State and local governments in Alabama are more dependent on general and special sales taxes than are state and local governments in many states. Because sales taxes are less stable sources of revenue than are property taxes, state and local governments in Alabama may be subject to shortfalls in revenue due to economic cycles. PRIORITY FOR ESSENTIAL GOVERNMENTAL FUNCTIONS. Numerous decisions of the Alabama Supreme Court hold that a governmental unit may first use its taxes and other revenues to pay the expenses of providing necessary governmental services before paying debt service on its bonds, warrants or other indebtedness. CHALLENGE TO EDUCATION FUNDING. On January 10, 1997, the Alabama Supreme Court affirmed a lower court ruling which held that an unconstitutional disparity exists among Alabama's public school districts because, among other things, of an inequitable distribution of tax funds among the school districts. In order to comply with the ruling, the Alabama Legislature continues to restructure the public educational system in Alabama, subject to -32- 268 review by the state courts. Any reallocation of funds between school districts arising out of this restructuring could impair the ability of certain districts to service debt. THE FLORIDA FUND -- DIVERSIFICATION AND CONCENTRATION. The Florida Fund is a non-diversified fund under the 1940 Act and may concentrate its investments in the securities of a limited number of issuers. Under the Internal Revenue Code of 1986, as amended (the "Code"), the Florida Fund generally may not invest in a manner such that at the end of each fiscal quarter (i) more than 25% of its total assets are represented by securities of any one issuer (other than U.S. government securities) and (ii) with respect to 50% of its total assets, more than 5% of its total assets are represented by the securities of any one issuer (other than U.S. government securities). Thus, the Florida Fund generally may invest up to 25% of its total assets in the securities of each of any two issuers. Because of the relatively small number of issuers of Florida Municipal Securities, the Florida Fund is more likely to invest a higher percentage of its assets in the securities of a single issuer than an investment company that invests in a broad range of tax-exempt securities. This concentration involves an increased risk of loss if the issuer is unable to make interest or principal payments or if the market value of such securities were to decline. Concentration of this nature may cause greater fluctuation in the net asset value of the Florida Fund's shares. GENERAL ECONOMIC CHARACTERISTICS OF FLORIDA. Florida ranks fourth in the nation in total population, with over 12.9 million residents in 1990, and has been one of the fastest growing states in the nation. Historically, tourism, agriculture, construction and manufacturing have constituted the most important sectors of the state's economy. Construction activity slows during periods of high interest rates or cyclical downturns. The service sector employs the largest number of people in Florida. While wages in the service sector tend to be lower than in manufacturing and other sectors of the economy, the service sector traditionally has been less sensitive to business cycles. Currently, Florida's general obligations are rated Aa3 by Moody's and AA by Standard and Poor's. The southern and central portions of Florida's economy, in particular, rely heavily on tourism and are sensitive to changes in the tourism industry. For example, tourism in Florida has been adversely affected by publicity regarding violent crimes against tourists, particularly tourists from abroad. Gasoline price hikes and/or shortages from an oil embargo or other oil shortage could severely affect U.S. tourism in the state, which is heavily dependent on automobiles as the primary form of transportation. South Florida also is susceptible to international trade and currency imbalances due to its geographic location as the gateway to Latin America and its involvement in foreign trade and investment. The central portion of the state is affected by conditions in the phosphate and agriculture industries, especially citrus and sugar. Northern Florida's economy is more heavily tied to military bases, some of which are closing or scaling back as a result of Federal budget cutbacks, and the lumber and paper industries. -33- 269 The entire state can be affected by severe weather conditions including hurricanes. The impact of severe hurricanes on the fiscal resources of the state and local governments is difficult to assess. SOURCES OF STATE AND LOCAL REVENUES. Florida's Constitution prohibits deficit spending by the state for governmental operations. Florida does not have a personal income tax. An amendment to the state's Constitution would be required in order to institute an income tax, and passage of such an amendment is believed to be unlikely due to the relatively large number of retirees living in the state as well as to the general unpopularity of tax increases in the current political climate. A two-thirds approval of voters voting in an election is now required for the addition of any new taxes to the Florida Constitution. The principal sources of state revenues are a 6% sales tax, state lottery, motor fuels tax, corporate income tax, and miscellaneous other revenue sources, including beverage tax and licenses, cigarette tax, documentary stamp taxes and an intangible tax. Dependence on the sales tax may subject state revenues to more volatility than would be the case if Florida had a personal income tax, with sales tax collections adversely affected during recessions and periods when tourism declines. Taxation by units of government other than the state is permitted only to the extent that Florida's legislature enacts enabling legislation. The principal sources of county and municipal government revenues are ad valorem property taxes, state revenue sharing, and miscellaneous other revenue sources, including utilities services fees and local option fees. The principal sources of revenues for Florida's school districts are ad valorem property taxes and state revenue sharing, including revenues from a state lottery. The state Constitution imposes millage limits, including a 10-mill limit each on county, municipal and school ad valorem taxes. Effective January 1, 1995, Florida's voters amended the state Constitution to limit annual increases in the assessed value of homestead property to the lesser of 3% of the prior year's assessment or the percentage change in the Consumer Price Index during the preceding calendar year. The limitation on increases in assessment of homestead property could eventually lead to ratings revisions that could have a negative impact on the prices of obligations funded with this source of taxation. However, the effect of the limit will be tempered by reassessments of homestead property at market value when sold. Units of state and local government in Florida will continue to face spending pressures due to infrastructure needs for an expanding population, especially in view of growth management laws enacted by Florida's legislature. These laws include concurrency requirements that impose building moratoriums unless roads and other infrastructure are added concurrently with additional commercial or residential developments. TYPES OF INDEBTEDNESS. The two principal types of indebtedness issued by state or local units of government in Florida are "general obligation bonds" and "revenue bonds." General obligation bonds are secured by a pledge of the full faith, credit and taxing power of the governmental entity issuing the bonds. They can be issued in Florida only after a -34- 270 referendum in which the voters in the jurisdictional limits of the jurisdiction issuing the bonds approve their issuance. Revenue bonds are payable only from the revenues derived from a facility or class of facilities or, in some cases, from the proceeds of a special tax or other specific revenue source. Revenue bonds are not secured by the full faith, credit and taxing power of the governmental issuer. MARKET RISK CAUSED BY INTANGIBLE TAX CONSIDERATIONS. As a normal policy, on January 1 of each calendar year the Florida Fund intends to own only assets which are exempt from the Florida Intangible Tax. Accordingly, it is possible that the Florida Fund, in disposing of non-exempt assets to meet this policy objective, might sustain losses which might not otherwise be incurred absent this policy of avoiding the Florida Intangible Tax. TENNESSEE MUNICIPAL SECURITIES. (Tennessee Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund) The average dollar-weighted credit rating of the Municipal Securities held by the Tennessee Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund will be at least A- by Moody's, S&P or Fitch. To further limit risk, each Municipal Security in which the Fund may invest must be rated, in the case of bonds, at least Baa by Moody's or at least BBB by S&P and Fitch. Each Fund may invest in short-term Municipal Securities which are rated in the two highest categories by Moody's, S&P or Fitch. The average dollar-weighted portfolio credit rating will be measured on the basis of the dollar value of the Municipal Securities purchased and their credit rating without reference to rating subcategories. The Tennessee Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund also may invest in Municipal Securities which, while not rated, are determined by the [Advisor] to be of comparable quality to the rated securities in which the Fund may invest. Investors in the Tennessee Tax-Exempt Fund and Limited Term Tennessee Tax-Exempt Fund should consider carefully the special risks inherent in such Funds' investment in Tennessee Municipal Securities. These risks result from the financial condition of the State of Tennessee. The following information constitutes only a brief summary, does not purport to be a complete description, and is based on information drawn from official statements relating to securities offerings of the State of Tennessee (the "State") and various local agencies, available as of the date of the Statement of Additional Information. While the Trust has not independently verified such information, it has no reason to believe that such information is not correct in all material respects. The Constitution of the State of Tennessee requires a balanced budget. In 1978, the voters of the State of Tennessee approved an amendment to the State Constitution requiring that (1) the total expenditures of the State for any fiscal year may not exceed the State's revenues and reserves, including the proceeds of debt obligations issued to finance capital expenditures and (2) in no year may the rate of growth of appropriations from State tax revenues exceed the estimated rate of growth of the State's economy. In the past the Governor -35- 271 and the General Assembly have had to restrict expenditures to comply with the State Constitution. Beginning in 1999 and throughout the remainder of that year and the first six months of 2000, Tennessee reported that there was a significant possibility of a large budgetary shortfall for fiscal year 2001. During this time, Tennessee's Governor reviewed and considered several avenues to address the possible budget shortfall, including the imposition of a broad-based state income tax. Implementation of certain of these proposals would have raised revenues for the State, but potentially could have impacted expenditures by Tennessee. In June 2000, the Tennessee General Assembly passed a balanced budget that did not make significant cuts in expenditures, but forecast increased revenues based on one-time sources. Also, during this time, Standard & Poor's lowered the State of Tennessee's debt rating to AA-plus. Moody's placed Tennessee on its watch list for a possible downgrade. Fitch and Moody's took no action regarding the State's debt rating. The Comprehensive Annual Financial Report ("CAFR") for the State of Tennessee contains detailed information about the financial status of the State of Tennessee. The fiscal year 2000 CAFR is expected to be available in December 2000 and can be found on the Internet at http://www.state.tn.us/finance/act/cafr.html. -36- 272 INVESTMENT RESTRICTIONS - [VALUE FUND, GROWTH FUND, SMALL CAP FUND, EQUITY INCOME FUND, BALANCED FUND, SELECT EQUITY FUND, ENHANCED MARKET FUND, BOND FUND, LIMITED TERM BOND FUND, GOVERNMENT INCOME FUND, MUNICIPAL BOND FUND, FLORIDA TAX-EXEMPT FUND], MONEY MARKET FUNDS (EXCEPT THE TREASURY RESERVE FUND), INSTITUTIONAL FUND The following investment restrictions may be changed with respect to a particular Fund only by a vote of a majority of the outstanding voting Shares of that Fund (as defined under "ADDITIONAL INFORMATION - Miscellaneous" in this Statement of Additional Information). THE PRIME MONEY MARKET FUND AND THE INSTITUTIONAL PRIME OBLIGATIONS FUND MAY NOT: 1. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities if, immediately after such purchase, more than 5% of the value of the Prime Money Market Fund's or the Institutional Prime Obligations Fund's total assets would be invested in such issuer, except that 25% or less of the value of the Prime Money Market Fund's or the Institutional Prime Obligations Fund's total assets may be invested without regard to such 5% limitation. There is no limit to the percentage of assets that may be invested in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities. -37- 273 2. Purchase any securities which would cause more than 25% of the value of the Prime Money Market Fund's or the Institutional Prime Obligations Fund's total assets at the time of purchase to be invested in securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, bank certificates of deposit or bankers' acceptances issued by a domestic bank or by a U.S. branch of a foreign bank provided that such U.S. branch is subject to the same regulation as U.S. banks, and repurchase agreements secured by bank instruments or obligations of the U.S. government or its agencies or instrumentalities; (b) wholly owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of their parents; and (c) utilities will be divided according to their services. For example, gas, gas transmission, electric and gas, electric, and telephone will each be considered a separate industry. THE U.S. TREASURY FUND MAY NOT: 1. Purchase securities other than bills, notes, and bonds issued by the U.S. Treasury, certain of which securities may be subject to repurchase agreements collateralized by the underlying U.S. Treasury obligation. THE TAX-EXEMPT FUND MAY NOT: 1. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities if, immediately after such purchase, more than 5% of the value of its total assets would be invested in such issuer (except that up to 25% of the value of the Tax-Exempt Fund's total assets may be invested without regard to such 5% limitation). For purposes of this limitation, a security is considered to be issued by the government entity (or entities) whose assets and revenues back the security; with respect to a private activity bond that is backed only by the assets and revenues of a non-government user, a security is considered to be issued by such non-governmental user. 2. Purchase any securities which would cause 25% or more of the Tax-Exempt Fund's total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry; provided that this limitation shall not apply to Municipal Securities; and provided, further, that for the purpose of this limitation only, private activity bonds that are backed only by the assets and revenues of a non-governmental user shall not be deemed to be Municipal Securities. 3. Acquire a put if, immediately after such acquisition, over 5% of the total amortized cost value of the Tax-Exempt Fund's assets would be subject to puts from the same institution (except that (i) up to 25% of the value of the Tax-Exempt Fund's total assets may be subject to puts without regard to such 5% limitation and (ii) the 5% limitation is inapplicable to puts that, by their terms, would be readily exercisable in the event of a default in payment of principal or -38- 274 interest on the underlying securities). For the purpose of this investment restriction and investment restriction No. 4 below, a put will be considered to be from the party to whom the Tax-Exempt Fund will look for payment of the exercise price. 4. Acquire a put that, by its terms would be readily exercisable in the event of a default in payment of principal and interest on the underlying security or securities if, immediately after that acquisition, the amortized cost value of the security or securities underlying that put, when aggregated with the amortized cost value of any other securities issued or guaranteed by the issuer of the put, would exceed 10% of the total amortized cost value of the Tax-Exempt Fund's assets. THE BOND FUND, THE LIMITED TERM BOND FUND, THE GOVERNMENT INCOME FUND, THE MUNICIPAL BOND FUND [, THE VALUE FUND, THE GROWTH FUND, THE SMALL CAP FUND, THE EQUITY INCOME FUND, THE BALANCED FUND, THE SELECT EQUITY FUND, THE ENHANCED MARKET FUND,] MAY NOT: 1. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, if, immediately after such purchase, more than 5% of the value of such Fund's total assets would be invested in such issuer, or such Fund would hold more than 10% of any class of securities of the issuer or more than 10% of the outstanding voting securities of the issuer, except that up to 25% of the value of each Fund's total assets may be invested without regard to such limitations. There is no limit to the percentage of assets that may be invested in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities. This investment restriction does not apply to the Select Equity Fund. THE [BOND FUND, LIMITED TERM BOND FUND, GOVERNMENT INCOME FUND, MUNICIPAL BOND FUND, FLORIDA TAX-EXEMPT FUND, THE VALUE FUND, THE GROWTH FUND, THE SMALL CAP FUND, THE EQUITY INCOME FUND, THE BALANCED FUND, THE SELECT EQUITY FUND, THE ENHANCED MARKET FUND] MAY NOT: 1. Purchase any securities which would cause more than 25% of the value of such Fund's total assets at the time of purchase to be invested in securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, and repurchase agreements secured by obligations of the U.S. government or its agencies or instrumentalities; (b) for the Bond Fund, the Limited Term Bond Fund, the Florida Fund, and the Municipal Bond Fund there is no limitation with respect to Municipal Securities, which, for purposes of this limitation only, do not include private activity bonds that are backed only by the assets and revenues of a non-governmental user; (c) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of their parents; and (d) utilities will be divided according to their services. For -39- 275 example, gas, gas transmission, electric and gas, electric, and telephone will each be considered a separate industry. THE TAX-FREE FUNDS MAY NOT: 1. Write or sell puts, calls, straddles, spreads, or combinations thereof except that the Funds may acquire puts with respect to Eligible Municipal Securities and sell those puts in conjunction with a sale of those Eligible Municipal Securities. THE MONEY MARKET FUNDS, THE INSTITUTIONAL MONEY MARKET FUND, THE [BOND FUND, THE LIMITED TERM BOND FUND, THE GOVERNMENT INCOME FUND, THE MUNICIPAL BOND FUND, THE FLORIDA TAX-EXEMPT FUND, THE VALUE FUND, THE GROWTH FUND, THE SMALL CAP FUND, THE EQUITY INCOME FUND, THE BALANCED FUND, THE SELECT EQUITY FUND, THE ENHANCED MARKET FUND] MAY NOT: 1. Borrow money or issue senior securities, except that each Fund may borrow from banks or enter into reverse repurchase agreements for temporary emergency purposes in amounts up to 10% of the value of its total assets at the time of such borrowing (33 1/3% with respect to the Select Equity Fund); or mortgage, pledge, or hypothecate any assets, except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 10% of the value of such Fund's total assets at the time of its borrowing (33 1/3% with respect to the Select Equity Fund). A Fund will not purchase securities while borrowings (including reverse repurchase agreements) in excess of 5% of its total assets are outstanding. 2. Make loans, except that each Fund may purchase or hold debt instruments in accordance with its investment objective and policies, may lend Fund securities in accordance with its investment objective and policies, and may enter into repurchase agreements. NONE OF THE FUNDS MAY: 1. Purchase securities on margin, sell securities short, participate on a joint or joint and several basis in any securities trading account, or underwrite the securities of other issuers, except to the extent that a Fund may be deemed to be an underwriter under certain securities laws in the disposition of "restricted securities" acquired in accordance with such Fund's investment objectives, restrictions and policies; 2. Purchase or sell commodities, commodity contracts (including futures contracts with respect to each Fund other than the Small Cap, Enhanced Market and Select Equity Funds, which may purchase futures contracts), oil, gas or mineral exploration or development programs, or real estate (although investments by all of the Funds except the U.S. Treasury Fund in marketable securities of companies engaged in such activities and in securities secured by real estate or interests therein are not hereby precluded and investment in real estate -40- 276 investment trusts are permitted for the Growth Fund, the Small Cap Fund, the Equity Income Fund, the Enhanced Market Fund and the Select Equity Fund); 3. Invest in securities of other investment companies, except as such securities may be acquired as part of a merger, consolidation, reorganization, or acquisition of assets; PROVIDED, HOWEVER, that the [Value Fund, the Growth Fund, The Small Cap Fund, the Equity Income Fund, the Balanced Fund, the Select Equity Fund, the Enhanced Market Fund, the Bond Fund, the Limited Term Bond Fund, the Government Income Fund, the Municipal Bond Fund, the Florida Tax-Exempt Fund] may purchase securities of a money market fund, including securities of both the Prime Money Market Fund and the U.S. Treasury Fund (and in the case of the Tax-Free Funds, securities of the Tax-Exempt Fund) and the Tax-Exempt Fund, the Institutional Prime Obligations Fund, and the Prime Money Market Fund may purchase securities of a money market fund which invests primarily in high quality short-term obligations exempt from federal income tax, if, with respect to each such Fund, immediately after such purchase, the acquiring Fund, does not own in the aggregate (i) more than 3% of the acquired company's outstanding voting securities, (ii) securities issued by the acquired company having an aggregate value in excess of 5% of the value of the total assets of the acquiring Fund, or (iii) securities issued by the acquired company and all other investment companies (other than Treasury stock of the acquiring Fund) having an aggregate value in excess of 10% of the value of the acquiring Fund's total assets; 4. Invest in any issuer for purposes of exercising control or management; 5. Purchase or retain securities of any issuer if the officers or Trustees of the Trust or the officers or directors of its investment [advisor] owning beneficially more than one-half of 1% of the securities of such issuer together own beneficially more than 5% of such securities; and 6. Invest more than 10% of total assets in the securities of issuers which together with any predecessors have a record of less than three years of continuous operation. The Prime Money Market Fund, the Institutional Prime Obligations Fund, and the U.S. Treasury Fund may not buy common stocks or voting securities, or state, municipal, or private activity bonds. The Money Market Funds, the Institutional Money Market Fund, and the Tax-Free Funds may not write or purchase call options. None of the Funds (except the Enhanced Market and Select Equity Fund) may write put options. The Prime Money Market Fund, the U.S. Treasury Fund, the Value Fund, the Institutional Prime Obligations Fund, the Growth Fund and the Equity Income Fund may not purchase put options. The Tax-Exempt Fund and the Tax-Free Funds may not invest in private activity bonds where the payment of principal and interest are the responsibility of a company (including its predecessors) with less than three years of continuous operation. As a non-fundamental investment restriction with -41- 277 respect to the Small Cap Fund only, the Small Cap Fund may not write or purchase put options. If any percentage restriction described above is satisfied at the time of investment, a later increase or decrease in such percentage resulting from a change in asset value will not constitute a violation of such restriction. ADDITIONAL INVESTMENT RESTRICTIONS The following investment restriction is non-fundamental and may be changed by a vote of the majority of the Board of Trustees: No Fund will invest more than 15% of its net assets in securities that are restricted as to resale, or for which no readily available market exists, including repurchase agreements providing for settlement more than seven days after notice. INVESTMENT RESTRICTIONS - [INTERNATIONAL EQUITY FUND, MID CAP FUND, LARGE CAP FUND, CAPITAL GROWTH FUND], STRATEGIC PORTFOLIOS, [LIMITED TERM U.S. GOVERNMENT FUND, TENNESSEE TAX-EXEMPT FUND, LIMITED TERM TENNESSEE TAX-EXEMPT FUND], TREASURY RESERVE FUND Each Fund's investment objective is a fundamental policy, which cannot be changed without approval by the holders of a majority (as defined in the 1940 Act) of the Fund's outstanding voting shares. In addition, each Fund has adopted investment restrictions numbered 1 through 5 as fundamental policies, and only the Funds so indicated have adopted investment restrictions numbered 6 through 9 as additional fundamental policies. These restrictions cannot be changed, as to a Fund, without approval by the holders of a majority (as defined in the 1940 Act) of such Fund's outstanding voting securities. Each Fund, except as otherwise indicated, has adopted investment restrictions numbered 10 through 13 as non-fundamental policies which may be changed by vote of a majority of the Trust's Trustees at any time. FUNDAMENTAL POLICIES NO FUND MAY: 1. Purchase or sell commodities, commodity contracts (including futures contracts with respect to each Fund other than the International Equity, Mid Cap, Capital Growth, Large Cap, Limited Term U.S. Government, Tennessee Tax-Exempt, and Limited Term Tennessee Tax-Exempt Funds, which may purchase futures contracts), oil, gas or mineral exploration or development programs, or real estate (although investments by all of the Funds except the Treasury Reserve Money Market Fund in marketable securities of companies engaged in such activities and in securities secured by real estate or interests therein are not hereby precluded and investment in real estate investment trusts are permitted for the Mid Cap, Capital Growth, and Large Cap Funds). -42- 278 2. Borrow money or issue senior securities, except that each Fund may borrow from banks or enter into reverse repurchase agreements for temporary emergency purposes in amounts up to 33_% of the value of its total assets at the time of such borrowing, or mortgage, pledge, or hypothecate any assets, except in connection with any such borrowing and in amounts not in excess of the lesser of the dollar amounts borrowed or 33_% of the value of such Fund's total assets at the time of its borrowing. A Fund will not purchase securities while borrowings (including reverse repurchase agreements) in excess of 5% of its total assets are outstanding. 3. Make loans, except that each Fund may purchase or hold debt instruments in accordance with its investment objective and policies, may lend Fund securities in accordance with its investment objective and policies, and may enter into repurchase agreements. 4. Purchase securities on margin, sell securities short, participate on a joint or joint and several basis in any securities trading account, or underwrite the securities of other issuers, except to the extent that a Fund may be deemed to be an underwriter under certain securities laws in the disposition of "restricted securities" acquired in accordance with such Fund's investment objectives, restrictions and policies. 5. Issue any senior security (as such term is defined in Section 18(f) of the 1940 Act). A Fund's permitted borrowings and transactions in futures and options, to the extent permitted under the 1940 Act, are not considered senior securities for purposes of this investment restriction. The following investment restriction numbered 6 is a fundamental policy which applies only to the Treasury Reserve Money Market Fund. The Treasury Reserve Money Market Fund may not: 6. Invest in securities other than those issued or guaranteed by the U.S. Government or its agencies or instrumentalities or repurchase agreements related thereto. The following investment restriction numbered 7 is a fundamental policy which applies to each of the Tennessee Tax-Exempt and Tennessee Limited Term Tax-Exempt Funds. Neither of these Funds may: 7. Purchase any securities which would cause 25% or more of the Fund's total assets at the time of purchase to be invested in the securities of one or more issuers conducting their principal business activities in the same industry; provided that this limitation shall not apply to Municipal Securities; and provided, further, that for the purpose of this limitation only, private activity bonds that are backed only by the assets and revenues of a non-governmental user shall not be deemed to be Municipal Securities. -43- 279 The following investment restriction numbered 8 is fundamental for the Treasury Reserve Money Market, International Equity Fund, Mid Cap Fund, Capital Growth, Large Cap Equity Fund, Limited Term U.S. Government Fund, Aggressive Growth Portfolio, Growth Portfolio, Growth and Income Portfolio, Moderate Growth and Income Portfolio, and Current Income Portfolio. None of these Funds may: 8. Purchase any securities which would cause more than 25% of the value of such Fund's total assets at the time of purchase to be invested in securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no limitation with respect to obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, and repurchase agreements secured by obligations of the U.S. government or its agencies or instrumentalities; (b) for the Aggressive Growth Portfolio, Growth Portfolio, Growth and Income Portfolio, Moderate Growth and Income Portfolio, and Current Income Portfolio, there is no limitation with respect to registered investment companies; (c) wholly-owned finance companies will be considered to be in the industries of their parents if their activities are primarily related to financing the activities of their parents; and (d) utilities will be divided according to their services. For example, gas, gas transmission, electric and gas, electric, and telephone will each be considered a separate industry. The following investment restriction numbered 9 is fundamental for the Mid Cap Fund, Large Cap Equity Fund, Limited Term U.S. Government Fund, Treasury Reserve Money Market Fund, Aggressive Growth Portfolio, Growth Portfolio, Growth and Income Portfolio, Moderate Growth and Income Portfolio, and Current Income Portfolio. No such fund may: 9. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities, if, immediately after such purchase, more than 5% of the value of such Fund's total assets would be invested in such issuer, or such Fund would hold more than 10% of any class of securities of the issuer or more than 10% of the outstanding voting securities of the issuer, except that up to 25% of the value of each Fund's total assets may be invested without regard to such limitations. There is no limit to the percentage of assets that may be invested in U.S. Treasury bills, notes, or other obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities or securities of other investment companies. * * * NONFUNDAMENTAL POLICIES NONE OF THE FUNDS MAY: -44- 280 10. Invest in the securities of a company for the purpose of exercising management or control. 11. Enter into repurchase agreements providing for settlement in more than seven days after notice or purchase securities which are illiquid, if, in the aggregate, more than 15% of the value of the Fund's net assets would be so invested. 12. Purchase securities of other investment companies, except to the extent permitted under the 1940 Act. NONE OF THE INTERNATIONAL EQUITY, CAPITAL GROWTH, TENNESSEE TAX-EXEMPT, AND LIMITED TERM TENNESSEE TAX-EXEMPT FUNDS WILL: 13. Purchase securities of any one issuer, other than obligations issued or guaranteed by the U.S. government or its agencies or instrumentalities if, immediately after such purchase, more than 5% of the value of its total assets would be invested in such issuer (except that up to 50% of the value of the Fund's total assets may be invested without regard to such 5% limitation). For purposes of this limitation, a security is considered to be issued by the government entity (or entities) whose assets and revenues back the security; with respect to a private activity bond that is backed only by the assets and revenues of a non-government user, a security is considered to be issued by such non-governmental user. PORTFOLIO TURNOVER The portfolio turnover rate for each Fund is calculated by dividing the lesser of a Fund's purchases or sales of portfolio securities for the year by the monthly average value of the portfolio securities. The calculation excludes all securities whose maturities at the time of acquisition were one year or less. Portfolio turnover with respect to each of the Money Market Funds and the Institutional Money Market Fund is expected to be zero percent for regulatory purposes. For the fiscal years ended July 31, [2000] and July 31, [1999], the portfolio turnover rate for the Balanced Fund was [%] and [%], respectively, for the common stock portion of its portfolio and [13.51%] and [17.15%], respectively, for the other portion of its portfolio. For the other AmSouth Funds, each Fund's portfolio turnover rate for the fiscal year ended July 31, [2000 and July 31, 1999 (the period ending July 31, 2000 and the years ending] December 31, 1999 and December 31, 1998 in the case of Funds participating in the ISG/AmSouth combination) were as follows: Fund [2000] 1999 - ---- ------ ---- -45- 281 Balanced Fund [%] 23.24% --------- Growth Fund [%] 79.30% --------- Enhanced Market Fund [%] 36.03% --------- Value Fund [%] 17.65% --------- Equity Income Fund [%] 133.74% --------- Select Equity Fund [%] 9.72% --------- Small Cap Fund [%] 208.13% --------- Bond Fund [%] 18.26% --------- Government Income Fund [%] 26.85% --------- Limited Term Bond Fund [%] 39.15% --------- Florida Fund [%] 34.33% --------- Municipal Bond Fund [%] 20.74% ---------
[Period Ending] December 31 December 31 --------------- ----------- ----------- [July 31, 2000 1999] 1998 -------------- ----- ---- International Equity Fund 39.97% 62.47% Mid Cap Fund 19.71% N/A Capital Growth Fund 178.49% 152.00% Large Cap Fund 14.92% 2.79% Limited Term U.S. Government Fund 16.91% 86.00% Tennessee Tax-Exempt Fund 63.97% [154 86%] Limited Term Tennessee Tax-Exempt Fund 52.09% 167.48% Aggressive Growth Portfolio 94.78% N/A Growth Portfolio 82.83% N/A Growth and Income Portfolio 61.90% N/A Moderate Growth and Income Portfolio 133.91% N/A Current Income Portfolio 103.66% N/A
The portfolio turnover rate may vary greatly from year to year as well as within a particular year, and may also be affected by cash requirements for redemptions of Shares and, in the case of the Tax-Exempt Fund, the Tax-Free Funds, [the Tennessee Tax-Exempt Fund and the Limited Term Tennessee Tax-Exempt Fund], by requirements which enable these Funds to receive certain favorable tax treatments. A higher portfolio turnover rate may lead to increased taxes and transaction costs. Portfolio turnover will not be a limiting factor in making investment decisions. The Tax-Free Funds [, the Tennessee Tax-Exempt Fund and the Limited Term Tennessee Tax-Exempt Fund] will not purchase securities solely for the purpose of short-term trading. The turnover rates for the Funds will not be a factor preventing either the sale or the purchase of securities when the -46- 282 [Advisor] believes investment considerations warrant such sale or purchase. However, the portfolio turnover rate for each of the Tax-Free Funds [, the Tennessee Tax-Exempt Fund and the Limited Term Tennessee Tax-Exempt Fund] may vary greatly from year to year as well as within a particular year. High turnover rates will generally result in higher transaction costs to the Funds and may result in higher levels of taxable realized gains to the Funds' Shareholders. To the extent portfolio turnover results in the realization of short-term capital gains, such gains will generally be taxed to shareholders at ordinary income tax rates. VALUATION As indicated in the Prospectuses, the net asset value of each Fund is determined and the Shares of each Fund are priced as of 4:00 p.m., Eastern time (and also as of 1:00 p.m., Eastern time for the Treasury Reserve Fund and as of 2:00 p.m., Eastern time for the Institutional Prime Obligations Fund) (the "Valuation Time") on each Business Day of the Fund. As used herein a "Business Day" constitutes any day on which the New York Stock Exchange (the "NYSE") is open for trading and the Federal Reserve Bank of Atlanta is open, except days on which there are not sufficient changes in the value of the Fund's portfolio securities that the Fund's net asset value might be materially affected, or days during which no Shares are tendered for redemption and no orders to purchase Shares are received. Currently, either the NYSE or the Federal Reserve Bank of Atlanta is closed on the customary national business holidays of New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day and Christmas Day. VALUATION OF THE MONEY MARKET FUNDS AND THE INSTITUTIONAL MONEY MARKET FUND These Funds have elected to use the amortized cost method of valuation pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at its cost initially and thereafter assuming a constant amortization to maturity of any discount or premium, regardless of the impact of fluctuating interest rates on the market value of the instrument. This method may result in periods during which value, as determined by amortized cost, is higher or lower than the price the Fund would receive if it sold the instrument. The value of securities in these Funds can be expected to vary inversely with changes in prevailing interest rates. Pursuant to Rule 2a-7, these Funds will maintain a dollar-weighted average portfolio maturity appropriate to its objective of maintaining a stable net asset value per Share, provided that no Fund will purchase any security with a remaining maturity of more than thirteen months (securities subject to repurchase agreements may bear longer maturities) nor maintain a dollar-weighted average portfolio maturity which exceeds 90 days. The Trust's Board of Trustees has also undertaken to establish procedures reasonably designed, taking into account current market conditions and the Fund's investment objective, to stabilize the net asset value -47- 283 per Share of the Funds for purposes of sales and redemptions at $1.00. These procedures include review by the Trustees, at such intervals as they deem appropriate, to determine the extent, if any, to which the net asset value per Share of each Fund calculated by using available market quotations deviates from $1.00 per Share. In the event such deviation exceeds one-half of one percent, Rule 2a-7 requires that the Board of Trustees promptly consider what action, if any, should be initiated. If the Trustees believe that the extent of any deviation from a Fund's $1.00 amortized cost price per Share may result in material dilution or other unfair results to new or existing investors, they will take such steps as they consider appropriate to eliminate or reduce to the extent reasonably practicable any such dilution or unfair results. These steps may include selling portfolio instruments prior to maturity, shortening the dollar-weighted average portfolio maturity, withholding or reducing dividends, reducing the number of a Fund's outstanding Shares without monetary consideration, or utilizing a net asset value per Share determined by using available market quotations. VALUATION OF THE CAPITAL APPRECIATION FUNDS,[AND] THE THE INCOME FUNDS The value of the portfolio securities held by each of the Funds for purposes of determining such Fund's net asset value per Share will be established on the basis of current valuations provided by Muller Data Corporation or Kenny S&P Evaluation Services, whose procedures shall be monitored by the Administrator, and which valuations shall be the fair market value of such securities. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION Shares in each Fund are sold on a continuous basis by BISYS Fund Services Limited Partnership ("BISYS"), and BISYS has agreed to use appropriate efforts to solicit all purchase orders. In addition to purchasing Shares directly from BISYS, Shares may be purchased through procedures established by BISYS in connection with the requirements of accounts at AmSouth or financial institutions that provide certain support services for their customers or account holders ("Financial Institutions"). Customers purchasing Shares may include officers, directors, or employees of AmSouth or AmSouth's correspondent banks. PURCHASE OF SHARES As stated in the relevant Prospectuses, the public offering price of Class A Shares of the Capital Appreciation Funds, the Strategic Portfolios, and the Income Funds is their net asset value computed after the sale plus a sales charge which varies based upon the quantity purchased. The public offering price of Class B and Trust Shares is their net asset value computed after the sale. The public offering price of such Shares is calculated by dividing net asset value by the difference (expressed as a decimal) between 100% and the sales charge percentage of the -48- 284 offering price applicable to the purchase (see "Shareholder Information -Pricing of Fund Shares" in the relevant Prospectuses). The public offering price of the Class I, Class II, and Class III Shares is their net asset value per Share, as next computed after an order is received. SALES CHARGES. The offering price is rounded to two decimal places each time a computation is made. The sales charge scale set forth in a Fund's Prospectus applies to purchases of Shares of such a Fund made at one time by any purchaser (a "Purchaser"), which includes: (i) an individual, his or her spouse and children under the age of 18; (ii) a trustee or other fiduciary of a single trust estate or single fiduciary account; or (iii) any other organized group of persons, whether incorporated or not, provided that such organization has been in existence for at least six months and has some purpose other than the purchase of redeemable securities of a registered investment company. In order to qualify for a lower sales charge, all orders from a Purchaser will have to be placed through a single investment dealer and identified at the time of purchase as originating from the same Purchaser, although such orders may be placed into more than one discrete account which identifies the Purchasers. A Purchaser may qualify for a reduced sales charge by combining concurrent purchases of Class A Shares of a Capital Appreciation Fund, former ISG Capital Appreciation Fund, and one or more of the other Class A Shares of a Fund or by combining a current purchase of Class A Shares of a Fund with prior purchases of Class A Shares of any Fund. The applicable sales charge is based on the sum of (i) the Purchaser's current purchase of shares of any Fund sold with a sales charge plus (ii) the dollar amount of purchases of the Purchaser's combined holdings of all Class A Shares in any Fund. The "Purchaser's combined holdings" described in the preceding sentence shall include the combined holdings of the Purchaser, the Purchaser's spouse, children under the age of 18, the Purchaser's retirement plan accounts and sole proprietorship accounts that the Purchaser may own. To receive the applicable public offering price pursuant to the right of accumulation, Shareholders must at the time of purchase provide the Transfer Agent or the Distributor with sufficient information to permit confirmation of qualification. Accumulation privileges may be amended or terminated without notice at any time by the Distributor. Class A Shares of the Money Market Funds are sold at their net asset value per share, as next computed after an order is received. However, as discussed in the Class A and Class B Shares Prospectus, the Class B Shares are subject to a Contingent Deferred Sales Charge if they are redeemed prior to the sixth anniversary of purchase. Class B Shares of the Prime Money Market Fund only are available to Shareholders of Class B Shares of another Fund who wish to exchange their Class B Shares of such other Fund for Class B Shares of the Prime Money Market Fund. Certain sales of Class A Shares are made without a sales charge, as described in the relevant Prospectuses under the caption "Sales Charge Waivers", to promote goodwill with employees and others with whom BISYS, AmSouth and/or the Trust have business relationships, and because the sales effort, if any, involved in making such sales is negligible. -49- 285 ADDITIONAL INFORMATION REGARDING BROKER COMPENSATION. As the Trust's principal underwriter, BISYS acts as principal in selling Class A Shares and Class B Shares of the Trust to dealers. BISYS re-allows a portion of the sales charge as dealer discounts and brokerage commissions. Dealer allowances expressed as a percentage of the offering price for all offering prices are set forth in the relevant Class A Shares and Class B Shares Prospectuses (see "Shareholder Information - Pricing of Fund Shares"). From time to time, BISYS may make expense reimbursements for special training of a dealer's registered representatives in group meetings or to help pay the expenses of sales contests. In some instances, promotional incentives to dealers may be offered only to certain dealers who have sold or may sell significant amounts of Group shares. Neither BISYS nor dealers are permitted to delay the placement of orders to benefit themselves by a price change. From time to time dealers who receive dealer discounts and broker commissions from the Distributor may reallow all or a portion of such dealer discounts and broker commissions to other dealers or brokers. The Distributor, at its expense, will also provide additional compensation to dealers in connection with sales of Class A Shares and Class B Shares of any of the Funds. Such compensation will include financial assistance to dealers in connection with conferences, sales or training programs for their employees, seminars for the public, advertising campaigns regarding one or more Funds of the Trust, and/or other dealer-sponsored special events. In some instances, this compensation will be made available only to certain dealers whose representatives have sold a significant amount of such Shares. Compensation will include payment for travel expenses, including lodging, incurred in connection with trips taken by invited registered representatives and members of their families to locations within or outside the United States for meetings or seminars of a business nature. Dealers may not use sales of a Fund's Shares to qualify for this compensation to the extent such may be prohibited by the laws of any state or any self-regulatory agency, such as the National Association of Securities Dealers, Inc. None of the aforementioned compensation is paid for by any Fund or its Shareholders. PURCHASES THROUGH FINANCIAL INSTITUTIONS. Shares of the Funds may be purchased through procedures established by the Distributor in connection with requirements of qualified accounts maintained by or on behalf of certain persons ("Customers") by AmSouth or financial institutions that provide certain administrative support services for their customers or account holders (collectively, "Financial Institutions"). These procedures may include instructions under which a Customer's account is "swept" automatically no less frequently than weekly and amounts in excess of a minimum amount agreed upon by a Financial Institution and its Customer are invested by the Distributor in Shares of a Money Market Fund or the Institutional Money Market Fund. These procedures may also include transactions whereby AmSouth as agent purchases Shares of the Funds in amounts that correspond to the market value of securities sold to the Funds by AmSouth as agent. -50- 286 Shares of the Trust sold to Financial Institutions acting in a fiduciary, advisory, custodial, agency, or other similar capacity on behalf of Customers will normally be held of record by the Financial Institutions. With respect to Shares so sold, it is the responsibility of the particular Financial Institution to transmit purchase or redemption orders to the Distributor and to deliver federal funds for purchase on a timely basis. Beneficial ownership of the Shares will be recorded by the Financial Institutions and reflected in the account statements provided by the Financial Institutions to Customers. Depending upon the terms of a particular Customer account, the Financial Institutions may charge a Customer's account fees for automatic investment and other cash management services provided in connection with investment in the Capital Appreciation Funds. Information concerning these services and any charges can be obtained from the Financial Institutions. There is no sales charge imposed by the Trust in connection with the purchase of Shares of the Institutional Money Market Fund. Shares of the Institutional Money Market Fund are purchased at the appropriate net asset value per Share next determined after receipt by the Distributor of an order in good form to purchase Shares. An order to purchase Shares will be deemed to have been received by the Distributor only when federal funds with respect thereto are available to the Trust's custodian for investment. Federal funds are monies credited to a bank's account within a Federal Reserve Bank. Payment for an order to purchase Shares which is transmitted by federal funds wire will be available the same day for investment by the Trust's custodian, if received prior to the last Valuation Time. Payments transmitted by other means (such as by check drawn on a member of the Federal Reserve System) will normally be converted into federal funds within two banking days after receipt. The Trust strongly recommends that investors use federal funds to purchase Shares. Every Shareholder will receive a confirmation of each new transaction in his or her account, which will also show the total number of Shares of the particular Fund owned by the Shareholder. In the case of Shares held of record by Financial Institutions but beneficially owned by a Customer, confirmations of purchases, exchanges, and redemptions of Shares by a Financial Institution will be sent to the Customer by the Financial Institution. Shareholders may rely on these statements in lieu of certificates. Certificates representing Shares will not be issued. If an Account Registration Form has been previously received by the Distributor, investors may also purchase Class A Shares and Class B Shares either by telephone or by wiring funds to the Trust's custodian. Telephone orders may be placed by calling the Trust at (800) 451-8382. Payment for Shares ordered by telephone may be made by check and must be received by the Trust's custodian within three days of the telephone order. If payment is not received within three days or a check timely received does not clear, the purchase will be -51- 287 canceled and the investor could be liable for any losses or fees incurred. In the case of purchases of Shares effected by wiring funds to the Trust's custodian, investors must call the Trust at (800) 451-8382 to obtain instructions regarding the bank account number into which the funds should be wired and other pertinent information. AUTOMATIC INVESTMENT PLAN To change the frequency or amount invested, written instructions must be received by the Trust at least seven Business Days in advance of the next transfer. If the bank or bank account number is changed, instructions must be received by the Trust at least 20 Business Days in advance. In order to change a bank or bank account number, investors also must have their signature guaranteed by a bank, broker, dealer, credit union, securities exchange, securities association, clearing agency or savings association, as those terms are defined in Rule 17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible Guarantor Institution"). Signature guarantees are described more fully under "REDEMPTION BY MAIL" below. If there are insufficient funds in the investor's designated bank account to cover the Shares purchased using AIP, the investor's bank may charge the investor a fee or may refuse to honor the transfer instruction (in which case no Fund Shares will be purchased). MATTERS AFFECTING REDEMPTION The Trust may suspend the right of redemption or postpone the date of payment for Shares during any period when (a) trading on the New York Stock Exchange (the "Exchange") is restricted by applicable rules and regulations of the Securities and Exchange Commission, (b) the Exchange is closed for other than customary weekend and holiday closings, (c) the Securities and Exchange Commission has by order permitted such suspension, or (d) an emergency exists as determined by the Securities and Exchange Commission. The Trust may redeem any class of Shares involuntarily if redemption appears appropriate in light of the Trust's responsibilities under the 1940 Act. See "Valuation of the Money Market Funds and the Institutional Money Market Fund" above. The Trust reserves the right to convert, at net asset value, Class I Shares of any Shareholder to Trust Shares if, because of redemptions of Shares by or on behalf of the Shareholder, the account of such Shareholder in Class I Shares of the Institutional Money Market Fund has a value of less than $3 million. Accordingly, an investor purchasing Class I Shares of the Institutional Money Market Fund in only the minimum investment amount may be subject to such involuntary conversion to Trust Shares of a Money Market Fund if he or she thereafter redeems some of his or her Shares. Before the Trust exercises its right to convert Class I Shares to Trust Shares, the Shareholder will be given notice that the value of the Class I Shares in his or her account is less than the minimum amount and the Shareholder will be allowed 60 days to make an additional investment in an amount which will increase the value of the account to at least $3 million. -52- 288 TAXES THE MONEY MARKET FUNDS AND THE INSTITUTIONAL MONEY MARKET FUND The net income of each Money Market Fund is declared daily as a dividend to Shareholders of record at the close of business on the day of declaration. Dividends will generally be paid monthly. Distributable net capital gains (if any) will be distributed at least annually. A Shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional Shares of the same class at net asset value as of the date of payment unless the Shareholder elects to receive such dividends or distributions in cash. Reinvested dividends receive the same tax treatment as dividends paid in cash. Such election, or any revocation thereof, must be made in writing to the Transfer Agent at P.O. Box 182733, Columbus, Ohio 43218-2733, and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. For each Fund, dividends are paid in cash not later than seven Business Days after a Shareholder's complete redemption of his or her Shares. Dividends are generally taxable when received. However, dividends declared in October, November, or December to Shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each Shareholder on December 31 of the prior year. INFORMATION SPECIFIC TO THE PRIME MONEY MARKET FUND, THE INSTITUTIONAL PRIME OBLIGATIONS FUND, THE TREASURY RESERVE FUND, AND THE U.S. TREASURY FUND. Dividends will generally be taxable to a Shareholder as ordinary income to the extent of the Shareholder's ratable share of each Fund's earnings and profits as determined for tax purposes. Because all of the net investment income of each Fund is expected to be interest income, it is anticipated that no distributions will qualify for the dividends-received deduction for corporate shareholders. These Funds do not expect to realize any long-term capital gains and, therefore, do not foresee paying any "capital gains dividends" as described in the Code. Dividends received by a Shareholder that are derived from the U.S. Treasury Fund's, the Treasury Reserve Fund's, and the Institutional Prime Obligations Fund's investments in U.S. government obligations may not be eligible for exemption from state and local taxes even though the income on such investments would have been exempt from state and local taxes if the Shareholder directly held such investments. In addition, the state and local tax exemption for interest earned on U.S. government obligations may not extend to income earned on U.S. government obligations that are subject to a repurchase agreement. Shareholders are advised to consult their own tax [Advisors] concerning their own tax situation and the application of state and local taxes. THE INCOME FUNDS A dividend for each Income Fund will be declared monthly at the close of business on the day of declaration consisting of an amount of accumulated undistributed net income of the Fund as determined to be necessary or appropriate by the appropriate officers of the Trust. -53- 289 Dividends will generally be paid monthly. Distributable net realized capital gains are distributed annually to Shareholders of record. A Shareholder will automatically receive all income dividends and capital gains distributions in additional full and fractional Shares unless the Shareholder elects to receive such dividends or distributions in cash. Dividends and distributions are reinvested without a sales charge as of the ex-dividend date using the net asset value determined on that date and are credited to a Shareholder's account on the payment date. Reinvested dividends and distributions receive the same tax treatment as dividends and distributions paid in cash. Dividends are generally taxable when received. However, dividends declared in October, November, or December to Shareholders of record during those months and paid during the following January are treated for tax purposes as if they were received by each Shareholder on December 31 of the prior year. Elections to receive dividends or distributions in cash, or any revocation thereof, must be made in writing to the Transfer Agent at P.O. Box 182733, Columbus, Ohio 43218-2733, and will become effective with respect to dividends and distributions having record dates after its receipt by the Transfer Agent. INFORMATION SPECIFIC TO THE BOND FUND, THE LIMITED TERM BOND FUND AND THE GOVERNMENT INCOME FUND. Distributions by the Bond Fund, the Limited Term Bond Fund and the Government Income Fund of ordinary income and/or an excess of net short-term capital gain over net long-term loss are taxable to shareholders as ordinary income. It is not expected that the dividends-received deduction for corporations will apply to these distributions. Distributions designated by the Bond Fund, the Limited Term Bond Fund and the Government Income Fund as derived from net gains on securities held for more than one year are taxable to Shareholders as such regardless of how long the Shareholder has held Shares in such Fund. Such distributions are not eligible for the dividends-received deduction. Prior to purchasing Shares of the Bond Fund, the Limited Term Bond Fund or the Government Income Fund, the impact of dividends or capital gains distributions which are expected to be declared or have been declared, but not paid, should be carefully considered. Dividends or capital gains distributions paid after a purchase of Shares are subject to federal income taxes, although in some circumstances the dividends or distributions may be, as an economic matter, a return of capital. A Shareholder should consult his or her own [Advisor] for any special advice. Dividends received by a Shareholder that are derived from the Bond Fund's, the Limited Term Bond Fund's or the Government Income Fund's investments in U.S. government obligations may not be entitled to the exemptions from state and local income taxes that would be available if the Shareholder had purchased U.S. government obligations directly. A Shareholder will generally recognize long-term capital gain or loss on the sale or exchange of shares in an Income Fund held by the Shareholder for more than twelve months. -54- 290 If a Shareholder receives a capital gain dividend with respect to a Share of the Bond Fund, Limited Term Bond Fund, and Government Income Fund and such Share is held for six months or less, any loss on the sale or exchange of such Share shall be treated as a long-term capital loss to the extent of the capital gain dividend. The holder of a security issued with "original issue discount" (including a zero-coupon U.S. Treasury security) is required to accrue as income each year a portion of the discount at which the security was purchased, even though the holder does not currently receive the interest payment in cash. A security has original issue discount if its redemption price exceeds its issue price by more than a de minimis amount. Accordingly, the Bond Fund, the Limited Term Bond Fund and the Government Income Fund may be required to distribute each year an amount which is greater than the total amount of cash interest the Fund actually received. Such distributions may be made from the cash assets of the Fund or by liquidation of its portfolio securities, if necessary. The Fund may realize gains or losses from such liquidations. In the event the Fund realizes net capital gains from such transactions, its shareholders may receive a larger capital gain distribution than they would have in the absence of such transactions. INFORMATION SPECIFIC TO THE TAX-EXEMPT FUND, THE FLORIDA FUND, THE MUNICIPAL BOND FUND, THE TENNESSEE TAX-EXEMPT FUND, AND THE LIMITED TERM TENNESSEE TAX-EXEMPT FUND. Shareholders of these Funds may treat as exempt-interest and exclude from gross income for federal income tax purposes dividends derived from net exempt-interest income and designated by the Funds as exempt-interest dividends. However, such dividends may be taxable to shareholders under state or local law as ordinary income even though all or a portion of the amounts may be derived from interest on tax-exempt obligations which, if realized directly, would be exempt from such taxes. Dividends from these Funds attributable to exempt-interest dividends may cause the social security and railroad retirement benefits of individual Shareholders to become taxable, or increase the amount that is taxable. Interest on indebtedness incurred by a Shareholder to purchase or carry Shares is not deductible for federal income tax purposes to the extent the Funds distribute exempt-interest dividends during the Shareholder's taxable year. The amount of the disallowed interest deduction is the total amount of interest paid or accrued on the indebtedness multiplied by a fraction, the numerator of which is the amount of exempt-interest dividends received by the Shareholder and the denominator of which is the sum of the exempt-interest dividends and taxable dividends received by the Shareholder (excluding capital gain dividends received by the Shareholder and capital gains required to be included in the Shareholder's computation of long-term capital gains under Section 852(b)(3)(D) of the Code). It is anticipated that distributions from these Funds will not be eligible for the dividends-received deduction for corporate shareholders. Because Fund expenses attributable to earning tax-exempt income do not reduce the Fund's current earnings and profits, a portion of any distribution in excess of the Fund's net tax-exempt and taxable income may be considered as paid out of the Fund's earnings and profits and therefore may be treated as a taxable dividend (even though that portion represents a return of the Fund's capital). Gains on the sale of Shares in the Funds will be subject to federal, state, and local taxes. If a Shareholder receives an exempt-interest dividend with respect to any Share of the -55- 291 Fund and such Share is held for six months or less, any loss on the sale or exchange of such Share will be disallowed to the extent of the amount of such exempt-interest dividend. In addition, any loss not already disallowed as provided in the preceding sentence will be treated as a long-term capital loss to the extent of any capital gain dividends received with respect to such Shares. For purposes of determining whether Shares have been held for six months or less, the holding period is suspended for any periods during which a shareholder's risk of loss is diminished as a result of holding one or more other positions in substantially similar or related property, or through certain options or short sales. The Funds may at times purchase Municipal Securities at a discount from the price at which they were originally issued. For federal income tax purposes, some or all of this market discount will be included in a Fund's ordinary income and will be taxable to Shareholders as such when it is distributed to them. To the extent dividends paid to Shareholders are derived from taxable income (for example, from interest on certificates of deposit, market discount or repurchase agreements) or from long-term or short-term capital gains, such dividends will be subject to federal income tax and may be subject to state and local tax. A Shareholder should consult his or her own tax [Advisor] for any special advice. Dividends attributable to interest on certain private activity bonds issued after August 7, 1986 must be included in the alternative minimum taxable income of individual and corporate Shareholders for the purpose of determining liability (if any) for the applicable alternative minimum tax. All tax-exempt interest dividends will be required to be taken into account in calculating the alternative minimum taxable income of corporate Shareholders. ADDITIONAL TAX INFORMATION It is the policy of each Fund to qualify for the favorable tax treatment accorded regulated investment companies under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By following such policy, the Trust's Funds expect to eliminate or reduce to a nominal amount the federal income taxes to which such Fund may be subject. In order to qualify for the special tax treatment accorded regulated investment companies and their Shareholders, a Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, and gains from the sale or other disposition of stock, securities, and foreign currencies, or other income (including but not limited to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities, or currencies; (b) each year distribute at least 90% of the sum of its taxable net investment company income, its net tax-exempt income, and the excess, if any, of its net short-term capital gains over its net long-term capital losses; and (c) diversify its holdings so that, at the end of each fiscal quarter (i) at least 50% of the market value of its total assets is represented by cash, cash items (including receivables), U.S. Government securities, securities of other regulated investment companies, and other securities, limited in respect of any one issuer to a value not greater than 5% of the value of the Fund's total assets and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities (other than those of the U.S. government or other regulated investment companies) of any one -56- 292 issuer or of two or more issuers which the Fund controls and which are engaged in the same, similar, or related trades or businesses. Dividends and distributions on a Fund's shares are generally subject to federal income tax as described herein to the extent they do not exceed the Fund's realized income and gains, even though such dividends and distributions may economically represent a return of a particular shareholder's investment. Such distributions are likely to occur in respect of shares purchased at a time when the Fund's net asset value reflects gains that are either unrealized, or realized but not distributed. Any loss realized on the sale or exchange of Shares will be disallowed to the extent that a Shareholder replaces the disposed of Shares with other Shares within a period of 61 days beginning 30 days before and ending 30 days after the date of disposition. In such an event, a Shareholder's basis in the replacement Shares will be adjusted to reflect the disallowed loss. A non-deductible 4% excise tax is imposed on regulated investment companies that do not distribute in each calendar year (regardless of whether they have a non-calendar taxable year) an amount at least equal to the sum of 98% of their "ordinary income" (as defined) for the calendar year, 98% of their capital gain net income for the 1-year period ending on October 31 of such calendar year, and any undistributed amounts from the previous year. For the foregoing purposes, a Fund is treated as having distributed the sum of (i) the deduction for dividends paid (defined in Section 561 of the Code) during such calendar year, and (ii) any amount on which it is subject to income tax for any taxable year ending in such calendar year. If distributions during a calendar year by a Fund did not meet the excise tax threshold, the Fund would be subject to the 4% excise tax on the undistributed amounts. Each Fund intends generally to make distributions sufficient to avoid imposition of this 4% excise tax. Each Fund will be required in certain cases to withhold and remit to the United States Treasury 31% of taxable dividends and other distributions paid to any Shareholder who has provided either an incorrect taxpayer identification number or no number at all, who is subject to withholding by the Internal Revenue Service for failure properly to report payments of interest or dividends, or who fails to provide a certified statement that he or she is not subject to "backup withholding." The Internal Revenue Service recently revised its regulations affecting the application to foreign investors of the back-up withholding and withholding tax rules described above. The new regulations will generally be effective for payments made after December 31, 2000. In some circumstances, the new rules will increase the certification and filing requirements imposed on foreign investors in order to qualify for exemption from the 31% back-up withholding tax and for reduced withholding tax rates under income tax treaties. Foreign investors in a Fund should consult their tax [Advisors] with respect to the potential application of these new regulations. A Fund's transactions in options, foreign-currency-denominated securities, and certain other investment and hedging activities of the Fund, will be subject to special tax rules (including "mark-to-market," "straddle," "wash sale," "constructive sale" and "short sale" rules), the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments in the holding periods of the Fund's assets, convert short-term capital losses -57- 293 into long-term capital losses, convert long-term capital gains into short-term capital gains, and otherwise affect the character of the Fund's income. These rules could therefore affect the amount, timing, and character of distributions to Shareholders. Income earned as a result of these transactions would, in general, not be eligible for the dividends-received deduction or for treatment as exempt-interest dividends when distributed to Shareholders. The Funds will endeavor to make any available elections pertaining to these transactions in a manner believed to be in the best interest of the Funds. The Funds each expect to qualify to be taxed as a "regulated investment company" and to be relieved of all or substantially all federal income taxes. Depending upon the extent of their activities in states and localities in which their offices are maintained, in which their agents or independent contractors are located, or in which they are otherwise deemed to be conducting business, the Funds may be subject to the tax laws of such states or localities. However, if for any taxable year the Funds do not qualify for the special federal tax treatment afforded regulated investment companies, all of their taxable income will be subject to federal income tax at regular corporate rates at the Fund level (without any deduction for distributions to their Shareholders). In addition, distributions to Shareholders may be taxed as ordinary income even if the distributions are attributable to capital gains or exempt interest earned by the Fund. Information set forth in the Prospectuses and this Statement of Additional Information which relates to federal taxation is only a summary of some of the important federal tax considerations generally affecting purchasers of Shares of the Trust's Funds. No attempt has been made to present a detailed explanation of the federal income tax treatment of a Fund or its Shareholders and this discussion is not intended as a substitute for careful tax planning. Accordingly, potential purchasers of Shares of a Fund are urged to consult their tax [Advisors] with specific reference to their own tax situation. In addition, the tax discussion in the Prospectuses and this Statement of Additional Information is based on tax laws and regulations which are in effect on the date of the Prospectuses and this Statement of Additional Information; such laws and regulations may be changed by legislative or administrative action. The International Equity Fund may qualify for and may make an election permitted under Section 853 of the Code so that shareholders may be eligible to claim a credit or deduction on their Federal income tax returns for, and will be required to treat as part of the amounts distributed to them, their pro rata portion of qualified taxes paid or incurred by the Fund to foreign countries (which taxes relate primarily to investment income). The International Equity Fund may make an election under Section 853 of the Code, provided more than 50% of the value of the Fund's total assets at the close of the taxable year consists of securities in foreign corporations, and the Fund satisfies the applicable distribution provisions of the Code. The foreign tax credit available to shareholders is subject to certain limitations imposed by the Code. -58- 294 If the International Equity Fund invests in an entity that is classified as a "passive foreign investment company" ("PFIC") for Federal income tax purposes, the operation of certain provisions of the Code applying to PFICs could result in the imposition of certain federal income taxes on the Fund. In addition, gain realized from the sale or other disposition of PFIC securities may be treated as ordinary income under Section 1291 of the Code and gain realized with respect to PFIC securities that are marked-to-market will be treated as ordinary income under Section 1296 of the Code. ADDITIONAL TAX INFORMATION CONCERNING THE TAX-EXEMPT FUND, THE TAX-FREE FUNDS, THE TENNESSEE TAX-EXEMPT FUND, AND THE LIMITED TERM TENNESSEE TAX-EXEMPT FUND As indicated in the Prospectuses of the Tax-Exempt Fund and the Tax-Free Funds, these Funds are designed to provide Shareholders with current tax-exempt interest income. The Funds are not intended to constitute a balanced investment program and are not designed for investors seeking capital appreciation or maximum tax-exempt income irrespective of fluctuations in principal. Shares of the Tax-Exempt Fund and the Tax-Free Funds would not be suitable for tax-exempt institutions and may not be suitable for retirement plans qualified under Section 401 of the Code, so-called Keogh or H.R. 10 plans, and individual retirement accounts. Such plans and accounts are generally tax-exempt and, therefore, would not gain any additional benefit from the dividends of the Tax-Exempt Fund and the Tax-Free Funds, being tax-exempt, and such dividends would be ultimately taxable to the beneficiaries when distributed to them. In addition, the Tax-Exempt Fund and the Tax-Free Funds may not be appropriate investments for Shareholders that may be "substantial users" of facilities financed by private activity bonds or "related persons" thereof. "Substantial user" is defined under U.S. Treasury Regulations to include a non-exempt person who regularly uses a part of such facilities in his trade or business, and whose gross revenues derived with respect to the facilities financed by the issuance of bonds represent more than 5% of the total revenues derived by all users of such facilities, or who occupies more than 5% of the usable area of such facilities, or for whom such facilities or a part thereof were specifically constructed, reconstructed or acquired. "Related person" includes certain related natural persons, affiliated corporations, a partnership and its partners and an S Corporation and its shareholders. Each Shareholder that may be considered a "substantial user" should consult a tax [advisor] with respect to whether exempt-interest dividends would retain the exclusion under Section 103 of the Code if the Shareholder were treated as a "substantial user" or a "related person." The Code permits a regulated investment company which invests at least 50% of its assets in tax-free Municipal Securities to pass through to its investors, tax-free, net Municipal Securities interest income. The policy of the Tax-Exempt Fund and the Tax-Free Funds is to pay each year as dividends substantially all such Fund's Municipal Securities interest income net of certain deductions. An exempt-interest dividend is any dividend or part thereof (other than a capital gain dividend) paid by the Tax-Exempt Fund and the Tax-Free Funds and -59- 295 designated as an exempt-interest dividend in a written notice mailed to Shareholders after the close of such Fund's taxable year, but not to exceed in the aggregate the net Municipal Securities interest received by the Fund during the taxable year. The percentage of the total dividends paid for any taxable year which qualifies as federal exempt-interest dividends will be the same for all Shareholders receiving dividends from the Tax-Exempt Fund and the Tax-Free Funds during such year, regardless of the period for which the Shares were held. While the Tax-Exempt Fund and the Tax-Free Funds do not expect to realize any significant amount of long-term capital gains, any net realized long-term capital gains will be distributed annually. The Tax-Exempt Fund and the Tax-Free Funds will have no tax liability with respect to such gains and the distributions will be taxable to Shareholders as net gains on securities held for more than one year, regardless of how long a Shareholder has held the Shares of the Funds. Such distributions will be designated as a capital gains dividend in a written notice mailed by the Tax-Exempt Fund and the Tax-Free Funds to Shareholders after the close of the Fund's taxable year. While the Tax-Exempt Fund and the Tax-Free Funds do not expect to earn any significant amount of investment company taxable income, taxable income earned by the Funds will be distributed to Shareholders. In general, the investment company taxable income will be the taxable income of the Fund (including, the excess of short-term capital gains for such year over net long-term capital losses for such year) subject to certain adjustments and excluding the excess, if any, of any net long-term capital gains for the taxable year over any net short-term capital loss for such year. Any such income will be taxable to Shareholders as ordinary income (whether paid in cash or additional Shares). As indicated in the Prospectuses of the Tax-Exempt Fund and the Tax-Free Funds, the Funds may acquire puts with respect to Municipal Securities (and in the case of the Florida Fund, Florida Municipal Securities) held in their portfolios. See "INVESTMENT OBJECTIVES AND POLICIES - Additional Information on Portfolio Instruments - Puts" in this Statement of Additional Information. The policy of the Tax-Exempt Fund and the Tax-Free Funds is to limit their acquisition of puts to those under which the Fund will be treated for federal income tax purposes as the owner of the Municipal Securities acquired subject to the put and the interest on the Municipal Securities will be tax-exempt to such Fund. Although the Internal Revenue Service has issued a published ruling that provides some guidance regarding the tax consequences of the purchase of puts, there is currently no guidance available from the Internal Revenue Service that definitively establishes the tax consequences of many of the types of puts that the Tax-Exempt Fund and the Tax-Free Funds could acquire under the 1940 Act. Therefore, although the Tax-Exempt Fund and the Tax-Free Funds will only acquire a put after concluding that it will have the tax consequences described above, the Internal Revenue Service could reach a different conclusion from that of the Funds. If the Tax-Exempt Fund and the Tax-Free Funds were not treated as the owner of the Municipal Securities, income from such securities would probably not be tax-exempt. -60- 296 The foregoing is only a summary of some of the important federal tax considerations generally affecting purchasers of Shares of the Tax-Exempt Fund and the Tax-Free Funds. No attempt has been made to present a detailed explanation of the federal income tax treatment of the Tax-Exempt Fund and the Tax-Free Funds or their Shareholders and this discussion is not intended as a substitute for careful tax planning. Accordingly, potential purchasers of Shares of the Tax-Exempt Fund and the Tax-Free Funds are urged to consult their tax [Advisors] with specific reference to their own tax situation. In addition, the foregoing discussion is based on tax laws and regulations which are in effect on the date of this Statement of Additional Information; such laws and regulations may be changed by legislative or administrative action. All distributions from the Tennessee Tax-Exempt Fund or Tennessee Limited Term Tax-Exempt Fund, regardless of source, will be subject to the Tennessee corporate excise tax. Shares of these Funds may be subject to the Tennessee inheritance tax and the Tennessee estate tax if owned by a Tennessee decedent at the time of death. ALABAMA TAXES Section 40-18-14(3)f of the Alabama Code specifies that interest on obligations of the State of Alabama and any county, municipality or other political subdivision thereof is exempt from personal income tax. Section 40-18-14(3)d provides similar tax-exempt treatment for interest on obligations of the United States or its Possessions (including Puerto Rico, Guam and the Virgin Islands). Regulation Section 810-3-14-.02(4)(a) extends the exclusion to agencies of the United States or corporations owned by the United States and lists as examples of exempt obligations, U.S. savings bonds, U.S. Treasury notes or bills, obligations of the Bank for Cooperation, Federal Land Bank, Federal Intermediate Credit Bank, Federal Home Loan Bank, Production Credit Associations, Federal Financing Bank, and the Tennessee Valley Authority. In addition, Regulation Section 810-3-14-.02(4)(b)2 and an Administrative ruling of the Alabama Department of Revenue dated March 1, 1990 extend these exemptions for interest to distributions from a regulated investment company to the extent that they are paid out of interest earned on such exempt obligations. Tax-exempt treatment is not available on distributions from income earned on securities that are merely guaranteed by the federal government (GNMAs, FNMAs, etc.), for repurchase agreements collateralized by U.S. government obligations or for obligations of other states to the extent such investments are made by the Fund for temporary or defensive purposes. Such interest will be taxable on a pro rata basis. Any distributions of net short-term and net long-term capital gain earned by the Fund are fully includable in each Shareholder's Alabama taxable income as dividend income and long-term capital gain, respectively. Both types of income are currently taxed at ordinary rates. -61- 297 The foregoing discussion is based on tax laws and regulations which are in effect as of the date of this Statement of Additional Information; such laws and regulations may be changed by legislative or administrative actions. The foregoing is also intended only as a brief summary of some of the important Alabama tax considerations generally affecting the Municipal Fund and its Shareholders. Potential investors are urged to consult their tax [Advisors] concerning their own tax situation and concerning the application of state and local (as well as federal) taxes. FLORIDA TAXES The State of Florida does not impose an income tax on individuals. Therefore, distributions of the Florida Fund to individuals will not be subject to personal income taxation in Florida. Corporations and other entities subject to the Florida income tax will be subject to tax on distributions of investment income and capital gains by the Fund. Distributions attributable to interest on obligations of any state (including Florida), the District of Columbia, U.S. possessions, or any political subdivision thereof, will be taxable to corporations and other entities for Florida income tax purposes even though such interest income is exempt from federal income tax. Similarly, distributions attributable to interest on obligations of the United States and its territories will be taxable to corporations and other entities under the Florida income tax. For individuals and other entities subject to taxation in states and localities other than Florida, distributions of the Fund will be subject to applicable taxes imposed by such other states and localities. In the opinion of special Florida tax counsel to the Fund, shareholders of the Florida Fund who are subject to the Florida Intangible Personal Property Tax (the "Intangible Tax") will not be subject to the Intangible Tax on shares of the Florida Fund if, on the first day of the applicable calendar year, the assets of the Florida Fund consist solely of obligations of Florida or its political subdivisions; obligations of the United States, Puerto Rico, the Virgin Islands or Guam; or bank deposits, cash or other assets which would be exempt from the Intangible Tax if directly held by the shareholder. A Technical Assistance Advisement confirming this tax treatment has been obtained from the Florida Department of Revenue. As described above, it is the Florida Fund's policy to invest at least 80% of its net assets in Florida Municipal Securities exempt from the Intangible Tax under normal market conditions. The Florida Fund intends to insure that, absent abnormal market conditions, all of its assets held on January 1 of each year are exempt from the Intangible Tax. Accordingly, the value of the Florida Fund shares held by a shareholder should ordinarily be exempt from the Intangible Tax. However, if on any January 1 the Florida Fund holds investments that are not exempt from the Intangible Tax, the Florida Fund's shares could be wholly or partially subject to the Intangible Tax for that year. The foregoing discussion is intended only as a brief summary of the Florida tax laws currently in effect which would generally affect the Florida Fund and its shareholders. -62- 298 Potential investors are urged to consult with their Florida tax counsel concerning their own tax situation. TENNESSEE TAXES The Tennessee Hall Income Tax imposes a tax on income received by way of dividends from stock or interest on bonds. Dividends from a qualified regulated investment company are exempt from the Hall Income Tax, but only to the extent such dividends are attributable to interest on bonds or securities of the U.S. Government or any agency or instrumentality thereof or on bonds of the State of Tennessee or any country or any municipality or political subdivision thereof, including any agency, board, authority or commission of any of the above. Generally, bonds of the type comprising the Fund, and the interest thereon, may be subject to inheritance, transfer, and estate taxes under Tennessee law. Further, bonds in the Fund may be indirectly taxed to the extent the bonds and the interest derived therefrom are included within the measure of certain franchise and excise taxes imposed under Tennessee law on organizations and entities doing business in Tennessee (other than general partnerships and sole proprietorships). MANAGEMENT OF THE TRUST TRUSTEES Overall responsibility for management of the Trust rests with the Board of Trustees of the Trust, who are elected by the Shareholders of the Trust. There are currently [six] Trustees, one of whom is an "interested person" of the Trust within the meaning of that term under the Investment Company Act of 1940. The Trustees, in turn, elect the officers of the Trust to supervise actively its day-to-day operations. The Trustees of the Trust, their current addresses, and principal occupations during the past five years are as follows (if no address is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
Position(s) Held Principal Occupation Name and Address Age With the Trust During the Past 5 Years - ---------------- --- ---------------- ----------------------- J. David Huber* [54] Chairman, Trustee From June 1987 to present, employee of 3435 Stelzer Road BISYS Fund Services Limited Partnership Columbus, Ohio 43219 Dick D. Briggs, Jr., M.D. [66] Trustee From [March 1997 to present, Chief 459 DER Building Medical Officer, Best Doctors (TM) 1808 7th Avenue South Worldwide Healthcare Services; from] UAB Medical Center September 1989 to present, Emeritus Birmingham, Alabama 35294 Professor and Eminent Scholar Chair, Univ. of Alabama at Birmingham; from October [1973] to present, Physician, University of Alabama Health Services Foundation; from 1981 to 1995, Professor and Vice Chairman, Dept. of Medicine, Univ. of Alabama at Birmingham School of Medicine; from 1988 to 1992, President, CEO and Medical Director, Univ. of Alabama Health Services Foundation
-63- 299
Wendell D. Cleaver [65] Trustee From September 3, 1993 to present, [225] Lakewood Drive, West retired; from December 1988 to August, Mobile, Alabama 36608 1993, Executive Vice President, Chief Operating Officer and Director, Mobile Gas Service Corporation Homer H. Turner, Jr. [72] Trustee From June 1991 to present, retired; until 751 Cary Drive June 1991, Vice President, Birmingham Auburn, Alabama 36830-2505 Division, Alabama Power Company James H. Woodward, Jr. [60] Trustee] From 1996 to present, Trustee, The The University of North Sessions Group; from July 1989 to Carolina at Charlotte present, Chancellor, The University of [Charlotte, North Carolina 28223 North Carolina at Charlotte; from April 1997 to present, Trustee, BISYS Variable Insurance Funds; from August 1984 to July 1989, Senior Vice President, University College, University of Alabama at Birmingham Norma A. Coldwell 75 Trustee [International Economist and Consultant; 3330 Southwestern Blvd. Executive Vice President of Coldwell Dallas, Texas 75225 Financial Consultants; Trustee and Treasurer of Meridian International Center (International Education and Cultural Group); Member of the Board of Advisors of Meridian International Center and Emerging Capital Markets, SA (Montevideo, Uruguay); formerly, Chief International Economist of Riggs National Bank, Washington, D.C.
- --------------------------] * Indicates an "interested person" of the Trust as defined in the 1940 Act. The Trustees receive fees and are reimbursed for expenses in connection with each meeting of the Board of Trustees they attend. However, no officer or employee of BISYS Fund Services, or BISYS Fund Services, Inc. receives any compensation from the Trust for acting as a Trustee. -64- 300 OFFICERS The officers of each Fund, their current addresses, their age, and principal occupation during the past five years are as follows (if no address is listed, the address is 3435 Stelzer Road, Columbus, Ohio 43219):
Position(s) Held Principal Occupation Name and Address Age With the Trust During Past 5 Years ---------------- --- ---------------- -------------------- John F. Calvano 39 President From September 1999 to present, Senior Vice President, AmSouth Bank; from October 1994 to September 1999, employee of BISYS Fund Services Limited Partnership; from July 1992 to August 1994, investment representative, BA Investment Services; and from October 1986 to July 1994, Marketing Manager, Great Western Investment Management. Walter B. Grimm 53 Vice President From June 1992 to present, employee of BISYS Fund Services Limited Partnership; from 1990 to 1992, President and CEO, Security Bancshares; from July 1981 to 1990, President of Leigh Investments Consulting (investments firm). Charles L. Booth 39 Treasurer From 1988 to present, employee of BISYS Fund Services Limited Partnership. Rodney L. Ruehle 31 Secretary From August 1990 to August 1995, Assistant Treasurer of the Cardinal Group of Funds; from August 1995 to present, Director Administration Services, BISYS Fund Services, Inc. Jeffrey C. Cusick 38 Assistant Secretary Vice President An employee of BISYS Fund Services, Inc. since July 1995, and an officer of other investment companies administered by the Administrator or its affiliates. From September 1993 to July 1995, he was Assistant Vice President of Federated Administrative Services.
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Alaina V. Metz 32 Assistant Secretary From June 1995 to present, Chief Administrator, Administrative and Regulatory Services, BISYS Fund Services Limited Partnership; from May 1989 to June 1995, Supervisor, Mutual Fund Legal Department, Alliance Capital Management.
The officers of the Trust receive no compensation directly from the Trust for performing the duties of their offices. BISYS receives fees from the Trust for acting as Administrator and BISYS Fund Services, Inc. receives fees from the Trust for acting as Transfer Agent for and for providing fund accounting services to the Trust. Messrs. Cusick, Grimm, Ruehle, and Booth and Ms. Metz are employees of BISYS Fund Services Limited Partnership.
COMPENSATION TABLE (1) ------------------ Pension or Retirement Total Aggregate Benefits Estimated Compensation Compensation Accrued Annual from AmSouth Name of from AmSouth As Part of Benefits Upon Mutual Funds Position Fund Expenses Fund Expenses Retirement Paid to Trustee - ----------- -------------- ------------- -------------- --------------- J. David Huber None [NONE] None None James H. $21,250 None $21,250 Woodward, Jr. None Homer H. Turner $21,250 None $21,250 None Wendell D. Cleaver $21,250 None $21,250 None Dick D. Briggs, $21,250 None $21,250 Jr., M.D. None [Norma A. Coldwell] $ 9,000 [NONE] None $ 9,000
(1) Figures are for the Trust's fiscal year ended July 31, [2000]. CODE OF ETHICS Each Fund, AmSouth Bank, [BISYS Fund Services, Sawgrass Asset Management, LLC, Lazard Asset Management, Oakbrook Investments, LLC, Rockhaven Asset Management, LLC, Peachtree Asset Management Code of Ethics, and Bennett Lawrence Management, LLC] have adopted codes of ethics ("Codes") under Rule 17j-1 of the Investment Company Act, and these Codes permit personnel subject to the Codes to invest in securities, including securities that may be purchased or held by each Fund. INVESTMENT [ADVISOR] - -------------------- -66- 302 Investment advisory and management services are provided to each Fund (except the Limited Term Bond Fund) by the [Advisor] pursuant to the Investment Advisory Agreement dated as of August 1, 1988, as amended (the "First Investment Advisory Agreement"). Investment advisory and management services are provided to the Limited Term Bond Fund by the [Advisor] pursuant to the Investment Advisory Agreement dated as of January 20, 1989, as amended (the "Second Investment Advisory Agreement"). The First Investment Advisory Agreement and the Second Investment Advisory Agreement are collectively referred to as the "Advisory Agreements." In selecting investments for the Value Fund and the Balanced Fund, the [Advisor] employs the "value investing" method. A primary theory of value investing is that many investors tend to exaggerate both prosperity and problems in market valuations. This method, which may conflict with the prevailing mood of the market, involves the use of independent judgment backed by careful analysis of market data. The [Advisor's] approach when selecting investments for each of these Funds is to attempt to buy and sell securities that are temporarily mispriced relative to long-term value. In selecting investments for each of the Income Funds, and the Balanced Fund, the [Advisor] attempts to anticipate interest rates, thereby capitalizing on cyclical movements in the bond markets. The [Advisor] seeks to achieve this goal through active management of the buying and selling of fixed-income securities in anticipation of changes in yields. Under the Advisory Agreements, the fee payable to the [Advisor] by the Funds for investment advisory services is the lesser of (a) such fee as may from time to time be agreed upon in writing by the Trust and the [Advisor] or (b) a fee computed daily and paid monthly based on the average daily net assets of each Fund as follows: the Prime Money Market Fund - forty one-hundredths of one percent (0.40%) annually; the U.S. Treasury Fund - forty one-hundredths of one percent (0.40%) annually; the Institutional Prime Obligations Fund -twenty one-hundredths of one percent (0.20%); the Institutional U.S. Treasury Fund - twenty one-hundredths of one percent (0.20%); the Value Fund - eighty one-hundredths of one percent (0.80%) annually; the Tax-Exempt Fund - forty one-hundredths of one percent (0.40%) annually; the Bond Fund - sixty-five one-hundredths of one percent (0.65%) annually; the Limited Term Bond Fund - sixty-five one-hundredths of one percent (0.65%) annually; the Balanced Fund - eighty one-hundredths of one percent (0.80%) annually; the Government Income Fund - sixty-five one-hundredths of one percent (0.65%) annually; the Florida Fund -sixty-five one-hundredths of one percent (0.65%) annually; the Municipal Bond Fund - sixty-five one-hundredths of one percent (0.65%) annually; the Equity Income Fund - eighty one-hundredths of one percent (0.80%) annually; the Growth Fund - eighty one-hundredths of one percent (0.80%) annually; the Small Cap Fund - one hundred twenty one-hundredths of one percent (1.20%) annually; the Select Equity Fund - eighty one hundredths of one percent (.80%) annually; the Enhanced Market Fund - forty-five hundredths of one percent (0.45%) annually; the International Equity Fund - one hundred twenty five -67- 303 one-hundredths of one percent (1.25%) annually; the Mid Cap Fund - one hundred one-hundredths of one percent (1.00%) annually; the Capital Growth Fund - eighty one-hundredths of one percent (0.80%) annually; the Large Cap Fund - eighty one-hundredths of one percent (0.80%) annually; the Limited Term U.S. Government Fund - sixty-five one-hundredths of one percent (0.65%) annually; Tennessee Tax-Exempt Fund - sixty-five one-hundredths of one percent (0.65%) annually; Limited Term Tennessee Tax-Exempt Fund - sixty-five one-hundredths of one percent (0.65%) annually; Treasury Reserve Fund - forty one-hundredths of one percent (0.40%) annually; Aggressive Growth Portfolio - twenty one-hundredths of one percent (0.20%) annually; Growth Portfolio - twenty one-hundredths of one percent (0.20%) annually; Growth and Income Portfolio - twenty one-hundredths of one percent (0.20%) annually; Moderate Growth and Income Portfolio - twenty one-hundredths of one percent (0.20%) annually; Current Income Portfolio - twenty one-hundredths of one percent (0.20%) annually. A fee agreed to in writing from time to time by the Trust and the [Advisor] may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Fund's expenses and increase the net income of such Fund during the period when such lower fee is in effect. For the fiscal years ended July 31, 2000, July 31, 1999, and July 31, 1998, the [Advisor] received the following investment advisory fees(1): Fiscal Year Ended
[July 31, 2000] July 31, 1999 July 31, 1998 -------------------- --------------------- --------------------------- Amount Amount Amount Earned Waived Earned Waived Earned Waived ------ ------ ------ ------ ------ ------ Balanced Fund 2,283,895 -- $3,046,371 -- $3,005,940 -- Growth Fund 390,511 207,326 -- 70,873 -- Enhanced Market Fund 264,084 -- 78,331 -- -- -- Value Fund 6,419,275 -- 8,292,490 -- 7,981,703 -- Select Equity Fund 106,759 -- 129,762 -- -- -- [Florida Fund 453,352 198,628 460,845 248,147 369,000 199,000] [U.S. Treasury Fund 1,155,683 54,406 1,261,718 -- 1,256,351 -- Institutional Prime Obligations Fund 513,326 333,601 198,365 128,935 -- --
Period Ended Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended July 31, 2000 December 31, 1999 December 31, 1998 December 31, 1997 ------------------ ------------------- --------------------- ------------------- Amount Amount Amount Amount Earned Waived Earned Waived Earned Waived Earned Waived ------ ------ ------ ------ ------ ------ ------ ------ Equity Income Fund(1) 747,052 -- 324,890 -- 267,522 -- 36,130 -- Small Cap Fund(1)] 999,755 62,982 127,255 -- 33,202 -- -- -- Bond [Fund(1)] 2,810,891 648,672 2,319,255 $ 535,215 2,056,000 475,000 969,000 $ 224,000 Government Income [Fund(1)] 963,864 232,231 61,967 33,367 69,000 37,000 90,000 48,000 Limited Term Bond [Fund(1)] 912,393 210,554 734,542 169,510 774,000 179,000 322,000 74,000
-68- 304
[Municipal Bond Fund(1)] 2,322,455 893,250 2,120,841 815,707 2,170,000 835,000 181,117 70,000 Prime Money Market [Fund(1)] 3,941,129 272,524 2,765,375 -- 2,515,690 -- 2,366,707 -- [Tax-Exempt Fund(1)] 541,030 232,648 383,340 191,672 354,000 176,963 321,570 160,785 International Equity Fund(1a) 542,118 100,088 236,272 91,551 239,978 77,837 95,011 47,505 Mid Cap [Fund(1)] 424,952 -- 102,860 745 N/A N/A N/A N/A Capital Growth [Fund(1)] 1,355,361 -- 1,501,646 25,355 105,152 10,125 783,646 141,465 Large Cap [Fund(1)] 3,676,555 157,613 6,578,349 809,287 4,767,781 0 4,445,559 0 Limited [Term(1)] 153,673 39,468 161,658 76,077 108,195(1b) 35,572 81,110 41,559 U.S. Government [Fund(1)] Tennessee Tax-Exempt [Fund(1)] 258,016 41,800 453,208 7,254 497,352 5,617 502,268 423,799 Limited Term [Tennessee(1)] 61,432 13,967 79,230 22,677 112,873 25,811 93,669(1b) 59,000 Tax-Exempt Fund Treasury Reserve [Fund(1)] 929,047 86,576 1,426,081 215,483 N/A N/A N/A N/A Aggressive Growth [Portfolio(1)] 24,193 12,096 111,136 111,136 N/A N/A N/A N/A Growth [Portfolio(1)] 22,898 11,448 111,326 111,326 N/A N/A N/A N/A Growth and Income [Portfolio(1)] 105,777 52,887 102,659 102,659 N/A N/A N/A N/A Moderate Growth and 25,872 12,936 109,442 212,101 N/A N/A N/A N/A Income [Portfolio(1)] Current Income [Portfolio(1)] 817 408 116,123 116,123 N/A N/A N/A N/A
- ------------------------------------ (1) With respect to Funds participating in the ISG/AmSouth combination, the figures reflect the investment advisory fee paid to the former [Advisor for the periods ended July 31, 2000 and] for the fiscal years ended December 31, 1998, and December 31, 1997. (1a) The International Equity [Fund] commenced operations 12/14/98. (1b) For the period February 28, 1997 (commencement of operations) through December 31, 1997. Each of the Advisory Agreements provides that the [Advisor] shall not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust in connection with the performance of such Advisory Agreement, except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith, or gross negligence on the part of the [Advisor] in the performance of its duties, or from reckless disregard by the [Advisor] of its duties and obligations thereunder. -69- 305 Unless sooner terminated, the First Investment Advisory Agreement will continue in effect until January 31, 2001 as to each of the Money Market Funds, the Capital Appreciation Funds, the Income Funds, the Strategic Portfolios, the Tax-Free Funds, [the Tennessee Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt Fund,] the Bond Fund and the Government Income Fund and for successive one-year periods if such continuance is approved at least annually by the Trust's Board of Trustees or by vote of the holders of a majority of the outstanding voting Shares of that Fund, and a majority of the Trustees who are not parties to the First Investment Advisory Agreement or interested persons (as defined in the 1940 Act) of any party to the First Investment Advisory Agreement by votes cast in person at a meeting called for such purpose. Unless sooner terminated, the Second Investment Advisory Agreement will continue in effect as to the Limited Term Bond Fund until January 31, 2001 and for successive one-year periods thereafter if such continuance is approved at least annually by the Trust's Board of Trustees or by vote of the holders of a majority of the outstanding voting Shares of the Limited Term Bond Fund, and a majority of the Trustees who are not parties to the Second Investment Advisory Agreement or interested persons (as defined in the 1940 Act) of any party to the Second Investment Advisory Agreement by votes cast in person at a meeting called for such purpose. The Advisory Agreements are terminable as to a particular Fund at any time on 60 days' written notice without penalty by the Trustees, by vote of the holders of a majority of the outstanding voting Shares of that Fund, or by the [Advisor]. The Advisory Agreements also terminate automatically in the event of any assignment, as defined in the 1940 Act. From time to time, advertisements, supplemental sales literature and information furnished to present or prospective shareholders of the Funds may include descriptions of the investment [advisor] including, but not limited to, (i) descriptions of the [advisor's] operations; and (ii) descriptions of certain personnel and their functions; and (iii) statistics and rankings related to the [advisor's] operations. AmSouth also serves as Sub-Administrator for the Trust. See "SUB-ADMINISTRATOR" below. INVESTMENT SUB- [ADVISORS] Investment sub-advisory services are provided to the Equity Income Fund by Rockhaven Asset Management, LLC ("Rockhaven" or "Sub- [Advisor")] pursuant to a Sub-Advisory Agreement dated as of March 12, 1997 between the [Advisor] and Rockhaven ("Sub-Advisory Agreement"). Investment sub-advisory services are provided to the Growth Fund by Peachtree Asset Management ("Peachtree" or "Sub- [Advisor")] pursuant to a Sub-Advisory Agreement dated July 31, 1997 between the [Advisor] and Peachtree. Investment sub-advisory services are provided to the Small Cap Fund by Sawgrass Asset Management, LLC ("Sawgrass" or "Sub- [Advisor")] pursuant to a Sub-Advisory Agreement dated as of March 2, 1998 between the [Advisor] and Sub- [Advisor] (a "Sub-Advisory Agreement"). Investment -70- 306 sub-advisory services are provided to the Select Equity Fund and the Enhanced Market Fund pursuant to a Sub-Advisory Agreement dated as of September 1, 1998 between the [Advisor] and OakBrook Investments, LLC ("OakBrook" or "Sub- [Advisor")]. The Sub- [Advisors] shall not be liable for any error of judgement or mistake of law or for any loss suffered by the [Advisor], the Trust or the Fund in connection with the matters to which Agreement relates, except that a Sub- [Advisor] shall be liable to the [Advisor] for a loss resulting from a breach of fiduciary duty by the Sub- [Advisor] under the 1940 Act with respect to the receipt of compensation for services or a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Sub- [Advisor] in the performance of its duties or from reckless disregard by it of its obligations or duties thereunder. Unless sooner terminated, the Sub-Advisory Agreement shall continue with respect to the Equity Income Fund until January 31, 2001, with respect to the Growth Fund until July 31, 2001, with respect to the Small Cap Fund until January 31,2001, and with respect to the Select Equity Fund and Enhanced Market Fund until January 31,2001, and each Sub-Advisory Agreement shall continue in effect for successive one-year periods if such continuance is approved at least annually by the Board of Trustees or by vote of the holders of a majority of the outstanding voting Shares of the respective Fund and a majority of the Trustees who are not parties to the Sub-Advisory Agreement or interested persons (as defined in the 1940 Act) of any party to the Sub-Advisory Agreement by vote cast in person at a meeting called for such purpose. Each Sub-Advisory Agreement may be terminated with respect to a Fund by the Trust at any time without the payment of any penalty by the Board of Trustees, by vote of the holders of a majority of the outstanding voting securities of the Fund, or by the [Advisor] or Sub- [Advisor] on 60 days written notice. Each Sub-Advisory Agreement will also immediately terminate in the event of its assignment. With respect to International Equity Fund, the [Advisor] has entered into a Sub-Investment Advisory Agreement (the "Lazard Sub-Advisory Agreement") with Lazard Asset Management ("Lazard") dated as of March 13, 2000. As to such Fund, the Lazard Sub-Advisory Agreement is subject to annual approval by (i) the Board or (ii) vote of a majority (as defined in the 1940 Act) of the Fund's outstanding voting securities, provided that in either event the continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in the 1940 Act) of the Fund or Lazard, by vote cast in person at a meeting called for the purpose of voting on such approval. The Lazard Sub-Advisory Agreement is terminable without penalty, (i) by the [Advisor] on 60 days' notice, (ii) by the Fund's Board or by vote of the holders of a majority of the Fund's outstanding voting securities on 60 days' notice, or (iii) upon not less than 90 days' notice, by Lazard. The Lazard Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act). Under the terms of the Lazard Sub-Advisory -71- 307 Agreement, the [Advisor] has agreed to pay Lazard a monthly fee at the annual rate of .50% of the value of the International Equity Fund's average daily net assets. With respect to Mid-Cap Fund, the [Advisor] has entered into a Sub-Investment Advisory Agreement (the "Bennett Lawrence Sub-Advisory Agreement") with Bennett Lawrence Management, LLC ("Bennett Lawrence") dated as of March 13, 2000. As to such Fund, the Bennett Lawrence Sub-Advisory Agreement is subject to annual approval by (i) the Board or (ii) vote of a majority (as defined in the 1940 Act) of the Fund's outstanding voting securities, provided that in either event the continuance also is approved by a majority of the Board members who are not "interested persons" (as defined in the 1940 Act) of the Fund or Bennett Lawrence, by vote cast in person at a meeting called for the purpose of voting on such approval. The Bennett Lawrence Sub-Advisory Agreement is terminable without penalty, (i) by the [Advisor] on 60 days' notice, (ii) by the Fund's Board or by vote of the holders of a majority of the Fund's outstanding voting securities on 60 days' notice, or (iii) upon not less than 90 days' notice, by Bennett Lawrence. The Bennett Lawrence Sub-Advisory Agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act). Under the terms of the Bennett Lawrence Sub-Advisory Agreement, the [Advisor] has agreed to pay Bennett Lawrence a monthly fee at the annual rate set forth below as a percentage of the average daily net assets of the Mid-Cap Fund: Annual Rate of Sub- Average Daily New Advisory Fee Payable Assets of Mid-Cap Fund By the [Advisor] on the first $25 million .75% on the next $50 million .625% on assets in excess of $75 million .50% From time to time, advertisements, supplemental sales literature and information furnished to present or prospective Shareholders of the Trust may include descriptions of a Sub- [Advisor] including, but not limited to, (i) descriptions of the Sub- [Advisor's] operations; (ii) descriptions of certain personnel and their functions; and (iii) statistics and rankings relating to the Sub- [Advisor's] operations. PORTFOLIO TRANSACTIONS Pursuant to the Advisory Agreements, the [Advisor] or Sub- [Advisor] determines, subject to the general supervision of the Board of Trustees and in accordance with each Fund's investment objective, policies and restrictions, which securities are to be purchased and sold by a Fund, and which brokers are to be eligible to execute such Fund's portfolio transactions. Purchases and sales of portfolio securities with respect to the Money Market Funds, the Income Funds, and the Balanced Fund (with respect to its debt securities) usually are principal transactions in which portfolio -72- 308 securities are normally purchased directly from the issuer or from an underwriter or market maker for the securities. Purchases from underwriters of portfolio securities include a commission or concession paid by the issuer to the underwriter and purchases from dealers serving as market makers may include the spread between the bid and asked price. Transactions on stock exchanges involve the payment of negotiated brokerage commissions. Transactions in over-the-counter market are generally principal transactions with dealers. With respect to over-the-counter market, the Trust, where possible, will deal directly with dealers who make a market in the securities involved except in those circumstances where better price and execution are available elsewhere. While the [Advisor] and Sub- [Advisor] generally seek competitive spreads or commissions, the Trust may not necessarily pay the lowest spread or commission available on each transaction, for reasons discussed below. Allocation of transactions, including their frequency, to various dealers is determined by the [Advisor] and the Sub- [Advisor] in their best judgment and in a manner deemed fair and reasonable to Shareholders. The primary consideration is prompt execution of orders in an effective manner at the most favorable price. Subject to this consideration, dealers who provide supplemental investment research to the [Advisor] or Sub- [Advisor] may receive orders for transactions on behalf of the Trust. Information so received is in addition to and not in lieu of services required to be performed by the [Advisor] or Sub- [Advisor] and does not reduce the advisory fees payable to the [Advisor] or the Sub- [Advisor]. Such information may be useful to the [Advisor] or Sub- [Advisor] in serving both the Trust and other clients and, conversely, supplemental information obtained by the placement of business of other clients may be useful to the [Advisor] or Sub- [Advisor] in carrying out their obligations to the Trust. To the extent permitted by applicable rules and regulations, either AmSouth or the Sub- [Advisors] may execute portfolio transactions on behalf of the Funds through an affiliate of AmSouth. As required by Rule 17e-1 under the 1940 Act, the Funds have adopted procedures which provide that commissions paid to such affiliate must be fair and reasonable compared to the commission, fees or other remuneration paid to other brokers in connection with comparable transactions. The procedures also provide that the Board will review reports of such affiliated brokerage transactions in connection with the foregoing standard. Investment decisions for each Fund are made independently from those for the other Funds or any other investment company or account managed by the [Advisor] or Sub- [Advisor]. Any such other investment company or account may also invest in the same securities as the Trust. When a purchase or sale of the same security is made at substantially the same time on behalf of a Fund and another Fund, investment company or account, the transaction will be averaged as to price and available investments will be allocated as to amount in a manner which the [Advisor] or Sub- [Advisor] believe -73- 309 to be equitable to the Fund(s) and such other investment company or account. In some instances, this investment procedure may adversely affect the price paid or received by a Fund or the size of the position obtained by a Fund. To the extent permitted by law, the [Advisor] or Sub- [Advisor] may aggregate the securities to be sold or purchased for a Fund with those to be sold or purchased for the other Funds or for other investment companies or accounts in order to obtain best execution. As provided by each of the Advisory Agreements and the Sub-Advisory Agreement, in making investment recommendations for the Trust, the [Advisor] or Sub- [Advisor] will not inquire or take into consideration whether an issuer of securities proposed for purchase or sale by the Trust is a customer of the [Advisor] or Sub- [Advisor], its parent or its subsidiaries or affiliates and, in dealing with its customers, the [Advisor] or Sub- [Advisor], its parent, subsidiaries, and affiliates will not inquire or take into consideration whether securities of such customers are held by the Trust. During the following fiscal years, the Funds listed below paid the following aggregate brokerage commissions:
Fiscal Year Ended [JULY 31, 2000] July 31, 1999 July 31, 1998 --------------- ------------- ------------- Balanced Fund $132,669 $365,522 Growth Fund 34,442 -- Enhanced Market Fund 20,125** -- Value Fund 534,115 592,269 Equity Income Fund 119,234 615,317 Select Equity Fund 13,150** -- Small Cap Fund 108,710 --
* For the period March 30, 1997 to July 31, 1997. ** For the period September 1, 1998 to July 31, 1999.
[PERIOD ENDED JULY 31, 2000] Dec. 31, 1999 Dec. 31, 1998 Dec. 31, 1997 -------------- ------------- ------------- ------------- International Equity Fund $52,129 [$68,007] $67,394 Mid Cap Fund 16,260 N/A N/A Capital Growth Fund 656,419 494,130 360,208 Large Cap Fund 312,254 76,036 74,672 Limited Term U.S. Government Fund 0 0 0 Tennessee Tax-Exempt Fund 0 0 0 Limited Term Tennessee Tax-Exempt Fund 0 0 0 Treasury Reserve Fund 0 0 0 Aggressive Growth Portfolio N/A N/A N/A Growth Portfolio N/A N/A N/A Growth and Income Portfolio N/A N/A N/A Moderate Growth and Income Portfolio N/A N/A N/A Current Income Portfolio N/A N/A N/A
-74- 310 For the fiscal year ended 07/31/2000, the following AmSouth Funds executed the following trades with InvestFidelity Capital Markets, a subsidiary of AmSouth Bancorp: % of Total commissions $ Amount paid ---------- ----------- AmSouth Value Fund $95,186.85 8.77% AmSouth Capital Growth Fund $15,090.00 3.02% AmSouth Large Cap Fund $10,200.00 10.43% AmSouth Balanced Fund $19,629.45 9.35% GLASS-STEAGALL ACT In 1971, the United States Supreme Court held in INVESTMENT COMPANY INSTITUTE V. CAMP that the Federal statute commonly referred to as the Glass-Steagall Act prohibits a national bank from operating a mutual fund for the collective investment of managing agency accounts. Subsequently, the Board of Governors of the Federal Reserve System (the "Board") issued a regulation and interpretation to the effect that the Glass-Steagall Act and such decision: (a) forbid a bank holding company registered under the Federal Bank Holding Company Act of 1956 (the "Holding Company Act") or any non-bank affiliate thereof from sponsoring, organizing, or controlling a registered, open-end investment company continuously engaged in the issuance of its shares, but (b) do not prohibit such a holding company or affiliate from acting as investment [advisor], transfer agent, and custodian to such an investment company. In 1981, the United States Supreme Court held in BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM V. INVESTMENT COMPANY INSTITUTE that the Board did not exceed its authority under the Holding Company Act when it adopted its regulation and interpretation authorizing bank holding companies and their non-bank affiliates to act as investment [advisors] to registered closed-end investment companies. In the BOARD OF GOVERNORS case, the Supreme Court also stated that if a national bank complied with the restrictions imposed by the Board in its regulation and interpretation authorizing bank holding companies and their non-bank affiliates to act as investment [advisors] to investment companies, a national bank performing investment advisory services for an investment company would not violate the Glass-Steagall Act. AmSouth believes that it possesses the legal authority to perform the services for each Fund contemplated by the Advisory Agreements regarding that Fund and described in the Prospectus of that Fund and this Statement of Additional Information and has so represented in the Advisory Agreement regarding that Fund. Future changes in either federal or state statutes and regulations relating to the permissible activities of banks or bank holding companies and the subsidiaries or affiliates of those entities, as well as further judicial or administrative decisions or interpretations of present and future statutes and regulations, could prevent or restrict AmSouth from continuing to perform such services for the Trust. Depending upon the nature of any changes in the services which could be provided by AmSouth, the Board of Trustees would review the Trust's relationship with AmSouth and consider taking all action necessary in the circumstances. -75- 311 Should future legislative, judicial, or administrative action prohibit or restrict the proposed activities of AmSouth in connection with customer purchases of Shares of the Trust, AmSouth might be required to alter materially or discontinue the services offered by them to customers. It is not anticipated, however, that any change in the Trust's method of operations would affect its net asset value per Share or result in financial losses to any customer. ADMINISTRATOR ASO Services Company ("ASO") serves as administrator (the "Administrator") to each Fund of the Trust pursuant to the Management and Administration Agreement dated as of April 1, 1996 (the "Administration Agreement"). ASO is a wholly-owned subsidiary of BISYS which is a wholly-owned subsidiary of BISYS Group, Inc., a publicly held company which is a provider of information processing, loan servicing and 401(k) administration and record-keeping services to and through banking and other financial organizations. The Administrator assists in supervising all operations of each Fund (other than those performed by the [Advisor] under the Advisory Agreements, the Sub- [Advisors] under the Sub-Advisory Agreements, those performed by AmSouth under its custodial services agreement with the Trust and those performed by BISYS Fund Services, Inc. under its transfer agency and fund accounting agreements with the Trust). Under the Administration Agreement, the Administrator has agreed to monitor the net asset value per Share of the Money Market Funds, to maintain office facilities for the Trust, to maintain the Trust's financial accounts and records, and to furnish the Trust statistical and research data and certain bookkeeping services, and certain other services required by the Trust. The Administrator prepares annual and semi-annual reports to the Securities and Exchange Commission, prepares federal and state tax returns, prepares filings with state securities commissions, and generally assists in supervising all aspects of the Trust's operations (other than those performed by the [Advisor] under the Advisory Agreements, the Sub- [Advisors] under the Sub-Advisory Agreements, those by AmSouth under its custodial services agreement with the Trust and those performed by BISYS Fund Services, Inc. under its fund accounting agreement and BISYS Fund Services Ohio, Inc. under its transfer agency agreement with the Trust). Under the Administration Agreement, the Administrator may delegate all or any part of its responsibilities thereunder. Under the Administration Agreement for expenses assumed and services provided as manager and administrator, the Administrator receives a fee from each Fund (except the Institutional Money Market Fund) equal to the lesser of (a) a fee computed at the annual rate of twenty one-hundredths of one percent (0.20%) of such Fund's average daily net assets; or (b) such fee as may from time to time be agreed upon in writing by the Trust and the Administrator. Under the Administration Agreement for expenses assumed and services provided as manager and administrator, the Administrator receives a fee from the Institutional Money Market Fund equal to the lesser of (a) a fee computed at the annual rate of (0.10%) of -76- 312 the Institutional Money Market Fund's average daily net assets; or (b) such fee as may from time to time be agreed upon in writing by the Trust and the Administrator. A fee agreed to from time to time by the Trust and the Administrator may be significantly lower than the fee calculated at the annual rate and the effect of such lower fee would be to lower a Fund's expenses and increase the net income of such Fund during the period when such lower fee is in effect. Each Fund also bears expenses incurred in pricing securities owned by the Fund. For its services as administrator and expenses assumed pursuant to the Administration Agreement, the Administrator received the following [fees(2)]:
Fiscal Year or Period Ended July 31, [2000] July 31, [1999] July 31, [1998] ---------------- ---------------- ---------------- Amount Amount Amount[ ]Earned Waived Earned Waived Earned Waived ------- ------ ------ ------ ------ ------ Balanced Fund 570,976 42,241 $761,600 -- $751,492 -- Growth Fund 97,628 44,788 51,832 $51,832 18,000 $16,000 Enhanced Market Fund 120,009 54,133 35,097 35,097 -- -- Value Fund 1,604,829 -- 2,073,141 -- 1,995,442 -- Select Equity Fund 28,172 16,569 32,564 32,564 -- -- [Florida Fund 139,493 69,745 141,800 70,899 114,000 57,000] [U.S. Treasury Fund 577,841 -- 630,865 -- 628,179 -- Institutional Prime Obligations Fund 256,613 179,635 99,181 69,427 -- --
July 31, 2000 July 31, 1999 July 31, 1998 July 31, 1997 ------------- ------------- ------------- ------------- Amount Amount Amount Amount Earned Waived Earned Waived Earned Waived Earned Waived ------ ------ ------ ------ ------ ------ ------ ------ Equity Income Fund(2) 186,764 31,665 81,223 -- 66,881 -- 9,033 -- Small Cap Fund(2)] 166,626 55,962 21,209 21,209 6,000 6,000 -- -- Bond [Fund(2)] 864,890 287,813 713,624 285,450 633,000 475,000 298,000 119,000 Government Income [Fund(2)] 296,574 76,592 19,067 9,450 21,000 10,000 28,000 14,000 Limited Term Bond [Fund(2)] 280,736 90,001 226,015 90,406 238,000 95,000 99,000 40,000 [Municipal Bond Fund(2)] 714,602 240,613 652,573 261,029 668,000 267,000 55,000 22,000 Prime Money Market [Fund(2)] 1,970,564 545,049 1,382,700 -- 1,257,853 -- 1,183,357 -- [Tax-Exempt Fund(2)] 270,515 -- 191,672 -- 176,963 -- 160,785 -- International Equity [Fund(2)] 85,626 17,234 49,045 0 68863 0 -- -- Mid Cap [Fund(2)] 79,192 15,448 15,317 0 -- -- -- -- Capital Growth [Fund(2)] 332,131 62,899 340,631 0 231,959 0 180,842 0 Large Cap [Fund(2)] 861,408 157,613 1,153,818 0 630,646 0 -- -- Limited [Term(2)] 46,938 8,368 71,320 1,485 32,459 23,803 24,333 17,844 U.S. Government Fund Tennessee Tax-Exempt [Fund(2)] 78,798 13,933 133,786 0 149,206 0 150,681 Limited Term [Tennessee(2)] 18,752 10,737 30,297 22,218 33,862 24,832 28,101 20,607
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Tax-Exempt Fund Treasury Reserve [Fund(2)] 440,879 173,152 484,234 0 192,322 0 189,650 0 Aggressive Growth [Portfolio(2)] 22,251 8,210 9,656 0 -- -- -- -- Growth [Portfolio(2)] 20,885 7,422 5,547 0 -- -- -- -- Growth and Income [Portfolio(2)] 3,070 -- 37,323 0 -- -- -- -- Moderate Growth and 23,639 8,469 9,525 0 -- -- -- -- Income [Portfolio(2)] Current Income [Portfolio(2)] 753 280 622 0 -- -- -- --
- ------------------------------------ (2) For former ISG Funds, the figures reflect fees received by the [current Administrator for the period ended July 31, 2000 and by the] former Administrator for the fiscal year ended December 31, 1999, December 31, 1998, and December 31, 1997. The Administration Agreement shall, unless sooner terminated as provided in the Administration Agreement (described below), continue until December 31, 2000. Thereafter, the Administration Agreement shall be renewed automatically for successive five-year terms, unless written notice not to renew is given by the non-renewing party to the other party at least 60 days' prior to the expiration of the then-current term. The Administration Agreement is terminable with respect to a particular Fund only upon mutual agreement of the parties to the Administration Agreement and for cause (as defined in the Administration Agreement) by the party alleging cause, on not less than 60 days' notice by the Trust's Board of Trustees or by the Administrator. The Administration Agreement provides that the Administrator shall not be liable for any loss suffered by the Trust in connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad faith, or gross negligence in the performance of its duties, or from the reckless disregard by the Administrator of its obligations and duties thereunder. EXPENSES Each Fund bears the following expenses relating to its operations: taxes, interest, any brokerage fees and commissions, fees of the Trustees of the Trust, Securities and Exchange Commission fees, state securities qualification fees, costs of preparing and printing Prospectuses for regulatory purposes and for distribution to current Shareholders, outside auditing and legal expenses, advisory and administration fees, fees and out-of-pocket expenses of the custodian and the transfer agent, dividend disbursing agents fees, fees and out-of-pocket expenses for fund accounting services, expenses incurred for pricing securities owned by it, certain insurance premiums, costs of maintenance of its existence, costs of Shareholders' and Trustees' reports and meetings, and any extraordinary expenses incurred in its operation. AmSouth and the Administrator each bear all expenses in connection with the performance of their services as [Advisor] and Administrator, respectively, other than the cost of securities (including brokerage commissions, if any) purchased for a Fund. -78- 314 No Fund will bear, directly or indirectly, the cost of any activity primarily intended to result in the distribution of Shares of such Fund; such costs will be borne by the Distributor. As a general matter, expenses are allocated to the Trust, Class A, Class B, Class I, Class II and Class III Shares of a Fund on the basis of the relative net asset value of each class. At present, the only expenses that will be borne solely by Class A, Class B Shares, Class II and Class III, other than in accordance with the relative net asset value of the class, are expenses under the Servicing Plan which relates only to the Class A Shares and the Distribution Plan which relates only to the Class B Shares. SUB-ADMINISTRATORS AmSouth is retained by BISYS as the Sub-Administrator to the Trust pursuant to an agreement between the Administrator and AmSouth. On April 1, 1996, AmSouth entered into an Agreement with ASO as the Sub-Administrator of the Trust. Pursuant to this agreement, AmSouth has assumed certain of the Administrator's duties, for which AmSouth receives a fee, paid by the Administrator, calculated at an annual rate of up to (0.10%) ten one-hundredths of one percent of each Fund's average net assets. For the fiscal years ended July 31, [2000, July 31,] 1999 and July 31, 1998, AmSouth received [$1,562,664,] $2,184,291 and $1,924,684, respectively, with respect to the Trust. BISYS is retained by the Administrator as a Sub-Administrator to the Trust. Pursuant to its agreement with the Administrator, BISYS Fund Services is entitled to compensation as mutually agreed upon from time to time by it and the Administrator. DISTRIBUTOR BISYS serves as distributor to each Fund of the Trust pursuant to the Distribution Agreement dated as of July 16, 1997 (the "Distribution Agreement"). The Distribution Agreement provides that, unless sooner terminated it will continue in effect until January 31, 2001, and from year to year thereafter if such continuance is approved at least annually (i) by the Trust's Board of Trustees or by the vote of a majority of the outstanding Shares of the Funds or Fund subject to such Distribution Agreement, and (ii) by the vote of a majority of the Trustees of the Trust who are not parties to such Distribution Agreement or interested persons (as defined in the 1940 Act) of any party to such Distribution Agreement, cast in person at a meeting called for the purpose of voting on such approval. The Distribution Agreement may be terminated in the event of any assignment, as defined in the 1940 Act. Class A Shares of the Trust are subject to a Shareholder Servicing Plan (the "Servicing Plan") permitting payment of compensation to financial institutions that agree to provide certain administrative support services for their customers or account holders. Each Fund has entered into a specific arrangement with BISYS for the provision of such services by BISYS, and reimburses BISYS for its cost of providing these services, subject to a maximum annual -79- 315 rate of twenty-five one-hundredths of one percent (0.25%) of the average daily net assets of the Class A Shares of each Fund. The Servicing Plan was initially approved on December 6, 1995 by the Trust's Board of Trustees, including a majority of the trustees who are not interested persons of the Trust (as defined in the 1940 Act) and who have no direct or indirect financial interest in the Servicing Plan (the "Independent Trustees"). The Servicing Plan reflects the creation of the Class A Shares, and provides for fees only upon that Class. The Servicing Plan may be terminated with respect to any Fund by a vote of a majority of the Independent Trustees, or by a vote of a majority of the outstanding Class A Shares of that Fund. The Servicing Plan may be amended by vote of the Trust's Board of Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for such purpose, except that any change in the Servicing Plan that would materially increase the shareholder servicing fee with respect to a Fund requires the approval of the holders of that Fund's Class A Class. The Trust's Board of Trustees will review on a quarterly and annual basis written reports of the amounts received and expended under the Servicing Plan (including amounts expended by the Distributor to Participating Organizations pursuant to the Servicing Agreements entered into under the Servicing Plan) indicating the purposes for which such expenditures were made. Under the Trust's Distribution and Shareholder Services Plan (the "Distribution Plan"), all Class B Shares pay a shareholder servicing fee of 0.25% of average daily net assets. [This] fee is in the form of a separate non-Rule 12b-1 fee. [All Funds bear] a Rule 12b-1 fee of 0.75%. Class II Shares of a Fund will pay a monthly distribution fee to the Distributor as compensation for its services in connection with the Distribution Plan at an annual rate equal to twenty-five one-hundredths of one percent (0.25%) of the average daily net assets of Class II Shares of each Fund; Class III Shares of a Fund will pay a monthly distribution fee to the Distributor as compensation for its services in connection with the Distribution Plan at an annual rate equal to fifty one-hundredths of one percent (0.50%) of the average daily net assets of the Class III Shares of each Fund. The Distributor may periodically waive all or a portion of the fee with respect to a Fund in order to increase the net investment income of the Fund available for distribution as dividends. The Distributor may apply the Class B, Class II or Class III Share Fee toward the following: (i) compensation for its services or expenses in connection with distribution assistance with respect to such Fund's Class B, Class II or Class III Shares; (ii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance -80- 316 companies, and investment counselors) as brokerage commissions in connection with the sale of such Fund's Class B, Class II or Class III Shares; and (iii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors), broker-dealers, and the Distributor's affiliates and subsidiaries as compensation for services and/or reimbursement of expenses incurred in connection with distribution or shareholder services with respect to such Fund's Class B, Class II or Class III Shares. The Distribution Plan was initially approved on March 12, 1997 by the Trust's Board of Trustees, including a majority of the trustees who are not interested persons of the Fund (as defined in the 1940 Act) and who have no direct or indirect financial interest in the Distribution Plan (the "Independent Trustees"). In accordance with Rule 12b-1 under the 1940 Act, the Distribution Plan may be terminated with respect to the Class B, Class II or Class III Shares of any Fund by a vote of a majority of the Independent Trustees, or by a vote of a majority of the outstanding Class B, Class II or Class III Shares of that Fund. The Distribution Plan may be amended by vote of the Fund's Board of Trustees, including a majority of the Independent Trustees, cast in person at a meeting called for such purpose, except that any change in the Distribution Plan that would materially increase the distribution fee with respect to the Class B, Class II or Class III Shares of a Fund requires the approval of the holders of that Fund's Class B, Class II or Class III Shares. The Trust's Board of Trustees will review on a quarterly and annual basis written reports of the amounts received and expended under the Distribution Plan (including amounts expended by the Distributor to Participating Organizations pursuant to the Servicing Agreements entered into under the Distribution Plan) indicating the purposes for which such expenditures were made. For the fiscal year ended July 31, [2000], July 31, [1999] and July 31, [1998] the Distributor received the following servicing fees with respect to the Class A Shares and the following distribution fees with respect to the Class B, Class II and Class III Shares from the following [Funds(3)]:
Fiscal Year Ended July 31, [2000] July 31, [1999] July 31, [1998] --------------- --------------- --------------- Class A Shares Class A Shares Class A Shares -------------- -------------- -------------- Amount Amount Amount Earned Waived Earned Waived Earned Waived ------ ------ ------ ------ ------ ------ Balanced Fund -- -- $113,423 -- $113,853 $341 Growth Fund -- -- 28,262 -- 12,190 37 Enhanced Market Fund -- -- 27,092 $9,055 -- -- Value Fund -- -- 178,812 -- 145,774 437 Select Equity Fund -- -- 28,366 10,391 -- -- [Florida Fund -- -- 24,979 14,987 13,848 8,325] [U.S. Treasury Fund -- -- 16,054 9,633 19,155 11,498
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198,365 128,935 -- --
JULY 31, 2000 JULY 31, 1999 JULY 31, 1998 JULY 31, 1997 -------------------- ----------------- ----------------- --------------- CLASS A SHARES CLASS A SHARES CLASS A SHARES CLASS A SHARES AMOUNT AMOUNT AMOUNT AMOUNT EARNED WAIVED EARNED WAIVED EARNED WAIVED EARNED WAIVED ------ ------ ------ ------ ------ ------ ------ ------ Equity Income Fund -- -- 58,845 -- 55,674 167 -- -- Small Cap Fund -- -- 3,080 -- 1,091 7 -- -- Bond [Fund -- -- 7,330 -- 15,851 9,530 -- -- Government Income [Fund -- -- 6,909 -- 21,290 12,799 -- -- Limited Term Bond [Fund -- -- 7,521 4,513 8,171 4,912 -- -- Municipal Bond [Fund -- -- 5,843 -- 4,831 2,904 -- -- Prime Money Market [Fund -- -- 336,424 201,863 305,250 183,129 $305,882 $182,913 [Tax-Exempt Fund -- -- 62,542 37,562 58,152 34,888 50,267 31,033 International Equity [Fund(3)] 565 565 1,031 1,031 0 0 -- -- Mid Cap [Fund(3)] 2,299 -- 1,503 0 -- -- -- -- Capital Growth [Fund(3)] 5,174 -- 18,891 0 6,073 0 214,963 214,887 Large Cap Fund [(3)] 37,907 37,907 172,705 172,705 0 0 -- -- Limited Term U.S. 7,305 7,305 48,533 48,533 40,554 40,554 Government [Fund(3)] 1,752 1,752 Tennessee Tax-Exempt 7,736 0 6,387 0 189,842 189,623 [Fund(3)] 1,560 -- Limited Term Tennessee 48,523 48,523 55,168 55,168 46,847 46,847 Tax-Exempt [Fund(3)] 9,450 9,450 Treasury Reserve [Fund(3)] -- -- 0 0 -- -- -- -- Aggressive Growth 524 0 -- -- -- -- [Portfolio(3)] 232 -- Growth [Portfolio(3)] 119 -- 266 0 -- -- -- -- Growth and Income 755 0 -- -- -- -- [Portfolio(3)] 256 -- Moderate Growth and 291 0 -- -- -- -- Income [Portfolio(3)] 68 -- Current Income [Portfolio(3)] 1 -- 5 0 -- -- -- --
(3) For [Funds] participating in the ISG/AmSouth combination, the figures reflect fees received by the former Distributor for the [period ended July 31, 2000 and] fiscal year ended December 31, 1999, December 31, 1998, and December 31, 1997.
Fiscal Year Ended July 31, [2000] July 31, [1999] July 31, [1998] --------------- --------------- --------------- Class B Shares Class B Shares Class B Shares Amount Amount Amount Earned Waived Earned Waived Earned Waived ------ ------ ------ ------ ------ ------ Balanced Fund -- -- $78,669 -- $21,204 -- Growth Fund -- -- 51,893 -- 15,982 -- Enhanced Market Fund -- -- 20,045 -- -- -- Value Fund -- -- 102,305 -- 33,233 -- Select Equity Fund -- -- 8,018 -- -- -- [Florida Fund -- -- 1,086 -- -- --] [U.S. Treasury Fund -- -- -- -- -- -- ]
[July 31, 2000 July 31, 1999 July 31, 1998 July 31, 1997 ] [Class B Shares Class B Shares Class B Shares Class B Shares
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AMOUNT AMOUNT AMOUNT AMOUNT EARNED WAIVED EARNED WAIVED EARNED WAIVED EARNED WAIVED ------ ------ ------ ------ ------ ------ ------ ------ Equity Income Fund 69,803 -- 77,644 -- 35,433 -- -- -- Small Cap Fund 6,524 -- 8,620 -- 2,093 -- -- -- Bond Fund 10,498 -- 16,859 -- 1,542 -- -- -- Government Income Fund 1,427 -- -- -- -- -- ] -- -- Limited Term Bond [Fund] 5,693 -- 4,053 -- -- -- -- -- Municipal Bond [Fund] 2,150 -- -- -- -- -- -- -- Prime Money Market [Fund] 2,555 -- 1,468 -- -- -- -- -- Tax-Exempt [Fund] -- -- -- -- -- -- -- -- International Equity [Fund(3)] 2,029 -- 416 0 0 0 -- -- Mid Cap [Fund(3)] 36,596 -- 2,945 [0] 0 -- -- -- Capital Growth [Fund(3)] 36,520 -- 40,157 0 8,089 0 -- -- Large Cap [Fund(3)] 95,346 -- 74,774 0 23 23 -- -- Limited Term U.S. 1,822 -- 3,735 0 1,398 0 -- -- Government [Fund(3)] Tennessee Tax-Exempt 4,824 -- 10,630 0 5,131 0 -- -- [Fund(3)] Limited Term Tennessee 2,037 -- 5,915 0 3,332 0 -- -- Tax-Exempt [Fund(3)] Treasury Reserve [Fund(3)] -- -- 0 0 -- -- -- -- Aggressive Growth 2,038 -- 2,179 0 -- -- -- -- [Portfolio(3)] Growth [Portfolio(3)] 4,917 -- 3,954 0 -- -- -- -- Growth and Income 7,746 -- 8,688 0 -- -- -- -- [Portfolio(3)] Moderate Growth and 3,732 -- 4,809 0 -- -- -- -- Income Current Income [Portfolio(4)] 66 -- 167 0 -- -- -- --
- -------------------------------- [(3)For Funds] participating in the ISG/AmSouth combination, the figures reflect fees received by the former Distributor for the [period ended July 31, 2000 and] fiscal [years] ended December 31, 1999, December 31, 1998, and December 31, 1997. -83- 319
Fiscal Year Ended [July 31, 2000] July 31, 1999 July 31, 1998 --------------------- ------------------------- ----------------------- Class II Shares Class II Shares Class II Shares Amount Amount Amount Earned Waived Earned Waived Earned Waived ------ ------ ------ ------ ------ ------ Institutional Prime Obligations Fund $17,200 -- -- --
Fiscal Year Ended [July 31, 2000] July 31, 1999 July 31, 1998 --------------------- ------------------------- ----------------------- Class III Shares Class III Shares Class III Shares Amount Amount Amount Earned Waived Earned Waived Earned Waived ------ ------ ------ ------ ------ ------ Institutional Prime Obligations Fund $15,473 -- -- --
All payments by the Distributor for distribution assistance or shareholder services under the Distribution Plan will be made pursuant to an agreement (a "Servicing Agreement") between the Distributor and such bank, other financial institution or intermediary, broker-dealer, or affiliate or subsidiary of the Distributor (hereinafter referred to individually as "Participating Organizations"). A Servicing Agreement will relate to the provision of distribution assistance in connection with the distribution of a Fund's Class B Shares, Class II Shares or Class III Shares to the Participating Organization's customers on whose behalf the investment in such Shares is made and/or to the provision of shareholder services to the Participating Organization's customers owning a Fund's Class B Shares, Class II Shares or Class III Shares. Under the Distribution Plan, a Participating Organization may include AmSouth or a subsidiary bank or nonbank affiliates, or the subsidiaries or affiliates of those banks. A Servicing Agreement entered into with a bank (or any of its subsidiaries or affiliates) will contain a representation that the bank (or subsidiary or affiliate) believes that it possesses the legal authority to perform the services contemplated by the Servicing Agreement without violation of applicable banking laws (including the Glass-Steagall Act) and regulations. The distribution fee will be payable without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular year by the Distributor in connection with distribution assistance or shareholder services rendered by the Distributor itself or incurred by the Distributor pursuant to the Servicing Agreements entered into under the Distribution Plan. If the amount of the distribution fee is greater than the Distributor's actual expenses incurred in a particular year (and the Distributor does not waive that portion of the distribution fee), the Distributor will realize a profit in that year from the distribution fee. If the amount of the distribution fee is less than the Distributor's actual expenses incurred in a particular year, the Distributor will realize a loss in that year under the Distribution Plan and will not recover from a Fund the excess of expenses for the year over the distribution fee, -84- 320 unless actual expenses incurred in a later year in which the Distribution Plan remains in effect were less than the distribution fee paid in that later year. The Glass-Steagall Act and other applicable laws prohibit banks generally from engaging in the business of underwriting securities, but in general do not prohibit banks from purchasing securities as agent for and upon the order of customers. Accordingly, the Trust will require banks acting as Participating Organizations to provide only those services which, in the banks' opinion, are consistent with the then current legal requirements. It is possible, however, that future legislative, judicial or administrative action affecting the securities activities of banks will cause the Trust to alter or discontinue its arrangements with banks that act as Participating Organizations, or change its method of operations. It is not anticipated, however, that any change in a Fund's method of operations would affect its net asset value per share or result in financial loss to any customer. CUSTODIAN AmSouth serves as custodian of the Trust pursuant to a Custodial Services Agreement with the Trust (the "Custodian"). The Custodian's responsibilities include safeguarding and controlling the Trust's cash and securities, handling the receipt and delivery of securities, and collecting interest and dividends on the Trust's investments. TRANSFER AGENT AND FUND ACCOUNTING SERVICES. BISYS Fund Services Ohio, Inc. ("Transfer Agent") serves as transfer agent to each Fund of the Trust pursuant to a Transfer Agency and Shareholder Service Agreement with the Trust. The Transfer Agent is a wholly-owned subsidiary of The BISYS Group, Inc. BISYS Fund Services, Inc. ("Fund Accountant") provides fund accounting services to each of the Funds pursuant to a Fund Accounting Agreement with the Trust. Under the Fund Accounting Agreement, the Fund Accountant receives a fee from each Fund at the annual rate of 0.03% of such Fund's average daily net assets, plus out-of-pocket expenses, subject to a minimum annual fee of $40,000 for each tax-exempt Fund and $30,000 for each taxable Fund and the Money Market Funds may be subject to an additional fee of $10,000 for each Class. INDEPENDENT ACCOUNTANTS The [financial information for the fiscal year ended July 31, 2000 appearing in the Prospectuses under "FINANCIAL HIGHLIGHTS" has been derived from financial statements of the Trust incorporated by reference into this Statement of Additional Information which have been audited by Ernst & Young, LLP, independent accountants for the Trust, as set forth in their report incorporated by reference herein, and are included in reliance upon such report and on the authority of such firm as experts in auditing and accounting. Ernst & Young LLP'S address is 10 West Broad Street, -85- 321 Columbus, OH 43215. With respect to earlier fiscal years, such] financial information appearing in the Prospectuses under "FINANCIAL HIGHLIGHTS" has been derived from financial statements of the Trust incorporated by reference into this Statement of Additional Information which have been audited by PricewaterhouseCoopers LLP, former independent accountants for the Trust, as set forth in their report incorporated by reference herein, and are included in reliance upon such report and on the authority of such firm as experts in auditing and accounting. [Also, regarding fiscal years prior to July 31, 2000, with] respect to the Capital Growth Fund (formerly ISG Capital Growth Fund), Large Cap Fund (formerly ISG Large-Cap Equity Fund), Mid Cap Fund (formerly ISG Mid-Cap Fund), International Equity Fund (formerly ISG International Equity Fund), Strategic Portfolios: Aggressive Growth Portfolio (formerly, ISG Aggressive Growth Portfolio), Growth Portfolio (formerly ISG Growth Portfolio), Growth and Income Portfolio (formerly ISG Growth & Income Portfolio), Moderate Growth and Income Portfolio (formerly ISG Moderate Growth & Income Portfolio), Current Income Portfolio (formerly ISG Current Income Portfolio), Limited Term U.S. Government Fund (formerly ISG Limited Term U.S. Government Fund), Tennessee Tax-Exempt Fund (formerly ISG Tennessee Tax-Exempt Fund), Limited Term Tennessee Tax-Exempt Fund (formerly ISG Limited Term Tennessee Tax-Exempt Fund), and Treasury Reserve Money Market Fund (formerly Treasury Money Market Fund), these such Funds being former ISG Funds which merged into AmSouth Funds on March 13, 2000, the financial information appearing in the Prospectuses under "FINANCIAL HIGHLIGHTS" has been derived from financial statements of the ISG Funds incorporated by reference into this Statement of Additional Information which have been audited by KPMG LLP, independent accountants for the ISG Funds, as set forth in their report incorporated by reference herein, and are included in reliance upon such report and on the authority of such firm as experts in auditing and accounting. LEGAL COUNSEL Ropes & Gray, One Franklin Square, 1301 K Street, N.W., Suite 800 East, Washington, DC 20005-3333, are counsel to the Trust. PERFORMANCE INFORMATION GENERAL From time to time, the Trust may include the following types of information in advertisements, supplemental sales literature and reports to Shareholders: (1) discussions of general economic or financial principals (such as the effects of inflation, the power of compounding and the benefits of dollar-cost averaging); (2) discussions of general economic trends; (3) presentations of statistical data to supplement such discussions; (4) descriptions of past or anticipated portfolio holdings for one or more of the Funds within the Trust; (5) descriptions of investment strategies for one or more of such Funds; (6) descriptions or comparisons of various investment products, which may or may not include the Funds; (7) comparisons of investment products (including the Funds) with relevant market or industry indices or other appropriate benchmarks; and (8) discussions of fund rankings or ratings by recognized rating organizations. Investors may also judge the performance of each Fund by comparing its performance to the performance of other mutual funds with comparable investment objectives and policies through various mutual fund or market indices and data such as that provided by Lipper Analytical Services, Inc. and Donoghue's Money Fund Report. Comparisons may also be -86- 322 made to indices or data published in Money Magazine, Forbes, Barron's, The Wall Street Journal, The New York Times, Business Week, American Banker, Fortune, Institutional Investor, Ibbotson Associates, Inc., Morning Star, Inc., CDA/Wiesenberger, Pensions and Investments, U.S.A. Today, and local newspapers and periodicals. In addition to performance information, general information about these Funds that appears in a publication such as those mentioned above may be included in advertisements, sales literature and in reports to Shareholders. Additional performance information is contained in the Trust's Annual Report, which is available free of charge by calling the number on the front page of the Prospectus. Information about the performance of a Fund is based on the Fund's record up to a certain date and is not intended to indicate future performance. Yield and total return are functions of the type and quality of instruments held in a Fund, operating expenses, and marketing conditions. Any fees charged by a Financial Institution with respect to customer accounts investing in Shares of a Fund will not be included in performance calculations. YIELDS OF THE MONEY MARKET FUNDS The "yield" of each Money Market Fund for a seven-day period (a "base period") will be computed by determining the "net change in value" (calculated as set forth below) of a hypothetical account having a balance of one share at the beginning of the period, dividing the net change in account value by the value of the account at the beginning of the base period to obtain the base period return, and multiplying the base period return by 365/7 with the resulting yield figure carried to the nearest hundredth of one percent. Net changes in value of a hypothetical account will include the value of additional shares purchased with dividends from the original share and dividends declared on both the original share and any such additional shares, but will not include realized gains or losses or unrealized appreciation or depreciation on portfolio investments. Yield may also be calculated on a compound basis (the "effective yield") which assumes that net income is reinvested in Fund shares at the same rate as net income is earned for the base period. The Tax-Exempt Fund may also advertise a "tax equivalent yield" and a "tax equivalent effective yield." Tax equivalent yield will be computed by dividing that portion of the Tax-Exempt Fund's yield which is tax-exempt by the difference between one and a stated income tax rate and adding the product to that portion, if any, of the yield of the Fund that is not tax-exempt. The tax equivalent effective yield for the Tax-Exempt Fund is computed by dividing that portion of the effective yield of the Tax-Exempt Fund which is tax-exempt by the difference between one and a stated income tax rate and adding the product to that portion, if any, of the effective yield of the Fund that is not tax-exempt. The yield and effective yield of each of the Money Market Funds and the tax equivalent yield and the tax equivalent effective yield of the Tax-Exempt Fund will vary in response to fluctuations in interest rates and in the expenses of the Fund. For comparative purposes the current and effective yields should be compared to current and effective yields offered by -87- 323 competing financial institutions for that base period only and calculated by the methods described above. For the seven-day period ended July 31, [2000], the yield, effective yield, the tax equivalent yield and the tax equivalent effective yield of the Trust Shares and Class A Shares of each Money Market Fund, calculated as described, above was as follows:
Effective Tax Equivalent Tax Equivalent Fund Class Yield Yield Yield Effective Yield ---- ----- ----- --------- -------------- --------------- Prime Money Market Fund Trust 6.02% 6.20% -- -- U.S. Treasury Fund Trust 5.50% 5.65% -- -- Tax-Exempt Fund Trust 3.56% 3.62% Treasury Reserve Fund Trust 5.71% 5.87% -- -- Prime Money Market Fund Class A 5.87% 6.04% -- -- U.S. Treasury Fund Class A 5.35% 5.50% -- -- Tax-Exempt Fund Class A 3.41% 3.47% Treasury Reserve Fund Class A 5.55% 5.71% -- -- Institutional Prime Obligations Fund Class I 6.47% 6.68% -- -- Institutional Prime Obligations Fund Class II 6.22% 6.42% -- -- Institutional Prime Obligations Fund Class III 5.97% 6.15% -- -- Prime Money Market Fund Class B 5.12% 5.25%
YIELD OF THE CAPITAL APPRECIATION FUNDS, [AND] THE INCOME FUNDS The yield of each of the Funds will be computed by annualizing net investment income per share for a recent 30-day period and dividing that amount by the maximum offering price per share (reduced by any undeclared earned income expected to be paid shortly as a dividend) on the last trading day of that period. Net investment income will reflect amortization of any market value premium or discount of fixed-income securities (except for obligations backed by mortgages or other assets) and may include recognition of a pro rata portion of the stated dividend rate of dividend paying portfolio securities. The yield of each of the Funds will vary from time to time depending upon market conditions, the composition of the Fund's portfolios and operating expenses of the Trust allocated to each Fund. These factors and possible differences in the methods used in calculating yield should be considered when comparing a Fund's yield to yields published for other investment companies and other investment vehicles. Yield should also be considered relative to changes in the value of the Fund's shares and to the relative risks associated with the investment objectives and policies of the Funds. -88- 324 The Tax-Free Funds [, the Tennessee Tax-Exempt Fund, and the Limited Term Tennessee Tax-Exempt Fund] may also advertise a "tax equivalent yield" and a "tax equivalent effective yield." Tax equivalent yield will be computed by dividing that portion of each Fund's yield which is tax-exempt by the difference between one and a stated income tax rate and adding the product to that portion, if any, of the yield of the Fund that is not tax-exempt. The tax equivalent effective yield for the Funds is computed by dividing that portion of the effective yield of the Fund which is tax-exempt by the difference between one and a stated income tax rate and adding the product to that portion, if any, of the effective yield of the Fund that is not tax-exempt. At any time in the future, yields and total return may be higher or lower than past yields and there can be no assurance that any historical results will continue. Investors in the Capital Appreciation Funds and the Income Funds are specifically advised that share prices, expressed as the net asset values per share, will vary just as yields will vary. For the 30-day period ending July 31, [2000], the yield and the tax equivalent yield of the Income Funds: Tax Equivalent Fund Class Yield Yield ---- ----- ----- ----- Florida Tax-Exempt Fund Class A 4.24% Trust 4.55% Municipal Bond Fund Class A 3.93% Trust 4.24% Bond Fund Class A 5.72% Trust 6.11% Class B 5.21% Government Income Fund Class A 5.43% Trust 5.80% Limited Term Bond Fund Class A 5.93% Trust 6.33% Limited Term U.S. Class A 5.29% Government Fund Trust 5.92% Tennessee Tax-Exempt Class A 4.18% Fund Trust 4.50% Limited Term Tennessee Class A 3.49% Tax-Exempt Fund Trust N/A For the 30-day period ending July 31, [2000], the yield of the Capital Appreciation Funds was: -89- 325 Fund Class Yield ---- ----- ----- Value Fund Trust 1.20% Balanced Fund Trust 3.75% Equity Income Fund Trust 0.79% Growth Fund Trust -0.42% Small Cap Fund Trust -0.96% Enhanced Market Fund Trust 0.41% Select Equity Fund Trust -0.14% International Equity Fund Trust 0% Mid Cap Fund Trust -1.20% Capital Growth Fund Trust -0.29% Large Cap Fund Trust -0.11% Value Fund Class A 1.00% Balanced Fund Class A 3.43% Equity Income Fund Class A 0.62% Growth Fund Class A -0.57% Small Cap Fund Class A -0.92% Enhanced Market Fund Class A 0.15% Select Equity Fund Class A -0.04% International Equity Fund Class A 0.90% Mid Cap Fund Class A -1.28% Capital Growth Fund Class A -0.48% Large Cap Fund Class A -0.47% Value Fund Class B 0.31% Balanced Fund Class B 2.86% Equity Income Fund Class B -0.03% Growth Fund Class B -0.59% Small Cap Fund Class B -2.01% Enhanced Market Fund Class B -0.46% Select Equity Fund Class B -0.71% International Equity Fund Class B 0% Mid Cap Fund Class B -2.09% Capital Growth Fund Class B -1.14% Large Cap Fund Class B -0.98% CALCULATION OF TOTAL RETURN Total Return is a measure of the change in value of an investment in a Fund over the period covered, assuming the investor paid the current maximum applicable sales charge on the investment and that any dividends or capital gains distributions were reinvested in the Fund immediately rather than paid to the investor in cash. The formula for calculating Total Return includes four steps: (1) adding to the total number of shares purchased by a hypothetical $1,000 investment in the Fund all additional shares which would have been purchased if all dividends and distributions paid or distributed during the period had been immediately reinvested; (2) calculating the value of the hypothetical initial investment of $1,000 as of the end of the period by multiplying the total number of shares owned at the end of the period by the net asset value per share on the last trading day of the period; (3) assuming redemption at the end of the period; and (4) dividing this account value for the hypothetical investor by the initial $1,000 investment and annualizing the result for periods of less than one year. -90- 326 For the one-year and five-year periods ended July 31, [2000], average annual total return was as follows: Fund Class One-Year Five-Year ---- ----- -------- --------- Prime Money Market Fund Trust U.S. Treasury Fund Trust Tax-Exempt Fund Trust Prime Money Market Fund Class A U.S. Treasury Fund Class A Tax-Exempt Fund Class A Florida Tax-Exempt Fund Class A Bond Fund Class A Limited Term Bond Fund Class A Government Income Fund Class A Municipal Bond Class A Institutional Prime Obligations Fund Class I Institutional Prime Obligations Fund Class II Institutional Prime Obligations Fund Class III Prime Money Market Fund Class B 3.56 N/A -91- 327 Fund Class One-Year(4) Five-Year(4) ---- ----- -------- --------- AmSouth Limited Term Class A U.S. Government Fund AmSouth Tennessee Tax- Class A Exempt Fund AmSouth Limited Term Class A Tennessee Tax-Exempt Fund AmSouth Treasury Reserve Class A Money Market Fund AmSouth Limited Term Class B 0.22% 5.12% U.S. Government Fund AmSouth Tennessee Tax- Class B Exempt Fund AmSouth Limited Term Class B Tennessee Tax-Exempt Fund AmSouth Limited Term Trust U.S. Government Fund AmSouth Tennessee Tax- Trust Exempt Fund AmSouth Limited Term Trust Tennessee Tax-Exempt Fund AmSouth Treasury Reserve Trust Money Market Fund - ------------------------------ (4) For participating in the ISG/AmSouth combination, the figures reflect fees received by the former Distributor for the [period ended July 31, 2000 and the fiscal years] ended December 31, 1999, December 31, 1998, and December 31, 1997.[[REVISE?]] -92- 328 For the one-year and five-year periods ended July 31, [2000], average annual total return was as follows: Fund Class One-Year Five-Year ---- ----- -------- --------- Value Fund Trust Balanced Fund Trust Growth Fund Trust Equity Income Fund Trust Small Cap Fund Trust Value Fund Class A Balanced Fund Class A Growth Fund Class A Equity Income Fund Class A Small Cap Fund Class A Value Fund Class B Balanced Fund Class B Growth Fund Class B Equity Income Fund Class B Small Cap Fund Class B -93- 329 Fund Class One-Year(5) Five-Year(5) ---- ----- -------- --------- AmSouth Capital Growth Class A Fund AmSouth Large Cap Fund Class A AmSouth Mid Cap Fund Class A AmSouth International Class A Equity Fund AmSouth Aggressive Class A Growth Portfolio AmSouth Growth Portfolio Class A AmSouth Growth and Class A Income Portfolio AmSouth Moderate Growth Class A Income Portfolio AmSouth Current Income Class A Portfolio AmSouth Capital Growth Class B Fund AmSouth Large Cap Fund Class B AmSouth Mid Cap Fund Class B AmSouth International Class B Equity Fund AmSouth Aggressive Class B Growth Portfolio AmSouth Growth Portfolio Class B AmSouth Growth and Class B Income Portfolio AmSouth Moderate Growth Class B Income Portfolio AmSouth Current Income Class B Portfolio AmSouth Capital Growth Trust Fund AmSouth Large Cap Fund Trust AmSouth Mid Cap Fund Trust AmSouth International Trust Equity Fund AmSouth Aggressive Trust Growth Portfolio AmSouth Growth Portfolio Trust AmSouth Growth and Trust Income Portfolio AmSouth Moderate Growth Trust Income Portfolio AmSouth Current Income Trust Portfolio (5) For [Funds] participating in the ISG/AmSouth combination, the figures reflect fees received by the former Distributor for the [period ended July 31, 2000 and] fiscal [years] ended December 31, 1999, December 31, 1998, and December 31, 1997.[[REVISE?] -94- 330 For the period from commencement of operations through July 31, [2000], the average annual total return was as follows:
Commencement of Operations Commencement Fund Class through July 31, [2000] of Operations Date ---- ----- ---------------- ------ ------------------ Prime Money Market Fund Trust August 8, 1988 U.S. Treasury Fund Trust September 8, 1988 Tax-Exempt Fund Trust June 27, 1988 Florida Tax-Exempt Fund Trust September 2, 1997 Municipal Bond Fund Trust September 2, 1997 Bond Fund Trust September 2, 1997 Limited Term Bond Fund Trust September 2, 1997 Government Income Fund Trust September 2, 1997 Prime Money Market Fund Class A April 1, 1996 U.S. Treasury Fund Class A April 1, 1996 Tax-Exempt Fund Class A April 1, 1996 Florida Fund Class A September 30, 1994 Municipal Bond Fund Class A July 1, 1997 Bond Fund Class A December 1, 1988 Limited Term Bond Fund Class A February 1, 1988 Government Income Fund Class A October 1, 1993 Bond Fund Class B September 2, 1997 Prime Money Market Fund Class B June 15, 1998 Institutional Prime Obligations Fund Class I September 15, 1998 Institutional Prime Obligations Fund Class II February 19, 1999 Institutional Prime Obligations Fund Class III February 22, 1999
-95- 331 Fund Class Since Inception(6) ---- ----- --------------- AmSouth Limited Term Class A U.S. Government Fund AmSouth Tennessee Tax- Class A Exempt Fund AmSouth Limited Term Class A Tennessee Tax-Exempt Fund AmSouth Treasury Reserve Class A Money Market Fund AmSouth Limited Term Class B U.S. Government Fund AmSouth Tennessee Tax- Class B Exempt Fund AmSouth Limited Term Class B Tennessee Tax-Exempt Fund AmSouth Limited Term Trust U.S. Government Fund AmSouth Tennessee Tax- Trust Exempt Fund AmSouth Limited Term Trust Tennessee Tax-Exempt Fund AmSouth Treasury Reserve Trust Money Market Fund - ------------------------------ (6) For [Funds] participating in the ISG/AmSouth combination, the figures reflect fees received by the former Distributor for [the period ended July 31, 2000 and] the fiscal [years] ended December 31, 1999, December 31, 1998, and December 31, 1997. [[REVISE?]] -96- 332 For the period from commencement of operations through July 31, [2000], the average annual total return was as follows:
Commencement of Operations Commencement Fund Class through July 31, [2000] of Operations Date ---- ----- ---------------- ------ ------------------ Value Fund Trust December 1, 1988 Balanced Fund Trust December 19, 1991 Equity Income Fund Trust March 20, 1997 Growth Fund Trust July 31, 1997 Small Cap Fund Trust March 2, 1998 Enhanced Market Fund Trust September 1, 1998 Select Equity Fund Trust September 1, 1998 Value Fund Class B December 1, 1988 Balanced Fund Class B December 19, 1991 Equity Income Fund Class B March 20, 1997 Growth Fund Class B August 3, 1997 Small Cap Fund Class B March 2, 1998 Enhanced Market Fund Class B September 1, 1998 Select Equity Fund Class B September 1, 1998 Value Fund Class A December 1, 1988 Balanced Fund Class A December 19, 1991 Equity Income Fund Class A March 20, 1997 Growth Fund Class A August 3, 1997 Small Cap Fund Class A March 2, 1998 Enhanced Market Fund Class A September 1, 1998 Select Equity Fund Class A September 1, 1998
-97- 333 Fund Class Since Inception(7) ---- ----- --------------- AmSouth Capital Growth Class A Fund AmSouth Large Cap Fund Class A AmSouth Mid Cap Fund Class A AmSouth International Class A Equity Fund AmSouth Aggressive Class A Growth Portfolio AmSouth Growth Portfolio Class A AmSouth Growth and Class A Income Portfolio AmSouth Moderate Growth Class A Income Portfolio AmSouth Current Income Class A Portfolio AmSouth Capital Growth Class B Fund AmSouth Large Cap Fund Class B AmSouth Mid Cap Fund Class B AmSouth International Class B Equity Fund AmSouth Aggressive Class B Growth Portfolio AmSouth Growth Portfolio Class B AmSouth Growth and Class B Income Portfolio AmSouth Moderate Growth Class B Income Portfolio AmSouth Current Income Class B Portfolio AmSouth Capital Growth Trust Fund AmSouth Large Cap Fund Trust AmSouth Mid Cap Fund Trust AmSouth International Trust Equity Fund AmSouth Aggressive Trust Growth Portfolio AmSouth Growth Portfolio Trust AmSouth Growth and Trust Income Portfolio AmSouth Moderate Growth Trust Income Portfolio AmSouth Current Income Trust Portfolio - ------------------------------- (7) For participating in the ISG/AmSouth combination, the figures reflect fees received by the former Distributor for the [period ended July 31, 2000 and the fiscal years] ended December 31, 1999, December 31, 1998, and December 31, 1997. -98- 334 PERFORMANCE COMPARISONS YIELD AND TOTAL RETURN. From time to time, performance information for the Funds showing their average annual total return and/or yield may be included in advertisements or in information furnished to present or prospective Shareholders and the ranking of those performance figures relative to such figures for groups of mutual funds categorized by Lipper Analytical Services as having the same investment objectives may be included in advertisements. Total return and/or yield may also be used to compare the performance of the Funds against certain widely acknowledged standards or indices for stock and bond market performance. The Standard & Poor's Composite Index of 500 Stocks (the "S&P 500") is a market value-weighted and unmanaged index showing the changes in the aggregate market value of 500 Stocks relative to the base period 1941-43. The S&P 500 is composed almost entirely of common stocks of companies listed on the New York Stock Exchange, although the common stocks of a few companies listed on the American Stock Exchange or traded over-the-counter are included. The 500 companies represented include 400 industrial, 60 transportation and 40 financial services concerns. The S&P 500 represents about 80% of the market value of all issues traded on the New York Stock Exchange. The NASDAQ-OTC Price Index (the "NASDAQ Index") is a market value-weighted and unmanaged index showing the changes in the aggregate market value of approximately 3,500 stocks relative to the base measure of 100.00 on February 5, 1971. The NASDAQ Index is composed entirely of common stocks of companies traded over-the-counter and often through the National Association of Securities Dealers Automated Quotations ("NASDAQ") system. Only those over-the-counter stocks having only one market maker or traded on exchanges are excluded. The Shearson Lehman Government Bond Index (the "SL Government Index") is a measure of the market value of all public obligations of the U.S. Treasury; all publicly issued debt of all agencies of the U.S. government and all quasi-federal corporations; and all corporate debt guaranteed by the U.S. government. Mortgage backed securities, flower bonds and foreign targeted issues are not included in the SL Government Index. The Shearson Lehman Government/Corporate Bond Index (the "SL Government/ Corporate Index") is a measure of the market value of approximately 5,300 bonds with a face value currently in excess of $1.3 trillion. To be included in the SL Government/Corporate Index, an issue must have amounts outstanding in excess of $1 million, have at least one year to maturity and be rated "Baa" or higher ("investment grade") by a nationally recognized statistical rating agency. -99- 335 ALL FUNDS. Current yields or performance will fluctuate from time to time and are not necessarily representative of future results. Accordingly, a Fund's yield or performance may not provide for comparison with bank deposits or other investments that pay a fixed return for a stated period of time. Yield and performance are functions of a quality, composition, and maturity, as well as expenses allocated to the Fund. Fees imposed upon customer accounts by Financial Institutions for cash management services will reduce a Fund's effective yield to Customers. ADDITIONAL INFORMATION ORGANIZATION AND DESCRIPTION OF SHARES The Trust was organized as a Massachusetts business trust by the Agreement and Declaration of Trust, dated October 1, 1987, under the name "Shelf Registration Trust IV." The Trust's name was changed to "The ASO Outlook Group" as of April 12, 1988, to "AmSouth Mutual Funds" as of August 19, 1993 and to "AmSouth Funds" as of November 30, 1999 by amendments to the Agreement and Declaration of Trust. A copy of the Trust's Agreement and Declaration of Trust, as amended (the "Declaration of Trust") is on file with the Secretary of State of The Commonwealth of Massachusetts. The Declaration of Trust authorizes the Board of Trustees to issue an unlimited number of Shares, which are units of beneficial interest. The Trust presently has twenty-nine series of Shares which represent interests in the Value Fund, the Growth Fund, the Capital Growth Fund, the Large Cap Fund, the Mid Cap Fund, the Small Cap Fund, the Equity Income Fund, the Balanced Fund, the Select Equity Fund, the Enhanced Market Fund, the International Equity Fund, the Strategic Portfolios: Aggressive Growth Portfolio, the Strategic Portfolios: Growth Portfolio, the Strategic Portfolios: Growth and Income Portfolio, the Strategic Portfolios: Moderate Growth and Income Portfolio, the Strategic Portfolios: Current Income Portfolio, the Bond Fund, the Limited Term Bond Fund, the Government Income Fund, the Limited Term U.S. Government Fund, the Municipal Bond Fund, the Florida Tax-Exempt Fund, the Tennessee Tax-Exempt Fund, the Limited Term Tennessee Tax-Exempt Fund, the Prime Money Market Fund, the U.S. Treasury Money Market Fund, the Treasury Reserve Money Market Fund, the Tax-Exempt Money Market Fund, and the Prime Obligations Money Market Fund. The Trust's Declaration of Trust authorizes the Board of Trustees to divide or redivide any unissued Shares of the Trust into one or more additional series. Shares have no subscription or preemptive rights and only such conversion or exchange rights as the Board of Trustees may grant in its discretion. When issued for payment as described in the Prospectuses and this Statement of Additional Information, the Trust's Shares will be fully paid and non-assessable. In the event of a liquidation or dissolution of the Trust, Shareholders of a Fund are entitled to receive the assets available for distribution belonging to that Fund, and a proportionate distribution, based upon the relative asset values of the respective Funds, of any general assets not belonging to any particular Fund which are available for distribution. -100- 336 Shares of the Trust are entitled to one vote per share (with proportional voting for fractional shares) on such matters as Shareholders are entitled to vote. Shareholders vote in the aggregate and not by series or class on all matters except (i) when required by the 1940 Act, shares shall be voted by individual series, (ii) when the Trustees have determined that the matter affects only the interests of one or more series or class, then only Shareholders of such series or class shall be entitled to vote thereon, (iii) when pertaining to the Shareholder Servicing Plan, and (iv) when pertaining to the Distribution Plan. There will normally be no meetings of Shareholders for the purposes of electing Trustees unless and until such time as less than a majority of the Trustees have been elected by the Shareholders, at which time the Trustees then in office will call a Shareholders' meeting for the election of Trustees. In addition, Trustees may be removed from office by a written consent signed by the holders of two-thirds of the outstanding voting Shares of the Trust and filed with the Trust's custodian or by vote of the holders of two-thirds of the outstanding voting Shares of the Trust at a meeting duly called for the purpose, which meeting shall be held upon the written request of the holders of not less than 10% of the outstanding voting Shares of any Fund. Except as set forth above, the Trustees shall continue to hold office and may appoint their successors. SHAREHOLDER LIABILITY Under Massachusetts law, Shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Trust's Declaration of Trust disclaims Shareholder liability for acts or obligations of the Trust and requires that notice of such disclaimer be given in every agreement, obligation or instrument entered into or executed by the Trust or the Trustees. The Declaration of Trust provides for indemnification out of a Fund's property for all loss and expense of any Shareholder of such Fund held liable on account of being or having been a Shareholder. Thus, the risk of a Shareholder incurring financial loss on account of Shareholder liability is limited to circumstances in which a Fund would be unable to meet its obligations. MISCELLANEOUS The Trust is registered with the Securities and Exchange Commission as a management investment company. Such registration does not involve supervision by the Securities and Exchange Commission of the management or policies of the Trust. As used in this Statement of Additional Information, "assets belonging to a Fund" means the consideration received by the Fund upon the issuance or sale of Shares in that Group, together with all income, earnings, profits, and proceeds derived from the investment thereof, including any proceeds from the sale, exchange, or liquidation of such investments, and any funds or payments derived from any reinvestment of such proceeds, and any general assets of the Trust not readily identified as belonging to a particular Fund that are allocated to that Fund by the Trust's Board of Trustees. The Board of Trustees may allocate such general assets in any manner it deems fair and equitable. It is anticipated that the factor that will be -101- 337 used by the Board of Trustees in making allocations of general assets to particular Funds will be the relative net assets of the respective Funds at the time of allocation. Assets belonging to a particular Fund are charged with the direct liabilities and expenses in respect of that Fund, and with a share of the general liabilities and expenses of the Trust not readily identified as belonging to a particular Fund that are allocated to that Fund in proportion to the relative net assets of the respective Funds at the time of allocation. The timing of allocations of general assets and general liabilities and expenses of the Trust to particular Funds will be determined by the Board of Trustees of the Trust and will be in accordance with generally accepted accounting principles. Determinations by the Board of Trustees of the Trust as to the timing of the allocation of general liabilities and expenses and as to the timing and allocable portion of any general assets with respect to a particular Fund are conclusive. As used in this Statement of Additional Information, a "vote of a majority of the outstanding Shares" of the Trust or a particular Fund means the affirmative vote, at a meeting of Shareholders duly called, of the lesser of (a) 67% or more of the votes of Shareholders of the Trust or such Fund present at such meeting at which the holders of more than 50% of the votes attributable to the Shareholders of record of the Trust or such Fund are represented in person or by proxy, or (b) the holders of more than 50% of the outstanding votes of Shareholders of the Trust or such Fund. As of [[DATE?]], 2000, the trustees and officers of the Trust, as a group, owned less than 1% of the Trust Shares, of the Class A Shares and of the Class B Shares of any of the AmSouth Funds. The information in the following table shows, to the best of the knowledge of AmSouth Funds, the shareholders who owned of record or beneficially 5% or more of the indicated Fund and Class. Those shareholders who beneficially own 25% or more of the outstanding shares of a Fund may be deemed to be controlling persons of that Fund under the 1940 Act. -102- 338 -103- 339 -104- 340 -105- 341 -106- 342 -107- 343 -108- 344 -109- 345 -110- 346 [[BISYS TO INSERT RECORD AND BENEFICIAL OWNERSHIP] -111- 347 The Prospectuses of the Funds and this Statement of Additional Information omit certain of the information contained in the Registration Statement filed with the Securities and Exchange Commission. Copies of such information may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. The Prospectuses of the Funds and this Statement of Additional Information are not an offering of the securities herein described in any state in which such offering may not lawfully be made. No salesman, dealer, or other person is authorized to give any information or make any representation other than those contained in the Prospectuses of the Funds and this Statement of Additional Information. -112- 348 FINANCIAL STATEMENTS The financial statements of the AmSouth Funds are incorporated by reference into this Statement of Additional Information. The financial statements for the year or period ended July 31, 2000 have been audited by Ernst & Young LLP. The financial statements for the fiscal year ended July 31, 1999 have been audited by PricewaterhouseCoopers LLP, the former independent public accountants to the AmSouth Funds, as indicated in their reports with respect thereto, and are incorporated herein by reference in reliance upon the authority of said firm as experts in accounting and auditing in giving said reports. The financial statements for the Capital Growth Fund (formerly ISG Capital Growth Fund), Large Cap Fund (formerly ISG Large-Cap Equity Fund), Mid Cap Fund (formerly ISG Mid-Cap Fund), International Equity Fund (formerly ISG International Equity Fund), Strategic Portfolios: Aggressive Growth Portfolio (formerly, ISG Aggressive Growth Portfolio), Growth Portfolio (formerly ISG Growth Portfolio), Growth and Income Portfolio (formerly ISG Growth & Income Portfolio), Moderate Growth and Income Portfolio (formerly ISG Moderate Growth & Income Portfolio), Current Income Portfolio (formerly ISG Current Income Portfolio), Limited Term U.S. Government Fund (formerly ISG Limited Term U.S. Government Fund), Tennessee Tax-Exempt Fund (formerly ISG Tennessee Tax-Exempt Fund), Limited Term Tennessee Tax-Exempt Fund (formerly ISG Limited Term Tennessee Tax-Exempt Fund), and Treasury Reserve Money Market Fund (formerly Treasury Money Market Fund), these such Funds being former ISG Funds which merger into AmSouth Funds on March 13, 2000, for the fiscal year ended December 31, 1999 have been audited by KPMG LLP, the former independent public accountants to the ISG Funds, as indicated in their report with respect thereto, and are incorporated herein by reference in reliance upon the authority of said firm as experts in accounting and auditing in giving said report. A copy of each such reports may be obtained without charge by contacting the Distributor, BISYS Fund Services at 3435 Stelzer Road, Columbus, Ohio 43219 or by telephone toll-free at 800-451-8382. -113- 349 APPENDIX SHORT-TERM RATINGS. Short-term credit ratings of Standard & Poor's Corporation ("S&P") are current assessments of the likelihood of timely payment of debt having an original maturity of no more than 365 days. Short-term credit rated A-1 by S&P indicates that the degree of safety regarding timely payment is extremely strong. Those issues determined to possess extremely strong safety characteristics are denoted with a plus sign (+) designation. Short-term credit rated A-2 by S&P indicates that capacity for timely payment on issues is satisfactory. However, the relative degree of safety is not as high as for issues designated A-1. Short-term credit rated A-3 indicates adequate capacity for timely payment. It is, however, more vulnerable to the adverse effects of changes in circumstances than obligations carrying the higher designations. Short-term credit rated B is regarded as having only speculative capacity for timely payment. Short-term credit rated C is assigned to short-term debt obligations with a doubtful capacity for payment. Short-term credit rated D represents an issue in default or when interest payments or principal payments are not made on the date due, even if the applicable grace period has not expired unless Standard & Poor's believes such payments will be made during such grace period. The rating Prime-1 is the highest short-term rating assigned by Moody's Investors Service, Inc. ("Moody's"). Issuers rated Prime-1 (or supporting institutions) are considered to have a superior ability for repayment of senior short-term debt obligations. Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics of Prime-1 rated issuers, but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternative liquidity is maintained. Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market composition may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. Issuers rated Not Prime do not fall within any of the Prime rating categories. Short-term credit rated F-1 by Fitch IBCA is regarded as having the strongest capacity for timely payments. Short-term credit rated F-2 by Fitch IBCA is regarded as having a satisfactory capacity for timely payment, but that margin of safety is not as great as for issues assigned F-1+ and F-1 ratings. Short-term credit rated F-3 has an adequate capacity for timely payment but near-term adverse changes could cause these securities to be rated below investment grade. Issues rated B have characteristics suggesting a minimal capacity for timely payment and are vulnerable to near-term adverse changes in financial and economic conditions. Issues related C have characteristics suggesting default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment. Issues rated D denotes actual or imminent payment default. The plus -114- 350 (+) sign is used after a rating symbol to designate the relative status of an issuer within the rating category. CORPORATE DEBT AND STATE AND MUNICIPAL BOND RATINGS. STANDARD & POOR'S CORPORATION. Debt rated AAA has the highest rating assigned by S&P. Capacity to pay interest and repay principal is extremely strong. Debt rated AA has a very strong capacity to pay interest and to repay principal and differs from the highest rated issues only in small degree. Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in the higher rated categories. BB -- Debt rated "BB" has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. B -- Debt rated "B" has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal. CCC -- Debt rated "CCC" has a currently identifiable vulnerability to default, and is dependent upon favorable business, financial and economic conditions to meet timely payment of interest and repayment of principal. In the event of adverse business, financial, or economic conditions, it is not likely to have the capacity to pay interest and repay principal. CC -- The rating "CC" is currently highly vulnerable to nonpayment. C -- The "C" rating may be used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. D -- Debt rated "D" is in payment default. The "D" rating category is used when interest payments or principal payments are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The "D" rating also will be used upon the filing of a bankruptcy petition if debt service payments are jeopardized. -115- 351 To provide more detailed indications of credit quality, the ratings from AA to A may be modified by the addition of a plus or minus sign to show relative standing within this major rating category. MOODY'S INVESTOR SERVICES. Bonds that are rated Aaa by Moody's are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edged." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Bonds that are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities. Bonds that are rated A by Moody's possess many favorable investment attributes and are to be considered as upper-medium-grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment some time in the future. Bonds that are rated Baa are considered medium-grade obligations; they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba -- Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B -- Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa -- Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca -- Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C -- Bonds which are rated C are the lowest rated class of bonds, and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. -116- 352 OTHER RATINGS OF MUNICIPAL OBLIGATIONS The following summarizes the two highest ratings used by Moody's ratings for state and municipal short-term obligations. Obligations bearing MIG-1 and VMIG-1 designations are of the best quality, enjoying strong protection by established cash flows, superior liquidity support or demonstrated broad-based access to the market for refinancing. Obligations rated "MIG-2" or "VMIG-2" denote high quality with ample margins of protection although not so large as in the preceding rating group. PREFERRED STOCK RATINGS The following summarizes the ratings used by Moody's for preferred stock: "aaa" An issue which is rated "aaa" is considered to be a top-quality preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of preferred stocks. "aa" An issue which is rated "aa" is considered a high-grade preferred stock. This rating indicates that there is a reasonable assurance that earnings and asset protection will remain relatively well maintained in the foreseeable future. "a" An issue which is rated "a" is considered to be an upper-medium grade preferred stock. While risks are judged to be somewhat greater than in the "aaa" and "aa" classification, earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. "baa" An issue which is rated "baa" is considered to be a medium-grade preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be questionable over any great length of time. "ba" An issue which is rated "ba" is considered to have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. "b" An issue which is rate "b" generally lacks the characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long period of time may be small. "caa" An issue which is rated "caa" is likely to be in arrears on dividend payments. This rating designation does not purport to indicate the future status of payments. -117- 353 "ca" An issue which is rated "ca" is speculative in a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments. "c" This is the lowest rated class of preferred or preference stock. Issues so rated can thus be regarded as having extremely poor prospects of ever attaining any real investment standing. The following summarizes the ratings used by Standard & Poor's for preferred stock: "AAA" This is the highest rating that may be assigned by Standard & Poor's to a preferred stock issue and indicates an extremely strong capacity to pay the preferred stock obligations. "AA" A preferred stock issue rated "AA" also qualifies as a high-quality, fixed income security. The capacity to pay preferred stock obligations is very strong, although not as overwhelming as for issues rated "AAA." "A" An issue rated "A" is backed by a sound capacity to pay the preferred stock obligations, although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. "BBB" An issue rated "BBB" is regarded as backed by an adequate capacity to pay the preferred stock obligations. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to make payments for a preferred stock in this category than for issues in the "A" category. "BB," "B," "CCC" Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as predominantly speculative with respect to the issuer's capacity to pay preferred stock obligations. "BB" indicates the lowest degree of speculation and "CCC" the highest. While such issues will likely have some quality and protective characteristics, these are outweighed by large uncertainties or major risk exposures to adverse conditions. "CC" The rating "CC" is reserved for a preferred stock issue in arrears on dividends or sinking fund payments but that is currently paying. "C" A preferred stock rated "C" is a nonpaying issue. "D" A preferred stock rated "D" is a nonpaying issue with the issuer in default on debt instruments. -118- 354 "N.R." This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that S&P does not rate a particular type of obligation as a matter of policy. "Plus (+) or minus (-)" To provide more detailed indications of preferred stock quality, ratings from "AA" to "CCC" may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories. -119- 355 PART C. OTHER INFORMATION Item 23. Exhibits (a) Amended Declaration of Trust, dated as of June 25, 1993 and filed on August 19, 1993 -- incorporated by reference to Post-Effective Amendment No. 11 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (b) (1) By-laws -- incorporated by reference to the Registrant's initial Registration Statement on Form N-1A (File No. 33-21660). (2) Amendment No. 1 to By-laws -- incorporated by reference to Post- Effective Amendment No. 3 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (c) RIGHTS OF SHAREHOLDERS The following portions of Registrant's Declaration of Trust incorporated as Exhibit (a) hereto, define the rights of shareholders: ARTICLE III NO PREEMPTIVE RIGHTS Section 4. Shareholders shall have no preemptive or other right to subscribe to any additional Shares or other securities issued by the Trust. STATUS OF SHARES AND LIMITATION OF PERSONAL LIABILITY Section 5. Shares shall be deemed to be personal property giving only the rights provided in this instrument. Every Shareholder by virtue of having become a Shareholder shall be held to have expressly assented and agreed to the terms hereof and to have become a party hereto. The death of a Shareholder during the continuance of the Trust shall not operate to terminate the same nor entitle the representative of any deceased Shareholder to an accounting or to take any action in court or elsewhere against the Trust or the Trustees, but only to the rights of said decedent under this Trust. Ownership of Shares shall not entitle the Shareholder to any title in or to the whole or any part of the Trust property or right to call for a partition or division of the same or for an accounting, nor shall the ownership of Shares constitute the Shareholders partners. Neither the Trust nor the Trustees, nor any officer, employee or agent of the Trust shall have any power to bind personally any Shareholder, nor except as specifically provided herein to call upon any Shareholder for the payment of any sum of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. 356 ARTICLE IV The Trustees ELECTION Section 1. There shall initially be one Trustee who shall be Stephen G. Mintos. The number of Trustees shall be as provided in the Bylaws or as fixed from to time by the Trustees. The shareholders may elect Trustees at any meeting of Shareholders called by the Trustees for that purpose. Each Trustee shall serve during the continued lifetime of the Trust until he dies, resigns or is removed, or, if sooner, until the next meeting of Shareholders called for the purpose of electing Trustees and the election and qualification of his successor. Any Trustee may resign at any time by written instrument signed by him and delivered to any officer of the Trust, to each other Trustee or to a meeting of the Trustees. Such resignation shall be effective upon receipt unless specified to be effective at some other time. Except to the extent expressly provided in a written agreement with the Trust, no Trustee resigning and no Trustee removed shall have any right to any compensation for any period following his resignation or removal, or any right to damages on account of such removal. ADVISORY, MANAGEMENT AND DISTRIBUTION Section 6. The Trustees may, at any time and from time to time, contract for exclusive or nonexclusive advisory and/or: management services with any corporation, trust, association or other organization (the "Manager"), every such contract to comply with such requirements and restrictions as may be set forth in the Bylaws; and any such contract may provide for one or more Sub-advisers who shall perform all or part of the obligations of the Manager under such Contract and may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine, including, without limitation, authority to determine from time to time what investments shall be purchased, held, sold or exchanged and what portion, if any, of the assets of the Trust shall be held uninvested and to make changes in the Trust's investments. The Trustees may also, at any time and from time to time, contract with the Manager or any other corporation, trust, association or other organization, appointing it exclusive or nonexclusive distributor or principal underwriter for the Shares, every such contract to comply with such requirements and restrictions as may be set forth in the Bylaws; and any such contract may contain such other terms interpretive of or in addition to said requirements and restrictions as the Trustees may determine. The fact that: (i) any of the Shareholders, Trustees or officers of the Trust is a shareholder, director, officer, partner, trustee, employee, manager, adviser, 2 357 principal underwriter or distributor or agent of or for any corporation, trust, association, or other organization, or of or for any parent or affiliate of any organization, with which an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other agency contract may have been or may hereafter be made, or that any such organization, or any parent or affiliate thereof, is a Shareholder or has an interest in the Trust, or that (ii) any corporation, trust, association or other organization with which an advisory or management contract or principal underwriter's or distributor's contract, or transfer, shareholder servicing or other agency contract may have been or may hereafter be made also has an advisory or management contract, or principal underwriter's or distributor's contract, or transfer, Shareholder servicing or other agency contract with one or more other corporations, trusts, associations, or other organizations, or has other business or interests shall not affect the validity of any such contract or disqualify any Shareholder, Trustee or officer of the Trust from voting upon or executing the same or create any liability or accountability to the Trust or its Shareholders. ARTICLE V Shareholders' Voting Powers and Meetings Shareholders shall have such power to vote as is provided for in, and may hold meetings and take actions pursuant to the provisions of the Bylaws. ARTICLE VIII Indemnification SHAREHOLDERS Section 4. In case any Shareholder or former Shareholder shall be held to be personally liable solely by reason of his or her being or having been a Shareholder and not because of his or her acts or omissions or for some other reason, the Shareholder or former Shareholder (or his or her heirs, executors, administrators or other legal representatives or in the case of a corporation or other entity, its corporate or other general successor) shall be entitled to be held harmless from and indemnified against all loss and expense, arising from such liability, but only out of the assets, of the particular series of Shares of which he or she is or was a Shareholder. ARTICLE IX Miscellaneous TRUSTEES, SHAREHOLDERS, ETC. NOT PERSONALLY LIABLE; NOTICE 3 358 Section 1. All persons extending credit to, contracting with or having any claim against the Trust or a particular series of Shares shall look only to the assets of the Trust or the assets of that particular series of Shares for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of the Trust's officers, employees or agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect any Trustee against any liability to which such Trustee would otherwise be subject by reason of [WILLFUL] misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of the office of Trustee. Every note, bond, contract, instrument, certificate or undertaking made or issued by the Trustees or by any officer or officers shall give notice that this Declaration of Trust is on file with the Secretary of The Commonwealth of Massachusetts and shall recite that the same was executed or made by or on behalf of the Trust or by them as Trustee or Trustees or as officers or officer and not individually and that the obligations of such instrument are not binding upon any of them or the Shareholders individually but are binding only upon the assets and property of the Trust, and may contain such further recital as he or she or they may deem appropriate, but the omission thereof shall not operate to bind any Trustee or Trustees or officer or officers or Shareholder or Shareholders individually. DURATION AND TERMINATION OF TRUST Section 4. Unless terminated as provided herein, the Trust shall continue without limitation of time. The Trust may be terminated at any time by the vote of Shareholders holding at least a majority of the Shares of each series entitled to vote or by the Trustees by written notice to the Shareholders. Any series of Shares may be terminated at any time by vote of Shareholders holding at least a majority of the Shares of such series entitled to vote or by the Trustees by written notice to the Shareholders of such series. Upon termination of the Trust or of any one or more series of Shares, after paying or otherwise providing for all charges, taxes, expenses and liabilities, whether due or accrued or anticipated, of the Trust or of the particular series as may be determined by the Trustees, the Trust shall, in accordance with such procedures as the Trustees consider appropriate, reduce the remaining assets to distributable form in cash or shares or other securities, or any combination thereof, and distribute the proceeds to the Shareholders of the series involved, ratably according to the number of Shares of such series held by the several Shareholders of such series on the date of termination. AMENDMENTS 4 359 Section 7. This Declaration of Trust may be amended at any time by an instrument in writing signed by a majority of the then Trustees when authorized to do so by vote of Shareholders holding a majority of the Shares of each series entitled to vote, except that an amendment which shall affect the holders of one or more series of Shares but not the holders of all outstanding series shall be authorized by vote of the Shareholders holding a majority of the Shares entitled to vote of each series affected and no vote of Shareholders of a series not affected shall be required. Amendments having the purpose of changing the name of the Trust, of establishing, changing, or eliminating the par value of the shares or of supplying any omission, curing any ambiguity or curing, correcting or supplementing any defective or inconsistent provision contained herein shall not require authorization by Shareholder vote. The following portions of Registrant's Bylaws incorporated as Exhibit (b) hereto, define the rights of Shareholders: ARTICLE 11 Shareholders' Voting Powers and Meetings 11.1 VOTING POWERS. The Shareholders shall have power to vote only (i) for the election of Trustees as provided in Article IV, Section 1 of the Declaration of Trust, PROVIDED, HOWEVER, that no meeting of Shareholders is required to be called for the purpose of electing Trustees unless and until such time as less than a majority of the Trustees have been elected by the Shareholders, (ii) with respect to any Manager or Sub-Adviser as provided in Article IV, Section 6 of the Declaration of Trust to the extent required by the 1940 Act, (iii) with respect to any termination of this Trust to the extent and as provided in Article IX, Section 4 of the Declaration of Trust, (iv) with respect to any amendment of the Declaration of Trust to the extent and as provided in Article IX, Section 7 of the Declaration of Trust, (v) to the same extent as the stockholders of a Massachusetts business corporation as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively or as a class action on behalf of the Trust or the Shareholders, and (vi) with respect to such additional matters relating to the Trust as may be required by law, the Declaration of Trust , these Bylaws or any registration of the Trust with the Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable. Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional Share shall be entitled to a proportionate fractional vote. The Shareholders of any particular series shall not be entitled to vote on any matters as to which such series is not affected. Except with respect to matters as to which the Trustees have determined that only the interests of one or more particular series are affected or as required by law, all of the Shares of each series shall, on matters as to which it is entitled to vote, vote with other series so entitled as a single 5 360 class. Notwithstanding the foregoing, with respect to matters which would otherwise be voted on by two or more series as a single class, the Trustees may, in their sole discretion, submit such matters to the Shareholders of any or all such series, separately. There shall be no cumulative voting in the election of Trustees. Shares may be voted in person or by proxy. A proxy with respect to Shares held in the name of two or more persons shall be valid if executed by any one of them unless at or prior to exercise of the proxy the Trust receives a specific written notice to the contrary from any one of them. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise and the burden of proving invalidity shall rest on the challenger. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, the Declaration of Trust or these Bylaws to be taken by shareholders. 11.2 VOTING AND MEETINGS. Meetings of the Shareholders may be called by the Trustees for the purpose of electing Trustees as provided in Article IV, Section 1 of the Declaration of Trust and for such other purposes as may be prescribed by law, by the Declaration of Trust or by these Bylaws. Meetings of the Shareholders may also be called by the Trustees from time to time for the purpose of taking action upon any other matter deemed by the Trustees to be necessary or desirable. A meeting of Shareholders may be held at any place designated by the Trustees. Written notice of any meeting of Shareholders shall be given or caused to be given by the Trustees by mailing such notice at least seven days before such meeting, postage prepaid, stating the time and place of the meeting, to each Shareholder at the Shareholder's address as it appears on the records of the Trust. Whenever notice of a meeting is required to be given to a Shareholder under the Declaration of Trust or these Bylaws, a written waiver thereof, executed before or after the meeting by such Shareholder or his attorney thereunto authorized and filed with the records of the meeting, shall be deemed equivalent to such notice. 11.3 QUORUM AND REQUIRED VOTE. A majority of Shares entitled to vote shall be a quorum for the transaction of business at a Shareholders' meeting, except that where any provision of law or of the Declaration of Trust or these Bylaws permits or requires that holders of any series shall vote as a series, then a majority of the aggregate number of Shares of that series entitled to vote shall be necessary to constitute a quorum for the transaction of business by that series. Any lesser number shall be sufficient for adjournments. Any adjourned session or sessions may be held, within a reasonable time after the date set for the original meeting, without the necessity of further notice. Except when a larger vote is required by any provision of law or the Declaration of Trust or these Bylaws, a majority of the Shares voted shall decide any questions and a plurality shall elect a Trustee, provided that where any provision of law or of the Declaration of Trust or these Bylaws permits or requires that the holders of any series shall vote as a series, then a majority of the Shares of that series voted on the matter (or a plurality with respect to the election of a Trustee) shall decide that matter insofar as that series is concerned. 6 361 11.4 ACTION BY WRITTEN CONSENT. Any action taken by Shareholders may be taken without a meeting if a majority of Shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by any express provision of law or the Declaration of Trust or these Bylaws) consent to the action in writing and such written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders. 11.5 RECORD DATES. For the purposes of determining the shareholders who are entitled to vote or act at any meeting or any adjournment thereof, or who are entitled to receive payment of any dividend or of any other distribution, the Trustees may from time to time fix a time, which shall be not more than 90 days before the date of any meeting of shareholders or the date for the payment of any dividend or of any other distributions, as the record date for determining the shareholders having the right to notice of and to vote at such meeting and any adjournment thereof or the right to receive such dividend or distribution, and in such case only shareholders of record on such record date shall have such right notwithstanding any transfer of shares on the books of the Trust after the record date; or without fixing such record date the Trustees may for any of such purposes close the register or transfer books for all of any part of such period. (d) (1) Investment Advisory Agreement dated as of August 1, 1988 between the Registrant and AmSouth Bank N.A. -- incorporated by reference to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (2) Amendment No. 1 dated as of December 5, 1989 to Investment Advisory Agreement dated as of August 1, 1988 between the Registrant and AmSouth Bank N.A. -- incorporated by reference to Post-Effective Amendment No. 4 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (3) Amended Schedule A dated March 13, 2000 to the Investment Advisory Agreement dated as of August 1, 1988 between the Registrant and AmSouth Bank, N.A. [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (4) Investment Advisory Agreement between the Group and 7 362 AmSouth Bank N.A. dated as of January 20, 1989 with respect to The ASO Outlook Group Limited Maturity Fund -- incorporated by reference to Post-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (5) Amendment No. 1 dated as of December 5, 1989 to the Investment Advisory Agreement dated as of January 20, 1989 between the Registrant and AmSouth Bank, N.A. -- incorporated by reference to Post-Effective Amendment No. 4 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (6) Investment Sub-Advisory Agreement dated as of March 12, 1997 between AmSouth Bank and Rockhaven Asset Management -- incorporated by reference to Exhibit 5(f) to Post-Effective Amendment No. 23 to the Registrant's Registration Statement filed on July 3, 1997 on Form N-1A (File No. 33-21660). (7) Investment Sub-Advisory Agreement dated July 31, 1997 between AmSouth Bank and Peachtree Asset Management -- incorporated by reference to Exhibit 5(g) to Post-Effective Amendment No. 25 to the Registrant's Registration Statement filed on November 26, 1997 on Form N-1A (File No. 33-21660). (8) Investment Sub-Advisory Agreement dated as of March 2, 1998 between AmSouth Bank and Sawgrass Asset Management, LLC -- incorporated by reference to Exhibit 5(h) to Post-Effective Amendment No. 26 to the Registrant's Registration Statement filed on May 22, 1998 on Form N-1A (File No. 33-21660). (9) Investment Sub-Advisory Agreement dated September 1, 1998 between AmSouth Bank and OakBrook Investments, LLC is incorporated by reference to Exhibit 5(i) of Post-Effective Amendment No. 28 to the Registrant's Registration Statement filed on September 24, 1998 on Form N-1A (File No. 33-21660). (10) Investment Sub-Advisory Agreement dated March 13, 2000 between AmSouth Bank and Lazard Asset Management [-- INCORPORATED BY REFERENCE 8 363 TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] [(11)] Investment Sub-Advisory Agreement dated March 13, 2000 between AmSouth Bank and Bennett Lawrence Management, LLC [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (e) (1) Distribution Agreement dated as of July 16, 1997 between the Registrant and BISYS Fund Services, Limited Partnership is incorporated by reference to Exhibit 6(a) of Post-Effective Amendment No. 24 to the Registrant's Registration Statement filed on August 27, 1997 on Form N-1A (File No. 33-21660). (2) Amended Schedules A, B, C and D dated November 23, 1999 to the Distribution Agreement between the Registrant and BISYS Fund Services Limited Partnership - [INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (3) Dealer Agreement between The Winsbury Company and AmSouth Investment Services, Inc. -- incorporated by reference to Post-Effective Amendment No. 5 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (4) Dealer Agreement between The Winsbury Company and National Financial Services Corporation -- incorporated by reference to Post-Effective Amendment No. 5 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (5) Dealer Agreement between The Winsbury Company and AmSouth Bank N.A. -- incorporated by reference to Post-Effective Amendment No. 5 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (f) None. (g) (1) Custodian Agreement dated as of April 17, 1997 between the Registrant and AmSouth Bank -- incorporated by reference to Exhibit 8(a) to Post-Effective Amendment No. 23 to the 9 364 Registrant's Registration Statement filed on July 3, 1997 on Form N-1A (File No. 33-21660). (2) Amended Schedule A dated March 13, 2000 to the Custodian Agreement between the Registrant and AmSouth Bank [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (h) (1) Management and Administration Agreement dated as of November 23, 1999 between the Registrant and ASO Services Company [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (2) Sub-Administration Agreement dated as of November 23, 1999 between ASO Services Company and AmSouth Bank [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (3) Sub-Administration Agreement dated as of November 23, 1999 between ASO Services Company and BISYS Fund Services, Inc. [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (4) Transfer Agency and Shareholder Service Agreement dated as of November 23, 1999 between the Registrant and BISYS Fund Services, Inc. [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (5) Fund Accounting Agreement dated as of November 23, 1999 between the Registrant and ASO Services Company, Inc. [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (6) Shareholder Servicing Plan for AmSouth Mutual Funds adopted by the Board of Trustees on December 6, 1995 is incorporated by reference to Exhibit 18(b) to Post-Effective 10 365 Amendment No. 18 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (7) Form of Amended Schedule I dated as of October 4, 2000 to the Shareholder Servicing Plan is filed herewith. (8) Model Shareholder Servicing Agreement for AmSouth Mutual Funds adopted by the Board of Trustees on December 6, 1995 is incorporated by reference to Exhibit 18(c) to Post-Effective Amendment No. 18 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (i) Opinion of Ropes & Gray is filed herewith. (j) (1) Consent of Ropes & Gray is filed herewith. (2) Consent of PricewaterhouseCoopers LLP is filed herewith. (3) Consent of KPMG LLP is filed herewith. (4) CONSENT OF ERNST & YOUNG LLP IS FILED HEREWITH. (k) None. (l) (1) Purchase Agreement between the Registrant and Winsbury Associates incorporated by reference to Post-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (2) Purchase Agreement between the Registrant and Winsbury Associates dated October 31, 1991 incorporated by reference to Post-Effective Amendment No. 7 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (3) Purchase Agreement between the Registrant and Winsbury Associates relating to the Alabama Tax-Free Fund and the Government Income Fund is incorporated by reference to Post-Effective Amendment No. 11 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). 11 366 (4) Purchase Agreement between the Registrant and Winsbury Service Corporation relating to the Florida Tax-Free Fund is incorporated by reference to Post-Effective Amendment No. 13 to the Registrant's Registration Statement on Form N-1A (File No. 33-21660). (m) Form of Distribution and Shareholder Services Plan between the Registrant and BISYS Fund Services, Inc., dated as of October 4, 2000 is filed herewith. (n) 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 [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (p) (1) AmSouth Funds Code of Ethics [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660).] (p) (2) AmSouth Bank Code of Ethics [-- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660). (P) (3) BISYS FUND SERVICES CODE OF ETHICS -- INCORPORATED BY REFERENCE TO POST-EFFECTIVE AMENDMENT NO. 32 TO THE REGISTRANT'S REGISTRATION STATEMENT ON FORM N-1A (FILE NO. 33-21660). (P) (4) SAWGRASS ASSET MANAGEMENT, LLC CODE OF ETHICS] is filed herewith. (p) [(5) LAZARD ASSET MANAGEMENT CODE OF ETHICS IS FILED HEREWITH. (P) (6) OAKBROOK INVESTMENTS, LLC CODE OF ETHICS IS FILED HEREWITH. 12 367 (P) (7) ROCKHAVEN ASSET MANAGEMENT, LLC CODE OF ETHICS IS FILED HEREWITH. (P) (8) PEACHTREE ASSET MANAGEMENT CODE OF ETHICS IS FILED HEREWITH. (P) (9) BENNETT LAWRENCE MANAGEMENT, LLC] Code of Ethics is filed herewith. Item 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT As of the effective date of this Registration Statement, there are no persons controlled by or under common control with the Registrant's [INSTITUTIONAL] Prime Obligations Fund, [INSTITUTIONAL MONEY MARKET FUND, VALUE FUND, GROWTH FUND, CAPITAL GROWTH FUND, LARGE CAP FUND, MID CAP FUND, SMALL CAP FUND, EQUITY INCOME FUND, BALANCED FUND, SELECT EQUITY FUND, ENHANCED MARKET FUND, INTERNATIONAL EQUITY FUND, STRATEGIC PORTFOLIOS: AGGRESSIVE GROWTH PORTFOLIO, STRATEGIC PORTFOLIOS: GROWTH PORTFOLIO, STRATEGIC PORTFOLIOS: GROWTH AND INCOME PORTFOLIO, STRATEGIC PORTFOLIOS: MODERATE GROWTH AND INCOME PORTFOLIO, STRATEGIC PORTFOLIOS: CURRENT INCOME PORTFOLIO], Bond Fund, Limited [TERM] Bond Fund, Government Income Fund, [LIMITED TERM U.S. GOVERNMENT FUND, MUNICIPAL BOND FUND, FLORIDA TAX-EXEMPT FUND, TENNESSEE TAX-EXEMPT FUND, LIMITED TERM TENNESSEE TAX-EXEMPT FUND, PRIME MONEY MARKET FUND, U.S. TREASURY MONEY MARKET FUND, TREASURY RESERVE MONEY MARKET FUND, TAX-EXEMPT MONEY MARKET] Fund Item 25. INDEMNIFICATION Article VIII, Sections 1 and 2 of the Registrant's Declaration of Trust provides as follows: 13 368 "TRUSTEES, OFFICERS, ETC. Section 1. The Trust shall indemnify each of its Trustees and officers (including persons who serve at the Trust's request as directors, officers or trustees of another organization in which the Trust has any interest as a shareholder, creditor or otherwise) (hereinafter referred to as a "Covered Person") against all liabilities and expenses, including but not limited to amounts paid in satisfaction of judgments, in compromise or as fines and penalties, and counsel fees reasonably incurred by any Covered Person in connection with the defense or disposition of any action, suit or other proceeding, whether civil or criminal, before any court or administrative or legislative body, in which such Covered Person may be or may have been involved as a party or otherwise or with which such Covered Person may be or may have been threatened, while in office or thereafter, by reason of being or having been such a Covered Person except with respect to any matter as to which such Covered Person shall have been finally adjudicated in any such action, suit or other proceeding to be liable to the Trust or its Shareholders by reason of [WILLFUL] misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office. Expenses, including counsel fees so incurred by any such Covered Person (but excluding amounts paid in satisfaction of judgments, in compromise or as fines or penalties), shall be paid from time to time by the Trust in advance of the final disposition of any such action, suit or proceeding upon receipt of an undertaking by or on behalf of such Covered Person to repay amounts so paid to the Trust if it is ultimately determined that indemnification of such expenses is not authorized under this Article, provided, however, that either (a) such Covered Person shall have provided appropriate security for such undertaking, (b) the Trust shall be insured against losses arising from any such advance payments or (c) either a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in office act on the matter), or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a full trial type inquiry) that there is reason to believe that such Covered Person will be found entitled to indemnification under this Article. 14 369 COMPROMISE PAYMENT Section 2. As to any matter disposed of (whether by a compromise payment, pursuant to a consent decree or otherwise) without an adjudication by a court, or by any other body before which the proceeding was brought, that such Covered Person either (a) did not act in good faith in the reasonable belief that his action was in the best interests of the Trust or (b) is liable to the Trust or its Shareholders by reason of [WILLFUL] misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, indemnification shall be provided if (a) approved as in the best interests of the Trust, after notice that it involves such indemnification, by at least a majority of the disinterested Trustees acting on the matter (provided that a majority of the disinterested Trustees then in office act on the matter) upon a determination, based upon a review of readily available facts (as opposed to a full trial type inquiry) that such Covered Person acted in good faith in the reasonable belief that his action was in the best interests of the Trust and is not liable to the Trust or its Shareholders by reasons of [WILLFUL] misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office, or (b) there has been obtained an opinion in writing of independent legal counsel, based upon a review of readily available facts (as opposed to a full trial type inquiry) to the effect that such Covered Person appears to have acted in good faith in the reasonable belief that his action was in the best interests of the Trust and that such indemnification would not protect such Person against any liability to the Trust to which he would otherwise be subject by reason of [WILLFUL] misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office. Any approval pursuant to this Section shall not prevent the recovery from any Covered Person of any amount paid to such Covered Person in accordance with this Section as indemnification if such Covered Person is subsequently adjudicated by a court of competent jurisdiction not to have acted in good faith in the reasonable belief that such Covered Person's action was in the best interests of the Trust or to have been liable to the Trust or its Shareholders by reason of [WILLFUL] misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such Covered Person's office." 15 370 Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers, and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a trustee, officer, or controlling person of Registrant in the successful defense of any action, suit, or proceeding) is asserted by such trustee, officer, or controlling person in connection with the securities being registered, Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Indemnification for the Group's principal underwriter is provided for in the Distribution Agreement incorporated herein by reference as Exhibits 6(a). In addition, the Trust maintains a directors and officer liability insurance policy with a maximum coverage of $3,000,000. Item 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR AND INVESTMENT SUB-ADVISORS. AMSOUTH BANK AmSouth Bank ("AmSouth") is the investment advisor of each Fund of the Trust. AmSouth is the bank affiliate of AmSouth Bancorporation, one of the largest banking institutions headquartered in the mid-south region. AmSouth Bancorporation reported assets as of June 30, [2000 OF $ [BISYS TO COMPLETE]] billion and operated 276 banking offices and over 600 ATM locations in Alabama, Florida, Georgia and Tennessee. AmSouth has provided investment management services through its Trust Investment Department since 1915. As of March 31, [2000], AmSouth and its affiliates had over [$[BISYS TO COMPLETE] BILLION] in assets under discretionary management and provided custody services for an additional [$[BISYS TO COMPLETE]] billion in securities. AmSouth is the largest provider of trust services in Alabama, and its Trust Natural Resources and Real Estate Department is a major manager of timberland, mineral, oil and gas properties and other real estate interests. There is set forth below information as to any other business, vocation or employment of a substantial nature (other than service in wholly-owned subsidiaries or the parent corporation of AmSouth Bank) in which each 16 371 director or senior officer of the Registrant's investment advisor is, or at any time during the past two fiscal years has been, engaged for his own account or in the capacity of director, officer, employee, partner or trustee.
- ------------------------------------------------------------ --------------------------------------------------------- Name and Position with Other business, profession, AmSouth Bank AmSouth Bank vocation, or employment - ------------------------------------------------------------ --------------------------------------------------------- J. Harold Chandler Chairman, President[,] & CEO Provident Companies, Inc. One Fountain Square [CHATTANGOOGA,] Tennessee 37402 - ------------------------------------------------------------ --------------------------------------------------------- James E. Dalton, Jr. President and CEO Director Quorum Health Group, Inc. 103 Continental Place Brentwood, Tennessee 37027[ ] - ------------------------------------------------------------ --------------------------------------------------------- Rodney C. Gilbert Chairman of the Board & CEO Director Enfinity Corporation 3700 Old Leeds Road Birmingham, Alabama 35213[ ] - ------------------------------------------------------------ --------------------------------------------------------- Elmer B. Harris President and CEO Director Alabama Power Company 600 North 18th Street Birmingham, Alabama 35291[ ] - ------------------------------------------------------------ --------------------------------------------------------- Victoria Jackson Gregorious President and CEO Director DSS/ProDiesel, Inc. 922 Main Street Nashville, Tennessee 37206[ ] - ------------------------------------------------------------ --------------------------------------------------------- Ronald L. Kuehn, Jr. Chairman of the Board, President and CEO Director Sonat Inc. 1900 Fifth Avenue North Birmingham, Alabama [35203 - ------------------------------------------------------------ --------------------------------------------------------- JAMES] R. Malone Chairman and CEO Director HMI Industries, Inc./Intok Capital, Inc. 8889 Pelican Bay Boulevard Naples, Florida 34108[ ] - ------------------------------------------------------------ --------------------------------------------------------- Claude B. Nielson President and CEO - ------------------------------------------------------------ ---------------------------------------------------------
17 372
- ------------------------------------------------------------ --------------------------------------------------------- Director Coca-Cola Bottling Company United, Inc. 4600 East Lake Boulevard Birmingham, Alabama 35217[ ] - ------------------------------------------------------------ --------------------------------------------------------- Dr. Benjamin F. Payton President Director Tuskegee University 399 Montgomery Road Tuskegee, Alabama 36083[ ] - ------------------------------------------------------------ --------------------------------------------------------- C. Dowd Ritter AmSouth Bancorporation Chairman, President and CEO AmSouth Bank AmSouth-Sonat Tower 1900 Fifth Avenue North Birmingham, Alabama 35203[ ] - ------------------------------------------------------------ --------------------------------------------------------- Herbert A Sklenar Chairman Emeritus Director Vulcan Materials Company Two Metroplex Drive Birmingham, Alabama 35209 [ - ------------------------------------------------------------ --------------------------------------------------------- MICHAEL C. BAKER] NONE] [SENIOR EXECUTIVE VICE PRESIDENT - ------------------------------------------------------------ --------------------------------------------------------- O.B. Grayson Hall, Jr. None Executive Vice President[ ] - ------------------------------------------------------------ --------------------------------------------------------- Sloan D. Gibson, IV None Senior Executive Vice President and [CHEIF] Financial Officer[ ] - ------------------------------------------------------------ --------------------------------------------------------- W. Charles Mayer, III NONE Senior Executive Vice President [ - ------------------------------------------------------------ --------------------------------------------------------- CANDICE W. ROGERS NONE SENIOR EXECUTIVE VICE PRESIDENT - ------------------------------------------------------------ --------------------------------------------------------- ]E.W. Stephenson, Jr. NONE Senior Executive Vice President [ - ------------------------------------------------------------ ---------------------------------------------------------
18 373
- ------------------------------------------------------------ --------------------------------------------------------- ]Alfred W. Swan, Jr. ]None Senior Executive Vice President [ - ------------------------------------------------------------ --------------------------------------------------------- Stephen A. Yoder None Executive Vice President and General Counsel - ------------------------------------------------------------ ---------------------------------------------------------
ROCKHAVEN Rockhaven Asset Management, LLC ("Rockhaven") is the sub-advisor of the AmSouth Equity Income Fund. Rockhaven is jointly owned by Christopher H. Wiles (50%) and AmSouth Bank (50%), and is headquartered in Pittsburgh, Pennsylvania. As of March 1, [2000], the AmSouth Equity Income Fund is by far the predominant client of Rockhaven. In the future, Rockhaven intends to advise on other mutual funds and separate accounts. Set forth below is information as to any other business, vocation or employment of a substantial nature (other than service in wholly-owned subsidiaries or the parent corporation of AmSouth Bank) in which each director or senior officer of the Registrant's sub-advisor is, or at any time during the past two fiscal years has been, engaged for his own account or in the capacity of director, officer, employee, partner or trustee. 19 374
Name and Position with Other business, profession, [ROCKHAVEN ASSET MANAGEMENT] vocation, or employment Christopher H. Wiles Prior to February 7, 1997, Senior Vice[ ]President [AND CHIEF INVESTMENT PRESIDENT], Federated Investors, Pittsburgh, PA [OFFICER AND MANAGING PARTNER] Michael C. Baker Senior Executive Vice President, AmSouth [MANAGING PARTNER] Bank, Birmingham, Alabama
PEACHTREE Peachtree Asset Management ("Peachtree") is the sub-adviser of the AmSouth Growth Fund. Peachtree is a division of [SSB CITI] Fund Management LLC ("SSBCFM"), a wholly-owned subsidiary of [SALOMON] Smith Barney Holdings Inc., which in turn is a wholly-owned subsidiary of [CITIGROUP] Inc. Peachtree has performed advisory services since 1994 for institutional clients, and has its principal offices at 303 Peachtree Street, N.E., Atlanta, GA 30308. SSBCFM and its predecessors have been providing investment advisory services to mutual funds since 1968. As of [MARCH 31, 2000], SSBCFM had aggregate assets under management of approximately [$132.8 BILLION]. Set forth below is information as to any other business, vocation or employment of a substantial nature (other than service in wholly-owned subsidiaries or the parent corporation) in which each director or senior officer of the Registrant's sub-advisor is, or at any time during the past two fiscal years has been, engaged for his own account or in the capacity of director, officer, employee, partner or trustee. Name and Position with Other business, profession, [PEACHTREE ASSET MANAGEMENT] vocation, or employment - ---------------------------- ----------------------- Dennis A. Johnson [N/A] 20 375 President & Chief Investment Officer SAWGRASS Sawgrass Asset Management, LLC ("Sawgrass") serves as the investment sub-advisor to the AmSouth Small Cap Fund. Sawgrass is 50% owned by AmSouth and 50% owned by Sawgrass Asset Management, Inc. Sawgrass Asset Management, Inc. is controlled by Mr. Dean McQuiddy, Mr. Brian Monroe and Mr. Andrew Cantor. Sawgrass was organized in January, 1998 to perform advisory services for investment companies and other institutional clients and has its principal offices at 4337 Pablo Oaks Court, Jacksonville, FL 32224. Set forth below is information as to any other business, vocation or employment of a substantial nature (other than service in wholly-owned subsidiaries or the parent corporation of AmSouth Bank) in which each director or senior officer of the Registrant's sub- advisor is, or at any time during the past two fiscal years has been, engaged for his own account or in the capacity of director, officer, employee, partner or trustee. Name and Position with Other business, profession, Sawgrass Asset Management, LLC vocation or employment - ------------------------------ ---------------------- Dean E. McQuiddy, Principal Barnett Capital Advisors Andrew M. Cantor, Principal Barnett Capital Advisors Brian K. Monroe, Principal Barnett Asset Management OAKBROOK OakBrook Investments, LLC ("OakBrook") serves as the investment sub-advisor to the AmSouth Enhanced Market Fund and the AmSouth Select Equity Fund. OakBrook is 50% owned by AmSouth Bank and 50% jointly owned by Neil Wright, Janna Sampson and Peter Jankovskis. OakBrook was organized in February, 1998 to perform advisory services for investment companies and other institutional clients and has its principal offices at 701 Warrenville Road, Suite 135, Lisle, IL 60532. Set forth below is information as to any other business, vocation or employment of a substantial nature (other than service in wholly-owned subsidiaries or the parent corporation of AmSouth Bank) in which each director or senior officer of the Registrant's sub-advisor is, or at any time during the past two fiscal years has been, engaged for his own account or in the capacity of director, officer, employee, partner or trustee. Name and Position with Other business, profession, OakBrook Investments, LLC vocation or employment - ------------------------- ---------------------- 21 376
Neil R. Wright Prior to 1/1/98, Chief Investment Officer, ANB Investment Management & Trust Co.; 1/1/98 - 2/25/98, Northern Trust Quantitative Advisors, Inc. Janna L. Sampson Prior to 1/1/98, Senior Portfolio Manager, ANB Investment Management & Trust Co.; 1/1/98 - 2/25/98, Northern Trust Quantitative Advisors, Inc. Peter M. Jankovskis Prior to 1/1/98, Manager of Research, ANB Investment Management & Trust Co.; 1/1/98 - 2/25/98, Northern Trust Quantitative Advisors, Inc.
LAZARD Lazard Asset Management ("Lazard") is the sub-advisor of the AmSouth International Equity Fund. Lazard, a division of Lazard Freres & Co., LLC, which is a New York limited liability company, provides investment management services to client discretionary accounts with assets totaling approximately [$74.4] billion as of December 31, [1999]. Registrant is fulfilling the requirement of this Item 26 to provide a list of the officers and directors of Lazard Asset Management, the investment adviser of the Registrant's AmSouth International Equity Fund, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by Lazard Asset Management or those of its officers and directors during the past two years, by incorporating by reference the information contained in the Form ADV filed with the SEC pursuant to the Investment Advisers Act of 1940 by the Lazard Asset Management (SEC File No. 801-50349). Bennett Lawrence [[BENNETT LAWRENCE TO COMPLETE]] - ----------------- Bennett Lawrence Management ("Bennett Lawrence") is the sub-advisor of the AmSouth Mid-Cap Fund. Bennett Lawrence, located at 757 Third Avenue, New York, NY 10017, provides discretionary investment management services to client discretionary accounts with assets totaling approximately [$] million as of December 31, [1999]. Registrant is fulfilling the requirement of this Item 26 to provide a list of the officers and directors of Bennett Lawrence Management LLC, the investment adviser of the Registrant's AmSouth Mid-Cap Fund, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by Bennett Lawrence Management, LLC or those of its officers and directors during the past tow years, by incorporating by reference the information contained in the Form ADV filed with the SEC pursuant to the Investment Advisers Act of 1940 by the Bennett Lawrence Management, LLC (SEC File No. 801-49805). 22 377 Item 27. PRINCIPAL UNDERWRITER. (a) BISYS Fund Services Limited Partnership ("BISYS Fund Services") acts as distributor for the Registrant. BISYS Fund Services also distributes the securities of American Performance Funds, Mercentile Mutual Funds, Inc., The BB&T Mutual Funds Group, The Coventry Group, The Empire Builder Tax Free Bond Fund, ESC Strategic Funds, Inc., The Eureka Funds, Fifth Third Funds, Hirtle Callaghan Trust, HSBC Family of Funds, The Infinity Mutual Funds, Inc., INTRUST Funds Trust, The Kent Funds, Magna Funds, Meyers Investment Trust, MMA Praxis Mutual Funds, M.S.D.&T. Funds, Pacific Capital Funds, The Republic Funds Trust, The Republic Advisors Funds Trust, SBSF Funds, Inc. dba Key Mutual Funds, Sefton Funds, The Sessions Group, Summit Investment Trust, Variable Insurance Funds, The Victory Portfolios, The Victory Variable Funds, and Vintage Mutual Funds, Inc. each of which is a management investment company. The parent of BISYS Fund Services is The BISYS Group, Inc. (b) Partners of BISYS Fund Services as of the date of this filing are as follows:
Positions and Offices with Positions and Name and Principal BISYS Fund Services, Offices with Business Addresses Limited Partnership The Registrant - ------------------ ------------------- -------------- ,C> BISYS Fund Services Sole General None Limited Partnership Partner 3435 Stelzer Road Columbus, Ohio 43219 WC Subsidiary Sole Limited None Corporation Partner 150 Clove Road Little Falls, New Jersey 07424 The BISYS Group, Inc. Sole Shareholder None 150 Clove Road Little Falls, New Jersey 07424
Item 28. LOCATION OF ACCOUNTS AND RECORDS Persons maintaining physical possession of accounts, books and other documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules promulgated thereunder are as follows: (1) AmSouth Funds 23 378 3435 Stelzer Road Columbus, Ohio 43219 Attention: Secretary (Registrant) (2) AmSouth Bank 1901 Sixth Avenue - North Birmingham, Alabama 35203 Attention: Trust Investments (Investment Advisor and Custodian) (3) BISYS Fund Services Limited Partnership 3435 Stelzer Road Columbus, Ohio 43219 (Distributor) (4) ASO Services Company 3435 Stelzer Road Columbus, Ohio 43219 (Administrator) (5) Rockhaven Asset Management, LLC 100 First Avenue, Suite 1050 Pittsburgh, Pennsylvania 15222 (Sub-Advisor to the Equity Income Fund) (6) BISYS Fund Services, Inc. 3435 Stelzer Road Columbus, Ohio 43219 (Transfer and Shareholder Servicing Agent, Provider of Fund Accounting Services) (7) Peachtree Asset Management A Division of [SSB CITI FUND] Management [LLC] [303] Peachtree [STREET NE, SUITE 4500] Atlanta, Georgia 30308 (Sub-Advisor to the Growth Fund) (8) Sawgrass Asset Management, LLC 4337 Pablo Oaks Court Jacksonville, Florida 32224 (Sub-Advisor to the Small Cap Fund) (9) OakBrook Investments, LLC 24 379 701 Warrenville Road, Suite 135 Lisle, Illinois 60532 (Sub-Advisor to the Enhanced Market Fund and the Select Equity Fund) (10) Lazard Asset Management 30 Rockefeller Plaza New York, NY 10112[-6300] (Sub-Advisor to the International Equity Fund) (11) Bennett Lawrence Management 757 Third Avenue New York, NY 10017 (Sub-Advisor to the Mid Cap Fund) Item 29. MANAGEMENT SERVICES None. Item 30. UNDERTAKINGS The Registrant hereby undertakes to call a meeting of shareholders for the purpose of voting upon the question of removal of one or more trustees when requested to do so by the holders of at least 10% of the outstanding voting shares of any series of the Trust and will assist in shareholder communication in connection with calling a meeting for the purpose of removing one or more trustees. The Registrant undertakes to furnish to each person to whom a prospectus is delivered a copy of the Registrant's latest annual report to shareholders upon request and without charge. 25 380 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, as amended, the Registrant has duly caused this Amendment [NO.33] to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Washington, District of Columbia on the day of [SEPTEMBER,] 2000[.] AMSOUTH FUNDS, Registrant * /s/ J. David Huber -------------------- J. David Huber Chairman Pursuant to the requirements of the Securities Act of 1933, this Amendment No. [33] to the Registration Statement of AmSouth Funds has been signed below by the following persons in the capacities indicated on the [29TH] day of [SEPTEMBER], 2000.
Signature Title Date - --------- ----- ---- * /s/ J. David Huber Chairman [SEPTEMBER 29], 2000 ------------------------------ J. David Huber * /s/ Charles L. Booth Treasurer [SEPTEMBER 29], 2000 ------------------------------ Charles L. Booth * /s/ James H. Woodward, Jr. Trustee [SEPTEMBER 29], 2000 ------------------------------ James H. Woodward, Jr. * /s/ Homer H. Turner, Jr. Trustee [SEPTEMBER 29], 2000 ------------------------------ Homer H. Turner, Jr. * /s/ Wendell D. Cleaver Trustee [SEPTEMBER 29], 2000 ------------------------------ Wendell D. Cleaver * /s/ Dick D. Briggs, Jr. Trustee [SEPTEMBER 29], 2000 ------------------------------ Dick D. Briggs, Jr. [* /S/ NORMA A. COLDWELL TRUSTEE SEPTEMBER 29, 2000] - -------------------------------- * By /s/ Alan G. Priest [SEPTEMBER 29], 2000 ---------------------------- Alan G. Priest, Attorney-in-fact, pursuant to Powers of Attorney filed herewith
26 381 POWER OF ATTORNEY ----------------- Dick D. Briggs, Jr. whose signature appears below, does hereby constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A. Sheehan, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments to the Trust's Registration Statement on Form N-1A pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee Dick D. Briggs, Jr. and/or officer of the Trust any and all such amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. Dated: 12 October 1993 /s/ Dick D. Briggs, Jr. ---------------------------------- ----------------------- Dick D. Briggs, Jr. 27 382 POWER OF ATTORNEY ----------------- Wendell D. Cleaver whose signature appears below, does hereby constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A. Sheehan, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments to the Trust's Registration Statement on Form N-1A pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee Wendell D. Cleaver and/or officer of the Trust any and all such amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. Dated: October 7, 1993 /s/ Wendell Cleaver --------------- ------------------- Wendell D. Cleaver 28 383 POWER OF ATTORNEY ----------------- J. David Huber whose signature appears below, does hereby constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A. Sheehan, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments to the Trust's Registration Statement on Form N-1A pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee J. David Huber and/or officer of the Trust any and all such amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. Dated: 9/25/92 /s/ J. David Huber --------------------------- ------------------ J. David Huber 29 384 POWER OF ATTORNEY ----------------- James H. Woodward, Jr. whose signature appears below, does hereby constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A. Sheehan, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments to the Trust's Registration Statement on Form N-1A pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee James H. Woodward, Jr. and/or officer of the Trust any and all such amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. Dated: 9/25/92 /s/ James H. Woodward, Jr. ---------------------------------- -------------------------- James H. Woodward, Jr. 30 385 POWER OF ATTORNEY ----------------- Homer H. Turner, Jr. whose signature appears below, does hereby constitute and appoint Martin E. Lybecker, Alan G. Priest, and Margaret A. Sheehan, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments to the Trust's Registration Statement on Form N-1A pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee Homer H. Turner, Jr. and/or officer of the Trust any and all such amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. Dated: September 25, 1992 /s/ Homer H. Turner, Jr. ---------------------------------- ------------------------ Homer H. Turner, Jr. 31 386 POWER OF ATTORNEY ----------------- Charles L. Booth, whose signature appears below, does hereby constitute and appoint Martin E. Lybecker, Alan G. Priest, and Maryellen M. Lundquist, each individually, his true and lawful attorneys and agents, with power of substitution or resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, each individually, may deem necessary or advisable or which may be required to enable AmSouth Mutual Funds (the "Trust"), to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended ("Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments to the Trust's Registration Statement on Form N-1A pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of the Trust any and all such amendments filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or either of them, shall do or cause to be done by virtue thereof. Dated: February 26, 1998 /s/ Charles Booth ------------------------- ------------------ Charles Booth 32 387 [POWER OF ATTORNEY ------------------ NORMA COLDWELL, WHOSE SIGNATURE APPEARS BELOW, DOES HEREBY CONSTITUTE AND APPOINT MARTIN E. LYBECKER, ALAN G. PRIEST, AND ALYSSA ALBERTELLI, EACH INDIVIDUALLY, HER TRUE AND LAWFUL ATTORNEYS AND AGENTS, WITH POWER OF SUBSTITUTION OR RESUBSTITUTION, TO DO ANY AND ALL ACTS AND THINGS AND TO EXECUTE ANY AND ALL INSTRUMENTS WHICH SAID ATTORNEYS AND AGENTS, EACH INDIVIDUALLY, MAY DEEM NECESSARY OR ADVISABLE OR WHICH MAY BE REQUIRED TO ENABLE AMSOUTH FUNDS (THE "TRUST"), TO COMPLY WITH THE INVESTMENT COMPANY ACT OF 1940, AS AMENDED, AND THE SECURITIES ACT OF 1933, AS AMENDED ("ACTS"), AND ANY RULES, REGULATIONS OR REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION IN RESPECT THEREOF, IN CONNECTION WITH THE FILING AND EFFECTIVENESS OF ANY AND ALL AMENDMENTS TO THE TRUST'S REGISTRATION STATEMENT ON FORM N-1A PURSUANT TO SAID ACTS, INCLUDING SPECIFICALLY, BUT WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THE POWER AND AUTHORITY TO SIGN IN THE NAME AND ON BEHALF OF THE UNDERSIGNED AS A TRUSTEE AND/OR OFFICER OF THE TRUST ANY AND ALL SUCH AMENDMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER SAID ACTS, AND ANY OTHER INSTRUMENTS OR DOCUMENTS RELATED THERETO, AND THE UNDERSIGNED DOES HEREBY RATIFY AND CONFIRM ALL THAT SAID ATTORNEYS AND AGENTS, OR EITHER OF THEM, SHALL DO OR CAUSE TO BE DONE BY VIRTUE THEREOF. DATED: SEPTEMBER 6, 2000 /S/ NORMA A. COLDWELL -------------------------- ---------------------- NORMA A. COLDWELL 34 388 Exhibit Index ------------- EXHIBIT NO. DESCRIPTION - ----------- ----------- (h)(7) Form of Amended Schedule I to the Shareholder Servicing Plan (i) OPINION of Ropes & Gray (j)(1) Consent of Ropes & Gray (j)(2) Consent of PricewaterhouseCoopers LLP (j)(3) Consent of KPMG LLP (j)(4) CONSENT OF ERNST & YOUNG LLP (m) FORM OF DISTRIBUTION AND SHAREHOLDER SERVICES PLAN (p)(4) SAWGRASS ASSET MANAGEMENT, LLC CODE OF ETHICS (p)(5) LAZARD ASSET MANAGEMENT CODE OF ETHICS (p)(6) OAKBROOK INVESTMENTS, LLC CODE OF ETHICS (p)(7) ROCKHAVEN ASSET MANAGEMENT, LLC CODE OF ETHICS (p)(8) PEACHTREE ASSET MANAGEMENT CODE OF ETHICS (p)(9) BENNETT LAWRENCE MANAGEMENT, LLC CODE OF ETHICS 35 EX-99.H.7 2 l83374aex99-h_7.txt EXHIBIT H(7) 1 Exhibit (h)(7) Dated: October 4, 2000 AMSOUTH FUNDS FORM OF AMENDED SCHEDULE I TO THE SHAREHOLDER SERVICING PLAN This Shareholder Servicing Plan shall be adopted with respect to the following Funds (and Classes) of AmSouth Funds:
Name of Fund Class - ------------ ----- AmSouth Prime Money Market Fund Class A Class, Trust Class, Class B AmSouth U.S. Treasury Money Market Fund Class A Class, Trust Class AmSouth Tax Exempt Money Market Fund Class A Class, Trust Class AmSouth Bond Fund Class A Class, Trust Class, Class B AmSouth Limited Term Bond Fund Class A Class, Trust Class, Class B AmSouth Municipal Bond Fund Class A Class, Trust Class, Class B AmSouth Florida Tax-Exempt Fund Class A Class, Trust Class, Class B AmSouth Value Fund Class A Class, Trust Class, Class B AmSouth Balanced Fund Class A Class, Trust Class, Class B AmSouth Small Cap Fund Class A Class, Trust Class, Class B AmSouth Equity Income Fund Class A Class, Trust Class, Class B AmSouth Select Equity Fund Class A Class, Trust Class, Class B AmSouth Growth Fund Class A Class, Trust Class, Class B AmSouth Enhanced Market Fund Class A Class, Trust Class, Class B AmSouth Government Income Fund Class A Class, Trust Class, Class B AmSouth Strategic Portfolios: Current Income Portfolio Class A Class, Trust Class, Class B AmSouth Treasury Reserve Money Market Fund Class A Class, Trust Class AmSouth Strategic Portfolios: Moderate Class A Class, Trust Class, Class B Growth and Income Portfolio Class A Class, Trust Class, Class B AmSouth Strategic Portfolios: Growth and Class A Class, Trust Class, Class B Income Portfolio AmSouth Strategic Portfolios: Aggressive Class A Class, Trust Class, Class B Growth Portfolio AmSouth Mid Cap Fund Class A Class, Trust Class, Class B AmSouth Large Cap Fund Class A Class, Trust Class, Class B AmSouth Limited Term Tennessee Tax-Exempt Fund Class A Class, Trust Class, Class B AmSouth Limited Term U.S. Government Fund Class A Class, Trust Class, Class B AmSouth Strategic Portfolios: Growth Portfolio Class A Class, Trust Class, Class B AmSouth International Equity Fund Class A Class, Trust Class, Class B AmSouth Capital Growth Fund Class A Class, Trust Class, Class B AmSouth Tennessee Tax-Exempt Fund Class A Class, Trust Class, Class B
EX-99.I 3 l83374aex99-i.txt EXHIBIT I 1 Exhibit (i) ROPES & GRAY ONE INTERNATIONAL PLACE 1301 K STREET, N.W. 30 KENNEDY PLAZA BOSTON, MASSACHUSETTS 02110-2524 SUITE 800 EAST PROVIDENCE, R.I. 02903 (617) 951-7000 WASHINGTON, D.C. 20005 (401) 456-4400 TELECOPIER: (617) 95107050 (202) 626-3900 TELECOPIER: (401) 455-4401 TELECOPIER: (202) 626-396I
September 29, 2000 AmSouth Funds 3435 Stelzer Road Columbus, Ohio 43219 Gentlemen: You have registered under the Securities Act of 1933, as amended (the "1933 Act") an indefinite number of shares of beneficial interest of the AmSouth Funds ("Trust"), as permitted by Rule 24f-2 under the Investment Company Act of 1940, as amended (the "1940 Act"). You propose to file a post-effective amendment on Form N-1A (the "Post-Effective Amendment") to your Registration Statement as required by Section 10(a)(3) with respect to certain units of beneficial interest of the Trust ("Shares"). We have examined your Agreement and Declaration of Trust on file in the office of the Secretary of The Commonwealth of Massachusetts and the Clerk of the City of Boston. We have also examined a copy of your Bylaws and such other documents, receipts and records as we have deemed necessary for the purpose of this opinion. Based upon the foregoing, we are of the opinion that the issue and sale of the Shares have been duly authorized under Massachusetts law. Upon the original issue and sale of the Shares and upon receipt of the authorized consideration therefor in an amount not less than the net asset value of the Shares established and in force at the time of their sale, the Shares will be validly issued, fully paid and non-assessable. The AmSouth Funds is an entity of the type commonly known as a "Massachusetts 2 business trust." Under Massachusetts law, shareholders could, under certain circumstances, be held personally liable for the obligations of the Trust. However, the Agreement and Declaration of Trust provides for indemnification out of the property of a particular series of Shares for all loss and expenses of any shareholder of that series held personally liable solely by reason of his being or having been a shareholder. Thus, the risk of shareholder liability is limited to circumstances in which that series of Shares itself would be unable to meet its obligations. We understand that this opinion is to be used in connection with the filing of the Post-Effective Amendment. We consent to the filing of this opinion with and as part of your Post-Effective Amendment. Sincerely, /s/ Ropes & Gray Ropes & Gray EX-99.J.1 4 l83374aex99-j_1.txt EXHIBIT J(1) 1 Exhibit (j)(1) CONSENT OF COUNSEL We hereby consent to the use of our name and to the references to our firm under the caption "Legal Counsel" included in or made a part of the Post-Effective Amendment No. 33 to the Registration Statement of AmSouth Funds on Form N-1A under the Securities Act of 1933, as amended. /s/ Ropes & Gray ROPES & GRAY Washington, D.C. September 29, 2000 EX-99.J.2 5 l83374aex99-j_2.txt EXHIBIT J(2) 1 Exhibit (j)(2) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in Post-Effective Amendment No. 33 to the Registration Statement on Form N-1A (File No. 33-21660) of our report dated September 21, 1999 relating to the financial statements and financial highlights appearing in the July 31, 1999 Annual Report to the Shareholders of AmSouth Equity Income Fund, AmSouth Equity Fund, AmSouth Enhanced Market Fund, AmSouth Capital Growth Fund, AmSouth Select Equity Fund, AmSouth Regional Equity Fund, AmSouth Small Cap Fund, AmSouth Balanced Fund, AmSouth Limited Maturity Fund, AmSouth Government Income Fund, AmSouth Bond Fund, AmSouth Municipal Bond Fund, AmSouth Florida Tax-Free-Fund, AmSouth U.S. Treasury Fund, AmSouth Prime Obligations Fund, AmSouth Institutional Prime Obligations Fund and AmSouth Tax-Exempt Fund (separate portfolios constituting the AmSouth Funds), which are also incorporated by reference into the Registration Statement. We also consent to the references to our Firm under the captions "Financial Highlights" in the Prospectuses and "Financial Statements" and "Independent Accountants" in the Statement of Additional Information. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Columbus, Ohio September 29, 2000 EX-99.J.4 6 l83374aex99-j_4.txt EXHIBIT J(4) 1 Exhibit (j)(4) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the references to our Firm under the captions "Financial Highlights" in the Prospectuses and "Financial Statements" and "Independent Accountants" in the Statement of Additional Information, both included in the Post-Effective Amendment No. 33 to the Registration Statement on Form N-1A (No. 33-21660) of AmSouth Funds and to the use of our report dated September 25, 2000, incorporated by reference therein. /s/ Ernst & Young LLP Ernst & Young LLP Columbus, Ohio September 29, 2000 EX-99.M 7 l83374aex99-m.txt EXHIBIT M 1 Exhibit (m) FORM OF DISTRIBUTION AND SHAREHOLDER SERVICES PLAN MARCH 12, 1997 AS AMENDED AND RESTATED ON OCTOBER 4, 2000 This Plan (the "Plan") constitutes the DISTRIBUTION AND SHAREHOLDER SERVICES PLAN of AmSouth Funds, a Massachusetts business trust (the "Trust"), adopted pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the "1940 Act"). The Plan relates to the following Classes of Shares (each a "Class"): Class B Shares, Class II Shares and Class III Shares of each series of the Trust (each a "Fund") identified on Schedule A hereto, as may be amended from time to time. WHEREAS, it is desirable to enable the Trust to have flexibility in meeting the investment and shareholder servicing needs of its future investors; and WHEREAS, the Board of Trustees, mindful of the requirements imposed by Rule 12b-1 under the 1940 Act, has determined to effect the Plan for the provision of distribution assistance with respect to the Class B Shares, Class II Shares and Class III Shares of each Fund listed on Schedule A hereto and for the provision of shareholder services with respect to the holders of such Shares of each Fund; NOW THEREFORE, the Trust and BISYS Fund Services Limited Partnership (the "Distributor") hereby agree as follows: Section 1. A. Class B Shares. Each Fund, the Class B Shares of which are listed on Schedule A hereto, shall pay out of its assets attributable to its Class B Shares a distribution and shareholder services fee (the "Class B Share Fee") to the Distributor equal to the lesser of (i) the fee at the applicable annual rate set forth in Schedule A hereto, or (ii) such fee as may be agreed upon in writing by the Trust and the Distributor. The Distributor may apply the Class B Share Fee toward the following: (i) compensation for its services or expenses in connection with distribution assistance with respect to such Fund's Class B Shares; (ii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors) as brokerage commissions in connection with the sale of such Fund's Class B Shares; and (iii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors), broker-dealers, and the Distributor's affiliates and subsidiaries as compensation for services and/or reimbursement of expenses incurred in connection with distribution or shareholder services with respect to such Fund's Class B Shares. The maximum amount of the Class B Share Fee that may be payable by the Fund for the aforementioned services and expenses other than services and/or reimbursement of expenses incurred in connection with shareholder services is 0.75% of the average daily net assets of such Fund's Class B Shares. The remaining portion of the Class B Share Fee is payable A-1 2 by the Fund's Class B Shares only as compensation for services and/or reimbursement of expenses incurred in connection with shareholder services with respect to such Fund's Class B Shares. B. Class II Shares. Each Fund, the Class II Shares of which are listed on Schedule A hereto, shall pay out of its assets attributable to its Class II Shares, a distribution and shareholder services fee (the "Class II Share Fee") to the Distributor equal to the lesser of (i) the fee at the applicable annual rate set forth in Schedule A hereto, or (ii) such fee as may be agreed upon in writing by the Trust and the Distributor. The Distributor may apply the Class II Share Fee toward the following: (i) compensation for its services or expenses in connection with distribution assistance with respect to such Fund's Class II Shares; (ii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors) as brokerage commissions in connection with the sale of such Fund's Class II; and (iii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors), broker-dealers, and the Distributor's affiliates and subsidiaries as compensation for services and/or reimbursement of expenses incurred in connection with distribution or shareholder services with respect to such Fund's Class II Shares. The maximum amount of the Class II Share Fee that may be payable for the aforementioned services and expenses is 0.25% of the average daily net assets of such Fund's Class II Shares. C. Class III Shares. Each Fund, the Class III Shares of which are listed on Schedule A hereto, shall pay out of its assets attributable to its Class III Shares, a distribution and shareholder services fee (the "Class III Share Fee") to the Distributor equal to the lesser of (i) the fee at the applicable annual rate set forth in Schedule A hereto, or (ii) such fee as may be agreed upon in writing by the Trust and the Distributor. The Distributor may apply the Class III Share Fee toward the following: (i) compensation for its services or expenses in connection with distribution assistance with respect to such Fund's Class III Shares; (ii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors) as brokerage commissions in connection with the sale of such Fund's Class III Shares; and (iii) payments to financial institutions and intermediaries (such as banks, savings and loan associations, insurance companies, and investment counselors), broker-dealers, and the Distributor's affiliates and subsidiaries as compensation for services and/or reimbursement of expenses incurred in connection with distribution or shareholder services with respect to such Fund's Class III Shares. The maximum amount of the Class III Share Fee that may be payable for the aforementioned services and expenses is 0.50% of the average daily net assets of such Fund's Class III Shares. A-2 3 Section 2. The Class B Share Fee, the Class II Share Fee and the Class III Share Fee (each a "Share Fee") shall be accrued daily and payable monthly, and shall be paid by the respective Class of Shares of a Fund to the Distributor irrespective of whether such fee exceeds the amounts paid (or payable) by the Distributor pursuant to Section 1. Section 3. The Plan shall not take effect with respect to the one or more Classes of Shares of a Fund until it has been approved, together with any related agreements, by a vote of a majority (or whatever greater percentage may, from time to time, be required by Section 12(b) of the 1940 Act or the rules and regulations thereunder) of the Trustees who are not "interested persons" of the Trust (as defined in the 1940 Act) and who have no direct or indirect financial interest in the operation of this Plan or in any agreements related to this Plan (the "Independent Trustees"), cast in person at a meeting called for the purpose of voting on the Plan or such agreement. Section 4. The Plan shall continue in effect with respect to a Class of Shares of a Fund for a period of more than one year after it takes effect, provided that such continuance is specifically approved at least annually in the manner provided for approval of the Plan in Section 3. Section 5. Any person authorized to direct the disposition of monies paid or payable by a Fund pursuant to the Plan or any related agreement shall provide to the Trustees of the Trust, and the Trustees shall review, at least quarterly, a written report of the amounts so expended and the purposes for which such expenditures were made. Section 6. The Plan may be terminated with respect to one or more Classes of Shares of a Fund at any time by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Shares of such Class or Classes of that Fund. Section 7. All agreements with any person relating to the implementation of the Plan shall be in writing and any agreement related to the Plan shall provide: i. That such agreement, may be terminated with respect to one or more Classes of Shares of a Fund at any time, without payment of any penalty, by vote of a majority of the Independent Trustees, or by vote of a majority of the outstanding Shares of such Class or Classes of that Fund, on not more than 60 days' written notice; and ii. That such agreement shall terminate automatically in the event of its assignment. Section 8. The Plan may not be amended to increase materially the amount of the Share Fee with respect to one or more Classes of Shares of a Fund without approval by at least (i) a majority of the outstanding voting securities of such Class or Classes of that Fund and (ii) A-3 4 the Trustees in the manner provided in Section 3 hereof, and all material amendments to the Plan with respect to a Fund shall be approved by the Trustees in the manner provided for approval of the Plan in Section 3. Section 9. As used herein, the terms "assignment," "interested person," and "majority of the outstanding voting securities" shall have the respective meanings specified in the 1940 Act and the rules and regulations thereunder, subject to such exemptions as may be granted by the Securities and Exchange Commission. Section 10. The names "AmSouth Funds" and "Trustees of AmSouth Funds" refer respectively to the Trust created and the Trustees, as trustees but not individually or personally, acting from time to time under an Amended Declaration of Trust dated as of June 25, 1993 to which reference is hereby made and a copy of which is on file at the office of the Secretary of State of the Commonwealth of Massachusetts and elsewhere as required by law, and to any and all amendments thereto so filed or hereafter filed. The obligations of AmSouth Funds entered into in the name or on behalf thereof by any of the Trustees, representatives or agents are made not individually, but in such capacities, and are not binding upon any of the Trustees, shareholders or representatives of the Trust personally, but bind only the assets of the Trust, and all persons dealing with any series and/or Class of Shares of the Trust must look solely to the assets of the Trust belonging to such series and/or Class for the enforcement of any claims against the Trust. A-4 5 SCHEDULE A TO THE DISTRIBUTION AND SHAREHOLDER SERVICES PLAN DATED MARCH 12, 1997 AS AMENDED AND RESTATED OCTOBER 4, 2000
Name of Funds Compensation* - ------------- ------------ AmSouth Prime Money Market Fund -- Annual rate of seventy-five one-hundredths of Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Prime Money Market Fund. AmSouth Bond Fund -- Class B Shares Annual rate of seventy-five one-hundredths of one percent (0.75%) of the average daily net assets of the AmSouth Bond Fund. AmSouth Limited Term Bond Fund -- Annual rate of seventy-five one-hundredths of Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Limited Term Bond Fund. AmSouth Municipal Bond Fund -- Annual rate of seventy-five one-hundredths of Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Municipal Bond Fund. AmSouth Florida Tax-Exempt Fund -- Annual rate of seventy-five one-hundredths of Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Florida Tax-Exempt Fund. AmSouth Value Fund -- Class B Shares Annual rate of seventy-five one-hundredths of one percent (0.75%) of the average daily net assets of the AmSouth Value Fund. AmSouth Balanced Fund -- Class B Shares Annual rate of seventy-five one-hundredths of one percent (0.75%) of the average daily net assets of the AmSouth Balanced Fund. AmSouth Small Cap Fund -- Class B Shares Annual rate of seventy-five one-hundredths of one percent (0.75%) of the average daily net assets of the AmSouth Small Cap Fund.
A-5 6
Name of Funds Compensation* - ------------- ------------ AmSouth Equity Income Fund -- Class B Annual rate of seventy-five one-hundredths of Shares one percent (0.75%) of the average daily net assets of the AmSouth Equity Income Fund. AmSouth Select Equity Fund -- Class B Annual rate of seventy-five one-hundredths of Shares one percent (0.75%) of the average daily net assets of the AmSouth Select Equity Fund. AmSouth Growth Fund -- Class B Shares Annual rate of seventy-five one-hundredths of one percent (0.75%) of the average daily net assets of the AmSouth Growth Fund. AmSouth Enhanced Market Fund -- Class Annual rate of seventy-five one-hundredths of B Shares one percent (0.75%) of the average daily net assets of the AmSouth Enhanced Market Fund AmSouth Government Income Fund -- Annual rate of seventy-five one-hundredths of Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Government Income Fund. AmSouth Strategic Portfolios: Current Annual rate of seventy-five one-hundredths of Income Portfolio -- Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Strategic Portfolios: Current Income Portfolio. AmSouth Strategic Portfolios: Moderate Annual rate of seventy-five one-hundredths of Growth and Income Portfolio -- Class B one percent (0.75%) of the average daily net Shares assets of the AmSouth Strategic Portfolios: Moderate Growth and Income Portfolio. AmSouth Strategic Portfolios: Growth Annual rate of seventy-five one-hundredths of and Income Portfolio -- Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Strategic Portfolios: Growth and Income Portfolio. AmSouth Strategic Portfolios: Aggressive Annual rate of seventy-five one-hundredths of Growth Portfolio -- Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Strategic Portfolios: Aggressive Growth Portfolio.
A-6 7
Name of Funds Compensation* - ------------- ------------ AmSouth Mid Cap Fund -- Class B Shares Annual rate of seventy-five one-hundredths of one percent (0.75%) of the average daily net assets of the AmSouth Mid Cap Fund. AmSouth Large Cap Fund -- Class B Shares Annual rate of seventy-five one-hundredths of one percent (0.75%) of the average daily net assets of the AmSouth Large Cap Fund. AmSouth Limited Term Tennessee Tax- Annual rate of seventy-five one-hundredths of Exempt Fund -- Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Limited Term Tennessee Tax-Exempt Fund. AmSouth Limited Term U.S. Government Annual rate of seventy-five one-hundredths of Fund -- Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Limited Term U.S. Government Fund. AmSouth Strategic Portfolios: Growth Annual rate of seventy-five one-hundredths of Portfolio -- Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Strategic Portfolios: Growth Portfolio. AmSouth International Equity Fund -- Annual rate of seventy-five one-hundredths of Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth International Equity Fund. AmSouth Capital Growth Fund -- Class B Annual rate of seventy-five one-hundredths of Shares one percent (0.75%) of the average daily net assets of the AmSouth Capital Growth Fund. AmSouth Tennessee Tax-Exempt Fund -- Annual rate of seventy-five one-hundredths of Class B Shares one percent (0.75%) of the average daily net assets of the AmSouth Tennessee Tax-Exempt Fund. AmSouth Institutional Prime Obligations Annual rate of twenty-five one-hundredths of Money Market Fund -- Class II Shares one percent (0.25%) of the average daily net Shares assets of the AmSouth Institutional Prime Obligations Money Market Fund.
A-7 8
Name of Funds Compensation* - ------------- ------------ AmSouth Institutional Prime Obligations Annual rate of fifty one-hundredths of one Money Market Fund -- Class III Shares percent (0.50%) of the average daily net assets of the AmSouth Institutional Prime Obligations Money Market Fund. AmSouth Institutional U.S. Treasury Annual rate of twenty-five one-hundredths of Money Market Fund -- Class II Shares one percent (0.25%) of the average daily net assets of the AmSouth Institutional U.S. Treasury Money Market Fund. AmSouth Institutional U.S. Treasury Annual rate of fifty one-hundredths of one Money Market Fund -- Class III Shares percent (0.50%) of the average daily net assets of the AmSouth Institutional U.S. Treasury Money Market Fund.
(SEAL) AMSOUTH FUNDS By:________________________ Name:______________________ Title:_____________________ BISYS FUND SERVICES LIMITED PARTNERSHIP By: BISYS Fund Services, Inc. General Partner By:________________________ Name:______________________ Title:_____________________ Dated: October 4, 2000 - ----------------------------- * All fees are computed and paid monthly. A-8 EX-99.P.4 8 l83374aex99-p_4.txt EXHIBIT P(4) 1 Exhibit (p)(4) SECTION 18 ================================================================================ SAWGRASS ASSET MANAGEMENT CODE OF ETHICS While SAM is confident of its employees integrity and good faith, there are, certain instances, where employees possess knowledge regarding present or future transactions or have the ability to influence portfolio transactions made by the Company for its clients in securities in which they personally invest. In these situations personal interest may conflict with that of the Company's clients. In view of the above, SAM has adopted this Code of Ethics to specify or prohibit certain types of transactions deemed to create conflicts of interest (or the potential for or appearance of), and to establish reporting requirements and enforcement procedures. 18.1 STATEMENT OF GENERAL PRINCIPLES In recognition of the trust and confidence placed in SAM by its clients and to stress SAM's belief that its operations are directed to the benefit of its clients, the Company has developed and adopted the following general principles to guide its employees, officers, and directors: 1. The interests of the clients are paramount and all associated persons of the Company must conduct themselves in such a manner that the interests of the clients take precedence over all others. 2. All personal securities transactions by associated persons of the Company must be accomplished in such a way as to avoid any conflict between the interest of the Company's clients and the interest of any associated person. 3. All associated persons of the Company must avoid actions or activities that allow personal benefit or profit from their position with regard to the Company's clients. 18.2 DEFINITIONS 1. "Access Person"-any director, officer, or associated person who recommends the purchase or sale of securities for the Company on behalf of the client. 2. "Beneficial Ownership" of a security - a person is considered to be a beneficial owner of any securities in which he has a direct or indirect monetary interest or is held by his spouse, his minor children, a relative who shares his home, or other persons by reason of any contract, arrangement, understanding or relationship that provides him with sole or shared voting or investment power. 3. "Control" - means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Ownership of 25% or more of a company's outstanding voting security is presumed to give the holder control over the company. 4. "Investment Personnel" - means all Access Persons who occupy the position of portfolio manager with respect to the clients of SAM or any separately-managed series thereof (a "Fund"), and all Access Persons who provide or supply information and/or advice to any portfolio manager (or Trust Officer), or who execute or help execute any portfolio manager's decisions. 5. "Purchase or Sale of a Security" includes, among other things, the writing of an option to purchase or sell a security. 1 2 6. "Security" shall have the same meaning as that set forth in Section 2(a)(36) of the 1940 Act, except that it shall not include securities issued by the Government of the United States or an agency thereof, banker's acceptances, bank certificates of deposit, commercial paper and registered open-end mutual funds. 7. A "Security Held or to be Acquired" by the clients means any- security which, within the most recent fifteen days, (i) is or has been held by the clients or (ii) is being or has been considered by the Company for purchase by the clients. 8. A Security is "being purchased or sold" by the clients from the time when a purchase or sale has been communicated to the Company until the time when such transaction has been fully completed or terminated. 18.3 PROHIBITED PURCHASES AND SALES OF SECURITIES 1. No access person shall, in connection with the purchase or sale, directly or indirectly: a. employ any device, scheme or artifice to defraud; b. make any untrue statement of a material fact or omit to state a material fact; c. engage in any act, practice or course of business which would operate as a fraud or deceit; or engage in any manipulative practice. 2. No access person may purchase or sell, directly or indirectly, any security in which he had or by reason of such transaction acquires any beneficial ownership, within 24 hours before or after the time that the same (or a related) security is being purchased or sold by a client. 3. No investment personnel may acquire securities as part of an initial public offering by the issuer. 4. No investment personnel shall purchase or sell, directly or indirectly, any security in which he had or by reason of such transaction acquires any beneficial ownership within 7 days before or after the time that the same (or a related) security is being purchased or sold by any client for which he acts as the portfolio manager. 18.4 PRE-CLEARANCE OF TRANSACTIONS 1. Except as provided in Section 18.4.2, below, all investment personnel must pre-clear each proposed transaction in securities with a designated Supervisor prior to proceeding with the transaction. In determining whether to grant such clearance, the designated 2. The requirements of Section 18.4.1 shall not apply to the following transactions: a. Purchases or sales over which the Investment Personnel has no direct or indirect influence or control. b. Purchases or sales which are non-volitional on the part of either the Investment Personnel or any Fund, including purchases or sales upon exercise of puts or calls written by the Investment Personnel and sales from a margin account pursuant to a bona fide margin call. c. Purchases which are part of an automatic dividend reinvestment plan. d. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer. 3. The following transactions must be approved by the designated Supervisor. a. Transactions which appear upon reasonable inquiry and investigation to present no reasonable likelihood of harm to the clients and which are otherwise in accordance with Rule 17j-1. b. Purchases or sales of securities which are not eligible for purchase or sale by any client, as determined by reference to the Act and blue sky laws and regulations hereunder, the investment objectives and policies and investment restrictions of the clients and their series, and undertakings made to regulatory authorities. 2 3 c. Transactions which the designated Supervisor after consideration of all the facts and circumstances, determines to be in accordance with Section 18.3 and to present no reasonable likelihood of harm to the clients. 4. PRIVATE PLACEMENT SECURITIES: THE ACQUISITION BY INVESTMENT PERSONNEL OF ANY PRIVATE PLACEMENT SECURITIES IS SUBJECT TO REVIEW AND PRE-APPROVAL BY THE SAM COMPLIANCE OFFICER. SUCH TRANSACTIONS ARE PROHIBITED IF: a. THAT THERE EXISTS ANY REASONABLE LIKELIHOOD OF HARM TO ANY SAM CLIENT OR: b. IF ANY CLIENT TRANSACTION INVOLVES SAID SECURITY. 18.5 PRE-CLEARANCE APPROVAL PROCESS TO OBTAIN PRE-CLEARANCE ON PERSONAL INVESTMENT TRANSACTIONS, INVESTMENT PERSONNEL ARE TO COMPLETE A PERSONAL TRADING CLEARANCE FROM (EXHIBIT 11). THIS FORM IS TO BE GIVEN TO A PORTFOLIO MANAGER RESPONSIBLE FOR THE SECURITY TYPE IN QUESTION (E.G. STOCKS, BONDS, ETC.) WHO INDICATES ANY RECENT OR ANTICIPATED TRADING IN SAID SECURITY. THE FORM IS THEN FORWARDED TO THE SAM COMPLIANCE OFFICER FOR APPROVAL. THE COMPLIANCE OFFICER SHALL MAINTAIN RECORDS OF THIS APPROVAL PROCESS. 18.6 ADDITIONAL RESTRICTIONS AND REQUIREMENTS 1. No Access Person shall accept or receive any gift in excess of $100 value from any person or entity that does business with or on behalf of SAM. 2. EACH ACCESS PERSON MUST HAVE DUPLICATE STATEMENTS FOR ALL PERSONAL BROKERAGE ACCOUNTS SENT TO THE DESIGNATED SUPERVISOR DIRECTLY FROM HIS/HER BROKER/DEALER. Compliance with this provision can be effected by the Access Person providing duplicate copies of all such statements directly to the designated Supervisor within two business days of receipt by the Access Person 3. No Investment Personnel may accept a position as a director, trustee or general partner of a publicly-traded company unless such position has been presented to and approved by the Company and by Trusts' Board of Trustees as consistent with the interests of the Trusts and their shareholders. 4. All ACCESS PERSONS must provide to the designated Supervisor a complete listing of all securities owned by such person AND A FIST OF ALL BROKERAGE ACCOUNTS as of the effective date of employment, and thereafter must submit a revised list of such holdings AND BROKERAGE ACCOUNTS to the designated Supervisor as of January 1 of each subsequent year. The initial listing must be submitted within 10 days of the date upon which such person first became an Access Person of the Trusts, a and each update thereafter must be provided no later than 10 days after the start of the subsequent year. A report form and reminder will be sent to all Investment Personnel prior to year-end. (see Exhibit 10). 5. INVESTMENT PERSONNEL MAY NOT PROFIT FROM THE PURCHASE AND SALE OR SALE AND PURCHASE OF A SECURITY WITHIN 60 DAYS OF ACQUIRING OR DISPOSING OF BENEFICIAL OWNERSHIP OF THAT SECURITY. THIS PROHIBITION DOES NOT APPLY TO TRANSACTIONS RESULTING IN A LOSS, OR TO FUTURES OR OPTIONS ON FUTURES ON BROAD-BASED SECURITIES INDEXES OR U.S. GOVERNMENT SECURITIES. 18.7 REPORTING OBLIGATION The Advisor shall create and maintain a listing of all Access Persons, Investment Personnel, and designated Supervisors. Each Access Person shall report all transactions in securities in which the person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership. (see Exhibit 5). Each Access Person shall sign an acknowledgment at the time this Code is adopted or at the time such person becomes an Access Person and on an annual basis thereafter that he has read, understands, and agrees to abide by this Code. 3 4 18.8 REPORTS 1. Each Access Person shall submit quarterly reports of personal securities transactions to the designated Supervisor. The designated Supervisor shall submit confidential quarterly reports with respect to his or her own personal securities transactions to an officer designated to receive his or her reports ("Alternate designated Supervisor"), who shall act in all respects in the manner prescribed herein for the designated Supervisor. 2. Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect beneficial ownership in the security to which the report relates. 3. IN ADDITION TO THE QUARTERLY TRANSACTIONS REPORT DESCRIBED IN 18.8(1) above, every Access Person shall report the name of any publicly-owned company (or any company anticipating a public offering of its equity securities) and the total number of its shares beneficially owned by him if such total ownership is more than 1/2 of 1% of the company's outstanding shares. 4. Every report shall be made not later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: a. The date of the transaction, the title interest rate and maturity (if applicable) and the number of shares or the principal amount of each security involved; b. The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); c. The price at which the transaction was effected; d. The name of the broker/dealer or bank with or through whom the transaction was effected; and e. The date the report was signed. f. All brokerage accounts opened during the quarter. 5. In the event no reportable transactions occurred during the quarter, the report should be so noted and returned, signed and dated. 6. Report forms will be sent to all Access Persons by the designated Supervisor prior to the end of each quarter. 18.9 REVIEW AND ENFORCEMENT The designated Supervisor shall review reported personal securities transactions, brokerage statements, and/or the clients' securities transactions to determine whether a violation of this Code may have occurred. Before making any determination that a violation has been committed by any person, the designated Supervisor shall give such person an opportunity to supply additional explanatory material. If the designated Supervisor determines that a violation of this Code may have occurred, he shall submit his written determination, together with the confidential monthly report and any additional explanatory material provided by the individual, to the Counsel for the Advisor, who shall make an independent determination as to whether a violation has occurred. If the Counsel for the Advisor finds that a violation has occurred, the Counsel for the Advisor shall impose upon the individual such sanctions as he or she deems appropriate and shall report the violation and the sanction imposed to the Board of Trustees of the Trusts. No person shall participate in a determination of whether he has committed a violation of the Code or of the imposition of any sanction against himself. If a securities transaction of the Counsel for the Advisor 4 5 is under consideration, any other Counsel shall act in all respects in the manner prescribed herein for the Counsel for the Advisor. 18.10 RECORDS The Company shall maintain records in the manner and to the extent set forth below, and will make them available for examination by representatives of the Securities and Exchange Commission. 1. A copy of this Code and any other code which is, or at any time within the past five years has been, in effect shall be preserved in an easily accessible place; 2. A record of any violation of this Code and any action taken as a result of such violation shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs; 3. A copy of each report made by an officer or Supervisor pursuant to this Code shall be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place; and 3. A list of all persons who are, or within the past five years have been, required to make reports pursuant to this Code shall be maintained in an easily accessible place. 18.11 MISCELLANEOUS All reports of securities transactions and any other information filed with the Company pursuant to this Code shall be treated as confidential. The Company may from time to time adopt such interpretations of this Code as it deems appropriate: The Counsel for the Company, or an appropriate member of SAM, shall report to SAM and to the Board of Trustees of the Trusts at least annually as to the operation of this Code and shall address in any such report the need (if any) for further changes or modifications to this Code. 5 EX-99.P.5 9 l83374aex99-p_5.txt EXHIBIT P(5) 1 Exhibit (p)(5) LAZARD ASSET MANAGEMENT A Division of Lazard Freres & Co. LLC. ("LAM") Code of Ethics Set forth below is LAM's policy on personal securities transactions. As a general rule, LAM personnel are reminded that the interests of LAM clients take priority over the investment desires of LAM personnel. All LAM personnel must conduct themselves in a manner consistent with LAM's requirements as set forth in this Code of Ethics and the respective Codes of Ethics of The Lazard Funds, Inc. and Lazard Retirement Series, Inc. as well as the Compliance Manual of Lazard Freres & Co. LLC ("LF&Co" or the "Firm") then in effect. Please review this Code of Ethics carefully and contact the Compliance Department if there are any questions. Messrs. Norman Eig and Herbert Gullquist shall appoint a Compliance Officer who shall be responsible for the implementation of this Code of Ethics and all record-keeping functions mandated hereunder, including the review of all initial and annual holding reports as well as the quarterly transactions reports described below. The Compliance Officer shall promptly report to Messrs. Eig and Gullquist all violations of, or deviations from, this Code of Ethics. Personal Securities Accounts Covered The restrictions set forth below apply to trading for all "Personal Securities Accounts." These include: - - Accounts in the Managing Director's or employee's name or accounts in which the Managing Director or employee or any Related Person has a direct or indirect beneficial interest other than an account which is managed by another manager, or by other LAM portfolio managers, for a fee; - - Accounts in the name of the Managing Director's or employee's spouse; - - Accounts in the name of children under the age of 21, whether or not living with the Managing Director or employee, and relatives or other individuals living with the Managing Director or employee or for whose support the Managing Director or employee is wholly or partially responsible (together with the Managing Director's or employee's spouse, "Related Persons"); - - Accounts in which the Managing Director or employee or any Related Person directly or indirectly controls, participates in, or has the right to control or participate in, investment decisions, except for trades where the Managing Director or employee or Related Person does not provide input. Restrictions The following restrictions apply to trading for Personal Securities Accounts of LAM personnel, all of which are subject to certain de minimus provisions and may be waived upon consent of LAM's or; to the extent applicable, LF&Co's compliance personnel: 2 1. No transactions for a Personal Securities Account may be made in a security that is on the Firm's Restricted List; 2. No security may be purchased or sold for a Personal Securities Account: (a) if the security is currently being considered for purchase or sale for an LAM client; or (b) if the security is being purchased or sold for an LAM client on that day or has been purchased or sold for an LAM client within the immediately preceding 15 calendar day period; 3. No purchase and sale, or sale and purchase, of a security for a Personal Securities Account may occur within any 60-day period without prior approval of Norman Eig, Herb Gullquist or David Osunkwo; 4. No transaction for a Personal Securities Account may be made in securities offered pursuant to a public offering. Securities offered pursuant to a private placement may not be purchased for Personal Securities Accounts without the approval of Norman Eig, Herb Gullquist or the Compliance Officer. In connection with any decision by any of the aforesaid persons to approve transactions by a LAM personnel acquiring direct or indirect beneficial ownership in any securities offered pursuant to a private placement, the Compliance Officer will prepare a report of the decision that takes into account, among other factors, whether the investment opportunity should be reserved for LAM clients, and whether the opportunity is being offered to the individual by virtue of his or her position with LAM. Any LAM personnel receiving approval to acquire securities in a private placement must disclose that investment when they participate in a LAM client's subsequent consideration of an investment in such issuer and any decision by or made on behalf of the LAM client to invest in such issuer will be subject to an independent review by investment personnel of LAM with no personal interest in the issuer. 5. No transaction for a Personal Securities Account may be made in "deal" or "rumor" securities, which are defined as securities of companies that are the subject of reports or rumors of actual or anticipated extraordinary corporate transactions or other corporate events; 6. Absent approval from the appropriate compliance personnel, Managing Directors and employees are prohibited from engaging in the trading of options or futures and from engaging in speculative trading as opposed to investment activity. When such approval is given and Managing Directors and employees effect opening transactions in options, the resulting closing transaction will be considered effected on the day that the opening transaction was effected for compliance purposes. The Managing Director or employee must wait 60 days from the date of the opening transaction before effecting the closing transaction. Managing Directors and employees are prohibited from engaging in short sales of any security. 7. No transaction may be made in violation of the Material Non-Public Information Policies and Procedures as outlined in Chapter X of LF&Co's Compliance Manual; and 8. All transactions for Personal Securities Accounts must be approved by a Managing Director of LAM, preferably the Managing Director to whom the employee reports, and pre-cleared by Don Klein or David Osunkwo, or their respective representatives. These approvals should be written on the trade ticket. In addition, each Managing Director or employee should complete and deliver to David Osunkwo, prior to the transaction, the attached personal securities transaction form. The procedure for pre-clearing a personnel trade is explained in greater detail below. 2 3 Reporting (a) Within 10 days of receiving this Code of Ethics, all LAM personnel must submit to the Compliance Officer a statement of all securities in which such LAM personnel has any direct or indirect beneficial ownership. This statement must include (i) the title, number of shares and principal amount of each security, (ii) the name of any broker, dealer or bank with whom the LAM personnel maintained an account in which any securities were held for the direct or indirect benefit of such LAM personnel and (iii) the date of submission by the LAM personnel. This statement also must be submitted by all new LAM personnel no later than 10 days from the commencement of their employment with LAM. (b) Subject to the restriction on Outside Accounts as provided below, when a LAM personnel opens an Outside Account, as that term is defined in this Code of Ethics, such personnel is required to send a written notification of such fact to the Compliance Officer before engaging in any personal securities transactions through such account. A letter will be sent to the broker-dealer involved, allowing such LAM personnel to maintain the account and directing that duplicate account statements and confirmations of transactions in the account be sent to the Compliance Officer. (c) Every LAM personnel shall report to the Compliance Officer the information described below with respect to any Outside Account transactions in any security in which such personnel has, or by reason of such transaction acquires, any direct or indirect beneficial ownership in the security; provided, however, that a LAM personnel shall not be required to, make a report with respect to transactions effected in any account over which such person does not have any direct or indirect influence or control or in any account which is managed on a discretionary basis by a person other than such LAM personnel and with respect to which such LAM personnel does not in fact influence or control such transactions. Every such report shall be in writing and shall be delivered not later than 10 days after the end of the calendar quarter in which a transaction to which the report relates was effected, and shall contain the following information: (1) The date of the transaction, the title and the number of shares and the principal amount of each security involved; (2) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); (3) The price at which the transaction was effected; and (4) The name of the broker, dealer or bank with or through whom the transaction was effected. (d) Each LAM personnel shall submit an annual report to the Compliance Officer showing as of a date no more than 30 days before the report is submitted (1) all holdings in securities in which the person had any direct or indirect beneficial ownership and (2) the name of any broker, dealer or bank with whom the person maintains an account in which any securities are held for the direct or indirect benefit of the LAM personnel. (e) Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect beneficial ownership in the security to which the report relates. 3 4 (f) All reports furnished pursuant to this Section will be kept confidential, subject to the rights of inspection by, or at the direction of, Messrs. Eig or Gullquist and by the Securities and Exchange Commission or any other regulatory organization with proper jurisdiction. (g) All LAM personnel are required to certify annually to the Compliance Officer that they have (i) read and understand this Code of Ethics and recognize that they are subject to its terms and conditions, (ii) complied with the requirements of this Code of Ethics and (iii) disclosed or reported all personal securities transactions required to be disclosed or reported pursuant to this Code of Ethics. Sanctions Upon discovering a violation of this Code of Ethics, Messrs. Eig or Gullquist may impose such sanctions as they deem appropriate, including, among other things, a letter of censure, fine or suspension or termination of the employment of the violator Exemptions The restrictions and prohibitions contained in this Code shall not apply to: (a) Purchases or sales of securities which receive the prior approval of either Norman Eig or Herbert W. Gullquist and David Osunkwo (the approving officer having no personal interest in such purchases or sales) because such purchases or sales are not likely to have any economic impact on any client account managed or advised by LAM (b) Any securities transaction, or series of related transactions during any 30-day period, involving 500 shares or less in the aggregate of any security, if the issuer has a market capitalization (outstanding shares multiplied by the current price per share) greater than US $1 billion ("de minimus exemption"). This provision does not provide an exemption from the 60-day holding period. Other Items 1. LAM personnel may not serve on the board of directors of any corporation (other than a not-for-profit corporation or a related Lazard entity) without the prior approval of Norman Eig or Herb Gullquist; 2. All LAM personnel must complete quarterly Personal Security Account transaction reports. By law, these reports must be returned to Compliance by-the tenth day following the end of the quarter. To ensure strict compliance with these requirements, the forms should be returned by the seventh day following the end of the quarter; and 3. Each LAM Managing Director and employee must annually certify compliance with the LAM Code of Ethics with respect to all Personal Securities Accounts. Securities Covered LAM's policies and procedures regarding personal securities trading set forth herein apply to transactions involving all equity and debt securities, including common and preferred stock, investment and non-investment grade debt securities, investments convertible into or exchangeable for stock or debt securities, or any derivative instrument relating to any such security or securities index, including options, warrants and futures, or any interest in a partnership or other entity that invests in any of the foregoing. Investments in mutual funds, 4 5 certificates of deposit and federal government obligations are not covered by these policies and procedures. Any other exception to personal securities trading policies and procedures must be approved. Transaction Approval Procedures Internal Accounts To pre-clear a transaction being made in a Personal Securities Account held at the Firm (an "Internal Account"), LAM personnel must: 1. Electronically complete and "sign" a "New Equity Order" or "New Bond Order" trade ticket located in the Firm's Lotus-Notes e-mail application under the heading "Employee Trades." The ticket should be directed to the employee's supervising Managing Director, or, in the absence of the supervising Managing Director, to another LAM Managing Director or one of the LAM Directors designated in the database. 2. Upon review of the ticket by the designated supervisor, the employee should receive an automatic e-mail notification informing her/him that the trade has been approved or rejected. 3. Following the supervisor's approval, the ticket is transmitted to the Compliance Department where it is processed and, if approved, is routed to the trading desk for execution, provided the employee had selected the "Direct Execution" button when completing the ticket. The cut-off time for receipt of supervisor-approved tickets in the Compliance Department is 9.30 a.m. each trading day. Any ticket received after this time will be processed for execution the next trading day. It is the responsibility of each employee to ensure that tickets sent to a supervisor for approval receive the supervisor's timely attention. NOTE In completing a new ticket, if the employee de-selects the "Direct Execution! 'button, the ticket will be returned to her/him after Compliance approval for submission to the trading desk. In such case, the trade must be submitted within 2 days or it will expire and be null and void. To assist each employee with monitoring the status of a trade ticket submitted for approval, the system is designed to generate an e-mail notification to the employee every time the ticket is reviewed or acted upon by the supervisor, compliance department or the trading desk. Additionally, every supervisor's assistant is set up to receive a summary of the each approval request sent to the supervisor so that in the absence of the supervisor, the assistant would advise the employee to re-rout the trade to another supervisor. For more details on the set-up and use of the Employee Trades database, please contact David Osunkwo at ext. 6065. Outside Accounts LAM personnel may not maintain a securities or commodities account (including a foreign securities account) at any other broker or dealer or bank (an "Outside Account") without the prior written consent of the Firm. Where such consent is given, employees must provide the Firm with the name of the broker-dealer firm with whom they carry their personal accounts and must request that the broker-dealer send to Lazard, to the attention of both Donald Klein and David Osunkwo, copies of monthly account statements and all trade confirmations. These same principles apply to establishing an account at another brokerage house where the employee has control over the trading in that account (such as a discretionary account, a nominee account, an account for a 5 6 general or limited partnership, a trust account), or an account of a corporation where trading is controlled or influenced by the LAM employee. If you already have an Outside Account, please notify David Osunkwo as soon as possible to facilitate the distribution and review of your monthly account statements and trade confirmations. Managing Directors and employees are required to report promptly to Donald Klein and David Osunkwo any change in status or location of any account in which they have a beneficial interest as defined above. With respect to a trust account of which a Managing Director or employee or member of his immediate family is a beneficiary, the Firm policy requires that the Firm receive duplicate confirmations and monthly account statements for each such account. Similarly, Managing Directors and employees are required to report private securities and commodities transactions effected by or for (i) themselves, (ii) spouses and unemancipated family members, (iii) accounts over which the employee has control as described above, or (iv) accounts of which the employee or a member of his family is a beneficiary, or (v) accounts of family members including accounts of in-laws where introduced or carried by an employee or Managing Director's member organization. Deviations from the foregoing policies will be permitted only with the prior written approval of an appropriate individual with compliance responsibilities. To pre-clear a transaction being made in an outside account, LAM personnel must follow the "Transaction Approval Procedures" relating to Internal Accounts. NOTE: Once a Managing Director or employee receives approval, the LAM personnel must transmit appropriate trade instructions to their outside broker within two days, or the approval will become null and void. 6 EX-99.P.6 10 l83374aex99-p_6.txt EXHIBIT P(6) 1 Exhibit (p)(6) OAKBROOK INVESTMENTS, LLC CODE OF ETHICS While OakBrook is confident of its officers and employees integrity and good faith, there are certain instances where officers and employees possess knowledge regarding present or future transactions or have the ability to influence portfolio transactions made by the Company for its clients in securities in which they personally invest. In these situations, personal interest may conflict with that of the Company's clients. In view of the above, OakBrook has adopted this Code of Ethics to specify or prohibit certain types of transactions deemed to create conflicts of interest (or the potential for or appearance of), and to establish reporting requirements and enforcement procedures. 5.1 STATEMENT OF GENERAL PRINCIPLES In recognition of the trust and confidence placed in OakBrook by its clients and to stress OakBrook's belief that its operations are directed to the benefit of its clients, the Company has developed and adopted the following general principles to guide its employees, officers, and directors. 1. The interests of the client are paramount and all associated persons of the Company must conduct themselves in such a manner that the interests of the clients take precedence over all others. 2. All personal securities transactions by associated persons of the Company must be accomplished in such a way as to avoid any conflict between the interest of the Company's clients and the interest of any associated person. 3. All associated persons of the Company must avoid actions that allow personal benefit or profit from their position with regard to the Company's clients. 5.2 DEFINITIONS 1. "Access Person" - any director, officer, or associated person who recommends the purchase or sale of securities for the Company on behalf of the client. 2. "Beneficial Ownership" of a security - a person is considered to be a beneficial owner of any securities in which he has a direct or indirect monetary interest or is held by his spouse, his minor children, a relative who shares his home, or other persons by reason of any contract, arrangement, understanding or relationship that provides him with sole or shared voting or investment power. 3. "Control" - means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Ownership of 25% or more of a company's outstanding voting security is presumed to give the holder control over the company. 4. "Investment Personnel" - means all Access Persons who occupy the position of portfolio manager with respect to the clients of OakBrook or any separately-managed series thereof (a "Fund"), and all Access Persons who provide or supply information and/or advice to any portfolio manager, or who execute or help execute any portfolio manager's decisions. 5. "Purchase or Sale of a Security" - includes, among other things, the writing of an option to purchase or sell a security. 2 6. "Security" shall have the same meaning as set forth in Section 2(a)(36) of the 1940 Act, except that it shall not include securities issued by the Government of the United States or an agency thereof, banker's acceptances, bank certificates of deposit, commercial paper and registered open-end mutual funds. 7. "Security Held or to be Acquired" by the client means any security which, within the most recent fifteen calendar days, (i) is or has been held by the clients or (ii) is being or has been considered by the Company for purchase by the clients. 8. "Security is Being Purchased or Sold" by the client from the time when a purchase or sale has been communicated to the Company until the time when such transaction has been fully completed or terminated. 5.3 PROHIBITED PURCHASES AND SALES OF SECURITIES 1. No access person shall, in connection with the purchase or sale, directly or indirectly: a) employ and device, scheme or artifice to defraud; b) make any untrue statement of a material fact or omit to state a material fact; c) engage in any act, practice or course of business which would operate as a fraud or deceit; or d) engage in any manipulative practice 2. No access person may purchase or sell, directly or indirectly, any security in which he had or by reason of such transaction acquires any beneficial ownership, within 24 hours before or after the time that the same (or a related) security is being purchased or sold by a client. 3. No investment personnel may acquire securities as part of an initial public offering by the issuer. 4. No -investment personnel shall purchase or sell, directly or indirectly, any security in which he had or by reason of such transaction acquires any beneficial ownership within 7 days before or after the time that the same (or a related) security is being purchased or sold by any client for which he acts as the portfolio manager. 5.4 PRE-CLEARANCE TRANSACTIONS 1. Except as provided in Section 5.4.2 below, all investment personnel must pre-clear each proposed transaction in securities with the compliance officer prior to proceeding with the transaction. Each pre-clearance request must be filed in writing with the Compliance Officer. (see exhibit #5) In determining whether to grant such clearance, the compliance officer shall refer to Section 5.4.3 below. 2. The requirements of Section 5.4.1 shall not apply to the following transactions: a) Purchases or sales over which the -Investment Personnel has no direct or indirect influence or control. b) Purchases or sales which are non-volitional on the part of either the Investment Personnel or any Fund, including purchases or sales upon exercise of puts or calls written by the Investment Personnel and sales from a margin account pursuant to a bona fide margin call. c) Purchases which are part of an automatic dividend reinvestment plan. d) Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer. 3. The following transactions must be approved by the compliance officer. 2 3 a) Transactions which appear on reasonable inquiry and investigation to present no reasonable likelihood of harm to the clients and which are otherwise in accordance with Rule 17j-1. b) Purchases or sales of securities which are not eligible for purchase or sale by any client, as determined by reference to the Act and Blue Sky laws and regulations thereunder, the investment objectives and policies and investment restrictions of the clients and their series, and undertakings made to regulatory authorities. c) Transactions which the Compliance Officer after consideration of all the facts and circumstances, determines to be in accordance with Section 4.3 and to present no reasonable likelihood of harm to the clients. 5.5 ADDITIONAL RESTRICTIONS AND REQUIREMENTS 1. No Access Person shall accept or receive any gift in excess of $100 value from any person or entity that does business with or on behalf of OakBrook. 2. Each Access Person must have duplicate statements for all personal brokerage accounts sent to the compliance officer. Compliance with this provision can be effected by the Access Person providing duplicate copies of all such statements directly to the compliance officer within two business days of receipt by the Access Person. 3. No Investment Personnel may accept a position as a director, trustee or general partner of a publicly-traded company unless such position has been presented to and approved by the Company. 4. All Access Persons must provide to the compliance officer a complete listing of all securities owned, all outside activities and all brokerage accounts held by such a person as of the effective date of employment, and thereafter must submit a revised list of such holdings, activities and accounts to the compliance officer as of January 1 of each subsequent year. The initial listing must be submitted within 10 days of the date upon which such person first became an Access Person, and each update thereafter must be provided no later than 10 days after the start of the subsequent year. A report form and reminder will be sent to all Access Persons prior to year-end. (see Exhibits #3 and 4) 5.6 REPORTING OBLIGATION 1. The Company shall create and maintain a listing of all Access Persons, Investment Personnel, and Compliance Officers. 2. Each Access Person shall report all transactions in securities in which the person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership. This may be accomplished by submitting the form listed as Exhibit #1. 3. Each Access Person shall sign an acknowledgment at the time this Code is adopted or at the time such person becomes an Access Person and on an annual basis thereafter. that he has read, understands, and agrees to abide by this Code. 5.7 REPORTS 1. Each Access Person shall submit quarterly reports of personal securities transactions to the compliance officer. The compliance officer shall submit confidential quarterly reports with respect to his or her own personal securities transactions to an officer designated to receive his 3 4 or her reports ("alternate compliance officer") who shall act in all respects in the manner prescribed herein for the compliance officer. 2. Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect beneficial ownership in the security to which the report relates. 3. Each Access Person shall also submit quarterly reports showing all personal brokerage accounts opened during the preceding quarter. 4. In addition to reportable transactions, every Access Person shall report the name of any publicly-owned company (or any company anticipating a public offering of its equity securities) and the total number of its shares beneficially owned by him if such total ownership is more than 0.5% of the company's outstanding shares. 5. Every report shall be made no later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: a) The date of the transaction, the title and the number of shares or the principal amount of each security involved; b) The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); c) The price at which the transaction was effected; d) The name of the broker/dealer or bank with or through whom the transaction was effected; e) The name of account, account number and address of any personnel brokerage accounts opened during the quarter; and f) The date the report was signed. 6. In the event no reportable transactions occurred during the quarter, the report should be so noted and returned, signed and dated. 7. Report forms will be sent to all Access Persons by the compliance officer. 5.8 REVIEW AND ENFORCEMENT The compliance officer shall review reported personal securities transactions, brokerage statements, and/or the clients' securities transactions to determine whether a violation of this Code may have occurred. Before making any determination that a violation has been committed by any person, the compliance officer shall give such person an opportunity to supply additional explanatory material. If the compliance officer determines that a violation of this Code may have occurred, he shall submit his written determination; together with the confidential monthly report and any additional explanatory material provided by the individual, to the Counsel for the Company, who shall make an independent determination as to whether a violation has occurred. If the Counsel for the Company finds that a violation has occurred, the Counsel for the Company shall impose upon the individual such sanctions as he or she deems appropriate and shall report the violation and the sanction imposed to the Company. 4 5 No person shall participate in a determination of whether he has committed a violation of the Code or of the imposition of any sanction against himself. If a securities transaction of the Counsel for the Company is under Consideration, any other Counsel shall act in all respects in the manner prescribed herein for the Counsel for the Company. 5.9 RECORDS The Company shall maintain records in the manner and to the extent set forth below, and will make them available for examination by employees of the Securities and Exchange Commission. 1. A copy of this Code and any other code which is, or at any time within the past five years has been, in effect shall be preserved in an easily accessible place; 2. A record of any violation of this Code and any action taken as a result of such violation shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs; 3. A copy of each report made by an officer or Supervisor pursuant to this Code shall be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place; and 4. A list of all persons who are, or within the past five years have been, required to make reports pursuant to this Code shall be maintained in an easily accessible place. 5.10 MISCELLANEOUS All reports of securities transactions and any other information filed with the Company pursuant to this Code shall be treated as confidential. The Company may from time to time adopt such interpretations of this Code as it deems appropriate. The Counsel for the Company, or an appropriate member of OakBrook, shall report to OakBrook at least annually as to the operation of this Code and shall address in any such report the need (if any) for further changes or modifications to this Code. EX-99.P.7 11 l83374aex99-p_7.txt EXHIBIT P(7) 1 Exhibit (p)(7) ROCKHAVEN ASSET MANAGEMENT, LLC COMPLIANCE MANUAL Section 18 CODE OF ETHICS While RAM is confident of its employees integrity and good faith, there are, certain instances, where employees possess knowledge regarding present or future transactions or have the ability to influence portfolio transactions made by the Company for its clients in securities in which they personally invest. In these situations personal interest may conflict with that of the Company's clients. In view of the above, RAM has adopted this Code of Ethics to specify or prohibit certain types of transactions deemed to create conflicts of interest (or the potential for or appearance of), and to establish reporting requirements and enforcement procedures. It is also RAM's desire and intention to have each of its employees who are members of the Association for Investment Management and Research ("AIMR") comply with the AIMR's Code of Ethics and Standards of Professional Conduct. Accordingly, a copy of the AIMR's Code of Ethics and Standards of Professional Conduct is attached hereto as Exhibit #7. The AIMR's Code of Ethics and Standards of Professional Conduct is hereby incorporated in its entirety as additional guidelines for those investment personnel who are covered by it. 18.1 STATEMENT OF GENERAL PRINCIPLES In recognition of the trust and confidence placed in RAM by its clients and to stress RAM's belief that its operations are directed to the benefit of its clients, the Company has developed and adopted the following general principles to guide its employees, officers, and directors. 1. The interests of the clients are paramount and all associated persons of the Company must conduct themselves in such a manner that the interests of the clients take precedence over all others. 2. All personal securities transactions by associated persons of the Company must be accomplished in such a way as to avoid any conflict between the interest of the Company's clients and the interest of any associated person. 3. All associated persons of the Company must avoid actions or activities that allow personal benefit or profit from their position with regard to the Company's clients. 18.2 DEFINITIONS 1. Access Person-any director, officer, or associated person who recommends the purchase or sale of securities for the Company on behalf of the client. 2 2. "Beneficial Ownership" of a security - a person is considered to be a beneficial owner of any securities in which he has a direct or indirect monetary interest or is held by his spouse, his minor children, a relative who shares his home, or other persons by reason of any contract, arrangement, understanding or relationship that provides him with sole or shared voting or investment power. 3. "Control" - means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company. Ownership of 25% or more of a company's outstanding voting security is presumed to give the holder control over the company. 4. "Investment Personnel" - means all Access Persons who occupy the position of portfolio manager with respect to the clients of RAM or any separately-managed series thereof (a "Fund"), and all Access Persons who provide or supply information and/or advice to any portfolio manager (or Trust Officer), or who execute or help execute any portfolio manager's decisions. 5. "Purchase or Sale of a Security" includes, among other things, the writing of an option to purchase or sell a security. 6. "Security" shall have the same meaning as that set forth in Section 2(a)(36) of the 1940 Act, except that it shall not include securities issued by the Government of the United States or an agency thereof, banker's acceptances, bank certificates of deposit, commercial paper and registered open-end mutual funds. 7. A "Security Held or to be Acquired" by the clients means any security which, within the most recent fifteen days, (i) is or has been held by the clients or (ii) is being or has been considered by the Company for purchase by the clients. 8. A Security is "being purchased or sold" by the clients from the time when a purchase or sale has been communicated to the Company until the time when such transaction has been fully completed or terminated. 18.3 PROHIBITED PURCHASES AND SALES OF SECURITIES 1. No Access Person shall, in connection with the purchase or sale, directly or indirectly: a. employ any device, scheme or artifice to defraud; b. make any untrue statement of a material fact or omit to state a material fact; c. engage in any act, practice or course of business which would operate as a fraud or deceit; or d. engage in any manipulative practice. 2. No Access Person or Investment Personnel shall purchase or sell, directly, or indirectly, any security owned in accounts or Funds managed by RAM. If any such Access Person or Investment Personnel is the owner of a security (or related security) which RAM decides to buy for an account or Fund, he or she shall have the right to sell the security prior to RAM's purchase of it. If any such person does not sell the security prior to RAM's purchase for an account or Fund, he or she must own it as long as the account or Fund owns the security. 3. No Investment Personnel may acquire securities as part of an initial public offering or limited public offering (i.e., a private placement) by the issuer. 2 3 4. No Investment Personnel shall purchase or sell, directly or indirectly, any security for the purpose or with the result of realizing a short-term gain within 60 days from the date said security (or related security) was acquired. 18.4 PRE-CLEARANCE OF TRANSACTIONS 1. Except as provided in Section 18.4.2, below, all Investment Personnel must pre-clear each proposed transaction in securities with a designated Supervisor prior to proceeding with the transaction. In determining whether to grant such clearance, the designated Supervisor shall refer to the Section 18.4.3, below. 2. The requirements of Section 18.4.1 shall not apply to the following transactions: a. Purchases or sales over which the Investment Personnel has no direct or indirect influence or control. b. Purchases or sales which are non-volitional on the part of either the Investment Personnel or any Fund, including purchases or sales upon exercise of puts or calls Written by the Investment Personnel and sales from a margin account pursuant to a bona fide margin call. c. Purchases which are part of an automatic dividend reinvestment plan. d. Purchases effected upon the exercise of rights issued by an issuer pro rata to all holders of a class of its securities, to the extent such rights were acquired from such issuer. 3. The following transactions must be approved by the designated Supervisor. a. Transactions which appear upon reasonable inquiry and investigation to present no reasonable likelihood of harm to the clients and which are otherwise in accordance with Rule 17j-1. b. Purchases or sales of securities which are not eligible for purchase or sale by any client, as determined by reference to the Act and blue sky laws and regulations thereunder, the investment objectives and policies and investment restrictions of the clients and their series, and undertakings made to regulatory authorities. c. Transactions which the designated Supervisor after consideration of all the facts and circumstances, determines to be in accordance with Section 18.3 and to present no reasonable likelihood of harm to the clients. 18.5 ADDITIONAL RESTRICTIONS AND REQUIREMENTS 1. No Access Person shall accept or receive any gift in excess of $100 value from any person or entity that does business with or on behalf of RAM. 2. Each Access Person must have duplicate statements for all personal brokerage accounts sent to the designated Supervisor. Compliance with this provision can be effected by the Access Person providing duplicate copies of all such statements directly to the designated Supervisor within two business days of receipt by the Access Person. 3. No Investment Personnel may accept a position as a director, trustee or general partner of a publicly-traded company unless such position has been presented to and approved by the Company and by Trusts' Board of Trustees as consistent with the interests of the Trusts and their shareholders. 3 4 4. All Access Persons must provide to the designated Supervisor a complete listing of all securities owned by such person, in addition to the name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person, as of the effective date of employment (an "Initial &/or Annual Holdings Report"), arid thereafter must submit a revised list of such holdings to the designated Supervisor as of January 1 of each subsequent year (an "Initial &/or Annual Holdings Report"). The Initial Holdings Report must be submitted within 10 days of the date upon which such person first became an Access Person of the Trusts, and each update thereafter must be provided no later than 30 days after the start of the subsequent year. A report form and reminder will be sent to all Access Persons prior to year-end. (see Exhibit #9). 18.6 REPORTING OBLIGATION 1. The Advisor shall create and maintain a listing of all Access Persons, Investment Personnel, and designated Supervisors. 2. Each Access Person shall report all transactions in securities in which the person has, or by reason of such transaction acquires, any direct or indirect beneficial ownership. (see Exhibit #2). 3. Each Access Person shall sign an acknowledgment at the time this Code is adopted or at the time such person becomes an Access Person and on an annual basis thereafter that he has read, understands, and agrees to abide by this Code. 18.7 REPORTS 1. Each Access Person shall submit quarterly reports of personal securities transactions to the designated Supervisor. The designated Supervisor shall submit confidential quarterly reports with respect to his or her own personal securities transactions to an officer designated to receive his or her reports ("Alternate designated Supervisor"), who shall act in all respects in the manner prescribed herein for the designated Supervisor. 2. Any such report may contain a statement that the report shall not be construed as an admission by the person making such report that he has any direct or indirect beneficial ownership in the security to which the report relates. 3. Reports per Section 18.5.4 above. 4. Quarterly security transaction report shall be made not later than 10 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information: a. The date of the transaction, the title and the number of shares or the principal amount of each security involved; b. The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition); c. The price at which the transaction was effected; d. The name of the broker/dealer or bank with or through whom the transaction was effected; and e. The date the report was signed. 4 5 5. With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person: a. The name of the broker, dealer or bank with whom the Access Person established the account; b. The date the account was established; and c. The date the report is submitted by the Access Person. 6. In the event no reportable transactions occurred during the quarter, the report should be so noted and returned, signed and dated. 7. Report forms will be sent to all Access Persons by the designated Supervisor prior to the end of each quarter. 18.8 REVIEW AND ENFORCEMENT The designated Supervisor shall review reported personal securities transactions, brokerage statements, and/or the clients' securities transactions to determine whether a violation of this Code may have occurred. Before making any determination that a violation has been committed by any person, the designated Supervisor shall give such person an opportunity to supply additional explanatory material. If the designated Supervisor determines that a violation of this Code may have occurred, he shall submit his written determination, together with the confidential monthly report and any additional explanatory material provided by the individual, to the Counsel for the Advisor, who shall make an independent determination as to whether a violation has occurred. If the Counsel for the Advisor finds that a violation has occurred, the Counsel for the Advisor shall impose upon the individual such sanctions as he or she deems appropriate and shall report the violation and the sanction imposed to the Board of Trustees of the Trusts. No person shall participate in a determination of whether he has committed a violation of the Code or of the imposition of any sanction against himself. If a securities transaction of the Counsel for the Advisor is under consideration, any other Counsel shall act in all respects in the manner prescribed herein for the Counsel for the Advisor. On an annual basis, the designated Supervisor shall provide a written report of any material violation, and the sanctions imposed to the Board of Trustees of the Trusts. Further, RAM shall certify to the Board of Trustees that if it has adopted procedures reasonably necessary to prevent violations of this Code. 18.9 RECORDS The Company shall maintain records in the manner and to the extent set forth below, and will make them available for examination by representatives of the Securities and Exchange Commission. The Company shall maintain list of Access Persons and Investment Personnel. (see Exhibit #10). 1. A copy of this Code and any other code which is, or at any time within the past five years has been, in effect shall be preserved in an easily accessible place; 2. A record of any violation of this Code and any action taken as a result of such 5 6 violation shall be preserved in an easily accessible place for a period of not less than five years following the end of the fiscal year in which the violation occurs; 3. A copy of each report made by an officer or Supervisor pursuant to this Code shall be preserved for a period of not less than five years from the end of the fiscal year in which it is made, the first two years in an easily accessible place; and 4. A list of all persons who are, or within the past five years have been, required to make reports pursuant to this Code shall be maintained in an easily accessible place. 18.10 MISCELLANEOUS All reports of securities transactions and any other information filed with the Company pursuant to this Code shall be treated as confidential. The Company may from time to time adopt such interpretations of this Code as it deems appropriate. The Counsel for the Company, or an appropriate member of RAM, shall report to RAM and to the Board of Trustees of the Trusts at least annually as to the operation of this Code and shall address in any such report the need (if any) for further changes or modifications to this Code. Any material change must be reviewed and approved within six months of such change by the Board of Trustees of the Trusts. This Code will be filed as an exhibit to the. Trusts' Registration Statements. 6 EX-99.P.8 12 l83374aex99-p_8.txt EXHIBIT P(8) 1 Exhibit (p)(8) PERSONAL INVESTMENT POLICY FOR SSB CM ASSET MANAGEMENT GROUP/PEACHTREE ASSET MANAGEMENT - NORTH AMERICA AND CERTAIN REGISTERED INVESTMENT COMPANIES SSB Citi Asset Management Group ("SSB Chi")(1), and those U.S.-registered investment companies advised or managed by SSB Citi that have adopted this policy ("Funds"), have adopted this policy on securities transactions in order to accomplish two goals: first, to minimize conflicts and potential conflicts of interest between employees of SSB Citi and SSB Citi's clients (including the Funds), and between Fund directors or trustees and their Funds, and second, to provide policies and procedures consistent with applicable law, including Rule 17j-1 under the Investment Company Act of 1940, to prevent fraudulent or manipulative practices with respect to purchases or sales of securities held or to be acquired by client accounts. All U.S. employees of SSB Citi, including employees who serve as Fund officers or directors, and all directors or trustees ("directors") of each Fund, are Covered Persons under this policy. Other Covered Persons are described in Section II below. I. STATEMENT OF PRINCIPLES - All SSB Citi employees owe a fiduciary duty to SSB Citi's clients when conducting their personal investment transactions. Employees must place the interests of clients first and avoid activities, interests and relationships that might interfere with the duty to make decisions in the best interests of the clients. All Fund directors owe a fiduciary duty to each Fund of which they are a director and to that Fund's shareholders when conducting their personal investment transactions. At all times and in all matters Fund directors shall place the interests of their Funds before their personal interests. The fundamental standard to be followed in personal securities transactions is that Covered Persons may not take inappropriate advantage of their positions. All personal securities transactions by Covered Persons shall adhere to the requirements of this policy and shall be conducted in such a manner as to avoid any actual or potential conflict of interest, the appearance of such a conflict, or the abuse of the person's position of trust and responsibility. While this policy is designed to address both identified conflicts and potential conflicts, it cannot possibly be written broadly enough to cover all potential situations. In this regard, Covered Persons are expected to adhere not only to the letter, but also the spirit of the policies contained herein. Employees are reminded that they also are subject to other Citigroup policies, including policies on insider trading, the purchase and sale of securities listed on any applicable SSB Citi restricted list, the receipt of gifts and service as a director of a publicly traded company. Employees must never trade in. a security or commodity while in possession of. material, non-public information about the issuer or the market for those securities or commodities, even if the employee has satisfied all other requirements of this policy. The reputation of SSB Citi and its employees for straightforward practices and integrity is a priceless asset, and all employees have the duty and obligation to support and maintain it when conducting their personal securities transactions. (1) The investment advisory entities of SSB Citi covered by this policy include: Salomon Brothers Asset Management Inc.; SSB CITI FUND MANAGEMENT LLC; Smith Barney Asset Management Division of Salomon Smith Barney Inc.; Travelers Investment Management Company; and the Citibank Global Asset Management Division of Citibank, N.A. and Citicorp Trust, N.A.-California. 2 II. APPLICABILITY - SSB CITI EMPLOYEES - This policy applies to all U.S. employees of SSB Citi, including part-time employees. Each employee, including employees who serve as Fund officers or directors, must comply with all of the provisions of the policy applicable to SSB Citi employees unless otherwise indicated. Certain employees are considered to be "investment personnel" (i.e., portfolio managers, traders and research analysts (and each of their assistants)), and as such, are subject to certain additional restrictions outlined in the policy. All other employees of SSB Citi are considered to be "advisory personnel." Generally, temporary personnel and consultants working in any SSB Citi business are subject to the same provisions of the policy as full-time employees, and their adherence to specific requirements will be addressed on a case-by-case basis. The personal investment policies, procedures and restrictions referred to herein also apply to an employee's spouse and minor children. The policies also apply to any other account over which the employee is deemed to have beneficial ownership. This includes: accounts of any immediate family members sharing the same household as the employee; accounts of persons or other third parties for whom the employee exercises investment discretion or gives investment advice; a legal vehicle in which the employee has a direct or indirect beneficial interest and has power over investment decisions; accounts for the benefit of a third party (e.g., a charity) which may be directed by the employee (other than in the capacity of an employee); and any account over which the employee may be deemed to have control. For a more detailed description of beneficial ownership, see Exhibit A attached hereto. These policies place certain restrictions on the ability of an employee to purchase or sell securities that are being or have been purchased or sold by an SSB Citi managed fund or client account. The restrictions also apply to securities that are "related" to a security being purchased or sold by an SSB Citi managed fund or client account. A "related security" is one whose value is derived from the value of another security (e.g., a warrant, option or an indexed instrument). FUND DIRECTORS - THIS POLICY applies to all directors of Funds that have adopted this policy. The personal investment policies, procedures and restrictions that specifically apply to Fund directors apply to all accounts and securities in which the director has direct or indirect beneficial ownership. See Exhibit A attached hereto for a more detailed description of beneficial ownership. SECURITIES are defined as stocks, notes, bonds, closed-end mutual funds, debentures, and other evidences of indebtedness, including senior debt, subordinated debt, investment contracts, commodity contracts, futures and all derivative instruments such as options, warrants and indexed instruments, or, in general, any interest or instrument commonly known as a "security." III. ENFORCEMENT - It is the responsibility of each Covered Person to act in accordance with a high standard of conduct and to comply with the policies and procedures set forth in this document. SSB Citi takes seriously its obligation to monitor the personal investment activities of its employees. Any violation of this policy by employees will be considered serious, and may result in disciplinary action, which may include the unwinding of trades, disgorgement of profits, monetary fine or censure, and suspension or termination of employment. Any violation of this policy by a Fund director will be reported to the Board of Directors of the applicable Fund, which may impose such sanctions as it deems appropriate. 2 3 IV. OPENING AND MAINTAINING EMPLOYEE ACCOUNTS - All employee brokerage accounts, including spouse accounts, accounts for which the employee is deemed to have beneficial ownership, and any other accounts over which the employee and/or spouse exercise control, must be maintained either at Salomon Smith Barney ("SSB") or at Citicorp Investment Services ("CIS")(2) For spouses or other persons who, by reason of their employment, are required to conduct their securities, commodities or other financial transactions in a manner inconsistent with this policy, or in other exceptional circumstances, employees may submit a written request for an exemption to the Compliance Department. If approval is granted, copies of trade confirmations and monthly statements must be sent to the Compliance Department. In addition, all other provisions of this policy will apply. V. EXCLUDED ACCOUNTS AND TRANSACTIONS - The following types of accounts/transactions need not be maintained at SSB or CIS, nor are they subject to the other restrictions of this policy: 1. Accounts at outside mutual funds that hold only shares of open-end funds purchased directly from that fund company. Note: transactions relating to closed-end funds are subject to the pre-clearance, blackout period and other restrictions of this policy; 2. Estate or trust accounts in which an employee or related person has a beneficial interest, but no power to affect investment decisions. There must be no communication between the account(s) and the employee with regard to investment decisions prior to execution. The employee must direct the trustee/bank to furnish copies of confirmations and statements to the Compliance Department; 3. Fully discretionary accounts managed by either an internal or external registered investment adviser are permitted and may be custodied away from SSB and CIS if (i) the employee receives permission from the Regional Director of Compliance and the unit's Chief Investment Officer, and (ii) there is no communication between the manager and the employee with regard to investment decisions prior to execution. The employee must designate that copies of trade confirmations and monthly statements be sent to the Compliance Department; 4. Employees may participate in direct investment programs which allow the purchase of securities directly from the issuer without the intermediation of a broker/dealer provided that the timing and size of the purchases are established by a pre-arranged, regularized schedule (e.g., dividend reinvestment plans). Employees must pre-clear the transaction at the time that the dividend reinvestment plan is being set up. Employees also must provide documentation of these arrangements and direct periodic (monthly or quarterly) statements to the Compliance Department; and 5. In addition to the foregoing, the following types of securities are exempted from pre-clearance, blackout periods, reporting and short-term trading requirements: open-ended mutual funds; open-end unit investment trusts; U.S. Treasury bills, bonds and notes; mortgage pass-throughs (e.g. Ginnie Maes) that are direct obligations of the U.S. government; bankers acceptances; bank (2) This requirement will become effective as to all employees on a date to be determined by the Compliance Department and may be subject to a phase-in implementation process. 3 4 certificates of deposit; commercial paper; and high quality short-term debt instruments (meaning any instrument that has a maturity at issuance of less than 366 days and that is rated in one of the two highest rating categories by a nationally recognized statistical rating organization, such as S&P or Moody's), including repurchase agreements. VI. SECURITIES HOLDING PERIOD/SHORT-TERM TRADING - Securities transactions must be for investment purposes rather than for speculation. Consequently, employees may not profit from the purchase and sale, or sale and purchase, of the same or equivalent securities within sixty (60) calendar days, calculated on a First In, First Out (FIFO) basis (i.e., the security may be sold on the 61" day). Citigroup securities received as part of an employee's compensation are not subject to the 60-day holding period. All profits from short-term trades are subject to disgorgement. However, with the prior written approval of both a Chief Investment Officer and the Regional Director of Compliance, and only in rare and/or unusual circumstances, an employee may execute a short-term trade that results in a significant loss or in break-even status. VII. PRE-CLEARANCE - All SSB Citi employees must pre-clear all personal securities transactions (see Section V for a listing of accounts, transactions and securities that do not require pre-clearance). A copy of the pre-clearance form is attached as Exhibit B. IN ADDITION, EMPLOYEES ARE PROHIBITED FROM engaging IN MORE THAN TWENTY (20) TRANSACTIONS IN ANY CALENDAR MONTH, EXCEPT WITH PRIOR WRITTEN APPROVAL FROM THEIR CHIEF INVESTMENT OFFICER, OR DESIGNEE. A transaction must not be executed until the employee has received the necessary approval. Pre-clearance is valid only on the day it is given. If a transaction is not executed on the day pre-clearance is granted, it is required that pre-clearance be sought again on a subsequent day (i.e., open orders, such as limit orders, good until cancelled orders and stop-loss orders, must be pre-cleared each day until the transaction is effected). In connection with obtaining approval for any personal securities transaction, employees must describe in detail any factors which might be relevant to an analysis of the possibility of a conflict of interest. Any trade that violates the pre-clearance process may be unwound at the employee's expense, and the employee will be required to absorb any resulting loss and to disgorge any resulting profit: In addition to the foregoing, the CGAM NA Director of Global Equity Research, or his designate, must approve all personal securities transactions for members of the CGAM Research Department prior to pre-clearance from the Compliance Department as set forth in this section. Pre-approval by the Director of Research, or his designate, is in addition to and does not replace the requirement for the pre-clearance of all personal securities transactions. VIII. BLACKOUT PERIODS - No Covered Person shall purchase or sell, directly or indirectly, any security in which he/she has, or by reason of the transaction acquires, any direct or indirect beneficial ownership if he/she has knowledge at the time of such transaction that the security is being purchased or sold, or is being considered for purchase or sale, by a managed fund or client account or in the case of a Fund director, by the director's Fund. In addition, the following Blackout Periods apply to the categories of SSB Citi employees listed below: 1. Portfolio Managers and Portfolio Manager Assistants - may not buy or sell any securities for personal accounts seven (7) calendar days before or after managed funds or client accounts he/she manages trade in that security. 4 5 2. Traders and Trader Assistants - may not buy or sell any securities for personal accounts three (3) calendar days before or seven (7) calendar days after managed funds or client accounts he/she executes trades for trade in that security. 3. Research Analysts and Research Assistants - may not buy or sell any securities for personal accounts: seven (7) calendar days before or after the issuance of or a change in any recommendation; or seven (7) calendar days before or after any managed fund or client account about which the employee is likely to have trading or portfolio information (as determined by the Compliance Department) trades in that security. 4. Advisory Personnel (see Section II for details) - may not buy or sell any securities for personal accounts on the same day that a managed fund or client account about which the employee is likely to have trading or portfolio information (as determined by the Compliance Department) trades in that security. 5. Unit Trust Personnel - all employees assigned to the Unit Trust Department are prohibited from transacting in any security when a SSB Citi-sponsored Unit Trust portfolio is buying the same (or a related) security, until seven business days after the later of the completion of the accumulation period or the public announcement of the trust portfolio. Similarly, all UIT employees are prohibited from transacting in any security held in a UIT (or a related security) seven business days prior to the liquidation period of the trust. Employees in the above categories may also be considered Advisory Personnel for other accounts about which the employee is likely to have trading or portfolio information (as determined by the Compliance Department). Any violation of the foregoing provisions will require the employee's trade to be unwound, with the employee absorbing any resulting loss and disgorging any resulting profit. Advisory personnel are subject to the unwinding of the trade provision; however, they may not be required to absorb any resulting loss (at the discretion of the Compliance Department and the employee's supervisor). Please be reminded that, regardless of the provisions set forth above, all employees are always prohibited from effecting personal securities transactions based on material, nonpublic information. Blackout period requirements shall not apply to any purchase or sale, or series of related transactions involving the same or related securities, involving 500 or fewer shares in the aggregate if the issuer has a market capitalization (outstanding shares multiplied by the current price per share) greater than $10 billion and is listed on a U.S. Stock Exchange or NASDAQ. Note: Pre-clearance is still required. Under certain circumstances, the Compliance Department may determine that an employee may not rely upon this "Large Cap/De Minimis" exemption. In such a case, the employee will be notified prior to or at the time the pre-clearance request is made. IX. PROHIBITED TRANSACTIONS - The following transactions by SSB Citi employees are prohibited without the prior written approval from the Chief Investment Officer, or designee, and the Regional Compliance Director: 1. The purchase of private placements; and 2. The acquisition of any securities in an initial public offering (new issues of municipal debt securities may be acquired subject to the other requirements of this policy (e.g., pre-clearance).) 5 6 X. TRANSACTIONS IN OPTIONS AND FUTURES - SSB Citi employees may buy or sell derivative instruments such as individual stock options, options and futures on indexes and options and futures on fixed-income securities, and may buy or sell physical commodities and futures and forwards on such commodities. These transactions must comply with all of the policies and restrictions described in this policy, including pre-clearance, blackout periods, transactions in Citigroup securities and the 60-day holding period. However, the 60-day holding period does not apply to individual stock options that are part of a hedged position where the underlying stock has been held for more than 60 days and the entire position (including the underlying security) is closed out. XI. PROHIBITED RECOMMENDATIONS - No Covered Person shall recommend or execute any securities transaction by any managed fund or client account, or, in the case of a Fund director, by the director's Fund, without having disclosed, in writing, to the Chief Investment Officer, or designee, any direct or indirect interest in such securities or issuers, except for those securities purchased pursuant to the "Large Cap/De Minimis" exemption described in SECTION VIII above. Prior written approval of such recommendation or execution also must be received from the Chief Investment Officer, or designee. The interest in personal accounts could be in the form of 1. Any direct or indirect beneficial ownership of any securities of such issuer; 2. Any contemplated transaction by the person in such securities; 3. Any position with such issuer or its affiliates; or 4. Any present or proposed business relationship between such issuer or its affiliates and the person or any party in which such person has a significant interest. XII. TRANSACTIONS IN CITIGROUP SECURITIES - Unless an SSB Citi employee is a member of a designated group subject to more restrictive provisions, or is otherwise notified to the contrary, the employee may trade in Citigroup securities without restriction (other than the pre-clearance and other requirements of this policy), subject to the limitations set forth below. Employees whose jobs are such that they know about Citigroup's quarterly earnings prior to release may not engage in any transactions in Citigroup securities during the "blackout periods" beginning on the first day of a calendar quarter and ending on the second business day following the release of earnings for the prior quarter. Members of the SSB Citi Executive Committee and certain other senior SSB Citi employees are subject to these blackout periods. Stock option exercises are permitted during a blackout period (but the simultaneous exercise of an option and sale of the underlying stock is prohibited). With regard to exchange traded options, no transactions in Citigroup options are permitted except to close or roll an option position that expires during a blackout period. Charitable contributions of Citigroup securities may be made during the blackout period, but an individual's private foundation may not sell donated Citigroup common stock during the blackout period. "Good `til cancelled" orders on Citigroup stock must be cancelled before entering a blackout period and no such orders may be entered during a blackout period. No employee may engage at any time in any personal transactions in Citigroup securities while in possession of material non-public information. Investments in Citigroup securities must be made with a long-term orientation rather than for speculation or for the generation of short-term 6 7 trading profits. In addition, please note that employees may not engage in the following transactions: - Short sales of Citigroup securities; - Purchases or sales of options ("puts" or "calls") on Citigroup securities, except writing a covered call at a time when the securities could have been sold under this policy; - Purchases or sales of futures on Citigroup securities; or - Any transactions relating to Citigroup securities that might reasonably appear speculative. The number of Citigroup shares an employee is entitled to in the Citigroup Stock Purchase Plan is not treated as a long stock position until such time as the employee has given instructions to purchase the shares of Citigroup. Thus, employees are not permitted to use options to hedge their financial interest in the Citigroup Stock Purchase Plan. Contributions into the firm's 401 (k) Plan are not subject to the restrictions and prohibitions described in this policy. XIII. ACKNOWLEDGEMENT AND REPORTING REQUIREMENTS - SSB CITI EMPLOYEES -All new SSB Citi employees must certify that they have received a copy of this policy, and have read and understood its provisions. In addition, ALL SSB Citi employees must: 1. Acknowledge receipt of the policy and any modifications thereof, in writing (see Exhibit C for the form of Acknowledgement); 2. Within 10 days of becoming an SSB Citi employee, disclose in writing all information with respect to all securities beneficially owned and any existing personal brokerage relationships (employees must also disclose any new brokerage relationships whenever established). Such information should be provided on the form attached as Exhibit D; 3. Direct their brokers to supply, on a timely basis, duplicate copies of confirmations of all personal securities transactions (Note: this requirement may be satisfied through the transmission of automated feeds); 4. Within 10 days after the end of each calendar quarter, provide information relating to securities transactions executed during the previous quarter for all securities accounts (Note: this requirement may be satisfied through the transmission of automated feeds); 5. Submit an annual holdings report containing similar information that must be current as of a date no more than 30 days before the report is submitted, and confirm at least annually all brokerage relationships and any and all outside business affiliations (Note: this requirement may be satisfied through the transmission of automated feeds or the regular receipt of monthly brokerage statements); and 6. Certify on an annual basis that he/she has read and understood the policy, complied with the requirements of the policy and that he/she has pre-cleared and disclosed or reported 7 8 all personal securities transactions and securities accounts required to be disclosed or reported pursuant to the requirements of the policy. FUND DIRECTORS - Fund Directors shall deliver the information required by Items 1 through 6 of the immediately preceding paragraph, except that a Fund director who is not an "interested person" of the Fund within the meaning of Section 2(a)(19) of the Investment Company Act of 1940, and who would be required to make reports solely by reason of being a Fund Director, is not required to make the initial and annual holdings reports required by Items 2 and 5. Also, a "non-interested" Fund Director need not supply duplicate copies of confirmations of personal securities transactions required by Item 3, and need only make the quarterly transactions reports required by Item 4 as to any security if at the time of a transaction by the Director in that security, he/she knew or in the ordinary course of fulfilling his/her official duties as a Fund Director should have known that, during the 15-day period immediately preceding or following the date of that transaction, that security is or was purchased or sold by that Director's Fund or was being considered for purchase or sale by that Director's Fund. DISCLAIMER OF BENEFICIAL OWNERSHIP - The reports described in Items 4 and 5 above may contain a statement that the reports shall not be construed as an admission by the person making the reports that he/she has any direct or indirect beneficial ownership in the securities to which the reports relate. XIV. HANDLING OF DISGORGED PROFITS - Any amounts that are paid/disgorged by an employee under this policy shall be donated by SSB Citi to one or more charities. Amounts donated may be aggregated by SSB Citi and paid to such charity or charities at the end of each year. XV. CONFIDENTIALITY - All information obtained from any Covered Person pursuant to this policy shall be kept in strict confidence, except that such information will be made available to the Securities and Exchange Commission or any other regulatory or selfregulatory organization or to the Fund Boards of Directors to the extent required by law, regulation or this policy. XVI. OTHER LAWS, RULES AND STATEMENTS OF POLICY - Nothing contained in this policy shall be interpreted as relieving any person subject to the policy from acting in accordance with the provision of any applicable law, rule or regulation or, in the case of SSB Citi employees, any statement of policy or procedure governing the conduct of such person adopted by Citigroup, its affiliates and subsidiaries. XVII. RETENTION OF RECORDS - All records relating to personal securities transactions hereunder and other records meeting the requirements of applicable law, including a copy of this policy and any other policies covering the subject matter hereof, shall be maintained in the manner and to the extent required by applicable law, including Rule 17j-1 under the 1940 Act. The Compliance Department shall have the responsibility for maintaining records created under this policy. XVIII. MONITORING - SSB Citi takes seriously its obligation to monitor the personal investment activities of its employees and to review the periodic reports of all Covered Persons. Employee personal investment transaction activity will be monitored by the Compliance Department. All noted deviations from the policy requirements will be referred back to the employee for follow-up and resolution (with a copy to be supplied to the employee's supervisor). Any noted deviations by Fund directors will be reported to the Board of Directors of the applicable Fund for consideration and follow-up as contemplated by Section III hereof. 8 9 XIX. EXCEPTIONS TO THE POLICY - Any exceptions to this policy must have the prior written approval of both the Chief Investment Officer and the Regional Director of Compliance. Any questions about this policy should be directed to the Compliance Department. XX. BOARD REVIEW - Fund management and SSB Citi shall provide to the Board of Directors of each Fund, on a quarterly basis, a written report of all material violations of this policy, and at least annually, a written report and certification meeting the requirements of Rule 17j-1 under the 1940 Act. XXI. OTHER CODES OF ETHICS - To the extent that any officer of any Fund is not a Covered Person hereunder, or an investment subadviser of or principal underwriter for any Fund and their respective access persons (as defined in Rule 17j-1) are not Covered Persons hereunder, those persons must be covered by separate codes of ethics which are approved in accordance with applicable law. XXII. AMENDMENTS - SSB Citi Employees - Unless otherwise noted herein, this policy shall become effective as to all SSB Citi employees on March 30, 2000. This policy may be amended as to SSB Citi employees from time to time by the Compliance Department. Any material amendment of this policy shall be submitted to the Board of Directors of each Fund for approval in accordance with Rule 17j-1 under the 1940 Act. FUND DIRECTORS - This policy shall become effective as to a Fund upon the approval and adoption of this policy by the Board of Directors of that Fund in accordance with Rule 17j-1 under the 1940 Act or at such earlier date as determined by the Secretary of the Fund. Any material amendment of this policy that applies to the directors of a Fund shall become effective as to the directors of that Fund only when the Board of Directors of that Fund has approved the amendment in accordance with Rule 17j-1 or at such earlier date as determined by the Secretary of the Fund. 9 EX-99.P.9 13 l83374aex99-p_9.txt EXHIBIT P(9) 1 Exhibit (p)(9) BENNETT LAWRENCE MANAGEMENT, LLC POLICY & PROCEDURES REGARDING TRADING, OPERATIONS & COMPLIANCE This Policy Statement must be read and signed by each person who is a Member or employee of Bennett Lawrence Management, LLC and every consultant thereof who: (1) makes any securities recommendations; (2) participates in determining which securities recommendations shall be made; or (3) obtains, in connection with his or her duties, information concerning which securities are to be recommended, prior to such recommendation actually being made. All persons described in the preceding sentence are referred to in this Policy Statement as "Employees." SECTION I. POLICY STATEMENT ON INSIDER TRADING A. POLICY STATEMENT ON INSIDER TRADING Bennett Lawrence Management, LLC (the "Firm" or "Bennett Lawrence") seeks to foster a reputation for integrity and professionalism. That reputation is a vital business asset. The confidence and trust placed in us by our clients is something to be valued and protected. Accordingly, this Policy Statement implements procedures to deter the misuse of material, nonpublic information in securities transactions. Bennett Lawrence forbids any Employee from trading on material nonpublic information in violation of the law, either personally or on behalf of others, including institutional and individual accounts managed by the Firm. This conduct is frequently referred to as "insider trading". The Firm's policy applies to all Employees and extends to activities within and outside their duties at the Firm. Every Employee should read and retain this Policy Statement. The law of insider trading is unsettled; an individual may be legitimately uncertain about the application of this Policy Statement in a particular circumstance. Often, a single question can result in the avoidance of disciplinary action 'or complex legal problems. Accordingly, any questions regarding the Firm's policy and procedures should be referred immediately to the Firm's Managing Member, Mr. Suydam Van Zandt Schreiber (or in his absence Mr. Robert Deaton, Portfolio Manager). You must also notify the Managing Member immediately if you have any reason to believe that there has been a violation of this Policy Statement, or that one is about to occur. The term "insider trading" is not expressly defined in the federal securities laws, but generally is used to refer to the use of material nonpublic information to trade in securities (whether or not one is an "insider") 1 2 or to the communication of material non-public information to others. While the law concerning insider trading is evolving, it is generally understood that the law prohibits: 1) trading by an "insider," while in possession of "material nonpublic information," or 2) trading by a non-insider, while in possession of material nonpublic information, where the information either was disclosed to the non-insider in violation of an insider's duty to keep it confidential or was misappropriated, or 3) communicating material nonpublic information to others. Stated simply, no person to whom this Policy Statement applies, including you, may trade, either personally or on behalf of others (such as the accounts managed by Bennett Lawrence), while in possession of material, nonpublic information which relates to such security; nor may any of the Firm's personnel communicate such information to others in violation of the law. The following sections review principles important to the Policy Statement. 1. WHO IS AN INSIDER? The concept of "insider" is broad. It includes officers, directors and employees of a company. In addition, a person can be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of a company's affairs and as a result is given access to information solely for the company's purposes. Temporary insiders can include, among others, a company's attorneys, accountants, consultants, bank lending officers, and the employees of such organizations. The company must expect the outsider to keep the disclosed nonpublic information confidential and the relationship must at least imply such a duty before the outsider will be considered an insider. 2. WHAT IS MATERIAL INFORMATION? Trading on inside information is not a basis for liability unless the information is material. "Material information" generally is defined as information for which there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or information that is reasonably certain to influence reasonable investors in determining whether to trade the securities to which the information relates. Information that maybe considered material includes, but is not limited to: - dividend changes - earnings results - changes in previously released earnings estimates - write-down of assets or additions to reserves for bad debts or contingent liabilities - the expansion or a curtailment of operations - new products or discoveries - significant merger or acquisition proposals or agreements - major litigation - liquidity problems - extraordinary management developments - public offerings - changes of debt ratings 2 3 - recapitalizations. YOU SHOULD BE PARTICULARLY CAREFUL WHEN MAKING RECOMMENDATIONS ABOUT PUBLIC COMPANIES WITH WHOM YOU HAVE HAD CONTACT AND OBTAINED INFORMATION WHICH MAY BE NONPUBLIC, AND WHEN TRADING DURING ANY PERIOD OF TENDER OFFER ACTIVITY. Material information does not have to relate to a company's business. For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security. In that case, a Wall Street Journal reporter was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Journal's "Heard on the Street" column and whether those reports would be favorable or not. 3. WHAT IS NONPUBLIC INFORMATION? Information is "nonpublic" until it has been effectively communicated to the marketplace. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the SEC, or appearing on the Dow Jones "tape", or in Reuters Economic Services, The Wall Street Journal or other publications of general circulation would be considered public. 4. PENALTIES FOR INSIDER TRADING Penalties for trading on or communicating material nonpublic information are severe, both for individuals involved in such unlawful conduct and their employers. A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include: - criminal sanctions - civil injunctions - treble damages - disgorgement of profits - jail sentences of up to 10 years - fines for the person who committed the violation of to three times the profit gained or loss avoided, whether or not the person actually benefited; and - fines for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided. Regardless of whether a government inquiry occurs, Bennett Lawrence views seriously any violation of this Policy Statement. Violations of the Policy Statement on Insider Trading constitute grounds for disciplinary sanctions, including dismissal of the persons involved. B. POLICY STATEMENT ON IMPROPER PERSONAL TRADING No securities transaction for an Employee's account will be approved if it appears that the basis for the decision is the activity of a client of the Firm, the concurrent dissemination of significant Firm research which is likely to have an impact on the price of the stock at the time of the proposed transaction, or a conflict with Firm research, or trading activity. Additionally, as many stocks seem to the subject of "rumors", any Employee who proposes to buy a security which is the subject of a general "rumor" must also be prepared to explain and document, if asked, an investment rationale for purchasing the security. Transactions in securities wherein the 3 4 "rumor" source appears to be an "insider" or results from the breach of a confidential or privileged relationship are prohibited. "Front-running" is the advance buying or selling with the knowledge of research recommendations to be made, or substantial orders from customers, due to be executed in the market. Front-running gives the Employee substantial advantages over the customer and is therefore prohibited. Employees should be mindful of the fact that when a recommendation is made to a customer in a particular security, personal activity in that security by Employees will be restricted until the client has had an opportunity to act upon the recommendation. Additionally, if any employee trades in a security and subsequently recommends it to customers, that action may constitute front-running or if any employee trades in a security at a discounted price and client pays the full price that action may constitute scalping. Accordingly, Employees who recommend securities to customers must not execute transactions for their own accounts except as specified in Section II of this policy. Violations of the Policy Statement on Improper Personal Trading constitute grounds for trade cancellations and other sanctions, including dismissal of the persons involved if violations are repeated or deemed to be willful. SECTION II. PROCEDURES TO IMPLEMENT THE FIRM'S POLICIES AGAINST UNLAWFUL OR IMPROPER TRADING The following procedures have been established to aid Employees of Bennett Lawrence in avoiding insider and improper trading, and to aid the Firm in preventing, detecting and imposing sanctions against insider and improper trading. Every Employee of Bennett Lawrence should follow these procedures or risk serious sanctions, including dismissal, substantial personal liability and criminal penalties. If you have any questions about these procedures you should consult the Managing Member promptly. 1. IDENTIFYING INSIDER INFORMATION Before trading for yourself or others, including institutional and individual accounts managed by the Firm, in the securities of a company about which you may have potential inside information, ask yourself the following questions: i. Is the information material? Is this information that an investor would consider important in making his or her investment decisions? Is this information that would influence a reasonable investor in determining to trade the securities of the company relating to the information? ii. Is the information nonpublic? To whom has this information been provided? Has the information been effectively communicated to the marketplace by being published in The Wall Street Journal or other publications of general circulation or been circulated through other means such as the Dow Jones broad tape? If, after consideration of the above, you believe that the information is material and nonpublic, or if you have questions as to whether the information is material and nonpublic, you should take the following steps in order to protect yourself, our clients and the Firm: i. Report the matter immediately to the Managing Member. ii. Do not purchase or sell the securities on behalf of yourself or others, including 4 5 institutional and individual accounts managed by the Firm. iii. Do not communicate the information inside or outside the Firm, other than to the Managing Member. iv. After the Managing Member has reviewed the issue, he will advise you whether you will be allowed to trade and communicate the information. 2. PERSONAL SECURITIES TRADING Client Priority Rule. Personal securities trading that may conflict with the interests of any client is strictly prohibited. Therefore, in addition to strictly avoiding practices of insider trading, each Employee must give priority on all purchases and sales to all clients of Bennett Lawrence before placing orders for their own accounts. This means that: (1) You may not purchase or sell (long or short) any shares of a security that you know will be, or currently are being purchased or sold for the account of any client of the Firm, until such time as all of the Firm's clients have completed such planned purchases or sales. (2) You may not knowingly purchase or sell any security, directly or indirectly, in such a way as to adversely affect a client's transaction. (3) You may not use your knowledge of client transactions to profit personally from the market effect of such transactions (or give such information to a third person who may so profit, except to the extent necessary to effectuate such transactions). (4) You may not purchase any security in a public offering unless and until the Firm has determined that the purchase of such security is not recommended for any client (or if such security is being recommended to one or more clients, that the purchase of additional quantities of such securities by clients is not recommended). Compliance Requirements. In order to insure compliance with the client priority rule, you must provide the Managing Member with an initial holdings report listing all securities you own at the time you first become an Employee as well as an annual holdings report listing all securities you own at each calendar year end. In each case, you must provide the name of the broker, dealer or bank with which you have an account and a list of securities being held in each account. Before placing any trade for your personal account or other account where you have trading authority, you must first speak with the Managing Member and receive his consent for the trade. In his absence, you must speak with and secure the consent of Mr. Robert Deaton, Portfolio Manager. The Managing Member must first speak with and secure the consent of Ms. Kelly Horan (the "Review Officer") before effecting personal securities transactions. In her absence, Ms. Jane Fisher will act as the Review Officer. When Mr. Deaton wishes to place a trade in the absence of the Managing Member, Mr. Deaton must speak with and secure the consent of the Review Officer as well as one other Member of Bennett Lawrence before effecting the trade. The Managing Member will review the trade at his earliest convenience, and does reserve the right to cancel Mr. Deaton's trade upon his review. A WRITTEN CONFIRMATION IN THE FORM OF A COMPLETED EMPLOYEE BUY/SELL REQUEST (SEE EXHIBIT 6) IS THE FORM OF CONSENT REQUIRED UNDER THIS PROCEDURE. In addition to the foregoing procedure, each Employee of Bennett Lawrence shall cause his or her broker-dealers) to send duplicate confirmations of each of the following securities transactions to Bennett 5 6 Lawrence, attention: Mr. Suydam Van Zandt Schreiber (or, in Mr. Schreiber's case, attention: Review Officer): Every securities transaction in which an Employee, any member of an Employee's immediate family (including spouse, minor children and adults living in the same household as such Employee), or any trust of which an Employee is a trustee or in which an Employee has a beneficial interest, has participated. The Review Officer shall prepare a report of these possible policy violations which shall be submitted to the Managing Member. These confirmations shall include: (1) the name of the security, (2) date of the transaction, (3) quantity purchased or sold, (4) price, and (5) broker-dealer through which the transaction was effected. This requirement is mandated by Rule 204-2(a)(12) under the Investment Advisers Act of 1940. 3. RESTRICTING ACCESS TO MATERIAL NONPUBLIC INFORMATION Information in your possession that you identify as material and nonpublic may not be communicated to anyone, including persons within Bennett Lawrence, except as permitted by Section II Item 1 above. In addition, care should be taken to secure such information against inadvertent disclosure. For example, files containing material nonpublic information should be locked; access to computer files containing material nonpublic information should be restricted. 4. RESOLVING ISSUES CONCERNING INSIDER TRADING If, after consideration of the items set forth in Section II Item 1, doubt remains as to whether information is material or nonpublic, or if there is any unresolved question as to the applicability or interpretation of the foregoing procedures, or as to the propriety of any action, it must be discussed with the Managing Member or, in his absence, the Portfolio Manager, or, in Mr. Schreiber's case, with the Review Officer before trading or communicating the information to anyone. 5. ACKNOWLEDGMENT I have read and understand Bennett Lawrence's Policy Statement on Insider Trading (i.e., Section I above). I have also read and understand the foregoing Procedures to Implement the Finn's Policies Against Unlawful or Improper Trading (i.e., Section II above) and agree to comply in all respects with such procedures. - ------------------------------------------ -------------------------- Signature Date - ------------------------------------------ Please Print Name SECTION III. SUPERVISORY PROCEDURES The role of the Managing Member of Bennett Lawrence Management, LLC, is critical to the implementation and maintenance of the Firm's policy and procedures against insider trading. Supervisory 6 7 Procedures can be divided into two classifications -- prevention of insider trading and improper personal trading and detection of insider trading and improper personal trading. 1. PREVENTION OF INSIDER TRADING AND IMPROPER PERSONAL TRADING To prevent insider trading and improper personal trading, the Managing Member and/or the Review Officer should: i. answer questions regarding Bennett Lawrence's policy and procedures prohibiting insider trading and improper personal trading, ii. resolve issues of whether information received by an Employee of Bennett Lawrence is material and nonpublic, iii. review on a regular basis and update as necessary Bennett Lawrence's policy and procedures, iv. when it has been determined that an Employee of Bennett Lawrence has material nonpublic information, 1. implement measures to prevent dissemination of such information, and 2. if necessary, restrict other Employees from trading the affected securities. v. promptly review, and either approve or disapprove, IN WRITING, each request of an Employee for clearance to trade in specified securities, pursuant to Section II Item 2 of the Procedures to Implement the Firm's Policy Against Unlawful or Improper Trading. Trading by the Managing Member must be approved or disapproved by the Review Officer. 2. DETECTION OF INSIDER TRADING AND IMPROPER PERSONAL TRADING To detect insider trading, the Managing Member and/or the Review Officer shall: i. review each day's trading activity by Employees as reflected on the employee trading tickets and duplicate confirmations sent to Bennett Lawrence, ii. review, at least quarterly, the trading activity of institutional and individual accounts managed by Bennett Lawrence, iii. review, at least quarterly, trading activity, if any, of Bennett Lawrence's own account, and iv. coordinate the review of such reports with other appropriate Employees of Bennett Lawrence. 3. REMEDIAL ACTION AND SPECIAL REPORTS Promptly, upon learning of a potential violation of this Policy Statement, the Managing Member and/or the Review Officer should conduct a prompt investigation to determine whether an actual violation has 7 8 occurred. Indicators of potential violations of the Firm's policies against improper trading include, without limitation: i. personal trading in a security that has never been considered for recommendation to clients, ii. trades for which no WRITTEN confirmation of consent was issued in advance of the trades, iii. personal trading in a particular security on the same day as client trading in such security (whether or not the personal trading was at a price more favorable than the client trading), iv. personal trading in a particular security in the opposite direction as client trading in the same security within two (2) days following such client trading, and iv. personal trading in a particular security within two (2) days before any client trading, whether or not in the same direction. Following any investigation of a potential violation of this Policy Statement, whether internal or by a regulatory agency, the Managing Member and/or the Review Officer shall prepare a WRITTEN report providing full details, including the name(s) of the affected securities, the names) of the person(s) and the account(s) involved, the date(s) of the potentially unlawful or improper transaction(s), the date(s) on which the potential violation(s) was (were) discovered and the action(s) taken (or to be taken) as a result of the investigation, if any. 4. ANNUAL REVIEW The Managing Member and/or the Review Officer shall annually review the Policy and Procedures Regarding Trading, Operations & Compliance and update any procedures necessary to detect and prevent insider trading and, generally, improve Bennett Lawrence's existing policies and procedures, as warranted. Annually, each Employee will be required to sign the acknowledgment stating they have read, understand and agree to comply with all such policies and procedures. 5. NEW ACCOUNT OPENINGS A Member or the Review Officer must review and approve the opening of each new client account. i. At the time that a client contract is prepared and issued, a copy of Part II of the Firm's Form ADV or other current disclosure document must be sent to the client. It is the Firm's procedure to send a copy of the disclosure document with the investment management agreement and to include in the contract an acknowledgment of receipt by the client. Where the written disclosure has not been delivered to the prospective client at least 48 hours prior to the client's signing of the investment management agreement, the client must have the right to terminate the agreement without penalty within five business days as required by SEC Rule 204-3. ii. Each investment management agreement should be dated currently with the date on which the written disclosure is delivered. 8 9 iii. Contracts with clients should specifically provide that they cannot be assigned without consent. iv. There should be formal documentation of client financial condition and investment objectives, including any reasonable client restrictions on the management of the account. 6. PROCEDURES PERTAINING TO THE SOLICITATION OR EXECUTION OF ALL FIRM TRANSACTIONS i. Any general advertising of the Firm's service, including any brochure discussing the Firm, its investment approach, its general or particular services and any material relating to its performance, must be reviewed for compliance with Section 206 of the Investment Advisers Act of 1940. ii. Procedures must be instituted to assure that any cash payments for client solicitation are made in accordance with Rule 206(4)-3 of the Investment Advisers Act of 1940. 7. PROCEDURE PERTAINING TO THE HANDLING OF ALL CLIENT COMPLAINTS Complaints should be reported to the Managing Member immediately. The Managing Member and/or the Review Officer will look into the complaint and communicate promptly with the client in order to respond to the client's complaint. 9 -----END PRIVACY-ENHANCED MESSAGE-----